U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended March 31, 1998
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________.
Commission File Number 0-23235
Success Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-34976644
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
One Marriott Drive, Lincolnshire, IL 60069
(Address of Principal Executive Offices)
(Zip Code)
(847) 634-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange of Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock: 2,922,574 shares $0.001 par value, outstanding as of April 27,
1998.<PAGE>
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
1
Consolidated Statements of Income
2
Consolidated Statements of Cash Flow
3
Footnotes to Unaudited Consolidated Financial Statements
4 - 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
6 - 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
Part II. OTHER INFORMATION
Item 6. (a) Exhibits
14
(b) Reports of Form 8-K
None
Form 10-Q Signature Page
15<PAGE>
Success Bancshares, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
March 31, December 31
1998 1997
----------- ----------
(Unaudited)
ASSETS (In thousands, except share data)
Cash and cash equivalents $27,836 $23,901
Securities available-for-sale 27,091 22,090
Securities held-to-maturity (fair value
$31,422 and $32,439 in
1998 and 1997, respectively) 30,615 31,664
Real estate loans held-for-sale 0 65
Loans, less allowance for loan losses of $2,263
at 1998 and $2,079 at 1997 302,471 287,025
Premises and equipment, net 8,868 8,786
Interest receivable 2,574 2,507
Other real estate owned 312 290
Other assets 2,145 2,391
--------- ---------
$401,912 $378,719
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing deposits $46,531 $45,225
Interest bearing deposits 303,543 284,199
--------- ---------
Total deposits 350,074 329,424
Federal Home Loan Bank advances 10,663 10,720
Securities sold under repurchase agreements 5,927 3,814
Demand notes payable to U.S. Government 1,537 1,429
Convertible subordinated debentures 200 200
Interest payable and other liabilities 2,340 2,482
-------- -------
Total liabilities 370,741 348,069
Minority interest in subsidiary bank 580 580
Shareholders' equity
Preferred stock, $0.001 par value, 1,000,000
shares authorized, none issued 0 0
Common stock, $0.001 par value, 7,500,000
shares authorized, 2,922,574
and 2,918,324 shares issued and outstanding,
at 1998 and 1997, respectively 3 3
Additional paid-in capital 24,192 24,151
Retained earnings 6,737 6,352
Loan to Employee Stock Ownership Plan (138) (158)
Accumulated other comprehensive income (203) (278)
-------- ---------
Total shareholders' equity 30,591 30,070
-------- --------
$401,912 $378,719
<PAGE>
========= ========
See accompanying notes to Unaudited Consolidated Financial Statements
<PAGE>
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
1998 1997
Interest income (In thousands, except share data)
Loans (including fee income) $6,538 $4,959
Investment securities 751 747
Other interest income 123 44
------- ------
7,412 5,750
Interest expense
Deposits 3,599 2,381
Note payable 0 94
Convertible subordinated debentures 4 101
Other borrowings 241 199
------- -------
3,844 2,775
------- -------
Net interest income 3,568 2,975
Provision for loan losses 196 82
------- -------
Net interest income after provision for
loan losses 3,372 2,893
Other operating income
Service charges on deposit accounts 500 151
Gain on sale of loans 17 27
Credit card processing income 1,315 1,367
Other noninterest income 56 18
------- --------
1,888 1,563
Other operating expenses
Salaries and employee benefits 1,853 1,442
Occupancy and equipment expense 537 464
Data processing 191 245
Credit card processing expenses 1,287 1,318
Other noninterest expenses 834 808
------- -------
4,702 4,277
------- -------
Income before income taxes 558 179
Income tax expense 173 46
------- -------
Net income 385 133
Other comprehensive income
Unrealized securities gains, net of income taxes 75 16
------- -------
Comprehensive income $460 $149
======= =======
Basic earnings per share $0.13 $0.11
Diluted earnings per share $0.13 $0.10
<PAGE>
See accompanying notes to Unaudited Consolidated Financial Statements <PAGE>
Success Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997
(Unaudited)
1998 1997
(In thousands)
Net cash provided by operating activities $694 $554
Cash flows from investing activities:
Proceeds from maturities of available-for-sale
securities 2,568 529
Purchase of available-for-sale securities (7,461) (497)
Proceeds from maturities of held-to-maturity
securities 1,117 678
Loans made to customers, net (15,455) (4,971)
Premises and equipment expenditures (347) (1,341)
Purchase of subsidiary bank stock (1) 0
-------- --------
Net cash used in investing activities (19,579) (5,602)
-------- --------
Cash flows from financing activities:
Increase (decrease) in non-interest
bearing deposits 1,306 (4,291)
Increase in interest bearing deposits 19,344 17,005
Increase in demand notes payable to U.S.
Government 108 1,417
Increase in securities sold under agreements
to repurchase 2,113 1,207
Repayments of notes payable 0 (400)
Net increase (decrease) in Federal Home
Loan Bank advances (57) 3,963
Issuance of common stock 26 21
Repayments of loan to ESOP (20) 0
-------- -------
Net cash provided by financing activities 22,820 18,922
-------- -------
Net increase in cash and cash equivalents 3,935 13,874
Cash and cash equivalents at beginning of period 23,901 13,833
-------- --------
Cash and cash equivalents at end of period $27,836 $27,707
======= =======
See accompanying notes to the Unaudited Consolidated Financial Statements.<PAGE>
NOTE 1: Basis of Presentation
The financial information of Success Bancshares, Inc. and subsidiaries (the
Company) 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 March 31, 1998 are
not necessarily indicative of the results expected for the year ended December
31, 1998.
NOTE 2: Recent Accounting Developments
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
was effective for fiscal years beginning after December 15, 1997 and has been
implemented by the Company.
Also in June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Statement established
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 established 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 will implement this statement in its 1998 Annual Report.
NOTE 3: Subsequent Events
The Company, through a statutory business trust, began an offering of 8.95%
cumulative trust preferred securities in May 1998 in which it expects to sell
up to 1,725,000 shares of $10 liquidation amount securities. The net offering
proceeds of this offering are expected to be up to $16.3 million. The proceeds
will be used to increase the Company's investment in its majority-owned
subsidiary bank to support the Bank's anticipated growth and for general
corporate purposes.<PAGE>
NOTE 4: Earnings Per Share
Basic 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. Diluted earnings per share assumes the exercise of any
dilutive instruments, including stock options and convertible subordinated
debt.
The table following summarizes the computation of earnings per share for the
periods indicated:
For the Three Months Ended March 31,
1998 1997
Income Share Per-Share Income Share Per-Share
Numerator Denominator Amt Numerator Denominator Amt
- ------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net income $385 $133
Less: Preferred stock
dividends - -
------ -----
Basic EPS
Income available to common
stockholders 385 2,919 $0.13 133 1,185 $0.11
Effect of Dilutive Securities
Options - 94 - 61
Convertible preferred stock - - - 93
Convertible subordinated debt 2 23 - -
------ ------ ------ ------
Diluted EPS
Income available to common
stockholders + assumed
conversions $387 $3,036 $0.13 $133 1,339 $0.11
====== ====== ====== ====== ====== ======
In 1997 and 1996, the assumed conversion of the convertible subordinated debt
would have had an antidilutive effect and as such, was not included in diluted
EPS for those years. Additionally, the convertible Series B Preferred stock
would have had an antidilutive effect in 1997 and 1996, and as such, was not
included in diluted EPS for these years. There was no Series B Preferred stock
outstanding in 1995.
The convertible subordinated debt is converted into common stock upon issuance
or at the beginning of the year, as applicable. 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 1997 the assumed conversion of the subordinated debt would have had an
antidilutive effect.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
The Company's principal business is conducted by its majority owned subsidiary,
Success National Bank (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<PAGE>
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.
Since the consummation of its initial public offering in October 1997, the
Company has worked to aggressively execute it strategic plan of continued
growth by providing a high level of service to its core customers while
expanding its market share in its target markets and by entering new markets.
In addition to opening its Lincolnwood/International Office branch in November
1997, the Company's expansion plans currently include:
Location Projected Opening By
Downtown Chicago June 30, 1998
Skokie September 30, 1998
Skokie/Oakton Street September 30, 1998
Mundelein September 30, 1998
Lake Zurich September 30, 1998
North Libertyville December 31, 1998
Furthermore, the Company is currently negotiating an agreement to purchase an
industrial loan company with an aggregate asset base of $15 million located in
the State of Hawaii. Although this acquisition is not located in the Company's
primary target markets, management believes that it would be attractive given
the limited number of banking institutions in the State of Hawaii and the local
market knowledge of the President and Chief Executive Officer of Success
Bancshares.
Operating Results
For the three months ended March 31, 1998, net income was $385,000 or $0.13 per
diluted share, an increase of 189 % from the net income of $133,000 or $0.10
per diluted share for the same period in 1997.
Net Interest Income
The major source of earnings for the Company is net interest income. The
related net interest margin represents the net interest income as a percentage<PAGE>
of average earning assets during the period. The following table sets forth
the average daily balances, net interest income and expenses and average yields
and rates for the Company's earning assets and interest bearing liabilities for
the
Operating Results (continued)
Net Interest Income (continued)
indicated periods on a tax equivalent basis assuming a 34% tax rate.
Three Months Ended March 31,
1998 1997
Average Average Average Average
Assets Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------
(Dollars in thousands)
Loans (1) $296,345 $6,541 8.83%$206,914$4,961 9.59%
Taxable investment securities 41,989 616 5.87 38,917 623 6.4
Investment securities exempt from
Federal income tax 10,971 182 6.64 8,308 155 7.46
Interest bearing deposits with
financial institutions 4,640 62 5.34 2,085 26 4.99
Other interest earning assets 4,309 61 5.66 2,827 36 5.09
--------------- ------ ------ ------ ------
Total interest earning assets $358,254 $7,462 8.33$259,051$5,801 8.96%
Non-interest earning assets 30,455 23,442
------ ------
Total Assets $388,709 $282,493
======= =======
Liabilities & Shareholders' Equity
Deposits:
NOW & money market accounts $115,871 $1,116 3.85%$79,933 $666 3.33%
Savings deposits 20,113 161 3.2 19,213 163 3.39
Time deposits 159,032 2,322 5.84109,756 1,552 5.66
Notes payable - - - 4,539 94 8.28
Other borrowings 17,912 245 5.47 18,217 300 6.59
------ ------ ------ ------ ------ ------
Total interest bearing
liabilities 312,928 3,844 4.91231,658 2,775 4.79
Demand deposits - non-interest
bearing 42,962 38,083
Other non-interest bearing
liabilities 2,004 2,050
Minority interest in subsidiary
bank 580 523
Shareholders' equity 30,235 10,179
------ ------
Total liabilities & shareholders'
equity $388,709 $282,493
======= =======
Net Interest Income $3,618 $3,026
======= =======
Net Interest Margin (annualized) 4.04% 4.67%
====== ======<PAGE>
(1) Non-accrual loans are included in average loans.
The decline in annualized net interest margin for the three months ended March
31, 1998 compared with the same period of 1997, is primarily attributable to a
decline in the rate earned on loans as market pressures forced the Bank to be
more competitive in commercial loan pricing as well as the effect of
promotional rate home equity products. The situation was further impacted by
promotional deposit programs intended to fund the substantial growth
experienced by the Company. Net interest margin for all of 1997 was 4.17%. To
the extent the Company continues to grow utilizing promotional products, the
net interest margin could experience further compression.<PAGE>
Operating Results (continued)
Net Interest Income (continued)
The following table represents a reconciliation of fully tax equivalent net
interest income.
(In thousands)
Fully tax equivalent net interest income for the
three months ended March 31, 1997 $3,026
Change due to average earning assets fluctuations 1,141
Change due to interest rate fluctuations (549)
------
Fully tax equivalent net interest income for the
three months ended March 31, 1998 $3,618
======
Provision for Loan Losses
The provision for loan losses increased to $196,000 for the quarter ended March
31, 1998 versus $82,000 for the comparable period for the prior year. The
increased provision was required to support the growth of the Company's loan
portfolio, as more fully discussed below.
Other Operating Income
Other operating income for the three months ended March 31, 1998 was $1.9
million versus $1.6 million for the three months ended March 31, 1997. The
increase in other operating income resulted primarily from increased service
charges on deposit accounts directly attributable to the $92.3 million (35.8%)
increase in deposit accounts from March 31, 1997 to March 31, 1998.
Other Operating Expenses
In the first quarter of 1998 other operating expenses increased $431,000 and
represented a 10.1% increase from the comparable period in 1997 of $4.3
million. This increase reflects the higher level of expenditures required to
support the Company's growth. Salaries and employee benefits increased to $1.9
million for the three months ended March 31, 1998 versus $1.4 million for the
same period for the prior year. This increase of $411,000 reflects increased
staffing to support the growth of deposit and loan accounts at existing banking
locations, which are required to maintain high levels of customer service as
well as the staffing requirements of two new locations opened after the first
quarter in 1997 (downtown Deerfield and Arlington Heights).
Income Taxes
The Company recorded income tax expense of $173,000 for the three months ended
March 31, 1998 compared to income tax expense of approximately $46,000 in the
same period of 1997, which increase is attributed to an increase in earnings
before taxes.
Financial Condition
Loans<PAGE>
The loan portfolio is the largest category of the Company's interest earning
assets. Since December 31, 1997 loans increased $15.4 million (5.4%) and were
$302.5 million at March 31, 1998.
The increase in loans outstanding has been a result of the Bank's active
solicitation of new lending relationships in the commercial area and the
utilization of a 7.5% three year fixed rate home equity loan promotion.
Financial Condition (continued)
Loans (continued)
The following table sets forth the composition of the loan portfolio:
March 31, 1998 December 31, 1997
Percent of Percent of
Amount Portfolio Amount Portfolio
--------- --------- --------- --------
(Dollars in thousands)
Commercial $88,702 29.08% $87,506 30.21%
Real estate - construction 11,997 3.93 13,409 4.63
Real estate - mortgage 118,035 38.69 106,120 36.64
Home equity 76,108 24.95 72,944 25.18
Installment 9,804 3.21 9,253 3.19
Credit cards 412 0.14 432 0.15
------- ------- -------- -------
Total gross loans 305,058 100.00% 289,664 100.00%
======= ========
Net deferred loan fees 23 (187)
Unaccreted discount resulting
from loss on transfer of loans
held-for-sale to portfolio (347) (373)
------- --------
Loans net of unearned discount
and net deferred loan fees 304,734 289,104
Allowance for loan losses (2,263) (2,079)
-------- -------
Net loans $302,471 $287,025
======= =======
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 Company has a reporting and control system to monitor non-performing loans.
The following table provides certain information on the Company's
non-performing loans at the dates indicated.
March 31, Decemgber 31,
1998 1997
(Dollars in thousands)
Non-accrual $1,304 $1,479
90 days or more past due, still accruing 307 341
Restructured - - <PAGE>
------ -------
Total non-performing loans $1,611 $1,820
====== ======
Non-performing loans to total loans,
net of unearned discount and net deferred loan fees 0.53% 0.63%
Non-performing loans to allowance for loan losses 71.19% 87.54%
The decrease in non-performing loans of $209,000 from December 31, 1997 to
March 31, 1998 is primarily attributable to payments received from one
customer. Of the nonperforming loans, two (totaling $303,000) 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 remaining five
large non-performing loans are nonaccrual and are summarized as follows:
Financial Condition (continued)
Non-Performing Loans (continued)
Balance at
Loan Type Number of Loans December 31, 1997
(Dollars in thousands)
Residential Mortgage - 1st Lien 2 $377
Commercial Mortgage - 1st Lien 1 555
Commercial Construction 1 199
Commercial Line of Credit 1 100
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
non-accrual 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 non-accrual 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 March 31, 1998 and December 31, 1997
were approximately $4.1 million and $3.7 million, respectively. The increase<PAGE>
in this category is primarily attributed to the classification of one
commercial mortgage borrowing relationship totaling $587,000. These loans were
classified due to their debt service coverage levels and loan to value ratios.
At March 31, 1998, 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.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate to
provide for potential future losses in the Company's loan portfolio. 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 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.
Financial Condition (continued)
Allowance for Loan Losses (continued)
The following table summarizes transactions in the allowance for loan losses
for the periods indicated:
Three Months Ended
March 31,
1998 1997
(Dollars in thousands)
Allowance at beginning of period $2,079 $1,425
Charge-offs 17 38
Recoveries (5) (4)
----- ------
Net charge-offs 12 34
----- -----
Provision for loan losses 196 82
----- -----
Allowance at end of period $2,263 $1,473
====== ======
Allowance to total loans, net of
unearned discount and net deferred loan fees 0.74 % 0.70 %
Net charge-offs to average loans outstanding
(annualized) 0.02 % 0.07 %
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<PAGE>
their annual audit, and an independent loan review performed by a consultant
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 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. Although management believes the allowance for possible loan losses is
adequate to cover any potential losses, there can be no assurance that the
allowance will prove sufficient to cover actual loan losses in the future.
Deposits
The following table sets forth deposits at the periods indicated.
March 31, 1998
December 31, 1997
(Dollars in thousands)
NOW and money market accounts $125,810 $108,998
Savings deposits 20,632 19,389
Time deposits 157,101 155,812
Demand deposits - non-interest bearing 46,531 45,225
-------- -------
Total $350,074 $329,424
======= =======
The increase in NOW and money market accounts is a result of a 5.12% APY NOW
account promotion started during 1997 and continued into 1998.
Liquidity and Capital Resources
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 a direct
material effect on the Company's growth and 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 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). As of March 31, 1998, the
Company's actual total capital to risk-weighted assets ratio was 12.03%. As of
March 31, 1998, 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 1 and Tier 2 ratios as
set forth in the following table.
<PAGE>
The required ratios and the Company's and Bank's actual ratios at March 31,
1998, are presented below:
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Actual Ratio Actual Ratio Actual Ratio
(Dollars in thousands)
As of March 31, 1998
Total Capital (to Risk
Weighted Assets):
Company $33,754 12.03% $22,447 8.0% Not Applicable
Bank 30,547 10.91 22,409 8 $28,012 10.0%
Tier 1 Capital (to Risk
Weighted Assets):
Company 31,374 11.18 11,224 4 Not Applicable
Bank 28,284 10.1 11,205 4 16,807 6
Tier 1 Capital (To
Total Average Assets):
Company 31,374 8.07 15,548 4 Not Applicable
Bank $28,284 7.33% $15,440 4.0% $19,300 5.0%
Operating Investing and Financing Activities
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 consists
primarily of earnings. Net cash used in investing activities, consisting
primarily of loan and investment funding, was $19.6 million and $5.6 million
for the three months ended March 31, 1998 and 1997, respectively. The
increased usage is attributed to a much greater volume of loan closings as a
result of the Company's growth strategy. Net cash provided by financing
activities, consisting principally of deposit growth, was $22.8 million and
$18.9 million for the three months ended March 31, 1998 and 1997, respectively.
Forward Looking Statements
Statements made about the Company's future economic performance, strategic
plans or objectives, revenues or earnings projections, or other financial items
and similar statements are not guarantees of future performance, but are
forward looking statements. By their nature, these statements are subject to
numerous uncertainties that could cause actual results to differ materially
from those in the statements. Important factors that might cause the Company's
actual results to differ materially include, but are not limited to, the
following:
Forward Looking Statements (continued)
Federal and state legislative and regulatory developments;
The impact of continued loan and deposit promotions on the Company's net
interest margin;
The impact of opening, staffing and operating new branch facilities;<PAGE>
Changes in management's estimate of the adequacy of the allowance for loan
losses;
Changes in the level and direction of loan delinquencies and write-offs;
Interest rate movements and their impact on customer behavior and the
Company's net interest margin;
The impact of repricing and competitors' pricing initiatives on loan and
deposit products;
The Company's ability to adapt successfully to technological changes to
meet customers' needs and developments in the marketplace;
The Company's ability to access cost effective funding; and
Changes in financial markets and general economic conditions.<PAGE>
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
Exhibits
Exhibit Number Exhibit Title
3.1 Second Restated Certificate of Incorporation of Success Bancshares
(incorporated by reference to Exhibit 3.1 of Success Bancshares' Form
S-1 Registration Statement (No. 333-32561) filed with the Commission
on July 31, 1997).
3.2 By-laws of Success Bancshares (incorporated by reference to Exhibit
3.2 of Success Bancshares' Form S-1 Registration Statement (No.
333-32561) filed with the Commission on July 31, 1997).
4.1 Form of Junior Subordinated Debenture Certificate (included as an
exhibit to Exhibit 4.1).
4.3 Certificate of Trust of Success Capital (incorporated by reference to
Exhibit 4.3 of the Form S-1 Registration Statement of Success
Bancshares and Success Capital (No. 333-51271 and 333-51271-01) filed
with the Commission on April 28, 1998).
4.4 Form of Amended and Restated Trust Agreement of Success Capital
(incorporated by reference to Exhibit 4.4 of the Form S-1
Registration Statement of Success Bancshares and Success Capital (No.
333-51271 and 333-51271-01) filed with the Commission on April 28,
1998).
4.5 Form of Trust Preferred Security Certificate of Success Capital
(included as an exhibit to Exhibit 4.4).
4.6 Form of Common Security Certificate of Success Capital (included as
an exhibit to Exhibit 4.4).
4.7 Form of Guarantee Agreement of Success Bancshares relating to the
Trust Preferred Securities (incorporated by reference to Exhibit 4.7
of the Form S-1 Registration Statement of Success Bancshares and
Success Capital (No. 333-51271 and 333-51271-01) filed with the
Commission on April 28, 1998).
10.1 $10 Million Business Loan Agreement, dated January 13, 1997, between
Success Bancshares and Cole Taylor Bank (incorporated by reference to
Exhibit 10.1 of Success Bancshares' 1997 Annual Report on Form 10-K
filed with the Commission on March 31, 1998).
10.2 1995 Success Bancshares, Inc. Employee Stock Option Plan
(incorporated by reference to Exhibit 10.2 of Success Bancshares'
Form S-1 Registration Statement (No. 333-32561) filed with the
Commission on July 31, 1997).
10.3 Employment Agreement between Success Bancshares and Saul D. Binder
(incorporated by reference to Exhibit 10.3 of Success Bancshares'
Form S-1 Registration Statement (No. 333-32561f) filed with the
Commission on July 31, 1997)
10.4 Executive Severance Agreement between Success Bancshares and Steven
A. Covert (incorporated by reference to Exhibit 10.4 of Success
Bancshares' Form S-1 Registration Statement (No. 333-32561) filed
with the Commission on July 31, 1997).
10.6 Lease with respect to Lincoln Park branch banking facility (April,
1993) (incorporated by reference to Exhibit 10.6 of Success
Bancshares' Form S-1 Registration Statement (No. 333-32561) filed
with the Commission on July 31, 1997).
10.7 Lease with respect to Northbrook branch banking facility (December,
1994) (incorporated by reference to Exhibit 10.7 of Success<PAGE>
Bancshares' Form S-1 Registration Statement (No. 333-32561) filed
with the Commission on July 31, 1997).
10.8 Lease with respect to Deerfield/Riverwoods branch banking facility
(September, 1995) (incorporated by reference to Exhibit 10.8 of
Success Bancshares' Form S-1 Registration Statement (No. 333-32561)
filed with the Commission on July 31, 1997).
*27.1 Financial Data Schedule
* Filed herewith
(b) None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Success Bancshares, Inc.
(Registrant)
May 15, 1998 /s/ Saul D. Binder
- ----------------------- ----------------------------
Date Saul D. Binder
President & Chief Executive Officer
May 15, 1998 /s/ Steven A. Covert
- ------------------------- --------------------------------
Date Steven A. Covert
Executive Vice President
& Chief Financial Officer
EXHIBIT INDEX
Exhibit Number Exhibit Title
3.1 Second Restated Certificate of Incorporation of Success Bancshares
(incorporated by reference to Exhibit 3.1 of Success Bancshares' Form
S-1 Registration Statement (No. 333-32561) filed with the Commission
on July 31, 1997)
3.2 By-laws of Success Bancshares (incorporated by reference to Exhibit
3.2 of Success Bancshares' Form S-1 Registration Statement (No.
333-32561) filed with the Commission on July 31, 1997).
4.1 Form of Subordinated Indenture relating to the Junior Subordinated
Debentures (incorporated by reference to Exhibit 4.1 of the Form S-1
Registration Statement of Success Bancshares and Success Capital (No.
333-51271 and 333-51271-01) filed with the Commission on April 28,
1998).
4.2 Form of Junior Subordinated Debenture Certificate (included as an
exhibit to Exhibit 4.1). <PAGE>
4.3 Certificate of Trust of Success Capital (incorporated by reference to
Exhibit 4.3 of the Form S-1 Registration Statement of Success
Bancshares and Success Capital (No. 333-51271 and 333-51271-01) filed
with the Commission on April 28, 1998f).
4.4 Form of Amended and Restated Trust Agreement of Success Capital
(incorporated by reference to Exhibit 4.4 of the Form S-1
Registration Statement of Success Bancshares and Success Capital (No.
333-51271 and 333-51271-01) filed with the Commission on April 28,
1998).
4.5 Form of Trust Preferred Security Certificate of Success Capital
(included as an exhibit to Exhibit 4.4).
4.6 Form of Common Security Certificate of Success Capital (included as
an exhibit to Exhibit 4.4).
4.7 Form of Guarantee Agreement of Success Bancshares relating to the
Trust Preferred Securities (incorporated by reference to Exhibit 4.7
of the Form S-1 Registration Statement of Success Bancshares and
Success Capital (No. 333-51271 and 333-51271-01) filed with the
Commission on April 28, 1998).
10.1 $10 Million Business Loan Agreement, dated January 13, 1997, between
Success Bancshares and Cole Taylor Bank (incorporated by reference to
Exhibit 10.1 of Success Bancshares' 1997 Annual Report on Form 10-K
filed with the Commission on March 31, 1998).
10.2 1995 Success Bancshares, Inc. Employee Stock Option Plan
(incorporated by reference to Exhibit 10.2 of Success Bancshares'
Form S-1 Registration Statement (No. 333-32561) filed with the
Commission on July 31, 1997).
10.3 Employment Agreement between Success Bancshares and Saul D. Binder
(incorporated by reference to Exhibit 10.3 of Success Bancshares'
Form S-1 Registration Statement (No. 333-32561) filed with the
Commission on July 31, 1997).
10.4 Executive Severance Agreement between Success Bancshares and Steven
A. Covert (incorporated by reference to Exhibit 10.4 of Success
Bancshares' Form S-1 Registration Statement (No. 333-32561) filed
with the Commission on July 31, 1997).
10.5 Lease with respect to Lincolnwood branch banking facility (October,
1991) (incorporated by reference to Exhibit 10.5 of Success
Bancshares' Form S-1 Registration Statement (No. 333-32561) filed
with the Commission on July 31, 1997).
10.7 Lease with respect to Northbrook branch banking facility (December,
1994) (incorporated by reference to Exhibit 10.7 of Success
Bancshares' Form S-1 Registration Statement (No. 333-32561) filed
with the Commission on July 31, 1997).
10.8 Lease with respect to Deerfield/Riverwoods branch banking facility
(September, 1995) (incorporated by Reference to Exhibit 10.8 of
Success Bancshares' Form S-1 Registration Statement (No. 333-32561)
filed with the Commission on July 31, 1997.
*27.1 Financial Data Schedule
* Filed herewith
Legend This schedule contains summary financial information extracted from
the quarterly unaudited financial statements of Success Bancshares, Inc. for
the three months ended March 31, 1998, and is qualified in its entirety by
reference to such financial statements.
Name Success Bancshares, Inc.
Multiplier 1,000
Period Type 3 months <PAGE>
Fiscal Year End Dec-31-1998
Period Start Jan-01-1998
Period End Mar-31-1998
Cash 20,301
Int. Bearing Deposits 4,835
Fed Funds Sold 2,700
Trading Assets 0
Investments Held-for-Sale 27,091
Investments Carrying 30,615
Investments Market 31,422
Loans 304,734
Allowance 2,263
Total Assets 401,912
Deposits 350,074
Short Term 11,464
Liabilities - Other 2,340
Long Term 6,863
Preferred Mandatory 0
Preferred 0
Common 24,195
Other - SE 6,396
Total Liabilities and Equity 401,912
Interest - Loan 6,538
Interest - Invest 751
Interest - Other 123
Interest - Total 7,412
Interest - Deposit 3,599
Interest - Expense 3,844
Interest - Income - Net 3,568
Loan - Losses 196
Securities - Gains 0
Expense - Other 4,708
Income - Pretax 558
Income - Pre-Extraordinary 558
Extraordinary 0
Changes 0
Net - Income 385
EPS - Basic 0.13
EPS - Diluted 0.13
Yield - Actual 4.04
Loans - Non 1,304
Loans - Past 307
Loans - Troubled 0
Loans - Problem 4,091
Allowance - Open 2,079
Charge-Offs 17
Recoveries 5
Allowance - Close 2,263
Allowance - Domestic 2,263
Allowance - Foreign 0
Allowance - Unallocated 662 <PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the quarterly
unaudited financial statements of Success Bancshares, Inc. for the three months
ended March 31, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,301
<INT-BEARING-DEPOSITS> 4,835
<FED-FUNDS-SOLD> 2,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,091
<INVESTMENTS-CARRYING> 30,615
<INVESTMENTS-MARKET> 31,422
<LOANS> 304,734
<ALLOWANCE> 2,263
<TOTAL-ASSETS> 401,912
<DEPOSITS> 350,074
<SHORT-TERM> 11,464
<LIABILITIES-OTHER> 2,340
<LONG-TERM> 6,863
0
0
<COMMON> 24,195
<OTHER-SE> 6,396
<TOTAL-LIABILITIES-AND-EQUITY> 401,912
<INTEREST-LOAN> 6,538
<INTEREST-INVEST> 751
<INTEREST-OTHER> 123
<INTEREST-TOTAL> 7,412
<INTEREST-DEPOSIT> 3,599
<INTEREST-EXPENSE> 3,844
<INTEREST-INCOME-NET> 3,568
<LOAN-LOSSES> 196
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,708
<INCOME-PRETAX> 558
<INCOME-PRE-EXTRAORDINARY> 558
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 385
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
<YIELD-ACTUAL> 4.04
<LOANS-NON> 1,304
<LOANS-PAST> 307
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,091
<ALLOWANCE-OPEN> 2,079
<CHARGE-OFFS> 17
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 2,263
<ALLOWANCE-DOMESTIC> 2,263
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 662
</TABLE>
