<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ x ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required) For the fiscal year ended December 31, 1997
-------------------
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) For the transition period from ______________ to
_______________
Commission file number 333-06581
ST. JOSEPH CAPITAL CORPORATION
------------------------------
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C>
Delaware 35-1977746
- --------------------------------------------- ------------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
3820 Edison Lakes Parkway, Mishawaka, Indiana 46545
- --------------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(219) 273-9700
-------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
None.
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the Issuer was required to file such reports),
and (2) has been subject to such filing requirements for past 90 days.
Yes [ x ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ x ]
The Issuer's revenues for its most recent fiscal year were $ 2,026,565.
The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of March 5, 1998 was approximately $ 19,216,728. As of said date,
the Issuer had 1,276,025 shares of Common Stock issued and outstanding.
Documents incorporated by reference:
Part II of Form 10-KSB - 1997 Annual Report to Stockholders.
Part III of Form 10-KSB - Proxy statement for annual meeting of stockholders to
be held May 21, 1998.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ x ]
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company, a Delaware corporation organized in February, 1996, is a bank
holding company which owns all of the capital stock of the St. Joseph Capital
Bank, an Indiana state bank located in Mishawaka, Indiana (the "Bank"). The
Bank commenced business on February 13, 1997. From the date of the Company's
inception through December 31, 1996, the Company and the Bank conducted no
business other than matters incidental to their organization and opening for
business. On September 4, 1996, the Company commenced an initial public
offering of 1,265,000 shares of its Common Stock pursuant to a Registration
Statement on Form SB-2 filed with the Securities and Exchange Commission
("SEC") on June 21, 1996, as amended. The Company currently maintains its
offices at 3820 Edison Lakes Parkway, Mishawaka, Indiana, 46545. The Company's
telephone number is (219) 273-9700.
BUSINESS STRATEGY
The Bank concentrates on the financial services needs of individuals and local
businesses. A cornerstone of the Bank's business strategy is to emphasize the
Bank's local management and its commitment to the Bank's market area. The Bank
also expects to establish a high standard of quality in each service it
provides, and the employees of the Bank are expected to emphasize service in
their dealings with clients. Management believes that the use of
state-of-the-art technology will permit each employee to devote more time and
attention to personal service, respond more quickly to a client's requests and
deliver services in the most timely manner possible.
The Company's goal is to create a "client-driven" organization focused on
providing high value to clients by promptly delivering products and services
matched directly to their needs. The Company expects to gain market share by
developing strong ties to its community. In this regard, most of the Company's
directors currently hold, and have held in the past, leadership positions in a
number of community organizations, and intend to continue this active
involvement in future years. Other members of the management team will also be
encouraged to volunteer for such positions. Additionally, employees are
expected to be active in the civic, charitable and social organizations located
in the Michiana area.
The Bank offers a broad range of deposit services, including checking accounts,
money market accounts, savings accounts and time deposits of various types, as
well as a full range of short to intermediate term personal and commercial
loans. The Bank makes personal loans directly to individuals for various
purposes, including purchases of automobiles, mobile homes, boats and other
recreational vehicles, home improvements, education and personal investments.
The Bank makes residential mortgage loans and substantially all of such loans
are retained by the Bank and consist of balloon payment and adjustable rate
mortgages. The Bank also offers other services, including credit cards,
cashiers checks, traveler's checks and automated teller access.
The Bank's initial legal lending limit is approximately $1,500,000. The Board
of Directors has established an "in-house" limit of $ 1,250,000. The Board may
from time to time raise or lower the "in-house" limit as it deems appropriate
to comply with safe and sound banking practices and respond to overall economic
conditions.
<PAGE> 3
The Bank's market area is competitive. There are currently thirteen banks with
multiple offices in the 15 mile radius surrounding the Bank's location. There
are also five savings associations doing business in the area and numerous
credit unions. The Bank also faces competition from finance companies,
insurance companies, mortgage companies, securities brokerage firms, money
market funds, loan production offices and other providers of financial
services. Most of the Bank's competitors have been in business for many years,
have established customer bases, are substantially larger, have substantially
larger lending limits than the Bank and can offer certain services, including
multiple branches and international banking services, that the Bank will be
able to offer only through correspondent banks, if at all. In addition, most
of these entities have greater capital resources than the Bank, which among
other things, may allow them to price their services at levels more favorable
to clients and to provide larger credit facilities than could the Bank. The
Company believes that the Bank's legal lending limit of approximately
$1,500,000 is adequate to satisfy the credit needs of most of its clients.
EMPLOYEES
The Bank has 18 full-time employees. The Company believes that none of its
employees are covered by a collective bargaining agreement with the Company or
the Bank. The Company considers its employee relations to be excellent.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively regulated
under federal and state law. As a result, the growth and earnings performance
of the Company can be affected not only by management decisions and general
economic conditions, but also by the requirements of applicable state and
federal statutes and regulations and the policies of various governmental
regulatory authorities including, but not limited to, the Board of Governors of
the Federal Reserve System (the "FRB"), the Federal Deposit Insurance
Corporation (the "FDIC"), the Indiana Department of Financial Institutions (the
"DFI"), the Internal Revenue Service and state taxing authorities and the
Securities and Exchange Commission (the "SEC"). The effect of such statutes,
regulations and policies can be significant, and cannot be predicted with a
high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiary, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers, consolidations and dividends. The
system of supervision and regulation applicable to the Company and its
subsidiary establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC's deposit
insurance funds and the depositors, rather than the shareholders, of financial
institutions.
The following references to material statutes and regulations affecting the
Company and its subsidiary are brief summaries thereof and do not purport to be
complete, and are qualified in their entirety by reference to such statutes and
regulations. Any change in applicable law or regulations may have a material
effect on the business of the Company and its subsidiary.
<PAGE> 4
RECENT REGULATORY DEVELOPMENTS
PENDING LEGISLATION. Legislation is pending in the Congress that would allow
bank holding companies to engage in a wider range of nonbanking activities,
including greater authority to engage in securities and insurance activities.
The expanded powers generally would be available to a bank holding company only
if the bank holding company and its bank subsidiaries remain well-capitalized
and well-managed. Additionally, the pending legislation would eliminate the
federal thrift charter and merge the FDIC's Bank Insurance Fund ("BIF") and
Savings Association Insurance Fund ("SAIF"). At this time, the Company is
unable to predict whether the proposed legislation will be enacted and,
therefore, is unable to predict the impact such legislation may have on the
operations of the Company and the Bank.
THE COMPANY
GENERAL. The Company, as the sole stockholder of the Bank, is a bank holding
company. As a bank holding company, the Company is registered with, and is
subject to regulation by, the FRB under the BHCA. In accordance with FRB
policy, the Company is expected to act as a source of financial strength to the
Bank and to commit resources to support the Bank in circumstances where the
Company might not do so absent such policy. Under the BHCA, the Company is
subject to periodic examination by the FRB and is required to file with the FRB
periodic reports of its operations and such additional information as the FRB
may require. The Company is also subject to regulation by the DFI under Indiana
law.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must obtain
FRB approval before: (i) acquiring, directly or indirectly, ownership or
control of any voting shares of another bank or bank holding company if, after
such acquisition, it would own or control more than 5% of such shares (unless
it already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank; or (iii) merging or
consolidating with another bank holding company. Subject to certain conditions
(including certain deposit concentration limits established by the BHCA), the
FRB may allow a bank holding company to acquire banks located in any state of
the United States without regard to whether the acquisition is prohibited by
the law of the state in which the target bank is located. In approving
interstate acquisitions, however, the FRB is required to give effect to
applicable state law limitations on the aggregate amount of deposits that may
be held by the acquiring bank holding company and its insured depository
institution affiliates in the state in which the target bank is located
(provided that those limits do not discriminate against out-of-state depository
institutions or their holding companies) or which require that the target bank
have been in existence for a minimum period of time (not to exceed five years)
before being acquired by an out-of-state bank holding company.
The BHCA also prohibits, with certain exceptions, the Company from acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any company which is not a bank and from engaging in any business other than
that of banking, managing and controlling banks or furnishing services to banks
and their subsidiaries. The principal exception to this prohibition allows
bank holding companies to engage in, and to own shares of companies engaged in,
certain businesses found by the FRB to be "so closely related to banking ... as
to be a proper incident thereto." Under current regulations of the FRB, the
Company is permitted to engage in, among other activities, such banking-related
businesses as the operation of a thrift, sales and consumer finance, equipment
leasing, the operation of a computer service bureau, including software
development, and mortgage banking and brokerage. The BHCA generally does not
place territorial restrictions on the domestic activities of non-bank
subsidiaries of bank holding companies.
<PAGE> 5
Federal law also prohibits acquisition of "control" of a bank, such as the
Bank, or bank holding company, such as the Company, without prior notice to
certain federal bank regulators. "Control" is defined in certain cases as the
acquisition of 10% of the outstanding shares of a bank or bank holding company.
CAPITAL REQUIREMENTS. Bank holding companies are required to maintain minimum
levels of capital in accordance with FRB capital adequacy guidelines. If
capital falls below minimum guideline levels, a bank holding company, among
other things, may be denied approval to acquire or establish additional banks
or non-bank businesses.
The FRB's capital guidelines establish the following minimum regulatory capital
requirements for bank holding companies: a risk-based requirement expressed as
a percentage of total risk-weighted assets, and a leverage requirement
expressed as a percentage of total assets. The risk-based requirement consists
of a minimum ratio of total capital to total risk-weighted assets of 8%, at
least one-half of which must be Tier 1 capital. The leverage requirement
consists of a minimum ratio of Tier 1 capital to total assets of 3% for the
most highly rated companies, with minimum requirements of 4% to 5% for all
others. For purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible assets (other than
certain mortgage servicing rights and purchased credit card relationships) and
total capital means Tier 1 capital plus certain other debt and equity
instruments which do not qualify as Tier 1 capital and a portion of the
Company's allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum requirements,
and higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual banking organizations. For
example, the FRB's capital guidelines contemplate that additional capital may
be required to take adequate account of, among other things, interest rate
risk, or the risks posed by concentrations of credit, nontraditional activities
or securities trading activities. Further, any banking organization
experiencing or anticipating significant growth would be expected to maintain
capital ratios, including tangible capital positions (i.e., Tier 1 capital less
all intangible assets), well above the minimum levels.
Under the FRB's guidelines, the capital standards described above apply on a
consolidated basis to bank holding companies that have more than $150 million
in total consolidated assets, but generally apply on a bank-only basis to bank
holding companies, like the Company, that have less than $150 million in total
consolidated assets. Nevertheless, as of December 31, 1997, the Company had
regulatory capital in excess of the FRB's minimum requirements, with a total
risk-based capital ratio of 47.5%, a Tier 1 risk-based capital ratio of 46.3%
and a leverage ratio of 23.8%.
DIVIDENDS. The FRB has issued a policy statement with regard to the payment of
cash dividends by bank holding companies. In the policy statement, the FRB
expressed its view that a bank holding company should not pay cash dividends
which exceed its net income or which can only be funded in ways that weaken the
bank holding company's financial health, such as by borrowing. Additionally,
the FRB possesses enforcement powers over bank holding companies and their
non-bank subsidiaries to prevent or remedy actions that represent unsafe or
unsound practices or violations of applicable statutes and regulations. Among
these powers is the ability to proscribe the payment of dividends by banks and
bank holding companies.
<PAGE> 6
In addition to the restrictions on dividends that may be imposed by the FRB,
the Delaware General Corporation Law (the "DGCL") allows the Company to pay
dividends only out of its surplus (as defined and computed in accordance with
the provisions of the DGCL), or if the Company has no such surplus, out of its
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
THE BANK
GENERAL. The Bank is an Indiana-chartered bank, the deposit accounts of which
are insured by the BIF of the FDIC. As a BIF-insured, Indiana-chartered bank,
the Bank is subject to the examination, supervision, reporting and enforcement
requirements of the DFI, as the chartering authority for Indiana banks, and the
FDIC, as administrator of the BIF.
DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank is required to pay
deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions
are placed into one of nine categories and assessed insurance premiums based
upon their respective levels of capital and results of supervisory evaluations.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all
insured institutions is made by the FDIC for each semi-annual assessment
period.
For the year ended December 31, 1997, BIF assessments ranged from 0% of
deposits to 0.27% of deposits. For the semi-annual assessment period beginning
January 1, 1998, BIF assessment rates will continue to range from 0% of
deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of the Company is not aware of any
activity or condition that could result in termination of the deposit insurance
of the Bank.
FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance assessments
paid by SAIF members has been used to cover interest payments due on the
outstanding obligations of the FICO, the entity created to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation, the
SAIF's predecessor insurance fund. Pursuant to federal legislation enacted
September 30, 1996, commencing January 1, 1997, both SAIF members and BIF
members became subject to assessments to cover the interest payments on
outstanding FICO obligations. Such FICO assessments are in addition to amounts
assessed by the FDIC for deposit insurance. Until January 1, 2000, the FICO
assessments made against BIF members may not exceed 20% of the amount of the
FICO assessments made against SAIF members. Between January 1, 2000 and the
maturity of the outstanding FICO obligations in 2019, BIF members and SAIF
members will share the cost of the interest on the FICO bonds on a pro rata
basis. During the year ended December 31, 1997, the FICO assessment rate for
SAIF members was approximately 0.063% of deposits while the FICO assessment
rate for BIF members was approximately 0.013% of deposits. During the year
ended December 31, 1997, the Bank paid FICO assessments totaling $ 1,293.81.
<PAGE> 7
CAPITAL REQUIREMENTS. The FDIC has established the following minimum capital
standards for state-chartered insured non-member banks, such as the Bank: a
leverage requirement consisting of a minimum ratio of Tier 1 capital to total
assets of 3% for the most highly-rated banks with minimum requirements of 4% to
5% for all others, and a risk-based capital requirement consisting of a minimum
ratio of total capital to total risk-weighted assets of 8%, at least one-half
of which must be Tier 1 capital. For purposes of these capital standards, Tier
1 capital and total capital consist of substantially the same components as
Tier 1 capital and total capital under the FRB's capital guidelines for bank
holding companies (see "--The Company--Capital Requirements").
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
FDIC provide that additional capital may be required to take adequate account
of, among other things, interest rate risk or the risks posed by concentrations
of credit, nontraditional activities or securities trading activities.
During the year ended December 31, 1997, the Bank was not required by the FDIC
to increase its capital to an amount in excess of the minimum regulatory
requirements. As of December 31, 1997, the Bank exceeded its minimum
regulatory capital requirements with a total risk-based capital ratio of 40.2%,
a Tier 1 risk-based capital ratio of 38.9% and a leverage ratio of 20.0%.
Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an institution
is assigned, the regulators' corrective powers include: requiring the
submission of a capital restoration plan; placing limits on asset growth and
restrictions on activities; requiring the institution to issue additional
capital stock (including additional voting stock) or to be acquired;
restricting transactions with affiliates; restricting the interest rate the
institution may pay on deposits; ordering a new election of directors of the
institution; requiring that senior executive officers or directors be
dismissed; prohibiting the institution from accepting deposits from
correspondent banks; requiring the institution to divest certain subsidiaries;
prohibiting the payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution.
DIVIDENDS. Indiana law prohibits the Bank from paying dividends in an amount
greater than its undivided profits. The Bank is, however, required to obtain
the approval of the DFI for the payment of any dividend if the aggregate amount
of all dividends paid by the Bank during any calendar year, including the
proposed dividend, would exceed the sum of: (i) the total net profits of the
Bank for that year; and (ii) the retained net profits of the Bank for the
previous two years. Indiana law defines, "net profits" to mean the sum of all
earnings from current operations plus actual recoveries on loans, investments
and other assets, less the sum of all current operating expenses, actual
losses, accrued dividends on preferred stock, if any, and all federal, state
and local taxes.
The payment of dividends by any financial institution or its holding company is
affected by the requirement to maintain adequate capital pursuant to applicable
capital adequacy guidelines and regulations, and a financial institution
generally is prohibited from paying any dividends if, following payment
thereof, the institution would be undercapitalized. As described above, the
Bank exceeded its minimum capital requirements under applicable guidelines as
of December 31, 1997. As of December 31, 1997, approximately $ 0.0 million was
available to be paid as dividends to the Company by the Bank. Notwithstanding
the availability of funds for dividends, however,
<PAGE> 8
the FDIC may prohibit the payment of any dividends by the Bank if the FDIC
determines such payment would constitute an unsafe or unsound practice.
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions imposed by
the Federal Reserve Act on extensions of credit by the Company and its
subsidiary, on investments in the stock or other securities of the Company and
its subsidiary and the acceptance of the stock or other securities of the
Company or its subsidiary as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by the Bank to
its directors and officers, to directors and officers of the Company and its
subsidiary, to principal stockholders of the Company, and to "related
interests" of such directors, officers and principal stockholders. In
addition, federal law and regulations may affect the terms upon which any
person becoming a director or officer of the Company or its subsidiary or a
principal stockholder of the Company may obtain credit from banks with which
the Bank maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. The federal banking agencies have adopted
guidelines which establish operational and managerial standards to promote the
safety and soundness of federally insured depository institutions. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings. In general, the guidelines prescribe the goals to be achieved in
each area, and each institution is responsible for establishing its own
procedures to achieve those goals. If an institution fails to comply with any
of the standards set forth in the guidelines, the institution's primary federal
regulator may require the institution to submit a plan for achieving and
maintaining compliance. The preamble to the guidelines states that the
agencies expect to require a compliance plan from an institution whose failure
to meet one or more of the guidelines is of such severity that it could
threaten the safety and soundness of the institution. Failure to submit an
acceptable plan, or failure to comply with a plan that has been accepted by the
appropriate federal regulator, would constitute grounds for further enforcement
action.
BRANCHING AUTHORITY. Indiana banks, such as the Bank, have the authority under
Indiana law to establish branches anywhere in the State of Indiana, subject to
receipt of all required regulatory approvals.
Effective June 1, 1997 (or earlier if expressly authorized by applicable state
law), the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act") allows banks to establish interstate branch networks
through acquisitions of other banks, subject to certain conditions, including
certain limitations on the aggregate amount of deposits that may be held by the
surviving bank and all of its insured depository institution affiliates. The
establishment of de novo interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of an
out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if
specifically authorized by state law. The legislation allows individual states
to "opt-out" of certain provisions of the Riegle-Neal Act by enacting
appropriate legislation prior to June 1, 1997. Indiana has enacted legislation
permitting interstate mergers subject to certain conditions. Additionally,
Indiana law allows out-of-state banks to acquire individual branch offices in
Indiana and to establish de novo branches in Indiana subject to certain
conditions, including a requirement that the laws of the state in which the
out-of-state bank is headquartered permit Indiana banks authority to acquire or
establish branches in such state.
STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC insured
state banks are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law and FDIC regulations
<PAGE> 9
also prohibit FDIC insured state banks and their subsidiaries, subject to
certain exceptions, from engaging as principal in any activity that is not
permitted for a national bank or its subsidiary, respectively, unless the bank
meets, and continues to meet, its minimum regulatory capital requirements and
the FDIC determines the activity would not pose a significant risk to the
deposit insurance fund of which the bank is a member. Impermissible
investments and activities must be divested or discontinued within certain time
frames set by the FDIC. These restrictions have not had, and are not currently
expected to have, a material impact on the operations of the Bank.
FEDERAL RESERVE SYSTEM. FRB regulations, as presently in effect, require
depository institutions to maintain noninterest earning reserves against their
transaction accounts (primarily NOW and regular checking accounts), as follows:
for transaction accounts aggregating $47.8 million or less, the reserve
requirement is 3% of total transaction accounts; and for transaction accounts
aggregating in excess of $47.8 million, the reserve requirement is $1.434
million plus 10% of the aggregate amount of total transaction accounts in
excess of $47.8 million. The first $4.7 million of otherwise reservable
balances are exempted from the reserve requirements. These reserve
requirements are subject to annual adjustment by the FRB. The Bank is in
compliance with the foregoing requirements.
<PAGE> 10
ITEM 1. BUSINESS-STATISTICAL DISCLOSURE
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
A. The following are the average balance sheets for the years ending
December 31:
<TABLE>
<CAPTION>
----------------------1997--------------------
----
Average Average
Balance Interest Rate
------- -------- -------
<S> <C> <C> <C>
(Dollars in thousands)
ASSETS
Interest-earning assets
Federal funds sold $ 3,132 $ 177 5.65%
Interest-bearing deposits in other
financial institutions 617 41 6.65
Securities available for sale-taxable (1) 15,414 920 5.97
Loans receivable (2) 9,895 884 8.93
------- --------
Total interest-earning assets 29,058 2,022 6.96%
Noninterest-earning assets
Cash and due from banks 1,386
Allowance for loan losses (147)
Premises and equipment, net 681
Accrued interest receivable and
other assets 305
-------
$31,283
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Savings, NOW and money markets $7,873 $ 398 5.06%
Certificates of deposits 7,583 437 5.76
Securities sold under agreements
to repurchase 2,153 107 4.97
------- --------
Total interest-bearing liabilities 17,609 942 5.35%
--------
Noninterest-bearing liabilities
Demand deposits 1,904
Accrued interest payable and
other liabilities 142
-------
19,655
Shareholders' equity 11,628
-------
$31,283
=======
Net interest income/spread $ 1,080 1.61%
======== ======
Net interest income as a percent
of average interest earning assets 3.72%
======
</TABLE>
- --------------------------------------------------------------------------------
(1) Securities balances represent daily average balances for the fair value of
securities. The average rate is calculated based on the daily average
balance for the amortized cost of securities.
(2) Includes fees on loans. The inclusion of loan fees does not have a material
effect on the average interest rate.
<PAGE> 11
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
<TABLE>
<CAPTION>
----------------------1996-------------------------
----
Average Average
Balance Interest Rate
------- -------- -------
<S> <C> <C> <C>
(Dollars in thousands)
ASSETS
Interest-earning assets
Securities available for sale-taxable (1) $ 4,127 $ 197 4.77%
------- -------
Total interest-earning assets 4,127 197 4.77%
Noninterest-earning assets
Cash and due from banks 658
Accrued interest receivable and
other assets 107
-------
$ 4,892
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Borrowings $ 133 $ 8 6.02%
------- -------
Total interest-bearing liabilities 133 8 6.02%
-------
Noninterest-bearing liabilities
Accrued interest payable and
other liabilities 5
-------
138
Shareholders' equity 4,754
-------
$ 4,892
=======
Net interest income/spread $ 189 (1.25)%
======= =======
Net interest income as a percent
of average interest earning assets 4.58%
=======
</TABLE>
- --------------------------------------------------------------------------------
(1) Securities balances represent daily average balances for the fair value of
securities. The average rate is calculated based on the daily average
balance for the amortized of securities.
<PAGE> 12
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
B. The following tables set forth the effect of volume and rate changes on
interest income and expense for the periods indicated. For purposes of
these tables, changes in interest due to volume and rate were
determined as follows:
Volume Variance - change in volume multiplied by the previous year's
rate. Rate Variance - change in rate multiplied by the previous year's
volume. Rate/Volume Variance - change in volume multiplied by the
change in rate. This variance was allocated to volume variance and
rate variance in proportion to the relationship of the absolute dollar
amount of the change in each.
<TABLE>
<CAPTION>
Total
Variance Variance Attributable To
----------------------------
1997/1996 Volume Rate
--------- ------ ----
(In thousands)
<S> <C> <C> <C>
INTEREST INCOME
Federal funds sold $ 177 $ 177 $ -
Interest-bearing deposits in other
financial institutions 41 41 -
Securities available for sale-taxable 723 662 61
Loans receivable 884 884 -
--------- --------- ------------
1,825 1,764 61
INTEREST EXPENSE
Savings, NOW and money markets 398 398 -
Certificates of deposits 437 437 -
Securities sold under agreements
to repurchase 107 107 -
Borrowings (8) (8) -
--------- --------- ------------
934 934 -
--------- --------- ------------
NET INTEREST INCOME $ 891 $ 830 $ 61
========= ========= ============
</TABLE>
<PAGE> 13
II. INVESTMENT PORTFOLIO
A. The carrying value of securities available for sale as of December 31
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
(In thousands)
U.S. Government and federal agencies $22,190 $10,128
Obligations of states and
political subdivisions 161 -
------- -------
$22,351 $10,128
======= =======
</TABLE>
B. The maturity distribution and weighted average interest rates of
securities available for sale at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
----------------Maturing-----------------
--------
(Dollars in thousands)
After One Year
Within But Within
One Year Five Years
-------- ----------
Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
U.S. Government and federal
agencies $ 1,843 5.78% $ 20,347 6.15%
Obligations of states and political
subdivisions 161 6.37 - -
-------- ---------
$ 2,004 5.83% $ 20,347 6.15%
======== =========
</TABLE>
The weighted average interest rates are based on coupon rates for
securities purchased at par value and on effective interest rates
considering amortization or accretion if the securities were purchased
at a premium or discount.
C. Excluding those holdings of the investment portfolio in U.S. Treasury
securities and other agencies of the U.S. Government, there were no
securities of any one issuer which exceeded 10% of the shareholders'
equity of the Company at December 31, 1997.
<PAGE> 14
III. LOAN PORTFOLIO
A. Types of Loans - Total loans on the balance sheet are comprised
of the following classifications at December 31 for the year
indicated:
<TABLE>
<CAPTION>
1997
----
(In thousands)
<S> <C>
Commercial $14,733
Residential real estate mortgage, net 6,376
Installment loans to individuals 1,242
-------
$22,351
=======
</TABLE>
Concentrations of Credit Risk: The Company grants commercial,
residential real estate mortgage and installment loans to individuals
mainly in north central Indiana. Commercial loans include loans
collateralized by business assets. Commercial loans make up
approximately 66% of the loan portfolio and the loans are expected to
be repaid from cash flow from operations of businesses. Residential
real estate mortgage loans make up approximately 28% of the loan
portfolio and are collateralized by residential real estate.
Installment loans to individuals make up approximately 6% of the loan
portfolio and are primarily collateralized by consumer assets.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates -
The following table shows the amounts of commercial loans outstanding
as of December 31, 1997 which, based on remaining scheduled repayments
of principal, are due in the periods indicated. Also, the amounts have
been classified according to sensitivity to changes in interest rates
for commercial loans due after one year. (Variable-rate loans are
those loans with floating or adjustable interest rates.)
<TABLE>
<CAPTION>
Maturing Commercial
-------- ----------
<S> <C>
(In thousands)
Within one year $ 5,785
After one year but within five years 7,991
After five years 957
---------
$ 14,733
=========
</TABLE>
<TABLE>
<CAPTION>
Commercial Loan Interest Sensitivity
------------------------------------
(In thousands)
Fixed Variable
Rate Rate Total
---- ---- -----
<S> <C> <C> <C>
Due after one year but
within five years $ 5,339 $ 2,652 $ 7,991
Due after five years 553 404 957
-------- --------- --------
$ 5,892 $ 3,056 $ 8,948
======== ========= ========
</TABLE>
<PAGE> 15
III. LOAN PORTFOLIO (Continued)
C. Risk Elements
1. Nonaccrual, Past Due, Restructured and Impaired Loans - The
following schedule summarizes nonaccrual, past due, restructured
and impaired loans at December 31.
<TABLE>
<CAPTION>
1997
----
(In thousands)
<S> <C>
(a) Loans accounted for on a nonaccrual basis $ -
(b) Accruing loans which are contractually past due 90
days or more as to interest or principal payments -
(c) Loans not included in (a) or (b) which are
"Troubled Debt Restructurings" as defined by
Statement of Financial Accounting Standards No. 15 -
(d) Other loans defined as "impaired" -
-------
$ -
=======
</TABLE>
Management believes the allowance for loan losses at December
31, 1997 is adequate to absorb any losses on nonperforming loans,
as the allowance balance is maintained by management at a level
considered adequate to cover 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.
<TABLE>
<CAPTION>
1997
----
(In thousands)
<S> <C>
Gross interest income that would have been
recorded in 1997 on nonaccrual loans outstanding
at December 31, 1997 if the loans had been current,
in accordance with their original terms and had
been outstanding throughout the period or since
origination if held for part of the period $ -
Interest income actually recorded on nonaccrual
loans and included in net income for the period -
--------
Interest income not recognized during the period $ -
========
</TABLE>
<PAGE> 16
III. LOAN PORTFOLIO (Continued)
Discussion of the Nonaccrual Policy
The accrual of interest income is discontinued when the collection
of a loan or interest, in whole or in part, is doubtful. When
interest accruals are discontinued, interest income accrued in the
current period is reversed. While loans which are past due 90 days
(180 days for residential real estate mortgage loans) or more as to
interest or principal payments are considered for nonaccrual
status, management may elect to continue the accrual of interest
when the estimated net realizable value of collateral, in
management's judgment, is sufficient to cover the principal balance
and accrued interest.
2. Potential Problem Loans
As of December 31, 1997, in addition to the $-0- of loans reported
under Item III, C.1., there are approximately $-0- in other
outstanding loans where known information about possible credit
problems of the borrowers causes management to have serious doubts
as to the ability of such borrowers to comply with the present loan
repayment terms and which may result in disclosure of such loans
pursuant to Item III. C.1 at some future date. Consideration was
given to loans classified for regulatory purposes as loss,
doubtful, substandard, or special mention that have not been
disclosed in Section 1 above. To the extent that such loans are
not included in the $-0- potential problem loans described above,
management believes that such loans will not materially impact
future operating results, liquidity, or capital resources.
3. Foreign Outstandings
None
4. Loan Concentrations
None
D. Other Interest-Bearing Assets
There are no other interest-bearing assets as of December 31, 1997 which
would be required to be disclosed under Item III. C.1 or 2 if such assets
were loans.
<PAGE> 17
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. The following schedule presents an analysis of the allowance for loan
losses, average loan data and related ratios for the year ended
December 31:
<TABLE>
<CAPTION>
1997
----
(Dollars in thousands)
<S> <C>
LOANS
Loans outstanding at end of period $ 22,351
=========
Average loans outstanding during period $ 9,895
=========
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ -
Loans charged-off
Commercial -
Residential real estate mortgage -
Installment loans to individuals -
---------
-
Recoveries of loans previously charged-off
Commercial -
Residential real estate mortgage -
Installment loans to individuals -
---------
-
---------
Net loans charged-off -
Provision for loan losses 360
---------
Balance at end of period $ 360
=========
Ratio of net charge-offs during the period to
average loans outstanding during the period -%
=========
</TABLE>
The allowance for loan losses balance and the provision for loan
losses are judgmentally determined by management based upon periodic
reviews of the loan portfolio. In addition, management considered the
level of charge-offs on loans as well as the fluctuations of
charge-offs and recoveries on loans including the factors which caused
these changes. Estimating the risk of loss and the amount of loss is
necessarily subjective. Accordingly, the allowance is maintained by
management at a level considered adequate to cover 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.
<PAGE> 18
IV. SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
B. The following schedule is a breakdown of the allowance for loan
losses allocated by type of loan and related ratios.
<TABLE>
<CAPTION>
December 31, 1997
Allocation of the Allowance
--------for Loan Losses---------
---------------
Percentage of Loans
In Each Category
Allowance to Total
Amount Loans
------ -----
(Dollars in thousands)
<S> <C> <C>
Commercial $ 151 65.9%
Residential real estate mortgage 49 28.5
Installment loans to individuals 14 5.6
Unallocated 146 -
----- --------
$ 360 100.0%
===== ========
</TABLE>
While management's periodic analysis of the adequacy of the allowance
for loan losses may allocate portions of the allowance for specific
problem loan situations, the entire allowance is available for any
loan charge-offs that occur.
V. DEPOSITS
The average amount of deposits and average rates paid are summarized as
follows for the years ended December 31:
<TABLE>
<CAPTION>
1 9 9 7
-------
Average Average
Amount Rate
------ ----
(Dollars in thousands)
<S> <C> <C>
Savings, NOW and money markets $ 7,873 5.06%
Certificates of deposits 7,583 5.76
Demand deposits (noninterest-bearing) 1,904 -
-------
$17,360
=======
</TABLE>
Maturities of time certificates of deposit and other time deposits of
$100,000 or more outstanding at December 31, 1997 are summarized as
follows:
<TABLE>
<CAPTION>
Amount
------
(In thousands)
<S> <C>
Three months or less $ 6,607
Over three months and through six months 6,316
Over six months and through twelve months 1,722
Over twelve months 605
-------
$15,250
=======
</TABLE>
<PAGE> 19
VI. RETURN ON EQUITY AND ASSETS
The ratio of net income (loss) to average shareholders' equity and average
total assets and certain other ratios are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
(Dollars in thousands)
Average total assets $ 31,283 $ 4,892
=========== ===========
Average shareholders'
equity (1) $ 11,628 $ 4,754
=========== ===========
Net income (loss) $ (762) $ (290)
=========== ===========
Cash dividends declared $ - $ -
=========== ===========
Return on average total assets (2.44)% (5.93)%
Return on average shareholders' equity (6.55)% (6.10)%
Dividend payout percentage - % - %
Average shareholders'
equity to average total assets 37.17% 97.18%
</TABLE>
(1) Net of average unrealized appreciation or depreciation on securities
available for sale.
VII. SHORT-TERM BORROWINGS
The Company did not have any category of short-term borrowings for which
the average balance outstanding during the reported periods was 30
percent or more of shareholders' equity at the end of the reported
periods.
<PAGE> 20
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases premises for the Bank's main office at 3820 Edison Lakes
Parkway, Mishawaka, Indiana, which also serve as the Company's corporate
headquarters. The premises consist of a 9,600 square foot, two-story brick
building constructed in 1988 with parking for approximately 57 vehicles. Until
such time as the Bank needs the space, the Company may sublet approximately
1,200 square feet of the second floor if a suitable tenant is located, although
none has yet been identified. The building is located on a major thoroughfare
in Mishawaka, approximately 2 miles south of Interstate 80 and near the city's
population center.
The lease for the building has a primary term of five years with an option for
one five-year extension, and permits the Company, the Bank or an affiliate of
either to purchase the property for $800,000 at any time during the term of the
lease. Under the lease, the aggregate annual lease payment was $67,500 for
1997 and increases by $14,500 in 1998, $4,500 in 1999 and $9,500 in each
succeeding year during the initial five year term. It also increases by 5% per
year over and above the rental payment due in year five in each year of the
five year option period, if exercised.
The Bank has four interior teller stations and a night depository facility.
The Company believes the facility will be adequate to meet the needs of the
Company and the Bank for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any legal proceedings against it or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock was held by approximately 67 holders of record as of
March 5, 1998, and is quoted on the OTC Bulletin Board under the symbol "SJOE."
To date there has been no regular and liquid market for the common stock, and
there can be no assurance that a regular and liquid trading market will develop
in the foreseeable future.
The following table shows, for the periods indicated, the high and low bid
quotations per share of transactions in the Company's common stock as quoted on
the OTC Bulletin Board. Certain other private transactions may have occurred
during the periods indicated of which the Company has no knowledge. The
following prices represent inter-dealer prices without retail markups,
markdowns or commissions.
<PAGE> 21
<TABLE>
<CAPTION>
Per Share Per Share
Bid Prices Dividends
1996 High Low Declared
---- ---- --- ---------
<S> <C> <C> <C>
March 31, 1996 N/A N/A N/A
June 30, 1996 N/A N/A N/A
September 30, 1996 $10.625 $10.000 * -
December 31, 1996 10.750 10.625 -
1997
----
March 31, 1997 $12.125 $10.750 -
June 30, 1997 13.375 12.125 -
September 30, 1997 16.000 13.000 -
December 31, 1997 17.250 16.000 -
</TABLE>
* Represents initial public offering price on September 4, 1996.
No cash or other dividends were declared or paid during the fiscal year ended
December 31, 1997 or 1996. The Company expects that all Company and Bank
earnings, if any, will be retained to finance the growth of the Company and the
Bank and that no cash dividends will be paid for the foreseeable future. If and
when dividends are declared, the Company will probably be largely dependent
upon dividends paid by the Bank for funds to pay dividends on the Common Stock.
It is also possible, however, that the Company will pay dividends in the
future generated from investment income and other activities of the Company.
Under Indiana law, the Bank will be restricted as to the maximum amount of
dividends it may pay on its Common Stock. The Indiana Act provides that an
Indiana bank may not pay dividends in an amount greater than its undivided
profits or if the payment of dividends would impair such bank's capital.
Moreover, the approval of the DFI is required for the payment of any dividend
if the aggregate amount of all dividends paid by the Bank during such calendar
year, including the proposed dividend, would exceed the sum of (i) the total
net profits (as defined in the Indiana Act) of the Bank for that year; and (ii)
the retained net profits of the Bank for the previous two years. The DFI and
the FDIC are also authorized under certain circumstances to prohibit the
payment of dividends by the Bank. In the case of the Company, the Delaware
General Corporation Law would allow the Company to pay dividends only out of
its surplus, or if none, out of the current and/or the past fiscal year's net
profits. Further restrictions on dividends may also be imposed by the Federal
Reserve Board.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
The information on pages 8 - 15 of the Company's 1997 Annual Report to
Stockholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is incorporated by reference.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements and related notes from the 1997 Annual
Report to Stockholders are incorporated by reference:
<PAGE> 22
<TABLE>
<CAPTION>
Annual Report
Page No.
--------
<S> <C>
Report of Independent Auditors 16
Consolidated Balance Sheets 17
Consolidated Statements of Income 18
Consolidated Statements of Changes in Shareholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21 - 30
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
A. Directors. The information on pages 2 - 3 of the 1997 proxy statement
under the caption "Election of Directors" is incorporated by reference.
B. Executive Officers. The Company's executive officers who are not also
directors are as follows:
EDWARD R. POOLEY, Senior Vice President and Chief Financial Officer of the
Company and Senior Vice President and Cashier of the Bank, served since 1991 as
Cashier and Chief Operations Officer of Metamora State Bank and Treasurer of
Metamora Bancorp, Inc., located in Metamora, Ohio, until joining the Company.
<PAGE> 23
In March 1996, the Company entered into an employment agreement with John
Rosenthal, for a term beginning on such date and ending on March 18, 2000. In
the absence of notice from either party to the contrary, the employment term
under the agreement extends for an additional one year at the end of each year
of the agreement. Under the agreement, Mr. Rosenthal received an initial
annual salary of $98,000. The agreement includes a provision for the annual
review, and possible increase (but not a decrease) of his salary, as well as
performance bonuses, membership in a local country club, an automobile
allowance, participation in the Company's benefit plans, disability benefits
and life insurance. The employment agreement is terminable at any time by
either the Company's Board of Directors or by Mr. Rosenthal. The agreement
provides severance benefits in the event he is terminated without cause,
including severance compensation equal to his then current salary and benefits
for the remainder of the then current term of the employment agreement. The
Company also must pay all accrued salary, vested deferred compensation and
other benefits then due to him. The Company may terminate the agreement at any
time for cause without incurring any post-termination obligation to Mr.
Rosenthal. If Mr. Rosenthal is terminated upon a change in control, he is to
be paid severance compensation equal to three times: (i) his salary at the
rate then in effect at the time of termination; (ii) the amount of any bonus he
would have received; and (iii) the value of the other benefits which would have
accrued to him if he had remained employed for the full term of his agreement.
Moreover, he will continue to receive health, life and disability insurance
coverage for three years following such termination. Pursuant to a
non-competition covenant of the agreement, Mr. Rosenthal is prohibited from
competing with the Company or its subsidiaries within a 50-mile radius of the
Company's main office for a period of one year following the termination of his
employment agreement.
ITEM 10. EXECUTIVE COMPENSATION
The information on pages 4 - 5 of the 1997 Proxy Statement under the caption
"Executive Compensation" is incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information on page 6 of the 1997 Proxy Statement, under the caption
"Security Ownership of Certain Beneficial Owners" is incorporated by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on page 4 of the 1997 Proxy Statement under the caption
"Transactions with Management" is incorporated by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Index to Financial Statements
See Part II, Item 7, Financial Statements
(a)(2) Schedule of Exhibits
The Exhibit Index which immediately follows the signature pages to this Form
10-KSB is incorporated by reference. The exhibits required to be filed with
this Form 10-KSB are included with this Form 10-KSB and are located immediately
following the Exhibit Index to this Form 10-KSB.
(b) Reports on Form 8-K
<PAGE> 24
The Company did not file any Current Reports on Form 8-K during the fourth
quarter of 1997.
<PAGE> 25
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, as amended, the
Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 25, 1998.
ST. JOSEPH CAPITAL CORPORATION
By:
----------------------------------------------
John W. Rosenthal, Chief Executive Officer and
Chairman of the Board
By:
----------------------------------------------
Edward R. Pooley, Principal Financial Officer
and Accounting Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Issuer and in the capacities noted below and
on March 25, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
__________________________________ President, Principal Executive
John W. Rosenthal Officer and Chairman of the Board
__________________________________ Director
Arthur J. Decio
__________________________________ Director
David A. Eckrich
__________________________________ Director
Jerry Hammes
__________________________________ Director
V. Robert Hepler
__________________________________ Director
Helen L. Krizman
</TABLE>
<PAGE> 26
<TABLE>
<S> <C>
__________________________________ Director
Scott C. Malpass
__________________________________ Director
Jack Matthys
__________________________________ Director
Arthur H. McElwee
__________________________________ Director
Myron Noble
__________________________________ Director
Richard A. Rosenthal
__________________________________ Director
Robert A. Sullivan
</TABLE>
<PAGE> 27
ST. JOSEPH CAPITAL CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
================================================================================
SEQUENTIAL
EXHIBIT DESCRIPTION OF EXHIBITS PAGE NUMBER
NO.
- --------------------------------------------------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation, as amended, of St. Joseph *
Capital Corporation
- --------------------------------------------------------------------------------
3.2 Bylaws of St. Joseph Capital Corporation *
- --------------------------------------------------------------------------------
4.1 Specimen Common Stock Certificate of St. Joseph Capital *
Corporation (See also Articles IV, VI, VII, VIII, XI
and XII of Exhibit 3.1 and Articles III, IX, X, XI and
XII of Exhibit 3.2)
- --------------------------------------------------------------------------------
10.1 St. Joseph Capital Corporation 1996 Stock Incentive Plan *
- --------------------------------------------------------------------------------
10.2 Stock Option Agreement between St. Joseph Capital *
Corporation and John W. Rosenthal, dated June 11, 1996
- --------------------------------------------------------------------------------
10.3 Employment Agreement between St. Joseph Capital and *
John W. Rosenthal, dated March 18, 1996
- --------------------------------------------------------------------------------
10.4 Amendment to the Employment Agreement between St. 28
Joseph Capital and John W. Rosenthal, dated March 18,
1996
- --------------------------------------------------------------------------------
10.5 St. Joseph Capital Bank 401(k) Plan **
- --------------------------------------------------------------------------------
13.1 Annual Report to Security holders (furnished for the 40
information of the Commission and not to be deemed
"filed" as part of this Form 10-KSB)
- --------------------------------------------------------------------------------
21.1 Subsidiary of St. Joseph Capital Corporation *
- --------------------------------------------------------------------------------
27.1 Financial Data Schedule 27
- --------------------------------------------------------------------------------
99.1 Proxy Statement and form of proxy for the Annual 29
Meeting of Stockholders to be held May 21, 1998,
(except for sections incorporated by reference into
this Form 10-KSB, the proxy materials shall not be
deemed to be "filed" with the Commission)
================================================================================
</TABLE>
* Incorporated by reference from the Registration Statement on Form SB-2
filed by the Company on June 21, 1996 (SEC File No. 333-06581), as
amended.
** Incorporated by reference from the Registration Statement on Form S-8
filed by the Company on October 29, 1996 (SEC File No. 333-14999).
<PAGE> 1
EXHIBIT 10.4
AMENDMENT TO
JOHN W. ROSENTHAL
EMPLOYMENT AGREEMENT
Pursuant to Section 9(b) of the Employment Agreement entered into between St.
Joseph Capital Corporation and John W. Rosenthal dated March 18, 1996 (the
"Agreement"), the parties hereby amend the Agreement as follows:
Section 2 of the Agreement is amended by adding a new paragraph (j) to the end
thereof, which new paragraph shall read as follows:
"(j) Life Insurance. The Executive shall have purchased on his behalf at
the expense of the Employer life insurance on the Executive's life in an
amount equal to Three Hundred Thousand Dollars ($300,000). The Executive
shall be allowed to name, and change at his election, the beneficiary or
beneficiaries of such life insurance."
The remaining provisions of the Agreement shall remains in full force and
effect.
This amendment to the Agreement is hereby agreed to and accepted by the parties
thereto this 8th day of January, 1998.
ST. JOSEPH CAPITAL CORPORATION JOHN W. ROSENTHAL
By:
------------------------------ ---------------------------------
Its: Chairman Human Resources
<PAGE> 1
EXHIBIT 13.1
April, 1998
Dear Fellow Shareholders:
Unlike last year, when we could report only on activities relating to the
formation of St. Joseph Capital Corporation (the bank holding company), this
year we have an abundance of activities on which to report relating to the
performance and ongoing operation of the Bank. We are delighted to announce
that total assets of the Company on December 31, 1997, reached $50.8 million.
These results were achieved in a little more than 10 months since opening St.
Joseph Capital Bank on February 13, 1997. The level of total assets is
important because it serves as an indicator of how rapidly the Bank has grown
and how well our concept has been accepted by our target clients. Significantly,
the Bank is already approaching the asset size necessary to support its overhead
structure.
Total loans were $22.4 million at year-end, which exceeded our initial
projections. Loan volume built steadily throughout the year. We generated $6.2
million in new loans in the 4th quarter of 1997, which is a 38.5% increase over
the prior quarter-end. We believe that this trend will continue into 1998.
Total deposits also exceeded our internal forecast. The deposit-gathering
function continues to build momentum due to the variety and sophistication of
our deposit products. Deposits increased by $4.8 million in the 4th quarter,
which brought total deposits to $34.9 million at year-end. Deposits drive our
growth, and we are grateful to all our clients who have established deposit
relationships with us. Each deposit account is important to us and is a product
of our commitment to provide our clients with truly superior personalized
service.
The net loss for the year was $762,120. It is important to note that
approximately half of the net loss is a result of provisioning expense of
$360,000 to build the Allowance for Loan Loss ("Allowance"). There have been
no loan losses since our inception. This provision for the Allowance is
simply an accounting convention that banks use in their financial reporting and
it does not represent a cash loss. Additionally, the Allowance, which
represents 1.61% of total loans, is substantially in excess of the peer-group
average and reflects a very conservative approach to managing the financial
affairs of the Bank. This is especially true given the current quality of the
loan portfolio. As of December 31, 1997, the Bank did not have any
non-performing loans or any past-due loans. We encourage you to read the
Management Discussion & Analysis section of this report for more details on the
overall financial
<PAGE> 2
performance of the Company.
In December, we conducted our first "Client Satisfaction Survey." More than
one-third of our clients provided us with important feedback. We are proud of
the results we achieved. On a scale of 1-5 (with 5 being the best) we scored
the following composite ratings:
Client Service 4.822
Products 4.432
Problem Resolution 4.751
Overall Satisfaction 4.755
Everyone responding answered affirmatively when asked whether he or she would
recommend the Bank to a friend. While we are encouraged by the many positive
comments, we have no intention of resting on our laurels. We believe we must
continue to provide superior service in order for our clients to continue their
enthusiastic endorsement of St. Joseph Capital Bank to friends and business
associates.
Each year we intend to focus on a particular theme. Many of you will recall
that our theme for 1997 was "Building Loyalty." Our theme for 1998, "NO
BARRIERS - ONLY BRIDGES," further defines our attitude about how we conduct
business. We invite you to explore some of our "bridges," which are highlighted
on the pages that follow. We hope that during the course of 1998 we will have
the opportunity to build more "bridges" with each of you.
We would be remiss if we didn't acknowledge our dedicated colleagues and their
enormous contribution to our successful start. Sound business plans and
strategies are important; but we must always remember that it takes superior
execution of these plans every day to make a company great. The staff members
of St. Joseph Capital Bank have executed at the highest level this past year.
Given their character, you can expect nothing less in the years to come.
We must also single out another group - our Board of Directors. This group came
together more than two years ago and has invested countless hours to ensure that
real value for shareholders would be created. Through both the timely delivery
of advice based upon years of experience and the all-important role of being
ambassadors for our Company in the community, this group has excelled.
One of our founding holding company directors, Arthur J. Decio, will change
status to Director Emeritus, effective at the 1998 Annual Meeting. Art has
brought tremendous enthusiasm, support, and credibility to this venture. He
helped us get started and gain critical momentum. Fortunately for us, we will
still be able to receive his counsel as a Director Emeritus.
We strongly encourage you to attend our Annual Shareholders'
<PAGE> 3
Meeting, which will be conducted on Thursday, May 21, 1998, at 7 p.m. (EST) at
the Center for Continuing Education, Notre Dame, Indiana. It gives us a chance
to showcase the Company, to answer any questions you might have, and to
celebrate our accomplishments, as well as rededicate ourselves to similar
efforts for the remainder of 1998. We plan to make it as lively and informative
as possible. A reception will follow the meeting.
In closing, each of us extends our heartfelt thanks to you for the tremendous
support and assistance you have provided in turning a dream into the reality
that is St. Joseph Capital Bank.
Sincerely,
John W. Rosenthal
<PAGE> 4
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of St. Joseph Capital
Corporation and its subsidiary is qualified in its entirety by, and should be
read in conjunction with, the consolidated financial statements, including
notes thereto, included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
At December 31,
--------------------
(In thousands)
1997 1996
---- ----
<S> <C> <C>
SUMMARY OF FINANCIAL CONDITION:
Total assets $50,839 $ 11,841
Total cash and cash equivalents 4,535 1,410
Interest-bearing time deposits in other financial institutions 500 -
Securities available for sale 22,351 10,128
Loans receivable, net of allowance for loan losses 21,991 -
Total deposits 34,916 -
Total shareholders' equity 11,204 11,793
Average shareholders' equity 11,628 4,754
Average total assets 31,283 4,892
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997 and Period From
February 29, 1996
to December 31, 1996
--------------------
(In thousands)
1997 1996
---- ----
<S> <C> <C>
SUMMARY OF OPERATING RESULTS:
Total interest and dividend income $ 2,022 $ 197
Total interest expense 942 8
------- --------
Net interest income 1,080 189
Provision for loan losses 360 -
Total noninterest income 4 -
Total noninterest expense 1,486 479
------- --------
Income (loss) before income taxes (762) (290)
Income tax expense - -
------- --------
Net loss $ (762) $ (290)
======= ========
SUPPLEMENTAL DATA:
Return on average total assets (2.44)% (5.93)%
Return on average shareholders' equity (6.55) (6.10)
Net interest rate spread (1) 1.61 (1.25)
Net yield on average interest-earning assets (2) 3.72 4.58
Dividend pay-out ratio (3) - -
Net interest income to operating expenses (4) 72.65 39.49
Average shareholders' equity to average total assets 37.17 97.18
Average interest-earning assets to average interest-bearing liabilities 165.02 3,103.01
Nonperforming assets to total assets - -
Nonperforming loans to total loan receivable - -
Allowance for loan losses to total loans receivable 1.61 -
Allowance for loan losses to non-performing loans receivable - -
Basic and diluted loss per common share (5) $ (.60) $ (.23)
Dividends declared per share $ - $ -
Book value per share $ 8.83 $ 9.32
Number of offices 1 -
</TABLE>
- -------------------------------------------------------------------------------
(1) Interest rate spread is calculated by subtracting average interest rate
cost from average interest rate earned.
(2) Net Interest income divided by average interest-earning assets.
(3) Dividends declared per share divided by basic earnings (loss) per common
share.
(4) Operating expenses consist of other expenses less taxes.
(5) Restated to reflect adoption of SFAS No. 128 on December 31, 1997.
6.
<PAGE> 5
ST. JOSEPH CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Of Financial Condition and Results of Operations
INTRODUCTION
St. Joseph Capital Corporation (the Company) was incorporated under the laws of
the state of Delaware on February 29, 1996. During 1996 and the first part of
1997, the Company's activities were limited to the organization of St. Joseph
Capital Bank (the Bank), as well as preparation for and completion of a
$12,650,000 common stock offering (the Offering). The Company sold 1,265,000
shares of common stock at a price of $10 per share in the Offering resulting in
net proceeds of $12,114,000. A substantial portion of the proceeds of the
Offering were used by the Company to provide the initial capitalization of the
Bank which occurred on February 13, 1997, at which time the Bank began
operations. Management believes that the Company's financial condition and
results of operations are as expected for a newly formed financial institution.
EARNINGS SUMMARY
CONSOLIDATED NET LOSS for the Company for 1997 was $(762,000), compared to
$(290,000) in 1996. Basic and diluted loss per common share was $(.60) in
1997, compared to $(.23) in 1996. No cash dividends were paid in 1997 or 1996.
RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
NET INTEREST INCOME for 1997 was $1.1 million, an increase of $.9 million over
1996. This was due primarily to an increase in securities available for sale
and loans receivable, funded by deposit growth. The average rate on
interest-earning assets in 1997 was 6.96% which included an average rate on
securities available for sale of 5.97% and loans receivable of 8.93%. The
average rate on interest-bearing liabilities was 5.35%. The net interest
margin for the Bank was 3.72% in 1997. The Bank began operations in February
of 1997 and primarily all of the changes from 1996 to 1997 were a result of a
growth in volume of interest-earning assets and interest-bearing liabilities.
AT DECEMBER 31, 1997, total loans receivable, net of deferred loan fees,
increased to $22.4 million compared to $0 at December 31, 1996. The increase
was funded by growth in deposits. The mix of total loans receivable at
December 31, 1997 was $14.7 million or 65.9% in commercial loans, $6.4 million
or 28.5% in residential real estate mortgage loans and $1.3 million or 5.6% in
installment loans to individuals.
SECURITIES AVAILABLE FOR SALE totaled $22.4 million at December 31, 1997 which
represented an increase of $12.3 million or 120.69% from $10.1 million at
December 31, 1996. The increase was funded by growth in deposits. The
December 31, 1996 balance was funded by the capital generated from the Offering
to capitalize the startup of the Bank. All securities have been classified as
available for sale. Available for sale securities represent those securities
which the
(Continued)
7.
<PAGE> 6
ST. JOSEPH CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Of Financial Condition and Results of Operations
Bank may decide to sell if needed for liquidity, asset/liability management or
other reasons. Such securities are reported at fair value with unrealized
gains and losses included as a separate component of shareholders' equity, net
of tax. The unrealized gain on the securities portfolio, net of taxes was
$79,421 at December 31, 1997.
TOTAL DEPOSITS AT December 31, 1997 amounted to $34.9 million and funds
received from the sale of securities sold under agreements to repurchase were
$4.5 million compared to $0 total deposits and securities sold under agreements
to repurchase at December 31, 1996. These funds were invested in loans
receivable and securities available for sale, as discussed above, and in
federal funds sold and interest-bearing time deposits in other financial
institutions with the balance held as cash and due from banks.
THE PROVISION FOR LOAN LOSSES charged to operations was based partially on
management's estimation of future losses and on an evaluation of portfolio risk
and economic factors. The provision for loan losses and the allowance for loan
losses were both $360,000 in 1997 compared to $0 in 1996. The increase in the
provision and the increase in the allowance during 1997 were due to estimated
future loan losses. At December 31, 1997 the allowance for loan losses was
1.61% of total loans receivable.
IN 1997 the Bank did not experience any charge-offs from loans receivable. At
December 31, 1997 no portion of the allowance for loan losses was allocated to
impaired loan balances as there were no loans considered impaired. Loan
impairment is reported when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate, or at the fair
value of collateral if repayment is expected solely from the collateral. Loans
receivable are evaluated for impairment when payments are delayed, typically 90
days or more, or when it is probable that all principal and interest amounts
will not be collected according to the original terms of the loan.
MANAGEMENT ALLOCATED approximately 41.9% of the allowance for loan losses to
commercial loans; 13.6% to residential real estate mortgage loans; and 3.9% to
installment loans to individuals at December 31, 1997, leaving 40.6%
unallocated. There were no nonperforming loans at December 31, 1997.
Management believes the allowance for loan losses balance at December 31, 1997
is adequate to absorb potential losses in the loan portfolio.
TOTAL NONINTEREST INCOME was $4,000 in 1997 compared to $0 in 1996.
Noninterest income resulted from net gains on sales of securities available for
sale and other income.
TOTAL NONINTEREST EXPENSE increased $1.0 million or 209.9% in 1997 primarily
due to the following factors. Salaries and employee benefits increased
$484,000 or 178.0% to $756,000 in 1997 from $272,000 in 1996. This increase
was due primarily to the hiring of additional employees needed to operate the
Bank. Occupancy and equipment expense increased by $272,000 primarily due to
the opening of the Bank facility for its operation. Other expense
(Continued)
8.
<PAGE> 7
ST. JOSEPH CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Of Financial Condition and Results of Operations
increased $251,000 primarily due to the following increases: $25,000 increase
in advertising and promotions; $49,000 increase in client courier costs;
$61,000 increase in data processing; $23,000 increase in liability insurance;
$29,000 increase in professional fees; and $15,000 increase in telephone
expense.
THE POTENTIAL FUTURE INCOME TAX BENEFIT from the net operating losses in 1997
and 1996 has not been reflected in the consolidated financial statements. A
valuation allowance has been recorded to offset the excess of deferred tax
assets over deferred tax liabilities. At such time when management believes
that it is more likely than not that the income tax benefit will be used by the
Company to off-set future income tax expense, the valuation allowance will be
reduced and a tax benefit will be realized. The income tax benefit from the
losses in 1997 and 1996 can be carried forward for fifteen years from the time
of the loss before they expire. Accordingly, the Company's net operating loss
carryforward for 1997 will expire in 2012 and the net operating loss
carryforward for 1996 will expire in 2011 if they remain unused at that time.
A NEW ACCOUNTING STANDARD has been issued which will require future reporting
in 1998 of comprehensive income (loss). Comprehensive income (loss) is net
income (loss), plus changes in unrealized appreciation (depreciation) on
securities available for sale, net of tax.
LIQUIDITY
LIQUIDITY RELATES PRIMARILY to the Company's ability to fund loan demand, meet
deposit customers' withdrawal requirements and provide for operating expenses.
Assets used to satisfy these needs consist of cash and due from banks, federal
funds sold, interest-bearing deposits in other financial institutions and
securities available for sale. These assets are commonly referred to as liquid
assets. Liquid assets were $27.4 million at December 31, 1997 compared to
$11.5 million at December 31, 1996. Liquidity levels improved $15.9 million
from 1996 to 1997 primarily due to increased investments in liquid assets
funded by growth in deposits which exceeded the growth in loans receivable.
Management recognizes that securities may need to be sold in the future to help
fund loan demand and accordingly, as of December 31, 1997, the entire
securities portfolio of $22.4 million was classified as available for sale.
Management believes its current liquidity level is sufficient to meet
anticipated future growth.
THE COMPANY has plans to secure a line of credit with the Federal Home Loan
Bank using its $6.4 million in residential first real estate mortgage loans to
collateralize borrowings that could readily be used as an additional source of
liquidity in the future.
THE STATEMENTS OF CASH FLOWS for the periods presented provide an indication of
the Company's sources and uses of cash as well as an indication of the ability
of the Company to maintain an adequate level of liquidity. A discussion of the
statements of cash flows for 1997 and 1996 follows.
(Continued)
9.
<PAGE> 8
ST. JOSEPH CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Of Financial Condition and Results of Operations
FOR BOTH PERIODS presented, the Company experienced a net decrease in cash from
operating activities. Net cash from operating activities was $(765,000) and
$(434,000) for the periods ended December 31, 1997 and 1996. The additional
decrease in cash from operating activities of $(331,000) for 1997 as compared
to 1996 was primarily due to the increased net loss from the operations of the
Bank during 1997.
FOR BOTH PERIODS presented, the Company also experienced a net decrease in net
cash from investing activities. Net cash from investing activities was $(35.6
million) and $(10.3 million) for the periods ended December 31, 1997 and 1996.
The changes in net cash from investing activities include growth in loans
receivable, as well as purchases and normal maturities and reinvestments of
interest-bearing deposits in other financial institutions and securities
available for sale and purchases of premises and equipment. In 1997 the
Company received $4.0 million from sales of securities available for sale.
NET CASH FLOW FROM FINANCING ACTIVITIES was $39.5 million and $12.1 million for
the periods ended December 31, 1997 and 1996. In 1997 the increase was
primarily attributable to growth in total deposits and securities sold under
agreements to repurchase of $34.9 million and $4.5 million. In 1996 the
increase was primarily due to net proceeds from the issuance of common stock of
$12.1 million from the Offering.
MANAGEMENT OF INTEREST SENSITIVITY is accomplished by matching the maturities
of interest-earning assets and interest-bearing liabilities. An institution's
level of interest rate risk is generally dependent on the relative sensitivity
to changes in interest rates of its interest-earning assets and its
interest-bearing liabilities. The Bank measures and monitors its interest rate
risk by forecasting change in net interest income under a variety of interest
rate environments and through the use of Interest Sensitivity GAP Analysis such
as the following analysis. The Interest Sensitivity GAP Analysis table shown
below was prepared based on the contractual maturities/repricing dates of loans
receivable, securities available for sale, deposits and securities sold under
agreements to repurchase. As shown in the table, the Bank has a negative
asset/liability cumulative GAP of $(15,637) resulting in a cumulative GAP ratio
of 55.69% during the one year time frame. A one year GAP ratio below 100%
indicates that a change in interest rates will affect more interest-bearing
liabilities than interest-earning assets over the course of the year.
Therefore, in the absence of countermanding strategies or circumstances, net
interest income could be expected to decline in a period of rising rates and
rise in a period of declining interest rates. The Simulation method is used
extensively by management to monitor the Bank's interest rate risk. The
Simulation uses a base-line analysis with no change in the current interest
rate environment as well as alternative interest rate possibilities that
include rising and falling interest rates with no change and with changes in
the anticipated balances to generate the estimate of the impact on net interest
income over a 12-month time horizon. In addition, the Simulation takes into
account equity capital and the effects it has on net interest income where the
GAP analysis doesn't account for equity capital.
(Continued)
10.
<PAGE> 9
ST. JOSEPH CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Of Financial Condition and Results of Operations
INTEREST SENSITIVITY GAP ANALYSIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Repricable or Maturing Within
-----------------------------
0-3 Months 4-12 Months 1-5 Years After 5 Years Total
---------- ----------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Federal funds sold $ 3,550 $ - $ - $ - $ 3,550
Interest-bearing deposits in
other financial institutions 500 - - - 500
Securities available for sale 1,003 3,998 17,350 - 22,351
Loans receivable 10,265 - 12,029 59 22,353
---------- --------- --------- --------- ----------
Total interest-earning
assets $ 15,318 $ 3,998 $ 29,379 $ 59 $ 48,754
========== ========= ========= ========= ==========
INTEREST-BEARING LIABILITIES
Savings, NOW and money
markets $ 13,509 $ - $ 104 $ - $ 13,613
Certificates of deposits 7,152 9,518 682 - 17,352
Securities sold under
agreements to repurchase 4,504 - - - 4,504
---------- --------- --------- --------- ----------
Total interest-bearing
liabilities $ 25,165 $ 9,518 $ 786 $ - $ 35,469
========== ========= ========= ========= ==========
Assets (liability) GAP $ (9,847) $ (5,520) $ 28,593 $ 59 $ 13,285
========== ========= ========= ========= ==========
Cumulative assets
(liability) GAP $ (9,847) $ (15,367) $ 13,226 $ 13,285
========== ========= ========= =========
Cumulative GAP ratio
(assets/liabilities) 60.87% 55.69% 137.29% 137.46%
</TABLE>
The Bank manages interest rate risk by the employment of strategies to assure
that desired levels of both interest-earning assets and interest-bearing
liabilities mature or reprice within similar time frames. Such strategies
include; 1) loans receivable which are renewed (and repriced) annually, 2)
variable rate loans, 3) securities available for sale which mature at various
times from one through five years, 4) certificates of deposits with terms from
one month to three years and 5) possible Federal Home Loan Bank borrowing for
terms of one day to ten years.
(Continued)
11.
<PAGE> 10
ST. JOSEPH CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Of Financial Condition and Results of Operations
CAPITAL RESOURCES
TOTAL SHAREHOLDERS' EQUITY was $11.2 million as of December 31, 1997, a
decrease of $ .6 million from $11.8 million as of December 31, 1996. The
decrease was primarily due to the net loss during 1997 of $(762,000).
THE COMPONENTS OF total risk-based capital are Tier 1 capital and Tier 2
capital. Tier 1 capital is total shareholders' equity less intangible assets.
Tier 2 capital is Tier 1 capital plus a portion of the allowance for loan
losses. The allowance for loan losses is includable in Tier 2 capital up to a
maximum of 1.25% of risk weighted assets. The net unrealized appreciation
(depreciation) on securities available for sale, net of tax, is not considered
in meeting regulatory capital requirements. The following table provides the
minimum regulatory capital requirements and the Company's and the Bank's actual
capital ratios at December 31, 1997:
CAPITAL RATIOS
<TABLE>
<CAPTION>
Minimum Minimum Required
Required For To Be Well
Capital Capitalized Under Company's Bank's
Adequacy Prompt Corrective Capital Capital
December 31, 1997 Purposes Action Regulations Ratio Ratio
- ----------------- -------- ------------------ ----- -----
<S> <C> <C> <C> <C>
Ratio of Total Capital
to Risk Weighted Assets 8.0% 10.00% 47.5% 40.2%
Ratio of Tier 1 Capital
to Risk Weighted Assets 4.0% 6.0% 46.3% 38.9%
Ratio of Tier 1 Capital
to Average Assets 4.0% 5.0% 23.8% 20.0%
</TABLE>
THE COMPANY AND BANK exceed the applicable minimum regulatory capital
requirements at December 31, 1997.
RESTRICTIONS EXIST REGARDING the ability of the Bank to transfer funds to the
Company in the form of cash dividends, loans or advances. (See Note 1 to
consolidated financial statements). No cash or other dividends were declared
or paid during the fiscal year ended December 31, 1997 or 1996. (See Market
For St. Joseph Capital Corporation Common Stock and Related Shareholder Matters
for discussion of the Company's dividend policy).
AS OF DECEMBER 31, 1997, management is not aware of any current recommendations
by the banking regulatory authorities which, if they were to be implemented,
would have, or are
(Continued)
12.
<PAGE> 11
ST. JOSEPH CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Of Financial Condition and Results of Operations
reasonably likely to have, a material adverse effect on the Company's
liquidity, capital resources or operations.
(Continued)
13.
<PAGE> 12
ST. JOSEPH CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Of Financial Condition and Results of Operations
IMPACT OF INFLATION AND CHANGING PRICES
THE MAJORITY OF ASSETS AND LIABILITIES of the Company are monetary in nature
and therefore the Company differs greatly from most commercial and industrial
companies that have significant investments in fixed assets or inventories.
However, inflation does have an important impact on the growth of total assets
in the banking industry and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio. Inflation significantly affects noninterest expense, which tends to
rise during periods of general inflation.
MANAGEMENT BELIEVES the most significant impact on financial results is the
Company's ability to react to changes in interest rates. Management seeks to
maintain an essentially balanced position between interest rate sensitive
assets and liabilities and actively manages the amount of securities available
for sale in order to protect against the effects of wide interest rate
fluctuations on net income and shareholders' equity.
IMPACT OF YEAR 2000 COMPLIANCE
The Company is in the process of receiving Year 2000 vendor certifications on
its primary computer operating systems. Testing will be performed over the
next year to identify any applications that are not Year 2000 compliant. In
the event an application is deemed to be non-compliant, corrective action will
be taken. The implementation of the Company's Year 2000 plan is currently on
schedule. Costs associated with the Year 2000 issue currently are undetermined
and are expected to have some impact on the subsequent years' results of
operations.
14.
<PAGE> 13
ST. JOSEPH CAPITAL CORPORATION
MARKET FOR ST. JOSEPH CAPITAL CORPORATION COMMON
STOCK AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock was held by approximately 67 holders of record as of
March 5, 1998, and is quoted on the OTC Bulletin Board under the symbol "SJOE."
To date there has been no regular and liquid market for the common stock, and
there can be no assurance that a regular and liquid trading market will develop
in the foreseeable future.
The following table shows, for the periods indicated, the high and low bid
quotations per share of transactions in the Company's common stock as quoted on
the OTC Bulletin Board. Certain other private transactions may have occurred
during the periods indicated of which the Company has no knowledge. The
following prices represent inter-dealer prices without retail markups,
markdowns or commissions.
<TABLE>
<CAPTION>
Per Share Per Share
Bid Prices Dividends
1996 High Low Declared
---- ---- --- --------
<S> <C> <C> <C>
March 31, 1996 N/A N/A N/A
June 30, 1996 N/A N/A N/A
September 30, 1996 $ 10.625 $ 10.000 * -
December 31, 1996 10.750 10.625 -
1997
----
March 31, 1997 $ 12.125 $ 10.750 -
June 30, 1997 13.375 12.125 -
September 30, 1997 16.000 13.000 -
December 31, 1997 17.250 16.000 -
</TABLE>
*Represents initial public offering price on September 4, 1996.
No cash or other dividends were declared or paid during the fiscal year ended
December 31, 1997 or 1996. The Company expects that all Company and Bank
earnings, if any, will be retained to finance the growth of the Company and the
Bank and that no cash dividends will be paid for the foreseeable future. If and
when dividends are declared, the Company will probably be largely dependent
upon dividends paid by the Bank for funds to pay dividends on the Common Stock.
It is also possible, however, that the Company will pay dividends in the
future generated from investment income and other activities of the Company.
FORM 10-KSB
The Company will provide without charge to each shareholder, upon written
request to St. Joseph Capital Corporation, 3820 Edison Lakes Parkway,
Mishawaka, Indiana 46545, Attention Edward R. Pooley, Senior Vice President and
Chief Financial Officer, a copy of the Company's Annual Report on Form 10-KSB,
including the Financial Statements and Schedules thereto required to be filed
with the Securities and Exchange Commission, for the Company's most recent
fiscal year.
15.
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
St. Joseph Capital Corporation
Mishawaka, Indiana
We have audited the accompanying consolidated balance sheets of St. Joseph
Capital Corporation (the Company) as of December 31, 1997 and 1996 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the year ended December 31, 1997 and for the period from
February 29, 1996 (date of inception) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 the Company as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for the year ended December 31, 1997 and for the period from February 29,
1996 (date of inception) to December 31, 1996 in conformity with generally
accepted accounting principles.
Crowe, Chizek and Company LLP
South Bend, Indiana
February 20, 1998
16.
<PAGE> 15
ST. JOSEPH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 985,464 $ 3,103
Interest-bearing deposits in other financial institutions - -
short-term - 1,307,009
Federal funds sold 3,550,000 100,000
------------ -----------
Total cash and cash equivalents 4,535,464 1,410,112
Interest-bearing deposits in other financial institutions
(cost approximates fair value) 500,000 -
Securities available for sale 22,351,254 10,127,902
Loans receivable, net of allowance for loan losses
of $360,000 in 1997 21,991,115 -
Accrued interest receivable 526,339 -
Premises and equipment, net 881,840 274,720
Other assets 53,322 28,671
------------ -----------
Total assets $ 50,839,334 $11,841,405
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand $ 3,951,366 $ -
Savings, NOW and money markets 13,612,678 -
Certificates of deposits 17,351,837 -
------------ -----------
Total deposits 34,915,881 -
Securities sold under agreements to repurchase 4,503,760 -
Accrued interest payable 120,890 -
Other liabilities 94,378 48,519
------------ -----------
Total liabilities 39,634,909 48,519
Shareholders' equity
Preferred stock, $.01 par value, 100,000 shares
authorized; -0- shares issued and outstanding - -
Common stock, $.01 par value, 1,500,000 shares
authorized; 1,269,486 and 1,265,160 shares issued
and outstanding in 1997 and 1996 12,695 12,652
Additional paid-in capital 12,164,648 12,103,000
Retained deficit (1,052,339) (290,219)
Net unrealized appreciation (depreciation) on
securities available for sale, net of tax of $52,947
in 1997 and $0 in 1996 79,421 (32,547)
------------ -----------
Total shareholders' equity 11,204,425 11,792,886
------------ -----------
Total liabilities and shareholders' equity $ 50,839,334 $11,841,405
============ ===========
</TABLE>
- --------------------------------------------------------------------------------
See acompanying notes to consolidated financial statements.
17.
<PAGE> 16
ST. JOSEPH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31, 1997 and period from February 29, 1996 to December 31,
1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest and dividend income
Loans receivable, including fees $ 883,629 $ -
Securities available for sale - taxable 920,425 197,057
Federal funds sold 176,944
Other interest earning assets 41,181 -
------------- ------------
Total interest and dividend income 2,022,179 197,057
Interest expense
Deposits 834,759 -
Securities sold under agreements to repurchase 107,393 -
Other borrowings 172 7,656
------------- ------------
Total interest expense 942,324 7,656
------------- ------------
NET INTEREST INCOME 1,079,855 189,401
Provision for loan losses 360,000 -
------------- ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 719,855 189,401
Noninterest income
Gain on sales of securities available for sale, net 2,139 -
Other income 2,247 -
------------- ------------
Total noninterest income 4,386 -
Noninterest expense
Salaries and employee benefits 756,388 272,088
Occupancy and equipment expense 301,478 29,588
Other expense 428,495 177,944
------------- ------------
Total noninterest expense 1,486,361 479,620
------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES (762,120) (290,219)
Income tax expense - -
------------- ------------
NET LOSS $ (762,120) $ (290,219)
============= ============
Basic and diluted loss per common share $ (.60) $ (.23)
============= ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
18.
<PAGE> 17
ST. JOSEPH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Year ended December 31, 1997 and period from
February 29, 1996 to December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
on Securities
Additional Available Total
Common Paid-In Retained For Sale, Shareholders'
Stock Capital Deficit Net of Tax Equity
----- ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 29, 1996 $ - $ - $ - $ - $ -
Proceeds from issuance of common
Stock for initial capitalization 1,000 - - - 1,000
Proceeds from the issuance of
1,265,160 shares of common stock,
net of stock offering costs 12,652 12,103,000 - - 12,115,652
Redemption of common stock
from initial capitalization (1,000) - - - (1,000)
Net loss - - (290,219) - (290,219)
Net change in unrealized
appreciation (depreciation)
on securities available for sale,
net of tax of $-0- - - - (32,547) (32,547)
-------- ----------- ----------- ---------- ------------
BALANCE AT DECEMBER 31, 1996 12,652 12,103,000 (290,219) (32,547) 11,792,886
Proceeds from the issuance
of 4,326 shares of common stock 43 61,648 - - 61,691
Net loss - - (762,120) - (762,120)
Net change in unrealized
appreciation (depreciation) on
securities available for sale, net
of tax of $52,947 - - - 111,968 111,968
-------- ----------- ----------- ---------- ------------
BALANCE AT DECEMBER 31, 1997 $ 12,695 $12,164,648 $(1,052,339) $ 79,421 $ 11,204,425
======== =========== =========== ========== =============
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
19.
<PAGE> 18
ST. JOSEPH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 1997 and period from
February 29, 1996 to December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (762,120) $ (290,219)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation 138,215 4,176
Provision for loan losses 360,000 -
Net amortization (accretion) on securities
available for sale (61,395) (167,621)
Gain on sales of securities available for sale, net (2,139) -
Net change in
Accrued interest receivable (526,339) -
Other assets (24,651) (28,671)
Accrued interest payable 120,890 -
Other liabilities (7,088) 48,519
----------- -----------
Net cash from operating activities (764,627) (433,816)
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits in
other financial institutions (500,000) -
Purchase of securities available for sale (32,281,778) (17,054,828)
Proceeds from sales of securities available for sale 4,001,875 -
Proceeds from maturities and calls of securities
available for sale 16,285,000 7,062,000
Net change in loans receivable (22,351,115) -
Purchase of premises and equipment, net (745,335) (278,896)
----------- -----------
Net cash from investing activities (35,591,353) (10,271,724)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 34,915,881 -
Net change in securities sold under agreements
to repurchase 4,503,760 -
Proceeds from other borrowings - 275,000
Repayment of other borrowings - (275,000)
Proceeds from issuance of common stock, net 61,691 12,115,652
----------- -----------
Net cash from financing activities 39,481,332 12,115,652
----------- -----------
Net change in cash and cash equivalents 3,125,352 1,410,112
Cash and cash equivalents at beginning of period 1,410,112 -
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,535,464 $ 1,410,112
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 821,434 $ 7,656
Income taxes - -
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
20.
<PAGE> 19
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of St. Joseph Capital Corporation conform
to generally accepted accounting principles and to general practices within the
banking industry. The following describes the significant accounting and
reporting policies which are employed in the preparation of the financial
statements.
Principles of Consolidation: The consolidated financial statements include the
accounts of St. Joseph Capital Corporation, a bank holding company located in
Mishawaka, Indiana, (the Company) and its wholly-owned subsidiary St. Joseph
Capital Bank (the Bank). All significant intercompany balances and
transactions have been eliminated.
Nature of Business and Concentration of Credit Risk: The Company accepts
deposits and grants commercial, real estate, and installment loans to customers
primarily in Northern Indiana. Substantially all loans are secured by specific
items of collateral including business assets, consumer assets and real estate.
Commercial loans are expected to be repaid from cash flow from operations of
businesses. Real estate loans are secured by both residential and commercial
real estate.
Use of Estimates in Preparing Financial Statements: 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, liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. The allowance for loan losses, fair values
of securities and other financial instruments, the realization of deferred tax
assets and fair value of stock options involve certain significant estimates
made by management. These estimates are reviewed by management routinely and
it is reasonably possible that circumstances that exist at December 31, 1997
may change in the near-term future and that the effect could be material to the
financial statements.
Restrictions on Cash and Due From Banks: To satisfy legal cash reserve and
clearing balance requirements, noninterest-bearing balances are required to be
maintained as deposits with the Federal Reserve or as cash on hand. The total
required cash reserve and clearing balance requirement was $107,000 at year end
1997.
Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might
be sold before maturity. Securities available for sale are carried at fair
value, with unrealized holding gains and losses reported separately in
shareholders' equity, net of tax. Securities are classified as trading when
held for short term periods in anticipation of market gains, and are carried at
fair value. Securities are written down to fair value when a decline in fair
value is not temporary.
- -------------------------------------------------------------------------------
(Continued)
21.
<PAGE> 20
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The estimated fair value of securities is based on quoted market values for the
individual securities or for equivalent securities. Gains and losses on the
sale of securities are determined using the specific identification method
based on amortized cost and are reflected in results of operations at the time
of sale. Interest income includes amortization of purchase premiums and
discounts over the estimated life of the security using the level yield method.
Loans Receivable: Loans are reported at the principal balance outstanding, net
of unearned interest, deferred loan fees and costs, and an allowance for loan
losses. Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term.
Interest income is not reported when full loan repayment is in doubt, typically
when payments are past due over 90 days (180 days for residential mortgages).
Payments received on such loans are reported as principal reductions.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance
required based on past loan loss experience, known and inherent risks in the
portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors. Allocations of the
allowance may be made for specific loans, but the entire allowance is available
for any loan that, in management's judgment, should be charged-off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of
similar nature such as residential mortgage, consumer, and credit card loans,
and on an individual loan basis for other loans. If a loan is impaired, a
portion of the allowance is allocated so that the loan is reported, net, at the
present value of estimated future cash flows using the loan's existing rate or
at the fair value of collateral if repayment is expected solely from the
collateral. Loans are evaluated for impairment when payments are delayed,
typically 90 days or more, or when it is probable that all principal and
interest amounts will not be collected according to the original terms of the
loan.
Foreclosed Real Estate: Real estate properties acquired through, or in lieu
of, loan foreclosure are initially recorded at fair value at the date of
acquisition, establishing a new cost basis. Any reduction to fair value from
the carrying value of the related loan at the time of acquisition is accounted
for as a loan loss and charged against the allowance for loan losses.
Valuations are periodically performed by management and valuation allowances
are adjusted through a charge to income for changes in fair value or estimated
selling costs. There were no foreclosed real estate properties held at
December 31, 1997 or 1996.
- -------------------------------------------------------------------------------
(Continued)
22.
<PAGE> 21
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Leasehold improvements are depreciated using the
straight-line method over the lease term. Furniture, fixtures and equipment
are depreciated using the straight-line method over the estimated useful life
of the assets. Maintenance and repairs are expensed, and major improvements
are capitalized. Assets are reviewed for impairment under Statement of
Financial Accounting Standards (SFAS) No. 121 when events indicate that the
reported carrying amount may not be fully recoverable.
Profit Sharing Plan: The Company maintains a 401(k) profit sharing plan
covering substantially all employees. For details concerning the plan, see
Note 8.
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be realized.
Financial Instruments With Off-Balance-Sheet Risk: The Company, in the normal
course of business, makes commitments to make loans which are not reflected in
the consolidated financial statements. A summary of these commitments is
disclosed in Note 12.
Dividend Restriction: Banking regulations require the maintenance of certain
capital levels which limit the amount of dividends which may be paid. For
regulatory capital requirements, see Note 13.
Loss Per Common Share: Basic and diluted loss per common share is computed
under a new accounting standard effective beginning with the quarter ended
December 31, 1997. All prior loss per common share amounts have been restated
to be comparable. Basic loss per common share is based on the net loss divided
by the weighted average number of common shares outstanding during the period.
Diluted loss per common share shows the dilutive effect of additional potential
common shares issuable under stock options.
Stock Option Plan: Expense for employee compensation under stock option plans
is based on Accounting Principles Board (APB) Opinion 25, with expense reported
only if options are granted below market price at grant date. If applicable,
disclosures of net income and earnings or loss per common share are provided as
if the fair value method of SFAS No. 123 were used for stock-based
compensation.
- -------------------------------------------------------------------------------
(Continued)
23.
<PAGE> 22
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Statement of Cash Flows: For purposes of the statement of cash flows, cash and
cash equivalents are defined to include the Company's cash on hand and due from
other banks, its short-term interest-bearing deposits in other financial
institutions and federal funds sold with a maturity of 90 days or less. The
Company reports net cash flows for customer loan and deposit transactions,
interest-bearing deposits in other financial institutions and short-term
borrowings with original maturities of 90 days or less.
Fair Values of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more
fully disclosed in Note 15. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Future Accounting Change: A new accounting standard has been issued which will
require future reporting of comprehensive income. Comprehensive income is net
income, plus changes in unrealized appreciation (depreciation) on securities
available for sale, net of tax.
Reclassifications: Certain amounts in the 1996 consolidated financial
statements were reclassified to conform with the 1997 presentation.
NOTE 2 - ORGANIZATION
St. Joseph Capital Corporation was incorporated under the laws of the state of
Delaware on February 29, 1996, with an initial capitalization of $1,000.
During 1996 and the first part of 1997, the Company's activities were limited
to the organization of St. Joseph Capital Bank (the Bank), as well as
preparation for and completion of a $12,650,000 common stock offering (the
Offering). The Company sold 1,265,000 shares of common stock at a price of $10
per share in the Offering resulting in net proceeds of $12,114,000. A
substantial portion of the proceeds of the Offering was used by the Company to
provide the initial capitalization of the Bank which occurred on February 13,
1997, at which time the Bank began operations.
- -------------------------------------------------------------------------------
(Continued)
24.
<PAGE> 23
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES AVAILABLE FOR SALE
Year end securities available for sale were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1997 Cost Gains Losses Value
- ---- ---- ----- ------ -----
<S> <C> <C> <C> <C>
Debt securities
U.S. Government and
federal agencies $ 22,059,046 $ 136,756 $ (5,507) $ 22,190,295
Obligations of states and
political subdivisions 159,840 1,119 - 160,959
------------ --------- -------- ------------
$ 22,218,886 $ 137,875 $ (5,507) $ 22,351,254
============ ========= ======== ============
1996
- ----
Debt securities
U.S. Government
and federal agencies $ 10,160,449 $ - $(32,547) $ 10,127,902
============ ========= ======== ============
</TABLE>
The amortized cost and fair value of debt securities available for sale 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.
<TABLE>
<CAPTION>
---------December 31, 1997------
-----------------
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 2,002,200 $ 2,003,900
Due after one year through five years 20,216,686 20,347,354
--------------- -------------
$ 22,218,886 $ 22,351,254
=============== =============
</TABLE>
Activities related to sales of securities available for sale are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Proceeds from sales $ 4,001,875 $ -
Gross gains on sales 2,802 -
Gross losses on sales 663 -
</TABLE>
At December 31, 1997 and 1996, securities with a book value of approximately
$7,119,000 and $-0-, respectively, were pledged to secure certain deposits and
securities sold under agreements to repurchase.
- --------------------------------------------------------------------------------
(Continued)
25.
<PAGE> 24
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE, NET
Year end loans receivable were as follows:
<TABLE>
<CAPTION>
1997
<S> <C>
One to four family residential mortgage loans $ 5,909,708
Construction loans - residential 468,094
Construction loans - commercial 3,400,709
Commercial and multi-family real estate loans 6,251,140
Commercial business loans 5,081,563
Consumer loans 1,241,508
-----------
22,352,722
Allowance for loan losses (360,000)
Net deferred loan origination fees (1,607)
-----------
$21,991,115
===========
</TABLE>
Activity in the allowance for loan losses at year end was as follows:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Beginning balance $ -
Provision for loan losses 360,000
Recoveries -
Charge-offs -
-----------
Ending balance $ 360,000
===========
</TABLE>
At December 31, 1997 no portion of the allowance for loan losses was allocated
to impaired loan balances as there were no loans considered impaired as of or
for the year ended December 31, 1997.
Certain directors and executive officers of the Company and its subsidiary,
including associates of such persons, are loan customers. A summary of the
related party loan activity, for loans aggregating $60,000 or more to any one
related party, is as follows:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Balance - beginning of year $ -
New loans 1,330,000
Repayments (58,000)
-----------
Balance - end of year $ 1,272,000
===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
26.
<PAGE> 25
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT, NET
Year end premises and equipment were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Leasehold improvements, furniture, fixtures
and equipment $ 1,024,231 $ 278,896
Accumulated depreciation (142,391) (4,176)
----------- ---------
$ 881,840 $ 274,720
=========== =========
</TABLE>
NOTE 6 - DEPOSITS
Certificates of deposit in denominations of $100,000 or more was approximately
$15,250,000 and $-0- at year end 1997 and 1996.
At December 31, 1997, the scheduled maturities of certificates of deposit were
as follows for the years ended December 31:
<TABLE>
<S> <C>
1998 $16,670,136
1999 365,000
2000 316,701
-----------
$17,351,837
===========
</TABLE>
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase consist of obligations of the
Company to other parties. These arrangements are all short-term retail
repurchase agreements and are secured by securities available for sale. Such
collateral is held by safekeeping agents of the Company. Information
concerning securities sold under agreements to repurchase as of December 31,
1997, is summarized as follows:
<TABLE>
<S> <C>
Amount outstanding at year end $ 4,503,760
Weighted average interest rate at year end 4.97%
Maximum month end balance during the year $ 4,588,163
Average daily balance during the year $ 2,152,651
Weighted average interest rate during the year 4.99%
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
27.
<PAGE> 26
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Continued)
Securities underlying these agreements at year end were as follows:
<TABLE>
<S> <C>
Carrying value of securities $ 6,010,000
Fair value $ 6,042,000
</TABLE>
NOTE 8 - BENEFIT PLANS
The Company's Board of Directors has adopted a stock option plan. Under the
terms of this plan, options for up to 100,000 shares of the Company's common
stock may be granted to key management employees and directors of the Company
and its subsidiaries. The exercise price of the options is determined at the
time of grant by an administrative committee appointed by the Board of
Directors.
SFAS No. 123, which became effective for 1996, requires proforma disclosures
for companies that do not adopt its fair value accounting method for
stock-based employee compensation. Accordingly, the following proforma
information presents net loss and loss per common share had the fair value
method been used to measure compensation cost for stock option plans.
Compensation cost actually recognized for stock options was $-0- for 1997 and
1996.
The fair value of options granted during 1997 and 1996 is estimated using the
following weighted average information: risk-free interest rate of 6.5% and
6.5%, expected life of 10 and 10 years, expected volatility of stock price of
.13 and .15, and expected dividends of 0% and 0% per year.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net loss as reported $ (762,120) $(290,219)
Proforma net loss (1,181,415) (476,453)
Basic and diluted loss per common share as reported $ (.60) $ (.23)
Proforma basic and diluted loss per common share (.93) (.38)
</TABLE>
In future years, the proforma effect of not applying this standard is expected
to increase as additional options are granted.
- --------------------------------------------------------------------------------
(Continued)
28.
<PAGE> 27
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 8 - BENEFIT PLANS (Continued)
Stock option plans are used to reward employees and provide them with an
additional equity interest. Options are issued for 10 year periods with
varying vesting periods. Information about option grants follows:
<TABLE>
<CAPTION>
Weighted
Number of Weighted Average
Outstanding Exercise Average Fair Value
Options Price Exercise Price of Grants
<S> <C> <C> <C> <C>
Outstanding, beginning of 1996 -
Granted 56,030 $10.00 - $10.62 $ 10.03 $ 4.92
------
Outstanding, end of 1996 56,030 10.00 - 10.62 10.03
Granted 35,765 10.62 - 17.25 14.45 $ 9.71
------
Outstanding, end of 1997 91,795 10.00 - 17.25 11.75
</TABLE>
The weighted average remaining contractual life of options outstanding at
December 31, 1997 was approximately nine years. Stock options exercisable at
December 31, 1997 and 1996 totaled 77,795 and 28,030 at a weighted average
exercise price of $12.06 and $10.05.
The Company maintains a 401(k) plan covering substantially all employees. The
plan provides for voluntary employee contributions and discretionary employer
contributions. Employee voluntary contributions are vested at all times and
the Company's discretionary contributions are fully vested after three years.
Annual expense related to the plan is based on a discretionary matching of 50%
of voluntary employee contributions on the first 6% of the participants
compensation. The plan also allows for an additional discretionary
contribution on the employee's behalf for any eligible employee irrespective of
the employee's voluntary participation in the plan during the year. The
discretionary matching percentage and the additional discretionary contribution
are to be determined by the Board of Directors at the end of each year. The
expense recorded related to this plan was $14,000 for 1997 and $-0- for 1996.
- --------------------------------------------------------------------------------
(Continued)
29.
<PAGE> 28
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 9 - OTHER EXPENSE
Year end other expense amounts were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Advertising and promotion $ 48,403 $ 23,487
Client courier 49,317 -
Data processing 64,107 2,650
Incorporation expense 6,156 30,819
Liability insurance 25,200 2,158
Printing, postage, stationery and supplies 44,221 31,639
Professional dues and memberships 16,082 8,238
Professional fees 84,921 55,805
Telephone 22,951 8,148
Other 67,137 15,000
--------- ----------
$ 428,495 $ 177,944
========= ==========
</TABLE>
NOTE 10 - INCOME TAXES
There was no income tax expense for the years ended December 31, 1997 or 1996
as the Company has experienced a tax net operating loss since its inception.
Total income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% in all periods presented to income (loss) before
income taxes as a result of the following for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Income taxes (benefit) at statutory rate $(259,121) $ (98,674)
Tax effect of:
State tax, net of federal income
tax effect (42,230) (15,814)
Effect of deferred tax valuation allowance 296,592 111,658
Other, net 4,759 2,830
--------- ----------
Total income tax expense $ - $ -
========= ==========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
30.
<PAGE> 29
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES (Continued)
The components of the net deferred tax asset (liability) recorded in the
consolidated balance sheets as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 273,711 $ 173,625
Bad debt deduction 142,596
Donation carryforward 4,315 -
Net unrealized depreciation
on securities available for sale - 13,019
Other 1,007 -
----------- ----------
421,629 186,644
Deferred tax liabilities
Accretion (13,379) (61,359)
Net unrealized appreciation on
securities available for sale (52,947) -
Other - (608)
----------- ----------
(66,326) (61,967)
Valuation allowance (408,250) (124,677)
----------- ----------
Net deferred tax asset (liability) $ (52,947) $ -
=========== ==========
</TABLE>
A valuation allowance has been recorded to offset the excess of deferred tax
assets over deferred tax liabilities, excluding the deferred tax liability for
net unrealized appreciation on securities available for sale, as the Company
has not yet paid any income taxes which would be refundable if these temporary
differences reversed.
NOTE 11 - BASIC AND DILUTED LOSS PER COMMON SHARE
Loss per common and common equivalent share are based on the combined weighted
average number of common shares and common equivalent shares outstanding which
include, where appropriate, the assumed exercise or conversion of outstanding
stock options. In computing loss per common and common equivalent share, the
Company has utilized the treasury stock method.
- --------------------------------------------------------------------------------
(Continued)
31.
<PAGE> 30
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 11 - BASIC AND DILUTED LOSS PER COMMON SHARE (Continued)
The computation of loss per common share, weighted average common and common
equivalent shares used in the calculation of basic and diluted loss per common
share is as follows:
<TABLE>
<CAPTION>
Year End December 31
--------------------
1997 1996
---- ----
<S> <C> <C>
BASIC LOSS PER COMMON SHARE
Net loss $ (762,120) $ (290,219)
Weighted average common shares
outstanding 1,266,830 1,265,024
============ =============
BASIC LOSS PER COMMON SHARE $ (.60) $ (.23)
============ =============
DILUTED LOSS PER COMMON SHARE
Net loss $ (762,120) $ (290,219)
Weighted average common shares
outstanding 1,266,830 1,265,024
Add: dilutive effects of assumed stock
option exercises - -
------------ -------------
Weighted average common and dilutive additional
potential common shares outstanding 1,266,830 1,265,024
============ =============
DILUTED LOSS PER COMMON SHARE $ (.60) $ (.23)
============ =============
</TABLE>
Outstanding stock options for 91,795 and 56,030 shares of common stock at
December 31, 1997 and 1996, were not considered in computing diluted loss per
common share for 1997 and 1996 because they were antidilutive. Additionally,
in January 1998 the Company granted stock options for 5,500 shares of common
stock which may affect the computation of diluted earnings per common share in
future periods.
NOTE 12- COMMITMENTS AND CONTINGENCIES
Some financial instruments are used to meet customer financing needs and to
reduce exposure to interest rate changes. These financial instruments include
commitments to extend credit, unused open end revolving lines of credit and
standby letters of credit. These involve, to varying degrees, credit and
interest-rate risk in excess of the amount reported in the balance sheet.
- --------------------------------------------------------------------------------
(Continued)
32.
<PAGE> 31
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 12- COMMITMENTS AND CONTINGENCIES (Continued)
Commitments at year-end were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commitments to extend credit $ 5,105,000 $ -
Unused open end revolving lines of credit 11,924,000 -
Standby letters of credit 1,043,000 -
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment, and
generally have fixed expiration dates. Standby letters of credit are
conditional commitments to guarantee a customer's performance to a third party.
Exposure to credit loss if the other party does not perform is represented by
the contractual amount of these items. Collateral or other security is
normally not obtained for these financial instruments prior to their use, and
many of the commitments are expected to expire without being used.
Under an employment agreement with an executive officer, certain events leading
to separation from the Company could result in cash payments totaling
approximately $294,000 at December 31, 1997.
The Company has leased a building for its main office location. The lease has
a term of five years with the option for one five year extension. In addition,
the lease agreement allows the Company to purchase the building for $800,000 at
any time during the term of the lease. The aggregate annual lease payments are
$67,500 beginning in 1997 for the first year of the lease and increase by
$14,500 in 1998, $4,500 in 1999 and $9,500 in each succeeding year during the
initial five year term. Future minimum lease commitments are:
<TABLE>
<S> <C>
1998 $ 82,000
1999 86,500
2000 96,000
2001 105,500
-----------
Total $ 370,000
===========
</TABLE>
- -----------------------------------------------------------------------=--------
(Continued)
33.
<PAGE> 32
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 13 - REGULATORY MATTERS
At year end, the Bank was considered well capitalized and all regulatory
capital requirements were met. The Bank's actual capital levels (in millions)
and minimum required levels were:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
1997 Amount Ratio Amount Ratio Amount Ratio
- ---- ------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets) $ 9.6 40.2% $ 1.9 8.0% $ 2.4 10.0%
Tier 1 capital (to risk weighted assets) 9.3 38.9 1.0 4.0 1.4 6.0
Tier 1 capital (to average assets) 9.3 20.0 1.9 4.0 2.3 5.0
</TABLE>
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS
Presented below are the condensed financial statements for the parent company,
St. Joseph Capital Corporation.
CONDENSED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,773,792 $ 1,410,112
Securities available for sale - 10,127,902
Investment in Bank subsidiary 9,423,983 -
Premises and equipment, net - 274,720
Other assets 12,092 28,671
-------------- ---------------
Total assets $ 11,209,867 $ 11,841,405
============== ===============
LIABILITIES
Other liabilities $ 5,442 $ 48,519
SHAREHOLDERS' EQUITY 11,204,425 11,792,886
-------------- ---------------
Total liabilities and shareholders' equity $ 11,209,867 $ 11,841,405
============== ===============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
34.
<PAGE> 33
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
Year ended December 31, 1997 and period from February 29, 1996 to December 31,
1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest income $ 66,545 $ 197,057
Interest expense - 7,656
Other expenses 172,327 479,620
---------- ----------
LOSS BEFORE INCOME TAXES AND EQUITY
IN UNDISTRIBUTED NET LOSS OF BANK SUBSIDIARY (105,782) (290,219)
Income tax benefit - -
---------- ----------
LOSS BEFORE EQUITY IN UNDISTRIBUTED
NET LOSS OF bANK SUBSIDIARY (105,782) (290,219)
Equity in undistributed net loss
of Bank subsidiary (656,338) -
---------- ----------
NET LOSS $ (762,120) $ (290,219)
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
35.
<PAGE> 34
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Year ended December 31, 1997 and period from February 29, 1996 to December 31,
1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (762,120) $ (290,219)
Adjustments to reconcile net loss to
net cash from operating activities
Equity in undistributed net loss of
bank subsidiary 656,338 -
Depreciation 1,528 4,176
Discount accretion (45,542) (167,621)
Net change in other assets 6,224 (28,671)
Net change in other liabilities (43,077) 48,519
------------ ------------
Net cash from operating activities (186,649) (433,816)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Bank subsidiary (346,382) -
Purchase of securities available for sale (3,056,000) (17,054,828)
Proceeds from maturities and calls of securities
available for sale 3,930,061 7,062,000
Purchase of premises and equipment, net (39,041) (278,896)
------------ ------------
Net cash from investing activities 488,638 (10,271,724)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from other borrowings - 275,000
Repayment of other borrowings - (275,000)
Proceeds from issuance of common stock, net 61,691 12,115,652
------------ ------------
Net cash from financing activities 61,691 12,115,652
------------ ------------
Net change in cash and cash equivalents 363,680 1,410,112
Cash and cash equivalents at beginning of period 1,410,112 -
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,773,792 $ 1,410,112
============ ============
Non-cash transfers to investment in bank subsidiary
Securities available for sale $ 9,331,930 $ -
Premise and equipment, net 312,233 -
Other assets 10,355 -
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
36.
<PAGE> 35
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments at year-end are as follows, in thousands:
<TABLE>
<CAPTION>
----------1997--------- -------1996------------
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 4,535 $ 4,535 $ 1,410 $ 1,410
Interest-bearing deposits in other
financial institutions 500 500 - -
Securities available for sale 22,351 22,351 10,128 10,128
Loans receivable, net of allowance
for loan losses 21,991 22,039 - -
Accrued interest receivable 526 526 - -
Financial liabilities
Noninterest-bearing demand,
savings, NOW and money
markets (17,564) (17,564) - -
Certificates of deposits (17,352) (17,352) - -
Securities sold under agreements to
repurchase (4,504) (4,504) - -
Accrued interest payable (121) (121) - -
</TABLE>
The estimated fair value approximates carrying amount for all items except
those described below. Estimated fair value for securities available for sale
is based on quoted market values for the individual securities or for
equivalent securities. Estimated fair value for loans is based on the rates
charged at year end for new loans with similar maturities, applied until the
loans are assumed to reprice or be paid. Estimated fair value for other
financial instruments and off-balance-sheet loan commitments is considered
nominal.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Company to have
disposed of such items at year end 1997 or 1996, the estimated fair values
would necessarily have been achieved at that date, since the market values may
differ depending on various circumstances. Also, the use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. The estimated fair values at year end 1997 and
1996 should not necessarily be considered to apply at subsequent dates.
- --------------------------------------------------------------------------------
37.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 985464
<INT-BEARING-DEPOSITS> 500000
<FED-FUNDS-SOLD> 3550000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22351254
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 22351115
<ALLOWANCE> 360000
<TOTAL-ASSETS> 50839334
<DEPOSITS> 34915881
<SHORT-TERM> 4503760
<LIABILITIES-OTHER> 215268
<LONG-TERM> 0
12695
0
<COMMON> 0
<OTHER-SE> 11191730
<TOTAL-LIABILITIES-AND-EQUITY> 50839334
<INTEREST-LOAN> 883629
<INTEREST-INVEST> 920425
<INTEREST-OTHER> 218125
<INTEREST-TOTAL> 2022179
<INTEREST-DEPOSIT> 834757
<INTEREST-EXPENSE> 942324
<INTEREST-INCOME-NET> 1079855
<LOAN-LOSSES> 360000
<SECURITIES-GAINS> 2139
<EXPENSE-OTHER> 1486361
<INCOME-PRETAX> (762120)
<INCOME-PRE-EXTRAORDINARY> (762120)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (762120)
<EPS-PRIMARY> (.60)
<EPS-DILUTED> (.60)
<YIELD-ACTUAL> 3.72
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 360000
<ALLOWANCE-DOMESTIC> 214008
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 145992
</TABLE>
