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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, 1998
[ ] 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
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ST. JOSEPH CAPITAL CORPORATION
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(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C>
Delaware 35-1977746
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer No.)
3820 Edison Lakes Parkway, Mishawaka, Indiana 46545
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(Address of Principal Executive Offices) (Zip Code)
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(219) 273-9700
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(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 $4,948,595.
The aggregate market value of the voting stock held by non-affiliates of the
Issuer as of March 11, 1998 was approximately $18,125,627. As of said date, the
Issuer had 1,280,187 shares of Common Stock issued and outstanding.
Documents incorporated by reference:
Part III of Form 10-KSB - Proxy statement for annual meeting of stockholders
to be held April 27, 1999.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ x ]
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ST. JOSEPH CAPITAL CORPORATION
1998 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Item 10.Executive Compensation
Item 11.Security Ownership of Certain Beneficial Owners and Management
Item 12.Certain Relationships and Related Transactions
Item 13.Exhibits and Reports on Form 8-K
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company, a Delaware corporation organized in February, 1997, 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, 1998. From the date of the Company's
inception through December 31, 1997, the Company and the Bank conducted no
business other than matters incidental to their organization and opening for
business. On September 4, 1997, 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,
1997, 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.
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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, adjustable and fixed
rate mortgages. The Bank also offers other services, including credit cards,
cashiers checks, traveler's checks and automated teller access.
The Bank's legal lending limit is approximately $1,620,000. The Board of
Directors has established an "in-house" limit of $ 1,350,000. 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.
The Bank's market area is competitive. 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
$1,620,000 is adequate to satisfy the credit needs of most of its clients.
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EMPLOYEES
The Bank has 24 full-time employees. None of the employees of the Company 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 the Board of Governors of the Federal Reserve
System (the "Federal Reserve"), 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 applicable statutes, regulations
and regulatory 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 is a summary of the material elements of the regulatory
framework that applies to the Company and its subsidiary. It does not describe
all of the statutes, regulations and regulatory policies that apply to the
Company and its subsidiary, nor does it restate all of the requirements of the
statutes, regulations and regulatory policies that are described. As such, the
following is qualified in its entirety by reference to the applicable statutes,
regulations and regulatory policies. Any change in applicable law, regulations
or regulatory policies may have a material effect on the business of the Company
and its subsidiary.
RECENT REGULATORY DEVELOPMENTS
PENDING LEGISLATION. Legislation has been introduced 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. 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 Company and the
Bank.
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THE COMPANY
GENERAL. The Company, as the sole shareholder 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 Federal Reserve under the Bank Holding Company
Act, as amended (the "BHCA"). In accordance with Federal Reserve 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 otherwise do so. Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve. The Company is also required to file with
the Federal Reserve periodic reports of the Company's operations and such
additional information regarding the Company and its subsidiary as the Federal
Reserve 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 Federal Reserve approval before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after the acquisition, it would own or control more than 5% of the
shares of the other bank or bank holding company (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 Federal Reserve 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 Federal Reserve 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) and state laws 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 generally prohibits 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. This general prohibition is subject to a number of
exceptions. The principal exception allows bank holding companies to engage in,
and to own shares of companies engaged in, certain businesses found by the
Federal Reserve to be "so closely related to banking ... as to be a proper
incident thereto." Under current regulations of the Federal Reserve, the Company
is permitted to engage in a variety of banking-related businesses, including 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.
Federal law also prohibits any person or company from acquiring
"control" of a bank or a bank holding company without prior notice to the
appropriate federal bank regulator. "Control" is defined in certain cases as the
acquisition of 10% of the outstanding shares of a bank or bank holding company.
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CAPITAL REQUIREMENTS. Bank holding companies are required to maintain
minimum levels of capital in accordance with Federal Reserve 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 Federal Reserve'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 a minimum requirement of 4% 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).
Total capital consists primarily of 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. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
For example, the Federal Reserve'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 Federal Reserve'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 that, like the Company, have less than
$150 million in total consolidated assets. Nevertheless, as of December 31,
1998, the Company had regulatory capital, calculated on a consolidated basis, in
excess of the Federal Reserve's minimum requirements, with a risk-based capital
ratio of 20.63% and a leverage ratio of 13.33%.
DIVIDENDS. 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. Additionally, the Federal Reserve has
issued a policy statement with regard to the payment of cash dividends by bank
holding companies. The policy statement provides 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. The Federal Reserve also 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.
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FEDERAL SECURITIES REGULATION. The Company's common stock is not
registered with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Consequently, the Company is not subject to the
information, proxy solicitation, insider trading and other restrictions and
requirements of the SEC under the Exchange Act. As a result of the filing by the
Company of a registration statement with the SEC in 1996, the Company was
subject to the periodic reporting requirements of the Securities Act of 1933.
Although these reporting obligations were suspended at the end of 1996, the
Company has voluntarily continued filing periodic reports with the SEC.
THE BANK
GENERAL. The Bank is an Indiana-chartered bank, the deposit accounts of
which are insured by the FDIC's Bank Insurance Fund ("BIF"). 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.
During the year ended December 31, 1998, BIF assessments ranged from 0%
of deposits to 0.27% of deposits. For the semi-annual assessment period
beginning January 1, 1999, 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 (i)
has engaged or is engaging in unsafe or unsound practices, (ii) is in an unsafe
or unsound condition to continue operations or (iii) 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 members of the FDIC's Savings Association Insurance Fund
("SAIF") has been used to cover interest payments due on the outstanding
obligations of the Financing Corporation ("FICO"). FICO was created in 1987 to
finance the recapitalization of the Federal Savings and Loan Insurance
Corporation, the SAIF's predecessor insurance fund. As a result of federal
legislation enacted in 1996, beginning as of January 1, 1997, both SAIF members
and BIF members became subject to assessments to cover the interest payments on
outstanding FICO obligations. These 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
final maturity of the outstanding FICO obligations in 2019, BIF members and SAIF
members will
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share the cost of the interest on the FICO bonds on a pro rata basis. During the
year ended December 31, 1998, the FICO assessment rate for SAIF members ranged
between approximately 0.061% of deposits and approximately 0.063% of deposits,
while the FICO assessment rate for BIF members ranged between approximately
0.012% of deposits and approximately 0.013% of deposits. During the year ended
December 31, 1998, the Bank paid FICO assessments totaling $5,034.
SUPERVISORY ASSESSMENTS. All Indiana banks are required to pay
supervisory assessments to the DFI to fund the operations of the DFI. During the
year ended December 31, 1998, the Bank paid supervisory assessments to the DFI
totaling $6,753.
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 a minimum requirement of
at least 4% 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 Federal Reserve'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.
As a condition to being granted federal deposit insurance, the FDIC
required the Bank to maintain a minimum leverage ratio of 8% during the first
three years of the Bank's operations. As of December 31, 1998, the Bank exceeded
applicable regulatory capital requirements with a leverage ratio of 11.0% and a
risk-based capital ratio of 17.1%.
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," in each case as defined by regulation. Depending upon the
capital category to which an institution is assigned, the regulators' corrective
powers include: requiring the institution to submit a capital restoration plan;
limiting the institution's asset growth and restricting its activities;
requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired; restricting transactions between the
institution and its 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. As of December 31, 1998, the Bank was well capitalized, as defined
by FDIC regulations.
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DIVIDENDS. Indiana law prohibits the Bank from paying dividends in an
amount greater than its undivided profits. The Bank is 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, 1998. As of December 31, 1998, there were no funds available
to be paid as dividends to the Company by the Bank. Notwithstanding the
availability of funds for dividends, however, 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 federal law on extensions of credit to 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 addition, in October 1998, the federal banking regulators issued
safety and soundness standards for achieving Year 2000 compliance, including
standards for developing and managing Year 2000 project plans, testing
remediation efforts and planning for contingencies.
In general, the safety and soundness 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. If an institution fails to submit an acceptable
compliance plan, or fails in any material respect to implement a compliance plan
that has been accepted by its primary federal regulator, the regulator is
required to issue an order directing the institution to cure the deficiency.
Until the deficiency cited in the regulator's order is cured, the regulator may
restrict the institution's rate of growth, require the institution to increase
its capital, restrict the rates the institution pays on deposits or require the
institution to take any action the regulator deems appropriate under the
circumstances. Noncompliance with the standards established by the safety
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and soundness guidelines may also constitute grounds for other enforcement
action by the federal banking regulators, including cease and desist orders and
civil money penalty assessments.
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.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act"), both state and national banks are allowed 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 new 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
allowed 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,
including a prohibition against interstate mergers involving Indiana banks that
have been in existence and continuous operation for fewer than five years.
Additionally, Indiana law allows out-of-state banks to acquire individual branch
offices in Indiana and to establish new 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 grant Indiana banks authority to acquire or
to 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 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. These restrictions have not had, and are not
currently expected to have, a material impact on the operations of the Bank.
FEDERAL RESERVE SYSTEM. Federal Reserve regulations, as presently in
effect, require depository institutions to maintain non-interest earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts), as follows: for transaction accounts aggregating $46.5 million or
less, the reserve requirement is 3% of total transaction accounts; and for
transaction accounts aggregating in excess of $46.5 million, the reserve
requirement is $1.395 million plus 10% of the aggregate amount of total
transaction accounts in excess of $46.5 million. The first $4.9 million of
otherwise reservable balances are exempted from the reserve requirements. These
reserve requirements are subject to annual adjustment by the Federal Reserve.
The Bank is in compliance with the foregoing requirements.
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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.
<TABLE>
<CAPTION>
At December 31
----------------------------------------
(In thousands)
SUMMARY OF FINANCIAL CONDITION: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total assets $ 96,604 $ 50,839 $ 11,841
Total cash and cash equivalents 15,719 4,535 1,410
Interest-bearing time deposits in
other financial institutions - 500 -
Securities available for sale 31,066 22,351 10,128
Loans receivable, net of allowance for loan losses 48,011 21,991 -
Total deposits 76,390 34,916 -
FHLB advances 2,000 - -
Total shareholders' equity 11,611 11,257 11,793
Average shareholders' equity 11,296 11,628 4,754
Average total assets 71,232 31,283 4,892
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1998 and 1997 and Period
From February 29, 1996 to December 31, 1996
-------------------------------------------
(In thousands)
SUMMARY OF OPERATING RESULTS: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total interest and dividend income $ 4,790 $ 2,022 $ 197
Total interest expense 2,699 942 8
------------ ------------ ----------
Net interest income 2,091 1,080 189
Provision for loan losses 392 360 -
Total noninterest income 158 4 -
Total noninterest expense 2,086 1,486 479
------------ ------------ ----------
Loss before income taxes (229) (762) (290)
Income tax expense - - -
------------ ------------ ------------
Net loss $ (229) $ (762) $ (290)
SUPPLEMENTAL DATA:
Return on average total assets (.32)% (2.44)% (5.93)%
Return on average shareholders' equity (2.03) (6.55) (6.10)
Net interest rate spread (1) 2.09 1.61 (1.25)
Net yield on average interest-earning assets (2) 3.15 3.72 4.58
Net interest income to operating expenses (3) 100.21 72.65 39.49
Average shareholders' equity to average total assets 15.86 37.17 97.18
Average interest-earning assets to average interest-
bearing liabilities 126.52 165.02 3,103.01
Nonperforming assets to total assets - - -
Nonperforming loans to total loan receivable - - -
Allowance for loan losses to total loans receivable 1.54 1.61 -
Allowance for loan losses to non-performing loans
receivable - - -
Basic and diluted loss per common share $ (.18) $ (.60) $ (.23)
Dividends declared per common share $ - $ - $ -
Book value per common share $ 9.08 $ 8.87 $ 9.32
Number of offices 1 1 -
</TABLE>
[FN]
(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) Operating expenses consist of other expenses less taxes.
</FN>
11
<PAGE> 12
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>
1998
-------------------------------------------------------
Average Average
Balance Interest Rate
------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
ASSETS
Interest-earning assets
Federal funds sold $ 6,114 $ 325 5.32%
Interest-bearing deposits in other
financial institutions 88 7 7.95
Securities available for sale-taxable (1) 27,459 1,652 6.08
FHLB stock 115 9 7.83
Loans receivable (2) 32,955 2,797 8.49
----------- ----------
Total interest-earning assets (1) 66,731 4,790 7.21%
Noninterest-earning assets
Cash and due from banks 3,644
Allowance for loan losses (536)
Premises and equipment, net 820
Accrued interest receivable and
other assets 573
$ 71,232
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Savings, NOW and money market $ 25,785 $ 1,286 4.99%
Certificates of deposit 18,278 1,011 5.53
Securities sold under agreements
to repurchase 8,601 399 4.64
Federal funds purchased 56 3 5.36
FHLB advances 22 - -
----------- ----------
Total interest-bearing liabilities 52,742 2,699 5.12%
----------
Noninterest-bearing liabilities
Demand deposits 6,955
Accrued interest payable and
other liabilities 239
-----------
59,936
Shareholders' equity 11,296
===========
$ 71,232
===========
Net interest income/spread $ 2,091 2.09%
========== =========
Net interest income as a percent
of average interest earning assets (1) 3.15%
=========
</TABLE>
[FN]
(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.
</FN>
12
<PAGE> 13
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL (CONTINUED)
<TABLE>
<CAPTION>
1997
------------------------------------------------------
Average Average
Balance Interest Rate
------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
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 (1) 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 market $ 7,873 $ 398 5.06%
Certificates of deposit 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 (1) 3.72%
=========
</TABLE>
[FN]
(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.
</FN>
13
<PAGE> 14
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL (CONTINUED)
<TABLE>
<CAPTION>
1996
-----------------------------------------------------
Average Average
Balance Interest Rate
------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
ASSETS
Interest-earning assets
Securities available for sale-taxable (1) $ 4,127 $ 197 4.77%
----------- ----------
Total interest-earning assets (1) 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 (1) 4.58%
=========
</TABLE>
[FN]
(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.
</FN>
14
<PAGE> 15
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 Total
Variance Variance Attributable To Variance Variance Attributable To
-------- ------------------------ -------- ------------------------
1998/1997 Volume Rate 1997/1996 Volume Rate
--------- ------ ---- --------- ------ ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Federal funds sold $ 148 $ 159 $ (11) $ 177 $ 177 $ -
Interest-bearing deposits in other
financial institutions (34) (41) 7 41 41 -
Securities available for sale-taxable 732 714 18 723 662 61
FHLB stock 9 9 - - - -
Loans receivable 1,913 1,959 (46) 884 884 -
--------- --------- --------- --------- -------- ----------
2,768 2,800 (32) 1,825 1,764 61
INTEREST EXPENSE
Savings, NOW and money market 888 893 (5) 398 398 -
Certificates of deposit 574 592 (18) 437 437 -
Securities sold under agreements
to repurchase 292 300 (8) 107 107 -
Federal funds purchased 3 3 - - - -
FHLB advances - - - - - -
Borrowings - - - (8) (8) -
--------- --------- --------- --------- -------- ----------
1,757 1,788 (31) 934 934 -
--------- --------- --------- --------- -------- ----------
NET INTEREST INCOME $ 1,011 $ 1,012 $ (1) $ 891 $ 830 $ 61
========= ========= ========= ========= ======== ==========
</TABLE>
II. INVESTMENT PORTFOLIO
A. The carrying value of securities available for sale as of December 31
are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
U.S. Government and federal agencies $ 27,276 $ 22,190 $ 10,128
Obligations of states and
political subdivisions 2,574 161 -
Corporate bonds 1,195 - -
Marketable equity securities 21 - -
------------ ------------ ------------
$ 31,066 $ 22,351 $ 10,128
============ ============ ============
</TABLE>
15
<PAGE> 16
II. INVESTMENT PORTFOLIO (CONTINUED)
B. The maturity distribution and weighted average interest rates of debt
securities available for sale at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
-------------------------------------Maturing-------------------------------------
(Dollars in thousands)
After One Year After Five Years
Within But Within But Within After
One Year Five Years Ten Years Ten Years
-------- ---------- --------- ---------
Amount Rate Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
federal agencies $ 3,020 6.15% $ 15,965 5.96% $ 8,291 6.14% $ - -%
Obligations of states
and political
subdivisions - - 2,040 5.12 - - 534 5.40
Corporate bonds 1,195 6.18 - - - - - -
--------- --------- --------- ---------
$ 4,215 6.16% $ 18,005 5.86% $ 8,291 6.14% $ 534 5.40%
========= ========= ======== =========
</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, 1998.
III. LOAN PORTFOLIO
A. Types of Loans - Total loans on the balance sheet are comprised of
the following classifications at December 31 for the years indicated:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Commercial $ 33,202 $ 14,733 $ -
Residential real estate mortgage 13,925 6,376 -
Installment loans to individuals 1,636 1,242 -
------------- ------------ ------------
$ 48,763 $ 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 68% 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 29% of the loan
portfolio and are collateralized by residential real estate.
Installment loans to individuals make up approximately 3% of the loan
portfolio and are primarily collateralized by consumer assets.
16
<PAGE> 17
III. LOAN PORTFOLIO (CONTINUED)
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, for the year indicated 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>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Maturing
Within one year $ 17,391 $ 5,785 $ -
After one year but within five years 13,215 7,991 -
After five years 2,596 957 -
------------- ------------ ------------
$ 33,202 $ 14,733 $ -
============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
--------------------Commercial Loan Interest Sensitivity---------------------
1 9 9 8 1 9 9 7
(In thousands)
Fixed Variable Fixed Variable
Rate Rate Total Rate Rate Total
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Due after one year but
within five years $ 12,895 $ 320 $ 13,215 $ 5,339 $ 2,652 $ 7,991
Due after five years 2,596 - 2,596 553 404 957
---------- ---------- ---------- ---------- ---------- ----------
$ 15,491 $ 320 $ 15,811 $ 5,892 $ 3,056 $ 8,948
========== ========== ========== ========== ========== ==========
</TABLE>
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>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <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>
17
<PAGE> 18
III. LOAN PORTFOLIO (CONTINUED)
Management believes the allowance for loan losses at December
31, 1998 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>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Gross interest income that would have been recorded in
1998, 1997 and 1996 on nonaccrual loans outstanding at
December 31, 1998, 1997 and 1996 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>
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 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, 1998, 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.
18
<PAGE> 19
III. LOAN PORTFOLIO (CONTINUED)
3. Foreign Outstandings
None
4. Loan Concentrations
None
D. Other Interest-Bearing Assets
There are no other interest-bearing assets as of December 31, 1998
which would be required to be disclosed under Item III. C.1 or 2 if
such assets were loans.
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 years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
LOANS
Loans outstanding at end of period $ 48,763 $ 22,351 $ -
========== ========== ==========
Average loans outstanding during period $ 32,955 $ 9,895 $ -
========== ========== ==========
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period $ 360 $ - $ -
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 392 360 -
---------- ---------- ----------
Balance at end of period $ 752 $ 360 $ -
========== ========== ==========
Ratio of net charge-offs during the period to
average loans outstanding during the period -% -% -%
========== ========== ==========
</TABLE>
19
<PAGE> 20
IV. SUMMARY OF LOAN LOSS EXPERIENCE (CONTINUED)
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.
B. The following schedule is a breakdown of the allowance for loan
losses allocated by type of loan and related ratios at December 31:
<TABLE>
<CAPTION>
----------------- Allocation of the Allowance for Loan Losses --------------------
1998 1997 1996
---- ---- ----
Percentage of Percentage of Percentage of
Loans In Loans In Loans In
Each Each Each
Category Category Category
Allowance to Total Allowance to Total Allowance to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $471 68.1% $151 65.9% $ -- --%
---- ---- ---- ---- ----- ----
Residential real estate
mortgage 75 28.5 49 28.5 -- --
Installment loans to
individuals 31 3.4 14 5.6 -- --
Unallocated 175 -- 146 -- -- --
---- ---- ---- ---- ----- ----
$752 100.0% $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 8 1 9 9 7 1 9 9 6
------- ------- -------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Savings, NOW and money
market $ 25,785 4.99% $ 7,873 5.06% $ - -%
Certificates of deposit 18,278 5.53 7,583 5.76 - -
Demand deposits (noninterest-
bearing) 6,955 - 1,904 - - -
--------- --------- -------
$ 51,018 $ 17,360 $ -
========= ========= =======
</TABLE>
20
<PAGE> 21
V. DEPOSITS (CONTINUED)
Maturities of time certificates of deposit and other time deposits of
$100,000 or more outstanding at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7 1 9 9 6
------- ------- -------
Amount Amount Amount
(In thousands)
<S> <C> <C> <C>
Three months or less $ 9,979 $ 6,607 $ -
Over three months and through six months 1,555 6,316 -
Over six months and through twelve months 2,007 1,722 -
Over twelve months 1,525 605 -
------------ ------------ ------------
$ 15,066 $ 15,250 $ -
============ ============ ============
</TABLE>
VI. RETURN ON EQUITY AND ASSETS
The ratio of net loss to average shareholders' equity and average total
assets and certain other ratios are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Average total assets $ 71,232 $ 31,283 $ 4,892
============ ============ ============
Average shareholders'
equity (1) $ 11,296 $ 11,628 $ 4,754
============ ============ ============
Net loss $ (229) $ (762) $ (290)
============ ============ ============
Cash dividends declared $ - $ - $ -
============ ============ ============
Return on average total assets (.32)% (2.44)% (5.93)%
Return on average shareholders' equity (2.03)% (6.55)% (6.10)%
Dividend payout percentage -% - % -%
Average shareholders'
equity to average total assets 15.86% 37.17% 97.18%
</TABLE>
(1) Net of average unrealized appreciation or depreciation on securities
available for sale.
VII. SHORT-TERM BORROWINGS
The Company had securities sold under agreements to repurchase for which
the average balance outstanding during the reported period was 30
percent or more of shareholders' equity at the end of the reported
period. The required disclosure is incorporated by reference and can be
located in Note 7 to the consolidated financial statements.
21
<PAGE> 22
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.
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
$77,000 for 1998 and increases by $9,500 in 1999 and each succeeding year for
the two remaining years of the lease. 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
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was held by approximately 70
holders of record as of March 11, 1999, 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 trades 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.
22
<PAGE> 23
<TABLE>
<CAPTION>
Per Share Per Share
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 -
1998
March 31, 1998 $ 22.000 $ 17.250 -
June 30, 1998 20.000 18.000 -
September 30, 1998 20.000 16.250 -
December 31, 1998 18.250 16.375 -
</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, 1998, 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
INTRODUCTION
The following narrative presents management's discussion and
analysis of St. Joseph Capital Corporation's (the Company) financial position
and results of operations for the past three years. The objective of this
financial review is to enhance the reader's understanding of the accompanying
tables, consolidated financial statements and the related notes thereto
presented elsewhere in this report.
RESULTS OF OPERATIONS
Consolidated net loss for the Company for 1998 was $(228,519)
compared to $(762,120) and $(290,219) in 1997 and 1996. Basic and diluted loss
per common share was $(.18) in 1998 compared to $(.60) and $(.23) in 1997 and
1996. No cash dividends were paid in 1998, 1997 or 1996.
23
<PAGE> 24
Net interest income, the difference between revenue generated
from earning assets and the interest cost of funding those assets, is the
Company's primary source of earnings. Net interest income for 1998 was $2.1
million, an increase of 93.6% or $1.0 million over 1997 and $1.9 million over
1996. The net interest margin for the Bank was 3.15%, 3.72% and 4.58% in 1998,
1997 and 1996, respectively.
Average loans outstanding increased 233% in 1998. Average
yield on these loans was 8.49% and 8.93% in 1998 and 1997, respectively. The
changes in yield are reflective of the competitive nature of market rates during
these periods. Average securities available for sale represent 41% of average
interest-bearing assets of the Company at December 31, 1998, and the yields were
6.08%, 5.97% and 4.77% as of December 31, 1998, 1997 and 1996. The increase in
yield is a result of market rates and portfolio mix.
Average total interest-bearing liabilities increased to $52.7
million in 1998 compared with $17.6 million in 1997 and $.1 thousand in 1996.
The average rate on interest-bearing liabilities was 5.12%, 5.35% and 6.02% in
1998, 1997 and 1996, respectively. The decrease in yield is a direct reflection
of falling short and long-term interest rates.
At December 31, 1998, total loan receivables, net of deferred
loan fees, increased to $48.8 million compared to $22.4 and $0 at December 31,
1997 and 1996. The increase was funded by growth in deposits. The mix of total
loan receivables at December 31, 1998 was $33.2 million or 68.0% in commercial
loans, $13.9 million or 28.7% in residential real estate mortgage loans and $1.6
million or 3.3% in installment loans to individuals.
Securities available for sale totaled $31.1 million at
December 31, 1998, which represented an increase of $8.7 million or 38.8% from
$22.4 million at December 31, 1997. The increase was funded by growth in
deposits. All securities have been classified as available for sale. Available
for sale securities represent those securities which the 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 $554,950 at December 31, 1998
compared to $132,368 at December 31, 1997.
Total deposits at December 31, 1998 amounted to $76.4 million.
Funds received from the sale of securities sold under agreements to repurchase
and Federal Home Loan Bank advances at December 31, 1998 were $8.4 million. This
compares to $34.9 million in total deposits and $4.5 million in securities sold
under agreements to repurchase and Federal Home Loan Bank advances at December
31, 1997. These funds were invested in loan receivables and securities available
for sale, as discussed above, and in federal funds sold 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 potential losses from their evaluation
of portfolio risk and economic factors. The provision for loan losses was
$391,675 in 1998 compared to $360,000 in 1997 and $0 in 1996. The increase in
the provision and the increase in the allowance for loan losses during 1998 were
due to estimated loan losses; the exact amount of which are impossible to
predict. At December 31, 1998 the allowance for loan losses was 1.54% of total
loans receivable compared to 1.61% at December 31, 1997.
24
<PAGE> 25
The Bank has not experienced any charge-offs from loan
receivables since inception. At December 31, 1998, 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 62.6% of the allowance for
loan losses to commercial loans; 10.0% to residential real estate mortgage
loans; and 4.1% to installment loans to individuals at December 31, 1998,
leaving 23.3% unallocated. There were no non-performing loans at December 31,
1998. Management believes the allowance for loan losses balance at December 31,
1998 is adequate to absorb potential losses in the loan portfolio.
Total non-interest income was $158,872 in 1998 compared to
$4,386 in 1997 and $0 in 1996. Non-interest income resulted from net gains on
sales and calls of securities available for sale and other income. Net gains on
securities available for sale were $116,644 and $2,139 in 1998 and 1997,
respectively. Service charges on deposit accounts were $32,228 and $2,247 in
1998 and 1997, respectively. The increase was the result of a 193.9% increase in
average deposits. Included in other income was $10,000 in 1998 compared to $0 in
1997 and 1996.
Total non-interest expense increased 40.4% in 1998 compared to
an increase of 209.9% in 1997, primarily due to the following factors. Salaries
and employee benefits increased 38.5% in 1998 compared to an increase of 178.0%
in 1997. The increase was the result of adding additional personnel to service
the growth in loans and deposits. Occupancy and equipment expense increased
49.1% compared to 918.9% in 1997. Other expense increased 37.6% compared to
140.8% in 1997. Management continues to control overhead expenses without
impairing the quality of service provided to clients. Operating from a single
location has proven to be both efficient and effective. The Company's total
assets per employee approximated $4.2 million and $3.0 million at December 31,
1998 and 1997, respectively; this compares very favorably to banks of similar
size.
The potential future income tax benefit from the financial
statement net operating losses in 1998, 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. As
the Company becomes profitable, the valuation allowance will be reduced and a
tax benefit will be realized. The federal and state income tax benefit from the
financial statement losses in 1998, 1997 and 1996 can be carried forward for
twenty years and fifteen years from the time of the loss before they expire.
As of December 31, 1998, the Company has $687,245 and $522,703
of net operating loss carryforwards available for federal and state income tax
purposes expiring in 2016 and 2017 for federal purposes and 2011 and 2012 for
state purposes.
25
<PAGE> 26
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 $46.8 million at December 31,
1998 compared to $27.4 million and $11.5 million at December 31, 1997 and 1996.
Liquidity levels improved $19.4 million from 1997 to 1998 primarily due to
increased investments in liquid assets funded by growth in deposits, which
exceeded the growth in loan receivables. Management recognizes that securities
may need to be sold in the future to help fund loan demand and accordingly, as
of December 31, 1998, the entire securities portfolio of $31.1 million was
classified as available for sale. Management believes its current liquidity
level is sufficient to meet anticipated future growth.
The Company has secured a line of credit with the Federal Home
Loan Bank. As of December 31, 1998, the Bank has $2.0 million in Federal Home
Loan Bank advances outstanding secured by $3.1 million in Government Agencies
which are part of the investment portfolio.
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 1998, 1997 and 1996 follows.
During the 1998 period presented, the Company experienced a
net increase in cash from operating activities. Net cash from operating
activities was $115,518 during 1998 compared to a net decrease in cash from
operating activity of $(764,627) and $(433,816) for the periods ended December
31, 1997 and 1996. The increase in cash from operating activities of $880,145
during 1998 as compared to 1997 was primarily a result of the Bank's ability to
reduce net operating loss to $(228,519) in 1998 compared to a net loss of
$(762,120) in 1997.
For all periods presented, the Company also experienced a net
decrease in net cash from investing activities. Net cash from investing
activities was $(34.5) million, $(35.6) million and $(10.3) million for the
periods ended December 31, 1998, 1997 and 1996, respectively. The changes in net
cash from investing activities include reinvestments of interest-bearing
deposits in other financial institutions; purchases, maturities, calls and sales
of securities available for sale; growth in loans receivable and purchases of
premises and equipment. In 1998 the Company received $11.3 million from sales of
securities available for sale compared to $4.0 million in 1997.
Net cash flow from financing activities was $45.5 million,
$39.5 million and $12.1 million for the periods ended December 31, 1998, 1997
and 1996, respectively. In 1998 and 1997, the increase was primarily
attributable to growth in total deposits, securities sold under agreements to
repurchase and Federal Home Loan Bank advances of $41.5 million, $1.9 million
and $2.0 million compared to $34.9 million, $4.5 million and $0. In 1996 the
increase was primarily due to net proceeds from the issuance of common stock of
$12.1 million from the Offering.
26
<PAGE> 27
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 non-interest
expense, which tends to rise during periods of general inflation.
MANAGEMENT OF INTEREST SENSITIVITY
A number of measures are used to monitor and manage interest
rate risk, including income simulation and interest sensitivity (GAP) analysis.
An income simulation model is management's primary tool used to assess the
direction and magnitude of variations in net interest income resulting from
changes in interest rates. Key assumptions in the model include repayment speeds
on various loan and investment assets; cash flow and maturities of financial
instruments held for purposes other than trading; changes in market conditions,
loan volumes, and pricing; deposit sensitivity; client preferences; and
management's capital plans. These assumptions are inherently uncertain, subject
to fluctuations and revision in a dynamic environment and as a result, the model
cannot precisely estimate net interest income or exactly predict the impact of
higher or lower interest rates on net interest income. Actual results will
differ from simulated results due to timing, magnitude, and frequency of
interest rate changes and changes in market conditions and management
strategies, among other factors.
Results of the simulation done as of December 31, 1998,
suggest that the Company could expect net interest income to decrease by
approximately $160,000 (if interest rates gradually decline by 100 basis points
over the next twelve months) and to increase approximately $160,000 (if interest
rates gradually increased 100 basis points over the next twelve months) from
forecast levels of net interest income absent any changes in rates. These
variances in net interest income were within the Company's policy parameters
established to manage interest rate risk. In addition to changes in interest
rate, the level of future net interest income is also dependent on a number of
other variables, including growth, composition and absolute levels of deposits,
loans, and other earning assets and interest-bearing liabilities, economic and
competitive conditions, client preference and other factors.
Austin Advisors, Inc., a firm specializing in consulting and
providing assistance to banks, performs a formal asset/liability management
analysis on a monthly basis. This information is presented and reviewed by the
"ALCO" Committee.
CAPITAL RESOURCES
Total shareholders' equity was $11.6 million as of December
31, 1998, an increase of $ .3 million from $11.3 million as of December 31,
1997. The increase was a result of the increase in the net unrealized gains on
securities available for sale as well as the investment in the Company by its
employees through the Company's 401k plan.
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
27
<PAGE> 28
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 Bank's actual
capital ratios at December 31, 1998:
CAPITAL RATIOS
<TABLE>
<CAPTION>
Minimum Minimum Required
Required For To Be Well
Capital Capitalized Under Bank's
Adequacy Prompt Corrective Capital
December 31, 1998 Purposes Action Regulations Ratio
- ----------------- -------- ------------------ -----
<S> <C> <C> <C>
Ratio of Total Capital
to Risk Weighted Assets 8.0% 10.00% 17.1%
Ratio of Tier 1 Capital
to Risk Weighted Assets 4.0% 6.0% 15.8%
Ratio of Tier 1 Capital
to Average Assets 4.0% 5.0% 11.0%
</TABLE>
The Bank exceeded the applicable minimum regulatory capital
requirements at December 31, 1998 and was considered to be well capitalized.
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 years ended December 31, 1998, 1997 or 1996.
As of December 31, 1998, management was not aware of any
current recommendations by the banking regulatory authorities which, it they
were to be implemented, would have, or are reasonably likely to have, a material
adverse effect on the Company's liquidity, capital resources or operations.
IMPACT OF YEAR 2000 COMPLIANCE
The Company initiated a company-wide project in 1997 to
prepare its computer systems infrastructure for Year 2000 compliance. The
following discussion of the implications of the Year 2000 issue for the Company
contains numerous forward-looking statements based on inherently uncertain
information. The cost of the project and the date on which the Company plans to
complete the internal Year 2000 modifications are based on management's best
estimates, which management derived utilizing a number of assumptions of future
events including the continued availability of internal and external resources,
including employees, modifications to systems provided by third parties and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ.
In 1997, the Company prepared a project plan, which identified
its mission critical applications. The Company has identified and tested
critical systems for readiness as part of this process. In addition, the Company
evaluated clients and vendors who have significant relationships with the
Company to determine whether they are preparing and will
28
<PAGE> 29
be ready for the Year 2000. The Company considers the potential failure of
those clients to be adequately prepared as part of the credit and loan review
process. However, there can be no guarantee that any needed remediation of the
systems of the Company's vendors or clients will be completed on a timely basis.
The Company has reviewed its systems, including desktop
computers and facilities related items for Year 2000 compliance. The Company has
budgeted $48,000 in 1999 to cover expenses associated with Year 2000 compliance
issues. The Company will fund the costs through normal operating cash flow. The
project is staffed with internal staff as well as a third party vendor.
The Company is reliant on vendors and has been addressing Year
2000 issues with them. As of December 31, 1998, the Company has identified
critical vendors and has completed formalized risk assessments of their Year
2000 readiness plans. The Company will continue to monitor and replace vendors
or make alternative arrangements as required.
The Company is reliant on its clients to make necessary
preparations for the Year 2000 so that their business operations will not be
interrupted, as an interruption could threaten their ability to honor financial
commitments. The Company has identified relationships, consisting of borrowers,
capital market/asset management counterparties, funding sources, and large
depositors with financial volumes sufficiently large to warrant inquiry as to
Year 2000 preparation. Clients found to have a significant risk of not being
ready for the Year 2000 are encouraged to make the efforts to become compliant.
The Company is undertaking measures to minimize risk with those that appear to
pose a significant risk. Quarterly reviews and follow up assessments of
customers will continue in 1999.
The Company's Year 2000 program includes the active
involvement of senior executives as well as other employees of the Company.
Senior management, the board of directors and a Year 2000 Committee regularly
review the overall program. The federal and state agencies that regulate the
banking industry also monitor the program.
Computer failure of third party vendors, should they occur,
could have a significant impact on the Company's operations. The most serious
impact on the Company's operations from vendors would result if services such as
data processing, telecommunications, electric power suppliers and services
provided by other financial institutions and governmental agencies were
disrupted.
Operational failures among the Company's sources of major
funding and larger borrowers could affect their ability to continue to provide
funding or meet obligations when due. It is not possible to accurately estimate
the likelihood, or potential impact, of significant disruptions among the
Company's funding sources and obligors at this time.
The Company has developed a remediation contingency plan and
business resumption contingency plan specific to the Year 2000. The remediation
contingency plan addresses the actions to be taken if the current approach to
remediating a system is falling behind schedule or otherwise appears in jeopardy
of failing to deliver a Year 2000 ready system when needed. The business
resumption contingency plan addresses the actions that would be taken if
critical business functions cannot be carried out in the normal manner due to
system or supplier failure.
29
<PAGE> 30
FORWARD-LOOKING STATEMENTS
The foregoing disclosure contains "forward-looking statements"
within the meaning of the Securities Act of 1933 and the Securities Exchange Act
of 1934, both as amended, with respect to expectations for future periods. These
forward looking statements relate to the impact of Year 2000 and the interest
rate sensitivity analysis, all changes which are subject to risks and
uncertainties that could cause actual results to differ. These risks and
uncertainties include unanticipated changes in the competitive environment and
relationships with third party vendors and clients and certain other factors
discussed in this report.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements and related notes are contained herein.
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
30
<PAGE> 31
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, 1998 and 1997 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years ended December 31, 1998, 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, 1998 and 1997, and the results of its operations and its cash flows
for the years ended December 31, 1998, 1997 and for the period from February 29,
1996 (date of inception) to December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
South Bend, Indiana
February 19, 1999
31
<PAGE> 32
ST. JOSEPH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,113,583 $ 985,464
Interest-bearing deposits in other financial institutions -
short-term 5,531 -
Federal funds sold 9,600,000 3,550,000
--------------- ---------------
Total cash and cash equivalents 15,719,114 4,535,464
Interest-bearing deposits in other financial institutions
(cost approximates fair value) - 500,000
Securities available for sale 31,066,346 22,351,254
Federal Home Loan Bank (FHLB) stock 222,200 -
Loans receivable, net of allowance for loan losses
of $751,675 in 1998 and $360,000 in 1997 48,011,296 21,991,115
Accrued interest receivable 739,024 526,339
Premises and equipment, net 742,495 881,840
Other assets 103,565 53,322
Total assets $ 96,604,040 $ 50,839,334
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing demand $ 11,442,145 $ 3,951,366
Savings, NOW and money market 46,414,185 13,612,678
Certificates of deposit 18,534,135 17,351,837
--------------- ----------------
Total deposits 76,390,465 34,915,881
Securities sold under agreements to repurchase 6,388,971 4,503,760
FHLB advances 2,000,000 -
Accrued interest payable 100,707 120,890
Other liabilities 113,052 41,431
--------------- ----------------
Total liabilities 84,993,195 39,581,962
Shareholders' equity
Preferred stock, $.01 par value, 100,000 shares
authorized; -0- shares issued and outstanding - -
Common stock, $.01 par value, 2,500,000 shares
authorized; 1,278,625 and 1,269,486 shares issued
and outstanding in 1998 and 1997 12,786 12,695
Additional paid-in capital 12,323,967 12,164,648
Accumulated deficit (1,280,858) (1,052,339)
Net unrealized appreciation on securities available for
sale, net of tax of $-0- in 1998 and 1997 554,950 132,368
--------------- ----------------
Total shareholders' equity 11,610,845 11,257,372
--------------- ----------------
Total liabilities and shareholders' equity $ 96,604,040 $ 50,839,334
=============== ================
</TABLE>
- -------------------------------------------------------------------------------
32
See accompanying notes to consolidated financial statements.
<PAGE> 33
ST. JOSEPH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and period from
February 29, 1996 to December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest and dividend income
Loans receivable, including fees $ 2,796,772 $ 883,629 $ -
Securities available for sale - taxable 1,652,227 920,425 197,057
FHLB stock 8,703 - -
Federal funds sold 325,139 176,944 -
Other interest earning assets 6,882 41,181 -
------------ -------------- --------------
Total interest and dividend income 4,789,723 2,022,179 197,057
Interest expense
Deposits 2,297,456 834,759 -
Securities sold under agreements to repurchase 398,701 107,393 -
Other borrowings 2,922 172 7,656
------------ -------------- --------------
Total interest expense 2,699,079 942,324 7,656
------------ -------------- --------------
NET INTEREST INCOME 2,090,644 1,079,855 189,401
Provision for loan losses 391,675 360,000 -
------------ -------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,698,969 719,855 189,401
Noninterest income
Gain on sales and calls of securities
available for sale, net 116,644 2,139 -
Other income 42,228 2,247 -
------------ -------------- --------------
Total noninterest income 158,872 4,386 -
Noninterest expense
Salaries and employee benefits 1,047,262 756,388 272,088
Occupancy and equipment 449,496 301,478 29,588
Other expense 589,602 428,495 177,944
------------ -------------- --------------
Total noninterest expense 2,086,360 1,486,361 479,620
------------ -------------- --------------
LOSS BEFORE INCOME TAXES (228,519) (762,120) (290,219)
Income tax expense - - -
------------ -------------- --------------
NET LOSS $ (228,519) $ (762,120) $ (290,219)
============ ============== ==============
Basic and diluted loss per common share $ (.18) $ (.60) $ (.23)
============ ============== ==============
</TABLE>
- -------------------------------------------------------------------------------
33
See accompanying notes to consolidated financial statements.
<PAGE> 34
ST. JOSEPH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and
period from February 29, 1996 to December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation) on
Additional Securities Available Total
Common Paid-In Accumulated for Sale, Shareholders'
Stock Capital Deficit Net of Tax Equity
----- ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 29, 1996 $ - $ - $ - $ - $ -
Comprehensive loss:
Net loss - - (290,219) - (290,219)
Net change in net unrealized
appreciation (depreciation) on
securities available for sale, net
of reclassification adjustments
and tax effects - - - (32,547) (32,547)
---------------
Total comprehensive loss - - - - (322,766)
Proceeds from issuance of common
stock for initial capitalization 1,000 - - - 1,000
Proceeds from 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)
----------- -------------- ------------- ------------- ---------------
BALANCE AT DECEMBER 31, 1996 12,652 12,103,000 (290,219) (32,547) 11,792,886
Comprehensive loss:
Net loss - - (762,120) - (762,120)
Net change in net unrealized
appreciation (depreciation) on
securities available for sale, net
of reclassification adjustments
and tax effects - - - 164,915 164,915
---------------
Total comprehensive loss - - - - (597,205)
Proceeds from issuance of
4,326 shares of common stock 43 61,648 - - 61,691
----------- -------------- ------------- ------------- ---------------
BALANCE AT DECEMBER 31, 1997 12,695 12,164,648 (1,052,339) 132,368 11,257,372
Comprehensive income:
Net loss - - (228,519) - (228,519)
Net change in net unrealized
appreciation (depreciation) on
securities available for sale, net
of reclassification adjustments
and tax effects - - - 422,582 422,582
---------------
Total comprehensive income - - - - 194,063
Proceeds from issuance of
9,139 shares of common stock 91 159,319 - - 159,410
----------- -------------- ------------- ------------- ---------------
BALANCE AT DECEMBER 31, 1998 $ 12,786 $ 12,323,967 $ (1,280,858) $ 554,950 $ 11,610,845
=========== ============== ============= ============= ===============
</TABLE>
- -------------------------------------------------------------------------------
34
See accompanying notes to consolidated financial statements.
<PAGE> 35
ST. JOSEPH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended
December 31, 1998, 1997 and period from
February 29, 1996 to December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (228,519) $ (762,120) $ (290,219)
Adjustments to reconcile net loss
to net cash from operating activities
Depreciation 219,273 138,215 4,176
Provision for loan losses 391,675 360,000 -
Net amortization (accretion) on securities
available for sale 61,223 (61,395) (167,621)
Gain on sales and calls of securities
available for sale, net (116,644) (2,139) -
Net change in
Accrued interest receivable (212,685) (526,339) -
Other assets (50,243) (24,651) (28,671)
Accrued interest payable (20,183) 120,890 -
Other liabilities 71,621 (7,088) 48,519
-------------- -------------- ---------------
Net cash from operating activities 115,518 (764,627) (433,816)
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits in
other financial institutions 500,000 (500,000) -
Purchase of securities available for sale (28,031,891) (32,281,778) (17,054,828)
Proceeds from sales of securities available for sale 11,269,802 4,001,875 -
Proceeds from maturities and calls of securities
available for sale 8,525,000 16,285,000 7,062,000
Purchase of FHLB stock (222,200) - -
Net change in loans receivable (26,411,856) (22,351,115) -
Purchase of premises and equipment, net (79,928) (745,335) (278,896)
-------------- -------------- ---------------
Net cash from investing activities (34,451,073) (35,591,353) (10,271,724)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 41,474,584 34,915,881 -
Net change in securities sold under agreements
to repurchase 1,885,211 4,503,760 -
Proceeds from FHLB advances 2,000,000 - -
Proceeds from other borrowings - - 275,000
Repayment of other borrowings - - (275,000)
Proceeds from issuance of common stock, net 159,410 61,691 12,115,652
-------------- -------------- ---------------
Net cash from financing activities 45,519,205 39,481,332 12,115,652
-------------- -------------- ---------------
Net change in cash and cash equivalents 11,183,650 3,125,352 1,410,112
Cash and cash equivalents at beginning of period 4,535,464 1,410,112 -
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,719,114 $ 4,535,464 $ 1,410,112
============== ============== ===============
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 2,719,262 $ 821,434 $ 7,656
Income taxes - - -
</TABLE>
- -------------------------------------------------------------------------------
35
See accompanying notes to consolidated financial statements.
<PAGE> 36
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 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. 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.
Segments: The Company, through its subsidiary, St. Joseph Capital Bank (the
Bank), provides a broad range of financial services to individuals and companies
in northern Indiana. These services include demand, time and savings deposits;
lending; credit card servicing; ATM processing and cash management. While the
Company's chief decision makers monitor the revenue streams of the various
Company products and services, operations are managed and financial performance
is evaluated on a company-wide basis. Accordingly, all of the Company's banking
operations are considered by management to be aggregated in one reportable
operating segment.
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 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, 1998 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 requirements was $477,000 and
$107,000 at year end 1998 and 1997.
- -------------------------------------------------------------------------------
36
(Continued)
<PAGE> 37
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 other
comprehensive income (loss) and 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.
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. 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.
- -------------------------------------------------------------------------------
37
(Continued)
<PAGE> 38
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, 1998 or
1997.
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 9.
Income Taxes: Income tax expense (benefit) 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. As the Company has only recently
begun operations, a valuation allowance reduces deferred tax assets to zero.
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 13.
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 14.
Comprehensive Income (Loss): Comprehensive income (loss) consists of net income
(loss) and other comprehensive income (loss). Other comprehensive income (loss)
includes the net change in net unrealized appreciation (depreciation) on
securities available for sale, net of tax which is also recognized as a separate
component of shareholders' equity. The accounting standard that requires
reporting comprehensive income (loss) first applies for 1998, with prior
information restated to be comparable.
- -------------------------------------------------------------------------------
38
(Continued)
<PAGE> 39
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income (Loss) Per Common Share: Basic income (loss) per common share is based on
the net income (loss) divided by the weighted average number of common shares
outstanding during the period. Diluted income (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 income or loss per common share are provided as if
the fair value method of SFAS No. 123 were used for stock-based compensation.
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 16. 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.
Reclassifications: Certain amounts in the 1997 and 1996 consolidated financial
statements were reclassified to conform with the 1998 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 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 $12,115,000. 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.
- -------------------------------------------------------------------------------
39
(Continued)
<PAGE> 40
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 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
1998 Cost Gains Losses Value
- ---- ---- ----- ------ -----
<S> <C> <C> <C> <C>
Debt securities
U.S. Government and
federal agencies $ 26,706,094 $ 575,570 $ (5,660) $ 27,276,004
Obligations of states and
political subdivisions 2,586,869 4,538 (17,039) 2,574,368
Corporate bonds 1,193,446 1,403 - 1,194,849
Marketable equity securities 24,987 - (3,862) 21,125
-------------- --------------- ------------- ---------------
$ 30,511,396 $ 581,511 $ (26,561) $ 31,066,346
============== =============== ============= ===============
1997
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
============== =============== ============= ===============
</TABLE>
The amortized cost and fair value of 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, 1998----------
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 4,197,141 $ 4,214,699
Due after one year through five years 17,618,128 18,005,072
Due after five years through ten years 8,138,426 8,290,770
Due after ten years 532,714 534,680
Marketable equity securities 24,987 21,125
--------------- ----------------
$ 30,511,396 $ 31,066,346
=============== ================
</TABLE>
- -------------------------------------------------------------------------------
40
(Continued)
<PAGE> 41
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 3 - SECURITIES AVAILABLE FOR SALE (Continued)
Activities related to sales and calls of securities available for sale are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Proceeds from sales $ 11,269,802 $ 4,001,875 $ -
Gross gains on sales 117,139 2,802 -
Gross gains on calls 522 - -
Gross losses on sales 1,017 663 -
Tax effects of gain on sales and calls, net - - -
</TABLE>
At December 31, 1998 and 1997, securities and FHLB stock, with an amortized cost
of approximately $14,364,000 and $7,119,000, respectively, were pledged to
secure certain deposits, securities sold under agreements to repurchase and FHLB
advances.
NOTE 4 - LOANS RECEIVABLE, NET
Year end loans receivable were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
One to four family residential mortgage loans $ 13,311,145 $ 5,909,708
Construction loans - residential 629,168 468,094
Construction loans - commercial 4,966,020 3,400,709
Commercial and multi-family real estate loans 14,988,484 6,251,140
Commercial business loans 13,247,735 5,081,563
Consumer loans 1,636,286 1,241,508
--------------- ---------------
48,778,838 22,352,722
Allowance for loan losses (751,675) (360,000)
Net deferred loan origination fees (15,867) (1,607)
--------------- ---------------
$ 48,011,296 $ 21,991,115
=============== ===============
</TABLE>
Activity in the allowance for loan losses at year end was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Beginning balance $ 360,000 $ - $ -
Provision for loan losses 391,675 360,000 -
Recoveries - - -
Charge-offs - - -
--------------- --------------- ---------------
Ending balance $ 751,675 $ 360,000 $ -
=============== =============== ===============
</TABLE>
- -------------------------------------------------------------------------------
41
(Continued)
<PAGE> 42
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE, NET (Continued)
At December 31, 1998 and 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 years ended December 31, 1998 and 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>
1998 1997
---- ----
<S> <C> <C>
Balance - beginning of year $ 1,272,000 $ -
New loans 1,723,000 1,330,000
Repayments (756,000) (58,000)
Other changes 600,000 -
--------------- ---------------
Balance - end of year $ 2,839,000 $ 1,272,000
=============== ===============
</TABLE>
Other changes include adjustments for loans applicable to one reporting period
that are excludable from the other reporting period.
NOTE 5 - PREMISES AND EQUIPMENT, NET
Year end premises and equipment were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Leasehold improvements, furniture, fixtures
and equipment $ 1,104,159 $ 1,024,231
Accumulated depreciation (361,664) (142,391)
---------------- ----------------
$ 742,495 $ 881,840
================ ================
</TABLE>
- -------------------------------------------------------------------------------
42
(Continued)
<PAGE> 43
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 6 - DEPOSITS
Certificates of deposit in denominations of $100,000 or more was approximately
$15,066,000 and $15,250,000 at year end 1998 and 1997.
At December 31, 1998, the scheduled maturities of certificates of deposit were
as follows for the years ended December 31:
<TABLE>
<S> <C>
1999 $ 16,926,888
2000 604,470
2001 1,002,777
-----------------
$ 18,534,135
=================
</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 for 1998 and 1997, is summarized
as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Amount outstanding at year end $ 6,388,971 $ 4,503,760
Weighted average interest rate at year end 4.08% 4.97%
Maximum month end balance during the year $ 14,183,976 $ 4,588,163
Average daily balance during the year $ 8,600,634 $ 2,152,651
Weighted average interest rate during the year 4.64% 4.99%
</TABLE>
Securities, including accrued interest, underlying these agreements at year end
were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Carrying value $ 11,367,000 $ 6,042,000
Fair value $ 11,367,000 $ 6,042,000
</TABLE>
The following presents the carrying value and market value, including accrued
interest, of securities pledged for securities sold under agreements to
repurchase according to the maturity of such agreements at December 31, 1998.
<TABLE>
<CAPTION>
Repurchase
Liability
U.S. Agencies U.S. Treasuries Total Weighted
------------------- ------------------- ------------------- Average
Carrying Market Carrying Market Carrying Market Repurchase Interest
Value Value Value Value Value Value Liability Rate
----- ----- ----- ----- ----- ----- --------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Overnight $ 9,322 $ 9,322 $ 2,045 $ 2,045 $ 11,367 $ 11,367 $ 6,389 4.08%
========== ========== ========== ========= ========== ========== ========== ========
</TABLE>
- -------------------------------------------------------------------------------
43
(Continued)
<PAGE> 44
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Continued)
At December 31, 1998, information regarding repurchase agreements with an
underlying at risk amount which exceeds 10% of total shareholders' equity is as
follows:
<TABLE>
<CAPTION>
Weighted
Average Maturity
Amount Of Repurchase
At Risk Liability
------- ---------
<S> <C> <C>
Counterparty No. 1 $ 1,392,000 Overnight
Counterparty No. 2 1,833,000 Overnight
Counterparty No. 3 1,463,000 Overnight
Counterparty No. 4 1,962,000 Overnight
Counterparty No. 5 1,659,000 Overnight
Counterparty No. 6 1,827,000 Overnight
</TABLE>
The amount at risk under a repurchase agreement is defined as the excess of the
carrying amount, or market value, if higher, of the sold securities, including
accrued interest, over the amount of the repurchase liability, evaluated on an
individual counterparty basis regardless of whether this amount is used for
other repurchase agreements. The Company is at risk for this amount if the
counterparty fails to perform under the terms of the repurchase agreement.
NOTE 8 - ADVANCES FROM FHLB
At December 31, 1998, the Bank had an advance from the FHLB of Indianapolis in
the amount of $2,000,000 with a fixed interest rate of 4.99% which matures in
2008. The advance contains an option for the FHLB to convert the entire advance
to a periodic adjustable rate advance at December 30, 2003 with an interest rate
equal to the three month LIBOR flat rate. At December 31, 1998, in addition to
FHLB stock of $222,200, the Company pledged securities with a minimum carrying
value of approximately $3,075,000 to the FHLB to secure advances outstanding.
NOTE 9 - BENEFIT PLANS
The Company's Board of Directors has adopted stock option plans. Under the terms
of these plans, options for up to 200,000 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.
- -------------------------------------------------------------------------------
44
(Continued)
<PAGE> 45
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 9 - BENEFIT PLANS (Continued)
SFAS No. 123 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 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 1998, 1997
and 1996.
The fair value of options granted during 1998, 1997 and 1996 is estimated using
the following weighted average information: risk-free interest rate of 4.8%,
6.5% and 6.5%, expected life of 10 years, expected volatility of stock price of
.18, .13 and .15, and expected dividends of 0% per year.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss as reported $ (228,519) $ (762,120) $ (290,219)
Proforma net loss $ (382,553) $ (1,181,415) $ (476,453)
Basic and diluted loss per common
share as reported $ (.18) $ (.60) $ (.23)
Proforma basic and diluted loss
per common share $ (.30) $ (.93) $ (.38)
</TABLE>
In future years, the proforma effect of not applying this standard is expected
to increase as additional options are granted.
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
Granted 34,367 17.25 - 18.25 17.98 $ 6.92
-----------
Outstanding, end of 1998 126,162 10.00 - 18.25 13.45
===========
</TABLE>
- -------------------------------------------------------------------------------
45
(Continued)
<PAGE> 46
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 9 - BENEFIT PLANS (Continued)
The weighted average remaining contractual life of options outstanding at
December 31, 1998 was approximately eight years. Stock options exercisable at
December 31, 1998, 1997 and 1996 totaled 99,362, 77,795 and 28,030 at a weighted
average exercise price of $12.22, $12.06 and $10.05. As of December 31, 1998,
73,838 options remain available for future grants.
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 $24,000 for 1998, $14,000 for 1997 and
$-0- for 1996.
NOTE 10 - OTHER EXPENSE
Other expense amounts were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Advertising and promotion $ 49,659 $ 48,403 $ 23,487
Client courier 92,297 49,317 -
Data processing 110,531 64,107 2,650
Incorporation expense 6,156 6,156 30,819
Liability insurance 26,461 25,200 2,158
Printing, postage, stationery and supplies 46,287 44,221 31,639
Professional dues and memberships 21,258 16,082 8,238
Professional fees 112,786 84,921 55,805
Telephone 31,884 22,951 8,148
Other 92,283 67,137 15,000
------------- ------------- --------------
$ 589,602 $ 428,495 $ 177,944
============= ============= ==============
</TABLE>
- -------------------------------------------------------------------------------
46
(Continued)
<PAGE> 47
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES
There was no income tax expense (benefit) for 1998, 1997 or 1996 as the result
of recording a valuation allowance in the amount of net deferred tax assets.
Total income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% in all periods presented to loss before income
taxes as a result of the following for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate $ (77,696) $ (259,121) $ (98,674)
Tax effect of:
State tax, net of federal income
tax effect (13,071) (41,699) (15,814)
Effect of deferred tax valuation allowance 77,791 293,094 111,658
Other, net 12,976 7,726 2,830
------------- ------------ ---------------
Total income tax expense $ - $ - $ -
============= ============ ===============
</TABLE>
The components of the net deferred tax asset recorded in the consolidated
balance sheets as of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 262,987 $ 286,625 $ 173,625
Allowance for bad debts 264,767 142,596 -
Donation carryforward - 4,315 -
Net unrealized depreciation
on securities available for sale - - 13,019
Other 7,633 1,007 -
------------- ------------ ---------------
535,387 434,543 186,644
</TABLE>
- -------------------------------------------------------------------------------
47
(Continued)
<PAGE> 48
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax liabilities
Accretion $ (15,841) $ (13,379) $ (61,359)
Depreciation (37,003) (16,412) -
Other - - (608)
------------- ------------ ---------------
(52,844) (29,791) (61,967)
Valuation allowance (482,543) (404,752) (124,677)
------------- ------------ ---------------
Net deferred tax asset $ - $ - $ -
============= ============ ===============
</TABLE>
A valuation allowance has been recorded to offset the excess of all deferred tax
assets over deferred tax liabilities.
As of December 31, 1998, the Company has $687,245 and $522,703 of net operating
loss carryforwards available for federal and state income tax purposes expiring
in 2016 - 2017 for federal purposes and 2011 - 2012 for state purposes.
NOTE 12 - 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.
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
BASIC LOSS PER COMMON SHARE
Net loss $ (228,519) $ (762,120) $ (290,219)
Weighted average common shares
outstanding 1,276,596 1,266,830 1,265,024
============== ============== ==============
BASIC LOSS PER COMMON SHARE $ (.18) $ (.60) $ (.23)
============== ============== ==============
</TABLE>
- -------------------------------------------------------------------------------
48
(Continued)
<PAGE> 49
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 12 - BASIC AND DILUTED LOSS PER COMMON SHARE (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
DILUTED LOSS PER COMMON SHARE
Net loss $ (228,519) $ (762,120) $ (290,219)
Weighted average common shares
outstanding 1,276,596 1,266,830 1,265,024
Add: dilutive effects of assumed stock
option exercises - - -
-------------- -------------- --------------
Weighted average common and dilutive
additional potential common shares
outstanding 1,276,596 1,266,830 1,265,024
============== ============== ==============
DILUTED LOSS PER COMMON SHARE $ (.18) $ (.60) $ (.23)
============== ============== ==============
</TABLE>
Outstanding stock options for 126,162, 91,795 and 56,030 shares of common stock
at December 31, 1998, 1997 and 1996, were not considered in computing diluted
loss per common share for 1998, 1997 and 1996 because they were antidilutive.
Additionally, in January 1999 the Company granted stock options for 3,266 shares
of common stock which may affect the computation of diluted earnings per common
share in future periods.
NOTE 13- 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.
Commitments at year end were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Commitments to extend credit $ 4,040,000 $ 5,105,000
Unused open end revolving lines of credit 21,821,000 11,924,000
Standby letters of credit 3,147,000 1,043,000
</TABLE>
- -------------------------------------------------------------------------------
49
(Continued)
<PAGE> 50
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 13- COMMITMENTS AND CONTINGENCIES (Continued)
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 $346,000 at December 31, 1998.
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 were
$77,000 for 1998 and $67,500 for 1997, the first year of the lease. The lease
payments increase by $9,500 in 1999 and in each succeeding year for the two
remaining years of the lease.
<TABLE>
<S> <C>
1999 $ 86,500
2000 96,000
2001 105,500
-------------
Total $ 288,000
=============
</TABLE>
NOTE 14 - 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
1998 Amount Ratio Amount Ratio Amount Ratio
- ---- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets) $ 9.9 17.1% $ 4.7 8.0% $ 5.8 10.0%
Tier 1 capital (to risk weighted assets) 9.2 15.8 2.3 4.0 3.5 6.0
Tier 1 capital (to average assets) 9.2 11.0 3.4 4.0 4.2 5.0
1997
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>
- -------------------------------------------------------------------------------
50
(Continued)
<PAGE> 51
.
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS
Presented below are the condensed financial statements for the parent company,
St. Joseph Capital Corporation.
CONDENSED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,870,197 $ 1,773,792
Securities available for sale 21,125 -
Investment in Bank subsidiary 9,717,009 9,476,930
Other assets 4,588 12,092
--------------- ----------------
Total assets $ 11,612,919 $ 11,262,814
=============== ================
LIABILITIES
Other liabilities $ 2,074 $ 5,442
SHAREHOLDERS' EQUITY 11,610,845 11,257,372
--------------- ----------------
Total liabilities and shareholders' equity $ 11,612,919 $ 11,262,814
=============== ================
</TABLE>
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and period from
February 29, 1996 to December 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income $ 119 $ 66,545 $ 197,057
Interest expense - - (7,656)
Other expenses (42,273) (172,327) (479,620)
--------------- --------------- ----------------
LOSS BEFORE INCOME TAXES AND EQUITY
IN UNDISTRIBUTED NET LOSS OF BANK
SUBSIDIARY (42,154) (105,782) (290,219)
Income tax benefit - - -
--------------- --------------- ----------------
LOSS BEFORE EQUITY IN UNDISTRIBUTED
NET LOSS OF BANK SUBSIDIARY (42,154) (105,782) (290,219)
Equity in undistributed net loss of Bank
subsidiary (186,365) (656,338) -
--------------- --------------- ----------------
NET LOSS $ (228,519) $ (762,120) $ (290,219)
=============== =============== ================
</TABLE>
- -------------------------------------------------------------------------------
51
(Continued)
<PAGE> 52
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 15 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and period from
February 29, 1996 to December 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (228,519) $ (762,120) $ (290,219)
Adjustments to reconcile net loss
to net cash from operating activities
Equity in undistributed net loss
of Bank subsidiary 186,365 656,338 -
Depreciation - 1,528 4,176
Discount accretion - (45,542) (167,621)
Net change in other assets 7,504 6,224 (28,671)
Net change in other liabilities (3,368) (43,077) 48,519
-------------- -------------- -------------
Net cash from operating activities (38,018) (186,649) (433,816)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Bank subsidiary - (346,382) -
Purchase of securities available for sale (24,987) (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 (24,987) 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 159,410 61,691 12,115,652
-------------- -------------- -------------
Net cash from financing activities 159,410 61,691 12,115,652
-------------- -------------- -------------
Net change in cash and cash equivalents 96,405 363,680 1,410,112
Cash and cash equivalents at beginning of period 1,773,792 1,410,112 -
-------------- -------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,870,197 $ 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>
- -------------------------------------------------------------------------------
52
(Continued)
<PAGE> 53
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments at year end are as follows, in thousands:
<TABLE>
<CAPTION>
---------------1998----------- --------------1997------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 15,719 $ 15,719 $ 4,535 $ 4,535
Interest-bearing deposits in other
financial institutions - - 500 500
Securities available for sale 31,066 31,066 22,351 22,351
FHLB stock 222 222 - -
Loans receivable, net of allowance
for loan losses 48,011 48,370 21,991 22,039
Accrued interest receivable 739 739 526 526
Financial liabilities
Noninterest-bearing demand,
savings, NOW and money
market (57,856) (57,856) (17,564) (17,564)
Certificates of deposit (18,534) (18,534) (17,352) (17,352)
Securities sold under agreements to
repurchase (6,389) (6,389) (4,504) (4,504)
FHLB advances (2,000) (2,000) - -
Accrued interest payable (101) (101) (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 1998 or 1997, 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 1998 and
1997 should not necessarily be considered to apply at subsequent dates.
- -------------------------------------------------------------------------------
53
(Continued)
<PAGE> 54
ST. JOSEPH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
NOTE 17 - OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) components and related taxes were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net change in net unrealized appreciation
(depreciation) on securities available
for sale
Net unrealized appreciation (depreciation)
arising during the year $ 539,226 $ 167,054 $ (32,547)
Reclassification adjustments for gains
included in net loss (116,644) (2,139) -
------------ ------------ ------------
Net change in net unrealized appreciation
(depreciation) on securities available
for sale 422,582 164,915 (32,547)
Tax effects - - -
------------ ------------ ------------
Total other comprehensive income (loss) $ 422,582 $ 164,915 $ (32,547)
============ ============ ============
</TABLE>
54
<PAGE> 55
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 1999 Proxy
Statement under the caption "Election of Directors" is incorporated by
reference.
B. Executive Officers. The Company's executive officer who is
not also a director is 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.
Employment Agreement between St. Joseph Capital and John W.
Rosenthal, dated March 18, 1996 is 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.
Amendment to the Employment Agreement between St. Joseph
Capital and John W. Rosenthal, dated March 18, 1996 is incorporated by reference
from the 1997 Form 10-KSB filed by the Company on March 31, 1998.
ITEM 10. EXECUTIVE COMPENSATION
The information on pages 4 - 5 of the 1999 Proxy Statement
under the caption "Executive Compensation" is incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information on pages 6 - 7 of the 1999 Proxy Statement,
under the caption "Security Ownership of Certain Beneficial Owners" in
incorporated by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on page 4 of the 1999 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
55
<PAGE> 56
See Part II, Item 7, Financial Statements herewith in,
(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
None
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, 1999.
ST. JOSEPH CAPITAL CORPORATION
By: /s/ John W. Rosenthal
John W. Rosenthal, Chief Executive Officer
and Chairman of the Board
By: /s/ Edward R. Pooley
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, 1999.
Signature Title
--------- -----
/s/ John W. Rosenthal President, Principal Executive Officer
John W. Rosenthal and Chairman of the Board
/s/ Brian R. Brady Director
Brian R. Brady
/s/ David A. Eckrich Director
David A. Eckrich
/s/ Jerry Hammes Director
Jerry Hammes
56
<PAGE> 57
Signature Title
--------- -----
/s/ V. Robert Hepler Director
V. Robert Hepler
/s/ Helen L. Krizman Director
Helen L. Krizman
/s/ Scott C. Malpass Director
Scott C. Malpass
/s/ Jack Matthys Director
Jack Matthys
/s/ Arthur H. McElwee Director
Arthur H. McElwee
/s/ Myron Noble Director
Myron Noble
/s/ Richard A. Rosenthal Director
Richard A. Rosenthal
/s/ Robert A. Sullivan Director
Robert A. Sullivan
57
<PAGE> 58
ST. JOSEPH CAPITAL CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION OF EXHIBITS PAGE NUMBER
<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. Joseph Capital and John W. ***
Rosenthal, dated March 18, 1996
10.5 St. Joseph Capital Bank 401(k) Plan **
21.1 Subsidiary of St. Joseph Capital Corporation *
23.1 Consent of Crowe, Chizek & Company LLP
27.1 Financial Data Schedule
99.1 Proxy Statement and form of proxy for the Annual Meeting of Stockholders to be ***
held April 27, 1999, (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).
*** Incorporated by reference from the 1997 Form 10-KSB filed by the
Company on March 31, 1998.
**** Portions incorporated by reference from the Form 14A (Definitive
Proxy Statement) filed by the Company on March 22, 1999. 58
58
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement of
St. Joseph Capital Corporation on Form S-8 (Registration No. 333-14999) dated
October 29, 1996, relative to the St. Joseph Capital Bank 401(k) Plan, of our
reports, dated February 19, 1999 on the consolidated financial statements of St.
Joseph Capital Corporation as of December 31, 1998, 1997 and 1996 and for the
years ended December 31, 1998, 1997 and for the period from February 29, 1996
(date of inception) to December 31, 1996, included in St. Joseph Capital
Corporation's Annual Reports on Form 10-KSB for 1998.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
South Bend, Indiana
March 25, 1999
60
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,113,583
<INT-BEARING-DEPOSITS> 5,331
<FED-FUNDS-SOLD> 9,600,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,288,546
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 48,762,971
<ALLOWANCE> 751,675
<TOTAL-ASSETS> 96,604,040
<DEPOSITS> 76,390,465
<SHORT-TERM> 6,388,971
<LIABILITIES-OTHER> 213,759
<LONG-TERM> 2,000,000
<COMMON> 12,786
0
0
<OTHER-SE> 11,598,059
<TOTAL-LIABILITIES-AND-EQUITY> 96,604,040
<INTEREST-LOAN> 2,796,772
<INTEREST-INVEST> 1,660,930
<INTEREST-OTHER> 332,021
<INTEREST-TOTAL> 4,789,723
<INTEREST-DEPOSIT> 2,297,456
<INTEREST-EXPENSE> 2,699,079
<INTEREST-INCOME-NET> 2,090,644
<LOAN-LOSSES> 391,675
<SECURITIES-GAINS> 116,644
<EXPENSE-OTHER> 2,086,360
<INCOME-PRETAX> (228,519)
<INCOME-PRE-EXTRAORDINARY> (228,519)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (228,519)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
<YIELD-ACTUAL> 3.15
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 360,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 751,675
<ALLOWANCE-DOMESTIC> 576,992
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 174,683
</TABLE>
