SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Commission File No.: 0-21491
BIG FOOT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
ILLINOIS
(State or other jurisdiction of incorporation or organization)
36-4108480
(I.R.S. Employer Identification No.)
1190 RFD, LONG GROVE, IL
(Address of principal executive offices)
60047-7304
(Zip code)
(847) 634-2100
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE.
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
-------------------
COMMON STOCK, $.01 PAR VALUE PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting and non-voting common equity of the
Registrant by non-affiliates was approximately $14.4 million as of September 22,
2000.
As of September 22, 2000, 1,731,668 shares of the Registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's 2000 Annual Report to Stockholders are incorporated
by reference in Part II.
Portions of the Registrant's Proxy Statement for its 2000 Annual Meeting of
Stockholders are incorporated by reference in Part III.
<PAGE>
BIG FOOT FINANCIAL CORP.
REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
JUNE 30, 2000
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ITEM PART I PAGE
<S> <C> <C>
1 BUSINESS 3
2 PROPERTIES 34
3 LEGAL PROCEEDINGS 34
PART II
4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 34
5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 34
6 SELECTED FINANCIAL DATA 35
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 36
7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 36
8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 36
9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 36
PART III
10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 36
11 EXECUTIVE COMPENSATION 36
12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 37
13 CERTAIN RELATIONSHIPS AND RELATED TRANSCTIONS 37
PART IV
14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 37
</TABLE>
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FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward looking statements
consisting of estimates with respect to the financial condition, results of
operations and business of the Company that are subject to various factors which
could cause actual results to differ materially from these estimates. These
factors include: changes in general, economic and market conditions; the
development of an adverse interest rate environment that adversely affects the
interest rate spread or other income anticipated from the Company's operations
and investments; and depositor and borrower preferences.
--------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL. Big Foot Financial Corp. (the "Company"), an Illinois
corporation, is the holding company for Fairfield Savings Bank, F.S.B. (the
"Bank"), a federally chartered stock savings bank. On December 19, 1996 the
Company issued and sold 2,512,750 shares of its common stock, $.01 par value per
share (the "Common Stock"), at a price of $10.00 per share in a subscription
offering. The Company's sole business activity consists of the business of the
Bank. The Company also invests in long and short-term investment grade
marketable securities and other liquid investments.
At June 30, 2000, the Company had total assets of $215.7 million, of
which $155.2 million was comprised of loans receivable and $37.4 million was
comprised of mortgage-backed securities. At such date, total savings deposits
were $115.5 million, borrowings were $66.0 million and stockholders' equity was
$28.6 million. The Company's common stock is quoted on the National Market
System of the Nasdaq Stock Market under the symbol "BFFC". Unless otherwise
disclosed, the information presented in this Annual Report on Form 10-K
represents the activity of the Bank for the period prior to December 19, 1996
and the activity of Big Foot Financial Corp. consolidated thereafter. Unless the
context otherwise requires, all references herein to the Bank or the Company
include the Company and the Bank on a consolidated basis.
In connection with its public offering, the Bank changed its fiscal
year-end to June 30. The Company's and the Bank's fiscal year 1997 consisted of
the 11-month period beginning August 1, 1996 and ending June 30, 1997. The
Company believes that it is appropriate to compare the results for the 11-month
period ended June 30, 1997 with the years ending June 30, 2000, 1999 and 1998.
The Bank was originally founded in 1901 as an Illinois state chartered
mutual savings and loan association. On July 1, 1991, the Bank converted to a
federally chartered mutual savings bank. The Bank is subject to extensive
regulation, supervision and examination by the Office of Thrift Supervision (the
"OTS"), its primary regulator, and the Federal Deposit Insurance Corporation
(the "FDIC"), which insures its deposits. The Bank's savings deposits are
insured up to the maximum allowable amount by the Savings Association Insurance
Fund (the "SAIF") of the FDIC.
The Bank's principal business consists of gathering savings deposits
from the general public within its market area and investing those savings
deposits primarily in one- to four-family residential mortgage loans,
mortgage-backed securities and obligations of the U.S. Government. To a lesser
extent, the Bank originates multifamily residential loans, commercial real
estate loans, land, construction and development loans, consumer loans
(including loans secured by savings deposits) and commercial lines of credit.
The Bank's revenues are derived principally from interest on mortgage loans and
mortgage-backed securities. The Bank's primary sources of funds are savings
deposits, proceeds from principal and interest payments on loans,
mortgage-backed and investment securities and Federal Home Loan Bank ("FHLB")
advances.
MARKET AREA. The Bank is a community-oriented financial institution
which provides a variety of financial services to meet the needs of the
communities which it serves. The Bank serves three
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distinct geographic markets: the Chicago branch at 1601 North Milwaukee Avenue
serves the near northwest side of the City of Chicago, the Norridge branch at
8301 West Lawrence serves Chicago's near northwestern suburbs and the Long Grove
branch at Old McHenry Road and Route 83 serves northern Cook and southern Lake
counties. The Bank's customer base may be categorized by branch location. In the
Chicago branch, the customer base is largely comprised of blue collar workers
and young white collar technicians and professionals. The Chicago market is
experiencing new construction and a refurbishing of its existing aged housing
stock and is an active mortgage market as well as a savings market. The Norridge
branch serves a customer base split between blue and white collar workers where
the market is mature. The Norridge market has modest prospects for growth;
however, it provides the Bank with a stable source of deposits. The Long Grove
office is situated in an affluent, high growth, white collar market. This is a
dynamic market which provides the Bank with significant loan demand and
potential for growth opportunities in savings and lending activities.
Substantially all loans originated by the Bank are secured by real estate
located in Cook, DuPage and Lake counties in Illinois.
COMPETITION. The Bank faces intense and increasing competition both in
making loans and in attracting savings deposits. The Bank's market area has a
high density of financial institutions, many of which have greater financial
resources, name recognition and market presence than the Bank, and all of which
are competitors of the Bank to varying degrees.
The Bank's competition for loans comes principally from commercial
banks, other savings banks, savings and loan associations, mortgage banking
companies, finance companies and credit unions. The Bank's most direct
competition for savings deposits historically has come from other savings banks,
savings and loan associations, commercial banks and credit unions. In addition,
the Bank faces increasing competition for savings deposits from non-bank
institutions such as brokerage firms, insurance companies, money market mutual
funds, other mutual funds (such as corporate and government securities funds)
and annuities. Trends toward the consolidation of the banking industry and the
lifting of interstate banking and branching restrictions may make it more
difficult for smaller institutions, such as the Bank, to compete effectively
with large national and regional banking institutions.
While the Bank is subject to competition from other financial
institutions which may have much greater financial and marketing resources, the
Bank believes it benefits by its community bank orientation as well as its
relatively high core deposit base. Management believes that the variety, depth
and stability of the communities in which the Bank is located support the
service and lending activities conducted by the Bank. The relative economic
stability of the Bank's lending area is reflected in the small number of
mortgage delinquencies experienced by the Bank.
IMPACT OF THE ECONOMY ON OPERATIONS. Declines in the local economy,
national economy or real estate market could adversely affect the financial
condition and results of operations of the Bank, including decreased demand for
loans or increased competition for good loans, increased non-performing loans
and loan losses and resulting additional provisions for loan losses and for
losses on real estate owned.
4
<PAGE>
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists
primarily of conventional first mortgage loans secured by one- to four-family
residences. At June 30, 2000, the Bank had gross loans receivable outstanding of
$155.7 million, of which $153.8 million, or 98.7% of gross loans, were one- to
four-family residential mortgage loans. The remainder consisted of $0.6 million
of multifamily mortgage loans, or 0.4% of gross loans; $0.4 million of
commercial real estate mortgage loans, or 0.3% of gross loans; $0.7 million of
home equity loans, or 0.5% of gross loans; and $155,000 of other loans, or 0.1%
of gross loans.
The loans that the Bank may originate are subject to federal and state
laws and regulations. Interest rates charged by the Bank on loans are affected
by the demand for such loans, the supply of money available for lending purposes
and the rates offered by competitors. These factors are in turn affected by,
among other things, economic conditions, monetary policies of the federal
government, including the Board of Governors of the Federal Reserve System (the
"FRB"), and legislative tax policies.
All of the Bank's lending is subject to its written, nondiscriminatory
underwriting standards and to loan origination procedures prescribed by the
Bank's Board of Directors the majority of which conform to the Federal National
Mortgage Association ("Fannie Mae") standards. Property valuations by a member
of the Bank's appraisal staff or independent appraisers approved by the Board of
Directors are required. Detailed loan applications are obtained to determine the
borrower's ability to repay, and the more significant items on these
applications are verified through the use of credit reports, financial
statements and confirmations. Generally, the Bank will lend against the
appraised value of property up to a maximum loan to value ratio of 95%. Private
mortgage insurance is required on all loans with loan to value ratios greater
than 80%. All loans are approved by the full Board of Directors. Mortgage loans
originated by the Bank generally include due on sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property without the Bank's
consent. Due on sale clauses are an important means of adjusting the rates of
the Bank's fixed-rate mortgage loan portfolio, and the Bank has generally
exercised its rights under these clauses. It is the Bank's policy to require
title insurance policies certifying or insuring that the Bank has a valid first
lien on the mortgaged real estate. Borrowers must also obtain hazard insurance
policies prior to closing and, where necessary, flood insurance policies. Most
borrowers are required to maintain a noninterest-bearing escrow account or a
pledged passbook savings account with the Bank to cover charges for real estate
taxes, hazard insurance premiums and assessments.
Under applicable federal law, the aggregate amount of loans that the
Bank is permitted to make to any one borrower is generally limited to 15% of
unimpaired capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential development loans). At June
30, 2000, based on the above, the Bank's regulatory loans to one borrower limit
was approximately $3.2 million. At June 30, 2000, the two largest dollar amounts
outstanding to one borrower or group of related borrowers were approximately
$497,000 and $479,000. Both of these loans are secured by one- to four-family
properties located in the Bank's market area and, at June 30, 2000, were
performing in accordance with their terms.
5
<PAGE>
The following table sets forth the composition of the Bank's mortgage
and other loan portfolios in dollar amounts and in percentages at the dates
indicated.
<TABLE>
<CAPTION>
AT JUNE 30
--------------------------------------------------------------------------- AT JULY 31,
2000 1999 1998 1997 1996
----------------- ------------------ ------------------ ----------------- ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to four-family $153,803 98.7 % $136,924 98.5 % $113,441 97.8 % $ 91,133 96.7 % $76,325 95.6 %
Multifamily (1) 603 0.4 610 0.4 741 0.6 942 1.0 979 1.2
Commercial real estate 429 0.3 593 0.4 833 0.7 384 0.4 411 0.5
Land, construction/
development - - 58 0.1 118 0.1 403 0.4 404 0.5
Home equity 731 0.5 597 0.4 822 0.7 1,258 1.3 1,421 1.8
-------- ------ -------- ------ -------- ----- ------- ----- ------- -----
Total mortgage loans $155,566 99.9 % $138,782 99.8 % $115,955 99.9 % $ 94,120 99.8 % $79,540 99.6 %
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Other loans
Commercial credit lines - - - - - - - - 150 0.2
Loans on savings deposits 155 0.1 316 0.2 144 0.1 181 0.2 192 0.2
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Total other loans 155 0.1 316 0.2 144 0.1 181 0.2 342 0.4
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
Loans receivable,
gross $155,721 100.0 % $139,098 100.0 % $116,099 100.0 % $ 94,301 100.0 % $79,882 100.0%
-------- ===== -------- ===== -------- ===== -------- ===== ------- =====
Less:
Loans in process $ - $ - $ - $ - $ -
Deferred loan fees 234 281 327 377 438
Allowance for loan losses 300 300 300 300 300
-------- -------- -------- -------- -------
Loans receivable, net $155,187 $138,517 $115,472 $ 93,624 $79,144
======== ======== ======== ======== =======
</TABLE>
(1) Multifamily includes participation in Community Investment Corporation
("CIC") of $386,000 at June 30, 2000, $333,000 at June 30, 1999, $389,000 at
June 30, 1998, $413,000 at June 30, 1997, and $381,000 at July 31, 1996. CIC is
a not-for-profit tax-exempt corporation whose purpose is to focus the resources
and expertise of the financial community to revitalize certain neighborhoods in
Chicago.
MORTGAGE LOANS. At June 30, 2000, over 98.0% of the Bank's $155.6
million mortgage loan portfolio consisted of mortgage loans secured by one- to
four-family residential real estate. While the Bank offers adjustable-rate
mortgage products, the Bank's customer base has historically favored fixed-rate
mortgage loans, which are generally priced off the Fannie Mae delivery rate with
adjustments relating to local competition and the availability of funds. At June
30, 2000, approximately 97.0% of the Bank's mortgage portfolio was comprised of
fixed-rate loans. The balance of the mortgage loan portfolio is comprised of
adjustable rate loans, including approximately $3.9 million of one-to
four-family residential mortgages, the majority of which are tied to the
National Cost of Funds Index and adjust annually to rates from 2.5% to 2.75%
over the Index. These loans carry annual caps and life-of-the-loan ceilings to
protect borrowers against sudden rate volatility. Generally, adjustable rate
mortgage loans pose credit risks somewhat greater than the credit risk inherent
in fixed-rate loans primarily because, as interest rates rise, the underlying
payments of the borrowers rise, increasing the potential for default. It is the
Bank's policy to underwrite its adjustable rate mortgage loans based on the
fully indexed origination rate. The Bank currently has no mortgage loans that
are subject to negative amortization. Management intends to continue to
emphasize fixed rate loans secured by single family owner-occupied units. The
Bank also makes home equity loans.
LAND, CONSTRUCTION AND DEVELOPMENT LOANS. The Bank offers a residential
construction loan program for custom home buyers and builders, who typically
have a longstanding business relationship with the Bank. The Bank has
established additional guidelines and progress pay-out procedures for these
loans in recognition of the higher degree of risk involved in making such loans.
6
<PAGE>
MULTIFAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE. Multifamily
residential and commercial real estate and land loans are generally considered
to involve a higher degree of credit risk than one- to four-family residential
mortgage loans. This greater risk is attributable to several factors, including
the higher concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income-producing
properties and the increased difficulty of evaluating and monitoring these types
of loans. Furthermore, the repayment of loans secured by multifamily residential
and commercial real estate is typically dependent upon sufficient cash flow from
the related real estate project to cover operating expenses and debt service. If
the cash flow from the project is reduced (for example, if leases are not
obtained or renewed), the borrower's ability to repay the loan may be impaired.
Circumstances outside the borrower's control may adversely affect income from
the multifamily or commercial property as well as its market value.
OTHER LOANS. The Bank also makes short term fixed-rate and
adjustable-rate other loans, such as loans secured by savings accounts and
commercial lines of credit. These loans generally have an average life of less
than two years. The shorter terms to maturity and the short term repricing
periods are helpful in managing the Bank's interest rate risk.
ORIGINATION OF LOANS. Loans are originated by the Bank's staff of
salaried loan officers. Residential loan originations can be attributed to
depositors, retail customers, telephone inquiries, newspaper ads, loan officers,
and referrals from other borrowers, real estate brokers and builders. Loan
applications are taken and processed at each of the Bank's offices.
Historically, the bulk of all loans originated by the Bank have been retained in
the Bank's portfolio.
The following table sets forth the Bank's loan originations, loan sales
and principal repayments for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-----------------------------------------------------
2000 1999 1998
------------- ------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Loan balances at beginning of year $ 139,098 $ 116,099 $ 94,301
------------- ------------- --------------
Mortgage loans originated:
One-to four-family 32,079 43,587 38,612
Multifamily 270 98 34
Commercial real estate - - 550
------------- ------------- --------------
Total mortgage loans originated 32,349 43,685 39,196
Other loans originated:
Other loans 173 449 249
------------- ------------- --------------
Total loans originated 32,522 44,134 39,445
------------- ------------- --------------
Additional draws - open-end home equity loans 475 279 428
Principal repayments (16,296) (21,414) (17,838)
Loans transferred to foreclosed real estate (78) - -
Loans sold - - (237)
------------- ------------- --------------
Loan balances at end of year $ 155,721 $ 139,098 $ 116,099
============= ============= ==============
</TABLE>
INCOME FROM LENDING ACTIVITIES. The Bank realizes interest income and
servicing fee income from its lending activities. For the most part, interest
rates charged by the Bank on loans are determined
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by local competition, although they also reflect general interest rates, demand
for loans and availability of funds.
The Bank charges service fees, late payment and other miscellaneous
service fees. During the years ended June 30, 2000, 1999 and 1998, the Bank
recognized fees totaling $15,000, $16,000 and $18,000, respectively.
LOAN MATURITY. The following table shows the contractual maturity of
the Bank's loan portfolio at June 30, 2000. Loans are shown as due based on
their contractual terms to maturity rather than when interest rates are next
subject to change. The table does not include prepayments or scheduled principal
amortization.
<TABLE>
<CAPTION>
MORTGAGE LOANS TOTAL LOANS
----------------------------------------------- -------------------------------
ONE-TO WEIGHTED
DUE DURING YEAR FOUR- MULTI- COMMERCIAL HOME OTHER AVERAGE
ENDING JUNE 30, FAMILY FAMILY REAL ESTATE EQUITY LOANS AMOUNT RATE
--------------- ------ ------ ----------- ------ ----- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
2001 $ 97 $ 7 $ 11 $ 28 $ 61 $ 204 8.28 %
2002 214 19 - 250 33 516 8.86
2003 339 10 50 81 61 541 7.89
2004 and 2005 715 27 - 99 - 841 8.32
2006 to 2011 13,385 - - 273 - 13,658 7.05
2012 to 2016 31,603 290 20 - - 31,913 6.85
2017 to 2021 4,304 250 348 - - 4,902 7.42
2022 and following 103,146 - - - - 103,146 7.08
---------- ------- ------ ----- ----- --------- -------
Total loans due, gross $ 153,803 $ 603 $ 429 $ 731 $ 155 $ 155,721 7.06 %
========== ======= ====== ===== ===== ========= ========
</TABLE>
The following table sets forth at June 30, 2000, the dollar amount of
loans due after June 30, 2001, and whether such loans have fixed interest rates
or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER JUNE 30, 2001
---------------------------------------------
FIXED ADJUSTABLE TOTAL
--------- ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Mortgage loans:
One- to four-family $ 149,839 $ 3,867 $ 153,706
Multifamily 596 - 596
Commercial real estate 398 20 418
Home equity - 703 703
--------- --------- -------------
Total mortgage loans $ 150,833 $ 4,590 $ 155,423
Other loans 94 - 94
--------- --------- -------------
Total loans $ 150,927 $ 4,590 $ 155,517
========= ========= =============
</TABLE>
DELINQUENCIES AND NON-PERFORMING ASSETS
DELINQUENCY PROCEDURES. When a borrower fails to make a required
payment on a loan, the Bank attempts to cause the deficiency to be cured by
contacting the borrower. Contacts are made after a payment is more than 15 days
past due, and a late charge is assessed at that time. In most cases,
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deficiencies are cured promptly. If the deficiency exceeds 90 days and is not
cured through the Bank's normal collection procedures, the Bank may institute
measures to remedy the default, including commencing a foreclosure action or
accepting from the mortgagor a voluntary deed of the secured property in lieu of
foreclosure. If a foreclosure action is instituted and the loan is not
reinstated, paid in full or refinanced, the property is sold at a judicial sale.
If the Bank acquires the property at judicial sale or accepts a voluntary deed
of the secured property in lieu of foreclosure, the acquired property is then
listed in the Bank's Foreclosed Real Estate ("FRE") account until it is sold. At
June 30, 2000, the Bank had one FRE, which amounted to $78,000. The Bank is
permitted to finance sales from its FRE account by "loans to facilitate," which
involve a lower down payment or a longer repayment term or other more favorable
features than generally would be granted under the Bank's underwriting
guidelines. Currently, the Bank has no such "loans to facilitate."
The following table sets forth information with respect to the Bank's
non-performing assets (which includes loans that are delinquent for 90 days or
more and FRE) at the dates indicated. At June 30, 2000, there were no loans
other than those included in the table below with regard to which management had
information about possible credit problems of the borrower that caused
management to seriously doubt the ability of the borrower to comply with present
loan repayment terms.
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------------------------------ AT JULY 31,
NON-PERFORMING LOANS: 2000 1999 1998 1997 1996
--------------------- -------- -------- -------- ------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family $ 249 $ 186 $ 342 $ 199 $ 69
Multifamily - 7 - - -
Commercial real estate - - - - -
Land, construction and development - - - - -
Home equity - - - - 49
Other loans - - - - -
-------- -------- -------- ------- --------
Total non-performing loans 249 193 342 199 118
-------- -------- -------- ------- --------
Foreclosed real estate 78 - - - -
-------- -------- -------- ------- --------
Total non-performing assets $ 327 $ 193 $ 342 $ 199 $ 118
======== ======== ======== ======= ========
Total non-performing loans to total loans 0.16 % 0.14 % 0.29 % 0.21 % 0.15 %
Total non-performing assets to total assets 0.15 0.09 0.16 0.09 0.06
</TABLE>
A loan is placed on non-accrual status when it becomes 90 days or more
delinquent and when the collection of principal and/or interest becomes
doubtful. At June 30, 2000, the Bank had one single family residential loan with
an outstanding principal balance of $113,000 that was non-accruing. At June 30,
1999, the Bank had one single family residential loan with an outstanding
principal balance of $70,000 that was non-accruing. At June 30, 1998 the Bank
had no non-accrual loans. For the years ended June 30, 2000 and 1999 and 1998
the amount of interest income that would have been recorded on non-accrual loans
had such loans been accruing interest in accordance with their terms was $4,000,
$4,000 and $0, respectively. Interest earned on loans 90 days or more delinquent
and still accruing interest amounted to $9,000, $11,000, and $25,000 for the
fiscal years ended June 30, 2000, 1999 and 1998 respectively.
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<PAGE>
The Bank's non-performing assets at June 30, 2000, consisted of two
one- to four-family residential loans with an aggregate outstanding principal
balance of $249,000, and a single one- to four- family FRE property with a
carrying balance of $78,000. The Bank's non-performing assets at June 30, 1999
consisted of two one-to four-family residential loans, with an aggregate
outstanding principal balance of $186,000 and one multi-family residential loan
with an aggregate outstanding principal balance of $7,000. The Bank's
non-performing assets at June 30, 1998, consisted of three one-to four-family
residential loans, with an aggregate outstanding principal balance of $342,000.
The properties underlying the non-performing loans and the FRE are located in
the Chicago metropolitan area.
CLASSIFIED ASSETS. OTS regulations require that each saving association
classify its assets on a regular basis and establish prudent valuation
allowances based on such classifications. In addition, in connection with
examinations of savings associations, OTS examiners have authority to identify
problem assets and, if appropriate, require them to be classified. OTS
regulations provide for three adverse classifications for problem assets:
Substandard, Doubtful and Loss. Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the savings
association will sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of Substandard assets, with the additional
characteristics that the weaknesses make collection or liquidation in full on
the basis of currently existing facts, conditions and values questionable, and
there is a high probability of loss. An asset classified Loss is considered
uncollectible and of such little value that its continuance as an asset of the
institution is not warranted. The regulations have also created a Special
Mention category, consisting of assets which do not currently expose a savings
association to a sufficient degree of risk to warrant classifications, but do
possess credit deficiencies or potential weaknesses deserving management's close
attention. Assets classified as Substandard or Doubtful require the savings
association to establish prudent valuation allowances. If an asset or portion
thereof is classified as Loss, the association must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified Loss or charge off such amount. If an association does not agree with
an examiner's classification of an asset, it may appeal this determination to
the District Director of the OTS. On the basis of management's review of its
loans at June 30, 2000, the Bank had one loan which met the criteria for
classification as "Substandard" and no potential problem loans which met the
criteria for classification as "Special Mention" or "Doubtful".
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in the Bank's loan portfolio and the general economy. The
allowance for loan losses is maintained at an amount management considers
adequate to cover loan losses which are deemed probable and estimable. The
allowance is based upon a number of factors, including asset classifications,
economic trends, industry experience and trends, industry and geographic
concentrations, estimated collateral values, management's assessment of the
credit risk inherent in the portfolio, historical loan loss experience and the
Bank's underwriting policies. The allowance for loan losses is maintained at an
amount considered adequate to provide for losses in the portfolio. Although
management believes it uses the best information available to make
determinations with respect to the allowance for loan losses, future adjustments
may be necessary if economic conditions and the Bank's actual experience differ
substantially from the conditions and experience used in the assumptions upon
which the initial determinations are based. The OTS, in conjunction with the
other federal banking agencies, has adopted an interagency policy statement on
the
10
<PAGE>
allowance for loan and lease losses. The policy statement provides guidance for
financial institutions on both the responsibilities of management for the
assessment and establishment of adequate allowances and guidance for banking
agency examiners in determining the adequacy of general valuation guidelines.
Generally, the policy statement recommends that institutions have effective
systems and controls to identify, monitor and address asset quality problems;
that management analyzes all significant factors that affect the collectibility
of the portfolio in a reasonable manner; and that management establishes
acceptable allowance evaluation processes that meet the objectives set forth in
the policy statement.
While the Bank believes that it has established an adequate allowance
for loan losses, there can be no assurance that regulators, in reviewing the
Bank's loan portfolio as part of a future regulatory examination, will not
request the Bank to materially increase its allowance for loan losses, thereby
negatively affecting the Bank's financial condition and earnings at that time.
Moreover, no assurance can be made that future additions to the allowance will
not be necessary based on changes in economic and real estate market conditions,
further information obtained regarding known problem loans, identification of
additional problem loans and other factors, both within and outside of
management's control. The directors of the Bank and the Company have reviewed,
on a quarterly basis, the provision for loan losses and the allowance for loan
losses and the assumptions utilized by management as to their reasonableness and
adequacy. Specific valuation reserves are provided for individual loans which
are contractually past due (including loans classified Substandard or Doubtful)
when ultimate collection is considered questionable by management after
reviewing the current status of such loans and considering the net realizable
value of the security for the loan.
11
<PAGE>
The following table analyzes activity in the Bank's allowance for loan
losses during the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR
THE ELEVEN AT OR
AT OR FOR THE MONTHS FOR THE
YEAR ENDED JUNE 30, ENDED YEAR ENDED
-------------------------------- JUNE 30, JULY 31,
ALLOWANCE FOR LOAN LOSSES 2000 1999 1998 1997 1996
------------------------- ------- ------ ------ ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 300 $ 300 $ 300 $ 300 $ 166
Provision for loan losses - - - - 138
Charge-offs:
Mortgage loans:
One- to- four-family - - - - -
Multifamily - - - - (4)
Commercial real estate - - - - -
Land, construction and development - - - - -
Home equity - - - - -
Other loans - - - - -
------- ------ ------ ----- ------
Total charge-offs - - - - (4)
------- ------ ------ ----- ------
Recoveries - - - - -
------- ------ ------ ----- ------
Balance at end of year $ 300 300 $ 300 $ 300 $ 300
======= ====== ====== ===== ======
Allowance for loan losses to total loans
at the end of the period (1) 0.19 % 0.22 % 0.26 % 0.32 % 0.38 %
Allowance for loan losses to total
non-performing loans at end of period 120.48 155.44 87.72 150.75 254.24
Allowance for loan losses to total
non-performing assets at end of period 91.74 155.44 87.72 150.75 254.24
Net charge-offs to average loans outstanding - - - - 0.01
</TABLE>
--------------------------
(1) Total loans represent loans, net plus the allowance for loan losses.
The following tables set forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. The allocation of the allowance
to each category is not necessarily indicative of future losses and does not
restrict the use of the allowance to absorb losses in any category.
12
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------------------------------------------------------------
2000 1999
-------------------------------------- -------------------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
ALLOWANCE PERCENT OF CATEGORY TO ALLOWANCE PERCENT OF CATEGORY TO
AMOUNT ALLOWANCE GROSS LOANS AMOUNT ALLOWANCE GROSS LOANS
------ --------- ----------- ------ --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family $ 264 88.0 % 98.7 % $ 237 79.1 % 98.5 %
Multifamily 1 0.3 0.4 3 1.0 0.4
Commercial real estate 4 1.3 0.3 6 2.0 0.4
Land, construction and development - - - 1 0.3 0.1
Home equity 2 0.7 0.5 1 0.3 0.4
Other loans - - 0.1 - - 0.2
Unallocated 29 9.7 - 52 17.3 -
-------- ----- ----- -------- ----- -----
Total $ 300 100.0 % 100.0 % $ 300 100.0 % 100.0 %
======== ===== ===== ======== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
ALLOWANCE PERCENT OF CATEGORY TO ALLOWANCE PERCENT OF CATEGORY TO
AMOUNT ALLOWANCE GROSS LOANS AMOUNT ALLOWANCE GROSS LOANS
------ --------- ----------- ------ --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family $ 125 41.7 % 97.8 % $ 105 35.0 % 96.7 %
Multifamily 4 1.3 0.6 5 1.7 1.0
Commercial real estate 8 2.7 0.7 4 1.3 0.4
Land, construction and
Development 1 0.3 0.1 2 0.7 0.4
Home equity 2 0.7 0.7 3 1.0 1.3
Other loans - - 0.1 - - 0.2
Unallocated 160 53.3 - 181 60.3 -
------- ----- ----- ------ ----- -----
Total $ 300 100.0 % 100.0 % $ 300 100.0 % 100.0 %
======= ===== ===== ====== ===== =====
</TABLE>
AT JULY 31,
1996
------------------------------------
PERCENT OF
LOANS IN EACH
ALLOWANCE PERCENT OF CATEGORY TO
AMOUNT ALLOWANCE GROSS LOANS
------ --------- -----------
Mortgage loans:
One- to four-family $ 85 28.3 % 95.6 %
Multifamily 5 1.7 1.2
Commercial real estate 4 1.3 0.5
Land, construction and
Development 2 0.7 0.5
Home equity 4 1.3 1.8
Other loans - - 0.4
Unallocated 200 66.7 -
------- ----- -----
Total $ 300 100.0 % 100.0 %
======= ===== =====
INVESTMENT ACTIVITIES
GENERAL. The investment policy of the Bank, which is approved by the
Board of Directors, is based upon its asset/liability management goals and is
designed primarily to provide and maintain adequate liquidity, maintain a
balance of high quality, diversified investments, minimize risks to the Bank and
complement the Bank's lending activities. The investment policy is implemented
by the Chief Financial Officer and the President. The policy designates the
Chief Financial Officer as the investment manager authorized to oversee the
daily operations of the investment portfolio. Historically, the Bank has
maintained liquid assets at levels above the minimum requirements imposed by the
OTS regulations and these levels are believed adequate to meet the requirements
of normal operations, including potential deposit outflows. At June 30, 2000,
the Bank's liquidity ratio for regulatory purposes was 33.60%. See "Liquidity
and Capital Resources" in Management's Discussion and Analysis of Financial
Condition and Results of Operations, in the 2000 Annual Report to Stockholders.
As required by Statement of Financial Accounting Standards ("SFAS")
115, securities are classified into three categories: trading, held-to-maturity
and available-for-sale. Securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and are reported at fair value with unrealized gains and losses included in
trading account
13
<PAGE>
activities in the statement of earnings. At June 30, 2000, the Bank had no
securities which were classified as trading. Securities that the Bank has the
positive intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost. All other securities not
classified as held-to-maturity are classified as available-for-sale.
Available-for-sale securities are reported at fair value with unrealized gains
and losses included, on an after tax basis, as a separate component of
accumulated other comprehensive income in stockholders' equity. At June 30,
2000, $27.0 million of mortgage-backed and other investment securities were
classified as available-for-sale. At June 30, 2000, mortgage-backed securities
held-to-maturity totaled $17.9 million and had a fair value of $17.2 million.
MORTGAGE-BACKED SECURITIES. The Bank invests in mortgage-backed
securities and uses such investments to complement its mortgage lending
activities and supplement such activities at times of low mortgage loan demand.
At June 30, 2000, all securities in the Bank's mortgage-backed
securities portfolio were directly insured or guaranteed by Fannie Mae or the
Federal Home Loan Mortgage Corporation ("Freddie Mac"), thereby providing the
certificate holder a guarantee of timely payments of interest and scheduled
principal payments, whether or not they are collected. The Bank's
mortgage-backed securities portfolio had a weighted average yield of 6.66% at
June 30, 2000.
Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings of the Bank. In general, mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association ("Ginnie Mae"),
Fannie Mae and Freddie Mac and certain AAA rated mortgage-backed pass through
securities are weighted at no more than 20% for risk based regulatory capital
purposes, compared to the 50% risk weighting assigned to most non-securitized
residential mortgage loans.
While mortgage-backed securities carry a reduced credit risk as
compared to whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loans and so affect both the prepayment speed,
and value, of such securities.
INVESTMENT SECURITIES. Federal savings associations have the authority
to invest in various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions,
federal savings associations may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federal savings association is otherwise authorized to
make directly. The Bank, from time to time, has used investment securities to
supplement loan volume and to provide short- and intermediate-term assets for
asset/liability management purposes. From time to time, the Bank has invested in
high quality investment securities with various terms to maturity. At June 30,
2000, the Company had $7.5 million invested in preferred stocks and mutual
funds. These equity investments are held in the Company's available-for-sale
portfolio, and are carried at fair value, as shown in the table below. Certain
of these equity investments
14
<PAGE>
currently have unrealized holding losses of $468,000. The unrealized holding
losses are monitored by management for other than temporary impairment. Also
management views these investments with a longer time horizon for return on the
Company's investment.
The following table sets forth activity in the Company's
mortgage-backed and other investment securities portfolio for the periods
indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------------------------------
2000 1999 1998
------------- -------------- -------------
(In thousands)
<S> <C> <C> <C>
Held-to-maturity:
Amortized cost at beginning of year $ 28,567 $ 46,729 $ 47,376
Purchases/sales, net - - 10,192
Principal repayments (10,419) (17,863) (10,602)
Premium and discount amortization, net (254) (299) (237)
------------- ------------ -------------
Amortized cost at end of year $ 17,894 $ 28,567 $ 46,729
------------- ------------ -------------
Available-for-sale
Amortized cost at beginning of year $ 29,495 $ 35,550 $ 61,376
Purchases/sales, net 4,406 11,188 (7,440)
Principal repayments (5,473) (17,165) (18,331)
Premium and discount amortization, net (80) (78) (55)
------------- ------------ -------------
Amortized cost at end of year $ 28,348 $ 29,495 $ 35,550
------------- ------------ -------------
Total mortgage-backed and other
investment securities portfolio $ 46,242 $ 58,062 $ 82,279
============= ============ =============
</TABLE>
The following table sets forth certain information regarding the
amortized cost and fair value of the Company's mortgage-backed and other
investment securities at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------------------------------------------------------------
2000 1999 1998
------------------------ ---------------------- -----------------------
AMORTIZED AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
---------- ---------- ----------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
Fannie Mae $ 17,894 $ 17,227 $ 28,567 $ 28,055 $ 44,284 $ 44,087
Freddie Mac - - - - 2,445 2,473
---------- --------- ---------- --------- ---------- ---------
Total held-to-maturity $ 17,894 $ 17,227 $ 28,567 $ 28,055 $ 46,729 $ 46,560
---------- --------- ---------- --------- ---------- ---------
Available-for-sale:
Fannie Mae $ 18,475 $ 17,723 $ 23,344 $ 22,974 $ 22,576 $ 22,693
Freddie Mac 1,792 1,746 2,480 2,473 10,369 10,342
Mutual funds and preferred stock 8,081 7,511 3,671 3,320 2,605 2,569
---------- --------- ---------- --------- ---------- ---------
Total available-for-sale $ 28,348 $ 26,980 $ 29,495 $ 28,767 $ 35,550 $ 35,604
---------- --------- ---------- --------- ---------- ---------
Total mortgage-backed and other
investment securities portfolio $ 46,242 $ 44,207 $ 58,062 $ 56,822 $ 82,279 $ 82,164
========== ========= ========== ========= ========== =========
</TABLE>
15
<PAGE>
The table below sets forth certain information regarding the amortized
cost, fair value, weighted average yields and stated maturity of the Company's
mortgage-backed and other investment securities portfolio at June 30, 2000. No
effect has been given to prepayments or amortization of securities. There were
no mortgage-backed securities (exclusive of obligations of the U.S. Government
and any federal agencies) issued by any one entity with a total carrying value
in excess of 10% of stockholders' equity at June 30, 2000.
<TABLE>
<CAPTION>
AT JUNE 30, 2000
-------------------------------------------------
WEIGHTED
AMORTIZED FAIR AVERAGE
COST VALUE COUPON
----------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
HELD-TO-MATURITY:
No stated maturity date $ - $ - - %
Due within 1 year 7,864 7,518 6.24
Due after 1 year but within 5 years 1,127 1,080 7.50
Due after 5 years but within 10 years 109 105 7.00
Due after 10 years 8,794 8,524 7.16
----------- ----------- ---------
Total held-to-maturity $ 17,894 $ 17,227 6.70 %
----------- ----------- ---------
AVAILABLE-FOR-SALE:
No stated maturity date $ 5,466 $ 5,061 5.55 %
Due within 1 year 2,392 2,275 6.03
Due after 1 year but within 5 years 3,805 3,666 7.27
Due after 5 years but within 10 years 6,503 6,256 6.48
Due after 10 years 10,182 9,722 7.09
----------- ----------- ---------
Total available-for-sale $ 28,348 $ 26,980 6.58 %
----------- ----------- ---------
TOTAL:
No stated maturity date $ 5,466 $ 5,061 5.55 %
Due within 1 year 10,256 9,793 6.19
Due after 1 year but within 5 years 4,932 4,746 7.32
Due after 5 years but within 10 years 6,612 6,361 6.48
Due after 10 years 18,976 18,246 7.12
----------- ----------- ---------
Total mortgage-backed securities
and investment portfolio $ 46,242 $ 44,207 6.66 %
=========== =========== =========
</TABLE>
REAL ESTATE INVESTMENT. At June 30, 2000, the Company had no investment
in real estate held for sale and development. The investment in real estate held
for sale and development originally consisted of 158 single family detached home
sites and a 15-acre commercial parcel in a Planned Unit Development named the
Trails of Olympia Fields. At June 30, 1999, the Bank had nearly liquidated this
investment through sales, and only one five-acre commercial parcel with a book
value of $262,000 remained unsold. This parcel was sold in July 1999 at an
auction without reservation. The sale price, net of all selling cost, was
approximately $154,000, resulting in a loss of approximately $108,000. A loss
accrual was recorded by the Company in the quarter ended June 30, 1999 for this
amount. Through the sale of this property, the Company expects to benefit in
future years from a reduction of operating
16
<PAGE>
expenses related to the property of approximately $40,000 annually and from the
ability to invest the proceeds of the sale in income-earning assets.
The Bank is currently the plaintiff in litigation brought against the Home
Owners Association of the Trails of Olympia Fields and individual members of its
Home Owners Association for actions by these defendants that impeded the orderly
development of the Trails of Olympia Fields. This trial, which was scheduled for
May 2000, was summarily postponed by the trial judge in order to deal with the
issue of punitive damages. A new trial date has not yet been set.
At the same time, the Company's attorneys became aware of what the
Company and its counsel believe is material evidence that implicates not only
the defendants, but also one of their attorneys in alleged misconduct in the
defense of their case. As a result, additional depositions were necessitated.
Also, the Bank's co-plaintiff went through a bankruptcy without disclosing this
suit as an asset. The co-plaintiff's bankruptcy case has since been reopened,
and the Bank has incurred expenses related to filing a claim as a creditor, and
to maintain control of the direction of the suit. The Bank did not anticipate
these increased expenses. Overall, the Bank's position has been strengthened,
but not without cost, and the Company believes it will ultimately prevail on the
merits of the case. The Company expects to incur additional legal and other
expenses in the future in connection with this action.
SOURCES OF FUNDS
GENERAL. Savings deposits are the primary source of the Bank's funds
for use in lending and for other general business purposes. In addition to
savings deposits, the Bank derives funds from loan and security repayments and
prepayments, from advances from the FHLB of Chicago, from other borrowings, net
revenues from operations and to a lesser extent from loan sales. Loan and
mortgage-backed securities amortizations are a relatively stable source of
funds, while savings inflows and outflows and loan and mortgage-backed
securities prepayments are significantly influenced by general interest rates
and money market conditions. Borrowings, primarily from the FHLB of Chicago, may
be used on a short term basis to compensate for reductions in normal sources of
funds at less than projected levels. They may also be used on a longer term
basis to support expanded activities.
SAVINGS DEPOSITS. The Bank offers several types of savings programs to
attract short term and long term savings deposits, including passbook, various
NOW accounts, money market deposit accounts and a variety of fixed-rate, money
market certificates. Deposit account terms vary according to the minimum balance
required, the time periods the funds must remain on deposit and the interest
rate, among other factors. The Bank's savings deposits are obtained
predominantly from the areas near its office locations. The Bank relies
primarily on customer service and long-standing relationships with customers to
attract and retain these savings deposits; however, market interest rates and
rates offered by competing financial institutions significantly affect the
Bank's ability to attract and retain savings deposits. Certificate accounts in
excess of $100,000 are not actively solicited by the Bank nor does the Bank use
brokers to obtain savings deposits. At June 30, 2000, the Bank had approximately
$115.5 million outstanding in savings deposits.
17
<PAGE>
The ability to pay competitive rates on insured savings deposits has
allowed the Bank to be more aggressive in obtaining funds and has given it more
flexibility to minimize net deposit outflows. However, competitive interest
rates have also resulted in a more volatile cost of funds.
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average interest rates on each
category of savings deposits presented. Management does not believe that the use
of year end balances instead of average monthly balances would result in any
material difference in the information presented.
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- -------------------------- ----------------------------
PERCENT WEIGHTED PERCENT WEIGHTED PERCENT WEIGHTED
OF TOTAL AVERAGE OF TOTAL AVERAGE OF TOTAL AVERAGE
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
------ -------- ---- ------ -------- ---- ------ -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing NOW accounts $ 6,592 5.7 % - % $ 5,949 4.8 % - % $ 5,847 4.7 % - %
Interest-bearing NOW accounts 8,944 7.8 2.01 10,020 8.1 2.01 7,668 6.2 2.01
Money market demand accounts 10,752 9.3 3.24 10,865 8.8 2.82 11,797 9.5 3.31
Passbook accounts 37,447 32.4 2.50 39,358 31.7 2.50 38,838 31.4 2.50
Certificates of deposit 51,759 44.8 5.09 57,725 46.6 4.86 59,685 48.2 5.37
-------- ----- -------- ----- -------- -----
Total $115,494 100.0 % 3.55 % $123,917 100.0 % 3.47 % $123,835 100.0 % 3.81 %
======== ===== ======== ===== ======== =====
</TABLE>
The following table presents the savings deposit activity of the Bank
for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------------------------------
2000 1999 1998
----------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Deposits $ 320,503 $ 300,897 $ 263,421
Withdrawals (332,933) (305,172) (267,098)
----------- ---------- -----------
Deposits in excess of (less than) withdrawals (12,430) (4,275) (3,677)
Interest credited 4,007 4,357 4,531
----------- ---------- -----------
Total increase (decrease) in savings deposits $ (8,423) $ 82 $ 854
=========== ========== ===========
</TABLE>
At June 30, 2000, the Bank had $7.2 million in certificate accounts
with a balance of $100,000 or greater maturing as follows:
WEIGHTED
AMOUNT AVERAGE RATE
----------- ------------
(Dollars in thousands)
Maturity Period
---------------
Within three months $ 2,790 4.69 %
After three but within six months 1,110 5.52
After six but within 12 months 1,119 4.98
After 12 months 2,221 5.61
-----------
Total $ 7,240 5.15 %
===========
18
<PAGE>
The following table sets forth the amount of certificates of deposit
outstanding at the dates indicated and the remaining period to maturity of the
certificates of deposit outstanding at June 30, 2000.
<TABLE>
<CAPTION>
PERIOD TO MATURITY AT JUNE 30, 2000
----------------------------------------
ONE TO MORE THAN TOTAL AT JUNE 30,
LESS THAN THREE THREE TO -----------------------------------
INTEREST RATE RANGE ONE YEAR YEARS FIVE YEARS 2000 1999 1998
------------------- ------------ -------- ------------ --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
4.00% and below $ 411 $ - $ - $ 411 $ 145 $ 265
4.01% to 5.00% 22,773 3,241 266 26,280 31,998 9,868
5.01% to 6.00% 12,590 4,908 745 18,243 25,569 48,559
6.01% to 7.00% 2,582 4,243 - 6,825 13 993
----------- -------- ----------- --------- --------- --------
Total $ 38,356 $ 12,392 $ 1,011 $ 51,759 $ 57,725 $ 59,685
=========== ======== =========== ========= ========= ========
</TABLE>
BORROWINGS. Although savings deposits are the primary source of funds
for the Bank's lending and investment activities and for its general business
purposes, the Bank has in the past relied upon advances from the FHLB of Chicago
and, to a lesser extent, reverse repurchase agreements, to supplement its supply
of funds and to meet deposit withdrawal requirements. The Bank may obtain
advances from the FHLB of Chicago on the security of the capital stock of the
FHLB of Chicago it owns and certain of its home mortgage loans and/or
mortgage-backed and investment securities provided certain standards related to
creditworthiness have been met. Such advances are made pursuant to several
different credit programs. Each credit program has its own interest rate and
range of maturities, and the FHLB of Chicago prescribes acceptable uses to which
the advances pursuant to each program may be used as well as limitations on the
size of such advances. Depending on the program, such limitations are based
either on a fixed percentage of assets or the Bank's creditworthiness. The FHLB
is required to review its credit limitations and standards at least once every
six months. FHLB advances have from time to time been used to meet the Bank's
liquidity needs. At June 30, 2000, the Bank had $66.0 million in FHLB of Chicago
borrowings. Certain advances are callable by the FHLB as follows: $5,000,000 in
advances due in 2004 are callable quarterly beginning November 2000; $13,000,000
in advances due in 2008 are callable quarterly beginning June, 2001; $8,000,000
in advances due in 2005 are callable quarterly beginning May 2002; and
$12,000,000 in advances due in 2008 have a one time call date of June 19, 2003.
The Company also has the capability to borrow additional funds upon complying
with the FHLB of Chicago's collateral requirements.
The Bank at times sells securities under agreements to repurchase,
which transactions are treated as financings, and the obligation to repurchase
the securities sold is reflected as a liability in the statements of financial
condition. The dollar amount of securities underlying the agreements remains in
the asset account and are held in safekeeping. There were no securities sold
under agreements to repurchase outstanding at or during fiscal years 2000, 1999,
and 1998.
19
<PAGE>
The following table sets forth certain information regarding borrowings
at the dates and for the periods indicated:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30,
------------------------------------
2000 1999 1998
--------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
FHLB of Chicago advances:
Maximum amount outstanding at any month-end during the year $66,000 $ 52,000 $ 53,000
Average daily balance outstanding 55,556 52,070 48,530
Balance outstanding at end of year 66,000 52,000 53,000
Weighted average daily interest rate during the year 5.77 % 5.67 % 6.61 %
Weighted average interest rate at end of year 6.10 % 5.59 % 5.59 %
</TABLE>
SUBSIDIARY ACTIVITIES
As a federally chartered savings bank, the Bank is permitted to invest
an amount equal to 2% of its assets in service corporation subsidiaries with an
additional investment of 1% of assets where such investment serves primarily
community, inner city and community development. In addition to investments in
service corporations, federal institutions are permitted to invest an unlimited
amount in operating subsidiaries engaged solely in activities which a federal
savings bank may engage in directly. The Bank currently does not have any
subsidiary operations.
PERSONNEL
At June 30, 2000, the Bank employed 48 full time and 13 part time
employees. At June 30, 2000, 56% of the Bank's full time employees had been with
the Bank for more than ten years. The employees are not represented by a
collective bargaining unit, and the Bank considers its relationship with its
employees to be good. The Bank seeks to compensate its personnel at a level
competitive with its savings institution peers in order to retain highly
qualified employees.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement 133, "Accounting for Derivative
Instruments and Hedging Activities." Statement 133 standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to carry all
derivative instruments in the balance sheet at fair value. The accounting for
the changes in fair value of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship and, if so, on
the reason for holding it. The gain or loss due to changes in fair value is
recognized in earnings or as other comprehensive income in the statement of
stockholders' equity, depending on the type of instrument and whether or not it
is considered a hedge. In June 1999, the FASB issued Statement 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the effective
date of Statement No. 133." This statement deferred the adoption of Statement
133 to fiscal quarters of fiscal years beginning after June 15, 2000. The
Company's adoption of Statement 133,
20
<PAGE>
effective July 1, 2000, is not expected to have a material impact on the
Company's future financial condition or its results of operations.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The following is a discussion of material federal income tax
matters and does not purport to be a comprehensive description of the federal
income tax rules applicable to the Bank or the Company. The Bank has not been
audited by the IRS during the last five years. For federal income tax purposes,
the Company and the Bank file consolidated income tax returns. The Company and
the Bank report their income on a fiscal year basis using the accrual method of
accounting and are subject to federal income taxation in the same manner as
other corporations with some exceptions, including particularly the Bank's tax
reserve for bad debts, discussed below.
TAX BAD DEBT RESERVES. The Bank, as a "small bank" (one with assets
having an adjusted tax basis of $500 million or less) is permitted to maintain a
reserve for bad debts with respect to its loans, which, in general, are loans
secured by certain interests in real property, and to make, within specified
formula limits, annual additions to the reserve which are deductible for
purposes of computing the Bank's taxable income. Pursuant to the 1996 Tax Act,
the Bank is now required to recapture (take into income) over a multi-year
period a portion of the balance of its bad debt reserve as of July 31, 1996
equal to $500,000, which will require the Bank to report an additional tax
liability of $194,000. This liability has already been provided for and will not
have an adverse impact on the Bank's financial condition or results of
operations.
DISTRIBUTIONS. To the extent that the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's "base year reserve," i.e., its reserves as of July 31,
1988 and then from the Bank's supplemental reserve for losses on loans, to the
extent thereof, and an amount based on the amount distributed (but not in excess
of the amount of such reserves) will be included in the Bank's income. The
balance of the Bank's tax bad debt reserve as of July 31, 1988 was $3,685,478.
The balance of the Bank's supplemental reserve for losses was $2,463,159.
Non-dividend distributions include distributions in excess of the Bank's current
and accumulated earnings and profits, as calculated for federal income tax
purposes, distributions in redemption of stock, and distributions in partial or
complete liquidation. Dividends paid out of the Bank's current or accumulated
earnings and profits will not be so included in the Bank's income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if the Bank makes a
non-dividend distribution to the Company, approximately one and one-half times
the amount of such distribution (but not in excess of the amount of such
reserves) would be includable in income for federal income tax purposes,
assuming a 34% federal corporate income tax rate. The Bank does not intend to
make non-dividend distributions to the Company.
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CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax ("AMT") on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating loss carryovers. AMTI is also adjusted by
determining the tax treatment of certain items in a manner that negates the
deferral of income resulting from the regular tax treatment of those items. The
Bank does not expect to be subject to the AMT.
ELIMINATION OF DIVIDENDS; DIVIDENDS RECEIVED DEDUCTION. The Company may
exclude from its income 100% of dividends received from the Bank as a member of
the same affiliated group of corporations. A 70% dividends received deduction
generally applies with respect to dividends received from domestic corporations
that are not members of such affiliated group, except that an 80% dividends
received deduction applies if the Company and the Bank own more than 20% of the
stock of a corporation paying a dividend.
STATE AND LOCAL TAXATION
The Bank may file a combined Illinois income tax return with the
Company. For Illinois income tax purposes, the Bank is taxed at an effective
rate equal to 7.18% of Illinois Taxable Income. For these purposes, "Illinois
Taxable Income" generally means federal taxable income, subject to certain
adjustments (including the addition of interest income on state and municipal
obligations and the exclusion of interest income on United States Treasury
obligations). The exclusion of income on United States Treasury obligations has
the effect of reducing the Illinois Taxable Income of the Bank. As of June 30,
2000, the Bank has approximately $5.6 million of Illinois' net loss deduction
carry forward that can be utilized to reduce Illinois taxable income in the
future.
As an Illinois holding company, the Company pays an annual franchise
tax to the State of Illinois.
The Company files a combined Illinois income tax return with the Bank.
The Company is taxed at an effective rate equal to 7.18% of Illinois taxable
income as defined above.
REGULATION
GENERAL
The Bank is subject to extensive regulation, examination, and
supervision by the OTS, as its chartering agency, and the FDIC, as its deposit
insurer. The Bank's deposit accounts are insured up to applicable limits by the
SAIF administered by the FDIC, and the Bank is a member of the FHLB of Chicago.
The Bank must file reports with the OTS and the FDIC concerning its activities
and financial condition, and it must obtain regulatory approvals prior to
entering into certain transactions, such as mergers with, or acquisitions of,
other depository institutions. The OTS and the FDIC conduct periodic
examinations to assess the Bank's compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings association can engage and is
intended primarily for the protection of the insurance fund and depositors. The
Company, as a savings association holding company, is also required to file
certain reports with, and otherwise
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comply with, the rules and regulations of the OTS and of the Securities and
Exchange Commission (the "SEC") under the federal securities laws.
The OTS and the FDIC have significant discretion in connection with
their supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company, the Bank and the operations of both.
On November 12, 1999, President Clinton signed into law landmark
financial services legislation, titled the Gramm-Leach-Bliley Act ("GLB Act").
The GLB Act repeals depression-era laws restricting affiliations among banks,
securities firms, insurance companies and other financial services providers.
The impact of the GLB Act on the Company and the Bank, where relevant, is
discussed throughout the regulation section below.
The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings associations and their holding
companies, and it does not purport to be a comprehensive description of all such
statutes and regulations.
REGULATION OF FEDERAL SAVINGS ASSOCIATIONS.
BUSINESS ACTIVITIES. The Bank derives its lending and investment powers
from the Home Owners' Loan Act, as amended (the "HOLA"), and the regulations of
the OTS thereunder. Under these laws and regulations, the Bank may invest in
mortgage loans secured by residential and commercial real estate, commercial and
consumer loans, certain types of debt securities, and certain other assets. The
Bank may also establish service corporations that may engage in activities not
otherwise permissible for the Bank, including certain real estate equity
investments and securities and insurance brokerage. These investment powers are
subject to various limitations, including (a) a prohibition against the
acquisition of any corporate debt security that is not rated in one of the four
highest rating categories; (b) a limit of 400% of an association's capital on
the aggregate amount of loans secured by non-residential real estate property;
(c) a limit of 20% of an association's assets on the aggregate amount of
commercial loans; (d) a limit of 35% of an association's assets on the aggregate
amount of consumer loans and acquisitions of certain debt securities; (e) a
limit of 5% of assets on nonconforming loans (loans in excess of the specific
limitations of the HOLA); and (f) a limit of the greater of 5% of assets or an
association's capital on certain construction loans made for the purpose of
financing what is or is expected to become residential property.
LOANS TO ONE BORROWER. Under the HOLA, savings associations are
generally subject to the same limits on loans to one borrower as are imposed on
national banks. Generally, under these limits, a savings association may not
make a loan or extend credit to a single or related group of borrowers in excess
of 15% of the association's unimpaired capital and surplus. Additional amounts
may be lent, not in excess of 10% of unimpaired capital and surplus, if such
loans or extensions of credit are fully secured by readily marketable
collateral. Such collateral is defined to include certain debt and equity
securities and bullion but generally does not include real estate. At June 30,
2000, the Bank's regulatory limit on loans to one borrower was $3.2 million. At
June 30, 2000, the Bank's largest aggregate amount
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of loans to one borrower was $497,000, and the second largest borrower had an
aggregate balance of $479,000. The Bank is in compliance with all applicable
limitations on loans to one borrower.
QTL TEST. The HOLA requires a savings association to meet a qualified
thrift lender, or "QTL" test. Under the QTL test, a savings association is
required to maintain at least 65% of its "portfolio assets" in certain
"qualified thrift investments" in at least nine months of the most recent
12-month period. "Portfolio assets" means, in general, an association's total
assets less the sum of (a) specified liquid assets up to 20% of total assets,
(b) certain intangibles, including goodwill and credit card and purchased
mortgage servicing rights, and (c) the value of property used to conduct the
association's business. "Qualified thrift investments" includes various types of
loans made for residential and housing purposes, investments related to such
purposes, including certain mortgage-backed and related securities, consumer
loans, small business loans, education loans, and credit card loans. At June 30,
2000, the Bank maintained 99% of its portfolio assets in qualified thrift
investments. The Bank had also met the QTL test in each of the prior 12 months
and was, therefore, a qualified thrift lender. A savings association may also
satisfy the QTL test by qualifying as a "domestic building and loan association"
as defined in the Internal Revenue Code of 1986.
A savings association that fails the QTL test must either operate under
certain restrictions on its activities or convert to a bank charter. The initial
restrictions include prohibitions against (a) engaging in any new activity not
permissible for a national bank, (b) paying dividends not permissible under
national bank regulations, (c) obtaining new advances from any Federal Home Loan
Bank and (d) establishing any new branch office in a location not permissible
for a national bank in the association's home state. In addition, within one
year of the date that a savings association ceases to meet the QTL test, any
company controlling the association would have to register under, and become
subject to the requirements of, the Bank Holding Company Act of 1956, as amended
(the "BHC Act"). If the savings association does not requalify under the QTL
test within the three-year period after it failed the QTL test, it would be
required to terminate any activity and to dispose of any investment not
permissible for a national bank and would have to repay as promptly as possible
any outstanding advances from a Federal Home Loan Bank. A savings association
that has failed the QTL test may requalify under the QTL test and be free of
such limitations, but it may do so only once.
CAPITAL REQUIREMENTS. The OTS regulations require savings associations
to meet three minimum capital standards: a tangible capital ratio requirement of
1.5% of total assets as adjusted under the OTS regulations, a leverage ratio
requirement of 3% of core capital to such adjusted total assets and a risk-based
capital ratio requirement of 8% of total risk-based capital to total
risk-weighted assets. In determining compliance with the risk-based capital
requirement, a savings association must compute its risk-weighted assets by
multiplying its assets and certain off balance sheet items by risk weights,
which range from 0% for cash and obligations issued by the United States
Government or its agencies to 100% for consumer and commercial loans, as
assigned by the OTS capital regulation based on the risks OTS believes are
inherent in the type of asset. Tangible capital is defined, generally, as common
stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related earnings and minority interests in equity
accounts of fully consolidated subsidiaries, less intangibles (other than
certain purchased mortgage servicing rights) and investments in and loans to
subsidiaries engaged in activities not permissible for a national bank. Core
capital is defined similarly to tangible capital, but core capital also includes
certain qualifying supervisory goodwill and certain
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purchased credit card relationships. Supplementary capital currently includes
cumulative and other perpetual preferred stock, mandatory convertible
securities, subordinated debt and intermediate preferred stock and the allowance
for loan and lease losses. The allowance for loan and lease losses includable in
supplementary capital is limited to a maximum of 1.25% of risk-weighted assets,
and the amount of supplementary capital that may be included as total capital
cannot exceed the amount of core capital.
The OTS has promulgated a regulation that requires a savings
association with "above normal" interest rate risk, when determining compliance
with its risk-based capital requirements, to hold additional capital to account
for its "above normal" interest rate risk. A savings association's interest rate
risk is measured by the decline in the net portfolio value of its assets (i.e.,
the difference between incoming and outgoing discounted cash flows from assets,
liabilities and off balance sheet contracts) resulting from a hypothetical 2%
increase or decrease in market rates of interest, divided by the estimated
economic value of the association's assets, as calculated in accordance with
guidelines set forth by the OTS. At the times when the 3 month Treasury bond
equivalent yield falls below 4%, an association may compute its interest rate
risk on the basis of a decrease equal to one-half of that Treasury rate rather
than on the basis of 2%. A savings association whose measured interest rate risk
exposure exceeds 2% would be considered to have "above normal" risk. The
interest rate risk component is an amount equal to one-half of the difference
between the association's measured interest rate risk and 2%, multiplied by the
estimated economic value of the association's assets. That dollar amount is
deducted from an association's total capital in calculating compliance with its
risk based capital requirement. Any required deduction for interest rate risk
becomes effective on the last day of the third quarter following the reporting
date of the association's financial data on which the interest rate risk was
computed. An institution with assets of less than $300 million and risk-based
capital ratios in excess of 12% is not subject to the interest rate risk
component, unless the OTS determines otherwise. The OTS has indefinitely
deferred the implementation of the interest rate risk component in the
computation of an institution's risk-based capital requirements. The OTS
continues to monitor the interest rate risk of individual institutions and
retains the right to impose additional capital requirements on individual
institutions.
At June 30, 2000, the Bank met each of its capital requirements.
The table below presents the Bank's regulatory capital as compared to
the OTS regulatory capital requirements at June 30, 2000.
<TABLE>
<CAPTION>
EXCESS OF BANK
OTS CAPITAL CAPITAL OVER OTS
BANK CAPITAL REQUIREMENTS CAPITAL REQUIREMENT
------------------------ ----------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital......... $ 21,554 10.28 % $ 3,145 1.5 % $ 18,409 8.78 %
Core capital............. 21,554 10.28 6,291 3.0 15,263 7.28
Risk-based capital....... 21,854 22.93 7,625 8.0 14,229 14.93
</TABLE>
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A reconciliation between the Bank's regulatory capital and
Stockholder's equity at June 30, 2000 is presented below.
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
---------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Stockholder's equity............................ $ 21,111 $ 21,111 $ 21,111
Unrealized loss on mortgage-backed and
other investment securities available-for-
sale, net of tax............................ 443 443 443
Allowance for loan losses....................... - - 300
---------- ---------- ------------
Regulatory capital................................ $ 21,554 $ 21,554 $ 21,854
========== ========== ============
</TABLE>
LIMITATION ON CAPITAL DISTRIBUTIONS. Under OTS capital distribution
regulations, certain savings associations will be permitted to pay capital
distributions during a calendar year that do not exceed the association's net
income for that year plus its retained net income for the prior two years,
without notice to, or the approval of, the OTS. However, a savings association
subsidiary of a savings and loan holding company, such as the Bank, will
continue to have to file a notice unless the specific capital distribution
requires an application. In addition, the OTS can prohibit a proposed capital
distribution, otherwise permissible under the regulation, if the OTS has
determined that the association is in need of more than normal supervision or if
it determines that a proposed distribution by an association would constitute an
unsafe or unsound practice. Furthermore, under the OTS prompt corrective action
regulations, the Bank would be prohibited from making any capital distribution
if, after the distribution, the Bank failed to meet its minimum capital
requirements, as described below. See "Prompt Corrective Regulatory Action".
LIQUIDITY. The Bank is required to maintain an average daily balance of
liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of certain
mutual funds and certain corporate debt securities and commercial paper) equal
to a monthly average of not less than a specified percentage of its net
withdrawable deposit accounts plus short-term borrowings. This liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4% to 10% depending upon economic conditions and the savings flows of
member institutions, and is currently 4%. OTS regulations also require each
savings association to maintain an average daily balance of short-term liquid
assets at a specified percentage of the total of its net withdrawable deposit
accounts and borrowings payable in one year or less. Monetary penalties may be
imposed for failure to meet these liquidity requirements. The Bank's average
liquidity ratio for the month ended June 30, 2000, was 34.07%, which exceeded
the applicable requirements. The Bank has never been subject to monetary
penalties for failure to meet its liquidity requirements.
ASSESSMENTS. Savings associations are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semiannual basis, is computed by totaling three
components: the size of the association, on which the basic assessment would be
based; the association's supervisory condition, which would result in an
additional assessment
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based on a percentage of the basic assessment for any savings institution with a
composite rating of 3, 4 or 5 in its most recent safety and soundness
examination; and the complexity of the association's operations, which would
result in an additional assessment based on a percentage of the basic assessment
for any savings association that managed over $1.0 billion in trust assets,
serviced for others loans aggregating more than $1.0 billion, or had certain
off-balance sheet assets aggregating more than $1.0 billion. In order to avoid a
disproportionate impact on the smaller savings institutions, which are those
whose total assets never exceeded $100.0 million, the regulations provide that
the portion of the assessment based on asset size will be the lesser of the
assessment under the amended regulations or the regulations before the
amendment. Management believes that any change in its rate of OTS assessments
under the amended regulations will not be material.
BRANCHING. Subject to certain limitations, the HOLA and the OTS
regulations permit federally chartered savings associations to establish
branches in any state of the United States. The authority to establish such
branches is available (a) in states that expressly authorize branches of savings
associations located in another state or (b) to an association that either
satisfies the "QTL" test for a qualified thrift lender or qualifies as a
"domestic building and loan association" under the Internal Revenue Code of
1986, which imposes qualification requirements similar to those for a "qualified
thrift lender" under the HOLA. See "QTL Test". The authority for a federal
savings association to establish an interstate branch network would facilitate a
geographic diversification of the association's activities. This authority under
the HOLA and the OTS regulations preempts any state law purporting to regulate
branching by federal savings associations.
COMMUNITY REINVESTMENT. Under the Community Reinvestment Act (the
"CRA"), as implemented by OTS regulations, a savings association has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a savings
association, to assess the association's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such association. The CRA also requires all institutions to make
public disclosure of their CRA ratings. The Bank received a "Satisfactory" CRA
rating in its most recent examination.
The CRA regulations establish an assessment system that bases an
associations rating on its actual performance in meeting community needs. In
particular, the assessment system focuses on three tests: (a) a lending test, to
evaluate the institution's record of making loans in its assessment areas; (b)
an investment test, to evaluate the institution's record of investing in
community development projects, affordable housing, and programs benefiting low
or moderate income individuals and businesses; and (c) a service test, to
evaluate the institution's delivery of services through its branches, ATMs and
other offices.
TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with its "affiliates" is limited by the OTS regulations and by
Sections 23A and 23B of the Federal Reserve Act (the "FRA"). In general, an
affiliate of the Bank is any company that controls the Bank or any other
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<PAGE>
company that is controlled by a company that controls the Bank, excluding the
Bank's subsidiaries other than those that are insured depository institutions.
The OTS regulations also prohibit a savings association (a) from lending to any
of its affiliates that is engaged in activities that are not permissible for
bank holding companies under Section 4(c) of the BHC Act and (b) from purchasing
the securities of any affiliate other than a subsidiary. Section 23A limits the
aggregate amount of transactions with any individual affiliate to 10% of the
capital and surplus of the savings association and also limits the aggregate
amount of transactions with all affiliates to 20% of the savings association's
capital and surplus. Extensions of credit to affiliates are required to be
secured by collateral in an amount and of a type described in Section 23A, and
the purchase of low quality assets from affiliates is generally prohibited.
Section 23B provides that certain transactions with affiliates, including loans
and asset purchases, must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
association as those prevailing at the time for comparable transactions with
nonaffiliated companies. In the absence of comparable transactions, such
transactions may only occur under terms and circumstances, including credit
standards, that in good faith would be offered to or would apply to
nonaffiliated companies.
The Bank's authority to extend credit to its directors, executive
officers, and 10% shareholders, as well as to entities controlled by such
persons, is currently governed by the requirements of Sections 22(g) and 22(h)
of the FRA and Regulation O of the FRB thereunder. Among other things, these
provisions require that extensions of credit to insiders (a) be made on terms
that are substantially the same as, and follow credit underwriting procedures
that are not less stringent than, those prevailing for comparable transactions
with unaffiliated persons and that do not involve more than the normal risk of
repayment or present other unfavorable features and (b) not exceed certain
limitations on the amount of credit extended to such persons, individually and
in the aggregate, which limits are based, in part, on the amount of the
association's capital. In addition, extensions of credit in excess of certain
limits must be approved by the association's board of directors.
ENFORCEMENT. Under the Federal Deposit Insurance Act (the "FDI Act"),
the OTS has primary enforcement responsibility over savings associations and has
the authority to bring enforcement action against all "institution affiliated
parties," including any controlling stockholder or any stockholder, attorney,
appraiser or accountant who knowingly or recklessly participates in any
violation of applicable law or regulation or breach of fiduciary duty or certain
other wrongful actions that causes or is likely to cause more than a minimal
loss or other significant adverse effect on an insured savings association.
Civil penalties cover a wide range of violations and actions and range from
$5,000 for each day during which violations of law, regulations, orders, and
certain written agreements and conditions continue, up to $1 million per day for
such violations if the person obtained a substantial pecuniary gain as a result
of such violation or knowingly or recklessly caused a substantial loss to the
institution. Criminal penalties for certain financial institution crimes include
fines of up to $1 million and imprisonment for up to 30 years. In addition,
regulators have substantial discretion to take enforcement action against an
institution that fails to comply with its regulatory requirements, particularly
with respect to its capital requirements. Possible enforcement actions range
from the imposition of a capital plan and capital directive to receivership,
conservatorship or the termination of deposit insurance. Under the FDI Act, the
FDIC has the authority to recommend to the Director of OTS that enforcement
action be taken with respect to a particular savings association. If action is
not taken by the Director of the OTS, the FDIC has authority to take such action
under certain circumstances.
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STANDARDS FOR SAFETY AND SOUNDNESS. Pursuant to the FDI Act, as amended
by FDICIA and the Riegle Community Development and Regulatory Improvement Act of
1994 (the "Community Development Act"), the OTS and the federal bank regulatory
agencies have adopted, a set of guidelines prescribing safety and soundness
standards pursuant to FDICIA, as amended. The guidelines establish general
standards relating to internal controls and information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, asset quality, earnings standards, and compensation, fees and benefits.
In general, the guidelines require, among other things, appropriate systems and
practices to identify and manage the risks and exposures specified in the
guidelines. The guidelines prohibit excessive compensation as an unsafe and
unsound practice and describe compensation as excessive when the amounts paid
are unreasonable or disproportionate to the services performed by an executive
officer, employee, director or principal stockholder. In addition, the OTS
adopted regulations that authorize, but do not require, the OTS to order an
institution that has been given notice by the OTS that it is not satisfying any
of such safety and soundness standards to submit a compliance plan. If, after
being so notified, an institution fails to submit an acceptable compliance plan
or fails in any material respect to implement an accepted compliance plan, the
OTS must issue an order directing action to correct the deficiency and may issue
an order directing other actions of the types to which an undercapitalized
association is subject under the "prompt corrective action" provisions of
FDICIA. If an institution fails to comply with such an order, the OTS may seek
to enforce such order in judicial proceedings and to impose civil money
penalties.
REAL ESTATE LENDING STANDARDS. The OTS and the other federal banking
agencies adopted regulations to prescribe standards for extensions of credit
that (a) are secured by real estate or (b) are made for the purpose of financing
the construction of improvements on real estate. The OTS regulations require
each savings association to establish and maintain written internal real estate
lending standards that are consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its real
estate lending activities. The standards also must be consistent with
accompanying OTS guidelines, which include loan-to-value ratios for the
different types of real estate loans. Associations are also permitted to make a
limited amount of loans that do not conform to the proposed loan-to-value
limitations so long as such exceptions are reviewed and justified appropriately.
The guidelines also list a number of lending situations in which exceptions to
the loan-to-value standards are justified.
PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS prompt corrective
action regulations, the OTS is required to take certain, and is authorized to
take other, supervisory actions against undercapitalized savings associations.
For this purpose, a savings association would be placed in one of five
categories based on the association's capital. Generally, a savings association
is treated as "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10.0%, its ratio of core capital to risk weighted assets is
at least 6.0%, its ratio of core capital to total assets is at least 5.0%, and
it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings association will be treated as "adequately capitalized"
if its ratio of total capital to risk-weighted assets is at least 8.0%, its
ratio of core capital to risk weighted assets is at least 4.0%, and its ratio of
core capital to total assets is at least 4.0% (3.0% if the association receives
the
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<PAGE>
highest rating on the CAMELS financial institutions rating system). A savings
association that has a total risk based capital of less than 8.0% or a leverage
ratio or a Tier 1 capital ratio that is less than 4.0% (3.0% leverage ratio if
the association receives the highest rating on the CAMELS financial institutions
rating system) is considered to be "undercapitalized." A savings association
that has a total risk based capital of less than 6.0% or a Tier 1 risk based
capital ratio or a leverage ratio of less than 3.0% is considered to be
"significantly undercapitalized." A savings association that has a tangible
capital to assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." The elements of an association's capital for purposes of the
prompt corrective action regulations are defined generally as they are under the
regulations for minimum capital requirements. At June 30, 2000, the Bank met the
criteria for being considered "well-capitalized".
When appropriate, the OTS can require corrective action by a savings
association holding company under the "prompt corrective action" provisions of
FDICIA.
INSURANCE OF DEPOSIT ACCOUNTS. The Bank is a member of the SAIF, and
the Bank pays its deposit insurance assessments to the SAIF. The FDIC also
maintains another insurance fund, the BIF, which primarily insures the deposits
of banks and state chartered savings banks.
Pursuant to FDICIA, the FDIC established a risk based assessment system
for determining the deposit insurance assessments to be paid by insured
depositary institutions. Under the assessment system, the FDIC assigns an
institution to one of three capital categories based on the institution's
financial information as of the quarter ending three months before the beginning
of the assessment period. The three capital categories consist of (a) well
capitalized, (b) adequately capitalized or (c) undercapitalized. The FDIC also
assigns an institution to one of three supervisory subcategories within each
capital group. The supervisory subgroup to which an institution is assigned is
based on a supervisory evaluation provided to the FDIC by the institution's
primary federal regulator and information that the FDIC determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance funds. An institution's assessment rate depends on the capital
category and supervisory category to which it is assigned. Under the regulation,
there are nine assessment risk classifications (i.e., combinations of capital
groups and supervisory subgroups) to which different assessment rates are
applied. Assessment rates currently range from 0.0% of deposits for an
institution in the highest category (i.e., well-capitalized and financially
sound, with no more than a few minor weaknesses) to 0.27% of deposits for an
institution in the lowest category (i.e., undercapitalized and substantial
supervisory concern). The FDIC is authorized to raise the assessment rates as
necessary to maintain the required reserve ratio of 1.25%. As a result of the
Deposit Insurance Funds Act of 1996 (the "1996 Act"), both the BIF and the SAIF
currently satisfy the reserve ratio requirement. The 1996 Act authorized the
FDIC to impose a special one-time assessment on all institutions with
SAIF-assessable deposits in the amount necessary to recapitalize the
SAIF-assessable deposits as of March 31, 1995. For the Bank, the special
assessment was $936,000. The impact on operations, net of related tax effects,
reduced reported earnings by $617,000 for the eleven months ended June 30, 1997.
The 1996 Act also provides that the FDIC cannot assess regular
insurance assessments for an insurance fund unless required to maintain or to
achieve the designated reserve ratio of 1.25%, except on those of its member
institutions that are not classified as "well capitalized" or that have been
found to have "moderately severe" or "unsatisfactory" financial, operational or
compliance weaknesses. The Bank has not been so classified by the FDIC or the
OTS.
30
<PAGE>
In addition, the 1996 Act expanded the assessment base for the payments
on the bonds (the "FICO bonds") issued in the late 1980s by the Financing
Corporation to recapitalize the now defunct Federal Savings and Loan Insurance
Corporation ("FSLIC") to include the deposits of both BIF- and SAIF-insured
institutions beginning January 1, 1997. Both BIF and SAIF-insured deposits are
assessed the same FICO rates.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of
Chicago, which is one of the regional Federal Home Loan Banks composing the
Federal Home Loan Bank System. Each Federal Home Loan Bank provides a central
credit facility primarily for its member institutions. The Bank, as a member of
the FHLB of Chicago, is required to acquire and hold shares of capital stock in
the FHLB of Chicago in an amount equal to 1% of the aggregate principal amount
of its unpaid residential mortgage loans, home-purchase contracts and similar
obligations, but not less than $500. The Bank was in compliance with this
requirement with an investment in the capital stock of the FHLB of Chicago at
June 30, 2000, of $3.3 million. Any advances from a Federal Home Loan Bank must
be secured by specified types of collateral, and all long term advances may be
obtained only for the purpose of providing funds for residential housing
finance.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts and to contribute funds for affordable housing
programs. These requirements could reduce the amount of earnings that the
Federal Home Loan Banks can pay as dividends to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. The Bank earned dividends on the FHLB of Chicago
capital stock in amounts equal to $198,000, $190,000, and $171,000 respectively
during the fiscal year ended June 30, 2000, 1999, and 1998. If dividends were
reduced, or interest on future Federal Home Loan Bank advances increased, the
Bank's net interest income would be affected.
Under the GLB Act, membership in the Federal Home Loan Bank System is
now voluntary for all federally-chartered savings associations, such as the
Bank. The GLB Act also replaces the existing redeemable stock structure of the
Federal Home Loan Bank System with a capital structure that requires each
Federal Home Loan Bank to meet a leverage limit and a risk-based permanent
capital requirement. Two classes of stock are authorized: Class A (redeemable on
6-months notice) and Class B (redeemable on 5-years notice). The GLB Act
requires the Federal Finance Housing Board ("FHFB") to promulgate uniform
capital regulations for the Federal Home Loan Banks no later than November 12,
2000. Within 270 days after the publication of the final capital rule, the board
of directors of each Federal Home Loan Bank must submit for FHFB approval a
capital plan that the FHFB determines is best-suited for the Federal Home Loan
Bank and its members. The GLB Act provides for a transition period to the new
capital structure of up to five years from the date of enactment, during which
time the prior capital provisions, as described above, are to remain in effect.
31
<PAGE>
FEDERAL RESERVE SYSTEM. The Bank is subject to provisions of the FRA
and the FRB's regulations pursuant to which depositary institutions may be
required to maintain non-interest-earning reserves against their deposit
accounts and certain other liabilities. Currently, reserves must be maintained
against transaction accounts (primarily NOW and regular checking accounts). The
FRB regulations generally require that reserves be maintained in the amount of
3% of the aggregate of transaction accounts up to $46.5 million. The amount of
aggregate transaction accounts in excess of $46.5 million are currently subject
to a reserve ratio of 10%, which ratio the FRB may adjust between 8% and 12%.
The FRB regulations currently exempt $4.9 million of otherwise reservable
balances from the reserve requirements, which exemption is adjusted by the FRB
at the end of each year. The Bank is in compliance with the foregoing reserve
requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest bearing account at a Federal Reserve Bank, or a
passthrough account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets. The balances
maintained to meet the reserve requirements imposed by the FRB may be used to
satisfy liquidity requirements imposed by the OTS. Federal Home Loan Bank System
members are also authorized to borrow from the Federal Reserve "discount
window," but FRB regulations require such institutions to exhaust all Federal
Home Loan Bank sources before borrowing from a Federal Reserve Bank.
NEW PRIVACY REGULATIONS. Pursuant to the GLB Act, the OTS has published
final regulations implementing the privacy protection provisions of the GLB Act.
These regulations, effective on November 13, 2000 with full compliance required
by July 1, 2001, require each financial institution to adopt procedures to
protect customers' "nonpublic personal information." The new regulations
generally require that the Bank disclose its privacy policy, including
identifying with whom it shares a customer's "nonpublic personal information,"
to customers at the time of establishing the customer relationship and annually
thereafter. In addition, the Bank will be required to provide its customers with
the ability to "opt-out" of having it share their personal information with
unaffiliated third parties and not to disclose account numbers or access codes
to nonaffiliated third parties for marketing purposes. The Bank currently has a
privacy protection policy in place and intends to review and amend that policy,
if necessary, for compliance with the regulations.
ATM FEES. The GLB Act also requires the Bank to disclose, on its ATM
machines and to its customers upon the issuance of an ATM card, any fees that
may be imposed on ATM users. For older ATMs, the Bank will have until December
31, 2004 to provide such notices.
REGULATION OF SAVINGS ASSOCIATION HOLDING COMPANIES
The Company, is a non-diversified unitary savings bank holding company
within the meaning of the HOLA, as amended. As such, the Company is subject to
OTS regulations, examinations, supervision and reporting requirements. In
addition, the OTS has enforcement authority over the Company and its non-savings
association subsidiaries, if any. Among other things, this authority permits the
OTS to restrict or prohibit activities that are determined to be a serious risk
to the financial safety, soundness, or stability of a subsidiary savings
institution.
The HOLA prohibits a savings association holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another savings
association or holding company thereof,
32
<PAGE>
without prior written approval of the OTS; acquiring or retaining, with certain
exceptions, more than 5% of a non-subsidiary savings association, a
non-subsidiary holding company, or a non-subsidiary company engaged in
activities other than those permitted by the HOLA; or acquiring or retaining
control of a depository institution that is not insured by the FDIC. In
evaluating an application by a holding company to acquire a savings association,
the OTS must consider the financial and managerial resources and future
prospects of the company and savings association involved, the effect of the
acquisition on the risk to the insurance funds, the convenience and needs of the
community and competitive factors.
Laws governing savings and loan holding companies historically have
classified such entities based upon the number of thrift institutions which they
control. The Company is classified as a unitary savings and loan holding company
because it only controls one thrift, the Bank. Under the GLB Act, any company
which becomes a unitary savings and loan holding company pursuant to a charter
application filed with the OTS after May 4, 1999 is prohibited from engaging in
non-financial activities or affiliating with non-financial companies. All
unitary savings and loan holding companies in existence prior to May 4, 1999,
such as the Company, are "grandfathered" under the GLB Act and may continue to
operate as a unitary savings and loan holding company without any limitations in
the types of business activities in which it can engage at the holding company
level, provided the Bank continues to satisfy the QTL Test.
In addition, for grandfathered savings and loan holding companies, such
as the Company, the GLB Act also prohibits the sale of such entities to
nonfinancial companies. This prohibition is intended to restrict the transfer of
grandfathered rights to other entities and, thereby, prevent evasion of the
limitation on the creation of new unitary savings and loan holding companies.
The Company believes that the GLB Act will not have a material adverse
effect on its operations in the near-term. However, to the extent that it
permits banks, securities firms and insurance companies to affiliate, the
financial services industry may experience further consolidation. This could
result in a growing number of larger financial institutions that offer a wider
variety of financial services than the Company currently offers and that can
aggressively compete in the markets that the Company currently serves.
FEDERAL SECURITIES LAW
The Company's Common Stock is registered with the SEC under Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company is subject to information, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.
33
<PAGE>
ITEM 2. PROPERTIES
The Bank conducts its business through its corporate office and two
branch locations, as set forth in the following table.
<TABLE>
<CAPTION>
NET BOOK
DATE LEASE VALUE AT
LEASED OR LEASED OR EXPIRATION JUNE 30,
OWNED ACQUIRED DATE 2000
--------- --------- ---------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Main Office:
Old McHenry Road
Long Grove, Illinois 60047 Owned 1980 ----- $3,464
Branches:
1601 North Milwaukee Avenue
Chicago, Illinois 60647 Owned 1941 ----- 261
8301 West Lawrence
Norridge Illinois 60656 (1) 1976 4/2006(2) 16
</TABLE>
-------------------------------
(1) Land leased, building owned by the Bank.
(2) The Bank has two five-year renewal options.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its operations, the Bank is a party to
routine litigation involving claims incidental to the savings bank business.
Management believes that no current litigation poses a substantial likelihood of
potential loss or exposure, which would have a material adverse effect on the
financial position of the Bank.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated herein by
reference to the inside back cover of the Company's 2000 Annual Report to
Shareholders under the caption "Stockholder Information" which section is
included in Exhibit 13.1 to this Report.
34
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
ELEVEN MONTHS YEAR ENDED
AT OR FOR THE YEAR ENDED JUNE 30, ENDED JUNE 30, JULY 31,
----------------------------------- -------------- -------------
2000 1999 1998 1997 1996 (1)
-------- -------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets................................................... $215,674 $215,493 $220,604 $214,896 $194,624
Loans receivable (net)......................................... 155,187 138,517 115,472 93,624 79,144
Allowance for loan losses...................................... 300 300 300 300 300
Mortgage-backed securities..................................... 37,363 54,014 79,764 107,595 102,411
Savings deposits............................................... 115,494 123,917 123,835 122,981 137,177
Borrowed funds................................................. 66,000 52,000 53,000 49,600 39,900
Stockholders' equity........................................... 28,612 34,722 38,094 36,977 13,579
Selected Operating Data:
Net interest income before provision for loan losses........... 6,212 6,370 6,442 5,346 4,704
Net Income..................................................... 459 818 1,180 220 226
Net income excluding special SAIF assessment, net of tax....... 459 818 1,180 837 226
Selected Financial Ratios:
Bank Capital ratios: (1)
Tangible.................................................. 10.28% 12.78% 12.30% 12.13% 7.35%
Core...................................................... 10.28 12.78 12.30 12.13 7.35
Risk-based................................................ 22.93 30.49 31.76 34.03 21.59
Return on average assets...................................... 0.22 0.38 0.55 0.11 0.11
Return on average assets excluding special SAIF
assessment, net of tax.................................... 0.22 0.38 0.55 0.41 0.11
Return on average stockholders' equity........................ 1.43 2.26 3.12 0.82 1.58
Return on average stockholders' equity excluding
special SAIF assessment.................................. 1.43 2.26 3.12 3.13 1.58
Consolidated equity to assets at end of period................ 13.27 16.11 17.27 17.21 6.98
Noninterest expense to average assets......................... 2.77 2.47 2.47 2.59 2.36
Noninterest expense to average assets excluding
special SAIF assessment.................................. 2.77 2.47 2.47 2.13 2.36
Non-performing assets as a percent of total assets............ 0.15 0.09 0.16 0.09 0.06
Allowance for loan losses as a percent of total loans......... 0.19 0.22 0.26 0.32 0.38
Allowance for loan losses as a percent of non-performing
loans................................................... 120.48 155.44 87.72 150.75 254.24
Per Share Data:
Basic earnings per share...................................... $ 0.24 $ 0.37 $ 0.50 $ 0.27 N/A
Diluted earnings per share.................................... 0.24 0.37 0.49 0.27 N/A
Book value per share.......................................... 16.40 15.29 15.16 14.72 N/A
Cash dividends per share...................................... 0.20 - - - N/A
Dividend payout ratio......................................... 83.33 % - - - N/A
Stock Quotes:
High (2)...................................................... $15.063 $18.500 $23.938 $16.125 N/A
Low (2)....................................................... 10.250 12.125 16.000 12.313 N/A
At June 30.................................................... 11.063 15.000 18.000 16.125 N/A
</TABLE>
---------------------------------------------------------------
(1) Fairfield Savings Bank, FSB only.
(2) Quotes for 1997 include the period from December 19, 1996 to June 30, 1997.
35
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this Item is incorporated herein by
reference to pages 5 through 24 of the Company's 2000 Annual Report to
Stockholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations", which section is included in
Exhibit 13.1 to this Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is incorporated herein by
reference to pages 6 through 8 of the Company's 2000 Annual Report to
Stockholders under the caption "Quantitative and Qualitative Disclosures About
Market Risk," which section is included in Exhibit 13.1 to this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by
reference to pages 21 through 52 of the Company's 2000 Annual Report to
Stockholders under the captions "Independent Auditors' Report," "Consolidated
Financial Statements" and "Notes to Consolidated Financial Statements," which
sections are included in Exhibit 13.1 to this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information included on pages 6 through 10 and 19 of the
Company's Proxy Statement for the 2000 Annual Meeting of Stockholders (the
"Proxy Statement") is incorporated herein by reference: "Election of Directors,"
"Nominees for Election as Director," "Continuing Directors," "Executive
Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The following information included on pages 10 through 19, of the Proxy
Statement is incorporated herein by reference: "Management Salary Compensation
Committee Report on Executive Compensation," "Compensation Committee Interlocks
and Insider Participation," "Performance Graph," "Directors' Compensation,"
"Executive Compensation," "Employment Agreements," and "Benefits."
36
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information included on pages 4 through 6, of the Proxy
Statement is incorporated herein by reference: "Security Ownership of Certain
Beneficial Owners and Management-Principal Shareholders of the Company," and
"Security Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information included on page 19 of the Proxy Statement is
incorporated herein by reference: "Compensation of Directors and Executive
Officers - Transactions with Certain Related Persons."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
Listed below are all financial statements and exhibits filed as part of this
report:
a. Financial Statements, Schedules, and Exhibits
(1) The consolidated balance sheets of Big Foot Financial Corp.
and subsidiary as of June 30, 2000 and 1999, and the related
consolidated statements of earnings, stockholders' equity, and
cash flows for the years ended June 30, 2000, 1999 and 1998
together with the related notes and the independent auditors'
report of KPMG LLP, independent certified public accountants.
(2) Schedules omitted as they are not applicable.
(3) See Exhibit Index on following page.
b. Reports on Form 8-K - None.
37
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Articles of Incorporation of Big Foot Financial Corp.*
3.2 Bylaws of Big Foot Financial Corp.*
4.3 Specimen of Stock Certificate of Big Foot Financial Corp.*
10.1(a) Employee Stock Ownership Plan of Big Foot Financial Corp.*
10.1(b) ESOP Trust Agreement dated as of December 19, 1996.**
10.2 Loan Agreement by and between Big Foot Financial Corp. Employee Stock Ownership Plan
Trust and Big Foot Financial Corp. Made and Entered Into as of December 19, 1996, as
amended.**
10.3 Employment Agreement between Big Foot Financial Corp. and George M. Briody.**
10.4 Form of Employment Agreement between Big Foot Financial Corp. and Executive Officers.**
10.5 Employment Agreement between Fairfield Savings Bank, F.S.B. and George M. Briody.**
10.6 Form of Employment Agreement between Fairfield Savings Bank, F.S.B. and Executive
Officers.**
10.7 Form of Employee Retention Agreement between Big Foot Financial Corp., Fairfield
Savings Bank, F.S.B. and certain employees.**
10.8 Lease Agreement of Fairfield Savings Bank, F.S.B. for Norridge Branch Office, dated April
29, 1976.*
10.9 Amended and Restated Severance Pay Plan of Fairfield Savings Bank, F.S.B.,
Adopted on September 17, 1996, Effective on December 19, 1996.**
10.10(a) Fairfield Savings Bank Profit Sharing and Savings Plan (as amended and restated
effective August 1, 1989). *
10.10(b) Amendments No.1 (dated September 21, 1993), No. 2 (dated July 19, 1994) and No. 3
(dated November 18, 1996) to the Fairfield Savings Bank Profit Sharing and Savings
Plan. **
10.11(a) Big Foot Financial Corp. 1997 Stock Option Plan. ***
10.11(b) Amendment No. 1 to the Big Foot Financial Corp. 1997 Stock Option Plan. *****
10.12(a) Big Foot Financial Corp. 1997 Recognition and Retention Plan. ****
10.12(b) Amendment No. 1 to the Big Foot Financial Corp.1997 Recognition and
Retention Plan. *****
13.1 Portions of Big Foot Financial Corp. 2000 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant*
38
<PAGE>
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule (Submitted only with filing in electronic format).
</TABLE>
* Incorporated herein by reference to Registration Statement No.
333-12083 on Form S-1 of Big Foot Financial Corp. filed with the
Securities and Exchange Commission on September 16, 1996, as amended.
** Incorporated herein by reference to the Registrant's Form 10-K for the
transition period from August 1, 1996 to June 30, 1997, filed with the
Securities and Exchange Commission on September 29, 1997.
*** Incorporated herein by reference to the Schedule 14A filed with the
Securities and Exchange Commission on May 22, 1997.
**** Incorporated herein by reference to the Schedule 14A filed with the
Securities and Exchange Commission on November 14, 1997.
***** Incorporated herein by reference to the Registrant's Form 10-K for the
year ended June 30, 1999, filed with the Securities and Exchange
Commission on September 28, 1999.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on September 27, 2000.
Big Foot Financial Corp.
By: /s/ George M. Briody
-----------------------
George M. Briody
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ George M. Briody President and Chief Executive Officer, September 27, 2000
---------------------------------------- Director
George M. Briody (Principal Executive Officer)
/s/ F. Gregory Opelka Executive Vice President, September 27, 2000
---------------------------------------- Director
F. Gregory Opelka
/s/ Timothy L. McCue Senior Vice President, September 27, 2000
---------------------------------------- Chief Financial Officer
Timothy L. McCue
/s/ Michael J. Cahill Vice President, Controller September 27, 2000
----------------------------------------
Michael J. Cahill
/s/ Stephen E. Nelson Director September 27, 2000
-----------------------------------------
Stephen E. Nelson
/s/ Eugene W. Pilawski Director September 27, 2000
----------------------------------------
Eugene W. Pilawski
/s/ Joseph J. Nimrod Director September 27, 2000
----------------------------------------
Joseph J. Nimrod
/s/ Walter E. Powers, M.D. Director September 27, 2000
----------------------------------------
Walter E. Powers, M.D.
</TABLE>
40
