UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended: SEPTEMBER 30,1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from -------------------- to ------------------
Commission file number 00-23063
--------
FIRST SECURITYFED FINANCIAL , INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified In Its Charter)
DELAWARE 36-4177515
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
936 NORTH WESTERN AVE., CHICAGO, ILLINOIS 60622
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(Address of Principal Executive Offices) (Zip Code)
773/772-4500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
CLASS OUTSTANDING AT OCTOBER 31,1999
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Common Stock, par value $0.01 5,488,686 shares
1
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Financial Condition as of
September 30, 1999 and December 31,1998................................3
Condensed Consolidated Statements of Income for the three months and nine
months ended September 30,1999 and 1998..............................4
Statement of Comprehensive Income for the three months and
nine months ended September 30,1999 and 1998 ......................5
Condensed Consolidated Statements of Changes in Stockholders Equity
for the year ended December 31,1998 and the nine months ended
September 30, 1999.....................................................6
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998..............................8
Notes to the Condensed Consolidated Financial Statements as of
September 30, 1999....................................................9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation........................................12
Item 3. Quantitative and Qualitative Disclosures about Market Risk......20
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K..................................22
2
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share and per share data)
(Unaudited)
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<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,703 $ 15,641
Federal funds sold 53 9,189
--------- ---------
Total cash and cash equivalents 5,756 24,830
Time deposits in other financial
institutions -- 200
Securities available-for-sale 21,194 26,343
Securities held-to-maturity (fair value of
$88,463 in 1999 and $58,809 in 1998) 90,478 58,267
Loans, net of allowance for loan losses 236,255 218,311
Federal Home Loan Bank stock 2,194 2,131
Premises and equipment, net 3,739 3,967
Accrued interest receivable 2,912 2,475
Intangible assets 200 236
Other assets 2,191 1,290
--------- ---------
Total assets $ 364,919 $ 338,050
========= =========
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities
Deposits $ 232,748 $ 220,495
Advances from borrowers for taxes and
insurance 4,104 2,432
Advances from Federal Home Loan Bank 42,300 29,000
Accrued interest payable and other liabilities 2,332 1,536
--------- ---------
Total liabilities 281,484 253,463
Stockholders' Equity
Preferred stock, $0.01 par value per share, 500,000 shares
authorized, no shares issued and outstanding -- --
Common stock, $0.01 par value per share, 8,000,000
shares authorized, 6,408,000 shares issued 64 64
Additional paid-in capital 65,002 64,952
Unearned ESOP shares (4,324) (4,582)
Unearned MRP shares (3,255) (3,810)
Retained earnings, substantially restricted 38,750 36,225
Net unrealized loss on available-for-sale
securities, net of income taxes (557) (28)
Treasury stock, at cost; (879,160 shares at 9/30/99
and 553,488 shares at 12/31/98) (12,245) (8,234)
--------- ---------
Total stockholders' equity 83,435 84,587
--------- ---------
Total liabilities and stockholders' equity $ 364,919 $ 338,050
========= =========
</TABLE>
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share and per share data)
(Unaudited)
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<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans $13,636 $12,669 $ 4,701 $ 4,407
Securities 2,710 3,080 1,015 1,113
Mortgage-backed securities 1,700 2,074 593 547
Other interest-earning assets 362 406 52 140
------- ------- ------- -------
Total interest income 18,408 18,229 6,361 6,207
Interest expense
Deposits 6,739 7,029 2,299 2,331
FHLB advances 1,287 717 512 304
------- ------- ------- -------
Total interest expense 8,026 7,746 2,811 2,635
NET INTEREST INCOME 10,382 10,483 3,550 3,572
Provision for loan losses 185 185 61 62
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,197 10,298 3,489 3,510
Noninterest income
Net Gain on sale of securities 19 -- -- --
Other income 545 484 223 182
------- ------- ------- -------
Total noninterest income 564 484 223 182
Noninterest expense
Compensation and benefits 2,677 2,227 900 887
Occupancy and equipment expense 514 603 183 246
Data Processing 266 310 84 121
Federal deposit insurance premiums 152 159 50 53
Professional fees 105 127 33 46
Other operating expenses 736 780 221 281
------- ------- ------- -------
Total noninterest expense 4,450 4,206 1,471 1,634
------- ------- ------- -------
INCOME BEFORE INCOME TAX PROVISION 6,311 6,576 2,241 2,058
Provision for income taxes 2,289 2,312 795 616
------- ------- ------- -------
NET INCOME $ 4,022 $ 4,264 $ 1,446 $ 1,442
======= ======= ======= =======
Earnings per share
Basic $ .82 $ .72 $ .30 $ .26
======= ======= ======= =======
Diluted $ .82 $ .72 $ .30 $ .26
======= ======= ======= =======
</TABLE>
4
<PAGE>
STATEMENT OF COMPREHENSIVE INCOME
(Dollars in thousands, except share and per share data)
(Unaudited)
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<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30,
1999 1998 1999 1998
------------------ ---------------------
<S> <C> <C> <C> <C>
Net Income $ 4,022 $ 4,264 $ 1,446 $ 1,442
Other comprehensive income, net of tax:
Change in unrealized gains on securities (529) 43 (136) 13
------- ------- ------- -------
Comprehensive Income $ 3,493 $ 4,307 $ 1,310 $ 1,455
======= ======= ======= =======
</TABLE>
5
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CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except share and per share data)
(Unaudited)
- CONTINUED -
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) Total
Additional Unearned Unearned on Securities Stock-
Common Paid-in ESOP MRP Retained Available- Treasury holders'
Stock Capital Shares Shares Earnings For-Sale Stock Equity
------ ---------- --------- ------ -------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 64 $ 65,495 $ (4,935) -- $ 31,290 $ (42) -- $ 91,872
ESOP shares earned -- 167 353 -- -- -- -- 520
MRP shares earned -- -- -- 467 -- -- -- 467
Issuance of stock to Foundation,
Net of related tax benefit -- (710) -- -- -- -- 775 65
Net income -- -- -- -- 5,344 -- -- 5,344
Treasury stock -- -- -- -- -- -- (13,286) (13,286)
Dividends Paid ($.07 per share) -- -- -- -- (409) -- -- (409)
MRP shares allocated -- -- -- (4,277) -- -- 4,277 --
Change in valuation allowance
For securities available-for-sale
Net of income taxes -- -- -- -- -- 14 -- 14
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1998 64 64,952 (4,582) (3,810) 36,225 (28) (8,234) 84,587
</TABLE>
6
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except share and per share data)
(Unaudited)
- CONTINUED -
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) Total
Additional Unearned Unearned on Securities Stock-
Common Paid-in ESOP MRP Retained Available- Treasury holders'
Stock Capital Shares Shares Earnings For-Sale Stock Equity
------ ---------- ------- -------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ESOP shares earned -- $ 50 $ 258 -- -- -- -- $ 308
MRP shares earned -- -- -- 555 -- -- -- 555
Net income -- -- -- -- 4,022 -- -- 4,022
Treasury stock -- -- -- -- -- -- (4,011) (4,011)
Dividends Declared
($.27 per share) - -- -- -- -- (1,497) -- -- (1,497)
Change in valuation allowance
for securities available-
for-sale net of income taxes -- -- -- -- -- (529) -- (529)
-------- -------- -------- -------- -------- -------- -------- -------
Balance at September 30,1999 $ 64 $ 65,002 $ (4,324) $ (3,255) $ 38,750 $ (557) $(12,245) $83,435
======== ======== ======== ======== ======== ======== ======== =======
</TABLE>
7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except share and per share data)
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 4,022 $ 4,264
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and amortization 289 289
Amortization of discounts and premiums
on securities 114 132
Net Gain on sales and calls of securities (19) --
Provision for loan losses 185 185
ESOP compensation expense 307 403
Stock Award Compensation Expense 555 292
Change in
Deferred loan origination fees 21 40
Accrued interest receivable and other assets (1,339) (431)
Other liabilities and deferred income taxes 796 (134)
-------- --------
Net cash provided by operating activities 4,931 5,040
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale (1,062) (8,105)
Purchase of securities held-to-maturity (45,627) (16,943)
Proceeds from repayment of securities 5,705 8,220
Proceeds from sales of securities available-for-sale 2,968 --
Proceeds from calls and maturities of securities 9,900 13,030
Net change in loans (18,013) (32,151)
Capital expenditures, net (25) (313)
Purchase of Federal Home Loan Bank Stock (63) (149)
-------- --------
Net cash used in investing activities (46,217) (36,411)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 12,253 8,408
Net borrowings from FHLB 13,300 17,000
Net change in advances from
borrowers for insurance and taxes 1,672 1,486
Dividends Paid (1,002) --
Purchase of Treasury Stock (4,011) (9,459)
-------- --------
Net cash provided by (used in) financing activities 22,212 17,435
-------- --------
Decrease in cash and cash equivalents (19,074) (13,936)
Cash and cash equivalents at beginning of period 24,830 30,090
-------- --------
Cash and cash equivalents at end of period $ 5,756 $ 16,154
======== ========
</TABLE>
8
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
First SecurityFed Financial, Inc. (the Company) is a Delaware corporation
organized in July 1997 by First Security Federal Savings Bank (the Bank) in
connection with the conversion of the Bank from a federally chartered mutual
savings bank to a federally chartered stock savings bank.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, the unaudited consolidated financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial condition of First SecurityFed
Financial, Inc. as of September 30,1999 and December 31,1998, the results of its
operations for the three and nine month periods ended September 30,1999 and 1998
and cash flows for the nine months ended September 30,1999 and 1998.
NOTE 2 - CONVERSION
On October 30, 1997, First Security Federal Savings Bank ("Bank") converted from
a federally chartered mutual savings bank to a federally chartered stock savings
bank. The Bank issued all of its common stock to First SecurityFed Financial,
Inc. ("Company") and at the same time the Company issued 6,408,000 shares of
common stock at $10.00 per share to the ESOP, certain depositors of the Bank,
and certain members of the general public, all pursuant to a plan of conversion
("Conversion").
As part of the conversion, the Bank's depositors approved a stock contribution
of 250,000 shares to The Heritage Foundation of First Security Federal Savings
Bank, Inc. (the "Foundation"). The contribution was accrued at the time of
conversion for $2.5 million based on the $10 per share initial offering price
and resulted in $2.5 million of expense ($1.5 million, net of tax) to the
Company. Additional paid-in capital was increased by $2.5 million as a result of
the unconditional commitment to contribute the stock to the Foundation.
The ESOP purchased 512,640 shares of common stock representing 8% of the total
issued shares. The ESOP borrowed $5,126,400 from the Company to purchase the
stock using the stock as collateral for the loan. The loan is to be repaid
principally from the Bank's contributions to the ESOP over a period of up to 20
years.
9
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FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3 - EARNINGS PER COMMON SHARE
A reconciliation of the numerator and denominator of the earnings per common
share computation for the three and nine month periods ended September 30,1999
is presented below:
<TABLE>
<CAPTION>
Three months ended Nine months ended
SEPTEMBER 30,1999 SEPTEMBER 30,1999
------------------ -----------------
<S> <C> <C>
Earnings per common share
Net Income $1,446 $4,022
------ ------
Net income attributable to common shareholders $1,446 $4,022
====== ======
Weighted average common shares outstanding 4,593 4,676
Add: shares committed to be issued to charitable foundation 200 200
------ ------
Total weighted average common shares outstanding 4,793 4,876
====== ------
Basic earnings per share $ .30 $ .82
====== ======
</TABLE>
The Company's outstanding stock options and stock awards were not considered in
the computations of diluted earnings per share because the effects of assumed
exercise would have been antidilutive. In future years, outstanding stock
options may be exercised which would increase the weighted average common shares
outstanding and, thereby, dilute earnings per share. In addition, if the average
common stock price were to exceed the exercise price of outstanding options in a
future year, the assumed exercise of the options and/or the assumed issuance of
the stock awards would have a dilutive effect on earnings per share for the
future year. However, previously reported earnings per share and diluted
earnings per share are not restated to reflect change in the status of changes
in the relationship between exercise prices and average stock prices.
10
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FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 4 - CAPITAL REQUIREMENTS
Pursuant to federal regulations, savings institutions must meet two separate
capital requirements. The following is a summary of the Bank's regulatory
capital at September 30,1999:
Core Risk based
CAPITAL CAPITAL
----------- -----------
(In thousands)
Regulatory capital $ 71,035 $ 73,225
Minimum capital requirement 14,284 14,016
---------- ----------
Excess regulatory capital over
minimum requirement $ 56,751 $ 59,209
========== ==========
NOTE 5 - COMPREHENSIVE INCOME
Under a new accounting standard, comprehensive income is now reported for all
periods. Comprehensive income includes both net income and other comprehensive
income. Other comprehensive income includes the change in unrealized gains and
losses on securities available-for-sale.
11
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30,1999 AND DECEMBER 31, 1998
Total assets increased $26.8 million to $364.9 million at September 30,1999 from
$338.1 million at December 31,1998. The increase in total assets consisted
primarily of increases of $27.1 million in securities, $18.0 million in loans
receivable and $900,000 in other assets which were offset by a decrease of $19.0
million in cash and cash equivalents.
Net loans receivable increased by $18.0 million from $218.3 million at December
31,1998 to $236.3 million at September 30,1999 as a result of the strong market
demand due to the prevailing favorable interest rate environment.
Securities available-for-sale decreased by $5.1 million from $26.3 million at
December 31,1998 to $21.2 million at September 30,1999. During the same nine
month period, securities held-to-maturity increased by $32.2 million from $58.3
million at December 31,1998 to $90.5 million at September 30,1999. This net
increase of $27.1 million in securities was the result of the continued
investment of funds into higher yielding government securities and qualified tax
exempt municipal securities.
Cash and cash equivalents decreased by $19.0 million from $24.8 million at
December 31,1998 to $5.8 million at September 30,1999. The decrease was the
result of the redeployment of funds into higher yielding loans and securities
and the repurchase of the company's stock.
Total liabilities at September 30,1999 were $281.5 million compared to $253.5
million at December 31,1998, an increase of $28.0 million. Deposits increased by
$12.2 million, advances from the Federal Home Loan Bank increased by $13.3
million, advances from borrowers for taxes and insurance increased by $1.7
million and other liabilities increased by $800,000. The increase in liabilities
helped in funding loan growth, increasing the securities portfolio, and
repurchasing common stock.
Equity at September 30,1999 was $83.4 million compared to $84.6 million at
December 31,1998, a decrease of $1.2 million. The decrease was due to the
company's repurchase of outstanding common stock of $4.0 million which was
offset by net income of $4.0 million. Equity at September 30,1999 was also
impacted by dividends on the company's common stock. Three cash dividends
totaling $1.5 million were declared during the nine month period ending
September 30,1999. The dividends were then paid to stockholders in April, July
and October 1999.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,1999 AND
SEPTEMBER 30,1998
GENERAL
Net earnings for the nine months ended September 30,1999 were $4,022,000, a
decrease of $242,000 from net earnings of $4,264,000 for the nine months ended
September 30,1998. The decrease in net earnings was primarily due to a decrease
of $101,000 in net interest income and a $244,000 increase in noninterest
expense partially offset by a decrease of $23,000 in the provision for income
taxes and an increase in noninterest income of $80,000.
12
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
INTEREST INCOME
Interest income for the nine months ended September 30,1999 was $18,408,000
compared to $18,229,000 for the nine months ended September 30,1998, an increase
of $179,000. Interest income increased on loans receivable by $967,000 due to
increases in the average balances of loans receivable. The increase in income
due to loans receivable was partially offset by a decrease of $370,000 in
interest from securities due to lower interest rates and the sale of securities
to fund the Company's purchase of Treasury stock. Mortgage backed securities
interest income decreased by $374,000 primarily due to repayments of mortgage
backed securities. Other interest earning assets decreased by $44,000 due
primarily to the reduction of Federal Funds.
INTEREST EXPENSE
Interest expense for the nine months ended September 30,1999 was $8,026,000
compared to $7,746,000 for the nine months ended September 30,1998 an increase
of $280,000. The increase of $570,000 in interest on Federal Home Loan Bank
Advances is the result of increased borrowings from the Federal Home Loan Bank
used to fund loan growth, and partially offset by a decrease of $290,000 in
interest expense on deposits due to lower interest rates.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the nine months ended September 30,1999 was
$185,000 and remained consistent with the nine months ended September 30,1998.
The amount of the provision and allowance for estimated losses on loans is
influenced by current economic conditions, actual loss experience, industry
trends and other factors, including real estate values, in the Bank's market
area . In addition, various regulatory agencies, as an integral part of their
examination process , periodically review the Bank's allowance for estimated
losses on loans. Such agencies may require the Bank to provide additions to the
allowance based upon judgements which differ from those of management. Although
management uses the best information available and maintains the Bank's
allowance for losses at a level it believes adequate to provide for losses,
future adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions that may be beyond the Bank's control.
NONINTEREST INCOME
Noninterest income for the nine months ended September 30,1999 was $564,000
compared to $484,000 for the nine months ended September 30,1998. The increase
was primarily attributed to the increased use of our ATM's by other
institutions' customers, but also included a $19,000 increase in the net gain on
sale of securities.
13
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FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
NONINTEREST EXPENSE
Noninterest expense was $4,450,000 for the nine months ended September 30,1999
compared to $4,206,000 for the nine months ended September 30,1998 an increase
of $244,000. Compensation and benefits expense increased by $450,000 primarily
due to the implementation of the RRP Plan, which was approved in May 1998, and
the hiring of additional personnel due to the growth of the institution.
Occupancy and equipment expense decreased by $89,000 due to a $26,000 refund for
property taxes and a decrease of $20,000 in the provision for property taxes in
1999. Occupancy and equipment expense was further decreased by fixed assets at
the Bank's Milwaukee Avenue and Philadelphia offices becoming fully depreciated.
Data processing expense decreased by $44,000 primarily due to the Bank's
conversion to a new data processing company.
Professional fees decreased by $22,000 due to the Company assuming an increased
role in the preparation of various reports required by regulatory agencies.
Other operating expenses decreased by $44,000 due to decreased travel expense as
a result of the data processing conversion and the hiring of an internal
appraiser.
INCOME TAXES
Income taxes were $2,289,000 for the nine months ended September 30,1999
compared to $2,312,000 for the nine months ended September 30,1998 a decrease of
$23,000. The decrease in the provision for income taxes was due to a decrease of
$265,000 in pre-tax earnings.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
AND SEPTEMBER 30,1998
GENERAL
Net earnings for the three months ended September 30,1999 were $1,446,000 and
remained fairly consistent with the three months ended September 30,1998.
However, income per share increased during the period as a result of the
company's purchase of Treasury Stock.
INTEREST INCOME
Interest Income for the three months ended September 30,1999 was $6,361,000
compared to $6,207,000 for the three months ended September 30,1998, an increase
of $154,000. Interest Income increased on loans receivable by $294,000 due to
increases in the average balances of loans receivable. Securities income
decreased by $98,000 due to the sale of securities to fund the Company's
purchase of Treasury stock and calls by issuers of the higher yielding
securities. Income from mortgage-backed securities increased by $46,000 due to
higher interest rates on repriced variable rate mortgage-backed securities.
Other interest-earning assets decreased by $88,000 due primarily to the
reduction in Federal Funds.
INTEREST EXPENSE
Interest Expense for the three months ended September 30,1999 was $2,811,000
compared to $2,635,000 for the three months ended September 30,1998 an increase
of $176,000. The increase of $208,000 in interest expense on Federal Home Loan
Bank Advances is the result of increased borrowings from the Federal Home Loan
Bank used to fund loan growth, and partially offset by a decrease of $32,000 in
interest expense on deposits due to lower interest rates.
14
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended September 30,1999 was
$61,000 and remained fairly consistent with the three months ended September
30,1998.
The amount of the provision and allowance for estimated losses on loans is
influenced by current economic conditions, actual loss experience, industry
trends and other factors, including real estate values, in the Bank's market
area . In addition, various regulatory agencies, as an integral part of their
examination process , periodically review the Bank's allowance for estimated
losses on loans. Such agencies may require the Bank to provide additions to the
allowance based upon judgements which differ from those of management. Although
management uses the best information available and maintains the Bank's
allowance for losses at a level it believes adequate to provide for losses,
future adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions that may be beyond the Bank's control.
NONINTEREST INCOME
Noninterest income for the three months ended September 30,1999 was $223,000
compared to $182,000 for the three months ended September 30,1998. The increase
was primarily attributed to increased use of our ATM's by other institution's
customers.
NONINTEREST EXPENSE
Noninterest expense was $1,471,000 for the three months ended September 30,1999
compared to $1,634,000 for the three months ended September 30,1998 a decrease
of $163,000. Compensation and benefits expense increased by $13,000 due to
increases in employee group insurance and the hiring of additional personnel due
to the growth of the institution.
Occupancy and equipment expense decreased by $63,000 due to decreases in the
provision for property taxes in 1999 and fixed assets at the Bank's Milwaukee
Avenue and Philadelphia offices becoming fully depreciated.
Data processing expense decreased by $37,000 due to the Bank's conversion to a
new data processing center.
Professional fees decreased by $13,000 due to the company assuming an increased
role in the preparation of various reports required by regulatory agencies.
Other operating expenses decreased by $60,000 due to decreases in costs
associated with the deconversion of our data processor and the hiring of an
internal appraiser.
15
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
INCOME TAXES
Income taxes were $795,000 for the three months ended September 30,1999 compared
to $616,000 for the three months ended September 30,1998, an increase of
$179,000. The increase in the provision for income taxes was due to an increase
in pre-tax earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary resource of funds are deposits and proceeds from principal
and interest payments on loans and mortgage-backed securities. While maturities
and scheduled amortization of loans and securities are predictable sources of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. First Security generally
manages the pricing of its deposits to be competitive and to increase core
deposit relationships.
Liquidity management is both a daily and long-term responsibility of management.
First Security adjusts its investments in liquid assets based upon management's
assessment of (i) expected loan demand, (ii) expected deposit flows, (iii)
yields available on interest-earning deposits and investment securities, and
(iv) the objective of its asset/liability management program. Excess liquid
assets are invested generally in interest-earning overnight deposits and short-
and intermediate-term U.S. government and agency obligations and mortgage-backed
securities of short duration. If First Security requires funds beyond its
ability to generate them internally, it has additional borrowing capacity with
the FHLB of Chicago.
Federal Regulations require First Security to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon economic
conditions and savings flows and is currently 4% of net withdrawable savings
deposits and borrowings payable on demand or in one year or less during the
preceding calendar month. Liquid assets for purposes of this ratio include cash,
certain time deposits, U. S. Government, government agency and corporate
securities and other obligations generally having remaining maturities of less
than five years. First Security has historically maintained its liquidity ratio
for regulatory purposes at levels in excess of those required. At September
30,1999, First Security's liquidity ratio for regulatory purposes was 35.17%.
The Company's cash flows are comprised of three primary classifications: cash
flows from operating activities, investing activities and financing activities.
Cash flows provided by operating activities were $4.9 million and $5.0 million
for the nine months ended September 30,1999 and September 30,1998 respectively,
and $7.4 million, $2.8 million and $2.1 million for the years ended December
31,1998, 1997, and 1996, respectively. Net cash from investing activities
consisted primarily of disbursements for loan originations and the purchase of
investments and mortgage-backed securities, offset by principal collections on
loans, proceeds from maturation and sales of securities and paydowns on
mortgage-backed securities. Net cash from financing activities consisted
primarily of increases in net deposits and advances from FHLB of Chicago
partially offset by purchases of Treasury Stock in 1999.
The Company's most liquid assets are cash and short-term investments. The levels
of these assets are dependent on the Company's operating, financing, lending and
investing activities during any given period . At September 30,1999, cash and
short-term investments totaled $5.8 million. The Company has other sources of
liquidity if a need for additional funds arises, including securities maturing
within one year and the repayment of loans. The Company may also utilize the
sale of securities available-for-sale and FHLB advances as a source of funds.
16
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
At September 30,1999, the Company had outstanding commitments to originate loans
of $3.6 million, $3.5 million of which had fixed interest rates, and $68,000 of
which had adjustable interest rates. These loans are to be secured by properties
located in its market area. The Company anticipates that it will have sufficient
funds available to meet its current loan commitments. Loan commitments have, in
recent periods, been funded through liquidity or through FHLB advances.
Certificates of deposit which are scheduled to mature in one year or less from
September 30,1999 totaled $117.9 million. Management believes, based on past
experience, that a significant portion of such deposits will remain with the
Company. Based on the foregoing, in addition to the Company's high level of core
deposits and capital, the Company considers its liquidity and capital resources
sufficient to meet its outstanding short-term and long-term needs.
First Security is subject to various regulatory capital requirements imposed by
the OTS. At September 30,1999, First Security was in compliance with all
applicable capital requirements on a fully phased-in basis. See Note 4 of the
Notes to Consolidated Financial Statements.
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", requires companies to record derivatives on
the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. SFAS 133 does not allow hedging of a security which is
classified as held-to-maturity, accordingly, upon adoption of SFAS 133,
companies may reclassify any security from held-to-maturity to
available-for-sale if they wish to be able to hedge the security in the future.
SFAS 133 is effective for the fiscal years beginning after June 15,1999 with
early adoption encouraged for any fiscal quarter beginning July 1,1998 or later,
with no retroactive application. Management does not expect the adoption of SFAS
133 to have a significant impact on the Company's financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and results of operations in terms
of historical dollars, without considering changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all of the assets and liabilities of the Company are monetary in
nature. Therefore, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. In the current interest rate
environment, the liquidity and maturity structure and quality of the Company's
assets and liabilities are critical to the maintenance of acceptable performance
levels.
17
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
SAFE HARBOR STATEMENT
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Bank intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Bank, are
generally identifiable by use of the words "believe", "expect", "intend",
"anticipate", "estimate", "project" or similar expressions. The Bank's ability
to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Bank and the subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Bank's market area and accounting principles, policies and guidelines. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Bank's financial results, is included
in the Bank's filings with the Securities and Exchange Commission.
YEAR 2000
The Bank's lending and deposit activities are almost entirely dependent upon
computer systems which process and record transactions, although the Bank can
effectively operate with manual systems for brief periods when its electronic
systems malfunction or cannot be accessed. Currently, the Bank utilizes the
services of a nationally recognized data processing service bureau which
specializes in data processing for financial institutions.
The Bank has conducted a review of its computer systems to review the systems
that could be affected by the Year 2000 issue and has developed a plan of action
to resolve the issue. In 1997, the Bank began a process of identifying any Year
2000 related problems that may be experienced by its computer-dependent systems.
During this process of identifying and assessing any potential Year 2000 related
problems, the Bank decided to convert from its current data processing service
bureau to the aforementioned nationally-recognized data processing service
bureau. As part of this conversion, the Bank also decided to purchase all new
computer hardware to replace the existing outdated teller terminals. The
installation of the new hardware and the conversion to the new service bureau
took place successfully in August 1998.
18
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FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Bank has received confirmation from both the computer hardware supplier and
the data processing service bureau that both systems (hardware and software) are
Year 2000 compliant. However, the Bank performed it's own independent testing of
the systems in November 1998 and in April 1999. Various system applications were
tested and both tests were completed successfully utilizing dates in the year
2000.
The Bank has contacted the companies that supply or service its
computer-dependent systems to obtain confirmation that each system that is
material to the operation of the Bank is either currently Year 2000 compliant or
is expected to be Year 2000 compliant. The Bank has received confirmation that
all systems that are material to the operation of the bank are Year 2000
compliant.
In addition to the possible expense related to its own systems, the Bank could
incur losses if loan payments are delayed due to Year 2000 problems affecting
any of the Bank's significant borrowers or impairing the payroll systems of
large employers in the Bank's primary market area. Because the Bank's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses and the Bank's primary market area is not significantly dependent on
one employer or industry, the Bank does not expect any significant or prolonged
Year 2000 related difficulties will affect net earnings or cash flow.
As of September 30,1999, the Bank has incurred $580,000 in capital expenditures
related to its hardware and software conversion. The Bank does not anticipate
incurring any material additional expense to achieve Year 2000 compliance.
19
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
- --------------------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In an attempt to manage its exposure to changes in interest rates, management
monitors the Company's interest rate risk. The Board of Directors reviews at
least quarterly the Company's interest rate risk position and profitability. The
Board of Directors also reviews the Company's portfolio, formulates investment
strategies and oversees the timing and implementation of transactions to assure
attainment of the Company's objectives in the most effective manner. In
addition, the Board reviews on a quarterly basis the Company's asset/liability
position, including simulations of the effect on the Company's capital of
various interest rate scenarios.
In managing its asset/liability mix, the Company, depending on the relationship
between long- and short-term interest rates, market conditions and consumer
preference, often places more emphasis on managing short term net interest
margin than on better matching the interest rate sensitivity of its assets and
liabilities in an effort to enhance net interest income. Management believes
that the increased net interest income resulting from a mismatch in the maturity
of its asset and liability portfolios can, during periods of declining or stable
interest rates, provide high enough returns to justify the increased exposure to
sudden and unexpected increases in interest rates.
The Board has taken a number of steps to manage the Company's vulnerability to
changes in interest rates. First, the Company has long used community outreach,
customer service and marketing efforts to increase the Company's passbook and
other non-certificate accounts. At September 30,1999, $98.2 million or 42.2% of
the Company's deposits consisted of passbook, NOW and money market accounts. The
Company believes that most of these accounts represent "core" deposits which are
generally somewhat less interest rate sensitive than other types of deposit
accounts. Second, while the Company continues to originate 30 year fixed rate
residential loans for portfolio as a result of consumer demand, an increasing
proportion of the Company's residential loans have terms of 15 years or less or
carry adjustable interest rates. Finally, the Company has focused a significant
portion of its investment activities on securities with adjustable interest
rates or terms of five years or less. At September 30,1999, $11.0 million or
60.1% of the Company's mortgage-backed securities had adjustable interest rates
or terms to maturity (or anticipated average lives in the case of collateralized
mortgage obligations) of five years or less and $21.7 million or 23.2% of the
Company's other securities had adjustable interest rates or terms to maturity of
five years or less.
Management utilizes the net portfolio value ("NPV") analysis to quantify
interest rate risk. In essence, this approach calculates the difference between
the present value of liabilities, expected cash flows from assets and cash flows
from off balance sheet contracts. Presented below, as of June 30,1999 the latest
date for which information is available, is an analysis of the Bank's estimated
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts in interest rates, up and down 300 basis points in 100 point
increments. Even though the information presented reflects the Bank's interest
rate risk position at the close of the prior quarter, management believes that
it is helpful in assessing the Bank's current interest rate risk position.
20
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
- --------------------------------------------------------------------------------
Assumed Change $ Change in % Change in
In Interest Rates $ AMOUNT NPV NPV
----------------- -------- ----------- -----------
(Basis Points) (Dollars in Thousands)
+ 300 $56,399 $(24,041) (30)%
+ 200 64,769 (15,671) (19)
+ 100 73,085 (7,356) (9)
-- 80,440 -- --
- 100 86,196 5,755 7
- 200 92,103 11,662 14
- 300 98,324 17,883 22
Certain assumptions utilized in assessing the interest rate risk of thrift
institutions were employed in preparing the preceding table. These assumptions
relate to interest rates, loan prepayment rates, deposit decay rates, and the
market values of certain assets under the various interest rate scenarios. It
was also assumed that delinquency rates will not change as a result of changes
in interest rates although there can be no assurance that this will be the case.
Even if interest rates change in the designated amounts, there can be no
assurance that the Company's assets and liabilities would perform as set forth
above. In addition, a change in U.S. Treasury rates in the designated amounts
accompanied by a change in the shape of the Treasury yield curve would cause
significantly different changes to the NPV than indicated above.
21
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
- --------------------------------------------------------------------------------
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits - Exhibit 3(ii) - Amended and Restated By-Laws
- Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K - none
22
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST SECURITYFED FINANCIAL, INC
(Registrant)
BY: /S/JULIAN E. KULAS
---------------------------
Julian E. Kulas
Principal Executive Officer
November 15,1999
BY: /S/HARRY KUCEWICZ
--------------------------------------
Harry Kucewicz
Chief Financial and Accounting Officer
November 15,1999
23
AMENDED AND RESTATED
BY-LAWS OF
FIRST SECURITYFED FINANCIAL, INC.
ARTICLE I
STOCKHOLDERS
Section 1. ANNUAL MEETING.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix.
Section 2. SPECIAL MEETINGS.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
Section 3. NOTICE OF MEETINGS.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten nor more than 60 days before the
date on which the meeting is to be held, to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than 30
days after the date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. QUORUM.
At any meeting of the stockholders, the holders of at least one-third
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or except
to the extent that the presence of a larger number may be required by law. Where
a separate vote by a class or classes is required, a majority of the shares of
1
<PAGE>
such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. ORGANIZATION.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. CONDUCT OF BUSINESS.
(a) The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
or her in order.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting (i) by
or at the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered or mailed to and received
at the principal executive offices of the Corporation not less than 70 days
prior to the anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 20 days or delayed by more than 60 days from such anniversary date,
notice by the stockholder to be timely must be so delivered by the close of
business on the later of (i) the 70th day prior to such annual meeting or (ii)
the 10th day following the day on which public disclosure (which may be made by
press release, in a publicly available filing at the United States Securities
and Exchange Commission, through mailed notice or otherwise) of the date of the
annual meeting is first made. A stockholder's notice to the Secretary shall set
forth as to each matter such stockholder proposes to bring before the annual
2
<PAGE>
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder who proposed such business, (iii) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
stockholder and (iv) any material interest of such stockholder in such business.
Notwithstanding anything in these By-laws to the contrary, no business shall be
brought before or conducted at an annual meeting except in accordance with the
provisions of this Section 6(b). The officer of the Corporation or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 6(b) and, if he or she should
so determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these By-laws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are to
be elected only (i) by or at the direction of the Board of Directors or (ii) by
any stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made by timely notice in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered or mailed to and received at the principal executive offices of the
Corporation not less than 70 days prior to the date of the meeting; provided,
however, that in the event that less than 80 days' public disclosure of the date
of the meeting is given to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the earlier of (i) the day on which such notice of the date of the
meeting is mailed or (ii) the day on which public disclosure of the date of the
meeting is first made. For the purpose of the prior sentence, the term "public
disclosure" shall include disclosure in a press release, a publicly available
filing with the United States Securities and Exchange Commission, a mailed
notice to shareholders or otherwise.
Such stockholder's notice shall set forth (i) as to each person whom
such stockholder proposes to nominate for election or re-election as a director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) as to
the stockholder giving the notice: (x) the name and address, as they appear on
the Corporation's books, of such stockholder and (y) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
3
<PAGE>
for election as a director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
Section 7. PROXIES AND VOTING.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing (or as
otherwise permitted under applicable law) by the stockholder or his duly
authorized attorney-in-fact filed in accordance with the procedure established
for the meeting. Proxies solicited on behalf of the management shall be voted as
directed by the stockholder or in the absence of such direction, as determined
by a majority of the Board of Directors. No proxy shall be valid after eleven
months from the date of its execution except for a proxy coupled with an
interest.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein or in the Certificate of
Incorporation of the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballot, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballot shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. STOCK LIST.
The officer who has charge of the stock transfer books of the
Corporation shall prepare and make, in the time and manner required by
applicable law, a list of stockholders entitled to vote and shall make such list
available for such purposes, at such places, at such times and to such persons
as required by applicable law. The stock transfer books shall be the only
evidence as to the identity of the stockholders entitled to examine the stock
transfer books or to vote in person or by proxy at any meeting of stockholders.
4
<PAGE>
Section 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
Section 10. INSPECTORS OF ELECTION
The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more persons as inspectors of election, to act at
the meeting or any adjournment thereof and make a written report thereof, in
accordance with applicable law.
ARTICLE II
BOARD OF DIRECTORS
Section 1. GENERAL POWERS, NUMBER AND TERM OF OFFICE.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The number of directors shall be
as provided for in the Certificate of Incorporation. The Board of Directors
shall annually elect a Chairman of the Board and a President from among its
members and shall designate, when present, either the Chairman of the Board or
the President to preside at its meetings.
The directors, other than those who may be elected by the holders of
any class or series of preferred stock, shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the first annual meeting, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election, with each director to hold office until his or her
successor shall have been duly elected and qualified.
5
<PAGE>
Section 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS.
Subject to the rights of the holders of any class or series of
preferred stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires,
and until such director's successor shall have been duly elected and qualified.
No decrease in the number of authorized directors constituting the Board shall
shorten the term of any incumbent director.
Section 3. REGULAR MEETINGS.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole number)
or by the President and shall be held at such place, on such date, and at such
time as they or he or she shall fix. Notice of the place, date, and time of each
such special meeting shall be given to each director by whom it is not waived by
mailing written notice not less than five days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
24 hours before the meeting. Unless otherwise indicated in the notice thereof,
any and all business may be transacted at a special meeting.
Section 5. QUORUM.
At any meeting of the Board of Directors, a majority of the authorized
number of directors then constituting the Board shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
6
<PAGE>
Section 7. CONDUCT OF BUSINESS.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. POWERS.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(i) To declare dividends from time to time in accordance with
law;
(ii) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(iii) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(iv) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any officer
upon any other person for the time being;
(v) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(vi) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers, employees
and agents of the Corporation and its subsidiaries as it may determine;
(vii) To adopt from time to time such insurance, retirement,
and other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(viii) To adopt from time to time regulations, not
inconsistent with these By-laws, for the management of the Corporation's
business and affairs.
7
<PAGE>
Section 9. COMPENSATION OF DIRECTORS.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III
COMMITTEES
Section 1. COMMITTEES OF THE BOARD OF DIRECTORS.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designated the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. CONDUCT OF BUSINESS.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
8
<PAGE>
Section 3. NOMINATING COMMITTEE.
The Board of Directors may appoint a Nominating Committee of the Board,
consisting of not less than three members, one of which shall be the President
if, and only so long as, the President remains in office as a member of the
Board of Directors. The Nominating Committee shall have authority (i) to review
any nominations for election to the Board of Directors made by a stockholder of
the Corporation pursuant to Section 6(c)(ii) of Article I of these By-laws in
order to determine compliance with such By-law and (ii) to recommend to the
Whole Board nominees for election to the Board of Directors to replace those
directors whose terms expire at the annual meeting of stockholders next ensuing.
ARTICLE IV
OFFICERS
Section 1. GENERALLY.
(a) The Board of Directors as soon as may be practicable after
the annual meeting of stockholders shall choose a President, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The President shall be chosen from among the directors. Any number of
offices may be held by the same person.
(b) The term of office of all officers shall be until the next
annual election of officers and until their respective successors are chosen,
but any officer may be removed from office at any time by the affirmative vote
of a majority of the authorized number of directors then constituting the Board
of Directors.
(c) All officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof.
Section 2. PRESIDENT.
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation's business
and general supervisory power and authority over its policies and affairs. The
President shall see that all orders and resolutions of the Board of Directors
and of any committee thereof are carried into effect.
Each meeting of the stockholders and of the Board of Directors shall be
presided over by such officer as has been designated by the Board of Directors
or, in his or her absence, by such officer or other person as is chosen at the
meeting. The Secretary or, in his or her absence, the General Counsel of the
Corporation or such officer as has been designated by the Board of
9
<PAGE>
Directors or, in his or her absence, such officer or other person as is chosen
by the person presiding, shall act as secretary of each such meeting.
Section 3. VICE PRESIDENT.
The Vice President or Vice Presidents, if any, shall perform the duties
of the President in the President's absence or during his or her disability to
act. In addition, the Vice Presidents shall perform the duties and exercise the
powers usually incident to their respective offices and/or such other duties and
powers as may be properly assigned to them from time to time by the Board of
Directors, the Chairman of the Board or the President.
Section 4. SECRETARY.
The Secretary or an Assistant Secretary shall issue notices of
meetings, shall keep their minutes, shall have charge of the seal and the
corporate books, shall perform such other duties and exercise such other powers
as are usually incident to such offices and/or such other duties and powers as
are properly assigned thereto by the Board of Directors, the Chairman of the
Board or the President.
Section 5. TREASURER.
The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the Corporation
which has a treasurer or financial officer appointed by the Board of Directors,
and shall keep regular books of account. The funds of the Corporation shall be
deposited in the name of the Corporation by the Treasurer with such banks or
trust companies or other entities as the Board of Directors from time to time
shall designate. The Treasurer shall sign or countersign such instruments as
require his or her signature, shall perform all such duties and have all such
powers as are usually incident to such office and/or such other duties and
powers as are properly assigned to him or her by the Board of Directors, the
Chairman of the Board or the President, and may be required to give bond,
payable by the Corporation, for the faithful performance of his duties in such
sum and with such surety as may be required by the Board of Directors.
Section 6. ASSISTANT SECRETARIES AND OTHER OFFICERS.
The Board of Directors may appoint one or more assistant secretaries
and one or more assistants to the Treasurer, or one appointee to both such
positions, which officers shall have such powers and shall perform such duties
as are provided in these By-laws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
10
<PAGE>
Section 7. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS
Unless otherwise directed by the Board of Directors, the President, or
any officer of the Corporation authorized by the President, shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other Corporation.
ARTICLE V
STOCK
Section 1. CERTIFICATES OF STOCK.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
Section 2. TRANSFERS OF STOCK.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefore.
Section 3. RECORD DATE.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
60 nor less than ten days before the date of any meeting of stockholders, nor
more than 60 days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held, and, for determining stockholders entitled to receive payment of any
dividend or other distribution or allotment of rights or to exercise any rights
11
<PAGE>
of change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. REGULATIONS.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
NOTICES
Section 1. NOTICES.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, by sending such notice by prepaid telegram or mailgram or by
sending such notice by facsimile machine or other electronic transmission. Any
such notice shall be addressed to such stockholder, director, officer, employee
or agent at his or her last known address as the same appears on the books of
the Corporation. The time when such notice is received, if hand delivered or
dispatched, if delivered through the mail, by telegram or mailgram or by
facsimile machine or other electronic transmission, shall be the time of the
giving of the notice.
Section 2. WAIVERS.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
12
<PAGE>
ARTICLE VII
MISCELLANEOUS
Section 1. FACSIMILE SIGNATURES.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. CORPORATE SEAL.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. FISCAL YEAR.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. TIME PERIODS.
In applying any provision of these By-laws which requires that an act
be done or not be done a specified number of days prior to an event or that an
act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
13
<PAGE>
ARTICLE VIII
AMENDMENTS
The By-laws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
14
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for the quarter ended September 30,1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
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<INVESTMENTS-CARRYING> 90,478
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<LOANS> 236,255
<ALLOWANCE> 2,251
<TOTAL-ASSETS> 364,919
<DEPOSITS> 232,748
<SHORT-TERM> 8,000
<LIABILITIES-OTHER> 6,436
<LONG-TERM> 34,300
0
0
<COMMON> 64
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<INTEREST-INVEST> 4,410
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<INCOME-PRETAX> 6,311
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<EXTRAORDINARY> 0
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<EPS-BASIC> 0.82
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