U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended: March 31, 1996
Commission file number: 0-8673
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
(Exact name of registrant as specified in its charter)
Delaware 36-2301786
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
224 - 18th Street, Suite 202, Rock Island, Illinois 61201-8719
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (309) 794-1120
Securities registered pursuant to Section 12(g) of the Act:
Class A Cumulative Convertible Preferred Stock
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 no disclosure of delinquent filers 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 stock held by non-affiliates of the
registrant as of May 31, 1996 (excluding the reported beneficial ownership of
all directors, officers and beneficial owners of more than 5% of the
registrant's voting stock; however, this does not constitute an admission of
affiliate status for any of these holders) was $4,909,000. The Common Stock of
the registrant, which is the registrant's only voting stock, is not actively
traded or regularly quoted. However, for the reasons stated in Item 5 of this
Report, the amount shown is calculated on the basis of $67.50 per share for the
Common Stock. The number of shares outstanding of the registrant's Common Stock
as of May 31, 1996 was 176,611 shares of $.50 par value Common Stock.
The exhibit index may be found on pages 51 through 54 herein.
<PAGE>
Part I
Item 1. Business
(a) Business Development
Financial Services Corporation of the Midwest ("FSCM") is a
bank holding company incorporated in 1973 under Delaware law
and registered under the Bank Holding Company Act of 1956, as
amended (the "Holding Company Act"). FSCM's principal place of
business is located at 224-18th Street, Suite 202, Rock
Island, Illinois. In 1974, FSCM acquired all of the
outstanding shares of THE Rock Island Bank ("TRIB"), an
Illinois chartered State commercial bank serving both the Iowa
and Illinois Quad Cities' communities. On November 1, 1995,
TRIB became a national bank known as THE Rock Island Bank,
National Association and relocated its head office from Rock
Island, Illinois to Bettendorf, Iowa. TRIB is a member of the
Federal Reserve System and its deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC").
(b) THE Rock Island Bank, N.A. Financial Information
<TABLE>
March 31, March 31, March 31,
(Dollars in Thousands) 1996 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 14,921 $ 14,353 $ 12,849
Provision for possible loans and lease losses 1,905 2,510 1,970
Total other income 3,303 3,132 3,468
Total other expenses 10,084 9,465 9,557
Income taxes 2,087 1,830 1,672
---------- ---------- ----------
Net income $ 4,148 $ 3,680 $ 3,118
========== ========== ==========
Total assets $ 386,818 $ 337,023 $ 303,818
========== ========== ==========
</TABLE>
(c) Description of Business
Financial Services Corporation of the Midwest
FSCM's investment in TRIB represented 94% of FSCM's parent
company only total assets of $30,260,000 as of March 31, 1996,
FSCM's $4.5 million, 8.50% Notes due December 1, 1999
("Notes"), which were issued in December 1992, constituted 75%
of FSCM's liabilities as of said date.
FSCM's primary sources of cash flows are derived from dividend
and tax payments from TRIB. The amount of dividends or other
funds paid to FSCM by TRIB is restricted by certain regulatory
provisions. Income taxes are computed on a separate company
basis, and tax payments are paid to FSCM by subsidiaries in
accordance with an intercompany tax allocation agreement.
FSCM is a one-bank holding company registered under the
Holding Company Act, and, as such, it is subject to
supervision by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"). Regulated areas with
which FSCM must comply include, but are not limited to:
obtaining approval before any acquisition, obtaining approval
prior to any change in control, restrictions on the types of
financial activities FSCM may engage in, maintenance of
prescribed capital adequacy standards, prohibitions of certain
related transactions, completion of various prescribed
reports, and submission to periodic examinations.
<PAGE>
THE Rock Island Bank, N.A.
TRIB's trade area is the Quad Cities metropolitan area,
encompassing the municipalities of Davenport and Bettendorf,
Iowa; and Rock Island, Moline, East Moline, Milan and Silvis,
Illinois. Its total population is approximately 240,000. TRIB
provides a wide variety of full-service commercial banking
products. These products are offered to individuals, service
businesses, industries, governmental units, financial
institutions and other entities. Locations at which these
products may be obtained include TRIB's home office located in
Bettendorf, Iowa, its downtown Rock Island, Illinois office
which was maintained as a branch when the home office was
moved to Iowa, four other branch offices (three of which have
extended hours), and its five on-premise and one off-premise
automatic teller machines ("ATMs"). The retail banking
services TRIB offers include accepting demand, savings and
time deposits in the forms of regular checking accounts, NOW
accounts, money market accounts, passbook savings, statement
savings, certificates of deposit and club accounts. Deposit
customers are eligible for debit ATM cards and Visa check
cards, which provide convenient access through the six
TRIB-owned ATMs as well as devices established by other
financial institutions that participate in the Illinois
Transfer System, an electronic funds transfer corporation, and
CIRRUS, an international electronic transaction interchange.
Additionally, TRIB makes secured and unsecured commercial,
construction, mortgage and consumer loans and equipment leases
and provides a variety of trust services, including
administration of estates, personal trust and employee benefit
programs.
TRIB is engaged in the highly competitive business of
commercial banking. There were approximately eighteen banks
and four savings institutions in the Quad Cities metropolitan
area as of March 31, 1996. Measured by total assets, TRIB was
the fourth largest. TRIB's competitors include local, regional
and national banking and nonbanking entities which are not
necessarily subject to the same regulatory standards or
restrictions.
Management believes that TRIB will be able to continue to
compete successfully in its community. TRIB's competitive
advantages include local decision making authority, quick
response on credit requests, customer convenience, and
providing customized banking and financial services.
Management further believes that TRIB's community commitment
and involvement, its commitment to a strong sales culture and
its commitment to providing quality banking services are
factors that will allow TRIB to continue to maintain and
improve its competitive position.
TRIB is subject to regulation and supervision, as a national
bank, by the Office of the Comptroller of the Currency ("OCC")
and, as a member of the Federal Reserve System, by the Federal
Reserve Board. Because TRIB's deposits are insured up to the
applicable limit (currently $100,000) by the FDIC, TRIB is
also subject to regulation by the FDIC. Iowa and Illinois
usury laws impose certain interest rate and fee restrictions
on TRIB.
Monetary Policy and Economic Conditions
The monetary policies of regulatory authorities, including the
Federal Reserve Board, have a significant effect on the
operating results of bank holding companies and their
subsidiary banks, including FSCM and TRIB. The Federal Reserve
Board regulates the national supply of bank credit. Among the
means available to the Federal Reserve Board to regulate such
supply are open market operations in U.S. government
securities, changes in the discount rate on depository
institution borrowings, and changes in reserve requirements
against depository institution deposits. These means are used
in varying combinations to influence the growth and
distribution of bank loans, investments, and deposits, and
their use may affect interest rates charged on loans or paid
for deposits.
<PAGE>
The laws and regulations to which FSCM and TRIB are subject
are constantly under review by Congress, regulatory agencies
and state legislatures. These laws and regulations may be
changed dramatically in the future, which could affect the
ability of bank holding companies to engage in certain
activities such as nationwide banking, securities underwriting
and insurance, as well as the amount of capital that banks and
bank holding companies must maintain, premiums paid for
deposit insurance and other matters directly affecting
earnings. It is not certain which changes will occur, if any,
or the effect such changes will have on the profitability of
FSCM and TRIB, their ability to compete effectively, or the
composition of the financial services industry.
The banking industry is also affected by general economic
conditions, such as inflation, recession, unemployment and
other factors. In addition, the business of FSCM and TRIB
could be affected by the economic conditions of the industries
in which the major employers in the Quad Cities metropolitan
area are involved, including John Deere & Co., ALCOA, and the
Federal Rock Island Arsenal. For example, a downturn in the
farm equipment industry may adversely affect John Deere & Co.,
causing layoffs, worker relocations, reduced purchasing from
local supply vendors, and other events that could adversely
affect FSCM and TRIB. As a further example, cutbacks in
defense industry spending could adversely affect employment at
the Federal Rock Island Arsenal, the economy in the Quad
Cities area, and thus FSCM and TRIB.
The foregoing references to applicable laws, statutes,
regulations and legislation are brief summaries thereof which
do not purport to be complete and are qualified in their
entirety by reference to such statutes, regulations and
legislation.
Employees
As of March 31, 1996, FSCM's and TRIB's combined total number
of employees was 182, of which 175 were considered to be
full-time equivalent employees. Management considers its
relations with employees to be good.
<PAGE>
Item 2. Properties
TRIB's main office location was moved on November 1, 1995, to a
one-story structure acquired in September 1995 located at 3120 Middle
Road, Bettendorf, Iowa. The 7,711 square foot office was remodeled and
furnished prior to its opening date and is presently staffed by
approximately 17 full and part-time retail deposit and loan personnel.
The Downtown Rock Island, Illinois office, which was retained as a
branch office when the main office moved to Bettendorf, Iowa, is a
six-story structure owned by TRIB and located at the northwest corner
of Third Avenue and 18th Street, Rock Island, Illinois. In May 1992,
TRIB purchased the building adjoining the downtown office to the north
on 18th Street. The acquired two-story building was subsequently
remodeled and annexed to TRIB's downtown office structure. In total,
TRIB occupies approximately 29,500 square feet of office space in the
expanded downtown office (excluding basement storage), while FSCM
occupies approximately 800 square feet of space. The remaining space of
17,750 square feet is available for rental to other occupants and was
fully leased as of March 31, 1996 to four tenants.
TRIB also owns and operates three limited service offices: in Rock
Island, Flatiron Square is located within the city's business district
at 1606-5th Avenue and Hilltop is conveniently located near residential
areas at 3411-18th Avenue; in East Moline, the office is located on a
business corridor with nearby residential areas at 680 - 42nd Avenue.
All of these offices have walk-in lobby and drive-up access. The
Flatiron Square office contains approximately 2,230 square feet of
space. During fiscal 1996, a new 5,450 square foot one story structure
was constructed at the Hilltop office site. The East Moline office is
currently operating out of a temporary facility. Additionally, TRIB
occupies approximately 320 square feet of office space at the
Friendship Manor, a life care retirement home located at 1209-21st
Avenue, Rock Island. This office is open during limited hours two days
per week and provides depository services primarily to residents and
employees of Friendship Manor in lieu of paying rent for the space
occupied by the limited service office.
TRIB is currently limited to a total investment of $5 million in land
and net premises that can be acquired before approval from the OCC is
necessary. Approval was requested and received to invest up to $6
million in land and net premises. As of March 31, 1996, TRIB had $4.3
million invested in land and net premises. In addition, covenants of
the correspondent bank loan agreement and public notes impose further
limitations. As of March 31, 1996, FSCM and TRIB's net fixed asset
investments were restricted to an amount not to exceed 3% of
consolidated assets or approximately an additional $5.7 million.
FSCM's management believes that upon construction of a permanent
structure at the East Moline, Illinois site, the existing premises will
be adequate to serve their respective locations.
Item 3. Legal Proceedings
FSCM and TRIB are involved in legal actions in various stages of
litigation and investigation. After reviewing all actions pending or
threatened involving FSCM and TRIB, management believes that such legal
actions constitute ordinary routine litigation incidental to the
business of FSCM and TRIB and that the ultimate resolution of these
matters should not materially affect FSCM's consolidated financial
position or operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
The Common Stock of FSCM is not actively traded, and there is
no active market in which shares of Common Stock are publicly
traded. A price of $67.50 per share was used in the
computation of the aggregate market value of Common Stock held
by non-affiliates set forth on the cover page of this Annual
Report on Form 10-K. This price was based on the following
described transactions. During the year ended March 31, 1996,
the trustee for the 401(k) defined contribution retirement
plan sponsored by TRIB contracted for an independent stock
appraisal on transactions involving small FSCM Common Stock
block sizes on behalf of the plan's participants. Based on the
results of the appraisal, 1,500 shares of Common Stock were
sold by FSCM from treasury to the 401(k) plan at a price of
$67.50 per share in March 1996. Other private transactions,
for which the sale price was not known or reasonably
available, may have occurred during the year.
(b) Holders
As of May 31, 1996, FSCM had approximately 170 common
shareholders.
(c) Dividends
Cash dividends on FSCM's Common Stock have been paid quarterly
for the last two fiscal years. The amounts per share and
payment dates were as follows:
Fiscal Fiscal
Dividend Date 1996 1995
------------- ------ ------
June 30 $ .38 $ .38
September 30 .38 .38
December 31 .50 .38
March 31 .50 .38
------ ------
$ 1.76 $1.52
====== =====
Most of FSCM's cash flow and income is derived from dividends
paid to it by TRIB. The ability of TRIB to pay dividends is
limited by the necessity to maintain adequate capital ratios
as established pursuant to guidelines issued by the OCC.
Further, TRIB can pay dividends only out of undivided profits
then on hand, after deducting losses and bad debts, and the
amount of dividends cannot exceed the sum of undivided profits
from the current year plus net profits from the preceding two
years. Upon determining that unsafe or unsound banking
practices have occurred, the OCC can prohibit dividend
payments.
In addition, covenants on FSCM's Notes and bank stock loan
require that FSCM obtain approval to pay Common Stock
dividends in excess of 30% of the prior year's consolidated
net income. This would allow a dividend up to a maximum of
$6.04 per share that the Board of Directors could declare on
FSCM's Common Stock for the fiscal year ended March 31, 1997;
however, before paying dividends, consideration also must be
given to FSCM's overall capital position relative to assets
and to regulatory capital ratio minimums.
<PAGE>
Item 6. Selected Financial Data
Financial Services Corporation of the Midwest
Consolidated Selected Financial Data
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
Fiscal Years Ended March 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income ..................................... $ 30,271 $ 24,571 $ 22,024 $ 20,729 $ 17,702
Interest expense .................................... 15,833 10,707 9,642 10,183 9,939
--------- --------- --------- --------- ---------
Net interest income ................................. 14,438 13,864 12,382 10,546 7,763
Provision for possible loan and lease losses ........ 1,905 2,510 1,970 2,180 892
--------- --------- --------- --------- ---------
Net interest income after provision for
possible loan and lease losses ................... 12,533 11,354 10,412 8,366 6,871
Other income ........................................ 3,304 3,149 3,515 3,905 1,671
Investment securities gains ......................... 11 -- -- 173 156
Other expenses ...................................... 10,527 9,919 10,327 8,572 6,782
Income taxes ........................................ 1,768 1,516 1,267 1,319 625
--------- --------- --------- --------- ---------
Income before cumulative effect1 .................... 3,553 3,068 2,333 2,553 1,291
Cumulative effect1 .................................. -- -- -- (132) 158
--------- --------- ---------
Net income .......................................... $ 3,553 $ 3,068 $ 2,333 $ 2,421 $ 1,449
========= ========= ========= ========= =========
Per Common Share:
Income before cumulative effect ..................... $ 16.87 $ 14.21 $ 10.07 $ 13.30 $ 6.86
Cumulative effect ................................... -- -- -- (.76) .90
Net income .......................................... 16.87 14.21 10.07 12.54 7.76
Fully diluted net income ............................ 10.80 9.10 6.73 9.06 6.30
Book value .......................................... 100.60 88.18 76.21 67.17 57.91
Book value assuming conversion of
MCDs2 and Convertible Preferred Stock ............ 76.80 68.35 60.25 54.23 50.61
Cash dividends ...................................... 1.76 1.52 1.52 1.26 1.00
Period-end Balances:
Total assets ........................................ $ 386,967 $ 337,454 $ 304,075 $ 268,334 $ 203,572
Loans and leases, net ............................... 251,502 208,244 177,101 154,998 118,043
Securities .......................................... 90,423 71,822 79,939 64,093 63,498
Deposits ............................................ 301,818 271,611 250,774 217,602 169,225
Notes payable ....................................... 4,500 5,000 5,000 5,000 5,250
MCDs2 ............................................... 1,250 1,250 1,250 1,250 1,250
Stockholders' equity ................................ 24,287 21,961 19,751 18,182 11,166
Earnings to Fixed Charge Ratios:
Consolidated:
Excluding interest on deposits ................... 2.30 2.72 2.60 3.52 2.03
Including interest on deposits ................... 1.33 1.43 1.37 1.38 1.19
Parent company only3 ................................ 1.26 1.04 -- -- --
Percentages:
Average equity to average assets .................... 6.52% 6.71% 6.80% 5.67% 5.48%
Net income to average common equity ................. 17.49 17.24 13.79 19.64 14.28
Net income to average assets ........................ 0.99 0.99 0.83 0.99 0.75
<FN>
1 Cumulative effects on prior years of changing to different accounting
principles.
2 Mandatory convertible debentures ("MCDs").
3 The dollar amounts of deficiency in earnings necessary to cover fixed
charges were $274, $303, and $289 for the fiscal years ended March 31,
1994, 1993, and 1992, respectively.
</FN>
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Corporate Profile
Financial Services Corporation of the Midwest ("FSCM") is a bank holding
company incorporated in 1973 under Delaware law and registered under the Bank
Holding Company Act of 1956, as amended. FSCM's principal place of business is
located at 224-18th Street, Suite 202, Rock Island, Illinois. In 1974, FSCM
acquired all outstanding shares of THE Rock Island Bank ("TRIB"), an Illinois
chartered state commercial bank serving both the Iowa and Illinois Quad Cities'
communities. On November 1, 1995, TRIB became a national bank known as THE Rock
Island Bank, National Association, and relocated its head office from Rock
Island, Illinois to Bettendorf, Iowa. TRIB is a member of the Federal Reserve
System and its deposits are insured by the Federal Deposit Insurance Corporation
("FDIC").
Financial Overview
Total assets increased to $386,967,000 from $337,454,000 as of March 31,
1996 and 1995, respectively. Net income increased to $3,553,000 for the fiscal
year ended March 31, 1996 as compared to $3,068,000 and $2,333,000 earned in
fiscal 1995 and 1994, respectively. Correspondingly, earnings per fully diluted
common share ("EPS") equaled $10.80, $9.10 and $6.73 for the fiscal years ended
March 31, 1996, 1995 and 1994, respectively, and book value, assuming conversion
of all convertible instruments, equaled $76.80, $68.35 and $60.25 for the
respective periods. The following table presents a more detailed analysis of the
increases in EPS between fiscal 1996 and 1995 and between fiscal 1995 and 1994.
Fiscal Fiscal
Years Years
Ended Ended
March 31, March 31,
1996 vs. 1995 vs.
March 31, March 31,
1995 1994
--------- ---------
Net income per fully diluted common share, prior year ..... $ 9.10 $ 6.73
Increase/(decrease) from changes in:
Earning asset volume ................................. 5.99 1.54
Rates and other effects on net interest income ....... (4.29) 2.72
Provision for possible loan and lease losses ......... 1.76 (1.53)
Other income ......................................... 0.48 (1.04)
Other expense ........................................ (1.77) 1.15
Income taxes ......................................... (0.74) (0.73)
------ ------
Subtotal .................................................. 10.53 8.84
Changes in weighted average common and contingently
issuable common shares outstanding .................... 0.27 0.26
------ ------
Net income per fully diluted common share ................ $10.80 $ 9.10
====== ======
Other selected ratios of FSCM are presented in the following table for the
fiscal years ended March 31, 1996, 1995 and 1994:
PERFORMANCE RATIOS
Fiscal Year Ended March 31,
---------------------------
1996 1995 1994
------ ------ ------
Return on average assets........................ 0.99% 0.99% 0.83%
Return on average common equity................. 17.49 17.24 13.79
Dividend payout ratio........................... 10.43 10.70 15.09
The dividend payout ratio, which divides dividends paid per common share by
the primary earnings per common share before dilution, indicates on a per share
basis the percentage of common shareholder investment returned to the
shareholder as opposed to reinvested into the business. A more comprehensive
discussion of changes in the asset and liability structure and earning
performance which contributed to the changes in the aforementioned ratios can be
found in the following discussion under the related sections.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
Income Statement
Overview
The following table identifies the changes in income by major categories
between fiscal 1996 and 1995 and between fiscal 1995 and 1994:
Fiscal Years Fiscal Years
Ended Ended
March 31, 1996 vs. March 31, 1995 vs.
(Dollars in Thousands) March 31, 1995 March 31, 1994
---------------------- ----------------- ------------------
Increase in interest income ............. $ 5,700 $ 2,547
Increase in interest expense ............ (5,126) (1,065)
------- -------
Increase in net interest margin ......... 574 1,482
(Increase) decrease in provision for
possible loan and lease losses ....... 605 (540)
Increase (decrease) in other income ..... 166 (366)
(Increase) decrease in other expense .... (608) 408
Increase in income taxes ................ (252) (249)
------- -------
Increase in net income .................. $ 485 $ 735
======= =======
The efficiency ratio, which divides total other expense by the sum of net
interest income and other income, equaled 59.33%, 58.30% and 64.96%, for the
respective fiscal years. A lower ratio generally reflects a better control of
operating expenses and therefore is more favorable. FSCM's Peer Group efficiency
ratio equaled 64.79%.
Net Interest Income
Interest income increased to $30,271,000 for the fiscal year ended March
31, 1996 from $24,571,000 for the comparable period in fiscal 1995. The
$5,700,000 increase resulted from increases in both average balance and yield of
interest-earning assets. The average balance rose to $335,323,000 for fiscal
1996 from $290,474,000 during the previous fiscal year and was primarily
distributed in loans. The yield on interest-earnings assets rose 57 basis points
to 9.03% from 8.46% for the respective fiscal years ended March 31, 1996 and
1995. Correspondingly, interest expense increased to $15,833,000 from
$10,707,000 in fiscal 1996 and 1995, respectively. Again, the $5,126,000
increase was the result of increases in both the average interest-bearing
liabilities outstanding and the cost on such liabilities. The average balance of
interest-bearing liabilities increased to $301,043,000 from $259,964,000 for the
fiscal years ended March 31, 1996 and 1995, respectively, and was primarily
comprised of increases in time deposits and securities sold under agreements to
repurchase. The cost of interest-bearing liabilities rose 114 basis points to
5.26% from 4.12% for the respective periods. The spread between the yield on
interest-earning assets and cost of interest-bearing liabilities decreased 57
basis points to 3.77% from 4.34% for the fiscal years ended March 31, 1996 and
1995, respectively. Correspondingly, the net interest margin, a ratio of net
interest income to interest-earning assets, also decreased to 4.31% from 4.77%
for the respective fiscal years. Combined, the $2,060,000 positive impact on net
interest income due to increases in average balances was partially offset by the
$1,486,000 negative net impact due to the changes in average yields and rates.
The net difference, $574,000, brought net interest income up to $14,438,000 from
$13,864,000 for the fiscal years ended March 31, 1996 and 1995, respectively.
For further discussion please refer to the Risk Management section later in this
report.
In comparison of fiscal 1995 to 1994, average interest-earning assets grew
to $290,474,000 from $263,812,000 and interest-bearing liabilities grew to
$259,964,000 from $235,265,000, respectively. Additionally, the yield on
interest-earning assets rose 11 basis points to 8.46% from 8.35%; however, the
cost of interest-bearing liabilities increased only two basis points to 4.12%
from 4.10% for the respective fiscal years. The resulting net interest spread,
therefore, increased to 4.34% from 4.25%, respectively and the net interest
margin increased to 4.77% from 4.69%.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
The following tables present three years of comparative information of
average balances, average interest rates, related interest amounts and the
interest variance analysis of rate and balance differences between the periods.
<TABLE>
AVERAGE BALANCE AND INTEREST RATE ANALYSIS
(Dollars in Thousands) March 31, 1996 March 31, 1995 March 31, 1994
------------------------------- ---------------------------- ---------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with
other financial institutions $ 715 $ 39 5.45% $ 319 $ 15 4.70% $ 1,437 $ 58 4.04%
Investment securities 86,602 5,003 5.78 77,379 3,930 5.08 73,595 3,507 4.77
Federal funds sold 17,360 1,021 5.88 22,082 1,050 4.76 16,850 513 3.04
Loans and leases, net1 230,646 24,208 10.50 190,694 19,576 10.27 171,930 17,946 10.44
-------------------------------------------------------------------------------------
Total interest-earning assets 335,323 30,271 9.03 290,474 24,571 8.46 263,812 22,024 8.35
--------- -------- --------
Cash and due from banks 11,618 10,243 10,004
Property and equipment 4,787 3,626 3,766
Other assets 7,477 6,670 4,815
-------- -------- --------
Total assets $359,205 $311,013 $282,397
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Savings deposits $ 74,394 1,834 2.47 $ 90,941 2,359 2.59 $115,033 3,619 3.15
Time deposits 176,038 11,030 6.27 136,841 6,670 4.87 91,969 4,777 5.19
Federal funds purchased 169 10 5.92 16 1 6.25 9 -- --
Securities sold under
agreements to repurchase 43,120 2,375 5.51 25,034 1,118 4.47 21,071 725 3.44
Other short-term borrowings 1,239 70 5.65 882 42 4.76 933 27 2.89
Notes payable 4,833 411 8.50 5,000 425 8.50 5,000 425 8.50
Mandatory convertible debenture 1,250 103 8.24 1,250 92 7.36 1,250 69 5.52
--------------------------------------------------------------------------------------
Total interest-bearing
liabilities 301,043 15,833 5.26 259,964 10,707 4.12 235,265 9,642 4.10
-------- ------- -------
Non-interest-bearing deposits 29,676 26,316 24,123
Other liabilities 5,070 3,862 3,808
-------- -------- --------
Total liabilities 335,789 290,142 263,196
Stockholders' equity 23,416 20,871 19,201
-------- -------- --------
Total liabilities and
stockholders' equity $359,205 $311,013 $282,397
======== ======== ========
Net interest income $ 14,438 $ 13,864 $12,382
======== ======== =======
Net interest margin (net
interest income divided
by average total interest-
earning assets) ..... 4.31% 4.77% 4.69%
===== ===== =====
<FN>
1 Nonaccruing loans and leases were included in the average balance.
</FN>
</TABLE>
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
INTEREST VARIANCE ANALYSIS
<TABLE>
Fiscal Years Fiscal Years
Ended March 31, 1996 Ended March 31, 1995
vs. March 31, 1995 vs. March 31, 1994
--------------------------------- ---------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change In (1) Due to Change In (1)
--------------------------------- ---------------------------------
Average Average Total Average Average Total
Balance Rate Change Balance Rate Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest-bearing deposits with other
financial institutions ......................... $ 19 $ 5 $ 24 $ (45) $ 2 $ (43)
Investment securities ............................. 468 605 1,073 180 243 423
Federal funds sold ................................ (225) 196 (29) 159 378 537
Loans and leases .................................. 4,101 531 4,632 1,959 (329) 1,630
------- ------- ------- ------- ------- -------
Total interest income .......................... 4,363 1,337 5,700 2,253 294 2,547
------- ------- ------- ------- ------- -------
Interest expense:
Savings deposits .................................. (429) (96) (525) (758) (502) (1,260)
Time deposits ..................................... 1,911 2,449 4,360 2,331 (438) 1,893
Securities sold under agreements
to repurchase .................................. 808 449 1,257 136 257 393
Short-term borrowings ............................. 17 11 28 (1) 16 15
Federal funds purchased ........................... 10 (1) 9 -- 1 1
Notes payable ..................................... (14) -- (14) -- -- --
Mandatory convertible debentures .................. -- 11 11 -- 23 23
------- ------- ------- ------- ------- -------
Total interest expense ......................... 2,303 2,823 5,126 1,708 (643) 1,065
------- ------- ------- ------- ------- -------
Change in net interest income ........................ $ 2,060 $(1,486) $ 574 $ 545 $ 937 $ 1,482
======= ======= ======= ======= ======= =======
<FN>
1 The change in interest due to the volume and rate has been allocated to the
change in average rate. Nonaccruing loans and leases are included in the
average balance. Loan and lease fees of $1,393, $1,330, and $1,013 for the
fiscal years ended March 31, 1996, 1995, and 1994, respectively, are
included in interest income on loans and leases.
</FN>
</TABLE>
Provision for Possible Loan and Lease Losses
The amounts of the provisions for possible loan and lease losses were
$1,905,000, $2,510,000 and $1,970,000 for the fiscal years ended March 31, 1996,
1995 and 1994, respectively. The amount of the provision is based on
management's continuous assessment of the adequacy of the allowance for possible
loan and lease losses in relation to nonperforming and total loans and leases
outstanding. The provision, stated as a percentage of average assets, equaled
0.53%, 0.81% and 0.70% for the respective fiscal years as compared to FSCM's
Peer Group of 0.17%. FSCM's Peer Group is defined as bank holding companies with
consolidated assets between $300 million and $500 million. The Peer Group
numbers presented here and throughout the report for comparisons are as of
December 31, 1995--the most recent date available. For further information,
please refer to the Loans and Direct Financing Leases section included later in
this discussion.
Other Income
Total other income equaled $3,315,000, $3,149,000 and $3,515,000 for the
fiscal years ended March 31, 1996, 1995 and 1994, respectively. Stated as a
percentage of average assets, other income was 0.92%, 1.01% and 1.24% for the
respective years. FSCM's comparative Peer Group ratio was 0.97%.
Trust fees totaled $322,000, $361,000 and $304,000 for the fiscal years
ended March 31, 1996, 1995 and 1994, respectively. Two trust officer positions
were vacated during fiscal 1996 and the department underwent restructuring.
Trust fees decreased as a result of the reduced generation of new business.
Subsequent to fiscal 1996 year-end, an officer was employed. Management
anticipates that such changes made in the department structure will result in
trust business growth.
In October 1995, $7.2 million of securities held available-for-sale were
sold, resulting in the recognition of an $11,000 gain. Said transaction resulted
from a minor adjustment in portfolio structure made by management.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
TRIB generates, and sells to investors, residential mortgage loans on which
the servicing rights have been retained. These investors include Freddie Mac,
Fannie Mae and the Illinois Housing Development Authority ("IHDA"). Loan
servicing fees generated from loans sold totaled $680,000, $677,000 and $618,000
for the fiscal years ended March 31, 1996, 1995 and 1994, respectively. The
outstanding balances of the serviced loans as of March 31, 1996, 1995 and 1994
were $165,003,000, $155,657,000 and $163,212,000, respectively.
Service charges on deposit accounts increased $66,000 to $1,065,000 for the
fiscal year ended March 31, 1996 from $999,000 in fiscal 1995 and $744,000 in
fiscal 1994. The growth between fiscal years primarily resulted from increases
in service charges associated with business depository accounts and with
overdrawn accounts. Said increases reflect the general growth in both personal
and business deposit accounts and to a lesser extent the June 1994 increase in
the overdraft assessment.
Insurance commissions represent the fee income TRIB receives for the sale
of credit life and accident and health insurance on consumer loans. The amount
of income varies proportionally to the amount of new loan volume and penetration
of insurance coverage. Insurance commissions for the fiscal years ended March
31, 1996, 1995 and 1994 totaled $294,000, $323,000 and $503,000, respectively. A
portion of the decrease between fiscal 1995 and 1994 reflected the maintenance
of higher reserve levels based on insurance rebate experience. Management
anticipates fiscal 1997's income to be comparable to that of fiscal 1996.
Other miscellaneous income totaled $581,000, $657,000 and $408,000 for the
respective fiscal years. Primary components of the category include fee income
associated with merchant credit card processing which totaled $212,000, $213,000
and $179,000 for the respective fiscal years and income generated from increases
on two key man life insurance policies surrender values which totaled $188,000,
$167,000 and $32,000. Additionally, in fiscal 1995, a $100,000 one- time gain
was recognized from the sale of equipment previously leased by TRIB to a third
party.
Other Expenses
Total other expense equaled $10,527,000, $9,919,000 and $10,327,000 for the
fiscal years ended March 31, 1996, 1995 and 1994, respectively. In March 1995,
the Board of Directors entered into an agreement with a national consulting firm
to perform a limited scope review of selected department's operational functions
and system structure. Fiscal 1996 other operating expense included $78,000 of
the $110,000 total paid for the review. FSCM has implemented approximately half
of the recommendations, and anticipates further progress during fiscal 1997. The
$281,000 annualized estimated before tax benefit resulting from the implemented
recommendations was distributed between: revenue enhancements - $11,000, labor
efficiencies - $181,000 and expense reductions - $89,000. Approximately $100,000
of the labor savings was offset to staff the Bettendorf, Iowa office; therefore,
although an actual reduction was not realized by this redistribution, labor
costs did not increase with the office expansion to the extent they would have
otherwise.
Salaries and employee benefits, which comprised over 50% of total other
expense, totaled $5,904,000, $5,272,000 and $5,386,000 for the respective fiscal
years. Stated as a percentage of average assets, personnel expense for the
respective fiscal years equaled 1.64%, 1.70% and 1.91%. FSCM's Peer Group ratio
was 1.72%. The number of full-time equivalent employees as of March 31, 1996,
1995 and 1994 were 175, 163 and 155, respectively.
Net occupancy expense increased to $801,000 from $754,000 and $538,000 for
the respective fiscal years. Contributing to the increase between fiscal 1996
and 1995 was the $42,000 of additional depreciation expense associated with the
Bettendorf office which opened on November 1, 1995. The majority of the increase
in expense between fiscal 1995 and 1994 was associated with branch expansions in
Rock Island and East Moline, Illinois which included a $71,000 one-time charge
related to the remaining book value of an office that was torn down and the
rental of trailers for temporary branch offices. For further information please
refer to the Premises, Furniture and Equipment section of this discussion.
Insurance expense totaled $281,000, $713,000 and $659,000 for the
respective fiscal years. As of the end of May 1995, the FDIC determined that the
Bank Insurance Fund was fully recapitalized, meeting the mandated level of $1.25
per $100 of deposits. The Federal Deposit Insurance Corporation reduced the
premium rate on insurance assessments, retroactive to June 1995, from
twenty-three cents to four cents per one hundred dollars of deposits. Further,
commencing January 1996, the assessment factor was reduced to the minimum of
$2,000 per year. The FDIC insurance premiums comprised $157,000, $560,000 and
$497,000 of the total insurance expense for the respective years.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
The increase in equipment expense to $947,000 from $651,000 and $633,000
for the fiscal years ended March 31, 1996, 1995 and 1994, respectively, resulted
primarily from increased depreciation expense which equaled $611,000, $385,000
and $368,000, respectively. Approximately $1.5 million was invested in fiscal
1996 to equip and furnish the new offices and to acquire and upgrade information
delivery systems. Please also refer to the Premises, Furniture and Equipment
section.
Data processing expense totaled $569,000, $551,000 and $541,000 for the
respective years, which represented a 2.6% average annual increase. Although the
number of accounts supported by the data service provider has grown, the
relatively stable expense in this area primarily reflected the benefit
negotiated when the data servicing contract was renewed in fiscal 1995 which
established a minimum base level number of accounts that had not been exceeded.
Management anticipates that in fiscal 1997, data processing expense will
increase due to exceeding the established minimum.
Management's commitment to advertising and business promotion has remained
stable, equaling $400,000, $420,000 and $448,000 for the respective years. It is
anticipated that advertising and business promotion expense in fiscal 1997 will,
at a minimum, be comparable to fiscal 1996's expense level.
Other operating expense totaled $1,625,000, $1,558,000 and $2,122,000 for
the respective fiscal years. Significant changes between fiscal 1996 and 1995
include $67,000 in dealer expense associated with the indirect consumer loan
department which was started in fiscal 1996 and an increase of $49,000 in
professional fees which primarily resulted from the aforementioned efficiency
study. The relatively high fiscal 1994 other expense included $250,000 of
amortization cost associated with a three-year non-compete covenant and a
$250,000 one-time charge paid to a secondary market residential real estate loan
investor.
Income Taxes
Income taxes totaled $1,768,000, $1,516,000 and $1,267,000 for the fiscal
years ended March 31, 1996, 1995 and 1994, respectively. These tax levels equate
to effective tax rates of 33.2%, 33.1% and 35.2% for the respective fiscal
years. Included in taxes were amounts associated with various state taxing
authorities which totaled $23,000, $3,000 and $13,000, respectively. Management
recognizes that the exposure to state taxes probably will increase due to TRIB's
November 1995 relocation into Iowa.
Risk Management
Risk management encompasses many different types of risk, including credit
risk, liquidity risk and interest rate risk. Regulatory agencies have modified
their examination procedures to rate the exposure of financial institutions to
risk by the various types of risk and the direction of change in the risk as
well as management's ability to monitor and control each type of risk.
Management's control of credit risk is discussed under the Loans and Direct
Financing Leases section of this report and a table of asset quality is included
for review and comparison.
Liquidity measures the ability to meet all present and future financial
obligations in a timely manner. FSCM's (parent company only) sources of
liquidity have historically been provided by cash distributions from TRIB, the
proceeds from long-term and short-term debt issuances, and the liquidation of
assets. On a consolidated basis, additional sources of liquidity include:
federal funds sold, retail deposits generated by the branch office network,
correspondent bank credit lines (including secured borrowings from the Federal
Home Loan Bank) and non-pledged investment securities. The sale of loans also
provides a source of liquidity. The amount of short-term assets, which are
generally considered liquid assets and earn a lower rate of interest than other
investment options, must be carefully monitored in terms of the overall funding
strategy to maintain an acceptable interest rate margin. FSCM's consolidated
statements of cash flows for the years ended March 31, 1996, 1995 and 1994
indicate that operating and financing activities are net sources of liquidity
and that investing activities use liquidity.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
Computer simulation modeling is used as TRIB's primary method of
quantifying and evaluating interest rate risk. FSCM manages its asset and
liability positions with the objective of minimizing the impact market interest
rate volatility has on net interest income. The asset/liability committee meets
every two weeks to review various reports pertaining to asset/liability
management including liquidity reports, historic yield and rate analysis,
dynamic and static gap reports, dynamic and static interest rate shock reports,
market advertisements and competitive market interest rates. Interest rate shock
refers to the impact on interest sensitive assets and liabilities that a 200
basis point interest rate change would have measured by the variance in net
interest income over a one-year time horizon based on actual and projected
account balances and maturities. The interest rate shock reports are also used
in budgeting and product development to quantify the impact on net interest
income of various interest rate and balances assumptions.
The decrease between fiscal 1996 and 1995 in the net interest margin, which
equaled 4.31% and 4.77% for the respective fiscal years, resulted from a deposit
campaign introduced at the end of fiscal 1995 which generated $33 million in
relatively high cost time deposits. Subsequent to the campaign, the interest
rate environment reversed. The national average prime rate which increased 50
basis points on February 1, 1995 to 9.00% decreased by 25 basis point three
times during fiscal 1996, the last on February 1, 1996 when the prime rate was
adjusted to 8.25%. Although the net interest margin has shown improvement since
the aforementioned deposit campaign, further improvement should occur during
fiscal 1997 when approximately $33 million in deposits are repriced to current
market rates.
Gap refers to the difference between the amount of interest rate sensitive
assets in a particular time period less the amount of comparable interest rate
sensitive liabilities. The following table presents FSCM's interest rate
sensitivity as measured by a gap analysis. The negative interest rate
sensitivity gap position indicates that within each period, there are more
interest sensitive liabilities repricing than there are interest sensitive
assets. Theoretically, this position would result in the generation of more
interest income in a declining interest rate environment; however, due to the
underlying interest rate characteristics of the repricing instruments, TRIB's
dynamic shock analysis indicated that a rising interest rate environment would
have a positive impact on net interest income and that interest income would be
slightly at risk in a falling interest rate environment (dollars in thousands):
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
<TABLE>
INTEREST RATE SENSITIVITY ANALAYSIS
After 6
After 3 Months After 1
Within Months But Year But After Non-
By Repricing Dates Three But Within Within Five Interest-
As of March 31, 1996 Months Within 6 One year Five Years Bearing Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment securities ............ $ 5,604 $ 13,812 $ 7,079 $ 55,600 $ 8,328 $ -- $ 90,423
Loans and leases ................. 96,465 17,707 40,863 88,601 10,642 1,687 255,965
Other earning assets ............. 11,910 -- 4,851 -- -- -- 16,761
Other assets ..................... 82 -- -- 29 -- 23,707 23,818
-------------------------------------------------------------------------------------
Total assets ..................... 114,061 31,519 52,793 144,230 18,970 25,394 386,967
-------------------------------------------------------------------------------------
Cumulative assets ................ 114,061 145,580 198,373 342,603 361,573 386,967 386,967
-------------------------------------------------------------------------------------
Liabilities and equity:
Savings deposits ................. 74,872 -- -- -- -- -- 74,872
Time deposits .................... 32,404 61,397 59,604 36,531 724 -- 190,660
Securities sold under agreements
to repurchase and short-
term borrowings ............ 42,789 4,522 1,387 1,648 -- -- 50,346
Notes payable .................. -- -- 500 4,000 -- -- 4,500
Mandatory convertible debentures . 1,250 -- -- -- -- -- 1,250
Demand deposits .................. -- -- -- -- -- 36,286 36,286
Other liabilities ................ -- -- -- -- -- 4,766 4,766
Stockholders' equity ............. 500 -- -- -- 6,020 17,767 24,287
-------------------------------------------------------------------------------------
Total sources of funds ........... 151,815 65,919 61,491 42,179 6,744 58,819 386,967
-------------------------------------------------------------------------------------
Cumulative sources of funds ...... 151,815 217,734 279,225 321,404 328,148 386,967 386,967
-------------------------------------------------------------------------------------
Interest rate sensitivity gap .... (37,754) (34,400) (8,698) 102,051 12,226 (33,425) --
Cumulative interest rate
sensitivity gap ............ (37,754) (72,154) (80,852) 21,199 33,425 -- --
</TABLE>
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
Balance Sheet
Overview
The following table compares the composition of the respective year-end
balance sheets by analysis of major components as percentage of assets and
selected Peer Group comparisons.
March 31, March 31, Peer
1996 1995 Group
--------- --------- ------
Assets:
Interest-earning:
Interest-bearing deposits with other
financial institutions ..................... 1.2% 0.1% 0.5%
Investment securities .......................... 23.4 21.3 28.6
Federal funds sold ............................. 3.1 9.7 3.2
Loans and leases, net .......................... 65.0 61.7 58.8
----- ----- -----
Total interest-earning assets ..................... 92.7 92.8 91.2
----- ----- -----
Non-interest-earning:
Cash and due from banks ........................ 3.7 4.1 4.6
Premises, furniture and equipment .............. 1.5 1.1 N/A
Other assets ................................... 2.1 2.0 N/A
----- ----- -----
Total non-interest-earning assets ................. 7.3 7.2 8.8
----- ----- -----
Total assets ...................................... 100.0% 100.0% 100.0%
===== ===== =====
Liabilities:
Interest-bearing:
Interest-bearing deposits ...................... 68.6% 70.5%
Repurchase agreements and short-term borrowings 13.0 10.0
Notes payable .................................. 1.2 1.5
----- -----
Total interest-bearing liabilities ................ 82.8 82.0
----- -----
Non-interest-bearing:
Non-interest-bearing deposits .................. 9.4 9.9
Other liabilities .............................. 1.2 1.2
----- -----
Total non-interest-bearing liabilities ............ 10.6 11.1
----- -----
Total liabilities ................................. 93.4% 93.1%
----- -----
MCDs1 and stockholders' equity:
Interest-bearing:
MCDs1 .......................................... 0.3 0.4
Preferred Stock ................................ 1.7 1.9
----- -----
Total interest-bearing capital ................ 2.0 2.3
----- -----
Non-interest-bearing:
Common stockholders' equity .................... 4.6 4.6
----- -----
Total MCDs and stockholders' equity ........... 6.6 6.9
----- -----
Total liabilities, MCDs and stockholders' equity 100.0% 100.0%
===== =====
1 Mandatory convertible debentures ("MCDs").
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
Investments
Investments increased 25.9% to total $90.4 million as of March 31, 1996, up
from $71.8 million at fiscal year-end 1995. The portfolio was predominantly
composed of U.S. agency obligations, 86.5%, and U.S. Treasury notes, 9.0%.
Further, of the total portfolio, 21.2% matures (or is scheduled to mature)
within a one-year time frame and 63.7% is due between one year to five years
from March 31, 1996. Management's relatively conservative investment profile has
resulted in the weighted average yield on the portfolio averaging 5.78% for
fiscal 1996 as opposed to FSCM's Peer Group yield of 6.45%.
In December 1995 securities with an amortized cost of $35 million and an
unrealized gain of $95 thousand were transferred from held-to-maturity to
available-for-sale in accordance with a one-time reassessment of securities
classification permitted under Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." Such
decision was based on management's desire to enhance the liquidity and
flexibility of the investment portfolio with consideration also given to the
amendment in regulatory capital ratios which excluded from the computation any
unrealized gains or losses on available-for-sale investments.
During fiscal 1996 management invested approximately $17.7 million in
agency mortgage backed securities and $2.3 million in a bank-qualified local
municipality obligation. These investments had average lives of approximately
five years and were made to diversify the investment portfolio and improve
yield.
The investment portfolio as of fiscal year-end 1995 contained $46.0 million
in structured notes comprised of U.S. Agency securities with step-up rate and
callable provisions. During fiscal 1996, a majority of these issues were called
and thereby provided liquidity. Additionally, due to the interest rate
environment, management was able, for the most part, to reinvest the proceeds
from the called securities at higher yields than what had been earned. As of
fiscal year-end 1996, only $9.0 million remained outstanding in structured
notes.
The following tables include details of investment securities and the
maturities, weighted average yields and carrying values of these securities as
of the dates indicated:
INVESTMENT SECURITY ANALYSIS
March 31,
---------------------------
(Dollars in Thousands) 1996 1995 1994
- -------------------------------------------------- ------- ------- -------
Held-to-maturity:
U.S. Treasury ................................. $ 6,033 $ 7,106 $ --
U.S. Government agencies ...................... 18,980 63,040 60,971
State and political subdivisions .............. 2,326 -- --
Other ......................................... 1,776 1,676 763
------- ------- -------
Total ......................................... $29,115 $71,822 $61,734
======= ======= =======
Available-for-sale:
U.S. Treasury ................................. $ 2,074 $ -- $10,078
U.S. Government agencies ...................... 42,041 -- 8,000
Mortgage-backed obligations of federal agencies 17,193 -- --
------- ------- -------
Total ......................................... $61,308 $ -- $18,078
======= ======= =======
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
<TABLE>
March 31, 1996
---------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
---------------- ----------------- ---------------- ---------------
(Dollars in Thousands) Amount Yield Amount Yield Amount Yield Amount Yield Total
---------------------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury ......... $ 6,033 6.38% $ 2,074 5.93% $ -- ---% $ -- ---% $ 8,107
U.S. Government
agencies ........... 10,971 4.50 46,049 5.88 4,001 5.73 -- -- 61,021
State and political
subdivisions ... -- -- 2,326 4.07 -- -- -- -- 2,326
Mortgage-backed
obligations of
federal agencies 2,165 6.17 7,083 6.17 5,961 6.17 1,984 6.17 17,193
Other investments ..... 10 5.50 70 6.19 400 8.00 1,296 6.52 1,776
---------------------------------------------------------------------------------
Total ........... $19,179 5.28% $57,602 5.85% $10,362 6.07% $ 3,280 6.31% $90,423
=================================================================================
</TABLE>
The weighted average yields are calculated on the basis of the carrying
value and effective yields weighted for the scheduled maturity of each security.
Loans and Direct Financing Leases
Although local competition for loan generation continues to intensify,
TRIB, due to its strong commitment to provide quality service to all segments of
its market area, was able to increase its loan penetration.
The $43,889,000, or 20.69%, net growth in loans and direct financing leases
between March 31, 1996 and 1995 was distributed throughout the loan portfolio
with the exception of direct financing leases. The $11 million growth in
commercial loans and the $11 million increase in commercial mortgage loans were
not concentrated in any specific area but portray TRIB's overall commitment, as
a community bank, to the continued expansion and development of the entire
Quad-Cities market. The $9 million growth experienced in the consumer loan
portfolio was primarily attributed to TRIB's introduction of a indirect loan
program. The $7 million increase in the construction loan portfolio resulted
primarily from TRIB's commitment to provide innovative lending programs to those
involved in both residential and commercial real estate expansion and
development. The $6 million increase in one-to-four family residential mortgage
loans primarily resulted from an in-house executive loan program and an increase
in loans pending sale on the secondary market. The $1 million decrease between
fiscal 1996 and 1995 in TRIB's direct financing lease portfolio resulted from
scheduled repayments which outpaced production due to TRIB's emphasis on a
higher quality market niche.
LOANS AND LEASES DISTRIBUTION
March 31,
----------------------------------------------------
(Dollars in Thousands) 1996 1995 1994 1993 1992
- ------------------------- ----------------------------------------------------
Commercial, financial and
agricultural ......... $ 85,578 $ 74,234 $ 59,818 $ 48,145 $ 42,754
Direct financing leases . 5,719 6,863 16,218 21,827 3,712
Real estate:
Residential mortgage . 64,2481 58,4861 46,7541 36,7451 25,5581
Construction ......... 21,823 14,553 11,747 8,489 6,149
Commercial mortgage .. 62,746 51,529 40,116 37,360 37,578
Consumer ................ 15,8512 6,4112 6,1922 6,0712 5,0682
-------- -------- -------- -------- --------
Total loans and leases $255,965 $212,076 $180,845 $158,637 $120,819
======== ======== ======== ======== ========
1 Includes first mortgages pending conclusion of their sale to Freddie Mac,
Fannie Mae and IHDA; home equity lines of credit; home improvement loans;
and consumer loans for which junior liens were taken as primary and
secondary sources of security.
2 Consumer loans, both direct and indirect, not secured by real estate
mortgages.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
LOANS AND LEASES MATURITY ANALYSIS
<TABLE>
March 31, 1996
---------------------------------------
After
One But
One Within After
Year or Five Five
(Dollars in Thousands) Less Years1 Years1 Total
- -------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 71,355 $ 14,218 $ 5 $ 85,578
Direct financing leases .............. 2,248 3,452 19 5,719
Real estate:
Residential mortgage .............. 16,609 36,250 11,389 64,248
Construction ...................... 18,285 3,538 -- 21,823
Commercial mortgage ............... 32,777 29,955 14 62,746
Consumer ............................. 1,303 12,069 2,479 15,851
-------- -------- ------- --------
Total loans and leases ......... $142,577 $ 99,482 $13,906 $255,965
======== ======== ======= ========
<FN>
1 The amount of loans and leases due after one year which had a
pre-determined interest rate was $109,300,000, and loans and leases which
have floating or adjustable interest rates were $4,088,000.
</FN>
</TABLE>
TRIB is an active originator of residential real estate mortgage loans sold
on the secondary market with the servicing rights retained. For fiscal 1996 and
1995, TRIB serviced portfolios totaling $165.0 million and $155.7 million,
respectively.
TRIB's commercial and commercial real estate portfolios include loans to
businesses involved in a wide spectrum of activities with a preponderance in the
manufacturing, wholesale, retail, transportation, and hotel industries. Total
loans to any particular group of customers engaged in similar activities and
having similar economic characteristics did not exceed 10% of total loans and
leases as of March 31, 1996, which is in compliance with defined parameters for
concentrations of credit as established in TRIB's loan policy. As a result of a
majority of loans made within TRIB's market area, the loan portfolio has risk
due to the geographic concentration of loan distribution.
Under section 4(c)(8) of the Bank Holding Company Act of 1956, on March 14,
1996, FSCM was granted authority to participate in the non-banking activity of
making and servicing loans pursuant to Section 225.25(b)(1) of Regulation Y.
Management does not intend to actively generate loans but to use such authority
to primarily supplement TRIB's lending capabilities.
The Board of Directors of FSCM and TRIB continue to concentrate efforts and
resources to maintain satisfactory asset quality. In fiscal 1996, FSCM's
internal credit administration department performed continuous loan review
functions with in-depth financial analysis performed on specific larger, more
complex credit facilities. This department monitors documentation, collateral,
compliance with established loan and lease policies, and the internal loan and
lease watch list. With the assistance of FSCM's credit administration
department, TRIB's loan committee has been able to identify, evaluate, and
initiate corrective action for marginal loans in order to maintain satisfactory
asset quality. The credit administration department also provides input into the
methodology for maintaining an adequate allowance for possible loan and lease
losses. Combined, these components have been integral elements of FSCM's and
TRIB's loan and lease monitoring system that have resulted to date in
satisfactory loan and lease portfolio performance. Despite these critical
systems and controls, management continues to cautiously assess the risks
associated with the potential future impact of adverse changes in the overall
economic climate and more stringent regulatory standards and requirements.
Generally, interest on loans is accrued and credited to income based on the
outstanding principal balance. It is TRIB's policy to discontinue the accrual of
interest income on any loan when, in the opinion of management, there is
reasonable doubt as to the timely collectibility of interest and principal or to
comply with regulatory requirements. Nonaccrual loans are returned to an accrual
status when, in the opinion of management, the financial position of the
borrower indicates that there is no longer any reasonable doubt as to the timely
payment of principal and interest and only after all accrued and unpaid interest
has been brought current. The following table reflects TRIB's nonperforming
assets as of the dates indicated.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
ASSET QUALITY
<TABLE>
March 31,
-------------------------------------------------------------------
(Dollars in Thousands) 1996 1995 1994 1993 1992
-------------------------------------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans and leases:
Nonaccrual loans and leases:
Commercial, financial and agricultural ............... $ 339 $1,076 $ 147 $ 956 $1,515
Direct financing leases .............................. 28 96 405 236 --
Real estate:
Residential mortgage .............................. 388 419 258 107 258
Construction ...................................... 51 -- -- -- --
Commercial mortgage ............................... 427 1,020 848 658 580
Consumer ............................................. 45 31 36 12 102
------ ------ ------ ------ ------
Total nonaccrual loans and leases .............. 1,278 2,642 1,694 1,969 2,455
Accruing loans and leases 90 days
or more past due ..................................... 189 323 748 58 452
------ ------ ------ ------ ------
Total nonperforming loans
and leases .................................. 1,467 2,965 2,442 2,027 2,907
Other real estate owned ................................. 457 378 341 322 416
------ ------ ------ ------ ------
Total nonperforming assets ..................... $1,924 $3,343 $2,783 $2,349 $3,323
====== ====== ====== ====== ======
Allowance for possible loan and
lease losses ......................................... $4,463 $3,832 $3,744 $3,639 $2,759
====== ====== ====== ====== ======
Allowance as a percentage of
nonperforming loans and leases ....................... 304.23% 129.24% 153.32% 179.53% 94.91%
Allowance as a percentage of
total loans and leases ............................... 1.74 1.81 2.07 2.29 2.28
Nonperforming loans, leases and other
real estate owned as a percentage of
total loans, leases and other real
estate owned ......................................... 0.75 1.57 1.54 1.48 2.74
Nonperforming loans and leases as a
percentage of total loans and leases ................. 0.57 1.40 1.35 1.28 2.41
</TABLE>
The $1.4 million decline in nonaccrual loans and leases between fiscal year-ends
1996 and 1995 was primarily attributable to transactions in the commercial and
commercial mortgage loan portfolios. The commercial loan portfolio reflected a
$737 thousand decrease in nonaccrual loans during fiscal 1996 resulting from the
collection of three large accounts aggregating approximately $498 thousand and
the elimination through charges to the allowance for loan and lease losses of
approximately $251 thousand related to loans to three former customers. The
commercial mortgage loan portfolio experienced a $593 thousand decline in
nonaccrual loans from fiscal 1995 to 1996 which was the result of four customers
that encountered severe financial difficulties which forced TRIB to initiate
foreclosure on the real estate collateral. During one of these foreclosures, the
property was sold and the loan paid prior to TRIB obtaining title. During two of
the foreclosures, TRIB obtained title and disposed of the real property during
the year. In the fourth instance, TRIB continues to reflect the carrying value
of the property in other real estate owned as of March 31, 1996. However, the
balance in the other real estate owned account increased only $79 thousand
between fiscal 1996 and 1995 despite sizable transactions which occurred during
the year. Additionally, $397 thousand of the $427 thousand balance in nonaccrual
commercial mortgages related to one customer whose financial status deteriorated
during fiscal 1996 to such an extent as to warrant placing in nonaccrual status.
The $134 thousand decrease in accruing loans and leases 90 days and more past
due as of March 31, 1996 as compared to March 31, 1995 reflected one commercial
loan that was placed on nonaccrual during fiscal 1996 but had been charged-off
prior to March 31, 1996. FSCM's Peer Group's ratios of nonperforming loans and
leases to total loans and leases and the allowance to total loans and leases
were 0.93% and 1.50%, respectively. The $1.5 million overall decline in the
total of nonperforming loans and leases decreased the ratio of nonperforming
loans and leases to total loans and leases dramatically to 0.57% as of fiscal
year-end 1996 from 1.40% as of fiscal year-end 1995. The allowance for possible
loan and lease losses was increased to provide for potential future unknown
losses; however, the growth in the total loans and leases outstanding outpaced
the increases in the allowance for possible loan and lease losses, thereby
resulting in a seven basis point decline in the comparative ratio between these
components to 1.74% from 1.81% for fiscal year-ends 1996 and 1995, respectively.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
Management has strove to maintain the allowance for possible loan and lease
losses at a conservative level to provide for the known and inherent risks in
the loan and lease portfolios. The allowance is based on a continuous review of
previous loan and lease loss experience, current economic conditions and the
underlying collateral value pledged to support the loans and leases. In this
regard, in the opinion of management, TRIB's allowance for loan and lease losses
is maintained at a satisfactory level. Loans and leases which are deemed
uncollectible are charged-off and deducted from the allowance. The provision for
possible loan and lease losses and recoveries are added to the allowance. The
$631 thousand increase in the allowance for possible loan and lease losses
between fiscal year-ends 1996 and 1995 resulted from reduced net charge-offs and
was reflected in the increase in the unallocated reserve. Please refer to the
table on the following page. The following is a summary of activity affecting
the allowance for the periods indicated.
ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
<TABLE>
Years Ended March 31,
----------------------------------------------------------------------
(Dollars in Thousands) 1996 1995 1994 1993 1992
- ----------------------------------------------------- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period ...................... $3,832 $3,744 $3,639 $2,759 $2,335
Charge-offs:
Commercial, financial and
agricultural .................................. 436 3,168 70 651 575
Direct financing leases .......................... 129 201 2,345 127 --
Real estate:
Residential mortgage .......................... 420 258 94 119 9
Construction .................................. -- 47 -- -- --
Commercial mortgage ........................... 882 638 4 653 131
Consumer ......................................... 118 86 24 10 20
------ ------ ------ ------ ------
Total ......................................... 1,985 4,398 2,537 1,560 735
------ ------ ------ ------ ------
Recoveries:
Commercial, financial and
agricultural .................................. 361 109 118 164 240
Direct financing leases .......................... 173 1,634 406 26 --
Real estate:
Residential mortgage .......................... 105 113 36 32 8
Construction .................................. -- 47 -- -- --
Commercial mortgage ........................... 28 48 108 16 5
Consumer ......................................... 44 25 4 22 14
------ ------ ------ ------ ------
Total ...................................... 711 1,976 672 260 267
------ ------ ------ ------ ------
Net charge-offs ..................................... 1,274 2,422 1,865 1,300 468
Provision for possible loan and
lease losses ..................................... 1,905 2,510 1,970 2,180 892
------ ------ ------ ------ ------
Balance at end of period ............................ $4,463 $3,832 $3,744 $3,639 $2,759
====== ====== ====== ====== ======
Ratio of net charge-offs during the
year to average loans and leases
outstanding during the year ...................... 0,55% 1.27% 1.08% 0.92% 0.43%
====== ====== ====== ====== ======
</TABLE>
Commercial loan charge-offs taken during fiscal 1996 included $375 thousand
resulting from management's' analysis of the substantial decline in the
financial condition of four customers whose loans had been on nonaccrual status
and whose businesses experienced rapid deterioration. Fiscal 1996 commercial
mortgage loan charge-offs included $566 thousand related to two long-standing
problem credits and $294 thousand related to two customers whose businesses
failed. In both of these instances management chose an assertive course of
action and realigned the carrying value with liquidation-based appraised values.
Collection of all these amounts are being pursued to the fullest degree possible
and management anticipates substantial recoveries.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
As previously discussed, based on internal procedures, any known troubled
credit as of March 31, 1996 had been specifically identified, regardless of
whether past due 90 days or more, or in nonaccrual status. Additionally, an
overall loan and lease portfolio analysis was performed based on historic loss
performance, local economic conditions and collateral value pledged to support
advances. As a result of these evaluations, the following allocation of the
allowance for possible loan and lease losses was made as of the dates indicated
(dollars in thousands):
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
<TABLE>
March 31, 1996 March 31, 1995 March 31, 1994 March 31, 1993 March 31, 1992
-------------------------------------------------------------------------------------------------
% of % of % of % of % of
Loans Loans Loans Loans Loans
and and and and and
Leases Leases Leases Leases Leases
to Total to Total to Total to Total to Total
Loans Loans Loans Loans Loans
Balance at end of period and and and and and
applicable to: Amount Leases Amount Leases Amount Leases Amount Leases Amount Leases
---------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial and
agricultural....... $1,720 33.4% $1,533 35.0% $1,443 33.1% $1,875 30.3% $1,704 35.4%
Direct financing
leases............. 115 2.3 126 3.2 641 9.0 393 13.8 111 3.1
Real estate:
Residential
mortgage........ 499 25.1 425 27.6 117 25.9 106 23.2 73 21.1
Construction....... 238 8.5 164 6.9 26 6.5 25 5.4 85 5.1
Commercial
mortgage........ 794 24.5 1,342 24.3 1,118 22.1 1,029 23.5 637 31.1
Consumer.............. 359 6.2 71 3.0 293 3.4 211 3.8 149 4.2
Unallocated........... 738 N/A 171 N/A 106 N/A --- N/A --- N/A
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total................. $4,463 100.0% $3,832 100.0% $3,744 100.0% $3,639 100.0% $2,759 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Premises, Furniture and Equipment
Premises, furniture and equipment (fixed assets) totaled $6.0 million and
$3.6 million as of March 31, 1996 and 1995. The 66.7% increase was comprised of
$3.4 million in additional fixed asset investments net of $1.0 million in
depreciation expense.
In September 1995, in conjunction with changing to a National Association,
TRIB purchased an office location in Bettendorf, Iowa for $709 thousand. The
purchase consisted of land, building and miscellaneous equipment. An additional
$148 thousand was invested to remodel and $340 thousand to furnish and equip the
office which opened for business November 1, 1995.
Construction of an enlarged branch office, encompassing two adjoining
residential properties TRIB acquired in fiscal 1994, at the 18th Avenue
("Hilltop") location in Rock Island, Illinois, was completed and operations were
transferred from the temporary office to the new facility on November 29, 1995.
Approximately $1 million was invested in the construction project and an
additional $436 thousand was invested to furnish and equip the office.
A new computer support system for item processing was installed during the
fourth quarter of fiscal 1996 replacing 14-year old equipment. Also purchased
was new laser-printing equipment to enhance the appearance and readability of
the report output, including customer statements. The platform system supporting
teller operations was updated to provide increased capabilities and enhance the
work flow. TRIB's existing local area network ("LAN"), which links the personal
computer workstations and provides access to TRIB's mainframe system, was
supplemented with branch office LAN installations and interconnected into the
primary system by means of a wide area network ("WAN").
The office expansion into both East Moline and Bettendorf, and the
construction of the enlarged Hilltop branch office in Rock Island, will provide
better access to the retail markets and thereby enhance TRIB's overall market
presence. The installation of new equipment and technological upgrades will
enhance productivity and customer convenience. Although the considerable fixed
asset investments in fiscal 1996 will reduce the amount of interest-earning
assets and increase operating expenses through additional facility expense
allocations, it is anticipated that the reinvestment of the additional funds
garnered through the expanded office sites will gradually offset the short-term
negative impact on earnings.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
TRIB's 42nd Avenue, East Moline branch commenced operations in February
1995 out of a temporary office established at the location. Construction of a
permanent office at the site, which was acquired in fiscal 1994, has been
temporarily deferred.
In fiscal 1995, FSCM's total investment in fixed assets included
approximately $258 thousand for land purchases, $231 thousand for building
improvements and $279 thousand for equipment and furniture acquisitions.
It is anticipated that in fiscal 1997 fixed asset investments could include
approximately $200 thousand in current premises investments and $800 thousand
for updated computer technology.
Deposits, Securities Sold Under Agreements to Repurchase, and Other
Short-Term Borrowings
Deposits, securities sold under agreements to repurchase ("repurchase
agreements") and other short-term borrowings totaled $301.8 million, $48.8
million and $1.5 million, respectively, as of March 31, 1996. These balances
compare to $271.6 million, $33.4 million and $0.3 million, respectively, as of
the previous fiscal year end.
The $30.2 million increase in deposits, or 11.12%, centered in time deposit
products. This growth consisted primarily of local non-institutional funds
generated by targeted marketing campaigns. The growth in repurchase agreements
was divided amongst daily agreements primarily utilized by corporate customers
for cash management, $4.4 million; customer term agreements, $4.6 million; and
term agreements with the State of Illinois, $6.5 million. The short-term
borrowings was totally comprised of treasury, tax and loan deposits at both
fiscal year ends.
TRIB does not actively seek or heavily rely on large deposit accounts over
$100 thousand. As of fiscal year-end 1996 and 1995, these types of deposits
comprised only 6.45% and 6.27%, respectively, of total assets as compared to the
Peer Group ratio of 8.72%. Maturity distributions of time certificates of
deposit in denominations of $100 thousand or more as of March 31, 1996 were as
follows (dollars in thousands):
$100,000 AND MORE TIME DEPOSITS
March 31,
Time to Maturity 1996
- ------------------------------------------------------------- ---------
3 months or less ............................................ $ 4,181
Over 3 months through 6 months .............................. 9,706
Over 6 months through 12 months ............................. 6,359
Over 12 months .............................................. 4,703
-------
Total ....................................................... $24,949
=======
Short-term borrowings include repurchase agreements and other short-term
borrowing arrangements. The obligations to repurchase securities sold were
reflected as a liability in the consolidated balance sheets; the investments
securing the repurchase agreements remained classified as an asset under
investments. Included in repurchase agreements as of fiscal year-end 1996 and
1995 were funds received from the State of Illinois totaling $18.5 million and
$12.0 million, respectively. Other short-term borrowings generally include
federal funds purchased, which are overnight transactions; interest-bearing
notes due to the U.S. Treasury, which are generally called within several days;
and any advance from the Federal Home Loan Bank ("FHLB"), which would be less
than one year in term.
During fiscal 1996, TRIB utilized its membership in the FHLB , which
required a stock investment, to obtain a short-term fixed rate $1 million
advance which expired prior to fiscal year-end. Borrowings from the FHLB are on
a secured basis, collateralized by pledges of either the FHLB stock or the
one-to-four family residential real estate first lien mortgage portfolio, or
both. As of fiscal year-end 1996, approximately $37.7 million could have been
obtained by means of FHLB advances.
FSCM considers short-term borrowings a reliable funding alternative which
were primarily comprised of managed corporate accounts and public funds. Balance
and rate information is reflected in the following table:
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
March 31, March 31, March 31,
(Dollars in Thousands) 1996 1995 1994
- ----------------------------------------------- --------- --------- ---------
Balance outstanding at fiscal year-end ........ $50,346 $33,737 $24,128
Maximum month-end balance ..................... 62,128 38,143 27,024
Average balance for the year .................. 44,528 25,932 22,013
Weighted average interest rate for the year ... 5.51% 4.48% 3.42%
Weighted average interest rate at year-end .... 5.29 5.85 3.57
Notes Payable
As of March 31, 1996, and 1995, FSCM had $4.5 million and $5 million,
respectively, in outstanding Notes which were issued in December 1992. The Notes
bear interest at an 8.50% per annum rate and are due December 1, 1999; however,
a $500 thousand mandatory redemption payment must be made each consecutive year
on the first day of December which commenced in 1995 until December 1, 1999,
when the remaining $3 million is due. FSCM also has a $10 million unrestricted
line of credit available from a correspondent bank, none of which was in use.
Please refer to Footnote Eight of the Consolidated Financial Statements for
information regarding covenants of the Notes and correspondent bank line.
Mandatory Convertible Debentures
A total of $1,250,000 of mandatory convertible debentures ("MCDs") were
issued in March and April 1989. The MCDs bear interest at a rate of 1/2% below
the reference rate of a correspondent bank. The correspondent bank's reference
rate was 8.25% at March 31, 1996; therefore, the MCDs interest rate equaled
7.75%. The interest is payable quarterly on March 31, June 30, September 30, and
December 31. The MCDs are held by directors and a former director of FSCM and
his wife. Subject to a ninety day notice and obtaining any regulatory approvals
or legal opinions necessary, the MCDs are convertible at any time on or prior to
March 31, 2001 at the option of the holders into a number of shares of FSCM's
Common Stock determined by dividing the principal amount of the MCDs by a
purchase price equal to $25 per share, as adjusted for any stock splits, stock
dividends or other similar occurrences. The MCDs are subordinate to all senior
indebtedness of FSCM, and $750,000 of the MCDs are subordinate to the 8.50%
Notes.
Stockholders' Equity
Consistent with strategic objectives and goals, FSCM maintains a strong
capital base which provides a solid foundation for anticipated future asset
growth and promotes depositor and investor confidence. Capital management is a
continuous process to ensure that capital is provided for current needs and
anticipated growth. FSCM's strong capital position has enabled it to profitably
expand its asset and deposit bases while maintaining capital ratios at levels
comparable to that of other quality banking organizations and in excess of
regulatory standards.
Stockholders' equity totaled $24.3 million and $22.0 million as of March
31, 1996 and 1995, respectively. Net income totaled $3.6 million in fiscal 1996
as opposed to $3.1 million in fiscal 1995, a 15.81% increase between years. In
March 1996, FSCM sold 1,500 shares of Common Stock from Treasury Stock to the
401(k) defined contribution retirement plan sponsored by TRIB. The $67.50 sales
price was based on an independent stock appraisal's average per share fair
market value for transactions involving small stock block sizes. Dividends
declared during fiscal 1996 totaled $308 thousand for Common Stock, $0.38 per
share for the first two quarters and $0.50 per share for the last two quarters
of fiscal 1996, and $598 thousand for Preferred Stock. Additionally, included in
stockholders' equity was $422 thousand of net unrealized losses on
available-for-sale securities, net of taxes. Combined, these components resulted
in a net change in equity of $2.3 million, or 10.59%.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
FSCM's capital position, as detailed in its capital ratios, exceeds the
regulatory capital minimums established for well-capitalized financial
institutions. The table below details the components and percentages of FSCM's
regulatory risk weighted capital ratios as of the indicated dates.
CAPITAL RATIOS
<TABLE>
Regulatory Requirements
March 31, March 31, ----------------------------
(Dollars in Thousands) 1996 1995 Minimum Well Capitalized
- ------------------------------------------------- --------- --------- ------- ----------------
<S> <C> <C> <C> <C>
Stockholders' equity ............................ $ 24,287 $ 21,961
Preferred Stock limitation1 ..................... -- (706)
Unrealized loss on available-for-sale securities,
net of taxes ........................... 422 --
Intangible assets ............................... (140) (193)
--------- ---------
Tier 1 capital ......................... 24,569 21,062
Supplementary capital ........................... 7,387 8,794
--------- ---------
Total capital .......................... $ 31,956 $ 29,856
========= =========
Total adjusted average assets ................... $ 359,486 $ 310,820
========= =========
Risk weighted assets ............................ $ 273,981 $ 227,040
========= =========
Tier 1 capital .................................. 8.97% 9.28% 4.00% 6.00%
Total capital ................................... 11.66 13.15 8.00 10.00
Leverage ratio .................................. 6.83 6.78 3.00 5.00
<FN>
1 Cumulative Preferred Stock is limited to 25% of the total of Tier 1
capital; any excess qualifies as supplementary capital.
</FN>
</TABLE>
The growth in capital has eliminated the Preferred Stock deduction from the
Tier 1 capital components. Tier 1 capital and total Capital increased 16.65% and
7.03% between March 31, 1996 and 1995, respectively. Total adjusted average
assets and risk weighted assets increased 15.66% and 20.68% for the respective
fiscal year-ends. As a result of the growth in risk weighted assets, both the
Tier 1 and total capital ratios decreased. However, due to the lower growth rate
of adjusted average assets and the increase in allowable Preferred Stock in Tier
1 capital, the leverage ratio experienced a slight increase between years.
Future Outlook
The banking industry has experienced major change over the past several
years and will face significant challenges in the years to come. With the ease
in interstate banking regulations, competition between local banks and large
regional banks have intensified, resulting in a tightening of interest margins
due to the economies of scale regional banks are able to employ. Competition for
financial products has intensified as more funds have been diverted away from
financial institutions and into money fund investments. Recently, the total
investment in money funds reached a level that exceeded the total amount of
deposits in banks. The ability of community banks to compete as equals with both
regional banks and nonbank entities for financial products is essential. Local
banks must focus on cost control and develop strong reputations for niche
lending in their communities. Legislation must be proactive as not to restrict
product development or create competitive disadvantages.
Currently, due to banks having essentially prepaid the FDIC insurance
premiums to fully finance the Bank Insurance Fund, banks pay a minimal insurance
premium. However, the Savings Insurance Fund has not yet attained the
Congressional mandated level; therefore, the savings and loan associations'
premium rate has not been reduced. Much publicity has been associated with this
dichotomy in premium rates. Should Congress pass legislation requiring Banks to
aid in the "fix" of the Savings and Loan industry, earnings will be adversely
impacted.
The distribution and delivery of banking services has taken a significant
step into the twenty-first century. Rather than the customer coming to the
traditional bank offices, banks are now coming to the customers. The number of
banking outlets in large retail stores are expanding at tremendous rates.
Additionally, the advancement in computer technology and the explosion in the
number of home personal computers has resulted in the advent of electronic home
banking via the Internet.
The banking environment is undergoing drastic change. In order to stay
competitive and survive in the future, banks must be able to provide the same
products and financial services as other bank and non-bank entities, adapt to
the rapidly changing technology, and readily meet the customers' future demands.
<PAGE>
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (Continued)
- --------------------------------------------------------------------------------
Impact of Inflation and Changing Prices
The 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 operating results 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 a financial institution are monetary in nature. As a result,
interest rates have more impact on a financial institution's performance than
the effect 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. The liquidity and the maturity structure of FSCM's assets and
liabilities are important to the maintenance of acceptable performance levels.
Impact of Recently Issued Statements of Financial Accounting Standards
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," and No. 122, "Accounting for Mortgage
Servicing Rights," both become effective for FSCM beginning after March 31,
1996. SFAS No. 121 generally requires an estimation of future cash flows to
identify asset impairment and SFAS No. 122 attempts to standardize the
accounting treatment of originated mortgage servicing rights to those purchased,
if it is practicable to separately estimate the fair values of the loan and
servicing rights. Management believes that adoption of these statements will not
have a material effect on the financial statements.
Price Range of Common Stock
The Common Stock of FSCM is not actively traded, and there is no active
market in which shares of Common Stock are publicly traded. During the year
ended March 31, 1996, the trustee for the 401(k) defined contribution retirement
plan sponsored by TRIB contracted for an independent stock appraisal on
transactions involving small FSCM Common Stock block sizes on behalf of the
plan's participants. Based on the results of the appraisal, 1,500 shares of
Common Stock were sold by FSCM from treasury to the 401(k) plan at a price of
$67.50 per share in March 1996. Other private transactions, for which the sale
price were not known or reasonably available, may have occurred during the year.
Factors That May Affect Future Results
This Annual Report on Form10-K contains forward-looking information, and
actual results may differ materially from such information. Factors that may
cause actual results to differ materially from the forward-looking information
contained herein include the policies of the Board of Governors of the Federal
Reserve System regarding interest rates and other economic factors, the accuracy
of management's estimates of the provisions for loan and lease losses,
competition, regulatory changes and conditions, and general and regional
economic conditions.
<PAGE>
Item 8. Financial Statements and Supplementary Data
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Reports.........................................
Consolidated Balance Sheets at March 31, 1996 and 1995 ...............
Consolidated Statements of Income for the Years
Ended March 31, 1996, 1995 and 1994 ...............................
Consolidated Statements of Stockholders' Equity for the
Years Ended March 31, 1996, 1995 and 1994...........................
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1996, 1995 and 1994 ................................
Notes to Consolidated Financial Statements............................
<PAGE>
McGladrey & Pullen, LLP
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Financial Services Corporation of the Midwest Rock Island, Illinois
We have audited the accompanying consolidated balance sheets of Financial
Services Corporation of the Midwest and subsidiaries as of March 31, 1996 and
1995, and the related consolidated statements of income, stockholders' equity,
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Financial Services
Corporation of the Midwest and subsidiary as of March 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
April 26, 1996
<PAGE>
Deloitte & Touche LLP
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Financial Services Corporation of the Midwest Rock Island, Illinois:
We have audited the consolidated statement if income, stockholders' equity and
cash flows of Financial Services Corporation of the Midwest and subsidiaries for
the year ended March 31, 1994 (not included separately herein). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provided a reasonable basis for our opinion.
In our opinion, such consolidated financial statements of Financial Services
Corporation of the Midwest and subsidiaries present fairly, in all material
respects, the results of their operations and their cash flows for the year
ended March 31, 1994 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Davenport, Iowa
June 23, 1994
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
March 31, 1996 and 1995
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
1996 1995
----------------------------
<S> <C> <C>
Assets
Cash and due from banks (note 2) ............................................................... $ 14,423 $ 13,955
Interest-bearing deposits with other financial institutions .................................... 4,861 198
Investment securities:
Held-to-maturity (approximate market value 1996 - $29,072; 1995 -
$69,852) (note 3) ........................................................................ 29,115 71,822
Available-for-sale (amortized cost 1996 - $61,948; 1995 - $0) (note 3) ..................... 61,308 --
Federal funds sold ............................................................................. 11,900 32,900
Loans and direct financing leases (note 4) ..................................................... 255,965 212,076
Less: Allowance for possible loan and lease losses ......................................... (4,463) (3,832)
--------- ---------
Total loans and leases, net .............................................................. 251,502 208,244
Premises, furniture and equipment, net (note 5) ................................................ 5,953 3,623
Accrued interest receivable .................................................................... 2,653 1,960
Other real estate, net ......................................................................... 457 378
Other assets ................................................................................... 4,795 4,374
--------- ---------
Total .................................................................................... $ 386,967 $ 337,454
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 6):
Non-interest-bearing demand .............................................................. $ 36,286 $ 33,496
Interest-bearing:
N.O.W. accounts ....................................................................... 24,420 23,974
Savings ............................................................................... 41,814 42,823
Money market .......................................................................... 8,638 8,830
Time .................................................................................. 190,660 162,488
--------- ---------
Total deposits ........................................................................ 301,818 271,611
Accounts payable and accrued liabilities ....................................................... 4,766 3,895
Securities sold under agreements to repurchase (note 7) ........................................ 48,846 33,371
Other short-term borrowings (note 7) ........................................................... 1,500 366
Notes payable (note 8) ......................................................................... 4,500 5,000
Mandatory convertible debentures (note 9) ...................................................... 1,250 1,250
--------- ---------
Total liabilities ........................................................................ 362,680 315,493
--------- ---------
Commitments and contingencies (note 14)
Stockholders' equity (notes 8, 9, and 15): Capital stock:
Preferred, no par value; authorized, 100,000 shares:
Class A Preferred Stock, stated value $100 per share;
authorized, 50,000 shares; issued and outstanding:
1996 and 1995 - 50,000 shares (note 11) ............................................... 5,000 5,000
Class B Preferred Stock, stated value $500 per share;
authorized, 1,000 shares; issued and outstanding:
1996 and 1995 - 1,000 shares (note 11) ................................................ 500 500
Class C Preferred Stock, stated value $425 per share;
authorized, 2,400 shares; issued and outstanding:
1996 and 1995 - 2,400 shares (note 11) ................................................ 1,020 1,020
Common, par value $.50 per share; authorized, 600,000
shares; issued: 1996 and 1995 - 340,662 shares;
outstanding: 1996 - 176,611 shares; 1995 - 175,111 shares .............................. 170 170
Capital surplus ................................................................................ 2,574 2,521
Net unrealized loss on available-for-sale securities, net of taxes ............................. (422) --
Retained earnings .............................................................................. 20,694 18,047
Treasury stock (note 12) ....................................................................... (5,249) (5,297)
--------- ---------
Total stockholders' equity ............................................................... 24,287 21,961
--------- ---------
Total .................................................................................... $ 386,967 $ 337,454
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Consolidated Statements of Income
Years Ended March 31, 1996, 1995 and 1994
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans and leases ........................................ $ 24,208 $ 19,576 $ 17,946
Interest on investment securities ............................................ 5,003 3,930 3,507
Interest on federal funds sold ............................................... 1,021 1,050 513
Interest on interest-bearing deposits with
other financial institutions .............................................. 39 15 58
-------- -------- --------
Total interest income .................................................. 30,271 24,571 22,024
-------- -------- --------
Interest expense:
Interest on deposits ......................................................... 12,864 9,029 8,396
Interest on securities sold under agreements to repurchase ................... 2,375 1,118 725
Interest on other short-term borrowings ...................................... 80 43 27
Interest on notes payable .................................................... 411 425 425
Interest on mandatory convertible debentures ................................. 103 92 69
-------- --------
Total interest expense ................................................. 15,833 10,707 9,642
-------- -------- --------
Net interest income .................................................... 14,438 13,864 12,382
Provision for possible loan and lease losses (note 4) ........................... 1,905 2,510 1,970
-------- -------- --------
Net interest income after provision
for possible loan and lease losses .................................. 12,533 11,354 10,412
-------- -------- --------
Other income:
Trust fees ................................................................... 322 361 304
Investment securities gains .................................................. 11 -- --
Loan servicing fees .......................................................... 680 677 618
Gain on sales of loans and leases ............................................ 362 132 938
Service charges on deposit accounts .......................................... 1,065 999 744
Insurance commissions ........................................................ 294 323 503
Other ........................................................................ 581 657 408
-------- -------- --------
Total other income ..................................................... 3,315 3,149 3,515
-------- -------- --------
Other expenses:
Salaries and employee benefits ............................................... 5,904 5,272 5,386
Occupancy, net ............................................................... 801 754 538
Insurance .................................................................... 281 713 659
Equipment .................................................................... 947 651 633
Data processing .............................................................. 569 551 541
Advertising .................................................................. 400 420 448
Other operating .............................................................. 1,625 1,558 2,122
-------- -------- --------
Total other expenses ............................................................ 10,527 9,919 10,327
-------- -------- --------
Income before income taxes ............................................. 5,321 4,584 3,600
Income taxes (note 10) ...................................................... 1,768 1,516 1,267
-------- -------- --------
Net income ...................................................................... $ 3,553 $ 3,068 $ 2,333
======== ======== ========
Net income available for Common Stock ........................................... $ 2,955 $ 2,474 $ 1,749
======== ======== ========
Earnings per common share (note 18):
Primary ...................................................................... $ 16.87 $ 14.21 $ 10.07
======== ======== ========
Fully diluted ................................................................ $ 10.80 $ 9.10 $ 6.73
======== ======== ========
Weighted average common shares outstanding ...................................... 175,123 174,079 173,611
======== ======== ========
Weighted average common and contingently
issuable common shares outstanding ........................................... 335,327 343,796 353,431
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
Years Ended March 31, 1996, 1995 and 1994
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
Net
Unrealized
Gain/(Loss)
on
Preferred Stock Available-
------------------------- Common Capital For-Sale Retained Treasury
Class A Class B Class C Stock Surplus Securities1 Earnings Stock
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993............................ $5,000 $ 500 $ 1,020 $ 170 $ 2,484 $ --- $14,353 $(5,345)
Net income ........................................ --- --- --- --- --- --- 2,333 ---
Effect of adoption of SFAS No. 115 (note 1)......... --- --- --- --- --- 84 --- ---
Cash dividends declared:
Class A Preferred, $9.25 per share.......... --- --- --- --- --- --- (462) ---
Class B Preferred, $35.00 per share......... --- --- --- --- --- --- (35) ---
Class C Preferred, $36.13 per share......... --- --- --- --- --- --- (87) ---
Common, $1.52 per share..................... --- --- --- --- --- --- (264) ---
-----------------------------------------------------------------------------
Balance at March 31, 1994............................ 5,000 500 1,020 170 2,484 84 15,838 (5,345)
Net income ...................................... --- --- --- --- --- --- 3,068 ---
Change in net unrealized gain
on available-for-sale securities1........... --- --- --- --- --- (84) --- ---
Sale of 1,500 shares of Treasury Stock............... --- --- --- --- 37 --- --- 48
Cash dividends declared:
Class A Preferred, $9.25 per share.......... --- --- --- --- --- --- (463) ---
Class B Preferred, $44.21 per share......... --- --- --- --- --- --- (44) ---
Class C Preferred, $36.13 per share......... --- --- --- --- --- --- (87) ---
Common, $1.52 per share..................... --- --- --- --- --- --- ( 265) ---
-----------------------------------------------------------------------------
Balance at March 31, 1995............................ 5,000 500 1,020 170 2,521 --- 18,047 (5,297)
Net income ......................................... --- --- --- --- --- --- 3,553 ---
Change in net unrealized loss on
available-for-sale securities1.............. --- --- --- --- --- (422) --- ---
Sale of 1,500 shares of Treasury Stock............... --- --- --- --- 53 --- --- 48
Cash dividends declared:
Class A Preferred, $9.25 per share.......... --- --- --- --- --- --- (462) ---
Class B Preferred, $48.66 per share......... --- --- --- --- --- --- (49) ---
Class C Preferred, $36.13 per share......... --- --- --- --- --- --- (87) ---
Common, $1.76 per share..................... --- --- --- --- --- --- (308) ---
------------------------------------------------------------------ ----------
Balance at March 31, 1996............................ $5,000 $ 500 $ 1,020 $ 170 $ 2,574 $(422) $20,694 $(5,249)
====== ====== ======= ====== ======= ===== ======= =======
<FN>
1 Net of taxes
</FN>
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
Years Ended March 31, 1996, 1995 and 1994
(Dollars in Thousands)
<TABLE>
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.............................................................................. $ 3,553 $ 3,068 $ 2,333
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization...................................................... 898 662 984
Provision for possible loan and lease losses....................................... 1,905 2,510 1,970
Gain on sale of investment securities.............................................. (11) --- ---
Investment amortization............................................................ 145 439 638
Loans and leases originated for sale............................................... (51,287) (32,162) (93,127)
Proceeds on sales of loans and leases.............................................. 49,634 32,717 94,414
(Increase) decrease in accrued interest receivable................................. (693) 91 (286)
Increase in accrued interest payable............................................... 633 705 180
Increase in other assets........................................................... (68) (282) (186)
Increase (decrease) in other liabilities........................................... 238 18 (1,146)
---------- ---------- ---------
Net cash provided by operating activities .............................................. 4,947 7,766 5,774
--------- --------- ---------
Cash Flows from Investing Activities:
Net (increase) decrease in federal funds sold........................................... 21,000 (7,800) 4,700
Net (increase) decrease in interest-bearing deposits with other
financial institutions............................................................... (4,663) 297 1,089
Purchase of investment securities held-to-maturity...................................... (18,403) (21,315) (18,047)
Proceeds from maturity and call of investment securities held-to-maturity............... 26,000 10,865 21,000
Purchase of investment securities available-for-sale.................................... (64,134) --- (48,909)
Proceeds from maturity and call of investment securities available-for-sale............. 30,010 18,000 29,600
Proceeds from sales of investment securities available-for-sale......................... 7,152 --- ---
Net increase in loans and leases........................................................ (43,510) (34,208) (25,360)
Purchase of life insurance policies..................................................... --- --- (2,521)
Purchase of premises, furniture and equipment .......................................... (3,363) (769) (834)
Other investing activities, net......................................................... (79) (37) (19)
-------- -------- ----------
Net cash used in investing activities................................................... (49,990) (34,967) (39,301)
-------- -------- ----------
Cash Flows from Financing Activities:
Net increase in deposits................................................................ 30,207 20,837 33,172
Net increase (decrease) in short-term borrowings........................................ 5,526 5,286 (1,063)
Proceeds from other borrowings.......................................................... 50,431 21,046 12,817
Payments on other borrowings............................................................ (39,348) (16,723) (9,788)
Payments on notes payable............................................................... (500) --- ---
Sale of Treasury Stock.................................................................. 101 85 ---
Cash dividends paid on Preferred Stock.................................................. (598) (594) (584)
Cash dividends paid on Common Stock..................................................... (308) (265) (264)
-------- -------- ---------
Net cash provided by financing activities............................................... 45,511 29,672 34,290
-------- -------- ---------
Net increase in cash and due from banks................................................. 468 2,471 763
Cash and due from banks at the beginning of the year.................................... 13,955 11,484 10,721
-------- -------- ---------
Cash and due from banks at the end of the year.......................................... $ 14,423 $ 13,955 $ 11,484
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
(1) Summary of Significant Accounting Policies
Financial Services Corporation of the Midwest ("FSCM") is a bank holding
company incorporated in 1973 under Delaware law and registered under the
Bank Holding Company Act of 1956, as amended. FSCM's principal place of
business is located at 224 - 18th Street, Suite 202, Rock Island, Illinois.
In 1974, FSCM acquired all outstanding shares of THE Rock Island Bank
("TRIB"), an Illinois chartered state commercial bank serving both the
Illinois and Iowa Quad Cities' communities since 1932. On November 1, 1995,
TRIB became a national bank known as THE Rock Island Bank, National
Association and relocated its head office from Rock Island, Illinois to
Bettendorf, Iowa.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and with general practice within
the banking industry. In preparing such financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheets and revenues
and expenses for the periods. Actual results could differ significantly
from those estimates. Material estimates that are particularly susceptible
to significant change in the near-term relate to the determination of the
allowance for possible loan and lease losses.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of FSCM and
TRIB. All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Investment Securities
Investments consist principally of debt securities with fixed
maturities.
FSCM adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," effective March 31, 1994. This statement requires that
investments in debt and certain equity securities be classified in one
of three categories: (1) held-to-maturity securities, which are carried
at amortized cost, (2) trading securities, which are carried at fair
market value, with unrealized gains and losses included in earnings,
and (3) available-for-sale securities, which are carried at fair value,
with net, tax effected, unrealized gain and loss excluded from earnings
and reported as a separate component of stockholders' equity. On
December 19, 1995, securities with an amortized cost of $34,999 were
transferred from held-to-maturity to available-for-sale in accordance
with a one-time reassessment of securities' classification permitted
under SFAS No. 115's implementation guidelines.
Market values of securities are estimated based on available market
quotations. Gains or losses from security transactions are determined
based on the carrying value of the specific security sold.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
(c) Loans and Direct Financing Leases
Generally, interest on loans and direct financing leases ("leases") is
accrued and credited to income based on the principal balance
outstanding. It is FSCM's policy to discontinue the accrual of interest
income on any loan or lease when, in the opinion of management, there
is a reasonable doubt as to the timely collectibility of interest and
principal or to comply with regulatory requirements. Interest accrued
previously on such loans and leases is charged off. Nonaccrual loans
and leases are returned to an accrual status when, in the opinion of
management, the financial position of the borrower indicates that there
is no longer any reasonable doubt as to the timely payment of principal
and interest and only after all previously accrued but unpaid interest
has been brought current.
Net nonrefundable loan and lease origination fees and certain direct
costs associated with the lending process are deferred and recognized
as a yield adjustment over the life of the related loan or lease.
Loans and leases held for sale are stated at the lower of cost or
market on an aggregate basis. Gains and losses are recognized on loans
and leases sold on a nonrecourse basis based on the sale price for the
loan or lease adjusted for any normal servicing fees when servicing is
retained by FSCM.
Mortgage loan and lease servicing retained on loans and leases sold to
others are not included in the accompanying consolidated balance
sheets. The unpaid principal balances of these loans and leases as of
March 31, 1996 and 1995 were $165,003 and $155,657, respectively.
Custodial escrow balances maintained in connection with the loan and
lease servicing were approximately $1,744 and $1,837 as of March 31,
1996 and 1995, respectively.
(d) Allowance for Possible Loan and Lease Losses
The allowance for possible loan and lease losses is maintained at a
level deemed appropriate by management to provide for known and
inherent risks in the loan and lease portfolio. The allowance is based
upon a continuing review of past loan and lease loss experience,
current economic conditions, and the underlying collateral value. Loans
and leases which are deemed uncollectible are charged off and deducted
from the allowance. The provision for possible loan and lease losses
and recoveries are added to the allowance.
SFAS No. 114 "Accounting by Creditors for Impairment of a Loan," and
SFAS No. 118, "Accounting by Creditors for Impairment of Loan--Income
Recognition and Disclosure," were adopted as of April 1, 1995. These
statements address the accounting for loans when it is probable that
all principal and interest amounts due will not be collected in
accordance with their contractual terms (i.e. "impaired loans"). The
loan impairment is measured based on the discounted present value of
expected future cash flows or the fair market value of the loan's
collateral if the loan is collateral dependent. The portion of the
allowance for loan and lease losses is computed on the amount that the
recorded investment of an impaired loan exceeds the measured value. The
adoption of these standards had no material effect on FSCM's net
income.
(e) Income Taxes
FSCM and TRIB file a consolidated federal income tax return.
FSCM has a tax allocation agreement which provides that each subsidiary
of the consolidated group pay a tax liability to, or receive a tax
refund from, FSCM computed as if the subsidiary had filed a separate
return.
FSCM recognizes certain income and expenses in different time periods
for financial reporting and income tax purposes. The provision for
deferred income taxes is based on an asset and liability approach and
represents the change in deferred income tax accounts during the year,
including the effect of enacted tax rate changes.
(f) Trust Department Assets
Property held for customers in fiduciary or agency capacities is not
included in the accompanying consolidated balance sheets, as such items
are not assets of FSCM.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
(g) Premises, Furniture and Equipment
Premises, furniture and equipment are stated at cost less accumulated
depreciation. The provision for depreciation of premises, furniture and
equipment is determined by the straight-line method over the estimated
useful lives of the assets.
(h) Other Real Estate
Other real estate represents property acquired through foreclosures or
settlements of loans or property that was subsequently sold on
contract. Property acquired is carried at the lower of the principal
amount of the loan outstanding or the estimated fair value of the
property. The excess, if any, of the principal balance over the fair
value of the property at the date acquired is charged against the
allowance for possible loan and lease losses. Subsequent writedowns
required on the basis of later fair value evaluations, gains or losses
on sales, and net expenses incurred in maintaining such properties are
included in other operating expenses. Property subsequently sold on
contract is carried at the contract balance outstanding.
(i) Per Common Share Amounts
Primary earnings per common share amounts are computed by dividing net
income, after deducting Preferred Stock dividends (net income available
for Common Stock), by the weighted average number of common shares
outstanding during the year. Fully diluted earnings per common share
amounts are computed by dividing net income, after deducting dividends
on nonconvertible Preferred Stock and adding back interest, net of the
related income tax effect, on Mandatory Convertible Debentures
("MCDs"), by the weighted average number of common shares and
contingently issuable common shares outstanding during the year.
(j) Cash and Cash Equivalents
Cash and cash equivalents are defined as those amounts included in the
consolidated balance sheets as "Cash and due from banks."
(k) Insurance Commission Revenue
Revenue from insurance commissions on credit life and accident and
health insurance related to loans is recognized at the effective date
of the coverage because substantially all services related to earning
the commissions have been rendered. A provision is made for probable
insurance commission refunds due to policy cancellations based on prior
experience and is netted against insurance commission revenue.
(l) Impact of Recently Issued Statements of Financial Accounting Standards
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," and No. 122, "Accounting for
Mortgage Servicing Rights," both become effective for FSCM beginning
after March 31, 1996. SFAS No. 121 generally requires an estimation of
future cash flows to identify asset impairment and SFAS No. 122
attempts to standardize the accounting treatment of originated mortgage
servicing rights to those purchased, if it is practicable to separately
estimate the fair values of the loan and servicing rights. Management
believes that adoption of these statements will not have a material
effect on the financial statements.
(m) Reclassifications
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with 1996 presentations.
(2) Cash and Due from Banks
TRIB's required reserves as a member of the Federal Reserve System were
$1,351 and $1,279 as of March 31, 1996 and 1995, respectively.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
(3) Investment Securities
The amortized costs, fair values, and maturities of investment securities
held-to-maturity and available-for-sale as of March 31, 1996 and 1995 are
summarized as follow. Maturities of mortgage-backed obligations were
estimated based on anticipated payments.
<TABLE>
1996 1995
-------------------------------------- ----------------------------------------
Unrealized Losses Gross Unrealized
Amortized ----------------- Fair Amortized ------------------ Fair
HELD-TO-MATURITY:..................... Cost Gains Losses Value Cost Gains Losses Value
--------- ------- ------- ------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury maturities:
Within 1 year ................................... $ 6,033 $ 32 $ -- $ 6,065 $ 988 $ -- $ 3 $ 985
From 1 to 5 years ............................... -- -- -- -- 6,118 5 20 6,103
------------------------------------------------------------------------------
Total ........................................ 6,033 2 -- 6,065 7,106 5 23 7,088
------------------------------------------------------------------------------
Obligations of U.S. government
agencies and corporations maturities:
Within 1 year ................................... 5,000 -- 37 4,963 -- -- -- --
From 1 to 5 years ............................... 13,980 68 68 13,980 61,040 25 1,857 59,208
From 5 to 10 years .............................. -- -- -- -- 2,000 -- 120 1,880
-----------------------------------------------------------------------------
Total ........................................ 18,980 8 105 18,943 63,040 25 1,977 61,088
-----------------------------------------------------------------------------
State and political subdivisions:
From 1 to 5 years ........................... 2,326 -- 40 2,286 -- -- -- --
-----------------------------------------------------------------------------
Other securities maturities:
Within 1 year ................................... 10 -- -- 10 -- -- -- --
From 1 to 5 years ............................... 70 2 -- 72 80 -- -- 80
From 5 to 10 years .............................. 400 -- -- 400 300 -- -- 300
Over 10 years ................................... 1,296 -- -- 1,296 1,296 -- -- 1,296
-----------------------------------------------------------------------------
Total ........................................ 1,776 2 -- 1,778 1,676 -- -- 1,676
-----------------------------------------------------------------------------
Total ........................................ $29,115 $ 102 $ 145 $29,072 $71,822 $ 30 $ 2,000 $69,852
=============================================================================
AVAILABLE-FOR-SALE:
U.S. Treasury maturities:
From 1 to 5 years ............................... $ 2,074 $ -- $ -- $ 2,074 $ -- $ -- $ -- $ --
-----------------------------------------------------------------------------
Obligations of U.S. government
agencies and corporations maturities:
Within 1 year ................................... 6,000 -- 29 5,971 -- -- -- --
From 1 to 5 years ........................... 32,174 16 121 32,069 -- -- -- --
From 5 to 10 years .......................... 4,004 1 4 4,001 -- -- -- --
-----------------------------------------------------------------------------
Total ........................................ 42,178 17 154 42,041 -- -- -- --
-----------------------------------------------------------------------------
Mortgage-backed obligations of federal agencies:
Within 1 year ............................... 2,228 -- 63 2,165 -- -- -- --
From 1 to 5 years ........................... 7,290 -- 207 7,083 -- -- -- --
From 5 to 10 years .......................... 6,136 -- 175 5,961 -- -- -- --
Over 10 years ............................... 2,042 -- 58 1,984 -- -- -- --
-----------------------------------------------------------------------------
Total .................................... 17,696 -- 503 17,193 -- -- -- --
-----------------------------------------------------------------------------
Total ....................................... $61,948 $ 17 $ 657 $61,308 $ -- $ -- $ -- $ --
=============================================================================
</TABLE>
In fiscal 1995, included in the category of obligations of U.S. government
agencies and corporations, were structured notes with a book value of
$46,005 that had step-up rate and callable provisions which resulted in the
advancement of redemption to a one-year time frame for the majority of the
issues.
Securities with an amortized cost of $34,999 and an unrealized gain of $95
were transferred into available-for-sale from held-to-maturity on December
19, 1995. This was done in accordance with Financial Accounting Standards
Board implementation guidance which permitted a one-time reassessment of
securities' classification under SFAS No. 115. Such decision was based on
management's desire to enhance the liquidity and flexibility of the
investment portfolio with consideration also given to the amendment in
regulatory capital ratios which excluded from the computation, any
unrealized gains or losses on available-for-sale investments.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
As of March 31, 1996 and 1995, investment securities with carrying values
of $72,169 and $59,142, respectively, and fair values of $72,164 and
$58,071, respectively, were pledged to secure public and trust deposits,
short-term borrowings and for other purposes as required or permitted by
law.
Proceeds from sales and gross gains and losses related to investment
securities sold for the years ended March 31, 1996, 1995 and 1994 are
summarized as follows:
1996 1995 1994
-----------------------------
Securities Sold:
Proceeds from sales ............ $7,152 $ --- $ ---
Gross security gains ........... 11 --- ---
(4) Loans and Direct Financing Leases
Loans and leases as of March 31, 1996 and 1995 are summarized as follows:
1996 1995
--------------------
Commercial, financial and agricultural ........ $ 85,578 $ 74,234
Direct financing leases ....................... 5,719 6,863
Real estate:
Residential mortgage ....................... 64,248 58,486
Construction ............................... 21,823 14,553
Commercial mortgage ........................ 62,746 51,529
Consumer, not secured by a real estate mortgage 15,851 6,411
-------- --------
Total ......................................... $255,965 $212,076
======== ========
1996 1995
--------------------
Direct financing leases:
Gross rents receivable ..................... $ 6,902 $ 7,804
Unearned income ............................ (1,183) (941)
-------- --------
Total ...................................... $ 5,719 $ 6,863
======== ========
Direct financing leases are generally short-term equipment type leases.
Future minimum lease payments as of March 31, 1996 are as follows: 1997,
$2,829; 1998, $2,049; 1999, $1,102; 2000, $615; 2001, $288; and 2002, $19.
Income on leases of $947, $1,854 and $3,030 is included in interest and
fees on loans and leases for the fiscal years ended March 31, 1996, 1995
and 1994, respectively.
Changes in the allowance for possible loan and lease losses for the fiscal
years ended March 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
-----------------------------
Balance at beginning of year ............ $ 3,832 $ 3,744 $ 3,639
Provision for loan and lease losses ..... 1,905 2,510 1,970
Loans and leases charged off ............ (1,985) (4,398) (2,537)
Recoveries .............................. 711 1,976 672
Balance at end of year .................. $ 4,463 $ 3,832 $ 3,744
======= ======= =======
Although FSCM has a diversified loan and lease portfolio, a substantial
natural geographic concentration of credit risk exists within FSCM's market
area. FSCM's loan portfolio consists of commercial and commercial mortgage
loans extending across many industry types, as well as to individuals.
FSCM's leasing activities consisted primarily of financing arrangements. As
of March 31, 1996, total loans and leases to any group of customers engaged
in similar activities and having similar economic characteristics did not
exceed 10% of total loans and leases.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
The table below summarizes nonperforming assets as of March 31, 1996 and
1995:
1996 1995
-----------------
Nonaccrual loans and leases:
Commercial, financial and agricultural ................ $ 339 $1,076
Direct financing leases ............................... 28 96
Real estate
Residential mortgage ............................... 388 419
Construction ..................................... 51 --
Commercial mortgage ................................ 427 1,020
Consumer 31 45
Other real estate owned .................................. 457 378
Accruing loans and leases past-due 90 days or more:
Commercial, financial and agricultural ................ 51 9
Direct financing leases ............................... 103 --
Real estate:
Residential mortgage ............................... -- 17
Construction ............................. 25 --
Commercial mortgage .............. -- 297
Consumer ................................... 10 --
-----------------
Total ................................................. $ 1,924 $3,343
=================
The interest income not recorded, but which would have been earned if the
nonaccrual loans and leases as of March 31 had performed in accordance with
their original terms, was $188, $219 and $146 for the fiscal years ended
March 31, 1996, 1995 and 1994, respectively.
As of March 31, 1996, impaired loans totaled $780 for which $197 of the
allowance for possible loan and lease losses was specifically allocated.
The average impaired loans for the year ended totaled $1,849. The amount of
interest which would have been earned if the impaired loans had performed
in accordance with their original terms and the amount of interest income
recognized on a cash basis was $47 and $44, respectively.
Loans are made in the normal course of business to directors, executive
officers and principal holders of equity securities of FSCM and to
affiliated companies in which they have an equity interest. The terms of
these loans, including interest rates and collateral, are similar to those
prevailing for comparable transactions and do not involve more than a
normal risk of collectibility. Changes in such loans during the fiscal
years ended March 31, 1996, 1995 and 1994 were as follows:
1996 1995 1994
-------------------------
Balance at beginning of year ...................... $ 61 $ 98 $ 89
New loans ......................................... 709 150 204
Repayments......................................... (134) (162) (192)
Loans participated to other financial
institutions and other net changes ............. (550) (25) (3)
-------------------------
Balance at end of year ............................ $ 86 $ 61 $ 98
=========================
Unused lines of credit in the amount of $338 had been extended to directors
as of March 31, 1996.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
(5) Premises, Furniture and Equipment
Premises, furniture and equipment as of March 31, 1996 and 1995 are
summarized as follows:
1996 1995
------- -------
Land ............................... $ 1,306 $ 1,139
Furniture and equipment ............ 5,545 3,996
Buildings and improvements ......... 6,691 5,308
Less accumulated depreciation ...... (7,589) (6,820)
------- -------
Total .......................... $ 5,953 $ 3,623
======= =======
Depreciation expense included in the accompanying consolidated statements
of income was $1,033, $776, and $678 for the fiscal years ended March 31,
1996, 1995 and 1994, respectively.
(6) Deposits
The following is a maturity distribution of time certificates of deposit in
denominations of $100 or more as of March 31, 1996 and 1995:
1996 1995
------- -------
3 months or less............................ $ 4,181 $ 2,175
Over 3 months through 6 months.............. 9,706 2,582
Over 6 months through 12 months............. 6,359 1,682
Over 12 months.............................. 4,703 14,733
----------------
Total................................. $24,949 $21,172
================
(7) Securities Sold Under Agreements to Repurchase and Other Short-Term
Borrowings
Securities sold under agreements to repurchase are treated as financings.
The obligations to repurchase securities sold are reflected as a liability
in the consolidated balance sheets and the dollar amount of securities
underlying the agreements remains in investments. The carrying amount,
including interest, and market value of securities sold under agreements to
repurchase and the obligations to repurchase securities sold as of March
31, 1996 and 1995 are summarized as follows:
1996 1995
------------------ ------------------
Carrying Market Carrying Market
Amount Value Amount Value
-------- ------- -------- -------
U.S. Treasury securities .............. $ 5,092 $ 5,112 $ 5,102 $ 5,082
Obligations of U.S. Government
agencies and corporations securities 49,071 49,083 34,901 33,951
Mortgage backed obligations of federal
agencies ..... 11,178 11,178 -- --
------- ------- ------- -------
Total ........................... $65,341 $65,373 $40,003 $39,033
======= ======= ======= =======
Securities sold under agreements to
repurchase ......................... $48,846 $33,371
======= =======
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
The maturity distribution and weighted average interest rates of securities
sold under agreements to repurchase as of March 31, 1996 are summarized as
follows:
Weighted
Average
Amount Rate
-------- --------
Overnight ............................................ $ 21,353 5.21%
Term up to 30 days ................................... 1,762 5.33
Term of 30 to 90 days ............................... 18,174 5.35
Term over 90 days .................................... 7,557 5.35
Total ............................................. $ 48,846 5.29%
====================
Other short-term borrowings generally include federal funds purchased,
which are overnight transactions, and interest-bearing demand notes due to
the U.S. Treasury, which are generally called within several days. Other
short-term borrowings of $1,500 and $366 as of March 31, 1996 and 1995,
respectively, are comprised of interest-bearing demand notes due to the
U.S. Treasury.
Maximum and average balances and rates on aggregate short-term borrowings
outstanding during the fiscal years ended March 31, 1996, 1995 and 1994 are
as follows:
1996 1995 1994
------- ------- -------
Maximum month-end balance...................... $62,128 $38,143 $27,024
Weighted average balance for the year ......... 44,528 25,932 22,013
Weighted average interest rate for the year ... 5.51% 4.48% 3.42%
Weighted average interest rate at year-end..... 5.29 5.85 3.57
(8) Notes Payable
Notes payable as of March 31, 1996 and 1995 are summarized as follows:
1996 1995
------- -------
8.50% Notes, due December 1, 1999, uncollateralized $ 4,500 $ 5,000
======= =======
Interest on the uncollateralized fixed rate 8.50% Notes dated December 1,
1992 is payable on the first of June and December. In addition to the $500
which was redeemed December 1, 1995, other mandatory redemptions in the
amount of $500 are due on December 1, 1996, 1997 and 1998. The remaining
$3,000 matures on December 1, 1999. FSCM may redeem any or all of the Notes
at any time upon not less than a 30-day notice. The Notes are senior or on
parity to any other uncollateralized debt. As of March 31, 1996, the Notes
were senior in right of payment to $750 of MCDs and payable on parity with
$500 of MCDs.
As of March 31, 1996 FSCM had a variable rate $10,000 unrestricted line of
credit available from a correspondent bank, none of which was in use. The
line of credit is collateralized by a pledge of all of the stock of TRIB
owned by FSCM and bears interest at a rate charged by banks to their most
preferred customers ("prime") which was 8.25% at March 31, 1996.
The most restrictive covenants under the correspondent bank loan agreement
and the 8.50% Notes require, among other things, that:
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
Correspondent Bank Loan:
FSCM must obtain approval to pay Common Stock dividends in excess of 30%
of prior year's consolidated net income;
Approval is required for fixed asset investments exceeding $250 for FSCM
or outside TRIB's normal banking practices;
FSCM must obtain approval before the incurrence of any additional debt
and TRIB can incur debt only in the normal course of business;
FSCM must obtain approval prior to making any investments exceeding $500
in other than short-term, cash management investments made in the normal
course of business;
FSCM and TRIB cannot issue any new stock nor can FSCM repurchase any of
its stock from its directors or executive officers without prior
approval and any other redemption of stock by FSCM is limited;
Mergers or acquisitions require approval;
FSCM and TRIB must maintain ratios of total capital (Tier 1 and Tier 2)
to total assets not less than 6.00% and 7.50%, respectively (March 31,
1996 actual equaled 8.26% and 8.37%, respectively);
TRIB must maintain a primary capital ratio not less than 5.50% (March
31, 1996 actual equaled 8.53%); and
TRIB must maintain a return on average assets not less than 0.70% (March
31, 1996 actual equaled 1.16%).
8.50% Notes:
Fixed assets investments are limited to not greater than three percent
of total assets on a consolidated basis; and
FSCM and TRIB must maintain tangible net worths of not less than $14,000
and $17,000, respectively (March 31, 1996 actual equaled $24,583 and
$28,814, respectively).
Management believes that FSCM and TRIB were in compliance with all
covenants as of March 31, 1996.
(9) Mandatory Convertible Debentures ("MCDs")
MCDs as of March 31, 1996 and 1995 are summarized as follows:
1996 1995
------ ------
MCDs issued March 31, 1989 .............. $ 425 $ 425
MCDs issued April 19, 1989 .............. 825 825
------ ------
Total $1,250 $1,250
====== ======
On March 23, 1995, agreements were entered into by FSCM with each MCD
holder whereby the mandatory conversion date on both issues of MCDs were
extended until March 31, 2001.
The MCDs bear interest at a rate of 1/2% below the reference rate of a
correspondent bank (7.75% at March 31, 1996). The interest is payable
quarterly on March 31, June 30, September 30, and December 31. The MCDs are
held by directors and former directors of FSCM or members of their
immediate families. Subject to a ninety day notice and obtaining any
regulatory approvals or legal opinions necessary, the MCDs are convertible
at any time prior to the extended conversion date at the option of the
holders into a number of shares of FSCM's Common Stock determined by
dividing the principal amount of the MCDs by a purchase price equal to $25
per share, as adjusted for any stock splits, stock dividends or other
similar occurrences. The MCDs are subordinate to all senior indebtedness of
FSCM and $750 of the MCDs are subordinate to the 8.50% Notes.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
(10) Income Taxes
Income taxes for the fiscal years ended March 31, 1996, 1995 and 1994 are
summarized as follows:
Federal State
------- -------
1996:
Current ......... $ 2,121 $ 23
Deferred (376) --
------- -------
Total ........... $ 1,745 $ 23
======= =======
1995:
Current ........ $ 1,622 $ 3
Deferred (109) --
------- -------
Total ........... $ 1,513 $ 3
======= =======
1994:
Current ......... $ 1,340 $ 13
Deferred (86) --
------- -------
Total ........... $ 1,254 $ 13
======= =======
Income taxes totaled $1,768 for 1996, $1,516 for 1995, and $1,267 for 1994
resulting in effective tax rates of 33.2%, 33.1%, and 35.2%, respectively.
The actual income taxes differ from the "expected" amounts (computed by
applying the U.S. federal corporate income tax rate of 35% for the years
1996, 1995 and 1994, to income before income taxes) for such years as
follows:
1996 1995 1994
------- ------- -------
Computed "expected" amounts ......... $ 1,862 $ 1,604 $ 1,260
Increase (decrease) resulting from:
Effect of graduated tax rate ..... (53) (45) (36)
Tax exempt interest income ....... (5) (1) (4)
Life insurance policies .......... (56) (48) 30
State taxes net of federal benefit 15 2 9
Other, net ....................... 5 4 8
------- ------- -------
Total $ 1,768 $ 1,516 $ 1,267
======= ======= =======
The components of the net deferred income tax asset as of March 31, 1996
and 1995 are as follows:
1996 1995
------- -------
Allowance for possible loan and lease losses .. $ 567 $ 353
Book depreciation in excess of tax depreciation 358 256
Post-retirement benefits ...................... 46 58
Loan origination fees ......................... 16 16
Bonuses ....................................... 44 31
Deferred insurance fee income ................. 212 142
Vacation accrual .............................. 65 65
Prepaid expense ............................... (55) (56)
Net unrealized loss on available-for-sale
securities net of taxes .................... 218 --
Other ......................................... (15) (3)
------- -------
Total ................................... $ 1,456 $ 862
======= =======
FSCM had no valuation allowance for deferred tax assets as of March 31,
1996 or 1995. FSCM has a demonstrated record of profitability for the past
ten years.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
(11) Preferred Stock
Class A Preferred Stock - Fifty thousand shares, stated value $100 per
share, were issued December 30, 1992 for a total consideration of $5,000.
Costs associated with the issuance of the stock, $416, were charged to
capital surplus. The stock pays quarterly cumulative dividends at a 9.25%
per annum rate on the first of March, June, September and December. The
holders have no voting rights except if the payment of dividends falls in
arrears in an aggregate amount at least equal to the full accrued dividends
for six quarterly dividend periods, in which case they will have the right
to elect two representatives to the Board of Directors of FSCM and shall
continue to have such right until all dividends in arrears have been paid
or declared and set apart for payment. FSCM may redeem any or all of the
stock, upon a thirty day notice, for the stated value plus any accrued and
unpaid dividends at the redemption date. If the stock is still outstanding
at December 1, 2002, holders of the stock have the option to convert the
stock into FSCM's Common Stock according to a defined formula. Had all
shares of Class A Preferred Stock converted at March 31, 1996, an
additional 70,800 shares of FSCM's Common Stock would have been
outstanding.
Class B Preferred Stock - Holders of the one thousand shares of $500 stated
value per share stock issued November 17, 1986 have no voting rights. Non
cumulative dividends are based on a rate equal to 1% per annum in excess of
the interest rates charged by a New York money center bank to its most
preferred customers. The shares may be redeemed at stated value plus unpaid
dividends by FSCM in whole or in part at any time. Holders have an option
to convert the shares into a total of 11,111 shares of FSCM Common Stock.
The Class B Preferred Stock is owned by certain directors of FSCM.
Class C Preferred Stock - Twenty-four hundred shares of $425 stated value
per share were issued September 10, 1992 for total consideration of $1,020
to certain directors of FSCM. The nonvoting, convertible stock pays
quarterly cumulative dividends at an 8.50% per annum rate on the last day
of March, June, September and December and is nonredeemable by FSCM. The
Class C Preferred Stock is convertible into a total of 24,000 shares of
FSCM's Common Stock at the option of the holders.
Class D Preferred Stock - In June 1992, FSCM designated 250 shares with a
stated value of $5,000 per share for the potential conversion of the MCDs.
No agreement has ever been entered into authorizing conversion of the MCDs
into shares of the Class D Preferred Stock.
All classes of Preferred Stock have priority over Common Stock with respect
to dividends, liquidation and redemption rights. Priority amongst the
classes of Preferred Stock are in the following order, from highest to
lowest: Class A, Class D, Class B, Class C.
(12) Treasury Stock Sale
In both March 1996 and December 1994, FSCM sold 1,500 shares of Common
Stock from treasury to the 401(k) defined contribution retirement plan
sponsored by TRIB. The sale prices of $67.50 and $56.38 for the respective
dates were based on independent stock appraisals' average per share fair
market value for transactions involving small stock block sizes.
(13) Employee Benefit Plans
An employee savings plan covers substantially all employees of FSCM and its
subsidiary, TRIB. Under the plan, contributions of up to 2% of the
participants' wages are made by the respective subsidiaries. Plan costs,
which are charged to other expenses, were $41, $40, and $45 for the years
ended March 31, 1996, 1995, and 1994, respectively.
FSCM provides certain health care and life insurance benefits for eligible
retired employees. In order to qualify for the benefits, a full-time
employee must, at retirement, be at least 55 years old and have completed a
minimum of ten years of service. The benefits consist of up to a sixty
dollars per month contribution by FSCM towards medical premium costs (up to
seventy-five dollars per month for existing retirees) and the payment of
life insurance premiums for coverage in the amount of two times the
employee's salary at retirement, which benefit is reduced for each year of
retirement. FSCM has the right to modify or terminate these benefits.
Accrued post retirement benefit liabilities included in other liabilities
as of March 31, 1996 and 1995 were $135 and $170, respectively. Net
periodic post retirement benefit costs for the fiscal years ended March 31,
1996, 1995 and 1994 were $(20), $(18), and $16, respectively.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
(14) Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, FSCM is a party to financial instruments
with off-balance-sheet risk to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and
letters of credit. These instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amounts recognized in the
consolidated financial statements. FSCM's exposure to credit loss in the
event of nonperformance by the other party to the financial instrument for
commitments to extend credit, and to potential credit loss associated with
letters of credit issued, is represented by the contractual amount of those
instruments. FSCM uses the same credit policies in making commitments and
conditional obligations as it does for loan and other such on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
Letters of credit are conditional commitments that are primarily issued to
facilitate trade or support borrowing arrangements and generally expire in
one year or less. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending credit to customers.
As of March 31, 1996, FSCM had $3,412 of irrevocable letters of credit
outstanding and had commitments to lend of approximately $35,336. No
material losses are anticipated by management as a result of such
transactions.
(15) Dividends and Regulatory Capital and Ratios
In addition to the restriction on the payment of dividends by FSCM
discussed in Note 8, the ability of FSCM to pay dividends to its
stockholders is dependent upon the ability of TRIB to pay dividends to FSCM
since FSCM has no other significant source of income. TRIB is subject to
regulation by the Office of the Comptroller of the Currency and the Federal
Deposit Insurance Corporation under federal law and regulations, which
limit the amount of dividends TRIB may pay to FSCM. The amount of dividends
TRIB could pay FSCM as of March 31, 1996, without prior regulatory
approval, which is limited by statute to the sum of net profits for the
current year plus retained net profits of the preceding two years, was
$6,071.
Federal banking regulators (including the Federal Reserve Board which
regulates FSCM), have established, and monitor compliance with, capital
adequacy guidelines. These guidelines include the Tier 1 and total capital
ratios which compare adjusted capital to that of risk weighted assets.
Additionally, the leverage ratio is used to compare adjusted capital to
total assets. A 3% minimum leverage ratio was established for institutions
without any supervisory, financial or operational weaknesses or
deficiencies. Most banking organizations, including FSCM and TRIB, are
expected to maintain a leverage ratio of 100 to 200 basis points above this
minimum depending on their financial condition. The capital guidelines
established three measurement categories into which institutions are
grouped; well-capitalized, adequately-capitalized and
less-than-adequately-capitalized. The table below reflects that FSCM and
TRIB exceeded the regulatory capital guidelines for the well-capitalized
status as of March 31, 1996 and 1995.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
Regulatory Requirements
FSCM TRIB -----------------------
----------------------- ----------------------- Well
1996 1995 1996 1995 Minimum Capitalized
--------- ---------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital .................... 8.97% 9.28% 10.56% 11.71% 4.00% 6.00%
Total capital ..................... 11.66 13.15 11.82 12.96 8.00 10.00
Leverage ratio ........................ 6.83 6.78 8.05 8.56 3.00 5.00
Stockholders' equity .................. $ 24,287 $ 21,961 $ 28,519 $ 26,606
Preferred stock limitation1 ........... -- (706) -- --
Net unrealized loss on available-
for- sale securities, net of taxes 422 -- 422 --
Intangible assets ..................... (140) (193) -- --
--------------------------------------------------
Tier 1 capital ................... 24,569 21,062 28,941 26,606
Supplementary capital ................. 7,387 8,794 3,437 2,840
--------------------------------------------------
Total capital .................... $ 31,956 $ 29,856 $ 32,378 $ 29,446
==================================================
Total adjusted average assets ......... $ 359,486 $ 310,820 $ 359,449 $ 310,785
==================================================
Risk weighted assets .................. $ 273,981 $ 227,040 $ 273,972 $ 227,235
==================================================
<FN>
1 Cumulative Preferred Stock is limited to 25% of the total Tier 1 capital;
any excess qualifies as supplementary capital.
</FN>
</TABLE>
(16) Supplemental Disclosures of Cash Flow and Other Information
Cash paid during the fiscal years ended March 31, 1996, 1995 and 1994 for:
1996 1995 1994
------- ------- -------
Interest ....................... $15,213 $10,001 $ 9,462
Income taxes ................... 1,855 1,450 1,885
During fiscal 1996 investment securities totaling $34,999 were reclassified
from held-to-maturity to available-for-sale. See Note 1(b).
The consolidated statements of cash flows excludes certain noncash
transactions that had no significant effects on the investing or financing
activities of FSCM.
(17) Fair Value of Financial Instruments
The following information as of March 31, 1996 and 1995 was provided in
compliance with the requirements of SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments." Quoted market prices, when available, were
used as the measure of fair value. When quoted market prices were not
available, fair values were based on discounted cash flow valuation
techniques. These derived fair values, which were founded on assumptions
relative to the timing of future cash flows and the discount rates, are
inherently subjective in nature and involve matters of judgment. It is
FSCM's intent to hold most of its financial instruments to maturity and
therefore the fair values reflected below will probably not be realized.
Because of the assumptions on which the fair market value information are
based, FSCM's fair value information is not necessarily comparable to that
of another financial institution. The aggregate fair value amounts
presented should in no way be construed to represent management's
estimation of the underlying value of FSCM as of March 31, 1996 or 1995.
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
1996 1995
------------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks ...................................... $ 14,423 $ 14,423 $13,955 $13,955
Interest-bearing deposits with other financial
institutions .............................................. 4,861 4,861 198 198
Federal funds sold ........................................... 11,900 11,900 32,900 32,900
Investment securities:
Held to maturity .......................................... 29,115 29,072 71,822 69,852
Available for sale ........................................ 61,308 61,308 -- --
Loans and leases, net ........................................ 251,502 252,585 208,244 206,935
Accrued interest receivable .................................. 2,653 2,653 1,960 1,960
Other financial assets ...................................... 127 127 327 327
Financial Liabilities:
Deposits:
Demand ........................................ 36,286 36,286 33,496 33,496
N.O.W. accounts ............................... 24,420 24,420 23,974 23,974
Savings ...................................... 41,814 41,814 42,823 42,823
Insured money market .......................... 8,638 8,638 8,830 8,830
Other time .................................... 190,660 192,030 162,488 161,137
Securities sold under agreements to repurchase ... 48,846 48,805 33,371 33,297
Other short-term borrowings ...................... 1,500 1,500 366 366
Notes payable .................................... 4,500 4,410 5,000 4,950
Mandatory convertible debentures ................. 1,250 1,250 1,250 1,250
Other financial liabilities ...................... 2,862 2,862 2,243 2,243
</TABLE>
The estimated fair values of investment securities were generally based on
quoted market prices. For variable rate financial instruments, the carrying
amount was considered to be a reasonable estimate of fair value. For
fixed-rate financial instruments, the fair value was determined by
discounting contractual cash flows using rates which could have been earned
for assets and liabilities with similar characteristics issued as of the
balance sheet date.
(18) Earnings Per Common Share Data
The following information was used in the computation of earnings per
common share on both a primary and fully diluted basis for the fiscal years
ended March 31, 1996, 1995, and 1994:
<TABLE>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net income ..................................... $ 3,553 $ 3,068 $ 2,333
Accrued preferred dividends .................... (598) (594) (584)
--------- --------- ---------
Primary earnings ............................ 2,955 2,474 1,749
MCDs interest expense, net of tax .............. 68 61 45
Accrued convertible preferred dividends ........ 598 594 584
--------- --------- ---------
Fully diluted earnings ...................... $ 3,621 $ 3,129 $ 2,378
========= ========= =========
Weighted average common shares outstanding ..... 175,123 174,079 173,611
Weighted average common shares
issuable upon conversion of:
MCDs ........................................ 50,000 50,000 50,000
Class A Preferred Stock ..................... 75,093 84,606 94,709
Class B Preferred Stock ..................... 11,111 11,111 11,111
Class C Preferred Stock ..................... 24,000 24,000 24,000
--------- --------- ---------
Weighted average common and contingently
issuable common shares outstanding .......... 335,327 343,796 353,431
========= ========= =========
</TABLE>
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
No conversions occurred during the years presented .
(19) Parent Company Only Financial Information
Condensed financial information for FSCM was as follows:
Balance Sheets
March 31, 1996 1995
-------------------------------------------------------------------
Assets
Cash and short-term investments .............. $ 1,546 $ 1,568
Investment in TRIB ........................... 28,519 26,606
Due from TRIB ................................ 46 --
Other assets ................................. 141 423
Deferred income taxes ........................ 8 8
------------------
Total ............................... $30,260 $28,605
==================
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities .. $ 223 $ 394
Notes payable ............................. 4,500 5,000
Mandatory convertible debentures .......... 1,250 1,250
------------------
Total liabilities ................... 5,973 6,644
------------------
Stockholders' equity:
Preferred Stock ......................... 6,520 6,520
Common Stock ............................ 170 170
Capital surplus ......................... 2,574 2,521
Net unrealized loss on available-for-sale
securities, net of taxes ............. (422) --
Retained earnings ....................... 20,694 18,047
Treasury Stock .......................... (5,249) (5,297)
------------------
Total stockholders' equity ........ 24,287 21,961
------------------
Total ............................. $30,260 $28,605
==================
Statements of Income
Years Ended March 31, 1996 1995 1994
- -----------------------------------------------------------------------------
Operating revenue:
Dividends received from TRIB 1,813 $1,562 $1,500
Other income .................................. 44 45 74
------ ------ ------
Total operating revenue ................. 1,857 1,607 1,574
------ ------ ------
Operating expenses:
Professional fees ............................. 192 206 220
Other operating expenses ...................... 252 550 248
Interest expense:
Interest on notes payable .................. 425 425 411
Interest on mandatory convertible debentures 103 92 69
------ ------ ------
Total operating expenses ................ 958 971 1,264
------ ------ ------
Net operating income ................... 636 310 899
Equity in undistributed earnings of TRIB ......... 2,335 2,118 1,618
------ ------ ------
Income before income tax benefit ........... 3,234 2,754 1,928
Income tax benefit ............................... 319 314 405
------ ------ ------
Net income ....................................... $3,553 $3,068 $2,333
====== ====== ======
<PAGE>
Financial Services Corporation of the Midwest
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
Statements of Cash Flows
Years Ended March 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income ................................................. $ 3,553 $ 3,068 $ 2,333
Adjustments to reconcile net income to
Net cash provided by operating activities:
Depreciation and amortization ..................... 53 53 305
Equity in undistributed earnings of subsidiaries .. (2,335) (2,118) (1,618)
(Increase) decrease in other assets ............... 183 (146) 70
Increase (decrease) in other liabilities .......... (171) 118 (43)
------- ------ -------
Net cash provided by operating activities ................. 1,283 975 1,047
------- ------ -------
Cash Flows From Financing Activities:
Payments on notes payable ................................. (500) -- --
Cash dividends paid ....................................... (906) (848) (859)
Sale of Treasury Stock .................................... 101 85 --
------- ------ -------
Net cash used by financing activities .................. (1,305) (774) (848)
------- ------ -------
Net increase (decrease) in cash and cash equivalents ... (22) 201 199
Cash and cash equivalents at the beginning of the year . 1,568 1,367 1,168
------- ------- -------
Cash and cash equivalents at the end of the year .......... $ 1,546 $ 1,568 $ 1,367
======= ======= =======
</TABLE>
<PAGE>
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
Part III
Item 10. Directors and Executive Officers of the Registrant
(a) Executive Officers and Directors
The executive officers and directors of FSCM and TRIB as of
May 31, 1996 are as follows:
Name Age Title
- -------------------------------------------------------------------------------
Benjamin D. Farrar 67 Chairman of the Board of FSCM and TRIB
Douglas M. Kratz 45 President, Chief Executive Officer, Chief
Financial Officer, Secretary, and Director of
FSCM; Vice Chairman of the Board of TRIB
John T. Kustes 45 Treasurer, and Director of FSCM; Senior Vice
President, Senior Operations Officer,
Assistant Secretary and Director of TRIB
Perry B. Hansen 48 Director of FSCM; President, Chief Executive
Officer, Secretary and Director of TRIB
Jean M. Hanson 38 Controller of FSCM; Controller and Vice President
of TRIB
Richard J. Carlson 44 Chief Operating Officer and Senior Lending Officer
of TRIB
Donald P. Ackerman 62 Executive Vice President and Commercial Loan
Manager of TRIB
J. Bryant Goodall 43 Vice President and Senior Trust Officer of TRIB
Benjamin D. Farrar has been Chairman of FSCM since March 1991 and a Director of
FSCM since July 1974. From 1960 until he semi-retired in 1985, Mr. Farrar was
actively involved as President and Director of Ben Farrar and Co., Inc., an
insurance agency located in Rock Island, Illinois. Mr. Farrar continues to
maintain interests in insurance and real estate management. Mr. Farrar has been
a Director of TRIB since 1969 and Chairman of TRIB since March 1991.
Douglas M. Kratz has been President, Chief Executive Officer, Secretary, and a
Director of FSCM and a Director of TRIB since 1985, and was appointed Vice
Chairman of the Board of TRIB in 1993. Mr. Kratz is also an officer of Richey
Corporation, Rock Island, Illinois, a consulting firm which provides services to
various financial institutions and non-banking industries, including FSCM. See
"Item 13 Certain Relationships and Related Transactions."
John T. Kustes is Senior Vice President and Senior Operations Officer of TRIB
and has held positions in TRIB's operations department for more than the past
five years and has been a Director of FSCM and TRIB since March 1991. Mr. Kustes
has been an officer of FSCM since 1986 and currently serves as FSCM's Treasurer.
Perry B. Hansen has been the President, Chief Executive Officer, Secretary, and
a Director of TRIB and a Director of FSCM since 1985.
Jean M. Hanson has been the Controller of FSCM and TRIB since December 1984 and
Vice President at TRIB since August 1995.
Richard J. Carlson joined TRIB as Senior Vice President - Loans in January 1994
and was appointed Chief Operating Officer and Senior Lending Officer in March
1995. Until his employment with TRIB, he had been employed as Vice President for
Firstar Bank Cedar Rapids, N.A., Cedar Rapids, Iowa, since February 1992. Mr.
Carlson's previous work experience also includes serving as President of
Security Savings Bank, Eagle Grove, Iowa, from November 1991 through February
1992, and as Executive Vice President of Iowa State Savings Bank, Clinton, Iowa,
from January 1979 through November 1991.
<PAGE>
Donald P. Ackerman was Senior Vice President of TRIB from February 1992 until
March 1995 when he was appointed Executive Vice President and Commercial Loan
Manager. Prior to February 1992, Mr. Ackerman was self-employed, performing
independent loan reviews for various financial institutions.
J. Bryant Goodall has serves as Vice President of TRIB's trust department for
more than the past five years. In February 1996 he was also appointed Senior
Trust Officer.
All of the Directors of FSCM and TRIB hold office until the next shareholders'
meeting and until their successors are duly elected and qualified or until their
earlier death, resignation or removal from office. The executive officers of
FSCM and TRIB are elected annually by the respective Boards of Directors and
hold office until their successors are appointed and qualified or until their
earlier death, resignation, or removal from office.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
As required by rules adopted by the Securities and Exchange Commission ("SEC")
under Section 16(a) of the Securities Exchange Act of 1934, FSCM's directors and
executive officers are required to file with the SEC reports regarding their
ownership of FSCM's capital stock and any subsequent changes in such ownership.
FSCM believes that during fiscal 1996, all of these filing requirements were
satisfied except that on May 7, 1996, a Statement of Changes in Beneficial
Ownership on Form 4 was filed on behalf of Douglas M. Kratz. The Form 4 for Mr.
Kratz was due on or before January 10, 1996. FSCM undertakes to make such
filings on behalf of its directors and executive officers and believes that it
is now taking steps to assure compliance with these SEC filing requirements.
Item 11. Executive Compensation
(b) Summary Compensation Table
<TABLE>
Annual Compensation
--------------------------
Director or Executive Officer..................................... Year Salary Bonus Compensation1
---- ----------- --------- -------------
<S> <C> <C> <C> <C>
Douglas M. Kratz 1996 $ --- $ --- $ 21,575
President, Chief Executive Officer, Chief Financial Officer, Secretary 1995 --- --- 22,288
and Director of FSCM and Vice Chairman of the Board of TRIB 1994 --- --- 21,350
Perry B. Hansen 1996 182,706 66,000 21,575
Director of FSCM and President, Chief Executive Officer, 1995 176,526 21,888 21,125
Secretary and Director of TRIB 1994 167,177 72,000 21,238
John T. Kustes 1996 75,507 16,380 21,575
Treasurer and Director of FSCM and Senior Vice President, Senior 1995 72,766 5,408 21,738
Operating Officer, Assistant Secretary and Director of TRIB 1994 68,931 18,000 21,263
Richard J. Carlson 1996 100,227 28,500 10,900
Chief Operating Officer and Senior Lending Officer of TRIB 1995 85,965 6,180 11,750
1994 9,508 --- 338
Donald P. Ackerman 1996 97,721 14,140 10,900
Executive Vice President and Commercial Loan 1995 94,091 4,532 11,750
Manager of TRIB 1994 89,368 17,120 11,038
<FN>
1 Consists of compensation received from participation in director and
committee meetings.
</FN>
</TABLE>
(f) Compensation of Directors
Directors receive fees of $350 per FSCM Board of Directors' meeting and
$500 per TRIB Board of Directors' meeting, regardless of whether they
attend the meeting. Members of TRIB's Loan and Trust Committees receive $50
per hour for attended meetings of these Committees. During the fiscal year
ended March 31, 1996, Benjamin D. Farrar, Jr. received cash compensation
and bonus of $24,720 and $9,000, respectively, for the performance of
administrative responsibilities relating to his position as Chairman of the
Board and Patricia J. Farrar received cash compensation of $6,475 for the
performance of her duties as a Director.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of May 31, 1996 regarding
the beneficial ownership of FSCM's Common Stock and includes information
regarding FSCM's other classes of equity securities by each person who is known
by FSCM to beneficially own more than 5% of FSCM's Common Stock, by each of
FSCM's Directors, by each person named in the summary compensation table and by
all Directors and executive officers as a group.
<TABLE>
Number of Shares of Common Percent of Outstanding
Name and Address of Beneficial Owner Stock Beneficially Owned(1)(2) Shares of Common Stock(2)
- ------------------------------------ ------------------------------ -------------------------
<S> <C> <C>
Perry B. Hansen 66,963 (3) 32.1%
(3)
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719
Douglas M. Kratz 67,319 (4) 32.3%
(4)
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719
Benjamin D. Farrar, Jr. 21,711 (5) 10.9% (5)
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719
Marshall & Ilsley Corporation 20,211 11.4%
770 North Water Street
Milwaukee, WI 53202
Ira J. and Donna L. Weindruch 20,000 (6) 10.2% (6)
151- 35th Avenue
Rock Island, IL 61201-6133
Miriam Friedman 9,792 5.5%
1337 - 21st Avenue
Rock Island, IL 61201-4412
John T. Kustes 1,564 (7) *
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719
Richard J. Carlson 0 *
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719
Donald P. Ackerman 0 *
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719
All executive officers and directors 159,000 (8) 60.8%(2)
as a group (9 persons)
<FN>
* Less than one percent (1%).
(1) Unless otherwise indicated, each person or group has sole voting and
investment power with respect to all outstanding shares.
(2) The amount of shares beneficially owned and the percentage calculation for
each individual includes all shares of Common Stock that each such
individual may obtain upon the conversion of mandatory convertible
debentures issued by FSCM ("MCDs") or other classes of FSCM's Preferred
Stock presently outstanding. The percentage calculation for each individual
is based upon 176,611 shares of Common Stock outstanding at May 31, 1996,
plus all shares of Common Stock that each such individual may obtain upon
the conversion of MCDs or other classes of Preferred Stock presently
outstanding.
<PAGE>
(3) Includes 10,000 shares of Common Stock into which $250,000 in principal
amount of MCDs owned by Mr. Hansen are convertible; 10,000 shares of Common
Stock which may be acquired upon conversion of MCDs in the principal amount
of $250,000 now owned by Mr. Ira J. Weindruch and Mrs. Donna Weindruch (Mr.
Weindruch's spouse) as shown in this table but which are purchasable by Mr.
Hansen upon exercise of an option owned by him; 3,700 shares of Common
Stock into which 333 shares of Class B Preferred Stock owned by Mr. Hansen
are convertible; 8,000 shares of Common Stock into which 800 shares of
Class C Preferred Stock owned by Mr. Hansen are convertible; 3,663 shares
held under TRIB's 401(k) plan on behalf of Mr. Hansen; and 499 shares held
by Smith Barney on behalf of Mr. Hansen as part of his individual
retirement plan. The acquisition of certain amounts of Common Stock upon
conversion of the Class B or Class C Preferred Stock or the MCDs would
require prior approval by the Federal Reserve Board if such acquisition
constituted a change in control under the Bank Holding Company Act of 1956
("Holding Company Act").
(4) Includes 10,000 shares of Common Stock into which $250,000 in principal
amount of MCDs owned by Mr. Kratz are convertible; 10,000 shares of Common
Stock which may be acquired upon conversion of $250,000 in principal amount
of MCDs now owned by Mr. and Mrs. Weindruch as shown in this Table but
which are purchasable by Mr. Kratz upon exercise of an option owned by him;
3,700 shares of Common Stock into which 333 shares of Class B Preferred
Stock owned by Mr. Kratz are convertible; and 8,000 shares of Common Stock
into which 800 shares of Class C Preferred Stock owned by Mr. Kratz are
convertible. The acquisition of certain amounts of Common Stock upon
conversion of the Class B or Class C Preferred Stock or the MCDs would
require prior approval by the Federal Reserve Board if such acquisition
constituted a change in control under the Holding Company Act.
(5) Includes 10,000 shares of Common Stock into which $250,000 in principal
amount of MCDs owned by Mr. Farrar are convertible; 3,711 shares of Common
Stock into which 334 shares of Class B Preferred Stock owned by Mr. Farrar
are convertible; and 8,000 shares of Common Stock into which 800 shares of
Class C Preferred Stock owned by Mr. Farrar are convertible. In addition,
Mr. Farrar's family members own 12,284 shares of Common Stock, the
beneficial ownership of which is disclaimed by Mr. Farrar.
(6) Consists of 20,000 shares of Common Stock which may be acquired upon
conversion of $500,000 in principal amount of MCDs owned by Mr. and Mrs.
Weindruch but which are purchasable under options granted by them to
Messrs. Hansen and Kratz, as described in Footnotes 3 and 4 above. Such
20,000 shares are shown in the Table as also being owned by Mr. Hansen
(10,000 shares) and Mr. Kratz (10,000 shares).
(7) Includes 1,414 shares of Common Stock held under TRIB's 401(k) plan on
behalf of Mr. Kustes.
(8) Consists of the shares of Common Stock described in the above table and in
Footnotes 3, 4, 5, and 7 (including shares that may be acquired upon the
conversion of MCDs or Preferred Stock) and an additional 1,443 shares held
under TRIB's 401(k) plan on behalf of Mrs. Jean M. Hanson.
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions.
Richey Corporation ("Richey") provides to FSCM and TRIB various
services, including services related to strategic planning, regulatory
matters, accounting, auditing, income taxes, and loan administration,
pursuant to a Services Agreement by and between Richey and FSCM dated
March 23, 1995. Mr. Douglas M. Kratz, the President, Chief Executive
Officer, Secretary, and a Director of FSCM and Vice Chairman of the
Board of TRIB, is the Secretary and Treasurer of Richey. During the
fiscal year ended March 31, 1996, Richey received $179,889 under this
Agreement, plus a bonus of $63,750. During fiscal 1995, Richey received
$170,947 under the Agreement, plus a bonus of $20,000.
Messrs. Douglas M. Kratz, Perry B. Hansen, and Benjamin D. Farrar, Jr.
together own MCDs in the total aggregate principal amount of $750,000.
Pursuant to a Subordination Agreement by and among Messrs. Kratz,
Hansen and Farrar, they have agreed to subordinate the payment of such
MCDs to the payment of the Notes.
FSCM and TRIB obtain a portion of their insurance through Ben Farrar &
Company, Inc. This agency is owned by Messrs. Benjamin D. Farrar, III
and Thomas A. Farrar, sons of Benjamin D. Farrar, Jr., the Chairman of
the Board of FSCM and TRIB. During the years ended March 31, 1996 and
1995, FSCM and TRIB paid to Ben Farrar & Company, Inc. insurance
premiums of $79,804 and $62,741, respectively.
<PAGE>
TRIB has had, and expects to have in the future, banking transactions
in the ordinary course of business with executive officers and
Directors of FSCM and TRIB or with an affiliate of such person. Such
transactions have been and will be made on substantially the same
terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated persons and do not
and will not involve more than normal risk of collectibility. The
dollar amounts outstanding owed to FSCM of these loans made to all of
the executive officers and Directors and their affiliates was $86,000
and $61,000 as of March 31, 1996 and 1995, respectively.
All future and ongoing transactions between FSCM and TRIB and their
affiliates, including Richey, will be on terms no more favorable than
could be obtained from unaffiliated parties and will be approved by a
majority of the Directors of FSCM not interested in the transaction.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Exhibits.
3.1 Certificate of Incorporation of FSCM in effect on the date
hereof filed as Exhibit 3.1 to Form SB-2 on November 6, 1992
which is incorporated herein by reference.
3.2 Bylaws of FSCM in effect on the date hereof filed as Exhibit
3.2 to Form SB-2 on November 6, 1992 which is incorporated
herein by reference.
4.1 Form of Indenture filed as Exhibit 4.1 to Amendment No. 1 to
Form SB-2 dated December 7, 1992 which is incorporated herein
by reference.
4.2 Specimen of 8.50% Notes Due 1999 filed as Exhibit 4.2 to
Amendment No. 1 to Form SB-2 dated December 7, 1992 which is
incorporated herein by reference.
4.3 Form of Class A Preferred Stock Certificate filed as Exhibit
4.3 to Amendment No. 1 to Form SB-2 dated December 7, 1992
which is incorporated herein by reference.
4.4 Resolutions adopted by FSCM's Board of Directors on November
19, 1992 as certified by FSCM's secretary, which resolutions
set forth the terms of the Class A Preferred Stock filed as
Exhibit 4.4 to Amendment No. 1 to Form SB-2 dated December 7,
1992 which is incorporated herein by reference.
4.5 Certificate of Designation filed as Exhibit 4 to Form 10-QSB
for the quarter ended December 31, 1992 which is incorporated
herein by reference.
4.6 Correspondence dated October 20, 1994, from FSCM to M&I First
National Bank's Trust Department ("M&I First") requesting the
Trustee's solicitation of note holders to amend a covenant
restricting capital expenditures filed as Exhibit 4.1 to Form
10-QSB for the quarter ended December 31, 1994 which is
incorporated herein by reference.
4.7 Correspondence dated November 3, 1994 from M&I First
soliciting note holders filed as Exhibit 4.2 to Form 10-QSB
for the quarter ended December 31, 1994 which is incorporated
herein by reference.
4.8 Correspondence dated November 22, 1994 from M&I First
notifying FSCM of the positive note holder solicitation
results filed as Exhibit 4.3 to Form 10-QSB for the quarter
ended December 31, 1994 which is incorporated herein by
reference.
<PAGE>
10.1 Services Agreement for Financial Services Corporation of the
Midwest by and between Richey Corporation and FSCM dated
March 23, 1995 filed as Exhibit 10.1 to Form 10-KSB for the
fiscal year ended March 31, 1995 which is incorporated herein
by reference.
10.2 Form of Subordination Agreement by and among FSCM, Douglas M.
Kratz, Perry B. Hansen and Benjamin D. Farrar, Jr. pursuant
to which Messrs. Kratz, Hansen, and Farrar have agreed to
subordinate the payment of $750,000 in principal amount of
MCDs held by them to payment of the Notes filed as Exhibit
10.2 to Amendment No. 1 to Form SB-2 dated December 7, 1992
which is incorporated herein by reference.
10.3 Letter from M&I Marshall & Ilsley Bank ("M&I Bank") to FSCM
dated as of December 15, 1992 setting forth the terms of
loans made by M&I Bank to FSCM filed as Exhibit 10.1 to Form
10-QSB for the quarter ended June 30, 1993 which is
incorporated herein by reference.
10.4 Demand Business Note executed by FSCM in favor of M&I Bank in
the original principal amount of $10,000,000 dated as of
March 14, 1996.
10.5 Collateral Pledge Agreement executed by FSCM in favor of M&I
Bank and Master Continuing Consent to Pledge dated March 29,
1991 filed as Exhibit 10.5 to Form SB-2 on November 6, 1992
which is incorporated herein by reference.
10.6 Summary of Material Terms of Directors' and Officers'
Liability Policy covering the policy period from October 18,
1995 to October 18, 1996 filed as Exhibit 10.6 to Form 10-Q
for the quarter ended December 31, 1995 which is incorporated
herein by reference.
10.7 Administrative Responsibilities of Benjamin D. Farrar filed
as Exhibit 10.7 to Form SB-2 on November 6, 1992 which is
incorporated herein by reference.
10.8 Letter setting forth terms of contract of employment of
Donald P. Ackerman dated January 27, 1992 filed as Exhibit
10.8 to Form SB-2 on November 6, 1992 which is incorporated
herein by reference.
10.9 Data Processing Services Agreement by and between M&I Data
Services, Inc. and FSCM dated October 1, 1994, including all
addenda thereto filed as Exhibit 10.1 to Form 10-QSB on
February 10, 1995 which is incorporated herein by reference.
10.10 Promissory Note executed by FSCM in favor of Benjamin D.
Farrar, Jr. in the original principal amount of $85,000 dated
March 31, 1989 and accompanying Mandatory Stock Purchase
Contract by and between FSCM and Benjamin D. Farrar, Jr.
dated March 31, 1989 filed as Exhibit 10.10 to Form SB-2 on
November 6, 1992 which is incorporated herein by reference.
10.11 Promissory Note executed by FSCM in favor of Perry B. Hansen
in the original principal amount of $85,000 dated March 31,
1989 and accompanying Mandatory Stock Purchase Contract by
and between FSCM and Perry B. Hansen dated March 31, 1989
filed as Exhibit 10.11 to Form SB-2 on November 6, 1992 which
is incorporated herein by reference.
10.12 Promissory Note executed by FSCM in favor of Sandra K. Kratz
in the original principal amount of $85,000 dated March 31,
1989 and accompanying Mandatory Stock Purchase Contract by
and between FSCM and Sandra K. Kratz dated March 31, 1989
filed as Exhibit 10.12 to Form SB-2 on November 6, 1992 which
is incorporated herein by reference.
10.13 Promissory Note executed by FSCM in favor of Bernard F.
Weindruch in the original principal amount of $85,000 dated
March 31, 1989 and accompanying Mandatory Stock Purchase
Contract by and between FSCM and Bernard F. Weindruch dated
March 31, 1989 filed as Exhibit 10.13 to Form SB-2 on
November 6, 1992 which is incorporated herein by reference.
<PAGE>
10.14 Promissory Note executed by FSCM in favor of Ira J. Weindruch
in the original principal amount of $85,000 dated March 31,
1989 and accompanying Mandatory Stock Purchase Contract by
and between FSCM and Ira J. Weindruch dated March 31, 1989
filed as Exhibit 10.14 to Form SB-2 on November 6, 1992 which
is incorporated herein by reference.
10.15 Promissory Note executed by FSCM in favor of Benjamin D.
Farrar, Jr., in the original principal amount of $165,000
dated April 17, 1989 and accompanying Mandatory Stock
Purchase Contract by and between FSCM and Benjamin D. Farrar,
Jr., dated April 17, 1989 filed as Exhibit 10.15 to Form SB-2
on November 6, 1992 which is incorporated herein by
reference.
10.16 Promissory Note executed by FSCM in favor of Perry B. Hansen
in the original principal amount of $165,000 dated April 17,
1989 and accompanying Mandatory Stock Purchase Contract by
and between FSCM and Perry B. Hansen dated April 17, 1989
filed as Exhibit 10.16 to Form SB-2 on November 6, 1992 which
is incorporated herein by reference.
10.17 Promissory Note executed by FSCM in favor of Sandra K. Kratz
in original principal amount of $165,000 dated April 17, 1989
and accompanying Mandatory Stock Purchase Contract by and
between FSCM and Sandra K. Kratz dated April 17, 1989 filed
as Exhibit 10.17 to Form SB-2 on November 6, 1992 which is
incorporated herein by reference.
10.18 Promissory Note executed by FSCM in favor of Bernard F.
Weindruch in the original principal amount of $165,000 dated
April 17, 1989 and accompanying Mandatory Stock Purchase
Contract by and between FSCM and Bernard F. Weindruch dated
April 17, 1989 filed as Exhibit 10.18 to Form SB-2 on
November 6, 1992 which is incorporated herein by reference.
10.19 Promissory Note executed by FSCM in favor of Ira J. Weindruch
in the original principal amount of $165,000 dated April 17,
1989 and accompanying Mandatory Stock Purchase Contract by
and between FSCM and Ira J. Weindruch dated April 17, 1989
filed as Exhibit 10.19 to Form SB-2 on November 7, 1992 which
is incorporated herein by reference.
10.20 Agreement Regarding Transfer of Promissory Notes, Mandatory
Stock Purchase Contracts and subscription Agreements by and
among Bernard F. Weindruch, as transferor, Ira J. Weindruch,
as Transferee, and FSCM dated March 28, 1991 filed as Exhibit
10.20 to Form SB-2 on November 6, 1992 which is incorporated
herein by reference.
10.21 Agreement Regarding Transfer of Promissory Notes, Mandatory
Stock Purchase Contracts and subscription Agreements by and
among Ira J. Weindruch, as transferor, Donna L. Weindruch, as
transferee, and FSCM dated June 12, 1991 filed as Exhibit
10.21 to Form SB-2 on November 6, 1992 which is incorporated
herein by reference.
10.22 Agreement Regarding Transfer of Promissory Notes, Mandatory
Stock Purchase Contracts and subscription Agreements by and
among Sandra J. Kratz, as transferor, Douglas M. Kratz, as
transferee, and FSCM dated February 1, 1991 filed as Exhibit
10.22 to Form SB-2 on November 6, 1992 which is incorporated
herein by reference.
10.23 Purchase Option agreement by and among Ira J. Weindruch and
Donna L. Weindruch, as grantors, and Perry B. Hansen, as
grantee, dated July 6, 1992 filed as Exhibit 10.23 to Form
SB-2 on November 6, 1992 which is incorporated herein by
reference.
10.24 Purchase Option Agreement by and among Ira J. Weindruch and
Donna L. Weindruch, as grantors, and Douglas M. Kratz, as
grantee, dated July 6, 1992 filed as Exhibit 10.24 to Form
SB-2 on November 6, 1992 which is incorporated herein by
reference.
<PAGE>
10.25 Conversion Date Extension Agreements by and between FSCM and
Benjamin D. Farrar, Jr., dated March 23, 1995 pertaining to
the Mandatory Stock Purchase Contracts, Promissory Notes, and
Subscription Agreements dated March 31, 1989 and April 17,
1989 filed as Exhibit 10.25 to Form 10-KSB for the fiscal
year ended March 31, 1995 which is incorporated herein by
reference.
10.26 Conversion Date Extension Agreements by and between FSCM and
Douglas M. Kratz, dated March 23, 1995 pertaining to the
Mandatory Stock Purchase Contracts, Promissory Notes, and
Subscription Agreements dated March 31, 1989 and April 17,
1989 filed as Exhibit 10.26 to Form 10-KSB for the fiscal
year ended March 31, 1995 which is incorporated herein by
reference.
10.27 Conversion Date Extension Agreements by and between FSCM and
Perry B. Hansen, dated March 23, 1995 pertaining to the
Mandatory Stock Purchase Contracts, Promissory Notes, and
Subscription Agreements dated March 31, 1989 and April 17,
1989 filed as Exhibit 10.27 to Form 10-KSB for the fiscal
year ended March 31, 1995 which is incorporated herein by
reference.
10.28 Conversion Date Extension Agreements by and between FSCM,
Perry B. Hansen, and Ira J. Weindruch and Donna L. Weindruch,
dated March 23, 1995 pertaining to the Mandatory Stock
Purchase Contracts, Promissory Notes, and Subscription
Agreements, dated March 31, 1989 and April 17, 1989 filed as
Exhibit 10.28 to Form 10-KSB for the fiscal year ended March
31, 1995 which is incorporated herein by reference.
10.29 Conversion Date Extension Agreements by and between FSCM,
Douglas M. Kratz, and Ira J. Weindruch and Donna L.
Weindruch, dated March 23, 1995 pertaining to the Mandatory
Stock Purchase Contracts, Promissory Notes, and Subscription
Agreements, dated March 31, 1989 and April 17, 1989 filed as
Exhibit 10.29 to Form 10-KSB for the fiscal year ended March
31, 1995 which is incorporated herein by reference.
10.30 Tax Allocation Agreement dated August 19, 1993 filed as
Exhibit 10.30 to Form 10-KSB for the fiscal year ended March
31, 1995 which is incorporated herein by reference.
10.31 THE Rock Island Bank Employee Savings Trust Plan Document for
the 401(k) plan established April 1, 1986 filed as Exhibit
10.31 to Form 10-KSB for the fiscal year ended March 31, 1995
which is incorporated herein by reference.
10.32 Agreement Regarding Convertible Securities filed as Exhibit
10.1 to Form 10-QSB for the quarter ended December 31, 1992
which is incorporated herein by reference.
22. Subsidiary of the registrant as filed herein.
<PAGE>
(b) Reports on Form 8-K:
There were no exhibits or reports filed on Form 8-K filed during
the quarter ended March 31, 1996.
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.
FINANCIAL SERVICES CORPORATION
OF THE MIDWEST
Date June 21, 1996 By /S/ Douglas M. Kratz,
----------------- -----------------------------------------
Douglas M. Kratz,
President, Chief Executive Officer,
Chief Financial Officer,
Secretary and Director
Date June 21, 1996 By /S/ Jean M. Hanson
---------------- ----------------------------------------
Jean M. Hanson,
Controller and Chief Accounting 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.
Date June 21, 1996 By /S/ Benjamin D. Farrar, Jr.
----------------- ----------------------------------------
Benjamin D. Farrar, Jr.,
Chairman of the Board
Date June 21, 1996 By /S/ Perry B. Hansen
------------------ ----------------------------------------
Perry B. Hansen,
Director
Date June 21, 1996 By /S/ John T. Kustes
------------------ ----------------------------------------
John T. Kustes,
Treasurer and Director
EXHIBIT 10.4
Revolving Business Note
M&I Banks
Financial Services Corporation
of the Midwest as of March 14, 1996 $10,000,000.00
- ------------------------------ -------------------- --------------
Customer Date Amount
The undersigned ("Customer," whether one or more) promises to pay to the order
of M&I Marshall & Ilsley Bank ("Lender") at 770 North Water Street, Milwaukee,
Wisconsin, the principal sum of $10,000,000.00 or, if less, the aggregate unpaid
principal amount of all loans made under this Note, plus interest, as set forth
below.
Lender will disburse loan proceeds to Customer's deposit account number or by
other means acceptable to Lender.
Interest is payable on April 30, 1996 , and on the last day of each third month
thereafter and at maturity.
Principal is payable July 31, 1996 .
This Note bears interest on the unpaid principal balance before maturity at a
rate equal to [Complete (a) or (b); only one shall apply]:
(a) % per year.
(b) 0 percentage points in excess of the prime rate of interest adopted by
Lender as its base rate for interest rate determinations from time to time
which may or may not be the lowest rate charged by lender (with the rate
changing as and when that prime rate changes). The initial rate is 8.25 %
per year.
Interest is computed on the basis of a 360-day year on the actual number of days
principal is unpaid. Unpaid principal and interest bear interest after maturity
(whether by acceleration or lapse of time) until paid at the rate otherwise
applicable plus 2 percentage points computed on the same basis.
If any payment is not paid when due, if a default occurs under any other
obligation of any Customer to Lender or if Lender deems itself insecure, the
unpaid balance shall, at the option of the Lender, and without notice mature and
become immediately payable. The unpaid balance shall automatically mature and
become immediately payable in the event any Customer, surety, or guarantor
becomes the subject of bankruptcy or other insolvency proceedings. Lender's
receipt of any payment on this Note after the occurrence of an event of default
shall not constitute a waiver of the default or Lender's rights and remedies
upon such default.
The acceptance of this Note, the making of any loan, or any other action of
Lender does not constitute an obligation or commitment of Lender to make loans;
and any loans may be made solely in the discretion of Lender.
This Note may be prepaid in full or in part without penalty.
Lender is authorized to automatically charge payments due under this Note to
account number _______________________ at ____________________________________.
(See reverse side regarding Notice of Transfers Varying in Amount.)
_________________ Check here only if this Note is to be secured by a first lien
mortgage or equivalent security interest on a one-to-four family dwelling used
as Customer's principal place of residence.
This notice includes additional provisions on reverse side.
Financial Services Corporation of the Midwest (SEAL) P.O. Box 4870
- ---------------------------------------------------- -------------
Address
BY: /S/Douglas M. Kratz, President (SEAL) Rock Island, IL 61204-4870
- ---------------------------------------------------- --------------------------
City/State/Zip
/S/Benjamin D. Farrar, Jr., Chairman (SEAL)
- ----------------------------------------------------
(SEAL)
- ----------------------------------------------------
EXHIBIT 22
Subsidiary of
Financial Services Corporation of the Midwest
Name of Subsidiary State of Incorporation Business Name
- -------------------------- ---------------------- --------------------------
THE Rock Island Bank, N.A. United States THE Rock Island Bank, N.A.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1996 FORM 10-K OF FINANCIAL SERVICES CORPORATION OF THE MIDWEST AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 14,423
<INT-BEARING-DEPOSITS> 4,861
<FED-FUNDS-SOLD> 11,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,308
<INVESTMENTS-CARRYING> 29,115
<INVESTMENTS-MARKET> 29,072
<LOANS> 255,965
<ALLOWANCE> 4,463
<TOTAL-ASSETS> 386,967
<DEPOSITS> 301,818
<SHORT-TERM> 50,346
<LIABILITIES-OTHER> 4,766
<LONG-TERM> 4,500
1,250
6,520
<COMMON> 170
<OTHER-SE> 17,597
<TOTAL-LIABILITIES-AND-EQUITY> 386,967
<INTEREST-LOAN> 24,208
<INTEREST-INVEST> 5,003
<INTEREST-OTHER> 1,060
<INTEREST-TOTAL> 30,271
<INTEREST-DEPOSIT> 12,864
<INTEREST-EXPENSE> 15,833
<INTEREST-INCOME-NET> 14,438
<LOAN-LOSSES> 1,905
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 10,527
<INCOME-PRETAX> 5,321
<INCOME-PRE-EXTRAORDINARY> 3,553
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,553
<EPS-PRIMARY> 16.87
<EPS-DILUTED> 10.80
<YIELD-ACTUAL> 4.31
<LOANS-NON> 1,278
<LOANS-PAST> 189
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,832
<CHARGE-OFFS> 1,985
<RECOVERIES> 711
<ALLOWANCE-CLOSE> 4,463
<ALLOWANCE-DOMESTIC> 4,463
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 738
</TABLE>
