U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended: March 31, 1997
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 61201-8737
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (309) 794-1120
Securities registered pursuant to Section 12(g) of the Act:
9.25% 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, 1997 (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 $7,455,000. 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 $90.00 per share for the
Common Stock. The number of shares outstanding of the registrant's Common Stock
as of May 31, 1997 was 177,711 shares of $.50 per share par value Common Stock.
The exhibit index may be found on pages through herein.
<PAGE>
Part I
Item 1. Business
(a) Business Development
Financial Services Corporation of the Midwest ("FSCM") is a
one-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. FSCM owns all of the outstanding shares of
THE Rock Island Bank, National Association ("TRIB"), which has
its principal place of business in Rock Island, Illinois. In
1974, FSCM acquired all outstanding shares of TRIB, then an
Illinois state banking corporation. On November 1, 1995, TRIB
became a national bank and relocated its official office from
Rock Island, Illinois to Bettendorf, Iowa. TRIB's trade area
includes both Iowa and Illinois Quad City communities. 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) 1997 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 17,378 $ 14,921 $ 14,353
Provision for possible loans and lease losses 2,630 1,905 2,510
Total other income 3,666 3,303 3,132
Total other expenses 10,613 10,084 9,465
Income taxes 2,835 2,087 1,830
---------------------------------------------
Net income $ 4,966 $ 4,148 $ 3,680
=============================================
Total assets $ 442,371 $ 386,818 $ 337,023
=============================================
</TABLE>
(c) Description of Business
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
FSCM's investment in TRIB represented 89.47% of FSCM's parent
company only total assets of $39,263,000 as of March 31, 1997.
FSCM's $10.0 million, 8.00% Notes due November 1, 2008 ("1996
Notes"), which were issued in November 1996, constituted
85.33% 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 in which FSCM may engage, 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, NATIONAL ASSOCIATION.
TRIB's trade area includes portions of Rock Island County and
Henry County in Illinois and Scott County in Iowa, which
includes the greater Quad Cities metropolitan area,
encompassing the municipalities of Bettendorf and Davenport,
Iowa; and Rock Island, Moline, East Moline, Milan, Silvis,
Colona and Green Rock, Illinois. The total population of
TRIB's trade area in 1995 was approximately 306,500. 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 official office
located in Bettendorf, Iowa, its principal place of business
in its downtown Rock Island, Illinois office, four other
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 debit 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 18 banks and four
savings institutions in the Quad Cities metropolitan area as
of June 30, 1997. Measured by total deposits, TRIB was the
third 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.
As a national banking association, TRIB is subject to
primary regulation by the Office of the Comptroller of the
Currency ("OCC"). All national banks are also members of the
Federal Reserve System and, to a limited extent, some
regulations promulgated by the Federal Reserve Board apply
to TRIB. In addition, because TRIB's deposits are insured up
to the applicable limit (currently $100,000) by the FDIC,
the FDIC has certain regulatory powers with respect to TRIB.
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., the Federal
Rock Island Arsenal, Genesis Medical Center and Alcoa. For
example, a downturn in the farm equipment industry may
adversely affect John Deere & Co., causing layoffs, worker
relocation, 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, 1997, FSCM's and TRIB's combined total number
of employees was 192, of which 182 were considered to be
full-time equivalent employees. No employees are members of a
collective bargaining unit. Management considers its relations
with employees to be good.
Item 2. Properties
TRIB's official office 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 18 full and part-time retail deposit and loan personnel.
The downtown Rock Island, Illinois office, which was retained as a
principal office when the official office moved to Bettendorf, Iowa, is
a six-story structure owned by TRIB and located at the northwest corner
of 3rd 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, 1997 to four tenants.
TRIB also owns and operates four other offices: in Rock Island,
Flatiron is located within the city's business district at 1600-5th
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 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 financial
services primarily to residents and employees of Friendship Manor.
<PAGE>
In March 1997, TRIB acquired a two-story building encompassing 10,560
square feet, excluding the basement storage area, located at 524-15th
Street, Moline, Illinois. Once renovations are completed, anticipated
by October 1997, the building will house a non-public operations
center. Staff transferred to the site will perform support functions
such as computer remote job entry, proof of deposit encoding, mail,
purchasing and deposit services areas. Several of these functions
presently occupy space in the downtown Rock Island office, which will
be reconfigured during fiscal 1998 to accommodate expanding retail and
lending services.
TRIB is currently limited to a total investment of $7.5 million in land
and net premises that can be acquired before approval from the OCC is
necessary. As of March 31, 1997, TRIB had $4.2 million invested in land
and net premises. In addition, covenants of the correspondent bank loan
agreement and 1996 Notes impose further limitations. As of March 31,
1997, FSCM and TRIB's net fixed asset investments were restricted to an
amount not to exceed 3% of consolidated assets or approximately an
additional $7.9 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. Management continues
to explore potential new locations for possible office sites to expand
and enhance the ability of TRIB to offer its services conveniently to
customers within TRIB's trade area. However, as of the date hereof,
FSCM had no agreements or plans to acquire or lease any specific
additional premises.
Item 3. Legal Proceedings
FSCM is not engaged in any legal actions or proceedings, and management
knows of no pending or threatened legal actions or proceedings
involving FSCM. TRIB is involved in legal actions in various stages of
litigation and investigation. After reviewing all actions pending or
threatened involving TRIB, management believes that such legal actions
constitute ordinary routine litigation incidental to TRIB's business
and that the ultimate resolution of these matters should not materially
affect FSCM's consolidated financial position or operations or that
such legal actions otherwise are not material.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
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 $90.00 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 cash exchange
value offered by FSCM in its May 1997 Common Stock tender
offer. Additionally, in March 1997, 1,000 shares of Common
Stock were sold by FSCM from treasury to TRIB's 401(k) defined
contribution retirement plan at a price of $85.00 per share.
The trustee of the 401(k) plan had obtained an independent
stock appraisal, as of December 1996, on transactions
involving small FSCM Common Stock block sizes on behalf of the
plan's participants. Other private transactions, for which the
sale price was not known or reasonably available, may have
occurred during fiscal 1997.
<PAGE>
(b) Holders
As of May 31, 1997, 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 1997 1996
------------- ---------------------
June 30 $ .50 $ .38
September 30 .50 .38
December 31 .50 .50
March 31 .50 .50
---------------------
$ 2.00 $1.76
=====================
Most of FSCM's cash flow and income is derived from dividends
paid by TRIB on its Common Stock. 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's dividends are limited to 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 1996 Notes and bank stock
loan restricts FSCM from paying Common Stock dividends in
excess of 30% of the prior fiscal year's consolidated net
income. This would allow a dividend up to a maximum of $7.19
per share that the Board of Directors could declare on FSCM's
Common Stock for the fiscal year ended March 31, 1998;
however, before paying dividends, consideration also must be
given to FSCM's overall capital position relative to assets
and to regulatory capital ratio minimums.
Further, the payment of dividends by FSCM and TRIB is in the
discretion of their respective Board of Directors.
<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,
--------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income................................. $ 34,493 $ 30,271 $ 24,571 $ 22,024 $ 20,729
Interest expense............................... 17,638 15,833 10,707 9,642 10,183
--------- --------- -------- --------- ---------
Net interest income............................ 16,855 14,438 13,864 12,382 10,546
Provision for possible loan and lease losses... 2,630 1,905 2,510 1,970 2,180
--------- --------- -------- --------- ---------
Net interest income after provision for
possible loan and lease losses.............. 14,225 12,533 11,354 10,412 8,366
Other income................................... 3,673 3,304 3,149 3,515 3,905
Investment securities gains ................... --- 11 --- --- 173
Other expenses................................. 11,176 10,527 9,919 10,327 8,572
Income taxes................................... 2,465 1,768 1,516 1,267 1,319
--------- --------- -------- --------- ---------
Income before cumulative effect1............... 4,257 3,553 3,068 2,333 2,553
Cumulative effect1............................. --- --- --- --- (132)
--------- --------- -------- --------- ---------
Net income...................................... $ 4,257 $ 3,553 $ 3,068 $ 2,333 $ 2,421
--------- --------- -------- --------- ---------
Per Common Share:
Income before cumulative effect................ $ 20.73 $ 16.87 $ 14.21 $ 10.07 $ 13.30
Cumulative effect.............................. --- --- --- --- (.76)
Net income..................................... 20.73 16.87 14.21 10.07 12.54
Fully diluted net income....................... 13.18 10.80 9.10 6.73 9.06
Book value..................................... 118.30 100.60 88.18 76.21 67.17
Book value assuming conversion of
MCDs2 and Convertible Preferred Stock....... 88.82 76.80 68.35 60.25 54.23
Cash dividends................................. 2.00 1.76 1.52 1.52 1.26
Period-end Balances:
Total assets................................... $ 445,669 $ 386,967 $337,454 $ 304,075 $ 268,334
Loans and leases, net.......................... 291,028 251,502 208,244 177,101 154,998
Securities..................................... 122,280 90,423 71,822 79,939 64,093
Deposits....................................... 361,891 301,818 271,611 250,774 217,602
Notes payable.................................. 10,000 4,500 5,000 5,000 5,000
MCDs2.......................................... 1,250 1,250 1,250 1,250 1,250
Stockholders' equity........................... 27,544 24,287 21,961 19,751 18,182
Earnings to Fixed Charge Ratios:
Consolidated:
Excluding interest on deposits.............. 2.90 2.30 2.72 2.60 3.52
Including interest on deposits.............. 1.39 1.33 1.43 1.37 1.38
Parent company only3........................... 1.47 1.26 1.04 --- ---
Percentages:
Average equity to average assets............... 6.34% 6.52% 6.71% 6.80% 5.67%
Net income to average common equity............ 19.03 17.49 17.24 13.79 19.64
Net income to average assets................... 1.05 0.99 0.99 0.83 0.99
<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 and $303 for the fiscal
years ended March 31, 1994 and 1993, 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 one-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. FSCM owns all of
the outstanding shares of THE Rock Island Bank, National Association ("TRIB"),
which has its principal place of business in Rock Island, Illinois. In 1974,
FSCM acquired all outstanding shares of TRIB, then an Illinois state banking
corporation. On November 1, 1995, TRIB became a national bank and relocated its
official office from Rock Island, Illinois to Bettendorf, Iowa. TRIB's trade
area includes both Iowa and Illinois Quad City communities. TRIB is a member of
the Federal Reserve System and its deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC").
Management Continuity
During fiscal 1997, Benjamin D. Farrar, Jr. retired from his positions of
Chairman of the Board of both FSCM and TRIB. As a result, the following
appointments were made:
o Francis P. McCarthy was appointed as a member to the Board of Directors of
both FSCM and TRIB. Mr. McCarthy is a lifelong resident of the Quad Cities
and is actively involved in management of several local commercial
businesses.
o Richard J. Carlson was named President and Chief Operating Officer of TRIB
and appointed to its Board of Directors. Mr. Carlson joined TRIB in January
1994 as Senior Vice President of Loans and was serving in the capacity of
Chief Operating Officer and Senior Lending Officer prior to the
appointment.
o Perry B. Hansen was appointed Chairman of the Board of TRIB and continues
to serve as TRIB's Chief Executive Officer. Mr. Hansen was also appointed
President of FSCM.
o Douglas M. Kratz was appointed Chairman of the Board of FSCM. Mr. Kratz
continues to serve as FSCM's Chief Executive Officer, Chief Financial
Officer and as the Vice Chairman of TRIB's Board of Directors.
o Patricia A. Zimmer was appointed Secretary to the Board of Directors of
both FSCM and TRIB. Ms. Zimmer had previously served as Assistant Secretary
to FSCM's Board of Directors.
Financial Overview
Fiscal 1997 was a good year for FSCM. Total assets increased 15.17%, or
$58,702,000, to equal $445,669,000 at March 31, 1997 from $386,967,000 as of
March 31, 1996. Net income increased 19.81%, or $704,000, to total $4,257,000
for the fiscal year ended March 31, 1997, from $3,553,000 for fiscal 1996. Net
income totaled $3,068,000 in fiscal 1995. Correspondingly, earnings per fully
diluted common share ("EPS") equaled $13.18, $10.80 and $9.10 for fiscal 1997,
1996 and 1995, respectively, and book value, assuming conversion of all
convertible instruments, equaled $88.82, $76.80 and $68.35 for the respective
periods. The following table presents a more detailed analysis of the increases
in EPS between fiscal 1997 and 1996 and between fiscal 1996 and 1995.
<PAGE>
<TABLE>
Fiscal Years ended Fiscal Years ended
March 31, 1997 March 31, 1996
vs. March 31, 1996 vs. March 31, 1995
------------------ ------------------
<S> <C> <C>
Net income per fully diluted common share, prior year............. $10.80 $ 9.10
Increase/(decrease) from changes in:
Earning asset volume......................................... 6.54 5.99
Rates and other effects on net interest income............... 0.65 (4.29)
Provision for possible loan and lease losses................. (2.16) 1.76
Other income................................................. 1.07 0.48
Other expense................................................ (1.94) (1.77)
Income taxes................................................. (2.07) (0.74)
-------- ------
Subtotal.......................................................... 12.89 10.53
Changes in weighted average common and contingently
issuable common shares outstanding........................ 0.29 0.27
-------- ------
Net income per fully diluted common share......................... $13.18 $10.80
======== ======
</TABLE>
As reflected in the previous table, the growth in fully diluted EPS between
fiscal 1997 and 1996 resulted primarily from increased net interest income
comprised of increases in both the volume and rate variances. Increased net
interest income was also a significant component of the growth in EPS between
fiscal 1996 and 1995; however, the decrease in the rate variance offset the
majority of the increased volume variance. Please refer to the Average Balance
and Interest Rate Analysis and Interest Variance Analysis tables that are
included later in this discussion.
Other selected ratios of FSCM are presented in the following table for the
fiscal years ended March 31, 1997, 1996 and 1995:
PERFORMANCE RATIOS
<TABLE>
Fiscal Years Ended March 31,
-------------------------------
1997 1996 1995
------- -------- ------
<S> <C> <C> <C>
Return on average assets.................................................. 1.05% 0.99% 0.99%
Return on average common equity........................................... 19.03 17.49 17.24
Dividend payout ratio..................................................... 9.65 10.43 10.70
Average equity to average asset ratio..................................... 6.34 6.52 6.71
</TABLE>
Average assets increased $47,171,000, or 13.13%, between fiscal 1997 and 1996
and average common equity increased $2,339,000, or 12.16%, between periods. In
spite of the double digit growth in both average assets and common equity, the
returns on these balances, expressed as ratios of earnings, increased six and
154 basis points, respectively, due to fiscal 1997's strong earning performance.
During fiscal 1997, Common Stock dividends increased to $2.00 per share from the
previous year's $1.76 per share. The dividend payout ratio divides dividends
paid per common share by the primary earnings per common share before dilution.
This indicates, on a per share basis, the percentage of common shareholder
investment returned to the shareholder as opposed to reinvested into the
business. Even though Common Stock dividends increased during fiscal 1997, the
dividend payout ratio between fiscal 1997 and 1996 decreased due to fiscal
1997's strong earning performance. A more comprehensive discussion of changes in
the asset and liability structure and earning performance which contributed to
the changes in the aforementioned ratios is presented in subsequent sections of
this discussion.
<PAGE>
Income Statement
Overview
The following table identifies the changes in income by major categories between
fiscal 1997 and 1996 and between fiscal 1996 and 1995:
<TABLE>
Fiscal Years ended Fiscal Years ended
March 31, 1997 vs. March 31, 1996 vs.
(Dollars in Thousands) March 31, 1996 March 31, 1995
-------------------- ------------------- -----------------
<S> <C> <C>
Increase in interest income.......................... $ 4,222 $ 5,700
Increase in interest expense ........................ (1,805) (5,126)
------- --------
Increase in net interest margin ..................... 2,417 574
(Increase) decrease in provision for possible
loan and lease losses ............................ (725) 605
Increase in other income ....................... 358 166
Increase in other expense ..................... (649) (608)
Increase in income taxes ................. (697) (252)
-------- --------
Increase in net income .............................. $ 704 $ 485
======== ========
</TABLE>
The efficiency ratio, which divides total other expense by the sum of net
interest income and other income, equaled 54.44%, 59.33% and 58.30%, for the
fiscal years ended March 31, 1997, 1996 and 1995. A lower ratio generally
reflects a better control of operating expenses and therefore is more favorable.
FSCM's Peer Group efficiency ratio equaled 63.31%. 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, 1996--the most recent date available. A
similar performance ratio, the overhead ratio, divides the net of total other
expense less other income by net interest income. FSCM's overhead ratios equaled
44.51%, 50.03% and 48.83%, for the respective fiscal years--again, a lower ratio
is more favorable. The increase in the net interest margin between fiscal 1997
and 1996 contributed significantly to the improvement in these ratios.
Net Interest Income
Net interest income increased $2,417,000 between fiscal 1997 and 1996 as
compared to an increase of $574,000 between fiscal 1996 and 1995. As depicted in
the next two tables, this significant improvement in fiscal 1997's net interest
income resulted from:
o Growth in interest-earning assets. The positive average balance variance in
net interest income of $2,194,000 resulted from growth in average
interest-earning assets between fiscal 1997 and 1996 of $43,743,000 as
compared to growth in average interest-bearing liabilities of $40,538,000.
The interest-earning asset growth, in addition to outpacing the
interest-bearing liability growth, contributes more to interest income
since the yield on interest-earning assets exceeds the cost of
interest-bearing liabilities.
o Increase in yield of interest-earning assets. The interest-earning asset
yield rose seven basis points to 9.10% for fiscal 1997 from 9.03% in fiscal
1996. The improvement in yield resulted primarily from an increase in yield
of investment securities which improved to 6.12% for fiscal 1997 from 5.78%
in fiscal 1996.
o Decrease in cost of interest-bearing liabilities. The interest-bearing
liability cost decreased ten basis points to 5.16% for fiscal 1997 from
5.26% in fiscal 1996. The decrease in cost resulted primarily from
decreases in costs of time deposits which equaled 6.01% and 6.27% for
fiscal 1997 and 1996, respectively, and of securities sold under agreements
to repurchase ("repurchase agreements") which equaled 5.21% and 5.51% for
the respective periods. These decreases were only partially offset by an
increase in cost of savings deposits which equaled 3.00% and 2.47% for
fiscal 1997 and 1996, respectively.
The resulting net interest margin (net interest income divided by average total
interest-earning assets) improved 14 basis points to 4.45% in fiscal 1997 from
4.31% in fiscal 1996. Peer Group ratios equaled 8.24% yield on interest-earning
assets, 4.37% cost of interest-bearing liabilities and a 4.72% net interest
margin.
<PAGE>
In comparison of fiscal 1996 to 1995, average interest-earning assets grew
$44,849,000 between years and interest-bearing liabilities grew $41,079,000.
Additionally, the yield on interest-earning assets rose 57 basis points to 9.03%
from 8.46%; however, the cost of interest-bearing liabilities increased 114
basis points to 5.26% from 4.12% for the respective fiscal years. The resulting
net interest margin decreased to 4.31% from 4.77%. The increase in cost of
interest-bearing liabilities resulted primarily from a deposit campaign
introduced at the end of fiscal 1995 which generated $33 million in higher cost
18 month time deposits.
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, 1997 March 31, 1996 March 31, 1995
- ---------------------------------------- --------------------------- -------------------------- -------------------------
Average Average Average Average Average Average
ASSETS 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... $ 4,331 $ 230 5.31% $ 715 $ 39 5.45% $ 319 $ 15 4.70%
Investment securities............. 98,664 6,037 6.12 86,602 5,003 5.78 77,379 3,930 5.08
Federal funds sold................ 9,709 514 5.29 17,360 1,021 5.88 22,082 1,050 4.76
Loans and leases, net1............ 266,362 27,712 10.40 230,646 24,208 10.50 190,694 19,576 10.27
----------------- ----------------- ----------------
Total interest-earning assets..... 379,066 34,493 9.10 335,323 30,271 9.03 290,474 24,571 8.46
------- ------- -------
Cash and due from banks........... 13,247 11,618 10,243
Property and equipment............ 5,659 4,787 3,626
Other assets...................... 8,404 7,477 6,670
-------- -------- --------
Total assets..................... $406,376 $359,205 $311,013
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings deposits.................. $ 89,265 2,674 3.00 $ 74,394 1,834 2.47 $ 90,941 2,359 2.59
Time deposits .................... 197,957 11,893 6.01 176,038 11,030 6.27 136,841 6,670 4.87
Federal funds purchased........... 102 6 5.88 169 10 5.92 16 1 6.25
Securities sold under
agreements to repurchase....... 45,079 2,349 5.21 43,120 2,375 5.51 25,034 1,118 4.47
Other short-term borrowings....... 1,334 77 5.77 1,239 70 5.65 882 42 4.76
Notes payable..................... 6,594 542 8.22 4,833 411 8.50 5,000 425 8.50
Mandatory convertible debentures.. 1,250 97 7.76 1,250 103 8.24 1,250 92 7.36
----------------- ----------------- -----------------
Total interest-bearing
liabilities................. 341,581 17,638 5.16 301,043 15,833 5.26 259,964 10,707 4.12
------- -------- -------
Non-interest-bearing deposits..... 33,239 29,676 26,316
Other liabilities................. 5,801 5,070 3,862
-------- -------- --------
Total liabilities.............. 380,621 335,789 290,142
Stockholders' equity.............. 25,755 23,416 20,871
-------- -------- --------
Total liabilities and
stockholders' equity........ $406,376 $359,205 $311,013
======== ======== ========
Net interest income............... $16,855 $ 14,438 $13,864
======= ======== =======
Net interest margin (net
interest income divided
by average total interest-
earning assets)............ 4.45% 4.31% 4.77%
===== ===== =====
<FN>
1 Nonaccruing loans and leases were included in the average balance. Loan and
lease fees of $1,448, $1,393, and $1,330 for the fiscal years ended March
31, 1997, 1996, and 1995, respectively, are included in interest income on
loans and leases.
</FN>
</TABLE>
<PAGE>
INTEREST VARIANCE ANALYSIS
<TABLE>
Fiscal Years Fiscal Years
ended March 31, 1997 ended March 31, 1996
vs. March 31, 1996 vs. March 31, 1995
----------------------------------- -----------------------------------
Increase (Decrease) Increase (Decrease)
Due to change in(1) Due to change in(1)
----------------------------------- -----------------------------------
Average Average Total Average Average Total
(Dollars in Thousands) Balance Rate Change Balance Rate Change
------------------------------------ --------- --------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest-bearing deposits with other
financial institutions........ $ 197 $ (6) $ 191 $ 19 $ 5 $ 24
Investment securities............ 697 337 1,034 468 605 1,073
Federal funds sold............... (450) (57) (507) (225) 196 (29)
Loans and leases................. 3,749 (245) 3,504 4,101 531 4,632
------- ------- ------- ------- ------- -------
Total interest income......... 4,193 29 4,222 4,363 1,337 5,700
------- ------- ------- ------- ------- -------
Savings deposits.......................... 367 473 840 (429) (96) (525)
Time deposits.................... 1,373 (510) 863 1,911 2,449 4,360
Securities sold under agreements
to repurchase................. 108 (134) (26) 808 449 1,257
Short-term borrowings............ 5 2 7 17 11 28
Federal funds purchased.......... (4) --- (4) 10 (1) 9
Notes payable.................... 150 (19) 131 (14) --- (14)
Mandatory convertible debentures. --- (6) (6) --- 11 11
------- ------- ------- ------- ------- -------
Total interest expense........ 1,999 (194) 1,805 2,303 2,823 5,126
------- ------- ------- ------- ------- -------
Change in net interest income............. $ 2,194 $ 223 $ 2,417 $ 2,060 $(1,486) $ 574
======= ======= ======= ======= ======= =======
<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 were included in the
average balance. Loan and lease fees of $1,448, $1,393, and $1,330 for the
fiscal years ended March 31, 1997, 1996, and 1995, 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
$2,630,000, $1,905,000 and $2,510,000 for the fiscal years ended March 31, 1997,
1996 and 1995, 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
0.65%, 0.53% and 0.81% for the respective fiscal years as compared to FSCM's
Peer Group of 0.20%. For further information, please refer to the Loans and
Direct Financing Leases section included later in this discussion.
Other Income
Total other income equaled $3,673,000, $3,315,000 and $3,149,000 for the fiscal
years ended March 31, 1997, 1996 and 1995, respectively. Stated as a percentage
of average assets, other income equaled 0.90%, 0.92% and 1.01% for the
respective years. FSCM's comparative Peer Group ratio equaled 0.96%.
<PAGE>
Trust fees totaled $458,000, $322,000 and $361,000 for the fiscal years ended
March 31, 1997, 1996 and 1995, respectively. During fiscal 1996 departmental
restructuring and vacant positions adversely impacted efforts to generate new
business. Additional staff was employed at the beginning of fiscal 1997 and
income production increased.
In October 1995, $7.2 million of securities held available-for-sale were sold,
resulting in the recognition of an $11,000 gain in fiscal 1996. Said transaction
resulted from a minor adjustment in portfolio structure made by management.
TRIB generates, and sells to investors, residential mortgage loans on which the
servicing rights have been retained. These investors include the Federal Home
Loan Mortgage Corporation ("Freddie Mac"), Fannie Mae, the Illinois Housing
Development Authority ("IHDA"), as well as private investors. Loan servicing
fees generated from loans sold totaled $730,000, $680,000 and $677,000 for the
fiscal years ended March 31, 1997, 1996 and 1995, respectively. The outstanding
balances of the serviced residential mortgage loans for the same respective
periods totaled $185,295,000, $165,003,000 and $155,657,000. In addition, gains
on the sales of loans and leases totaled $345,000 $362,000 and $132,000 for the
fiscal years ended March, 31, 1997, 1996 and 1995, respectively, as compared to
total proceeds derived from such sales of $44,930,000, $49,996,000 and
$32,849,000, for the respective periods.
Service charges on deposit accounts equaled $1,133,000, $1,065,000 and
$999,000 for the fiscal years ended March 31, 1997, 1996 and 1995, respectively.
The growth between fiscal years in both personal and business deposit accounts
resulted in increased income derived from service charges associated with
business depository accounts and penalty fees assessed against overdrawn
accounts.
Insurance commissions were derived from the sale of credit life and accident and
health insurance on consumer loans. The amount of income varied proportionally
to the amount of new loan volume and penetration of insurance coverage.
Insurance commissions for the fiscal years ended March 31, 1997, 1996 and 1995
totaled $233,000, $294,000 and $323,000, respectively. Part of the decreases
between fiscal years reflected the maintenance of higher reserve levels based on
insurance rebate experience.
Other miscellaneous income totaled $774,000, $581,000 and $657,000 for
fiscal 1997, 1996 and 1995, respectively. Primary components of the category
include fee income associated with merchant credit card processing which totaled
$260,000, $212,000 and $213,000 for the respective fiscal years and income
generated from surrender value increases on two key man life insurance policies
of $213,000, $188,000 and $167,000, respectively. Additionally, during fiscal
1997, income of $102,000 was generated from the syndication of financing
arrangements and, during 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 $11,176,000, $10,527,000 and $9,919,000 for the
fiscal years ended March 31, 1997, 1996 and 1995, respectively. In fiscal 1996,
a national consulting firm performed a limited scope review of selected
departments' operational functions and system structure. Benefits from the
review, primarily in controlled costs, were realized in fiscal 1997 and 1996.
Salaries and employee benefits, which comprised over 50% of total other expense,
equaled $6,071,000, $5,904,000 and $5,272,000 for the fiscal years ended March
31, 1997, 1996 and 1995, respectively. Fiscal 1997's salaries and employee
benefits included a $286,000 deferral of direct costs associated with the
generation of loans, which was netted against deferred loan fees and will be
amortized into income over the life of the loans. Stated as a percentage of
average assets, personnel expense for the respective fiscal years equaled 1.49%,
1.64% and 1.70%. FSCM's Peer Group ratio equaled 1.72%. The number of full-time
equivalent employees as of March 31, 1997, 1996 and 1995 totaled 182, 175 and
163, respectively. The ratio of assets per employee for fiscal 1997 and fiscal
1996 equaled $2.45 million and $2.21 million, respectively. The increase in
number of employees between fiscal 1997 and fiscal 1996 primarily resulted from
staffing a new private banking department that commenced services during fiscal
1997 and additions to the loan collections department and various operational
areas.
Net occupancy expense totaled $852,000, $801,000 and $754,000 for the fiscal
years ended March 31, 1997, 1996 and 1995, respectively. Additional depreciation
expense and property tax assessments associated with the Hilltop and Bettendorf
offices comprised the majority of the increases between fiscal 1997 and 1996 and
between fiscal 1996 and 1995. For further information please refer to the
Premises, Furniture and Equipment section of this discussion.
Insurance expense totaled $111,000, $281,000 and $713,000 for fiscal 1997, 1996
and 1995, respectively. The decrease in insurance expense primarily reflected
significant reductions in FDIC premium assessments. The FDIC assessments equaled
$11,000, $157,000 and $560,000 for the respective years.
<PAGE>
Equipment expense totaled $984,000, $947,000 and $651,000 for the fiscal years
ended March 31, 1997, 1996 and 1995, respectively. The increase between fiscal
1996 and 1995 resulted primarily from increased depreciation expense associated
with new furniture and equipment at the Hilltop and Bettendorf offices and to
acquire and upgrade information delivery systems. For further information,
please refer to the Premises, Furniture and Equipment section of this
discussion.
Data processing expense totaled $707,000, $569,000 and $551,000 for the
respective fiscal years. The relatively stable expense between fiscal 1996 and
1995 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 base level was exceeded in fiscal 1997. In addition, several
one-time charges were incurred with the establishment/enhancement of such
services as PC On-Line Banking, a Voice Response Unit, custom combined
statements and "zip + 4" statement addressing. Further enhancements are being
reviewed for implementation in fiscal 1998 which could result in increased data
processing expense.
Advertising and business promotion expense totaled $404,000, $400,000 and
$420,000 for fiscal 1997, 1996 and 1995, respectively. Management is considering
a new imagefocused advertising campaign as well as product advertising for
fiscal 1998 which could result in increased expense.
Other operating expense totaled $2,047,000, $1,625,000 and $1,558,000 for fiscal
1997, 1996 and 1995, respectively. Included in fiscal 1997's expense was a
one-time charge of $118,000 associated with the $4,500,000, 8.50% Notes issued
in 1992 ("1992 Notes") redeemed by FSCM in November 1996. Please refer to the
Notes Payable section of this discussion for further information. Other items,
which experienced fluctuations between fiscal 1997 and 1996 included: an
increase of $49,000 in examination fees paid to TRIB's primary regulator, which
were higher due to becoming a national bank; an increase of $140,000 in loan
related expenses including amounts paid to dealers associated with the
generation of indirect consumer loans; an increase of $43,000 in merchant bank
card expenses which corresponds with the processing fee income previously
discussed; an increase of $27,000 in correspondent bank charges which primarily
resulted from a one-time assessment when trust investments were transferred to a
new safekeeping agent; an increase of $125,000 due to accrual adjustments
associated with both litigation in fiscal 1997 and fixed assets in fiscal 1996;
a decrease of $81,000 due to the efficiency study costs in fiscal 1996; and a
decrease of $20,000 due to reduced committee fees in fiscal 1997. 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 efficiency study costs.
Income Taxes
Income taxes totaled $2,465,000, $1,768,000 and $1,516,000 for the fiscal years
ended March 31, 1997, 1996 and 1995, respectively. These tax levels equate to
effective tax rates of 36.67%, 33.23% and 33.07% for the respective fiscal
years. Included in taxes were amounts associated with various state taxing
authorities which totaled $160,000, $56,000 and $3,000, respectively. The
increase in state income taxes primarily resulted from the establishment of an
office in Iowa in November 1995.
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, the direction of change in the risk, and 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.
<PAGE>
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 issuance, 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, 1997, 1996 and 1995
indicate that operating and financing activities are net sources of liquidity
and that investing activities use liquidity.
Computer simulation modeling is used as FSCM's primary method of
quantifying and evaluating interest rate risk. Asset and liability positions are
managed with the objective of minimizing the impact of market interest rate
volatility on net interest income. The asset/liability committee meets every two
weeks to review various reports pertaining to asset/liability management
including dynamic and static interest rate shock reports, liquidity reports,
historic yield and rate analysis, gap reports, market advertisements and
competitive market interest rates. In reviewing interest rate shock, an
immediate 200 basis point change is applied over a one year time horizon based
on actual and projected interest rate sensitive asset and liability balances and
maturities. Any change which results in income at risk is carefully reviewed and
measured as a percentage of budgeted net interest income to determine its impact
and whether it is within the acceptable range of risk. As of fiscal 1997 year
end, interest rate shock analysis indicated that interest income would increase
in a rising interest rate environment and that the earnings at risk in a falling
interest rate environment were within the Board of Directors' approved
standards. The simulation modeling is also used in budgeting and product
development to quantify the impact on net interest income of various interest
rate and balances assumptions.
Gap refers to 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. Savings deposits have been included in the table as maturing
immediately although historical performance indicates that these accounts would
not necessarily immediately adjust to interest rate movements. 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. Management has determined
that the interest rate shocks provide a more meaningful measurement of the
interest rate risk positions than the following Gap tables (dollars in
thousands):
<PAGE>
<TABLE>
INTEREST RATE SENSITIVITY ANALYSIS
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, 1997 Months Within 6 One year Five Years Bearing Total
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investment securities......... $ 6,092 $ 3,342 $ 1,182 $ 98,328 $ 13,336 $ --- $122,280
Loans and leases.............. 106,481 21,839 31,962 119,391 11,340 5,457 296,470
Other earning assets.......... 931 --- --- --- --- --- 931
Other assets.................. 81 --- 28 --- --- 25,879 25,988
---------------------------------------------------------------------------------------
Total assets.................. 113,585 25,181 33,172 217,719 24,676 31,336 445,669
---------------------------------------------------------------------------------------
Cumulative assets............. 113,585 138,766 171,938 389,657 414,333 445,669 445,669
---------------------------------------------------------------------------------------
Liabilities and equity:
Savings deposits.............. 100,214 --- --- --- --- --- 100,214
Time deposits................. 95,343 22,288 27,189 79,992 80 --- 224,892
Securities sold under
agreements to repurchase
and short-term
borrowings.............. 35,747 1,035 2,340 532 --- --- 39,654
Notes payable.............. --- --- --- --- 10,000 --- 10,000
Mandatory convertible
debentures ............. 1,250 --- --- --- --- --- 1,250
Demand deposits............... --- --- --- --- --- 36,785 36,785
Other liabilities............. --- --- --- --- --- 5,330 5,330
Stockholders' equity.......... 500 --- --- --- 6,020 21,024 27,544
---------------------------------------------------------------------------------------
Total sources of funds........ 233,054 23,323 29,529 80,524 16,100 63,139 445,669
---------------------------------------------------------------------------------------
Cumulative sources of funds... 233,054 256,377 285,906 366,430 382,530 445,669 445,669
---------------------------------------------------------------------------------------
Interest rate sensitivity gap. (119,469) 1,858 3,643 137,195 8,576 (31,803) ---
Cumulative interest rate
sensitivity gap............. (119,469) (117,611) (113,968) 23,227 31,803 --- ---
</TABLE>
Balance Sheet
Overview
FSCM's assets totaled $445,669,000 as of March 31, 1997, an increase of
$58,702,000, or 15.17%, from the previous year-end balance of $386,967,000.
Decreases of $4,730,000 in interest-bearing deposits with other financial
institutions and of $11,100,000 in federal funds sold supplemented the growth of
$31,857,000 in investment securities and $39,526,000 in net loans and leases.
Composition of fiscal 1997's assets included: investment securities, 27.4%; net
loans and leases, 65.3%; total interest-earning assets, 92.9%; and
noninterest-earning assets, 7.1%. Peer Group composition comparisons equaled:
investment securities, 27.5%; net loans and leases, 60.8%; total
interest-earning assets, 91.3%; and noninterest-earning assets, 8.7%. Increased
deposits of $60,073,000 provided funding for the asset growth and offset the
$10,692,000 decrease in repurchase agreements. Composition of fiscal 1997's
liabilities as a percentage of total assets included: interest-bearing
liabilities, 84.0%, noninterest-bearing liabilities, 9.5%; and mandatory
convertible debentures and equity, 6.5%.
Investments
Investments totaled $122,280,000, $90,423,000 and $71,822,000 at March 31, 1997,
1996 and 1995, respectively. The portfolio as of fiscal 1997 year-end was
predominantly composed of U.S. agency obligations, 84.15%, and U.S. Treasury
notes, 10.95%. Portfolio maturities at fiscal 1997 year end fell principally in
the Within One-Year category , 8.68% and After One Year But Within Five Years
category, 80.41%. The assumed weighted average life of the investment portfolio
equaled 3.6 years at March 31, 1997. Investment purchases made during fiscal
1997 were primarily comprised of federal mortgage-backed obligations with an
anticipated weighted average life of less than five years. The weighted average
yield on the portfolio improved 34 basis points to equal 6.12% for fiscal 1997
as compared to 5.78% for fiscal 1996 and FSCM's Peer Group yield of 6.47%.
<PAGE>
Under FSCM's investment policy, during fiscal 1997, FSCM invested approximately
$1.2 million in equity instruments of various regional financial institutions.
Said investments did not exceed 4.95% holding in any one particular company's
voting capital stock or a total of $500 thousand, which ever was less.
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.
The investment portfolio as of fiscal year-end 1995 contained $46 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 1997 and 1996, only $2 million and $9 million, respectively,
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:
<TABLE>
INVESTMENT SECURITY ANALYSIS
March 31,
-------------------------------------------
(Dollars in Thousands) 1997 1996 1995
------------------------------------------------------------ ---------- -------- --------
<S> <C> <C> <C>
Held-to-maturity:
U.S. Treasury............................................ $ 1,502 $ 6,033 $ 7,106
U.S. Government agencies................................. 15,963 18,980 63,040
State and political subdivisions ........................ 2,320 2,326 ---
Mortgage-backed obligations of federal agencies........... 17,749 --- ---
Other.................................................... 2,271 1,776 1,676
-------- -------- --------
Total.................................................... $ 39,805 $ 29,115 $ 71,822
-------- -------- --------
Available-for-sale:
U.S. Treasury............................................ $ 11,883 $ 2,074 $ ---
U.S. Government agencies................................. 33,676 42,041 ---
Mortgage-backed obligations of federal agencies ......... 35,515 17,193 ---
Other.................................................... 1,401 --- ---
-------- -------- --------
Total.................................................... $ 82,475 $ 61,308 $ ---
======== ======== ========
</TABLE>
<PAGE>
INVESTMENT SECURITY MATURITY ANALYSIS
<TABLE>
March 31, 1997
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
-------------------------------------------------------------------------------
(Dollars in Thousands) Amount Yield 1 Amount Yield 1 Amount Yield 1 Amount Yield 1 Total
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury........ $ 1,502 5.23% $11,883 6.34% $ --- ---% $ --- ---% $ 13,385
U.S. Government
agencies.......... 6,750 5.88 42,889 6.00 --- --- --- --- 49,639
State and political
subdivisions.. --- --- 2,320 4.07 --- --- --- --- 2,320
Mortgage-backed
obligations of
federal
agencies 2 ... 2,364 6.20 40,916 6.70 8,993 6.43 991 6.19 53,264
Other................ --- --- 320 7.41 300 7.09 3,052 4.52 3,672
------------------------------------------------------------------------------------------
Total.......... $10,616 5.86% $98,328 6.29% $ 9,293 6.45% $4,043 4.93% $122,280
==========================================================================================
<FN>
1 The weighted average yields are calculated on the basis of the carrying
value and effective yields weighted for the scheduled maturity of each
security. The yield on tax exempt obligations have not been computed on a
tax equivalent basis.
2 Maturities of mortgage-backed obligations were estimated based on
anticipated principal payments.
</FN>
</TABLE>
Loans and Direct Financing Leases
Loans totaled $296,470,000 at March 31, 1997, an increase of $40,505,000, or
15.82%, from fiscal 1996's year-end balance of $255,965,000. The growth in loans
and direct financing leases was distributed throughout the loan portfolio with
the exceptions of direct financing leases and residential mortgages. The $7.9
million growth in commercial loans and the $8.9 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 $15.8 million growth
experienced in the consumer loan portfolio was primarily attributed to TRIB's
introduction of an indirect loan program during fiscal 1996. The $8.0 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. Although
residential mortgage loan balances increased only slightly between fiscal 1997
and 1996 year-ends; during fiscal 1997 $7.4 million in loans, which had been
outstanding for more than one year, were sold and replaced with new volume
generated during fiscal 1997. The direct financing lease portfolio remained
relatively stable with new business offsetting scheduled repayment reductions.
<TABLE>
LOANS AND LEASES DISTRIBUTION
March 31,
------------------------------------------------------------------
(Dollars in Thousands) 1997 1996 1995 1994 1993
-------------------------------------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural....................... $ 93,502 $ 85,578 $ 74,234 $ 59,818 $ 48,145
Direct financing leases............... 5,612 5,719 6,863 16,218 21,827
Real estate:
Residential mortgage............... 64,309(1) 64,248(1) 58,486(1) 46,754(1) 36,745(1)
Construction....................... 29,790 21,823 14,553 11,747 8,489
Commercial mortgage................ 71,648 62,746 51,529 40,116 37,360
Consumer.............................. 31,609(2) 15,851(2) 6,411(2) 6,1922 6,0712
-------------------------------------------------------------------
Total loans and leases............. $ 296,470 $ 255,965 $ 212,076 $180,845 $158,637
===================================================================
<FN>
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.
</FN>
</TABLE>
<PAGE>
<TABLE>
LOANS AND LEASES MATURITY ANALYSIS
March 31, 1997
----------------------------------------------------
After One
One Year But Within After
(Dollars in Thousands) or Less Five Years1 Five Years1 Total
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural........ $ 72,056 $ 21,446 $ --- $ 93,502
Direct financing leases....................... 2,420 3,192 --- 5,612
Real estate:
Residential mortgage....................... 10,669 42,853 10,787 64,309
Construction............................... 27,460 2,330 --- 29,790
Commercial mortgage........................ 32,212 38,711 725 71,648
Consumer...................................... 1,603 23,509 6,497 31,609
--------------------------------------------------
Total loans and leases.................. $ 146,420 $132,041 $ 18,009 $ 296,470
==================================================
<FN>
1 The amount of loans and leases due after one year which had a
pre-determined interest rate was $140,388, and loans and leases which
have floating or adjustable interest rates were $9,662.
</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 1997, 1996
and 1995, TRIB serviced portfolios totaled $185.3 million, $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, 1997, which is in compliance with defined parameters for
concentrations of credit as established in TRIB's loan policy. Because of a
majority of loans are made within TRIB's market area, the loan portfolio has an
element of risk due to this geographic concentration.
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.
During fiscal 1997, FSCM acquired a $1.5 million commercial mortgage loan from
TRIB. 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. FSCM's internal credit
administration department performs loan reviews to monitor loan documentation,
verify loan collateral and check for compliance with established loan and lease
policies. In addition, the credit administration department works closely with
TRIB's loan committee to identify, evaluate, and initiate corrective action for
marginal loans in order to maintain satisfactory asset quality. Underwriting
standards and credit risks are closely monitored with an emphasis during fiscal
1997 in the consumer credit area. An internal loan and lease watch list is
continuously monitored and updated. The adequacy of the allowance for possible
loan and lease losses is measured in comparison to the watch list. 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.
<PAGE>
The allowance for possible loan and lease losses is maintained 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 $979 thousand
increase in the allowance for possible loan and lease losses between fiscal
year-ends 1997 and 1996 resulted from increased provisions for possible loan and
lease losses and maintaining control of charge-offs. The following two tables
reflect TRIB's nonperforming assets and presents a summary of activity affecting
the allowance as of the dates indicated.
<TABLE>
ASSET QUALITY
March 31,
--------------------------------------------------------------
(Dollars in Thousands) 1997 1996 1995 1994 1993
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans and leases:
Nonaccrual loans and leases:
Commercial, financial and agricultural... $ 211 $ 339 $1,076 $ 147 $ 956
Direct financing leases.................. 28 28 96 405 236
Real estate:
Residential mortgage.................. 2,047 388 419 258 107
Construction ......................... 112 51 --- --- ---
Commercial mortgage................... 115 427 1,020 848 658
Consumer................................. 116 45 31 36 12
--------------------------------------------------------------
Total nonaccrual loans and leases.. 2,629 1,278 2,642 1,694 1,969
Accruing loans and leases 90 days
or more past due......................... 289 189 323 748 58
--------------------------------------------------------------
Total nonperforming loans
and leases...................... 2,918 1,467 2,965 2,442 2,027
Other real estate owned..................... 594 457 378 341 322
--------------------------------------------------------------
Total nonperforming assets......... $3,512 $1,924 $3,343 $2,783 $2,349
--------------------------------------------------------------
Allowance for possible loan and
lease losses............................. $5,442 $4,463 $3,832 $3,744 $3,639
--------------------------------------------------------------
Allowance as a percentage of
nonperforming loans and leases........... 186.50% 304.23% 129.24% 153.32% 179.53%
Allowance as a percentage of
total loans and leases................... 1.84 1.74 1.81 2.07 2.29
Nonperforming loans and leases and other
real estate owned as a percentage of
total loans and leases and other real
estate owned............................. 1.18 0.75 1.57 1.54 1.48
Nonperforming loans and leases as a
percentage of total loans and leases..... 0.98 0.57 1.40 1.35 1.28
</TABLE>
<PAGE>
<TABLE>
ANALYSIS OF THE ALLOWANCE FOR
POSSIBLE LOAN AND LEASE LOSSES
Years Ended March 31,
--------------------------------------------------------------
Dollars in Thousands) 1997 1996 1995 1994 1993
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period........... $ 4,463 $ 3,832 $ 3,744 $ 3,639 $ 2,759
Charge-offs:
Commercial, financial and
agricultural....................... 304 436 3,168 70 651
Direct financing leases............... 205 129 201 2,345 127
Real estate:
Residential mortgage............... 917 420 258 94 119
Construction....................... 1 --- 47 --- ---
Commercial mortgage................ 84 882 638 4 653
Consumer.............................. 494 118 86 24 10
--------------------------------------------------------------
Total.............................. 2,005 1,985 4,398 2,537 1,560
--------------------------------------------------------------
Recoveries:
Commercial, financial and
agricultural....................... 157 361 109 118 164
Direct financing leases............... 42 173 1,634 406 26
Real estate:
Residential mortgage............... 87 105 113 36 32
Construction....................... --- --- 47 --- ---
Commercial mortgage................ 5 28 48 108 16
Consumer.............................. 63 44 25 4 22
---------------------------------------------------------------
Total........................... 354 711 1,976 672 260
---------------------------------------------------------------
Net charge-offs.......................... 1,651 1,274 2,422 1,865 1,300
Provision for possible loan and
lease losses.......................... 2,630 1,905 2,510 1,970 2,180
---------------------------------------------------------------
Balance at end of period................. $5,442 $ 4,463 $ 3,832 $ 3,744 $ 3,639
===============================================================
Ratio of net charge-offs during the
year to average loans and leases
outstanding during the year........... 0.62% 0.55% 1.27% 1.08% 0.92%
===============================================================
</TABLE>
Although the balances of nonaccrual commercial and commercial mortgage loans
continued to decline, an increase of $1,659,000 in nonaccrual residential
mortgage loans was experienced in fiscal 1997. Included in residential mortgage
loan nonaccrual and charge-off balances was one credit related to a California
property with an estimated fair value in excess of $600 thousand of which a $500
thousand balance was included as nonaccrual and $305 thousand was charged-off
during fiscal 1997. Additionally, nonaccrual residential mortgage loans of $712
were generated through consumer credit in the forms of home improvement loans,
home equity lines of credit or loans with mortgages as primary and secondary
sources of security. Further, charge-offs related to these types of credit
comprised $452 thousand of fiscal 1997's residential mortgage charged-off
balance.
The increase in charge-offs between fiscal 1997 and 1996 primarily related
to consumer credit, which included $452 thousand in residential mortgages and
$494 thousand in consumer loans. The increase in consumer related nonperforming
and charged-off loans resulted primarily from three factors: i) proportional
growth in charge-offs to that of outstanding balances which have experienced
rapid growth during the past two fiscal years, ii) national economic trends
which reported increases during the year in consumer delinquency and
bankruptcies, and iii) staffing vacancies in the collections area which resulted
in delayed follow-up of past-due loan payments. Subsequent to fiscal 1997
year-end, the staffing issue was addressed and consumer loan delinquencies have
subsequently declined. The $594 thousand other real estate owned balance at
fiscal 1997 year-end included $385 thousand related to one commercial mortgage
credit which has subsequently been sold for an amount in excess of the carrying
value. Collection of all delinquent and past-due loans are being aggressively
pursued by the loan services staff.
<PAGE>
FSCM's allowance for possible loans and leases as a percentage of total
loans and leases of 1.84% at fiscal 1997 year-end compared favorably to FSCM's
Peer Group ratio of 1.39%. However, TRIB's fiscal 1997 ratios of allowance as a
percentage of total loans and leases, nonperforming loans and leases to total
loans and leases, and net yearly charge-offs to average loans and leases of
186.50%, 0.98% and 0.62%, respectively, compared unfavorably to Peer Group's
respective ratios of 280.68%, 0.95% and 0.23% thereby reflecting TRIB's higher
than Peer nonperforming loans and leases and net charge-off experience.
As previously discussed, based on internal procedures, any known troubled credit
as of March 31, 1997 has 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):
<TABLE>
ALLOCATION OF THE ALLOWANCE FOR
POSSIBLE LOAN AND LEASE LOSSES
March 31, 1997 March 31, 1996 March 31, 1995 March 31, 1994 March 31, 1993
-------------------------------------------------------------------------------------------------
% 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> <C> <C>
Commercial,
financial and
agricultural....... $1,889 31.5% $1,720 33.4% $1,533 35.0% $1,443 33.1% $1,875 30.3%
Direct financing
leases............. 116 1.9 115 2.3 1263.2 641 9.0 393 13.8
Real estate:
Residential
mortgage........ 1,125 21.7 499 25.1 425 27.6 117 25.9 106 23.2
Construction....... 476 10.1 238 8.5 164 6.9 26 6.5 25 5.4
Commercial
mortgage........ 855 24.2 794 24.5 1,342 24.3 1,118 22.1 1,029 23.5
Consumer.............. 887 10.7 359 6.2 71 3.0 293 3.4 211 3.8
Unallocated........... 94 N/A 738 N/A 171 N/A 106 N/A --- N/A
--------- --------------------------------------------------------------------------------------
Total................. $5,442 100.0% $4,463 100.0% $3,832 100.0% $3,744 100.0% $3,639 100.0%
================================================================================================
</TABLE>
Premises, Furniture and Equipment
Acquisitions of and improvements to premises, furniture and equipment ("fixed
assets") during fiscal 1997 of $753 thousand were completely offset by a $1.2
million depreciation provision. As a result, the March 31, 1997 balance of fixed
assets totaled $5.5 million, a decrease of $457 thousand from March 31, 1996's
balance of $6.0 million.
In March 1997, TRIB purchased a two-story office building for $221 thousand. The
building encompasses 10,560 square feet, excluding the basement storage area,
and is located at 524-15th Street, Moline, Illinois. Once renovations are
completed, anticipated by October 1997, the building will house a non-public
operations center. Staff transferred to the site will perform support functions
including: computer remote job entry, proof of deposit encoding, mail,
purchasing and deposit services areas. Several of these functions presently
occupy space in the downtown Rock Island office, which will be reconfigured
during fiscal 1998 to accommodate expanding retail and lending services.
The majority of the $419 thousand investment during fiscal 1997 in equipment and
furniture related to computer hardware and software technological upgrades.
Further, during fiscal 1996 a new computer support system for item processing
was installed, new laser-printing equipment was purchased, the platform system
supporting teller operations was updated, and 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").
<PAGE>
During fiscal 1996 TRIB purchased an office location in Bettendorf, Iowa for
$709 thousand. The purchase consisted of land, building and miscellaneous
equipment. Additional amounts of $148 thousand and $340 thousand were invested
to remodel and furnish and equip the office, respectively, which opened for
business November 1, 1995. Construction was also completed on the 18th Avenue
("Hilltop") office location in Rock Island, Illinois 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.
TRIB's 42nd Avenue, East Moline, Illinois branch commenced operations in
February 1995 out of a temporary office established at the location.
Construction of a permanent office has been temporarily deferred. 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. Management continues to explore potential
new locations for possible office sites to expand and enhance the ability of
TRIB to offer its services conveniently to customers within TRIB's trade area.
However, as of the date hereof, FSCM had no agreements or plans to acquire or
lease any specific additional premises. Further, management is continually
challenged with new technological advancements. A determination of which
products and proper implementation time frames must be made to best meet the
ever developing needs of FSCM and its customers, not create any competitive
disadvantage and maximize the return on fixed asset investments.
Deposits, Securities Sold Under Agreements to Repurchase, and Other Short-Term
Borrowings
Deposits, repurchase agreements and other short-term borrowings totaled $361.9
million, $38.2 million and $1.5 million, respectively, as of March 31, 1997.
These balances compare to $301.8 million, $48.8 million and $1.5 million,
respectively, as of the previous fiscal year end.
The $18.5 million in State of Illinois repurchase agreements outstanding at
fiscal 1996 year-end was transferred during fiscal 1997 into a time deposit
product due to an investment policy change by the State. An additional $5.0
million time deposit was obtained during the year; therefore, the State's
balance totaled $23.5 million at fiscal 1997 year-end. Exclusive of the above
mentioned transactions, time deposits increased $10.7 million and repurchase
agreements increased $7.8 million between fiscal 1997 and 1996. Money market
deposits increased to $38.9 million at 1997 fiscal year-end from $8.6 million at
fiscal 1996 year-end. The growth primarily resulted from successful marketing of
a new tiered-rate product. 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 1997 and 1996, these types of deposits,
exclusive of State of Illinois deposits, comprised only 5.49% and 6.45%,
respectively, of total assets, as compared to the Peer Group ratio of 9.52%.
Maturity distributions of time certificates of deposit in denominations of $100
thousand or more as of March 31, 1997 were as follows (dollars in thousands):
$100,000 AND MORE TIME DEPOSITS
March 31,
Time to Maturity 1997
-----------------------------------------------------------------------
3 months or less...................................... $ 30,980
Over 3 months through 6 months........................ 6,126
Over 6 months through 12 months....................... 2,778
Over 12 months........................................ 8,090
--------
Total................................................. $ 47,974
========
Short-term borrowings generally include repurchase agreements, interest-bearing
notes due to the U.S. Treasury, federal funds purchased from correspondent
banks, and advances from the Federal Home Loan Bank ("FHLB"). 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.
<PAGE>
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 1996 year-end. Borrowings from the FHLB are on a secured
basis, collateralized by pledges of the FHLB stock, the one-to-four family
residential real estate first lien mortgage portfolio, or mortgage-backed
securities. As of fiscal year-end 1997, approximately $48.5 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:
<TABLE>
SHORT - TERM BORROWINGS
March 31, March 31, March 31,
(Dollars in Thousands) 1997 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance outstanding at fiscal year-end............... $39,654 $50,346 $33,737
Maximum month-end balance............................ 50,711 62,128 38,143
Average balance for the year......................... 46,515 44,528 25,932
Weighted average interest rate for the year.......... 5.23% 5.51% 4.48%
Weighted average interest rate at year-end........... 4.87 5.29 5.85
</TABLE>
Notes Payable
On November 13, 1996, FSCM redeemed, in their entirety, the 1992 Notes. Proceeds
for the repayment of the $4.5 million principal and $172 thousand accrued
interest were obtained from the issuance of a new $10.0 million, 8.00% public
note offering ("1996 Notes"). This issuance was also used to provide a $4.0
million capital contribution to TRIB, repay $552 thousand in principal and
interest on FSCM's line of credit and supplement working capital.
Semi-annual interest payments on the 1996 Notes at a fixed 8.00% per annum rate
is payable on the first of May and November commencing May 1, 1997. The 1996
Notes are due November 1, 2008; however, a $750 thousand annual mandatory
principal redemption commences November 1, 2000 and continues through November
1, 2007. FSCM may redeem any or all of the 1996 Notes at any time upon not less
than a 15-day notice. Any redemption prior to November 1, 1998 shall be at 103%
of the principal amount so redeemed. FSCM also has a $10 million unrestricted
line of credit available from a correspondent bank, none of which was in use at
fiscal 1997 year-end. Please refer to Footnote Eight of the Consolidated
Financial Statements for information regarding covenants of the 1996 Notes and
correspondent bank line.
Mandatory Convertible Debentures
A total of $1.25 million 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 8.50% at March 31, 1997; therefore, the MCDs interest rate equaled
8.00%. 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. 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--$750 thousand of the MCDs are subject to a ninety day
notice and obtaining any regulatory approvals or legal opinions necessary prior
to any such conversion. The MCDs are subordinate to all senior indebtedness of
FSCM, and $750,000 of the MCDs are subordinate to the 1996 Notes. Subsequent to
fiscal 1997 year-end, a former director of FSCM and his wife expressed interest
in the possible conversion of their MCDs.
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.
<PAGE>
Stockholders' equity totaled $27.5 million and $24.3 million as of March 31,
1997 and 1996, respectively. Net income totaled $4.3 million in fiscal 1997
as opposed to $3.6 million in fiscal 1996, a 19.81% increase between years. In
March 1997, FSCM sold 1,000 shares of Common Stock from Treasury Stock to the
401(k) defined contribution retirement plan sponsored by TRIB. The $85.00 sales
price was based on an independent stock appraisal's average per share fair
market value for transactions involving small stock block sizes. Additionally,
100 shares were sold in January 1997 for $10 thousand. Common Stock dividends
declared during fiscal 1997 equaled $353 thousand, or $2.00 per share, an
increase from fiscal 1996's dividend of $308,000, or $1.76 per share. Preferred
Stock dividends totaled $596,000 and $598,000 for fiscal 1997 and 1996,
respectively. As of March 31, 1997, stockholders' equity also included $568
thousand in net unrealized losses on available-for-sale securities, net of
taxes, as compared to a net unrealized loss of $422 thousand as of fiscal 1996
year-end. Combined, these components resulted in a net change in equity of $3.3
million, or 13.41%.
The 1996 Combined Incentive and Nonstatutory Stock Option Plan ("Plan") was
adopted by FSCM's Board of Directors on July 25, 1996 and ratified by its
stockholders at the Annual Meeting on August 22, 1996. The Plan provides for the
grant of options to acquire up to 20,000 shares of FSCM's Common Stock based on
terms to be determined by FSCM's Board of Directors or an appointed committee.
As of March 31, 1997 no options had been granted under the Plan.
In May 1997, FSCM extended a tender offer to all shareholders of Common Stock.
Under the terms of the offer, shareholders were asked to tender their shares of
Common Stock of FSCM in exchange for $90.00 cash per share. Based on preliminary
data, management anticipates that less than 3,000 shares will be tendered and
that cash on hand will be used to fund the offer and associated expenses. In
June 1997, FSCM informed the shareholders of its $5 million, 9.25% Class A
Cumulative Convertible Preferred Stock ("Preferred Stock") that effective as of
July 10, 1997, their shares will be called at a $100 per share redemption price
as provided in the terms of the Preferred Stock. Funding for the retirement of
the Preferred Stock will be through the issuance of $5 million of new 9.25%
Class A Cumulative Convertible Preferred Stock ("New Preferred Stock"). Each
share of the New Preferred Stock has a stated value of $1,000 per share and is
immediately convertible, at the option of the holder, into 8-1/3 shares of
Common Stock. All of the New Preferred Stock will be issued to principal
shareholders of FSCM who are also executive officers and directors of FSCM and
TRIB.
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.
<TABLE>
Financial Services Corporation of the Midwest:
Minimum Capital Required To Be Categorized As:
----------------------------------------------------------
(Dollars in Thousands) Actual Adequately Capitalized Well Capitalized
---------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1997:
Total Capital (to Risk
Weighted Assets)................ $42,840 13.50% $25,381 8.00% $31,726 10.00%
Tier I Capital (to Risk
Weighted Assets) .............. 27,606 8.70 12,690 4.00 19,035 6.00
Tier I Capital (to Average Assets) 27,606 6.79 16,258 4.00 20,322 5.00
As of March 31, 1996:
Total Capital (to Risk
Weighted Assets)................ $31,956 11.66% $21,918 8.00% $27,398 10.00%
Tier I Capital (to Risk
Weighted Assets) .............. 24,569 8.97 10,959 4.00 16,439 6.00
Tier I Capital (to Average
Assets)......................... 24,569 6.83 14,379 4.00 17,974 5.00
</TABLE>
<PAGE>
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
The Financial Accounting Standards Board has issued SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" and SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of Statement No. 125." SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on control of the underlying financial assets. The provisions
of SFAS No. 125 applicable to the servicing of financial assets were effective
as of January 1, 1997. The impact of these provisions on the consolidated
financial statements was not material. Other provisions of SFAS No. 125,
including those applicable to transfers of financial assets and extinguishment
of liabilities, are effective as of January 1, 1998. The impact of these
provisions on the consolidated financial statements is not expected to be
material.
SFAS No. 128, "Earnings per Share," was issued in February 1997. Effective for
FSCM as of April 1, 1997, SFAS No. 128 replaces the primary earnings per share
("EPS") disclosures with basic and diluted EPS disclosures to simplify the
calculation and improve international comparability. FSCM's outstanding debt and
Preferred Stock contains rights enabling the holders to convert their
instruments into Common Stock. See Notes 9, 11 and 18. For the fiscal years
ended March 31, 1997, 1996 and 1995, if FSCM had applied Statement No. 128,
basic and diluted EPS amounts would have been equivalent to the primary and
fully diluted EPS amounts, respectively, disclosed in the consolidated
statements of income.
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. A price of $90.00 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 cash exchange value offered by FSCM in its May
1997 Common Stock tender offer. Additionally, in March 1997, 1,000 shares of
Common Stock were sold by FSCM from treasury to TRIB's 401(k) defined
contribution retirement plan at a price of $85.00 per share. The trustee of the
401(k) plan had obtained an independent stock appraisal, as of December 1996, on
transactions involving small FSCM Common Stock block sizes on behalf of the
plan's participants. Other private transactions, for which the sale price was
not known or reasonably available, may have occurred during fiscal 1997.
Factors That May Affect Future Results
This Annual Report on Form 10-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
Independent Auditor's Report
Consolidated Balance Sheets at March 31, 1997 and 1996
Consolidated Statements of Income for the Years
Ended March 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the
Years Ended March 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1997, 1996 and 1995
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 subsidiary as of March 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity,
and cash flows for the years ended March 31, 1997, 1996 and 1995. 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, 1997 and
1996, and the results of their operations and their cash flows for the years
ended March 31, 1997, 1996 and 1995 in conformity with generally accepted
accounting principles.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
April 25, 1997, except for Note 20 as to which the date is June 10, 1997
<PAGE>
Financial Services Corporation of the Midwest
Consolidated Balance Sheets
March 31, 1997 and 1996
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
1997 1996
--------- ---------
<S> <C> <C>
Assets
Cash and due from banks (note 2).................................................. $ 16,306 $ 14,423
Interest-bearing deposits with other financial institutions....................... 131 4,861
Investment securities:
Held-to-maturity (approximate market value 1997 - $39,502; 1996 -
$29,072) (note 3)........................................................... 39,805 29,115
Available-for-sale (amortized cost 1997 - $83,336; 1996 - $61,948) (note 3)... 82,475 61,308
Federal funds sold................................................................ 800 11,900
Loans and direct financing leases (note 4)........................................ 296,470 255,965
Less: Allowance for possible loan and lease losses............................ (5,442) (4,463)
-------- --------
Total loans and leases, net................................................. 291,028 251,502
Premises, furniture and equipment, net (note 5)................................... 5,496 5,953
Accrued interest receivable....................................................... 2,969 2,653
Other real estate, net............................................................ 594 457
Other assets...................................................................... 6,065 4,795
-------- --------
Total assets................................................................ $445,669 $386,967
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 6):
Noninterest-bearing demand.................................................. $ 36,785 $ 36,286
Interest-bearing:
N.O.W. accounts.......................................................... 23,575 24,420
Savings.................................................................. 37,777 41,814
Money market............................................................. 38,862 8,638
Time..................................................................... 224,892 190,660
-------- --------
Total deposits........................................................ 361,891 301,818
Accounts payable and accrued liabilities.......................................... 5,330 4,766
Securities sold under agreements to repurchase (note 7)........................... 38,154 48,846
Other short-term borrowings (note 7).............................................. 1,500 1,500
Notes payable (note 8)............................................................ 10,000 4,500
Mandatory convertible debentures (note 9)......................................... 1,250 1,250
-------- --------
Total liabilities........................................................... 418,125 362,680
-------- --------
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:
1997 and 1996 - 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:
1997 and 1996 - 1,000 shares (note 11)................................... 500 500
Class C Preferred Stock, stated value $425 per share;
authorized, 2,400 shares; issued and outstanding:
1997 and 1996 - 2,400 shares (note 11)................................... 1,020 1,020
Common, par value $.50 per share; authorized, 600,000
shares; issued: 1997 and 1996 - 340,662 shares;
outstanding: 1997 - 177,711 shares; 1996 - 176,611 shares................. 170 170
Capital surplus................................................................... 2,634 2,574
Net unrealized loss on available-for-sale securities, net of taxes................ (568) (422)
Retained earnings................................................................. 24,002 20,694
Treasury stock (note 12).......................................................... (5,214) (5,249)
-------- --------
Total stockholders' equity.................................................. 27,544 24,287
-------- --------
Total liabilities and stockholders' equity.................................. $445,669 $386,967
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Financial Services Corporation of the Midwest
Consolidated Statements of Income
Years Ended March 31, 1997, 1996 and 1995
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans and leases......................... $ 27,712 $ 24,208 $ 19,576
Interest on investment securities............................. 6,037 5,003 3,930
Interest on federal funds sold................................ 514 1,021 1,050
Interest on interest-bearing deposits with
other financial institutions............................... 230 39 15
---------- ---------- ----------
Total interest income................................... 34,493 30,271 24,571
---------- ---------- ----------
Interest expense:
Interest on deposits.......................................... 14,567 12,864 9,029
Interest on securities sold under agreements to repurchase.... 2,349 2,375 1,118
Interest on other short-term borrowings....................... 83 80 43
Interest on notes payable..................................... 542 411 425
Interest on mandatory convertible debentures.................. 97 103 92
---------- ---------- ----------
Total interest expense.................................. 17,638 15,833 10,707
---------- ---------- ----------
Net interest income..................................... 16,855 14,438 13,864
Provision for possible loan and lease losses (note 4)............ 2,630 1,905 2,510
---------- ---------- ----------
Net interest income after provision
for possible loan and lease losses................... 14,225 12,533 11,354
---------- ---------- ----------
Other income:
Trust fees.................................................... 458 322 361
Investment securities gains .................................. --- 11 ---
Loan servicing fees........................................... 730 680 677
Gain on sales of loans and leases............................. 345 362 132
Service charges on deposit accounts........................... 1,133 1,065 999
Insurance commissions......................................... 233 294 323
Other ........................................................ 774 581 657
---------- ---------- ----------
Total other income...................................... 3,673 3,315 3,149
---------- ---------- ----------
Other expenses:
Salaries and employee benefits................................ 6,071 5,904 5,272
Occupancy, net................................................ 852 801 754
Insurance..................................................... 111 281 713
Equipment..................................................... 984 947 651
Data processing............................................... 707 569 551
Advertising................................................... 404 400 420
Other operating............................................... 2,047 1,625 1,558
---------- ---------- ----------
Total other expenses.................................... 11,176 10,527 9,919
---------- ---------- ----------
Income before income taxes ............................. 6,722 5,321 4,584
Income taxes (note 10)........................................... 2,465 1,768 1,516
---------- ---------- ----------
Net income....................................................... $ 4,257 $ 3,553 $ 3,068
---------- ---------- ----------
Net income available for Common Stock............................ $ 3,661 $ 2,955 $ 2,474
---------- ---------- ----------
Earnings per common share (note 18):
Primary ...................................................... $ 20.73 $ 16.87 $ 14.21
---------- ---------- ----------
Fully diluted ................................................ $ 13.18 $ 10.80 $ 9.10
---------- ---------- ----------
Weighted average common shares outstanding....................... 176,644 175,123 174,079
---------- ---------- ----------
Weighted average common and contingently
issuable common shares outstanding............................ 327,837 335,327 343,796
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Financial Services Corporation of the Midwest
Consolidated Statements of Stockholders' Equity
Years Ended March 31, 1997, 1996 and 1995
(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, 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)
Net income ......................................... --- --- --- --- --- --- 4,257 ---
Change in net unrealized (loss) on
available-for-sale securities1.............. --- --- --- --- --- (146) --- ---
Sale of 1,100 shares of Treasury Stock............... --- --- --- --- 60 --- --- 35
Cash dividends declared:
Class A Preferred, $9.25 per share.......... --- --- --- --- --- --- (463) ---
Class B Preferred, $46.27 per share......... --- --- --- --- --- --- (46) ---
Class C Preferred, $36.13 per share......... --- --- --- --- --- --- (87) ---
Common, $2.00 per share..................... --- --- --- --- --- --- (353) ---
------------------------------------------------------------------------------
---
Balance at March 31, 1997............................ $ 5,000 $ 500 $ 1,020 $ 170 $ 2,634 $ (568) $24,002 $ (5,214)
=============================================================================
<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, 1997, 1996 and 1995
(Dollars in Thousands)
<TABLE>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.............................................................................. $ 4,257 $ 3,553 $ 3,068
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization...................................................... 1,161 898 662
Provision for possible loan and lease losses....................................... 2,630 1,905 2,510
Gain on sale of investment securities.............................................. --- (11) ---
Investment amortization, net....................................................... 229 145 439
Loans and leases originated for sale............................................... (35,772) (51,287) (32,162)
Proceeds on sales of loans and leases.............................................. 44,930 49,996 32,849
Gain on sales of loans and leases.................................................. (345) (362) (132)
(Increase) decrease in accrued interest receivable................................. (316) (693) 91
Increase in accrued interest payable............................................... 75 633 705
Increase in other assets........................................................... (1,146) (68) (282)
Increase in other liabilities...................................................... 489 238 18
-------- -------- -----------
Net cash provided by operating activities .............................................. 16,192 4,947 7,766
-------- -------- ---------
Cash Flows from Investing Activities:
Net (increase) decrease in federal funds sold........................................... 11,100 21,000 (7,800)
Net (increase) decrease in interest-bearing deposits with other
financial institutions............................................................... 4,730 (4,663) 297
Purchase of investment securities held-to-maturity...................................... (21,717) (18,403) (21,315)
Proceeds from maturity and call of investment securities held-to-maturity............... 11,010 26,000 10,865
Purchase of investment securities available-for-sale.................................... (31,858) (64,134) ---
Proceeds from maturity and call of investment securities available-for-sale............. 10,258 30,010 18,000
Proceeds from sales of investment securities available-for-sale......................... --- 7,152 ---
Net increase in loans and leases........................................................ (50,969) (43,510) (34,208)
Purchase of premises, furniture and equipment .......................................... (753) (3,363) (769)
Other investing activities, net......................................................... (137) (79) (37)
-------- -------- --------
Net cash used in investing activities................................................... (68,336) (49,990) (34,967)
-------- -------- --------
Cash Flows from Financing Activities:
Net increase in deposits................................................................ 60,073 30,207 20,837
Net increase (decrease) in short-term borrowings........................................ --- 1,134 (1,134)
Net increase (decrease) in securities sold under agreements to repurchase............... (10,692) 15,475 10,743
Proceeds from notes payable............................................................. 10,000 --- ---
Payments on notes payable............................................................... (4,500) (500) ---
Sale of Treasury Stock.................................................................. 95 101 85
Cash dividends paid on Preferred Stock.................................................. (596) (598) (594)
Cash dividends paid on Common Stock..................................................... (353) (308) (265)
-------- -------- --------
Net cash provided by financing activities............................................... 54,027 45,511 29,672
-------- -------- --------
Net increase in cash and due from banks................................................. 1,883 468 2,471
Cash and due from banks at the beginning of the year.................................... 14,423 13,955 11,484
-------- -------- --------
Cash and due from banks at the end of the year.......................................... $ 16,306 $ 14,423 $ 13,955
======== ======== ========
</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.
Investments in debt and certain equity securities are 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 accounting standards.
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.
(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.
Nonrefundable loan and lease origination fees and direct loan
origination costs associated with the lending process are deferred and
recognized as a yield adjustment by the interest method 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.
<PAGE>
(c) Loans and Direct Financing Leases (continued)
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, 1997 and 1996 were $185,295 and $165,003, respectively.
Custodial escrow balances maintained in connection with the loan and
lease servicing were approximately $1,653 and $1,744 as of March 31,
1997 and 1996, respectively. Fees received for servicing loans for
others are recognized in Other Income as loan servicing fees.
(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.
Nonhomogeneous loans, primarily only the commercial and commercial
mortgage loans as defined by generally accepted accounting principals,
are considered impaired when it is probable that all principal and
interest amounts due will not be collected in accordance with their
contractual terms. Generally, these loans are in nonaccrual and/or
have been classified as doubtful or loss by management. 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.
Interest is recognized on impaired loans on a cash basis.
(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.
(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.
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of,"
was adopted as of April 1, 1996. SFAS No. 121 requires that long-lived
assets and certain identifiables to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
may not be recoverable. The impact on the consolidated financial
statements for the fiscal year ended March 31, 1997 was not material.
<PAGE>
(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 write downs
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.
Please see Note 1(l).
(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
The Financial Accounting Standards Board has issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" and SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of Statement No. 125." SFAS No.
125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based
on control of the underlying financial assets. The provisions of SFAS
No. 125 applicable to the servicing of financial assets were effective
as of January 1, 1997. The impact of these provisions on the
consolidated financial statements was not material. Other provisions of
SFAS No. 125, including those applicable to transfers of financial
assets and extinguishment of liabilities are effective as of January 1,
1998. The impact of these provisions on the consolidated financial
statements is not expected to be material.
SFAS No. 128, "Earnings per Share," was issued in February 1997.
Effective for FSCM as of April 1, 1997, SFAS No. 128 replaces the
primary earnings per share ("EPS") disclosures with basic and diluted
EPS disclosures to simplify the calculation and improve international
comparability. FSCM's outstanding debt and Preferred Stock contains
rights enabling the holders to convert their instruments into Common
Stock. See Notes 9, 11 and 18. For the fiscal years ended March 31,
1997, 1996 and 1995, if FSCM had applied Statement No. 128, basic and
diluted EPS amounts would have been equivalent to the primary and fully
diluted EPS amounts, respectively, disclosed in the consolidated
statements of income.
(m) Reclassifications
Certain amounts in the 1996 and 1995 consolidated financial statements
have been reclassified to conform with 1997 presentations.
<PAGE>
(2) Cash and Due from Banks
TRIB's required reserves as a member of the Federal Reserve System were
$1,611 and $1,351 as of March 31, 1997 and 1996, respectively.
(3) Investment Securities
The amortized costs, fair values, and maturities of investment securities
held-to-maturity and available-for-sale as of March 31, 1997 and 1996 are
summarized as follow. Maturities of mortgage-backed obligations were
estimated based on anticipated payments.
<TABLE>
1997 1996
------------------------------------- ----------------------------------------
Gross Gross
Unrealized 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........................... $ 1,502 $ --- $ 1 $ 1,501 $ 6,033 $ 32 $ --- $ 6,065
------------------------------------------------------------------------------
Obligations of U.S. government
agencies and corporations
maturities:
Within 1 year .......................... --- --- --- --- 5,000 --- 37 4,963
From 1 to 5 years ...................... 15,963 7 119 15,851 13,980 68 68 13,980
------------------------------------------------------------------------------
Total ................................... 15,963 7 119 15,851 18,980 68 105 18,943
------------------------------------------------------------------------------
State and political subdivisions
maturities:
From 1 to 5 years ................... 2,320 -- 32 2,288 2,326 -- 40 2,286
------------------------------------------------------------------------------
Mortgage-backed obligations of federal
agencies maturities:
From 1 to 5 years ...................... 17,011 7 160 16,858 -- -- -- --
From 5 to 10 years ..................... 738 -- 6 732 -- -- -- --
------------------------------------------------------------------------------
Total .................................. 17,749 7 166 17,590 --. -- -- --
------------------------------------------------------------------------------
Other securities maturities:
Within 1 year........................... -- -- -- -- 10 -- -- 10
From 1 to 5 years....................... 320 1 -- 321 70 2 -- 72
From 5 to 10 years...................... 300 -- -- 300 400 -- -- 400
Over 10 years .......................... 1,651 -- -- 1,651 1,296 -- -- 1,296
------------------------------------------------------------------------------
Total ............................... 2,271 1 -- 2,272 1,776 2 -- 1,778
------------------------------------------------------------------------------
Total................................ $39,805 $ 15 $ 318 $39,502 $29,115 $ 102 $ 145 $29,072
------------------------------------------------------------------------------
AVAILABLE-FOR-SALE:
U.S. Treasury maturities:
From 1 to 5 years....................... $11,983 $ -- $ 100 $11,883 $ 2,074 $ -- $ -- $ 2,074
------------------------------------------------------------------------------
Obligations of U.S. government
agencies and corporations
maturities:
Within 1 year........................... 6,749 1 -- 6,750 6,000 -- 29 5,971
From 1 to 5 years .................. 27,174 7 255 26,926 32,174 16 121 32,069
From 5 to 10 years ................. -- -- -- -- 4,004 1 4 4,001
-------------------------------------------------------------------------------
Total .............................. 33,923 8 255 33,676 42,178 17 154 42,041
-------------------------------------------------------------------------------
Mortgage-backed obligations of federal
agencies maturities:
Within 1 year ...................... 2,444 -- 80 2,364 2,228 -- 63 2,165
From 1 to 5 years .................. 24,311 4 410 23,905 7,290 -- 207 7,083
From 5 to 10 years ................. 8,469 -- 214 8,255 6,136 -- 175 5,961
Over 10 years ...................... 1,027 -- 36 991 2,042 -- 58 1,984
-------------------------------------------------------------------------------
Total ........................... 36,251 4 740 35,515 17,696 -- 503 17,193
-------------------------------------------------------------------------------
Other securities maturities:
Over 10 years .......................... 1,179 222 -- 1,401 -- -- -- --
------------------------------------------------------------------------------
Total............................... $83,336 $ 234 $ 1,095 $82,475 $61,948 $ 17 $ 657 $61,308
==============================================================================
</TABLE>
<PAGE>
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.
As of March 31, 1997 and 1996, investment securities with carrying values
of $96,498 and $72,169, respectively, were pledged to secure public and
trust deposits, short-term borrowings and for other purposes as required or
permitted by law.
For the fiscal year ended March 31, 1996, proceeds of $7,152 were realized
from the sales of securities which generated a gross security gain of $11.
(4) Loans and Direct Financing Leases
Loans and leases as of March 31, 1997 and 1996 are summarized as follows:
1997 1996
-------- --------
Commercial, financial and agricultural ........ $ 93,502 $ 85,578
Direct financing leases ....................... 5,612 5,719
Real estate:
Residential mortgage ....................... 64,309 64,248
Construction ............................... 29,790 21,823
Commercial mortgage ........................ 71,648 62,746
Consumer, not secured by a real estate mortgage 31,609 15,851
-------------------
Total ......................................... $296,470 $255,965
===================
Direct financing leases:
Gross rents receivable ..................... $ 6,719 $ 6,902
Unearned income ............................ (1,107) (1,183)
-------------------
Total ...................................... $ 5,612 $ 5,719
===================
Direct financing leases are generally short-term equipment type leases.
Future minimum lease payments as of March 31, 1997 are as follows: 1998,
$2,996; 1999, $1,629; 2000, $1,140; 2001, $722; and 2002, $262. Income on
leases of $840, $947 and $1,854 is included in interest and fees on loans
and leases for the fiscal years ended March 31, 1997, 1996 and 1995,
respectively.
Changes in the allowance for possible loan and lease losses for the fiscal
years ended March 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
---------------------------
Balance at beginning of year..................... $ 4,463 $ 3,832 $ 3,744
Provision for loan and lease losses.............. 2,630 1,905 2,510
Loans and leases charged off..................... (2,005) (1,985) (4,398)
Recoveries ...................................... 354 711 1,976
---------------------------
Balance at end of year........................... $ 5,442 $ 4,463 $ 3,832
===========================
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, 1997, 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>
The table below summarizes nonperforming assets as of March 31, 1997 and
1996:
1997 1996
----------------
Nonaccrual loans and leases:
Commercial, financial and agricultural....... $ 211 $ 339
Direct financing leases...................... 28 28
Real estate
Residential mortgage...................... 2,047 388
Construction ........................... 112 51
Commercial mortgage....................... 115 427
Consumer..................................... 116 45
Other real estate owned......................... 594 457
Accruing loans and leases past-due 90 days or
more:
Commercial, financial and agricultural....... 141 51
Direct financing leases...................... 79 103
Real estate:
Residential mortgage...................... 41 --
Construction ................... --- 25
Consumer ................................. 28 10
-----------------
Total........................................ $ 3,512 $1,924
=================
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 $215, $188 and $219 for the fiscal years ended
March 31, 1997, 1996 and 1995, respectively.
As of March 31, 1997 and 1996, impaired loans (see Note 1(d) for
definition of impaired loans) totaled $701 and $780, respectively, for
which $181 and $197, respectively, of the allowance for possible loan and
lease losses was specifically allocated. The average impaired loans for the
respective years ended totaled $963 and $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 $39 and $25, respectively, for fiscal 1997
and $47 and $44, respectively, for fiscal 1996.
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, 1997, 1996 and 1995 were as follows:
1997 1996 1995
---------------------------
Balance at beginning of year................... $ 86 $ 61 $ 98
New loans and existing balances at date of
of appointment(s) to director(s)............. 1,979 709 150
Repayments..................................... (500) (134) (162)
Loans participated to other financial
institutions and other net changes ......... -- (550) (25)
---------------------------
Balance at end of year......................... $ 1,565 $ 86 $ 61
===========================
Unused lines of credit, in excess of balances disclosed in the above
table, in the amount of $1,013 had been extended to directors and
their related interests as of March 31, 1997.
<PAGE>
(5) Premises, Furniture and Equipment
Premises, furniture and equipment as of March 31, 1997 and 1996 are
summarized as follows:
1997 1996
------------------------
Land ......................................... $ 1,340 $ 1,306
Furniture and equipment ...................... 5,964 5,545
Buildings and improvements ................... 6,974 6,691
Less accumulated depreciation ................ (8,782) (7,589)
------------------------
Total ..................................... $ 5,496 $ 5,953
========================
Depreciation expense included in the accompanying consolidated statements
of income was $1,210, $1,033 and $776 for the fiscal years ended March 31,
1997, 1996 and 1995, respectively.
(6) Deposits
Time certificates of deposit in denominations of $100 or more as of March
31, 1997 and 1996 equaled $47,974 and $24,949, respectively.
The maturity distribution, as of March 31, 1997, for time deposits was as
follows: 1998, $144,819; 1999, $59,168; 2000, $17,157; 2001, $1,747 and
2002 and beyond, $2,001.
(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, 1997 and 1996 are summarized as follows:
<TABLE>
1997 1996
----------------- ------------------
Carrying Market Carrying Market
Amount Value Amount Value
--------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury............................ $ 7,527 $ 7,526 $ 5,092 $ 5,112
Obligations of U.S. Government
agencies and corporations............. 36,733 36,648 49,071 49,083
Mortgage backed obligations of federal
agencies .............................. 16,497 16,382 11,178 11,178
-------------------------------------
Total ............................. $60,757 $60,556 $65,341 $65,373
=====================================
Securities sold under agreements to
repurchase............................ $38,154 $48,846
======= =======
</TABLE>
<PAGE>
The maturity distribution and weighted average interest rates of securities
sold under agreements to repurchase as of March 31, 1997 are summarized as
follows:
Weighted
Average
Amount Rate
------- --------
Overnight......................... $20,545 4.52%
Term up to 30 days................ 11,598 4.90
Term of 30 to 90 days............. 2,104 5.72
Term over 90 days ................ 3,907 5.86
Total.......................... $38,154 4.84%
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 as of March 31, 1997 and 1996 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, 1997, 1996 and 1995 are
as follows:
1997 1996 1995
----------------------------
Maximum month-end balance........................ $50,711 $62,128 $38,143
Weighted average balance for the year............ 46,515 44,528 25,932
Weighted average interest rate for the year...... 5.23% 5.51% 4.48%
Weighted average interest rate at year-end....... 4.87 5.29 5.85
(8) Notes Payable
Notes payable as of March 31, 1997 and 1996 are summarized as follows:
1997 1996
-----------------
8.50% Notes, due December 1, 1999, uncollateralized.... $ --- $ 4,500
8.00% Notes, due November 1, 2008, uncollateralized.... 10,000 ---
On November 13, 1996, FSCM redeemed the 8.50% Notes. Proceeds for the
$4,500 principal and $172 accrued interest were obtained from the issuance
of $10,000 in 8.00% Notes. This issuance was also used to provide a $4,000
capital contribution to TRIB, repay $552 in principal and interest on
FSCM's line of credit and supplement working capital.
Interest on the uncollateralized fixed rate 8.00% Notes dated November 1,
1996 is payable on the first of May and November. Mandatory redemptions in
the amount of $750 are due on November 1, 2000 through 2007, inclusive. The
remaining $4,000 matures on November 1, 2008. FSCM may redeem any or all of
the Notes at any time upon not less than a 15-day notice. Any redemption
prior to November 1, 1998 shall be at 103% of the principal amount so
redeemed. The Notes are senior or on parity to any other uncollateralized
debt. As of March 31, 1997, the Notes were senior in right of payment to
$750 of MCDs and payable on parity with $500 of MCDs.
As of March 31, 1997 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 8.50% at March 31, 1997.
<PAGE>
The most restrictive covenants under the correspondent bank loan agreement
and the 8.00% Notes require, among other things, that:
Correspondent Bank Loan:
o FSCM must obtain approval to pay Common Stock dividends in excess of 30%
of prior year's consolidated net income;
o Approval is required for fixed asset investments exceeding $250 for FSCM
or outside TRIB's normal banking practices;
o FSCM must obtain approval before the incurrence of any additional debt
and TRIB can incur debt only in the normal course of business;
o FSCM must obtain approval prior to making any investments exceeding
4.95% of its tangible net equity in other than short-term, cash
management investments made in the normal course of business (March 31,
1997 maximum equaled $1,391);
o 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;
o Mergers or acquisitions require approval;
o 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,
1997 actual equaled 9.61% and 9.00%, respectively);
o TRIB must maintain a primary capital ratio not less than 5.50% (March
31, 1997 actual equaled 9.20%); and
o TRIB must maintain a return on average assets not less than 0.70% (March
31, 1997 actual equaled 1.23%).
8.00% Notes:
o Fixed assets investments are limited to not greater than three percent
of total assets on a consolidated basis (March 31, 1997 actual equaled
1.23%);
o FSCM and TRIB must maintain tangible net worths of not less than $19,000
and $23,000, respectively (March 31, 1997 actual equaled $28,112 and
$35,683, respectively); and
o Redemptions of Common and Preferred Stock are limited to the total of
i) $6,000, plus ii) 65% of the increase in retained earnings since
June 30, 1996, plus iii) proceeds from any capital stock issuances
after June 30, 1996, less iv) total amount previously expended
for all purchase or redemptions of shares (a total of $8,601 as of
March 31, 1997).
Management believes that FSCM and TRIB were in compliance with all
covenants as of March 31, 1997.
(9) Mandatory Convertible Debentures ("MCDs")
MCDs as of March 31, 1997 and 1996 are summarized as follows:
1997 1996
-----------------
MCDs issued March 31, 1989, due March 31, 2001.......... $ 425 $ 425
MCDs issued April 19, 1989, due March 31, 2001 ......... 825 825
-----------------
Total................................................ $ 1,250 $ 1,250
=================
The MCDs bear interest at a rate of 1/2% below the reference rate of a
correspondent bank (8.00% at March 31, 1997). 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 8.00% Notes.
<PAGE>
(10) Income Taxes
Income taxes for the fiscal years ended March 31, 1997, 1996 and 1995 are
summarized as follows:
Federal State
----------------------
1997:
Current .............. $ 2,670 $ 160
Deferred ............. (365) --
----------------------
Total ................ $ 2,305 $ 160
======================
1996:
Current............... $ 2,088 $ 56
Deferred ............. (376) --
----------------------
Total ................ $ 1,712 $ 56
======================
1995:
Current .............. $ 1,622 $ 3
Deferred ............. (109) --
----------------------
Total ................ $ 1,513 $ 3
======================
Income taxes totaled $2,465 for 1997, $1,768 for 1996, and $1,516 for 1995
resulting in effective tax rates of 36.67%, 33.23%, and 33.07%, 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 1997, 1996 and
1995, to income before income taxes) for such years as follows:
1997 1996 1995
----------------------------
Computed "expected" amounts ............. $ 2,353 $ 1,862 $ 1,604
Increase (decrease) resulting from:
Effect of graduated tax rate ......... (67) (53) (45)
Tax exempt interest income ........... (32) (5) (1)
Life insurance policies .............. (64) (56) (48)
State taxes net of federal benefit ... 106 37 2
Over (under) accrual of provision, net 169 (17) 4
----------------------------
Total ............................. $ 2,465 $ 1,768 $ 1,516
============================
The components of the net deferred income tax asset as of March 31, 1997
and 1996 are as follows:
1997 1996
-----------------
Allowance for possible loan and lease losses .. $ 900 $ 567
Book depreciation in excess of tax depreciation 443 358
Post-retirement benefits ...................... 46 46
Loan origination fees (costs), net ............ (86) 16
Bonuses ....................................... 40 44
Deferred insurance fee income ................. 276 212
Vacation accrual .............................. 80 65
Prepaid expense ............................... (55) (55)
Net unrealized loss on available-for-sale
securities, net of taxes ................... 293 218
Investment securities ......................... (44) (7)
Other ......................................... 3 (8)
-----------------
Total ................................... $ 2,071 $ 1,456
=================
FSCM had no valuation allowance for deferred tax assets as of March 31,
1997 or 1996. FSCM has a demonstrated record of profitability for the past
ten years.
<PAGE>
(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.
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, 1997, an additional 61,365
shares of FSCM's Common Stock would have been outstanding. See Note 20.
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.
Noncumulative 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,
subject to a ninety day notice and obtaining any regulatory approvals or
legal opinions necessary, 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, subject to a ninety day notice and
obtaining any regulatory approvals or legal opinions necessary, 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.
Class E Preferred Stock - In June 1986, FSCM designated 20,000 shares with
a stated value of $30 per share. The stock paid cumulative dividends at a
9% per annum rate on a semiannual basis. A total of 17,134 shares were
issued. In December 1992, FSCM redeemed the entire issue.
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 E, Class C.
(12) Treasury Stock and Stock Option Plan
In March 1997 and 1996 and December 1994, FSCM sold 1,000, 1,500 and 1,500
shares, respectively, of Common Stock from treasury to the 401(k) defined
contribution retirement plan sponsored by TRIB. The sale prices of $85.00,
$67.50 and $56.68 for the respective dates were based on independent stock
appraisals' per share fair market value for transactions involving small
stock block sizes. Further, in January 1997, 100 shares Common Stock were
sold from treasury to a newly appointed Director in order to comply with
regulatory requirements.
<PAGE>
(13) Employee Benefit Plans
The 1996 Combined Incentive and Nonstatutory Stock Option Plan ("Plan") was
adopted by FSCM's Board of Directors on July 25, 1996 and ratified by its
stockholders at the Annual Meeting on August 22, 1996. The Plan provides
for the grant of options to acquire up to 20,000 shares of FSCM's Common
Stock based on terms to be determined by FSCM's Board of Directors or an
appointed committee. As of March 31, 1997 no options had been granted under
the Plan.
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 $92, $41 and $40 for the years
ended March 31, 1997, 1996, and 1995, 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. The life insurance coverage 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, 1997 and 1996 equaled $135. Net periodic post
retirement benefit expense/(credits) for the fiscal years ended March 31,
1997, 1996 and 1995 were $12, $(20), and $(18), respectively.
(14) Commitments and Contingencies
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. The amount of collateral obtained, if deemed necessary upon
extension of credit, is based on management's credit evaluation of the
party. Collateral held varies, but may include accounts receivable,
inventory, property and/or equipment.
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, 1997, FSCM had $4,662 of irrevocable letters of credit
outstanding and had commitments to lend of approximately $40,978. No
material losses are anticipated by management as a result of such
transactions.
Concentrations of Credit Risk: The majority of the loans, commitments to
extend credit, unused lines of credit and outstanding letters of credit
have been granted to customers within FSCM's market area and the customers'
ability to repay the credit is influenced by the economic conditions of the
area. Outstanding letters of credit were granted primarily to commercial
borrowers. See Note 4.
Contingencies: In the normal course of business, FSCM is involved in
various legal proceedings. In the opinion of management, any liabilities
resulting from such proceedings would not have a material adverse effect on
the accompanying financial statements.
<PAGE>
(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, 1997, 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
$7,356.
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 Tier 1 capital to total
adjusted average 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 primary measurement categories into which institutions
are grouped; well-capitalized, adequately-capitalized and
less-than-adequately-capitalized. Classification of a bank in a
less-than-adequately-capitalized category can result in certain mandatory
and possibly additional discretionary actions by regulators that could have
a material effect on a financial institution's operations. As of March 31,
1997, FSCM and TRIB were categorized as well-capitalized and met all
capital adequacy requirements. There are no conditions or events subsequent
to March 31, 1997 that management believes have changed FSCM's or TRIB's
status. The tables below set forth FSCM's and TRIB's regulatory capital
ratios as compared to the standards as of March 31, 1997 and 1996.
Financial Services Corporation of the Midwest:
<TABLE>
Minimum Capital Required
To Be Categorized As:
------------------------------------
Adequately Well
Actual Capitalized Capitalized
---------------- --------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1997:
Total Capital (to Risk
Weighted Assets) ................. $42,840 13.50% $25,381 8.00% $31,726 10.00%
Tier I Capital (to Risk
Weighted Assets) ................ 27,606 8.70 12,690 4.00 19,035 6.00
Tier I Capital (to Average
Assets) .......................... 26,606 6.79 16,258 4.00 20,322 5.00
As of March 31, 1996:
Total Capital (to Risk
Weighted Assets) ................. $31,956 11.66% $21,918 8.00% $27,398 10.00%
Tier I Capital (to Risk
Weighted Assets) ................ 24,569 8.97 10,959 4.00 16,439 6.00
Tier I Capital (to Average
Assets) .......................... 24,569 6.83 14,379 4.00 17,974 5.00
THE Rock Island Bank, N.A.:
As of March 31, 1997:
Total Capital (to Risk
Weighted Assets).................. $39,795 12.65% $25,166 8.00% $31,458 10.00%
Tier I Capital (to Risk
Weighted Assets) ................... 35,844 11.39 12,583 4.00 18,875 6.00
Tier I Capital (to Average
Assets) .......................... 35,844 8.85 16,196 4.00 20,245 5.00
As of March 31, 1996:
Total Capital (to Risk
Weighted Assets).................. $32,378 11.82% 21,918 8.00% $27,397 10.00%
Tier I Capital (to Risk
Weighted Assets) ................. 28,941 10.56 10,959 4.00 16,438 6.00
Tier I Capital (to Average
Assets)........................... 28,941 8.05 14,378 4.00 17,972 5.00
</TABLE>
<PAGE>
(16) Supplemental Disclosures of Cash Flow and Other Information
Cash paid during the fiscal years ended March 31, 1997, 1996 and 1995 for:
1997 1996 1995
-----------------------------
Interest ..................... $17,563 $15,213 $10,001
Income taxes ................. 2,656 1,855 1,885
During fiscal 1996 investment securities totaling $34,999 were reclassified
from held-to-maturity to available-for-sale. See Note 1(b). Loans totaling
$7,746 were reclassified from portfolio to held-for-sale during fiscal
1997.
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, 1997 and 1996 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 fair value of commitments is not
considered material and therefore is not disclosed. 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,
1997 or 1996.
<TABLE>
1997 1996
-------------------- ------------------
Carrying Fair Carrying Fair
Value Value Value Value
-----------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks ...................... $ 16,306 $ 16,306 $ 14,423 $ 14,423
Interest-bearing deposits with other financial
institutions .............................. 131 131 4,861 4,861
Federal funds sold ........................... 800 800 11,900 11,900
Held-to-maturity .......................... 39,805 9,502 29,115 29,072
Available-for-sale ........................ 82,475 82,475 61,308 61,308
Loans and leases, net ........................ 291,028 290,654 251,502 252,585
Accrued interest receivable .................. 2,969 2,969 2,653 2,653
Financial Liabilities:
Deposits:
Demand .................................... 36,785 36,785 36,286 36,286
N.O.W. accounts ........................... 23,575 23,575 24,420 24,420
Savings ................................... 37,777 37,777 41,814 41,814
Insured money market ...................... 38,862 38,862 8,638 8,638
Other time ................................ 224,892 224,834 190,660 192,030
Securities sold under agreements to repurchase 38,154 38,104 48,846 48,805
Other short-term borrowings .................. 1,500 1,500 1,500 1,500
Notes payable ................................ 10,000 10,000 4,500 4,410
Mandatory convertible debentures ............. 1,250 1,250 1,250 1,250
Accrued interest payable ..................... 2,937 2,937 2,862 2,862
</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.
<PAGE>
(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, 1997, 1996, and 1995:
1997 1996 1995
---------------------------
Net income ............................... $ 4,257 $ 3,553 $ 3,068
Accrued preferred dividends .............. (596) (598) (594)
---------------------------
Primary earnings ...................... 3,661 2,955 2,474
MCDs interest expense, net of tax ........ 64 68 61
Accrued convertible preferred dividends .. 596 598 594
---------------------------
Fully diluted earnings ................ $ 4,321 $ 3,621 $ 3,129
---------------------------
Weighted average common shares outstanding 176,644 175,123 174,079
Weighted average common shares
issuable upon conversion of:
MCDs .................................. 50,000 50,000 50,000
Class A Preferred Stock ............... 66,082 75,093 84,606
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 ..... 327,837 335,327 343,796
============================
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, 1997 1996
-------------------------------------------------------------------
Assets
Cash and short-term investments ....................... $ 734 $ 1,546
Investment securities, available-for-sale
(amortized cost $1,179) ............................ 1,401 --
Loans.................................................. 1,453 --
Investment in TRIB .................................... 35,129 28,519
Due from TRIB ......................................... 35 46
Other assets .......................................... 511 149
-------- --------
Total.................................................. $ 39,263 $ 30,260
-------- --------
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities ........... $ 469 $ 223
Notes payable ...................................... 10,000 4,500
Mandatory convertible debentures ................... 1,250 1,250
-------- --------
Total liabilities ............................ 11,719 5,973
-------- --------
Stockholders' equity:
Preferred Stock .................................. 6,520 6,520
Common Stock ..................................... 170 170
Capital surplus .................................. 2,634 2,574
Net unrealized loss on available-for-sale
securities, net of taxes ...................... (568) (422)
Retained earnings ................................ 24,002 20,694
Treasury Stock ................................... (5,214) (5,249)
-------- --------
Total stockholders' equity ................. 27,544 24,287
-------- --------
Total ...................................... $ 39,263 $ 30,260
======== ========
<PAGE>
<TABLE>
Statements of Income
Years Ended March 31, 1997 1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue:
Dividends received from TRIB................................ $ 2,063 $ 1,813 $ 1,562
Interest income:
Interest on loans.......................................... 112 --- ---
Interest on investment securities.......................... 15 --- ---
Other income................................................. 21 44 45
----------------------------
Total operating revenue............................... 2,211 1,857 1,607
----------------------------
Operating expenses:
Professional fees........................................... 209 192 206
Other operating expenses.................................... 354 252 248
Interest expense:
Interest on short-term borrowings........................... 24 --- ---
Interest on notes payable.................................. 543 411 425
Interest on mandatory convertible debentures............... 97 103 92
---------------------------
Total operating expenses.............................. 1,227 958 971
---------------------------
Net operating income................................. 984 899 636
Equity in undistributed earnings of TRIB....................... 2,903 2,335 2,118
---------------------------
Income before income tax benefit ............................ 3,887 3,234 2,754
Income tax benefit............................................. 370 319 314
---------------------------
Net income..................................................... $ 4,257 $ 3,553 $ 3,068
===========================
</TABLE>
<PAGE>
<TABLE>
Statements of Cash Flows
Years Ended March 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income............................................ $ 4,257 $ 3,553 $ 3,068
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ...................... 164 53 53
Equity in undistributed earnings of subsidiaries ... (2,903) (2,335) (2,118)
(Increase) decrease in other assets ................ (515) 183 (146)
Increase (decrease) in other liabilities ........... 171 (171) 118
----------------------------
Net cash provided by operating activities .............. 1,174 1,283 975
----------------------------
Cash Flows From Investing Activities:
Purchase of investment securities available-for-sale ... (1,179) --- ---
Net increase in loans .................................. (1,453) --- ---
Investment in TRIB ..................................... (4,000) --- ---
----------------------------
Net cash used in investing activities .................. (6,632) --- ---
----------------------------
Cash Flows From Financing Activities:
Proceeds from notes payable ............................ 10,000 --- ---
Payments on notes payable .............................. (4,500) (500) ---
Cash dividends paid .................................... (949) (906) (859)
Sale of Treasury Stock ................................. 95 101 85
-----------------------------
Net cash provided by (used in) financing activities .... 4,646 (1,305) (774)
-----------------------------
Net increase (decrease) in cash and cash equivalents ... (812) (22) 201
Cash and cash equivalents at the beginning of the year . 1,546 1,568 1,367
-----------------------------
Cash and cash equivalents at the end of the year ....... $ 734 $ 1,546 1,568
=============================
</TABLE>
<PAGE>
(20) Subsequent Events
In May 1997, FSCM extended a tender offer to all shareholders of Common
Stock. Under the terms of the offer, shareholders were asked to tender
their shares of Common Stock of FSCM in exchange for $90.00 cash per share.
Based on preliminary data, management anticipates that less than 3,000
shares will be tendered and that cash on hand will be used to fund the
offer and associated expenses. In June 1997, FSCM informed the shareholders
of its $5,000, 9.25% Class A Cumulative Convertible Preferred Stock
("Preferred Stock") that effective as of July 10, 1997, their shares will
be called at a $100 per share redemption price as provided in the terms of
the Preferred Stock Funding for the retirement of the Preferred Stock will
be through the issuance of $5,000 of new 9.25% Class A Cumulative
Convertible Preferred Stock ("New Preferred Stock"). Each share of the New
Preferred Stock has a stated value of $1,000 per share and is immediately
convertible, at the option of the holder, into 8-1/3 shares of Common
Stock. All of the new Preferred Stock will be issued to principal
shareholders of FSCM who are also executive officers and directors of FSCM
and TRIB.
<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, 1997 are as follows:
<TABLE>
<S> <C> <C>
Name Age Title
----------------------------------------------------------------------------------------------------------------------
Douglas M. Kratz 46 Chairman of the Board, Chief Executive Officer and Chief Financial Officer of FSCM;
Vice Chairman of the Board of TRIB
Perry B. Hansen 49 President and Director of FSCM; Chairman of the Board and Chief Executive Officer
of TRIB
John T. Kustes 46 Treasurer and Director of FSCM; Senior Vice President, Senior Operations Officer,
Assistant Secretary and Director of TRIB
Francis P. McCarthy 47 Director of FSCM; Director of TRIB
Jean M. Hanson 39 Controller of FSCM; Vice President and Controller of TRIB
Richard J. Carlson 45 President, Chief Operating Officer and Director of TRIB
Donald P. Ackerman 63 Executive Vice President, Senior Lending Officer and Commercial Loan Manager of
TRIB
J. Bryant Goodall 44 Vice President and Senior Trust Officer of TRIB
</TABLE>
Douglas M. Kratz has been President, Chief Executive Officer, Chief Financial
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. In January 1997,
Mr. Kratz was appointed Chairman of the Board of FSCM and relinquished his
positions as President and Secretary. Mr. Kratz is also an officer of Richey
Corporation, Bettendorf, Iowa, a consulting firm which provides services to
various financial institutions and non-banking industries, including FSCM. See
"Item 13 Certain Relationships and Related Transactions."
Perry B. Hansen has been President, Chief Executive Officer, Secretary, and a
Director of TRIB and a Director of FSCM since 1985. In January 1997, Mr. Hansen
was appointed Chairman of the Board of TRIB and President of FSCM and
relinquished his positions as President and Secretary.
John T. Kustes is Senior Vice President and Senior Operations Officer of TRIB
and has held positions in TRIB's operations department in excess of 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.
Francis P. McCarthy was elected to the Boards of Directors of TRIB and FSCM in
November 1996 and January 1997, respectively. Mr. McCarthy has been the
Executive President of Linwood Mining & Minerals Corporation in excess of five
years. Additionally, Mr. McCarthy holds executive positions with Midwest Metals,
Superior Minerals, Monday Leasing, Northern Marine Corporation and McCarthy-Bush
Corporation.
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. Mr. Carlson was appointed President and elected to the Board of Directors
of TRIB in February 1997. Until his employment with TRIB, Mr. Carlson 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.
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. In January 1997, Mr. Ackerman was appointed Executive Vice President,
Senior Lending Officer and Commercial Loan Manager.
<PAGE>
J. Bryant Goodall has served as Vice President of TRIB's trust department since
November 1984. 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 1997, all of these filing requirements were
satisfied.
Item 11. Executive Compensation
The following table shows for the fiscal years ended March 31, 1997, 1996 and
1995 the compensation awarded to, paid to or earned by FSCM's Chief Executive
Officer and to the four most highly-compensated executive officers of FSCM whose
salary and bonus exceeded $100,000 in fiscal 1997:
(b) Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C>
Fiscal Annual Compensation All Other
Director or Executive Officer Year Salary Bonus Compensation1
Douglas M. Kratz 1997 $ --- $ --- $ 18,375
Chairman of the Board, Chief Executive Officer, Chief Financial Officer 1996 --- --- 21,575
of FSCM and Vice Chairman of the Board of TRIB 1995 --- --- 22,288
Perry B. Hansen 1997 $ 189,758 $ 46,865 $ 18,375
President of FSCM, Chairman of the Board and Chief Executive Officer 1996 182,706 66,000 21,575
of TRIB 1995 176,526 21,888 21,125
John T. Kustes 1997 $ 77,939 $ 11,588 $ 18,375
Treasurer and Director of FSCM and Senior Vice President, Senior 1996 75,507 16,380 21,575
Operations Officer, Assistant Secretary and Director of TRIB 1995 72,766 5,408 21,738
Richard J. Carlson 1997 $ 112,746 $ 21,630 $ 9,525
President, Chief Operating Officer and Director of TRIB 1996 100,227 28,500 10,900
1995 85,965 6,180 11,750
Donald P. Ackerman 1997 $ 108,298 $ 14,958 $ 7,925
Executive Vice President, Senior Lending Officer and Commercial 1996 97,721 14,140 10,900
Loan Manager of TRIB 1995 94,091 4,532 11,750
1 Consists of compensation received from participation in director and committee meetings.
</TABLE>
(f) Compensation of Directors
Directors receive fees of $350 per FSCM Board of Directors'
meeting and $600 per TRIB Board of Directors' meeting,
regardless of attendance. 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, 1997,
Benjamin D. Farrar, Jr. received cash compensation and bonus
of $18,540 and $6,180, respectively, for the performance of
administrative responsibilities relating to his former
position as Chairman of the Board.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of May 31, 1997
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>
<S> <C> <C>
Number of Shares of Common Percent of Outstanding
Name and Address of Beneficial Owner Stock Beneficially Owned(1)(2) Shares of Common Stock(2)
- ----------------------------------------------------------------------------------------------------------------------------------
Douglas M. Kratz (9) 67,319 (3) 32.1% (4)
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719
Perry B. Hansen (9) 67,189 (4) 32.1% (3)
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719
Benjamin D. Farrar, Jr. 21,689 (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
John T. Kustes 1,670 (7) *
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719
Francis P. McCarthy 236 *
224 - 18th Street, Suite 202
Rock Island, IL 61201-8719
Richard J. Carlson 100 *
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 138,042 (8) 57.3% (2)
as a group (8 persons)
* Less than one percent (1%).
<FN>
(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 177,711 shares of Common Stock outstanding at May 31, 1997,
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.
(3) 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.
<PAGE>
(4) 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; 3,889 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 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; 3,689 shares of Common
Stock into which 332 shares of Class B Preferred Stock owned by Mr. Farrar
are convertible; also includes 22 shares of Common Stock into which 2
shares of Class B Preferred Stock owned by Mrs. Patricia 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 1,520 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 1,550 shares held
under TRIB's 401(k) plan on behalf of Mrs. Hanson.
(9) In June 1997, FSCM informed the shareholders of its $5,000,000, 9.25% Class
A Cumulative Convertible Preferred Stock ("Preferred Stock") that effective
as of July 10, 1997, their shares will be called at a $100 per share
redemption price as provided in the terms of the Preferred Stock. Funding
for the retirement of the Preferred Stock will be through the issuance of
$5,000,000 of new 9.25% Class A Cumulative Convertible Preferred Stock
("New Preferred Stock"). Each share of the New Preferred Stock has a stated
value of $1,000 per share and is immediately convertible, at the option of
the holder, into 8-1/3 shares of Common Stock. All of the New Preferred
Stock will be issued to principal shareholders of FSCM who are also
executive officers and directors of FSCM and TRIB.
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions.
Richey Corporation ("Richey") provides various services to FSCM and TRIB,
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, Chairman of the Board and Chief Executive Officer of FSCM and
Vice Chairman of the Board of TRIB, is the Secretary and Treasurer of Richey.
During the fiscal year ended March 31, 1997, Richey received $193,318 under this
Agreement, plus a bonus of $45,088. During fiscal 1996, Richey received $179,889
under the Agreement, plus a bonus of $63,750.
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 1996 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 former Chairman of the Board of
FSCM and TRIB. During the years ended March 31, 1997 and 1996, FSCM and TRIB
paid to Ben Farrar & Company, Inc. insurance premiums of $11,168 and $79,804,
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
$1,565,000 and $86,000 as of March 31, 1997 and 1996, respectively.
All future and ongoing transactions between FSCM and TRIB and their affiliates
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.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following exhibits are filed herewith or are incorporated herein by
reference, as indicated in the description of each exhibit:
(a) Exhibits.
3.1 Certificate of Incorporation of FSCM in effect on the
date hereof filed as Exhibit 3.1 to Form SB-2 dated
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 dated November 6, 1992 which is
incorporated herein by reference.
4.1 Form of Indenture for 1996 Notes filed as Exhibit 4.1 to
Amendment No. 1 to Form S-2 dated November 7, 1996 which
is incorporated herein by reference.
4.2 Specimen of 8.00% Notes Due 2006 filed as Exhibit 4.2 to
Amendment No. 1 to Form S-2 dated November 7, 1996 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.
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 Continuity/Severance Agreement by and between TRIB and
Richard J. Carlson dated December 22, 1995 and filed as
Exhibit 10.3 to Amendment No. 1 to Form S-2 dated
November 7, 1996 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 Revolving Business Note executed by FSCM in favor of M&I
Bank in the original principal amount of $10,000,000
dated as of July 31, 1996 filed as Exhibit 10.2 to
Amendment No. 1 to Form S-2 dated November 7, 1996 which
is incorporated herein by reference.
10.5 Amendment, dated as of July 27, 1996, to Letter
Agreement dated as of December 15, 1992 by and between
FSCM and M&I Bank filed as Exhibit 10.4 to Amendment No.
1 to Form S-2 dated November 7, 1996 which is
incorporated herein by reference.
10.6 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.
10.7 Summary of Material Terms of Directors' and Officers'
Liability Policy covering the policy period from October
18, 1995 to October 18, 1997.
<PAGE>
10.8 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.
10.9 1996 Combined Incentive and Statutory Stock Option Plan
and Nonstatutory Stock Option Agreement.
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.
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.
<PAGE>
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.
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.
<PAGE>
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 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 1996 Notes filed as Exhibit 10.1 to
Amendment No. 1 to Form S-2 dated November 7, 1996 which
is incorporated herein by reference.
10.31 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.
10.32 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.
10.33 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.
21. Subsidiary of the registrant as filed herein.
27. Financial Data Schedule
99. Issuer Tender Offer Statement on Schedule 13E-4 relating
to FSCM's tender offer for shares of its Common Stock as
filed with the Securities and Exchange Commission on May
12, 1997 which is incorporated herein by reference.
<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, 1997.
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.
<TABLE>
<S> <C>
FINANCIAL SERVICES CORPORATION
OF THE MIDWEST
Date June 27, 1997 By /S/ Douglas M. Kratz
-------------------------------------------- ---------------------
Douglas M. Kratz,
Chairman, Chief Executive Officer, Chief
Financial Officer and Director
Date June 27, 1997 By /S/ Jean M. Hanson
-------------------------------------------- ------------------
Jean M. Hanson,
Controller and Chief Accounting Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date June 27, 1997 By /S/ Perry B. Hansen
-------------------------------------------- -------------------
Perry B. Hansen,
President and Director
Date June 27, 1997 By /S/ John T. Kustes
-------------------------------------------- ------------------
John T. Kustes,
Treasurer and Director
</TABLE>
EXHIBIT 10.7
Financial Services Corporation of the Midwest
Directors and Officers Liability Policy
Summary of Material Terms
Insured: Financial Services Corporation of the Midwest and/or
THE Rock Island Bank, N.A.
Underwriter: Cincinnati Insurance Company
Policy Period: October 18, 1995 to October 18, 1997
Policy Number: DO-8563130 (Coverage on claims-made basis)
Limit of Liability: $5,000,000 Aggregate Each Policy Year
Retentions: Per Director: $0
Aggregate: $50,000
Corporate Reimbursement $50,000
Endorsements: ERISA Exclusion
IRA/Keogh Extension
Outside Board Extension Endorsement
Marital Status Extension Endorsement
Trust Department Errors & Omissions Endorsement
$3,000,000 Limit
$50,000 Retention
Additional Insured Endorsement Employees
EXHIBIT 10.9
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
1996 COMBINED INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
----------------------------------------------------------
GENERAL
DEFINITIONS. As used in this Financial Services Corporation of the Midwest 1996
Combined Incentive and Nonstatutory Stock Option Plan, the following definitions
shall apply:
"Acceleration Event" means (i) any liquidation, dissolution or sale of all
or substantially all of the assets of the Company, (ii) any merger of the
Company into another corporation where the Company is not the survivor
thereof, (iii) any transaction involving transfer of Company securities
representing greater than 50 percent of the voting power of all issued and
outstanding securities of the Company, or (iv) any other event which, in
the opinion of the Board of Directors, is likely to lead to a change in
control of the Company, whether or not such change in control actually
occurs.
"Affiliate" means any "parent corporation" or "subsidiary corporation" of
the Company, as those terms are defined in Sections 424(e) 424(f) of the
Code.
"Board of Directors" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common capital stock, par value $0.50 per share,
of the Company.
"Company" means Financial Services Corporation of the Midwest, a Delaware
corporation.
"Fair Market Value" means the value of the Common Stock determined by the
Board of Directors, taking into consideration those factors affecting or
reflecting the value of the Common Stock which they deem appropriate.
"Incentive Stock Option" means an Option to purchase shares of Common
Stock which is intended to qualify as an incentive stock option as defined
in Section 422 of the Code.
"Non-Statutory Option" means an Option which is not an Incentive Stock
Option.
"Option" means an Incentive Stock Option or a Non-Statutory Option.
"Option Agreement" means the formal written agreement to be entered into
by and between the Company and the Optionee which will contain the
specific terms and conditions upon which an Option is granted to an
Optionee, as determined by the Board of Directors.
"Optionee" means a holder of an Option granted pursuant to the Plan.
"Plan" means the Financial Services Corporation of the Midwest 1996
Combined Incentive and Nonstatutory Stock Option Plan outlined herein.
"Shareholders" means the holders of outstanding shares of the Company's
Common Stock.
PURPOSE. The purpose of the Plan is to promote the growth and general
prosperity of the Company and its Affiliates by permitting the Company to grant
Options to employees, officers, members of the Board of Directors and others,
thereby assisting the Company in its efforts to attract and retain the best
available persons for positions of substantial responsibility, and to provide
employees, officers, members of the Board of Directors and others an additional
incentive to contribute, by the performance of services, to the future success
of the Company and its Affiliates.
ADMINISTRATION. Except as otherwise provided for in this Plan, the Plan
shall be administered by the Board of Directors or any appropriately appointed
committee thereof. Subject to the provisions of this Plan, the Board of
Directors shall have sole authority to do everything necessary or appropriate to
administer the Plan, including, without limitation, interpreting the Plan. All
decisions, determinations and interpretations of the Board of Directors
regarding the Plan shall be final and binding on all Optionees. The day to day
administrative duties for the Plan may be delegated by the Board of Directors to
one or more executive officers or other employees of the Company. All actions
authorized to be taken by the Board of Directors under this Plan may as well be
taken by any appropriately appointed committee thereof.
<PAGE>
TERM OF THE PLAN. The Plan was adopted by the Board of Directors on
July 25, 1996, and shall continue in effect for the grant of Options for ten
(10) years until July 25, 2006, unless sooner terminated under Section 1.10
hereof. Any Option under the Plan must be granted on or prior to July 25, 2006.
The expiration of the term of the Plan with respect to any Options granted under
the Plan shall not affect Options then outstanding which have not yet expired.
STOCK TO BE OPTIONED. The maximum number of shares which may be
optioned and sold under the Plan is 20,000 shares of the Common Stock. Shares
subject to Options which terminate or expire prior to exercise shall be
available for future Options.
GRANTING OF OPTIONS. The Board of Directors shall have the authority to
grant Options and to determine, among other things, who shall receive Options,
the time when Options shall be granted, the number of shares to be optioned and
the vesting schedule for the Options. Each Option shall be granted pursuant to a
formal written Option Agreement to be entered into by and between the Company
and the Optionee, which Option Agreement shall be in such form as the Board of
Directors may deem appropriate.
EXERCISE PRICE. Except as provided in Section 3.3, and subject to
Section 2.4, the exercise price of an Option shall not be less than the greater
of (i) One Hundred and 00/100 Dollars ($100.00) per share or (ii) the Fair
Market Value (as determined by the Board of Directors) of the Common Stock at
the time the Option is granted, and Incentive Stock Options granted on the same
date shall have the same exercise price. Should it be determined that any Option
was not issued with an exercise price at least equal to the Fair Market Value of
the Common Stock on the date of grant, such Option shall remain nevertheless
valid and in full force and effect.
OPTIONS NOT TRANSFERABLE. Options are not transferable in any manner
except by will or the laws of descent and distribution, and during the lifetime
of each Optionee shall be exercisable only by such Optionee. In the event of an
Optionee's death, such Optionee's Option shall pass by will or the laws of
descent and distribution and may thereafter be exercised only by such Optionee's
personal representative, distributees or legatees, as the case may be, to the
extent determined by the Board of Directors at the time of grant of the Option
as shall be indicated in the Option Agreement evidencing the grant of such
Option.
ELIGIBLE OPTIONEES. Incentive Stock Options may be issued to any
employees of the Company or any Affiliate, including, among others, employees
who are officers of the Company and/or members of the Board of Directors. In
addition, Non-Statutory Options may be granted to either employees or
non-employees, including persons who are, at the time of such grant, members of
the Board of Directors or persons who are deemed by the Board of Directors to be
important to the future success of the Company or its Affiliates, including, but
not limited to, independent contractors to the Company or its Affiliates, even
though such persons are not then employees of the Company.
AMENDMENT OR TERMINATION OF THE PLAN.
Exceptas provided in Section 1.10(c) below, notwithstanding
anything to the contrary contained herein, the Board of
Directors may amend the Plan from time to time in such
respects as the Board of Directors may deem advisable,
including, without limitation, the right to amend the Plan so
as to affect Options already granted, other than to increase
the Option price of Options already granted and/or other than
to decrease or terminate the Options already granted.
The Board of Directors may at any time terminate the Plan. Any
such termination of the Plan shall not affect Options already
granted, and such Options shall remain in full force and
effect as if the Plan had not been terminated.
In the event of the occurrence of an Acceleration Event, the
Board of Directors may elect to terminate all of the Options
outstanding under the Plan as of the effective date of the
Acceleration Event, provided that each of the following
conditions are met:
Each Optionee shall be given at least thirty (30) calendar
days written notice of such termination, which notice shall
include an explanation of the rights of the Optionee as
indicated below, and shall additionally describe in reasonable
detail the relevant terms and conditions of the Acceleration
Event, including the anticipated effective date of the
Acceleration Event ("Acceleration Event Notice").
<PAGE>
Upon receipt by an Optionee of the Acceleration Event Notice,
assuming occurrence of the Acceleration Event, all Options
held by the Optionee shall have their vesting accelerated and
be exercisable in full. Unless otherwise determined by the
Board of Directors: (A) each Option held by the Optionee may
thereafter be exercised only by the Optionee providing written
notice to the Company at least fifteen (15) days prior to the
anticipated effective date for the Acceleration Event
specified in the Acceleration Event Notice, specifically
stating the extent to which the Optionee will exercise the
Option (the "15-Day Exercise Notice"); (B) any such exercise
shall be further accomplished by the Optionee complying with
the requirements of Section 1.13 of this Plan and shall be
effective as of the actual effective date of the Acceleration
Event; (C) if no 15-Day Exercise Notice is provided by the
Optionee to the Company, assuming occurrence of the
Acceleration Event, the Optionee shall have no right, and
shall be presumed to have waived any right, to any further
exercise of the Option; and (D) at 12:01 a.m. on the actual
effective date of the Acceleration Event, the Option (to the
extent not previously exercised) shall terminate.
Notwithstanding the provisions of Section 1.13 of this Plan
(assuming an Optionee does not engage in a "cashless" exercise
of his/her Option), payment in full of the Exercise Price
shall not be required to be delivered in connection with
delivery of the 15-Day Exercise Notice, but instead shall be
required to be paid in full on the effective date of the
Acceleration Event.
If the anticipated Acceleration Event does not occur, the
rights and obligations of all Optionees and the Company shall
be as though the Acceleration Event Notice was never provided
and any exercise of Options by Optionees pursuant to delivery
of 15-Day Exercise Notices had never occurred, including, but
not limited to, that (A) the vesting schedule for all Options
shall be as otherwise provided in their respective stock
option agreements, (B) any exercise of Options by Optionees
pursuant to delivery of 15-Day Exercise Notices shall be void
and of no effect, and (C) any shares issued to Optionees as a
result of delivery of 15-Day Exercise Notices shall be
considered canceled and all certificates relating thereto
immediately returned to the Company.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If an Optionee exercises
all or any portion of an Option subsequent to any change in the number of
outstanding shares of Common Stock of the Company occurring by reason of any
stock dividend, stock split, reverse stock split or other similar
recapitalization of the Company, there shall be an appropriate adjustment to the
number of shares of Common Stock underlying the Option so that the Optionee
shall then receive for the aggregate price paid by him on such exercise of an
Option the number of shares which he would have held at the time of such
exercise if such Option had been exercised to the same extent prior to such
stock dividend, stock split, reverse stock split or other similar
recapitalization. Notwithstanding the foregoing, no fractional shares shall be
issued or paid for.
<PAGE>
AGREEMENT AND REPRESENTATIONS OF OPTIONEE. As a condition to the
exercise of any portion of an Option, the Optionee must represent and agree that
any and all shares of Common Stock purchased under an Option will be acquired
for investment and not for resale. The Company may restrict the transfer of the
shares of Common Stock purchased and affix a legend to the certificate
representing such shares, stating that such shares may not be transferred
without (i) an opinion of counsel satisfactory to the Company that the proposed
transfer may lawfully be made without registration under the federal Securities
Act of 1933 and registration, notice or approval under any applicable state
securities laws, or (ii) such applicable registration(s), notice(s) and
approval(s).
EXERCISE OF OPTIONS. Options can be exercised only by Optionees or
other proper parties delivering written notice to the Company at its principal
office within the Option period, stating the number of shares as to which the
Option is being exercised and accompanied by payment in full of the Exercise
Price for all shares designated in the notice (subject to the possible inclusion
of a "cashless" exercise provision in the Option Agreement, in the discretion of
the Board of Directors). The Exercise Price shall be paid in cash or by
certified or cashier's check or, with the prior written consent of the Company,
by surrender to the Company of previously acquired shares of Common Stock, such
shares to be credited against the Exercise Price based upon the fair market
value thereof on the date of exercise, as determined by the Board of Directors.
Such notice shall further contain a representation that such shares are being
acquired for investment and not for resale. The Company shall then cause a
certificate or certificates for such shares to be delivered within a reasonable
period.
INCENTIVE STOCK OPTIONS
TERM OF INCENTIVE STOCK OPTIONS. Each Incentive Stock Option granted
under the Plan shall be exercisable only during the term for such Incentive
Stock Option as fixed by the Board of Directors; provided, however, that this
term may be no longer than 10 years from the date of grant (subject to Section
2.4 below).
TERMINATION OF EMPLOYMENT. Subject to the discretion of the Board of
Directors to determine otherwise at the time of grant of the Incentive Stock
Option, upon termination of an Optionee's employment with the Company or an
Affiliate, whether such termination is due to death, voluntary termination,
involuntary termination or otherwise: (i) all Incentive Stock Options held by
the Optionee may thereafter be exercised only to the extent the Optionee was
entitled to exercise such Incentive Stock Options as of the date of such
termination of employment; (ii) and all Incentive Stock Options held by the
Optionee shall terminate three (3) months after the effective date of any such
termination of employment.
LIMIT ON EXERCISE. The aggregate Fair Market Value, determined as of
the time the Incentive Stock Option is granted, of the shares of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by an Optionee during any calendar year under the Plan, and any other incentive
stock option plan of the Company or an Affiliate under Section 422 of the Code,
shall not exceed $100,000. To the extent an Incentive Stock Option exceeds this
$100,000 limit, the portion of the Incentive Stock Option in excess of such
limit shall be deemed a Non-Statutory Option.
SPECIAL RULE FOR TEN PERCENT SHAREHOLDER. If, at the time an Incentive
Stock Option is granted, an employee owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or its Affiliates, as determined using the attribution rules of Section 424(d)
of the Code, then the terms of the Incentive Stock Option shall specify that the
option exercise price shall not be less than the greater of (i) $100.00 per
share or (ii) 110% of the Fair Market Value of the Common Stock at the time the
Option is granted, and that the term of such Incentive Stock Option may be no
longer than five (5) years from the date such Incentive Stock Option is granted.
<PAGE>
FAILURE TO MEET REQUIREMENTS. In the event that an Option is granted as
an Incentive Stock Option but, for whatever reason, part or all of the Option
fails to meet all requirements to qualify as an Incentive Stock Option, the
Option shall nevertheless continue to be issued and valid except that portion of
the Option which does not qualify as an Incentive Stock Option shall be deemed a
Non-Statutory Option.
NON-STATUTORY OPTIONS
TERM OF NON-STATUTORY OPTIONS. Each Non-Statutory Option granted under
the Plan shall be exercisable only during the term for such Non-Statutory Option
as fixed by the Board of Directors.
TERMINATION OF RELATIONSHIP. Subject to the discretion of the Board of
Directors to provide for otherwise at the time of grant of the Non-Statutory
Option, upon termination (as determined solely by the Board of Directors) of the
relationship between an Optionee and the Company (or the Affiliate, as the case
may be), whether such relationship consisted of such Optionee serving as an
employee of, a member of the Board of Directors of, or an independent contractor
providing services to the Company (or the Affiliate): (i) all Non-Statutory
Options held by the Optionee may thereafter be exercised only to the extent the
Optionee was entitled to exercise such Non-Statutory Options as of the date of
such relationship termination; and (ii) all Non-Statutory Options held by the
Optionee shall terminate three (3) months after the effective date of any such
relationship termination.
EXERCISE PRICE. The Company may elect to grant Non-Statutory Options at
a price less than the Fair Market Value of the Common Stock at the time the
Option is granted so long as the exercise price is equal to or greater than
$100.00 per share.
ADDITIONAL PROVISIONS
STOCKHOLDER APPROVAL. The Plan shall be submitted for the approval of
the stockholders of the Company at the first meeting of stockholders held
subsequent to the adoption of the Plan and in all events within one year of its
approval by the Board of Directors. If at said meeting the stockholders of the
Company do not approve the Plan, the Plan shall terminate.
NO RIGHTS AS SHAREHOLDER. No Optionee shall have any rights as a
shareholder with respect to any shares subject to his or her Option prior to the
date of issuance to him or her of a certificate or certificates for such shares.
WITHHOLDING. Whenever the Company proposes or is required to issue or
transfer shares of Common Stock under the Plan, the Company shall have the right
to require the Optionee to remit to the Company an amount sufficient to satisfy
any federal, state or local withholding tax liability prior to the delivery of
any certificate or certificates for such shares. Whenever under the Plan
payments are to be made in cash, such payments shall be made net of an amount
sufficient to satisfy any federal, state, or local withholding tax liability.
RESERVATION OF SHARES OF COMMON STOCK. The Company, during the term of
the Plan and all Options issued under the Plan, will at all times reserve and
keep available, and will use its commercially reasonable best efforts to seek or
obtain approval from any regulatory body having jurisdiction over the
transactions contemplated by this Plan necessary in order to issue and sell,
such number of shares of Common Stock as shall be sufficient to satisfy the
requirements of the Plan.
INCOME TAX TREATMENT. Government jurisdiction, income reporting and tax
withholding requirements will be complied with by the Company whenever the
Options are exercised and any income tax payment and any income tax prepayment
requirements (including any tax withholding requirements imposed upon the
Company) will be effectively borne by the Optionee. SINCE FEDERAL INCOME TAX LAW
IS SUBJECT TO CHANGE AND INCOME TAX LAWS VARY FROM STATE TO STATE, THE COMPANY
STRONGLY RECOMMENDS THAT OPTIONEES CONSULT WITH THEIR INDIVIDUAL TAX ADVISORS
PRIOR TO EXERCISE OF AN OPTION.
EXCEPTIONS TO TERMINATION OF EMPLOYMENT. Whether military, government
or other service or other leave of absence shall constitute a termination of
employment shall be determined in each case by the Board of Directors at its
discretion, and any determination by the Board of Directors shall be final and
conclusive. A termination of employment shall not occur where the Optionee
transfers from the Company to one of its Affiliates or transfers from an
Affiliate to the Company or another Affiliate.
<PAGE>
NO RIGHT TO CONTINUED EMPLOYMENT. Agreements entered into in accordance
with the Plan shall not confer on Optionees any right to continuance of
employment by or with the Company or its Affiliates, nor shall such agreements
interfere in any way with the Optionee's or the Company's right to terminate
such employment at any time for any reason or no reason.
SUCCESSORS AND ASSIGNS. Agreements entered into in accordance with the
Plan shall be binding upon the heirs, successors and assigns of the Company and
the Optionees.
ILLINOIS LAW. Agreements entered into in accordance with the Plan shall
be construed according to the laws of the State of Illinois, U.S.A.
REGULATORY APPROVAL. All obligations of the Company to issue shares of
the Common Stock in connection with the exercise of Options shall be subject to
the ability of the Company to obtain necessary approvals from state and/or
federal regulatory agencies, and any time frames relating to the purchase of
stock by the Company (or its assigns) from an Optionee (as may be provided in
the stock option agreements evidencing the grant of Options) shall be extended
as reasonably necessary to allow the Company (or its assigns) to obtain
necessary approvals from state and/or federal regulatory agencies.
<PAGE>
Option No. ___
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
INCENTIVE STOCK OPTION AGREEMENT
---------------------------------------------------------
THIS AGREEMENT, effective as of the _____ day of _______________, 199_, is made
by and between Financial Services Corporation of the Midwest, a Delaware
corporation (the "Company"), and _________________________ (the "Optionee"), in
accordance with the provisions of the Financial Services Corporation of the
Midwest 1996 Combined Incentive and Nonstatutory Stock Option Plan (the "Plan").
W I T N E S S E T H:
In consideration of services rendered or to be rendered to the Company by the
Optionee, the parties hereto agree as follows:
RECEIPT OF PLAN. Capitalized terms used and not defined in this Agreement
shall have the meaning as defined in the Plan. The Optionee hereby acknowledges
receipt of a copy of the Plan.
GRANT OF OPTION. The Company hereby grants to the Optionee the option (the
"Option") to purchase all or any part of an aggregate of ________ shares (the
"Shares") of the Common Stock of the Company at the exercise price of $_____ per
share (the "Exercise Price") and on the terms and conditions set forth in this
Agreement. Said Exercise Price equals or exceeds the per share fair market value
of the Shares on the date the Option was granted; provided, however, that if the
Optionee owns, on the date the Option was granted, more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company, the
Exercise Price equals or exceeds one hundred ten percent (110%) of the fair
market value of the Common Stock on the date the Option was granted.
OPTION TERM AND VESTING. The Option shall terminate at 5:00 P.M.,
______________, _____________ time, on ____________, 19__, or on such earlier
date as may be required by this Agreement; provided, however, that if the
Optionee owns, on the date the Option was granted, more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company, the
Option shall only constitute an Incentive Stock Option to the extent exercised
on or prior to [Insert 5-year Anniversary Date], and to the extent exercised
after [Insert 5-year Anniversary Date], the Option shall be considered a
Non-Statutory Option. Except as otherwise provided herein, from and after the
date of this Agreement, the Option shall be exercisable to the extent of twenty
percent (20%) of the total number of Shares subject to the Option; from and
after [Insert 1st Anniversary Date], the Option shall be exercisable to the
extent of forty percent (40%) of the total number of Shares subject to the
Option; from and after [Insert 2nd Anniversary Date], the Option shall be
exercisable to the extent of sixty percent (60%) of the total number of Shares
subject to the Option; from and after [Insert 3rd Anniversary Date], the Option
shall be exercisable to the extent of eighty percent (80%) of the total number
of Shares subject to the Option; and from and after [Insert 4th Anniversary
Date], the Option shall be exercisable to the extent of one hundred percent
(100%) of the total number of Shares subject to the Option.
ACCELERATION EVENT. In the event of the occurrence of an Acceleration
Event, the Board of Directors may elect to terminate the Option as of the
effective date of the Acceleration Event, provided that each of the following
conditions is met:
The Optionee shall be given at least thirty (30) calendar days
written notice of such termination, which notice shall include an
explanation of the rights of the Optionee as indicated below, and shall
additionally describe in reasonable detail the relevant terms and
conditions of the Acceleration Event, including the anticipated
effective date of the Acceleration Event (the "Acceleration Event
Notice").
Upon receipt by the Optionee of the Acceleration Event Notice,
assuming occurrence of the Acceleration Event, the Option shall have
its vesting accelerated and be exercisable in full. Unless otherwise
determined by the Board of Directors: (i) the Option may thereafter be
exercised only by the Optionee providing written notice to the Company
at least fifteen (15) days prior to the anticipated effective date for
the Acceleration Event as specified in the Acceleration Event Notice,
specifically stating the extent to which the Optionee will exercise the
Option (the "15-Day Exercise Notice"); (ii) any such exercise shall be
further accomplished by the Optionee complying with the requirements of
Section 11 of this Agreement and shall be effective as of the actual
effective date of the Acceleration Event; (iii) if no 15-Day Exercise
Notice is provided by the Optionee to the Company, assuming occurrence
of the Acceleration Event, the Optionee shall have no right, and shall
be presumed to have waived any right, to any further exercise of the
Option; and (iv) at 12:01 a.m. on the actual effective date of the
Acceleration Event, the Option (to the extent not previously exercised)
shall terminate.
<PAGE>
Notwithstanding the provisions of Section 11 of this Agreement
(assuming the Optionee does not engage in a "cashless" exercise of
his/her Option), payment in full of the Exercise Price shall not be
required to be delivered in connection with delivery of the 15-Day
Exercise Notice, but instead shall be required to be paid in full on
the effective date of the Acceleration Event.
If the anticipated Acceleration Event does not occur, the
rights and obligations of the Optionee and the Company shall be as
though the Acceleration Event Notice was never provided and any
exercise of the Option by Optionee pursuant to delivery of the 15-Day
Exercise Notice had never occurred, including, but not limited to, that
(i) the vesting schedule for the Option shall be as otherwise provided
in this Agreement, (ii) any exercise of the Option by the Optionee
pursuant to delivery of the 15-Day Exercise Notice shall be void and of
no effect, and (iii) any shares issued to the Optionee as a result of
delivery of the 15-Day Exercise Notice shall be considered canceled and
all certificates relating thereto immediately returned to the Company.
TERMINATION OF EMPLOYMENT. Upon termination of the Optionee's
employment with the Company or an Affiliate, whether such termination is due to
death, voluntary termination, involuntary termination or otherwise: (i) the
Option shall terminate three (3) months after the effective date of any such
termination of employment; (ii) if such termination of employment results other
than due to the death of the Optionee, the Option may be exercised only to the
extent the Optionee was entitled to exercise it as of the date of such
termination of employment; and (iii) if such termination of employment is due to
the death of the Optionee, the Option shall then become exercisable to the
extent one hundred percent (100%) of the total number of Shares subject to the
Option.
TRANSFERABILITY. The Option is not transferable in any manner except by
will or the laws of descent and distribution, and, during the lifetime of the
Optionee, shall be exercisable only by the Optionee. In the event of the
Optionee's death, the Option shall pass by will or the laws of descent and
distribution and may thereafter be exercised only by the Optionee's personal
representative, distributees or legatees, as the case may be, and otherwise in
accordance with this Agreement.
QUALIFICATION AND TAX CONSIDERATIONS.
Exercise Price. It is the intent of the Company that the
Option qualify for treatment as an "Incentive Stock Option" in
accordance with Section 422 of the Code. Although the Company has
attempted to comply with the statutory requirements for an Incentive
Stock Option, no assurance is given that the Option does in fact so
qualify. One of the requirements of an Incentive Stock Option is that
the exercise price of the option equals or exceed the fair market value
of the underlying Common Stock at the time the option is granted. For
Optionees who own stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company, the exercise price
of the option must equal or exceed one hundred ten percent (110%) of
the fair market value of the underlying Common Stock at the time the
option is granted. The Company has determined (with independent advice
where considered necessary) that the Exercise Price for the Option
equals or exceeds the fair market value of the Common Stock as of
_____________, 19__. However, no assurance can be given that the
Exercise Price and fair market value so determined will be accepted by
the government or a court as correct.
Other Qualification Considerations. In addition, in order to
qualify for favorable tax treatment, no disposition of stock obtained
pursuant to an Incentive Stock Option may be made within 2 years from
the date of the grant of the Option or within 1 year after exercise of
the Option and the transfer of such stock to the Optionee. Further, in
order to qualify for favorable tax treatment, the Option must be
exercised no later than three (3) months after the termination of the
Optionee's employment with the Company or an Affiliate (other than as a
result of the death of the Optionee), whether such termination is
voluntary or involuntary. It is conceivable that an Optionee may not be
able to comply with these requirements if, for example, there were a
cash buy-out of the Company, a liquidation or merger of the Company,
etc. If these requirements are not observed, the Optionee will not
receive the favorable tax treatment described below.
<PAGE>
Tax Treatment. If the Option qualifies for favorable tax
treatment as an Incentive Stock Option, the Optionee will realize no
income upon receipt or exercise of an Option. Upon the sale of the
Common Stock acquired with an Incentive Stock Option, the Optionee will
generally be subject to tax on the gain (if any) realized therefrom.
The Optionee's basis in such stock will be the Exercise Price under the
Option. Since federal income tax law is subject to change and income
tax laws vary from state to state, the Company urges the Optionee to
consult with his or her individual tax advisor(s) prior to the exercise
of an Option and the subsequent sale of Common Stock acquired pursuant
to such exercise. THE COMPANY IS NOT GIVING, AND WILL NOT GIVE, BY THIS
AGREEMENT OR OTHERWISE, INDIVIDUAL INCOME TAX ADVICE TO THE OPTIONEE.
AMENDMENT AND TERMINATION. Notwithstanding anything else provided in
the Option or Plan to the contrary, the Board of Directors may amend the Plan
and the Option from time to time in such respects as the Board may deem
advisable, including, without limitation, amendments to the Plan so as to affect
the Option other than to increase the Exercise Price of the Option, decrease the
number of shares subject to the Option or terminate the Option.
The Board of Directors may at any time terminate the Plan. Any such termination
of the Plan shall not affect the Option already granted and the Option shall
remain in full force and effect as if the Plan had not been terminated.
ADJUSTMENTS. If the Optionee exercises all or any portion of the Option
subsequent to any change in the number of outstanding shares of Common Stock of
the Company occurring by reason of any stock dividend, stock split, reverse
stock split or other similar recapitalization of the Company, at the discretion
of the Board of Directors there shall be an appropriate adjustment to the number
of shares of Common Stock so that the Optionee shall then receive for the
aggregate price paid by him on such exercise of an Option the number of shares
of Common Stock which he would have held at the time of such exercise if the
Option had been exercised to the same extent prior to such stock dividend, stock
split, reverse stock split or other similar recapitalization. Notwithstanding
the foregoing, no fractional shares shall be issued or paid for.
OPTIONEE REPRESENTATIONS. As a condition to the exercise of any portion
of the Option, the Optionee must represent and agree, and hereby does represent
and agree, that any and all shares of Common Stock purchased under the Option
will be acquired for investment and not for resale. The Company may restrict the
transfer of the shares purchased and affix a legend to the certificate
representing such Common Stock stating that such shares may not be transferred
without (i) the opinion of counsel satisfactory to the Company that the proposed
transfer may lawfully be made without registration under the federal Securities
Act of 1933 and registration, notice or approval under any applicable state
securities laws or (ii) such applicable registration(s), notice(s) and
approval(s).
EXERCISE OF OPTIONS.
General. The Option can be exercised only by the Optionee or
other proper party delivering written notice to the Company at its
principal office within the option period, which written notice must be
in the form of attached Exhibit A. Subject to Section 11.B. below, such
notice must be accompanied by payment in full of the Exercise Price for
all shares of Common Stock designated in the notice. The Exercise Price
shall be paid in cash or by certified or cashier's check or, with the
prior written consent of the Company, by surrender to the Company of
previously acquired shares of Common Stock, such shares to be credited
against the Exercise Price based upon the fair market value thereof on
the date of exercise, as determined by the Board of Directors. Subject
to Section 14 hereof, the Company shall then cause a certificate or
certificates for such shares to be delivered within a reasonable
period.
Cashless Exercise. Notwithstanding Section 11.A. above,
the Optionee shall have the right to engage in a net value "cashless"
exercise of the Option. A "net value" exercise will be implemented as
follows:
As of the effective date of exercise, the difference
between the aggregate fair market value of the Shares for
which the Option is exercised and the aggregate exercise price
of the Option for such Shares is determined.
The difference between the aggregate fair market
value and the aggregate exercise price for the Shares will
then be divided by the fair market value of one (1) Share to
determine the number of Shares which are to be issued pursuant
to a "net value" exercise.
For example, if the Optionee were to engage in a net
value exercise with respect to 1,000 Shares at an exercise
price of $50.00 per Share, and the fair market value of the
Common Stock at that time was $75.00 per Share, the Optionee
would acquire 333 1/3 Shares pursuant to such net value
exercise of the Option. The 333 1/3 Shares in this example is
obtained by dividing the $25,000 difference between the
aggregate fair market value of the 1,000 Shares (1,000 x
$75.00, or $75,000) and the aggregate exercise price for such
1,000 Shares (1,000 x $50.00, or $50,000) by the per share
fair market value of the Common Stock as of such date
($75.00), resulting in 333 1/3 Shares.
<PAGE>
BUY-SELL OBLIGATIONS. All Shares acquired by the Optionee pursuant to
exercise of the Option shall be subject to the following:
Right of First Refusal. Prior to transferring any Shares
acquired pursuant to an exercise of the Option, the Optionee must first
offer such Shares to the Company as follows:
Terms of Offer. The offer to the Company shall be
made upon the same purchase price, payment terms and other
terms and conditions as proposed by the third party.
Written Notice. The offer shall be made in writing,
delivered to the Company, and shall state the number of Shares
offered, the name and address of the proposed third party
purchaser, the price per Share, the payment terms and any
other terms and conditions of the third party offer, together
with a representation, covenant and warranty that such third
party offer is genuine.
Acceptance By The Company. The offer shall create an
option in favor of the Company. The Company shall have a
period of thirty (30) days, from receipt of written notice of
the offer, within which to accept the offer. Acceptance shall
be permitted only where acceptance by the Company is of all
Shares offered. Acceptance of the offer shall be made by
written notice delivered to the Optionee.
Failure to Exercise Option. Absent acceptance of the
offer by the Company with respect to all Shares offered, any
partial acceptance shall be invalid and, upon expiration of
the option period provided to the Company in Section 12.A(iii)
above, the Optionee may transfer all Shares offered provided
(a) such transfer is completed within sixty (60) days of the
expiration of the option period provided to the Company as
specified above and (b) such transfer does not occur on terms
more favorable to the transferee and the terms upon which the
Shares were offered to the Company. Shares so transferred
shall no longer be subject to this right of first refusal.
Excluded Transfers. The provisions of this Section
12.A. are intended to apply only to voluntary transfers of
Shares by the Optionee. Transfers of Shares by the Optionee to
his heirs, beneficiaries or legatees as a result of the death
of the Optionee, together with involuntary transfers of Shares
as a result of foreclosure by creditors, divorce decree or
other similar transactions, are excluded; provided, however,
that the transferees in each of these excluded transfers takes
the Shares subject to this right of first refusal obligation,
and any subsequent transfer by them must be made in compliance
with the requirements of this provision.
Call Option. Shares acquired as a result of the exercise
of this Option shall be subject to a call option in favor of
the Company as follows:
Terms. For a period of ninety (90) days following any
such exercise, the Company shall have the option to purchase
all or any portion of the Shares so acquired at a purchase
price equal to the "market value" (as defined below) of the
Shares to be acquired. This purchase price shall be paid in
cash at closing.
Exercise of Call Option. To exercise its call option,
the Company shall be required to provide written notice of
exercise to the Optionee (or his successor(s) or assign(s), as
the case may be) prior to expiration of the ninety (90) day
option term, which written notice shall specify the number of
Shares to be acquired.
<PAGE>
Market Value. The "market value" of Shares acquired
by the Company as a result of its exercise of the call option
under this Section 12.B shall be determined in accordance with
the following:
Mutual Agreement. The Optionee and the
Company shall, for a period of fifteen (15) days
following exercise of the Company's call option,
attempt to mutually agree upon the market value of
the Shares to be acquired and sold. If they are not
able to agree within this 15-day period, the market
value shall be determined by appraisal.
Appraisal. For a period of seven (7) days
following expiration of the 15-day period specified
in Section 12.B(iii)(a) above, the Optionee and the
Company shall attempt to mutually agree upon an
appraiser. If the parties agree upon the identity of
the appraiser, the appraiser shall determine the
market value of the Shares to be sold, and the value
determined by such appraiser shall be the purchase
price. If the parties are not able to reach agreement
within such seven-day period, each shall identify an
appraiser, the appraisers identified by the Optionee
and the Company shall select a third appraiser, and
the third appraiser shall determine the market value
of the Shares to be acquired and sold. The value
determined by such third appraiser shall be the
purchase price. The fees and expenses charged by the
appraiser(s) shall be paid one-half by the Company
and one-half by the Optionee.
Closing. The closing of any acquisition and sale of Shares
pursuant to this Section 12 shall take place within fifteen (15) days
following (i) the Company's acceptance of the offer with respect to its
exercise of its right of first refusal under Section 12.A, or (ii)
final determination of the purchase price for the Shares with respect
to the Company's exercise of its call option under Section 12.B. Any
such closing shall take place at the principal business office of the
Company. At the closing, the Optionee shall deliver to the Company, in
exchange for payment of the purchase price, the certificates for the
Shares being sold, endorsed for transfer, together with any other
documents as may be reasonably requested by the Company to transfer
full and complete title to such Shares to the Company. The Optionee
shall warrant to the Company that the Optionee has good title to, the
right of possession of and the right to sell such Shares and that the
Shares are free and clear of all pledges, liens, encumbrances, charges,
proxies, restrictions, options, transfers and other adverse claims. The
Optionee shall further warrant to the Company that the Optionee will
indemnify and hold harmless the Company for all costs, expenses and
fees incurred in defending the title to and the right to possession of
such Shares.
Stock Certificate Legend. Each certificate representing Shares
of the common stock acquired pursuant to an exercise of the Option
shall conspicuously display the following legend:
The transfer of stock represented by this Certificate is
subject to substantial restrictions described in a Stock
Option Agreement which is on file at the office of the
Corporation. Acceptance of shares represented by this
Certificate shall be deemed an agreement to be bound by the
terms and conditions of such Stock Option Agreement.
<PAGE>
The restrictions contained in this Agreement shall be valid
irrespective of the existence of such legend on any stock certificate.
The Company shall keep and maintain a copy of this Agreement available
at its registered office for inspection by all properly interested
parties.
Restriction and Disposition. Any transfer which is made other
than in compliance with the terms and conditions of this Agreement and
which is made without the prior written consent of the Company shall be
void and of no affect and shall vest no right, title or interest in the
transferee.
Specific Performance. Each party agrees that breach of this
Agreement by such party will cause the other party irreparable harm for
which there is no adequate remedy of law and, without limiting whatever
other rights and remedies the other party may have under this
Agreement, the other party is entitled to the remedy of specific
performance to enforce this Agreement and each party consents to the
issuance of an order by a court of competence jurisdiction requiring
the specific performance of this Agreement.
EXCEPTIONS TO TERMINATION OF EMPLOYMENT. Whether military, government
or other service or leave of absence shall constitute a termination of
employment shall be determined in each case by the Board of Directors, in its
discretion, and any determination by the Board of Directors shall be final and
conclusive. A termination of employment shall not occur where the Optionee
transfers from the Company to one of its Affiliates or transfers from an
Affiliate to the Company or another Affiliate.
RESERVATION OF COMMON STOCK. The Company, during the term of the Plan
and all Options issued under the Plan, will at all times reserve and keep
available, and will use its commercially reasonable best efforts to seek or
obtain approval from any regulatory body having jurisdiction over the
transactions contemplated by this Agreement in order to issue and sell, such
number of shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Option and the Plan. The inability of the Company in the
opinion of its counsel to obtain from such regulatory body, in a commercially
reasonable manner, permission for the lawful issuance and sale of any shares of
its Common Stock hereunder shall relieve the Company of any liability in respect
of the non-issuance or sale of such Common Stock as to which such requisite
authority shall not have been obtained.
OPTIONEE TRANSFER OF COMMON STOCK. The Optionee shall provide written
notice to the Company of each and any transfer or disposition of Common Stock
acquired under the Option, irrespective of the type, nature or description of
such transfer or disposition. The Optionee shall be solely and exclusively
responsible for any federal, state or local income tax or other tax which is
payable in connection with or as a result of any such transfer or disposition,
and shall indemnify the Company and hold the Company harmless from and against
any and all losses, costs or damages, including attorneys' fees, incurred by or
asserted against the Company as a result of or relating to such taxes, including
specifically, but not exclusively, any penalties, fines or interest payable by
reason of a failure to pay such taxes or effect withholding therefore.
NO ADDITIONAL RIGHTS TO OPTIONEE. Entering into this Agreement shall
not confer on the Optionee any right to continuance of employment by the Company
and shall not interfere in any way with the Optionee's or the Company's right to
terminate such employment at any time for any reason or for no reason. The
Optionee shall have none of the rights of a shareholder of the Company with
respect to the Common Stock subject to the Option until such Common Stock shall
have been issued to the Optionee upon exercise of the Option.
SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
heirs, successors and assigns of the Company and the Optionee.
GOVERNING LAW. This Agreement shall be construed according to the
laws of Illinois.
<PAGE>
PLAN ADMINISTRATION. The Plan is to be administered by the Company's
Board of Directors (whether working through any appropriately appointed
committee or otherwise). Subject to the provisions of the Plan, the Board of
Directors shall have sole authority, in its absolute discretion, to do
everything necessary or appropriate to administer the Plan and the Option,
including, without limitation, interpreting the Plan and the Option. All
decisions, determinations and interpretations of the Board of Directors or any
appropriately appointed committee thereof regarding the Plan and this Agreement
shall be final and binding on the Optionee.
REGULATORY APPROVALS. All obligations of the Company to issue shares of
the Common Stock in connection with the exercise of the Option shall be subject
to the ability of the Company to obtain necessary approvals from state and/or
federal regulatory agencies, and any time frames relating to the purchase of
stock by the Company (or its assigns) from an Optionee in accordance with this
Agreement shall be extended as reasonably necessary to allow the Company (or its
assigns) to obtain necessary approvals from state and/or federal regulatory
agencies.
NOTICES. All notices or other communications from either party to the
other shall be in writing and shall be considered to have been duly delivered or
served if sent by first class, certified mail, return receipt requested, postage
prepaid, to the party at its address as set forth below or at such other address
as such party may hereafter designate by written notice to the other party:
If to the Company, to:
Financial Services Corporation
of the Midwest
224 18th Street
P.O. Box 4870
Rock Island, IL 61204-4870
Attn: Douglas M. Kratz
If to the Optionee, to:
------------------------------
------------------------------
------------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the day and year first above written.
THE COMPANY: OPTIONEE:
Financial Services Corporation
of the Midwest
By: ____________________________ _________________________
________________________________
Its:_______________________
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION
Financial Services Corporation of the Midwest
224 18th Street
P.O. Box 4870
Rock Island, IL 61204-4870
Attn: _______________
Sir or Madam:
I hereby exercise Option No. ____ (the "Option") granted to me by Financial
Services Corporation of the Midwest (the "Corporation") under that certain
Incentive Stock Option Agreement, dated _________________________, 199__ (the
"Option Agreement"), subject to all the terms and provisions thereof and of the
Financial Services Corporation of the Midwest 1996 Combined Incentive and
Nonstatutory Stock Option Plan referred to therein, and I hereby notify you of
my election to exercise the Option with respect to __________ shares (the
"Shares") of the common stock of the Corporation, which shares were offered to
me under the Option at an exercise price equal to $______ per share.
In accordance with the Option Agreement, payment of the Option exercise price
for the Shares shall be made as follows (select one as appropriate):
|_| Enclosed is cash _____ certified check ____ cashier's check
____ (check one) in the sum of $_________________,
representing the aggregate Option exercise price for the
Shares.
|_| Enclosed is (are) Certificate(s) No.(s) ______________
representing ________________ shares of the Corporation's
common stock, which shares are herewith transferred to the
Corporation as payment for the Shares being purchased and
shall be valued at $_________ per share in accordance with
the determination made by the Corporation's Board of
Directors. (Note that shares of the Corporation's
outstanding common stock may be transferred to the
Corporation as all or part of the purchase price for the
Shares only with the prior written consent of the
Corporation's Board of Directors).
|_| The undersigned has elected to engage in a net value
"cashless" exercise of the Option with respect to the
Shares.
I hereby represent that the shares of stock to be delivered to me pursuant to
this exercise of the Option are being acquired by me as an investment and not
with a view to, or for sale in connection with, the distribution of any of such
shares.
Dated: ______________, 199__.
NEW:2871-3 __________________________________
Optionee
EXHIBIT 21
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, 1997 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 16,306
<INT-BEARING-DEPOSITS> 131
<FED-FUNDS-SOLD> 800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,475
<INVESTMENTS-CARRYING> 39,805
<INVESTMENTS-MARKET> 39,502
<LOANS> 296,470
<ALLOWANCE> 5,442
<TOTAL-ASSETS> 445,669
<DEPOSITS> 361,891
<SHORT-TERM> 39,654
<LIABILITIES-OTHER> 5,330
<LONG-TERM> 11,250
0
6,520
<COMMON> 170
<OTHER-SE> 20,854
<TOTAL-LIABILITIES-AND-EQUITY> 445,669
<INTEREST-LOAN> 27,712
<INTEREST-INVEST> 6,037
<INTEREST-OTHER> 744
<INTEREST-TOTAL> 34,493
<INTEREST-DEPOSIT> 14,567
<INTEREST-EXPENSE> 17,638
<INTEREST-INCOME-NET> 16,855
<LOAN-LOSSES> 2,630
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,176
<INCOME-PRETAX> 6,722
<INCOME-PRE-EXTRAORDINARY> 4,257
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,257
<EPS-PRIMARY> 20.73
<EPS-DILUTED> 13.18
<YIELD-ACTUAL> 4.45
<LOANS-NON> 2,629
<LOANS-PAST> 289
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 4,463
<CHARGE-OFFS> 2,005
<RECOVERIES> 354
<ALLOWANCE-CLOSE> 5,442
<ALLOWANCE-DOMESTIC> 5,442
<ALLOWANCE-FOREIGN> 0
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</TABLE>
