United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: September 30, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
224 - 18th Street, Suite 202, Rock Island, Illinois 61201-8737
- --------------------------------------------------- ----------
(Address of principal executive offices) (zip code)
(309) 794-1120
(Registrant's telephone number)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
Common Stock, $.50 Par Value, 195,213 Shares
<PAGE>
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
INDEX
Part I -- Financial Information
Page No.
Item 1 Unaudited Financial Statements:
Consolidated Balance Sheets -- September 30,
1997 and March 31, 1997
Consolidated Statements of Income --
Six and Three Months Ended September 30,
1997 and 1996
Consolidated Statements of Stockholders'
Equity -- Six Months Ended September 30,
1997 and 1996
Consolidated Statements of Cash Flows --
Six Months Ended September 30, 1997
and 1996
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of
the Financial Condition and Results of
Operations
Part II -- Other Information and Signatures
<PAGE>
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
(Unaudited)
-------------------------
September 30, March 31,
1997 1997
------------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks ................................................................ $ 18,568 $ 16,306
Interest-bearing deposits with other financial institutions ............................ 58 131
Investment securities:
Held-to-maturity (approximate market value September 30, 1997-$33,613 and
March 31, 1997-$39,502) ........................................................ 33,506 39,805
Available-for-sale (amortized cost September 30, 1997-$88,149 and
March 31, 1997-$83,336) .................................................... 88,521 82,475
Federal funds sold ..................................................................... 26,300 800
Loans and direct financing leases ...................................................... 307,472 296,470
Less: Allowance for possible loan and lease losses ................................ (6,290) (5,442)
--------- ---------
Total loans and leases, net .................................................... 301,182 291,028
Premises, furniture and equipment, net ................................................. 5,298 5,496
Accrued interest receivable ............................................................ 3,006 2,969
Other real estate, net ................................................................. 82 594
Other assets ........................................................................... 6,445 6,065
--------- ---------
Total assets ................................................................... $ 482,966 $ 445,669
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand ......................................................... $ 42,127 $ 36,785
Interest-bearing:
N.O.W. accounts ................................................................ 35,241 23,575
Savings ........................................................................ 36,714 37,777
Insured money market ........................................................... 39,181 38,862
Other time ..................................................................... 256,379 224,892
--------- ---------
Total deposits ................................................................. 409,642 361,891
Accounts payable and accrued liabilities ............................................... 6,195 5,330
Securities sold under agreements to repurchase ......................................... 23,593 38,154
Other short-term borrowings ............................................................ 2,000 1,500
Notes payable .......................................................................... 10,000 10,000
Mandatory convertible debentures ....................................................... 1,250 1,250
--------- ---------
Total liabilities .............................................................. 452,680 418,125
--------- ---------
Stockholders' equity:
Capital stock:
Preferred, no par value; authorized, 100,000 shares:
Class A Preferred Stock, stated value $1,000 per share; authorized,
5,000 shares; issued and outstanding: September 30, 1997 - 5,000
shares; March 31, 1997- 0 shares ............................................ 5,000 --
Class B Preferred Stock, stated value $500 per share; authorized, 1,000 shares;
issued and outstanding: 1,000 shares ....................................... 500 500
Class C Preferred Stock, stated value $425 per share; authorized, 2,400 shares;
issued and outstanding: 2,400 shares ....................................... 1,020 1,020
Class F Preferred Stock, stated value $100 per share; authorized, 50,000 shares;
issued and outstanding: September 30, 1997 - 0 shares; March 31, 1997-
50,000 shares ............................................................... -- 5,000
Common, par value $.50 per share; authorized, 600,000 shares;
issued: 340,662 shares; outstanding: September 30, 1997 - 175,213 shares;
March 31, 1997 - 177,711 shares ............................................... 170 170
Capital surplus ........................................................................ 2,634 2,634
Net unrealized gain/(loss) on available-for-sale securities, net of taxes .............. 246 (568)
Retained earnings ...................................................................... 26,182 24,002
Treasury stock ......................................................................... (5,466) (5,214)
--------- ---------
Total stockholders' equity .................................................. 30,286 27,544
--------- ---------
Total liabilities and stockholder's equity ..................................... $ 482,966 $ 445,669
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
(Unaudited) (Unaudited)
----------------------- -----------------------
Six Months Ended Three Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases .............................. $ 14,864 $ 13,385 $ 7,457 $ 6,800
Interest on investment securities .................................. 3,755 2,903 1,945 1,470
Interest on federal funds sold ..................................... 359 182 248 110
Interest on interest-bearing deposits with other financial
institutions ..................................................... 2 129 1 65
-------- -------- -------- --------
Total interest income .......................................... 18,980 16,599 9,651 8,445
-------- -------- -------- --------
Interest on deposits ............................................... 8,997 6,897 4,681 3,500
Interest on securities sold under agreements to repurchase ......... 615 1,268 286 643
Interest on other short-term borrowings ............................ 40 49 24 26
Interest on notes payable .......................................... 400 191 200 96
Interest on mandatory convertible debentures ....................... 50 49 25 25
-------- -------- -------- --------
Total interest expense ......................................... 10,102 8,454 5,216 4,290
-------- -------- -------- --------
Net interest income ............................................ 8,878 8,145 4,435 4,155
Provision for possible loan and lease losses ........................... 1,822 1,050 902 525
-------- -------- -------- --------
Net interest income after provision for possible loan
and lease losses .................................... 7,056 7,095 3,533 3,630
-------- -------- -------- --------
Other income:
Trust fees ......................................................... 250 200 125 100
Net investment securities gains .................................... 20 -- 67 --
Loan servicing fees ................................................ 375 364 192 186
Gain on sales of loans and leases .................................. 206 180 109 68
Service charges on deposit accounts ................................ 609 553 321 279
Insurance commissions .............................................. 190 149 74 70
Other .............................................................. 506 361 196 229
-------- -------- -------- --------
Total other income ............................................. 2,156 1,807 1,084 932
-------- -------- -------- --------
Other expenses:
Salaries and employee benefits ..................................... 2,666 3,164 1,378 1,570
Occupancy, net ..................................................... 453 424 250 219
Insurance .......................................................... 66 55 30 27
Equipment .......................................................... 575 484 298 246
Data processing .................................................... 419 328 218 156
Advertising ........................................................ 257 230 129 109
Other operating .................................................... 816 1,043 509 644
-------- -------- -------- --------
Total other expenses ........................................... 5,252 5,728 2,812 2,971
-------- -------- -------- --------
Income before income taxes ..................................... 3,960 3,174 1,805 1,591
Income taxes ........................................................... 1,243 1,133 627 590
-------- -------- -------- --------
Net income ............................................................. $ 2,717 $ 2,041 $ 1,178 $ 1,001
======== ======== ======== ========
Net income available for Common Stock .................................. $ 2,417 $ 1,743 $ 1,027 $ 852
======== ======== ======== ========
Earnings per common share:
Primary ............................................................ $ 13.68 $ 9.87 $ 5.85 $ 4.83
======== ======== ======== ========
Fully diluted ...................................................... $ 8.79 $ 6.27 $ 3.93 $ 3.09
======== ======== ======== ========
Weighted average common shares outstanding ............................. 176,635 176,611 175,571 176,611
======== ======== ======== ========
Weighted average common and contingently issuable
common shares outstanding ......................................... 312,927 330,646 303,865 330,299
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
Net
Unrealized
Gain/(Loss)
On
Preferred Stock Available
Six Months Ended ---------------------------------- Common Capital For Sale Retained Treasury
September 30, 1997 (Unaudited) Class A Class B Class C Class F Stock Surplus Securities1 Earnings Stock
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997.................... $ --- $500 $1,020 $5,000 $170 $2,634 $(568) $24,002 $(5,214)
Net income ................................ --- --- --- --- --- --- --- 2,717 ---
Change in net unrealized gain/(loss) on
available-for-sale securities1 ........... --- --- --- --- --- --- 814 --- ---
Redemption of Class F Preferred.............. --- --- --- (5,000) --- --- --- --- ---
Issuance of Class A Preferred................ 5,000 --- --- --- --- --- --- --- ---
Purchase of 2,498 shares of
Treasury Stock and costs.................. --- --- --- --- --- --- --- --- (252)
Cash dividends declared:
Class A Preferred, $21.33 per share....... --- --- --- --- --- --- --- (107) ---
Class B Preferred, $23.82 per share....... --- --- --- --- --- --- --- (24) ---
Class C Preferred, $18.06 per share....... --- --- --- --- --- --- --- (43) ---
Class F Preferred, $3.30 per share........ --- --- --- --- --- --- --- (165) ---
Common, $1.13 per share .................. --- --- --- --- --- --- --- (198) ---
----------------------------------------------------------------------------------
Balance at September 30, 1997................ $5,000 $500 $1,020 $ --- $170 $2,634 $ 246 $26,182 $(5,466)
==================================================================================
Six Months Ended
September 30, 1996 (Unaudited)
Balance at March 31, 1996.................... $ --- $500 $1,020 $5,000 $170 $2,574 $(422) $20,694 $(5,249)
Net income ................................ --- --- --- --- --- --- --- 2,041 ---
Change in net unrealized gain/(loss) on
available-for-sale securities1 ........... --- --- --- --- --- --- (417) --- ---
Cash dividends declared:
Class B Preferred, $23.18 per share....... --- --- --- --- --- --- --- (23) ---
Class C Preferred, $18.06 per share....... --- --- --- --- --- --- --- (43) ---
Class F Preferred, $4.62 per share........ --- --- --- --- --- --- --- (231) ---
Common, $1.00 per share .................. --- --- --- --- --- --- --- (178) ---
----------------------------------------------------------------------------------
Balance at September 30, 1996................ $ --- $500 $1,020 $5,000 $170 $2,574 $(839) $22,260 $(5,249)
==================================================================================
<FN>
1 Net of taxes
</FN>
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
(Unaudited)
--------------------
Six Months Ended
September 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ........................................................................... $ 2,717 $ 2,041
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .................................................... 595 670
Provision for possible loan and lease losses ..................................... 1,822 1,050
Net gain on sale of investment securities available-for-sale ..................... (20) --
Investment amortization, net ..................................................... 41 133
Loans and leases originated for sale ............................................. (27,300) (18,965)
Proceeds from sales of loans and leases .......................................... 26,001 27,071
Gain on sales of loans and leases ................................................ (206) (180)
Increase in interest receivable .................................................. (37) (97)
Increase in interest payable ..................................................... 512 83
Decrease in other assets ......................................................... (751) (366)
Increase in other liabilities .................................................... 353 95
-------- --------
Net cash provided by operating activities ............................................ 3,727 11,535
-------- --------
Cash Flows From Investing Activities:
Net (increase) decrease in federal funds sold ........................................ (25,500) 3,700
Net (increase) decrease in interest-bearing deposits with other financial institutions 73 (81)
Purchase of investment securities held-to-maturity ................................... (175) (11,915)
Proceeds from maturity or call of investment securities held-to-maturity ............. 6,500 10,000
Purchase of investment securities available-for-sale ................................. (21,828) (8,604)
Proceeds from maturity or call of investment securities available-for-sale ........... 5,204 6,177
Proceeds from sales of investment securities available-for-sale ...................... 11,764 --
Net increase in loans and leases ..................................................... (10,471) (24,467)
Purchase of premises, furniture and equipment ........................................ (445) (213)
Other investing activities, net ...................................................... 512 314
-------- --------
Net cash used in investing activities ................................................ (34,366) (25,089)
-------- --------
Cash Flows From Financing Activities:
Net increase in deposits ............................................................. 47,751 19,213
Net increase in short-term borrowings ................................................ 500 550
Net decrease in securities sold under agreements to repurchase ....................... (14,561) (1,924)
Redemption of Preferred Stock ........................................................ (5,000) --
Proceeds from issuance of Preferred Stock ............................................ 5,000 --
Treasury Stock purchase and costs .................................................... (252) --
Cash dividends paid on Preferred Stock ............................................... (339) (297)
Cash dividends paid on Common Stock .................................................. (198) (178)
-------- --------
Net cash provided by financing activities ............................................ 32,901 17,364
-------- --------
Net increase in cash and due from banks .............................................. 2,262 3,810
Cash and due from banks at the beginning of the year ................................. 16,306 14,423
-------- --------
Cash and due from banks at the end of the period ..................................... $ 18,568 $ 18,233
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Financial Statements - The accompanying unaudited consolidated
financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in Financial
Services Corporation of the Midwest's ("FSCM") Form 10-K for the fiscal
year ended March 31, 1997, filed with the Securities and Exchange
Commission. Forward-looking information contained in the Management's
Discussion and Analysis section of this report is based on projections.
Actual results may differ materially from such information.
In the opinion of management of FSCM, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position of FSCM, its results of operations and its cash flows for the
interim periods presented. Interim results are not necessarily indicative
of the results to be expected for the full year.
2. Supplemental Disclosures of Cash Flow Information - Cash paid for:
Six Months Ended
(Dollars in Thousands) September 30,
-------------------------
1997 1996
------ ------
Interest ................................. $9,590 $8,371
Income taxes ............................. 1,621 1,395
3. 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 respective periods.
<TABLE>
Six Months Ended Three Months Ended
(Dollars in Thousands) September 30, September 30,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income .................................................. $ 2,717 $ 2,041 $ 1,178 $ 1,001
Accrued preferred dividends ................................. (300) (298) (151) (149)
--------- --------- --------- ---------
Primary earnings ............................................ 2,417 1,743 1,027 852
Accrued convertible preferred dividends ..................... 300 298 151 149
Mandatory convertible debentures interest expense, net of tax 33 32 17 16
--------- --------- --------- ---------
Fully diluted earnings ...................................... $ 2,750 $ 2,073 $ 1,195 $ 1,017
========= ========= ========= =========
Weighted average common shares outstanding1,3 ............... 176,635 176,611 175,571 176,611
Weighted average common shares issuable upon conversion of:
Class A Preferred Stock2 ................................. 18,898 -- 37,590 --
Class B Preferred Stock3 ................................. 11,111 11,111 11,111 11,111
Class C Preferred Stock3 ................................. 24,000 24,000 24,000 24,000
Class F Preferred Stock2 ................................. 32,283 68,924 5,593 68,577
Mandatory convertible debentures3 ........................ 50,000 50,000 50,000 50,000
--------- --------- --------- ---------
Weighted average common and contingently issuable
common shares outstanding .......................... 312,927 330,646 303,865 330,299
========= ========= ========= =========
<PAGE>
<FN>
1 FSCM's Common Stock tender offer terminated in August 1997 with 2,498
shares of Common Stock tendered for $90 per share cash. On July 1, 1997,
FSCM granted options to acquire 800 shares of Common Stock at a price of
$100 per share exercisable within the next eight years. These options are
currently antidilutive and have no impact on the numbers of weighted
average common and contingently issuable common shares outstanding.
2 In July 1997, the Class A Cumulative Convertible Preferred Stock was
reclassified to Class F Cumulative Convertible Preferred Stock and
redeemed in its entirety. Funding for the redemption was provided through
the private placement of $5,000 in new Class A Cumulative Convertible
Preferred Stock ("Class A Preferred Stock"). The new Class A Preferred
Stock is immediately convertible, at the option of the holders, into
41,666 shares of FSCM's Common Stock.
3 The Class B and C Preferred Stock and the mandatory convertible
debentures ("MCDs") are convertible at the option of the holders. The
holders of the Class B and C Preferred Stock and certain holders of the
MCDs have consented to provide FSCM with a ninety day notice prior to the
conversion of their securities and allow for the obtainment of any
necessary regulatory approval or legal opinion. No MCDs or Preferred
Stock was converted to common shares during the periods presented. In
November 1997, $500 MCDs were converted into 20,000 shares of Common
Stock.
</FN>
</TABLE>
<PAGE>
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
MANAGEMENT'S DISCUSSION AND ANALYSIS
Business Development
In May 1997, FSCM extended a tender offer to all shareholders of Common Stock.
The offer terminated on August 13 with a total of 2,498 shares of Common Stock
exchanged for $90 cash per share and was funded, including costs of $27,000,
with cash on hand.
In July 1997, FSCM reclassified the Class A Cumulative Convertible Preferred
Stock to Class F Cumulative Convertible Preferred Stock ("Class F Preferred
Stock"). On July 10, 1997, FSCM redeemed the $5 million 9.25% Class F Preferred
Stock at a redemption price of $100 per share as provided in the terms of the
Class F Preferred Stock. Funding for the retirement of the Class F Preferred
Stock was provided through the issuance of $5 million of new 9.25% Class A
Cumulative Convertible Preferred Stock ("Class A Preferred Stock"). Each share
of the Class A 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 Class A Preferred Stock was issued to principal
shareholders of FSCM who are also executive officers and directors of FSCM and
TRIB.
In November 1997, holders of $500,000 in MCDs exercised their options and
converted the MCDs into 20,000 shares of Common Stock.
Income Statement
Overview
Net income and earnings per fully diluted common share equaled $2.717 million
and $8.79, respectively, for the six months ended September 30, 1997, a $676
thousand, or 33.12%, increase above 1996's comparable six month income of $2.041
million and a $2.52 per share increase above 1996's earnings per fully diluted
common share of $6.27. Net income for the three months ended September 30, 1997
and 1996 equaled $1.178 million and $1.001 million, respectively. As reflected
in the table below, the increase in net interest income between 1997 and 1996
was completely offset by increased provisions for possible loan and lease
losses. The increase in net income primarily resulted from increased other
income and decreased other expenses which were only partially offset by
increased income taxes. Further discussion relating to these changes can be
found throughout the remaining Management's Discussion and Analysis section of
this report.
Change in Income
--------------------
Six Three
(Dollars in Thousands) Months Months
------- -------
Interest income ...................................... $ 2,381 $ 1,206
Interest expense ..................................... (1,648) (926)
------- -------
Net interest income .................................. 733 280
Provision for possible loan and lease losses ......... (772) (377)
Other income ......................................... 349 152
Other expenses ....................................... 476 159
Income taxes ......................................... (110) (37)
------- -------
Net increase in net income ........................... $ 676 $ 177
======= =======
<PAGE>
The efficiency and overhead ratios are two commonly used performance
measurements. Both measure the coverage of operating expense by net interest
income. In the efficiency ratio, other income is added to net interest income
and in the overhead ratio other income is netted against operating expense.
Lower ratios generally reflect better performance and therefore are considered
more favorable. FSCM's ratios as of September 30, 1997 and 1996 and the Peer
Group's efficiency ratio are presented below. 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 are as
of June 30, 1997-- which is the most recent data available. The improvement in
the ratios between the six months comparative periods primarily resulted from
the combined effect of increased net interest income and other income and
decreased operating expense between periods.
FSCM
September 30, September 30, Peer
1997 1996 Group
-------------- ------------- ---------
Efficiency Ratio .................. 47.68% 57.56% 62.14%
Overhead Ratio .................... 35.10 48.14 N/A
Net Interest Income
In the following two tables, various components of interest-earning assets and
interest-bearing liabilities are identified and compared to the prior year.
Average interest-earning assets have increased $68.5 million, or 18.96%, between
years. Similarly, average interest-bearing liabilities have risen $60.8 million,
or 18.58%. The difference between the increase in growth of average
interest-earning assets and interest-bearing liabilities was primarily due to
growth in average capital and average noninterest- bearing liabilities. The
interest rate spread (the difference between the yield on interest-earning
assets and the cost of interest-bearing liabilities) has narrowed. The spread
for the six months ended September 30, 1997 was 3.62% versus the prior year's
spread of 4.02%. The tightening of the spread resulted from both a decrease in
the yield on interest-earning assets, which dropped to 8.83% for the six months
ended September 30, 1997 from 9.19% in 1996, and a slight increase in the cost
of interest-bearing liabilities, which equaled 5.21% and 5.17% for the
respective periods. The comparative yield and cost for FSCM's Peer Group equaled
8.22% and 4.44%, respectively.
Average asset growth was primarily distributed between net loans (which
increased $44.8 million), investments (which increased $22.6 million), and
federal funds (which increased $6.0 million). The growth in average federal
funds was primarily due to a temporary excess liquidity that resulted from
deposit growth exceeding new loan demand. Additionally, the yields on
interest-earning assets increased slightly between periods except for the yield
on loans and leases which decreased 59 basis points to 9.97% in 1997 from 10.56%
the previous year (Peer Group's yield on loans and leases equaled 9.27%). Loan
and lease fees included in interest income decreased $387 thousand between
periods to equal $409 thousand from $796 thousand for the respective six month
periods ended September 30, 1997 and 1996. This decrease was primarily the
result of increased deferral of loan fees, which will be amortized over the life
of the related loans. The impact of the decreased fees in the 1997 yield of
loans and leases was approximately 26 basis points.
Average liability growth was primarily distributed between time and savings
accounts which increased $51.5 million and $27.4 million, respectively, and was
partially offset by a $23.3 million decrease in securities sold under agreements
to repurchase ("repurchase agreements"). Part of the time deposit increase and
the majority of the decrease in repurchase agreements were due to the shift of
$17.5 million in State funds between the two types of accounts. Further, a
short-term $11.7 million repurchase agreement issued in January 1997 matured and
was redeemed in May 1997. The cost of interest-bearing deposits increased four
basis points between the comparative six month periods to 5.21% from 5.17% as
compared to the Peer Group cost of 4.44%. Although the interest rates on most
liability accounts decreased between periods, the benefit of the 13 basis point
decrease in cost of time deposits was completely offset by the 58 basis point
increase in cost of savings deposits. The resulting net interest margin (net
interest income divided by average total interest-earning assets) decreased 38
basis points between periods to 4.13% from 4.51%--the Peer Group's margin
equaled 4.62%.
The second table further identifies the components of the increase in net
interest income. The net $1.513 million positive variance from average balance
increases was only partially offset by the net $780 thousand negative average
rate variance and resulted in the positive $733 thousand increase in net
interest income between six month periods.
<PAGE>
AVERAGE BALANCE AND INTEREST RATE ANALYSIS
<TABLE>
Six Months Ended
---------------------------------------------------------------------------
(Dollars in Thousands) September 30, 1997 September 30, 1996
------------------------------------ ---------------------------------
Average Average
Average Annual Average Annual
ASSETS Balance Interest Rate Balance Interest Rate
------------------------------------------------ ----------- ----------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with other
financial institutions ..................... $ 70 $ 2 5.71% $ 4,899 $ 129 5.27%
Investment securities .......................... 118,829 3,755 6.32 96,258 2,903 6.03
Federal funds sold ............................. 12,884 359 5.57 6,866 182 5.30
Loans and leases, net1 ......................... 298,166 14,864 9.97 253,412 13,385 10.56
--------- ------ -------- --------
Total interest-earning assets .............. $429,949 18,980 8.83 $361,435 16,599 9.19
======== ------ ======== --------
LIABILITIES
Savings deposits................................ $109,203 1,821 3.34 $ 81,851 1,129 2.76
Time deposits .................................. 240,784 7,176 5.96 189,320 5,768 6.09
Federal funds purchased......................... 90 3 6.67 203 6 5.91
Securities sold under agreements to
repurchase ................................. 25,330 615 4.86 48,673 1,268 5.21
Other short-term borrowings .................... 1,386 37 5.34 1,443 43 5.96
Notes payable .................................. 10,000 400 8.00 4,500 191 8.49
Mandatory convertible debentures ............... 1,250 50 8.00 1,250 49 7.84
-------- -------- -------- --------
Total interest-bearing liabilities ......... $388,043 10,102 5.21 $327,240 8,454 5.17
======== -------- ======== --------
Net interest income ............................ $ 8,878 $ 8,145
======= ========
Net interest margin (net interest income
divided by average total interest-
earning assets) ............................ 4.13% 4.51%
==== ====
<FN>
1 Nonaccruing loans and leases are included in the average balance. Loan and
lease fees of $409 and $796 for the six months ended September 30, 1997 and
1996, respectively, are included in interest income on loans and leases.
</FN>
</TABLE>
INTEREST VARIANCE ANALYSIS
<TABLE>
Six Months Ended
September 30, 1997 vs. September 30, 1996
-----------------------------------------
Increase (Decrease)
Due to Change in1
-----------------------------
Average Average Total
(Dollars in Thousands) Balance Rate Change
------- ------- -------
<S> <C> <C> <C>
Interest income:
Interest-bearing deposits with other financial institutions $ (127) $ -- $ (127)
Investment securities ..................................... 681 171 852
Federal funds sold ........................................ 160 17 177
Loans and leases .......................................... 2,364 (885) 1,479
------- ------- -------
Total interest income .................................. 3,078 (697) 2,381
------- ------- -------
Interest expense:
Savings deposits .......................................... 377 315 692
Time deposits ............................................. 1,568 (160) 1,408
Federal Funds purchased ................................... (3) -- (3)
Securities sold under agreements to repurchase ............ (608) (45) (653)
Short-term borrowings ..................................... (2) (4) (6)
Notes payable ............................................. 233 (24) 209
Mandatory convertible debentures .......................... -- 1 1
------- ------- -------
Total interest expense ................................. 1,565 83 1,648
------- ------- -------
Change in net interest income ................................. $ 1,513 $ (780) $ 733
======= ======= =======
<PAGE>
<FN>
1 The change in interest due to the volume and rate has been allocated to the
change in average rate. Nonaccruing loans and leases are included in
average balance. Loan and lease fees of $409 and $796 for the six months
ended September 30, 1997 and 1996, respectively, are included in the
interest income on loans and leases.
</FN>
</TABLE>
Provision for Possible Loan and Lease Losses
The provision for possible loan and lease losses totaled $1.822 million and
$1.050 million for the respective six month periods ended September 30, 1997 and
1996 and $902 thousand and $525 thousand for the respective three month periods.
The amount of the provision was based on management's assessment of the adequacy
of the allowance for possible loan and lease losses in relation to both total
loans and leases and nonperforming loans (those past-due 90 days or more or in a
nonaccrual status). The allowance, stated as a percentage of non-performing
loans and leases, equaled 170.78% and 202.46% as of September 30, 1997 and 1996,
respectively. FSCM's comparative Peer Group ratio equaled 274.95%. The
allowance, stated as a percentage of total loans and leases, equaled 2.05% and
1.84% at September 30, 1997 and 1996, respectively, and the Peer Group ratio
equaled 1.34%. Net charge-offs for the 1997 and 1996 six month periods totaled
$974 thousand and $822 thousand, respectively, and for the respective three
month periods totaled $429 thousand and $664 thousand.
Other Income
Other income totaled $2.156 million and $1.807 million for the six months ended
September 30, 1997 and 1996, respectively, an increase of $349 thousand, or
19.31%, and totaled $1.084 million and $932 thousand for the respective 1997 and
1996 three month periods, an increase of $152 thousand, or 16.31%. Other income,
excluding net investment security gains, for the six months stated as an
annualized percentage of average assets equaled 0.92% and 0.93% for 1997 and
1996, respectively, and was comparable to the Peer Group ratio of 0.95%.
The net investment securities gains of $20 thousand for the six months ended and
$67 thousand for the three months ended September 30, 1997 was the result of a
$49 thousand loss from the sale of $11.5 million in agency securities by TRIB
when repositioning the portfolio and a $69 thousand gain from the sale of $283
thousand in financial institution stocks by FSCM. An increase of $95 thousand
between 1997 and 1996 six month periods in syndication fees on credit financing
arrangements comprised the majority of the $145 thousand increase in other
miscellaneous income.
Other Expenses
Other expenses totaled $5.252 million and $5.728 million for the six months
ended and $2.812 million and $2.971 million for the three months ended September
30, 1997 and 1996, respectively. The $476 thousand and $159 thousand decrease
between respective six and three month periods was due primarily to increased
deferral of direct loan related expenses that will be amortized over the life of
the related loans. The increased deferrals, between the comparable six month and
three month periods, reduced salaries and employee benefits by $811 thousand and
$381 thousand, respectively, and reduced other operating expenses by $91
thousand and $34 thousand, respectively. Other expense, stated as an annualized
percentage of average assets, equaled 2.28% and 2.95% for the respective 1997
and 1996 six month periods and compared favorably to the Peer Group ratio of
3.19%. The deferral of direct loan related expense favorably impacted 1997's
ratio by 39 basis points.
The number of full-time equivalent employees totaled 193 at September 30, 1997,
an increase of 12 employees, or 6.63%, over September 1996's full-time
equivalent total of 181. Salaries and employee benefits equaled $2.666 million
and $3.164 million for the 1997 and 1996 six month periods, respectively, and
$1.378 million and $1.570 million for the respective three month periods.
Annualized personnel expense, stated as a percentage of average assets equaled
1.16% and 1.63% for the respective periods as compared to the Peer Group ratio
of 1.70%--the impact on 1997's ratio of the aforementioned deferred costs was 35
basis points.
The $91 thousand increase in data processing expense between the six month
periods ended September 30, 1997 and 1996 ($62 thousand between the three month
periods) was primarily due to increased number of accounts (both deposit and
loan) supported by the third-party computer service vendor. Other operating
expense equaled $816 thousand and $1.043 million for the respective six month
1997 and 1996 periods and $509 thousand and $644 thousand for the respective
three month periods. The reduction in expense in 1997 as compared to 1996
primarily resulted from the combination of the previously discussed deferred
direct loan expense and the acceleration of amortization in 1996 of note
offering costs due to prepayment--$140 thousand and $127 thousand for the six
and three month periods.
<PAGE>
Income Taxes
Income taxes totaled $1.243 million and $1.133 million for the respective six
month periods and $627 thousand and $590 thousand for the respective three month
periods ended September 30, 1997 and 1996. The equivalent combined Federal and
State effective tax rates equaled 31.39% and 35.70% for the respective six month
periods and 34.74% and 37.08% for the respective three month periods. The
reduction in the 1997 effective rates primarily resulted from a $258 thousand
over accrual of State taxes that was partially offset by a $175 thousand
deferred tax adjustment for the fiscal March 31, 1997 year-end.
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 the
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. FSCM utilizes the
expertise of both on-staff personnel and outside consultants to perform loan
reviews to monitor loan documentation; ensure compliance with internal policies
and governmental regulations; and maintain the internal loan and lease watch
list. Internal audit and compliance staff are also utilized to provide on-going
operational audits and review of regulatory compliance. In addition, 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. An asset/liability committee monitors the
liquidity position of FSCM in order to provide for future liquidity requirements
as well as maintain an acceptable return on assets. Further, computer simulation
modeling is used to assess the interest rate sensitivity characteristics of
assets and liabilities and predict possible impacts of new marketing and product
development strategies.
As depicted in FSCM's Consolidated Statement of Cash Flows, the operating and
financing activities are generally net sources of liquidity and investing
activities are net uses of liquidity. For the six months ended September 30,
1997, sources of cash were primarily provided by the net increase in deposits
over the reduction in repurchase agreements and uses of cash were primarily to
finance the net increase in loans and leases and, on a temporary basis at
September 1997, provided for an increase in federal funds sold. The resulting
net change in cash and due from banks reflected increases of $2.262 million and
$3.810 million for the six months ended September 30, 1997 and 1996.
Balance Sheet
Overview
Assets totaled $483.0 million at September 30, 1997, an increase of $37.3
million, or 8.37%, from March's total of $445.7 million. The increase was
primarily distributed between net loans and leases ($10.2 million) and federal
funds sold ($25.5 million). The federal funds sold growth primarily reflected a
temporary abundance of funds due to deposit growth exceeding new loan demand.
Funding growth was provided by the net increase in deposits ($47.8 million) over
the decrease in repurchase agreements ($14.6 million).
Loans and Direct Financing Leases
Loans and leases increased $11.002 million, or 3.71%, between September 30, and
March 31, 1997. The principal area of growth centered in the consumer financing
area, which increased $11.7 million and was primarily comprised of indirect
financing arrangements that TRIB purchased from dealers (e.g. auto, boat and
recreational vehicle dealerships) rather than directly financing the consumer. A
$4.9 million decrease between periods in commercial and commercial mortgage
lending prompted management to commence repayment of some of the correspondent
bank participations on TRIB originated credits. In June 1997, TRIB expaned the
residential mortgage lending program to encompass a more diversified group of
borrowers. All loans generated under the program are sold without recourse to
independent investors. TRIB's residential mortgage servicing portfolio totaled
$190.6 million and $185.3 million at September 30, and March 31, 1997. The
following table presents the September and March 1997 comparative distribution
of loans and leases.
<PAGE>
LOAN AND LEASE DISTRIBUTION
September 30, March 31,
(Dollars in Thousands) 1997 1997
------------- ---------
Commercial, financial and agricultural ............... $ 89,569 $ 93,502
Direct financing leases .............................. 6,441 5,612
Real estate:
Residential mortgage1 ............................. 67,414 64,309
Construction ...................................... 30,048 29,790
Commercial mortgage ............................... 70,721 71,648
Consumer, not secured by a real estate mortgage2 ..... 43,279 31,609
-------- --------
Total loans and leases ...................... $307,472 $296,470
======== ========
1 Includes first mortgages pending conclusion of their sale to the Federal
National Mortgage Association ("Freddie Mac"), Fannie Mae and the Illinois
Housing Development Authority ("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 and credit card plans.
Notes Payable
Notes payable totaled $10 million at both September 30, and March 31, 1997. The
change between September 30, 1997 and 1996 average balances in notes payable was
due to a November 1996 redemption of the $4.5 million 8.5% notes which was
replaced by $10 million 8.0% notes issued the same month.
Capital Resources
As previously discussed under Business Development, in August 1997 FSCM acquired
2,498 shares of Common Stock in a company sponsored tender offer at a price of
$90 per share and costs approximating $27,000. Additionally, in July 1997 the $5
million of 9.25% Class F Preferred Stock was redeemed and replaced with a
private placement of $5 million of new 9.25% Class A Cumulative Convertible
Preferred Stock. The Class F Preferred Stock was not convertible until on or
after December 1, 2002; however, the number of Common Stock equivalent shares
totaled 32,283 shares and 5,593 shares for the six month and three month periods
ended September 30, 1997, respectively. The new Class A Preferred Stock is
immediately convertible at the option of the holders into a constant 41,666
shares of FSCM Common Stock.
On July 1, 1997 FSCM granted options to acquire 800 shares of Common Stock at a
price of $100 per share exercisable, subject to certain vesting requirements,
within the next eight years to certain management officials. Further, FSCM
currently anticipates, depending upon the financial performance of FSCM and
TRIB, granting additional stock options to other management officials later in
the fiscal year. These options were granted under the 1996 Combined Incentive
and Nonstatutory Stock Option Plan that was ratified by FSCM's common
stockholders at the August 1996 annual meeting which provides for the issuance
of options to acquire a total of 20,000 shares of FSCM's Common Stock.
Currently, only 800 shares of FSCM's Common Stock have been granted under the
Plan and no options have previously been exercised.
Effective for the September 1997 payment, FSCM increased the dividend rate on
Common Stock to $2.50 per share per annum from the previous rate of $2.00 per
share per annum.
FSCM's capital, as measured by standards established by the federal banking
regulators, exceeded those defined for "well capitalized" institutions. The
table below sets forth FSCM's ratios as of September 30, and March 31, 1997, as
well as the minimum regulatory ratios and capital requirements for "well
capitalized" and "adequately capitalized" financial institutions.
<PAGE>
CAPITAL RATIOS
<TABLE>
Minimum Capital Required To Be Categorized As:
Actual Adequately Capitalized Well Capitalized
----------------- ---------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------ ------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997:
Total Capital (to Risk
Weighted Assets) ............. $45,026 13.44% $26,797 8.00% $33,497 10.00%
Tier I Capital (to Risk
Weighted Assets) ............ 29,563 8.83 13,399 4.00 20,098 6.00
Tier I Capital (to Average
Assets) .................... 29,563 6.44 18,360 4.00 22,950 5.00
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
</TABLE>
Impact of Recently Issued Statements of Financial Accounting Standards
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which
becomes effective for financial statements issued for periods ending after
December 15, 1997. This Statement establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
stock or potential Common Stock. This Statement simplifies the standards for
computing earnings per share previously found in APB Opinion No. 15, "Earnings
per Share," and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement of all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Management
believes that adoption of the Statement will not have a material effect on the
consolidated financial statements.
FASB has issued SFAS No. 130, "Reporting Comprehensive Income," which is
effective for fiscal years beginning after December 15, 1997. This Statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Management
believes that adoption of this Statement will not have a material effect on the
consolidated financial statements.
FASB has issued SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," which is effective for fiscal years beginning after
December 15, 1997. This Statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Management
believes that adoption of this Statement will not have a material effect on the
consolidated financial statements.
<PAGE>
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
Part II - Other Information and Signatures
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annul Meeting of Stockholders was held August 29, 1997.
b) The names of the directors who were re-elected at the Annual Meeting were:
1. Perry B. Hansen
2. Douglas M. Kratz
3. John T. Kustes
4. Francis P. McCarthy
c) Details of matters voted upon:
Votes Cast For Against Withheld Abstentions
- ---------- ------- ------- -------- -----------
For the election of directors:
Perry B. Hansen ................ 128,385 -- -- 378
Douglas M. Kratz ............... 128,385 -- -- 378
John T. Kustes ................. 128,385 -- -- 378
Francis P. McCarthy ............ 128,385 -- -- 378
For the appointment of McGladrey &
Pullen, LLP as FSCM's
independent accountants for the
fiscal year ending March 31,
1998 ........................... 128,439 294 -- 30
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 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, 1997.
10.2 Amendment, dated August 27, 1997, to Letter Agreement dated
as of December 15, 1992 by and between FSCM and M&I Bank.
10.3 Summary of Material Terms of Directors' and Officers'
Liability Policy covering the policy period from
October 18, 1997 to October 18, 2000.
(b) Reports on Form 8-K
None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FINANCIAL SERVICES CORPORATION OF THE MIDWEST
Date: November 13, 1997 By: /s/ Douglas M. Kratz
------------------------------------
Douglas M. Kratz
Chairman of the Board, CEO, CFO
By: /s/ Jean M. Hanson
-------------------------------------
Jean M. Hanson
Controller (Chief Accounting Officer)
EXHIBIT 10.1
Revolving Business Note
M&I Banks Ac#214396 N#12028
Financial Services Corporation of the Midwest July 31, 1997 $10,000,000.00
- --------------------------------------------- ------------- --------------
Customer Date Amount
The undersigned ("Customer," whether one or more) promises to pay to the order
of M&I Marshall & Ilsley Bank ("Lender") at 770 North Water Street, Milwaukee,
Wisconsin, 53202 the principal sum of $10,000,000.00 or, if less, the aggregate
unpaid principal amount of all loans made under this Note, plus interest, as set
forth below.
Lender will disburse loan proceeds to Customer's deposit account number
__________________ or by other means acceptable to Lender.
Interest is payable on October 31, 1997 , and on the last day of each third
month thereafter and at maturity.
Principal is payable July 31, 1998 .
This Note bears interest on the unpaid principal balance before maturity at a
rate equal to [Complete (a) or (b); only one shall apply]:
(a) _______________% per year.
(b) 0.0 percentage points in excess of the prime rate of interest adopted
by Lender as its base rate for interest rate determinations from time
to time which may or may not be the lowest rate charged by lender (with
the rate changing as and when that prime rate changes). The initial
rate is 8.50 % per year.
Interest is computed on the basis of a 360-day year on the actual number of days
principal is unpaid. Unpaid principal and interest bear interest after maturity
(whether by acceleration or lapse of time) until paid at the rate otherwise
applicable plus 2 percentage points computed on the same basis.
If any payment is not paid when due, if a default occurs under any other
obligation of any Customer to Lender or if Lender deems itself insecure, the
unpaid balance shall, at the option of the Lender, and without notice mature and
become immediately payable. The unpaid balance shall automatically mature and
become immediately payable in the event any Customer, surety, or guarantor
becomes the subject of bankruptcy or other insolvency proceedings. Lender's
receipt of any payment on this Note after the occurrence of an event of default
shall not constitute a waiver of the default or Lender's rights and remedies
upon such default.
The acceptance of this Note, the making of any loan, or any other action of
Lender does not constitute an obligation or commitment of Lender to make loans;
and any loans may be made solely in the discretion of Lender. This Note may be
prepaid in full or in part without penalty.
Lender is authorized to automatically charge payments due under this Note to
account number at (See reverse side regarding Notice of Transfers Varying in
Amount.)
_____ Check here only if this Note is to be secured by a first lien mortgage or
equivalent security interest on a one-to-four family dwelling used as Customer's
principal place of residence.
This notice includes additional provisions on reverse side.
Financial Services Corporation of the Midwest (SEAL) P.O. Box 4870
- --------------------------------------------- --------------------------
Address
By: /s/ Douglas M. Kratz, Chairman (SEAL) Rock Island, IL 61204-4870
-------------------------------- --------------------------
City/State/Zip
By: /s/ Perry B. Hansen, President (SEAL)
---------------------------------
- -------------------------------------(SEAL)
<PAGE>
ADDITIONAL PROVISIONS
This Note is secured by all existing and future security agreements, assignments
and mortgages between Lender and Customer, between Lender and any guarantor of
of the Note, and between Lender and any other person providing collateral
security for Customer's obligations, and payment may be accelerated according to
any of them. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, Customer grants to Lender a security interest and
lien in any deposit account Customer may at any time have with Lender. Lender
may, at any time after an occurrence of an event of default, without notice or
demand, setoff against any deposit balances or other money now or hereafter owed
any Customer by Lender any amount unpaid under this Note.
Lender is authorized to make book entries evidencing loans and payments and the
aggregate of all loans as evidenced by those entries is presumptive evidence
that those amounts are outstanding and unpaid to Lender. Customer covenants that
all loans shall be used solely for business and not personal purposes.
Customer agrees to pay all costs of administration and collection before and
after judgment, including reasonable attorneys' fees (including those incurred
in successful defense or settlement of any counterclaim brought by Customer or
incident to any action or proceeding involving Customer brought pursuant to the
United States Bankruptcy Code) and waives presentment, protest, demand and
notice of dishonor. Customer agrees to indemnify and hold harmless Lender, its
directors, officers, employees and agents, from and against any and all claims,
damages, judgments, penalties, and expenses, including reasonable attorneys'
fees, arising directly or indirectly from credit extended under this Note or the
activities of Customer. This indemnity shall survive payment of the Note.
Customer acknowledges that Lender has not made any representations or warranties
with respect to, and that Lender does not assume any responsibility to Customer
for, the collectability or enforceability of this Note or the financial
condition of any Customer. Customer authorizes Lender to disclose financial and
other information about Customer to others. Each Customer has independently
determined the collectability and enforceability of this Note.
Without affecting the liability of any Customer, surety, or guarantor, Lender
may, without notice, accept partial payments, release or impair any collateral
security for the payment of this Note or agree not to sue any party liable on
it. Without affecting the liability of any surety or guarantor, Lender may from
time to time, without notice, renew or extend the time for payment. The
obligations of all Customers under this Note are joint and several.
To the extent not prohibited by law, Customer consents that venue for any legal
proceeding relating to collection of this Note shall be, at Lender's option, the
county in which Lender has its principal office in this state, the county in
which any Customer resides or the county in which this Note was executed. This
Note shall be construed and enforced in accordance with the internal laws of
Wisconsin.
This Note is intended by Customer and Lender as a final expression of this Note
and as a complete and exclusive statement of its terms, there being no
conditions to the enforceability of this Note. This Note may not be supplemented
or modified except in writing.
PREAUTHORIZED TRANSFER DISCLOSURE
When Customer authorizes Lender to obtain payment of amounts becoming due Lender
by initiating charges to Customer's account, Customer also requests and
authorizes remitting financial institution to alert and honor same and to charge
same to Customer's account. This authorization will remain in effect until
Customer notifies Lender and the remitting financial institution in writing to
terminate this authorization and Lender and remitting financial institution have
a reasonable time to act on the termination. NOTICE OF TRANSFERS VARYING IN
AMOUNT: If Lender and remitting financial institution are not the same, Customer
is an individual, the account was established primarily for personal, family or
household purposes and the regular payments may vary in amount, Customer has the
right to receive a notice from Lender 10 days before each payment of how much
the payment will be; however, by signing this Note, Customer elects to receive
notice only when current payment would differ by more than 100% from previous
payment.
EXHIBIT 10.2
M&I Marshall & Ilsley Bank
770 North Water Street/Milwaukee, WI 53202-3593/Tel 414 765-7990
Correspondent Banking
August 27, 1997
Mr. Douglas M. Kratz, President
Financial Services Corporation of the Midwest
P. O. Box 4870
Rock Island, IL 61204-4870
RE: Amendment to Letter Agreement dated as of December 15, 1992
Dear Mr. Kratz:
The following amends the Loan Agreement dated December 15, 1992 as
amended as of March 14, 1996 and further amended as of July 27, 1996.
Paragraph 3 of the agreement is amended in its entirety to read as
follows:
"3. The Borrower shall at all times maintain a
minimum tangible net worth of at least $20,000,000.00.
Tangible net worth shall be defined in accordance with
generally accepted accounting principles. The Bank shall
maintain a minimum tangible net worth, as defined by
applicable regulatory authorities, of at least
$25,000,000.00."
Paragraph 6 of the agreement is amended in its entirety to read as
follows:
"6. The Borrower shall make no fixed asset
expenditures in an aggregate amount exceeding $500,000.00 in
any one fiscal year with the prior approval of M&I. The Bank
shall make only such fixed asset expenditures as would be made
under normal banking practices and in accordance with
applicable regulatory requirements without the prior written
approval of M&I. If the Bank is required, under regulatory
requirements, to obtain the approval of regulators for any
fixed asset expenditures, the Borrower shall also obtain the
prior written approval of M&I."
All other terms and conditions of the Agreement, as amended, shall
remain in force.
Please acknowledge acceptance of, and agreement to, the terms by
signing in the appropriate place indicated.
Sincerely yours,
By: /s/ John A. Leonard
-------------------------------------
John A. Leonard, Vice President
Attest: /s/ Andrew R. Ragatz
---------------------------------
Andrew R. Ragatz, Vice President
The above terms are accepted agreed to as of this date:
FINANCIAL SERVICES CORPORATION
OF THE MIDWEST
By: /s/ Douglas M. Kratz
---------------------------------------
Its: Chairman
Attest: /s/ Patricia A. Zimmer
----------------------------------
Its: Secretary
<PAGE>
The above terms are accepted and agreed to as of this date:
THE ROCK ISLAND BANK, N.A.
By: /s/ Perry B. Hansen
--------------------------------------
Its: Chairman
Attest: /s/ Patricia A. Zimmer
-----------------------------------
Its: Secretary
EXHIBIT 10.3
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, 1997 to October 18, 2000
Policy Number: DO-8563130 (Coverage on claims-made basis)
Limit of Liability: $5,000,000 Aggregate Each Policy Year
Retention: Per Director: $0
Aggregate: $50,000
Corporate Reimbursement $50,000
Endorsements: ERISA Exclusion
IRA/Keogh Extension
Outside Non-Profit Board Extension
Marital Status Extension
Trust Department Errors & Omissions
$3,000,000 Limit
$25,000 Retention
Additional Insureds
Employees
Broad Securities Exclusion
Allocation
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 FORM 10-Q 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 18,568
<INT-BEARING-DEPOSITS> 58
<FED-FUNDS-SOLD> 26,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,521
<INVESTMENTS-CARRYING> 33,506
<INVESTMENTS-MARKET> 33,613
<LOANS> 307,472
<ALLOWANCE> 6,290
<TOTAL-ASSETS> 482,966
<DEPOSITS> 409,642
<SHORT-TERM> 25,593
<LIABILITIES-OTHER> 6,195
<LONG-TERM> 11,250
0
6,520
<COMMON> 170
<OTHER-SE> 23,596
<TOTAL-LIABILITIES-AND-EQUITY> 482,966
<INTEREST-LOAN> 14,864
<INTEREST-INVEST> 3,755
<INTEREST-OTHER> 361
<INTEREST-TOTAL> 18,980
<INTEREST-DEPOSIT> 8,997
<INTEREST-EXPENSE> 10,102
<INTEREST-INCOME-NET> 8,878
<LOAN-LOSSES> 1,822
<SECURITIES-GAINS> 206
<EXPENSE-OTHER> 5,252
<INCOME-PRETAX> 3,960
<INCOME-PRE-EXTRAORDINARY> 2,717
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,717
<EPS-PRIMARY> 13.68
<EPS-DILUTED> 8.79
<YIELD-ACTUAL> 4.13
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,442
<CHARGE-OFFS> 974
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 6,290
<ALLOWANCE-DOMESTIC> 6,290
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
