<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
AMENDMENT NO. 1
TO ORIGINAL FORM 8-K
FILED ON JANUARY 14, 1998
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): DECEMBER 31, 1997
STATE FINANCIAL SERVICES CORPORATION
(exact name of registrant as specified in its charter)
WISCONSIN 0-18166 39-1489983
(State of other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
Incorporation)
10708 WEST JANESVILLE ROAD
HALES CORNERS, WI 53130
(address, including zip code, of principal executive offices)
Registrant's telephone number, including area code: (414) 425-1600
- --------------------------------------------------------------------------------
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITION OR DISPOSITION OF ASSETS. On December 31, 1997, State
Financial Services Corporation (the "Company") completed its acquisition of
Richmond Bancorp, Inc. and its two wholly-owned subsidiaries, Richmond Bank and
Richmond Financial Services, Inc. (collectively referred to as "Richmond").
Details of the Richmond acquisition were set forth in the Company's
original Form 8-K filed in regards to this transaction on January 14, 1998.
1
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS. Rule 3-05(b) of Regulation S-X sets forth the
periods for which financial statements of businesses acquired are to be
furnished. In the case of Richmond, Rule 3- 05(b)(2)(ii) of Regulation S-X would
apply as Richmond's consolidated total assets at December 31, 1997 comprise
28.5% percent of the Company's consolidated total assets, exclusive of Richmond,
as of the same date. Accordingly, the following financial statements are filed
as a part of this Report or, where so indicated, have previously been filed with
the Commission by the Company and are incorporated herein by reference:
<TABLE>
<CAPTION>
<S> <C> <C>
DESCRIPTION INCORPORATED BY REFERENCE
FROM
Richmond's Audited Financial Statements FILED HEREWITH
and Report of Independent Auditors as of
December 31, 1997.
(b) PRO FORMA FINANCIAL INFORMATION. The following Pro Forma Financial
Statements are filed as part of this report.
DESCRIPTION INCORPORATED BY REFERENCE
FROM
The Company's and Richmond's Pro Forma FILED HEREWITH
Condensed Consolidated Balance Sheet
dated December 31, 1997, Pro Forma Condensed
Consolidated Statements of Income for the
year ended December 31, 1997, and
Accompanying Footnotes thereto.
(c) EXHIBITS. Filed as Exhibits to this Report are the following:
EXHIBIT DESCRIPTION INCORPORATED BY REFERENCE
FROM
2.1 Agreement and Plan of Merger, dated as of The Company's Form 8-K filed with
November 4, 1997, among State Financial the Commission on January 14, 1998.
Services Corporation, RBI, Inc. and
Richmond Bancorp, Inc. (Pursuant to Item
601 (b(2) of Regulation S-K, the Company
has excluded from Exhibit 2.1 the exhibits
and disclosure schedules to the Agreement
and Plan of Merger. The Company agrees
to furnish copies of such documents to the
Commission upon request).
</TABLE>
SIGNATURE
2
<PAGE> 3
Pursuant to the requirements of the Securities Exchange Act of 1934,
State Financial Services Corporation has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Date: March 12, 1998 STATE FINANCIAL SERVICES CORPORATION
by: /s/ Michael A. Reindl
------------------------------
Michael A. Reindl,
Senior Vice President,
Controller and Chief Financial
Officer
3
<PAGE> 4
STATE FINANCIAL SERVICES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
As Reported
---------------------------------------------- --------------------
Pro Forma
ASSETS State Financial (1) Richmond (1) Consolidated
---------------------- ------------------ ------------
<S> <C> <C> <C>
Cash and due from banks $ 27,506 $ 2,808 $ 27,506
Federal funds sold 11,274 4,865 11,274
Investment securities - held-to-maturity 20,997 0 20,997
Investment securities - available-for-sale 74,254 25,593 74,254
Loans held for sale 0 1,328 0
Loans 267,819 49,725 267,819
Less allowance for loan losses 3,306 678 3,306
---------------------- ------------------ --------------------
Net loans 264,513 49,047 264,513
Premises and equipment 6,915 2,132 6,915
Accrued interest receivable 2,944 668 2,944
Intangible assets 7,931 6,248 7,931
Other assets 4,944 745 4,944
---------------------- ------------------ --------------------
$ 421,278 $ 93,434 $ 421,278
====================== ================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 69,170 $ 8,487 $ 69,170
Savings 83,760 7,659 83,760
Money market 89,854 18,825 89,854
Other time 124,708 44,951 124,708
---------------------- ------------------ --------------------
Total deposits 367,492 79,922 367,492
Notes payable 5,300 1,400 5,300
Securities sold under agreements to repurchase 4,850 0 4,850
Accrued expenses and other liabilities 3,214 564 3,214
Accrued interest payable 1,874 682 1,874
---------------------- ------------------ --------------------
Total liabilities 382,730 82,568 382,730
Stockholders' equity
Common Stock
Common Stock - State Financial 387 387
Capital surplus - State Financial 28,964 28,964
Common Stock - Richmond 0 1 0
Capital surplus - Richmond 0 10,895 0
Retained earnings 9,787 9,787
Net unrealized holding loss on securities 0
available-for-sale 889 (30) 889
Less: Guaranteed ESOP obligation (1,479) (1,479)
---------------------- ------------------ --------------------
38,548 10,866 38,548
---------------------- ------------------ --------------------
$ 421,278 $ 93,434 $ 421,278
====================== ================== ====================
</TABLE>
4
<PAGE> 5
STATE FINANCIAL SERVICES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
As Reported
----------------------------------------
Pro Forma Pro Forma
State Financial (1) Richmond (1) Adjustments Consolidated
------------------- ----------------- ----------------------- ------------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 19,869 $ 5,048 $ $ 24,917
Investment securities
Taxable 3,346 1,542 (420) (2d) 4,468
Tax-exempt 839 0 839
Federal funds sold 148 72 220
------------------- ----------------- ----------------- ----------------
Total interest income 24,202 6,662 (420) 30,444
Interest expense:
Deposits 9,078 3,702 12,780
Notes payable and other borrows 444 113 279 (2c) 836
------------------- ----------------- ----------------- ----------------
Total interest expense 9,522 3,815 279 13,616
------------------- ----------------- ----------------- ----------------
Net interest income 14,680 2,847 (699) 16,828
Provision for loan losses 330 640 970
------------------- ----------------- ----------------- ----------------
Net interest income after provision
for loan losses 14,350 2,207 (699) 15,858
Other income:
Service charges on deposit accounts 1,032 334 1,366
Merchant services 1,141 0 1,141
Commission revenue 343 343
Fees from sale of loans 720 720
Other 1,203 208 1,411
------------------- ----------------- ----------------- ----------------
3,376 1,605 4,981
Other expenses:
Salaries and employee benefits 4,874 1,838 6,712
Net occupancy expense 2,105 593 12 (2b) 2,710
Data processing 783 153 936
Legal and professional 295 0 295
Merchant services 917 n/a 917
Advertising 366 49 415
Costs related to acquisition n/a 305 (305) (2e) 0
Other 1,853 871 417 (2a) 3,141
------------------- ----------------- ----------------- ----------------
11,193 3,809 124 15,126
------------------- ----------------- ----------------- ----------------
Income (loss) before income taxes 6,533 3 (823) 5,713
Income taxes 2,159 27 (169) (3) 2,017
------------------- ----------------- ----------------- ----------------
Net income (loss) $ 4,374 $ (24) $ (654) $ 3,696
=================== ================= ================= ===============
Earnings per share
Basic $ 1.16 $ 0.98
Weighted average shares outstanding 3,783,713 3,783,713
Diluted $ 1.14 $ 0.97
Weighted average shares outstanding 3,826,671 3,826,671
</TABLE>
5
<PAGE> 6
STATE FINANCIAL SERVICES CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) State Financial Services Corporation (the "Company") completed its
acquisition of Richmond Bancorp, Inc., its subsidiary Richmond Bank and
its affiliate, Richmond Financial Services, Inc. on December 31, 1997
(collectively referred to as "Richmond"). Holders of Richmond common
stock received cash consideration totaling $10,787,495 in exchange for
their shares of Richmond Bancorp, Inc. and Richmond Financial Services,
Inc.
Because the Richmond acquisition was consummated on December 31, 1997,
the amounts set forth in this report under the "State Financial" column
heading of the Pro Forma Consolidated Balance Sheet (Unaudited) include
the assets and liabilities of Richmond, adjusted for the effects of
purchase accounting. The amounts set forth in this report under the
"Richmond" column heading of the Pro Forma Consolidated Balance Sheet
(Unaudited) are set forth for informational purposes to demonstrate the
applicable categorical amounts which Richmond added to the Company's
December 31, 1997 Consolidated Balance Sheet. The Richmond amounts have
also include the purchase accounting adjustments resulting from the
transaction which are set forth below.
Under purchase accounting, Richmond's assets and liabilities are
required to be adjusted to their estimated fair values. The estimated
fair value adjustments have been determined by SFSC based upon
available information. The following sets forth the purchase accounting
adjustments made to reflect Richmond's estimated fair values at
December 31, 1997. These amounts are included in the amounts set forth
for "State Financial", "Richmond", and "Pro Forma Consolidated" in the
Pro Forma Consolidated Balance Sheet (Unaudited).
<TABLE>
<CAPTION>
<S> <C>
Purchase price of Richmond $ 10,787
SFSC Acquisition Costs 109
------------
$ 10,896
============
Historical net assets of Richmond @ at 12/31/97 $ 4,307
Fair market value adjustments as of December 31, 1997 based
upon actual figures:
Land 101
Building 390
Cost in excess of net assets of business acquired 6,249
Less: Deferred tax liability provided on write-up of building (151)
------------
$ 10,896
============
</TABLE>
Application of purchase accounting principles require the Company to
include the results of Richmond from the date of acquisition to the end
of the applicable reporting period. Because the Richmond acquisition
was consummated on December 31, 1997, no operating results of Richmond
are included in the amounts set forth in this report under the "State
Financial" column heading of the Pro Forma Consolidated Statements of
Income (Unaudited). The "Pro Forma Consolidated" column heading of the
Pro Forma Consolidated Statements of Income (Unaudited) combines the
categorical figures for "State Financial", "Richmond" and "Pro Forma
Adjustments" to result in the Company's pro forma consolidated
operating results as if the Richmond acquisition had occurred effective
January 1, 1997.
6
<PAGE> 7
STATE FINANCIAL SERVICES CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(2) For purposes of determining the pro forma effect of the Richmond
acquisition on the Company's Consolidated Statement of Income, the
following pro forma adjustments have been made as if the acquisition
had occurred as of January 1, 1997.
For the year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
(a) Amortization of cost in excess of net assets acquired $ 417
--Richmond (15 years straight line)
(b) Depreciation on Building FMV Adjustment 12
--Richmond (31.5 years straight line)
(c) Interest expense on notes payable for one year 279
$3,900 million at 7.16% APR
(d) Foregone interest income on investment securities 420
liquidated to finance acquisition for one year
$6,996 @ average annual investment yield of 6.00%
(e) One time acquisition costs incurred by Richmond in (305)
regards to its acquisition by the Company
(3) The following table sets forth the tax benefits of the pro forma
adjustments to the Consolidated Statements of Income. All adjustments
assume a 39.21% marginal tax rate.
Tax benefit on building FMV adjustment $ 5
Tax benefit on notes payable interest expense 109
Tax benefit on foregone investment interest income 165
---------
Total tax benefit on pro forma adjustments 279
For the year ended December 31, 1997, Richmond operated as an "S" Corporation
for corporate income tax purposes. If the Richmond acquisition had been
effective January 1, 1997, Richmond would not have qualified as an "S"
Corporation and accordingly would have been subject to federal and state income
tax. The following sets forth Richmond's pro forma tax liability for the year
ended December 31, 1997 if it had operated as a "C" Corporation.
Richmond net loss as reported for the year
ended December 31, 1997 ($ 24)
Plus: Costs incurred in acquisition 305
---------
Pro forma Richmond net income 281
Marginal tax rate 39.21%
Pro forma income tax expense (110)
----------------------
Total pro forma income tax $169
======================
</TABLE>
The amortization of cost in excess of net assets acquired is not
deductible for tax purposes. The recapture of costs incurred in acquisition are
not tax effected as these expenses were not deductible for tax purposes.
7
<PAGE> 8
RICHMOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE> 9
C O N T E N T S
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheet 2
Consolidated statement of income 3
Consolidated statement of stockholders' equity 4
Consolidated statement of cash flows 5 - 6
Notes to consolidated financial statements 7 - 17
<PAGE> 10
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Richmond Bancorp, Inc. and Subsidiaries
Richmond, Illinois
We have audited the accompanying consolidated balance sheet of Richmond Bancorp,
Inc. and subsidiaries as of December 31, 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Richmond Bancorp,
Inc. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ McGladery & Pullen, LLP
Schaumburg, Illinois
February 16, 1998
-3-
<PAGE> 11
RICHMOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
POSTACQUISITION
DECEMBER 31,
ASSETS 1997
----------------------------------------------------------------------------------------------------------------
<S> <C>
Cash and due from banks $ 2,808,036
Securities available for sale 25,593,616
Federal funds sold 4,865,000
Loans held for sale 1,327,526
Loans, net of allowance for loan losses of $678,235 49,046,753
Premises and equipment 2,131,733
Accrued interest receivable 668,066
Intangible assets 6,248,332
Other assets 744,747
---------------------
$ 93,433,809
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 8,486,655
Interest bearing 71,434,994
---------------------
79,921,649
</TABLE>
-4-
<PAGE> 12
RICHMOND BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Note payable 1,400,000
Accrued interest 682,467
Other liabilities 564,231
---------------------
82,568,347
---------------------
Stockholders' Equity
Common stock; $1 par value, authorized and issued 1,000 shares 1,000
Additional paid-in capital 10,895,101
Unrealized loss on securities available for sale, net of taxes of $20,426 -30,639
---------------------
10,865,462
---------------------
$ 93,433,809
=====================
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE> 13
RICHMOND BANCORP, INC. AND SUBSIDIARIES
AND RICHMOND FINANCIAL, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
PREACQUISITION
YEAR ENDED
DECEMBER 31,
1997
----------------------------------------------------------------------------------------------------------------
Interest income on:
<S> <C>
Loans $ 5,048,205
Securities available for sale 1,542,140
Federal funds sold 72,067
---------------------
Total interest income 6,662,412
---------------------
Interest expense on:
Deposits 3,702,426
Note payable 113,061
---------------------
Total interest expense 3,815,487
---------------------
NET INTEREST INCOME 2,846,925
Provision for loan losses 639,500
---------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,207,425
---------------------
Other income:
Service charges and other fees 334,395
</TABLE>
-6-
<PAGE> 14
RICHMOND BANCORP, INC. AND SUBSIDIARIES
AND RICHMOND FINANCIAL, INC.
<TABLE>
<CAPTION>
<S> <C>
Commission revenue 343,258
Fees from sale of loans 718,746
Securities gains 3,687
Other 204,545
---------------------
1,604,631
---------------------
Other expenses:
Salaries and employee benefits 1,837,779
Occupancy expense 592,704
Costs related to sale 305,160
Other 1,072,693
---------------------
3,808,336
---------------------
INCOME BEFORE INCOME TAXES 3,720
Income taxes 27,359
---------------------
NET (LOSS) $ -23,639
=====================
</TABLE>
See Notes to Consolidated Financial Statements.
-7-
<PAGE> 15
RICHMOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Additional on Securities
Common Paid-in Retained Available for
Stock Capital Earnings Sale, Net Total
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 1,000 $ 483,990 $ 4,008,757 $ (213,989) $ 4,279,758
Net (loss) - - -23,639 - -23,639
Cash dividends - - -162,723 - -162,723
Net change in unrealized gains and losses
on securities available for sale, net - - - 183,350 183,350
----------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE> 16
RICHMOND BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997, preacquisition 1,000 483,990 3,822,395 -30,639 4,276,746
Postacquisition transaction:
Effect of pushdown accounting in relation
to purchase of Richmond Bancorp, Inc. - 10,411,111 -3,822,395 - 6,588,716
-----------------------------------------------------------------------------------
Balance, December 31, 1997, postacquisition $ 1,000 $ 10,895,101 $ - $ -30,639 $ 10,865,462
===================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
-9-
<PAGE> 17
RICHMOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PREACQUISITION
YEAR ENDED
DECEMBER 31,
1997
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
<S> <C>
Net (loss) $ 23,639
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation 301,930
Amortization, net 252,119
Provision for loan losses 639,500
Deferred income taxes -112,528
Securities gains, net -3,687
</TABLE>
-10-
<PAGE> 18
RICHMOND BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Proceeds from sales of loans held for sale 52,115,915
Originations of loans held for sale -51,211,140
(Increase) decrease in:
Accrued interest payable 93,902
Cash value of life insurance -53,147
Other assets -403,055
Accrued interest receivable -24,027
Other liabilities -189,812
---------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,382,331
---------------------
Cash Flows From Investing Activities
Proceeds from sale of securities available for sale 8,256,173
Proceeds from maturities of securities available for sale 4,750,000
Purchase of securities available for sale -15,047,502
Increase in Federal funds sold -190,000
Loans originations, net -4,368,266
</TABLE>
-11-
<PAGE> 19
RICHMOND BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Purchase of premises and equipment (101,473)
Proceeds from sale of cash value of life insurance 1,321,720
---------------------
NET CASH (USED IN) INVESTING ACTIVITIES -5,379,348
---------------------
Cash Flows From Financing Activities
Net increase (decrease) in:
Interest-bearing deposits 3,156,435
Noninterest bearing deposits -387,745
Cash dividends -162,723
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,605,967
---------------------
(Decrease) in cash and due from banks -1,391,050
Cash and due from banks:
Beginning 4,199,086
---------------------
</TABLE>
-12-
<PAGE> 20
RICHMOND BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Ending $ 2,808,036
=====================
</TABLE>
(Continued)
-13-
<PAGE> 21
RICHMOND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PREACQUISITION
YEAR ENDED
DECEMBER 31,
1997
-----------------------------------------------------------------------------------------------------------------
<S> <C>
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors $ 3,608,524
Interest paid on note payable 128,200
Income taxes 71,216
Preacquisition Supplemental Schedule of Noncash Investing and Financing
Activities Net change in unrealized (losses) on securities available for
sale, net of related income taxes of $(122,235) $ 183,350
Postacquisition Supplemental Schedule of Noncash Investing Activities
Net effect of pushdown accounting in relation to purchase of
Richmond Bancorp, Inc. and Richmond Financial Services, Inc.
Write-up of premises to fair market value $ 491,351
Goodwill 6,248,332
Deferred tax liability provided for write-up of premises to fair market value 150,967
Additional paid-in capital 6,588,716
</TABLE>
-14-
<PAGE> 22
RICHMOND BANCORP, INC. AND SUBSIDIARIES
See Notes to Consolidated Financial Statements.
-15-
<PAGE> 23
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N1t
NATURE OF BUSINESS, PURCHASE OF RICHMOND BANCORP, INC. AND
RICHMOND FINANCIAL SERVICES, INC. AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Richmond Bancorp, Inc., through one of its subsidiaries,
Richmond Bank, provides a full range of financial services to its customers
located throughout northeastern Illinois and southeastern Wisconsin. The other
subsidiary of Richmond Bancorp, Inc., Richmond Financial Services, Inc. provides
financial products and services to a similar customer base. Richmond Bank's
subsidiary, State Financial Insurance Agency provides insurance services.
Principles of consolidation: The accompanying consolidated financial statements
include the consolidated financial statements of Richmond Bancorp, Inc.
(Bancorp) and its wholly owned subsidiaries, Richmond Financial Services, Inc.
(Financial) and Richmond Bank (Bank). The financial statements of the bank's
wholly owned subsidiary, State Financial Insurance Agency (State) are also
included. Collectively, the above are referred to as Company. All significant
intercompany balances and transactions have been eliminated in the
consolidation.
Basis of presentation: On December 31, 1997, State Financial Services
Corporation purchased the stock of Richmond Bancorp, Inc. and Richmond Financial
Services, Inc. for $10,787,495. An additional $108,606 of acquisition costs were
incurred in relation to the purchase. The purchase price and resulting new
accounting basis of the assets acquired was pushed-down to the acquired entity,
with the net effect on the financial statements of Richmond Bancorp, Inc. being
the write-up of the premises to its fair value, the recognition of a deferred
tax liability for the portion of the write-up relating to the building and the
recognition of intangible assets representing the excess of the total
acquisition cost over the fair value of the net assets acquired of $6,248,332
which will be amortized over 15 years by the straight-line method.
Subsequent to the purchase, Richmond Financial Services, Inc. was merged into
Richmond Bancorp, Inc. The assets and liabilities of the insurance services
portion of Richmond Financial Services, Inc. were transferred to a newly formed
subsidiary of Richmond Bank, State Financial Insurance Agency. This
reorganization among entities under common control has been accounted for under
historical cost in a manner similar to a pooling of interests and accordingly
the results of operations for the year ended December 31, 1997, includes both
entities.
This change in ownership occurred as of December 31, 1997. The financial
statements captioned preacquisition include those when Bancorp was owned by
prior stockholders and the financial statement captioned postacquisition
presents Bancorp after it was acquired by State Financial Services Corporation.
Accounting estimates: The accounting and reporting policies of the Company
conform to generally accepted accounting principles. The preparation of
financial statements in conformity with generally
-16-
<PAGE> 24
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Significant estimates which are particularly susceptible to change in a short
period of time include the determination of allowance for loan losses.
-17-
<PAGE> 25
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, PURCHASE OF RICHMOND BANCORP, INC. AND
RICHMOND FINANCIAL SERVICES, INC. AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Securities available for sale: Securities classified as available for sale are
those debt securities that the Company intends to hold for an indefinite period
of time, but not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of the
Bank's assets and liabilities, liquidity needs, regulatory capital
considerations and other similar factors.
Securities available for sale are reported at fair value with unrealized gains
or losses reported as a separate component of stockholders' equity, net of the
related deferred tax effect. The amortization of premiums and accretion of
discounts, computed by the interest method over their contractual lives, are
recognized in interest income.
Realized gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings. Declines in the fair value of
individual securities classified as available for sale below their amortized
cost that are determined to be other than temporary result in write-downs of the
individual securities to their fair value with the resulting write-downs
included in current earnings as realized losses.
Loans and allowance for loan losses: Loans that management has the intent and
ability to hold for the foreseeable future or until maturity or payoff are
stated at the amount of unpaid principal, reduced by unearned discount and fees
and an allowance for loan losses. Interest on loans is accrued over the term of
the loan based on the amount of principal outstanding. For impaired loans
accrual of interest is discontinued on a loan when management believes, after
considering collection efforts and other factors, that the borrower's financial
condition is such that collection of interest is doubtful. Interest income is
subsequently recognized only to the extent cash payments are received and the
principal is considered fully collectible.
Unearned interest on discounted loans is amortized to income over the life of
the loans using the interest method. Loan origination and commitment fees are
deferred and amortized as an adjustment of the related loan's yield. All
associated costs are expensed as incurred since any amounts computed on a
deferral basis would not be materially different from that resulting from the
present basis. The Bank is generally amortizing these amounts over the
contractual life of the loan. Fees related to standby letters of credit are
recognized when received.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
estimated losses on existing loans, based on an evaluation of the collectibility
of loans and prior
-18-
<PAGE> 26
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
loss experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Banks' allowance for loan losses,
and may require the Banks to make additions to the allowance based on their
judgment about information available to them at the time of their examinations.
-19-
<PAGE> 27
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, PURCHASE OF RICHMOND BANCORP, INC. AND
RICHMOND FINANCIAL SERVICES, INC. AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Commercial loans less than $100,000, residential real estate mortgages, home
equity loans and installment loans are considered small balance homogenous loan
pools and as such are not evaluated for purposes of impairment. All other loans
are specifically evaluated for impairment. Loans are considered impaired when,
based on current information and events, it is probable that the Bank will not
be able to collect all amounts due according to the contractual terms of the
loan agreement. The impairment is measured based on the present value of
expected future cash flows, or alternatively, the observable market price of the
loans or the fair value of the collateral. However, for those loans that are
collateral-dependent and for which management has determined foreclosure is
probable, the measure of impairment of those loans is to be based on the fair
value of the collateral. The amount of impairment, if any, and any subsequent
changes are included in the allowance for loan losses.
Loans held for sale: Loans held for sale are those loans the Bank has the intent
to sell in the foreseeable future. They are carried at the lower of aggregate
cost or market value. Gains and losses on sales of loans are recognized at
settlement dates and are determined by the difference between the sales proceeds
and the carrying value of the loans. All sales are made without recourse.
Premises and equipment: Premises and equipment are stated at cost. Depreciation
is computed principally by accelerated methods for furniture and equipment and
by the straight-line method for premises based on their estimated useful lives.
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Presentation of cash flows: For purposes of reporting cash flows, cash and due
from banks includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from loans originated by the Bank and
deposits are reported net.
Revenue recognition: Revenue from insurance policies is recognized when the
policy goes into effect, the premium due under the policy can be reasonably
estimated and the premium is billable to the client. Revenue from the sale of
financial products and services is recognized upon execution of the sale and
fulfillment of services.
-20-
<PAGE> 28
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value of financial instruments: The Company's assets and liabilities
including financial instruments, were adjusted to fair value upon the
recognition of the push-down bases of accounting. There are no significant
differences between carrying value and fair value of the Company's financial
instruments.
-21-
<PAGE> 29
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, PURCHASE OF RICHMOND BANCORP, INC. AND
RICHMOND FINANCIAL SERVICES, INC. AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Accounting for transfers and servicing of financial assets and extinguishment of
liabilities: Financial Accounting Standards Board Statement No. 125, Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities (FAS 125) distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. A transfer of financial assets in
which the transferor surrenders control over those assets is accounted for as a
sale to the extent that consideration other than beneficial interest in the
transferred assets is received in exchange. FAS 125 also established standards
on the initial recognition and measurement of servicing assets and other
retained interests and servicing liabilities, and their subsequent measurement.
FAS 125 requires that debtors reclassify financial assets pledged as collateral
and that secured parties recognize those assets and their obligation to return
them in certain circumstances in which the secured party has taken control of
those assets. In addition, FAS 125 requires that a liability be derecognized
only if the debtor is relieved of its obligation through payment to the creditor
or by being legally released from being the primary obligor under the liability
either judicially or by the creditor.
FAS 125 was effective for transactions occurring after December 31, 1996, except
for transactions relating to secured borrowings and collateral for which the
effective date is December 31, 1997. On January 1, 1997, the Company adopted FAS
125 except for as it relates to transactions involving secured borrowings and
collateral. The effect of adoption of this Statement was not material. The
Company also believes the adoption of FAS 125 for transactions relating to
secured borrowings and collateral will not have a material impact on its
consolidated financial statements.
Comprehensive income: The Financial Accounting Standards Board has issued
Statement No. 130, Reporting Comprehensive Income, that the Company will be
required to adopt for its year ended December 31, 1998. This pronouncement is
not expected to have a significant impact on the Company's financial statements.
The Statement establishes standards for the reporting and presentation of
comprehensive income and its components. The Statement requires that items
recognized as components of comprehensive income be reported in a financial
statement. The Statement also requires that a company classify items of other
comprehensive income by their nature in a financial statement, and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. Comprehensive income at the Company currently consists of
unrealized gains and losses on securities available for sale.
-22-
<PAGE> 30
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N1t SECURITIES
Amortized cost and fair values of securities available for sale as of December
31, 1997, are summarized below:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and
agencies $ 22,236,310 $ 3,026 $ -57,305 $ 22,182,031
State and political subdivisions 3,408,371 7,331 -4,117 3,411,585
-------------------------------------------------------------------
$ 25,644,681 $ 10,357 $ -61,422 $ 25,593,616
===================================================================
</TABLE>
The amortized cost and fair value of securities available for sale as of
December 31, 1997, by contractual maturity are shown below.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------------------------------
<S> <C> <C>
Due in one year or less $ 100,000 $ 100,000
Due after one year through five years 20,636,310 20,579,688
Due after five years through ten years 4,808,371 4,813,370
</TABLE>
-23-
<PAGE> 31
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Due after ten years 100,000 100,558
--------------------------------
$ 25,644,681 $ 25,593,616
================================
</TABLE>
Gross realized gains and losses from the sale of securities available for sale
for the year ended December 31, 1997, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Realized gains $ 7,243
Realized losses -3,556
--------------
Securities gains, net $ 3,687
==============
</TABLE>
Securities with a carrying amount of $16,697,000 at December 31, 1997, were
pledged as collateral on public deposits and for other purposes as required or
permitted by law.
-24-
<PAGE> 32
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N1t
LOANS
The composition of net loans as of December 31, 1997, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Loans:
Commercial $ 9,978,996
Commercial real estate 11,998,991
Agricultural real estate 144,001
Residential real estate 23,437,988
Consumer installment 5,337,283
--------------
50,897,259
Less:
Unearned discount 1,019,955
Deferred loan fees 152,316
--------------
Loans, net of unearned income 49,724,988
Allowance for loan losses 678,235
--------------
Loans, net $ 49,046,753
==============
</TABLE>
-25-
<PAGE> 33
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank grants commercial, consumer, and residential loans to customers
throughout northeastern Illinois and southeastern Wisconsin. Collateral
requirements are established based on credit risk of each loan as assessed by
management. The loans are expected to be repaid from cash flow of the borrowers.
Changes in the allowance for loan losses for the year ended December 31, 1997,
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning $ 462,392
Provision charged to operating expense 639,500
Recoveries of amounts charged off 99,620
Amounts charged off -523,277
--------------
Balance, ending $ 678,235
==============
Impaired loan information as of and for the year ended December 31, 1997, is as
follows:
Impaired loans for which an allowance has been provided $ 805,413
Impaired loans for which no allowance has been provided
----------------
Total loans determined to be impaired $ 805,413
================
Allowance provided for impaired loans, included in the allowance for loan losses $ 40,271
================
Average recorded investment in impaired loans $ 1,043,807
</TABLE>
-26-
<PAGE> 34
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Interest income recognized from impaired loans 27,118
Cash basis interest income recognized from impaired loans 20,118
</TABLE>
-27-
<PAGE> 35
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N1t
PREMISES AND EQUIPMENT
Premises and equipment as of December 31, 1997, consist of:
<TABLE>
<CAPTION>
<S> <C>
Land $ 200,000
Building and improvements 1,398,355
Furniture and fixtures 257,719
Leasehold improvements 275,659
--------------
$ 2,131,733
==============
N1t
DEPOSITS
The composition of deposits at December 31, 1997, is as follows:
Demand deposits, noninterest bearing $ 8,486,655
NOW and money market accounts 18,824,883
Savings deposits 7,659,235
Time certificates, $100,000 or more 17,384,626
Other time certificates 27,566,250
--------------
$ 79,921,649
==============
</TABLE>
At December 31, 1997, the scheduled maturities of time deposits are as follows:
Year ending December 31:
-28-
<PAGE> 36
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
1998 $ 29,329,899
1999 4,630,469
2000 5,296,907
2001 500,156
2002 667,513
Thereafter 4,525,932
--------------
$ 44,950,876
==============
</TABLE>
N1t
NOTE PAYABLE
The Bancorp has a revolving credit agreement which is collateralized by all
outstanding stock of the Bank and bears interest at the LIBOR rate plus 2%
(average LIBOR rate was 5.9% at December 31, 1997). At December 31, 1997,
borrowings under this agreement were $1,400,000 and total borrowings may not
exceed $1,800,000.
The loan agreement with the lending institution requires the Bank to maintain a
minimum level of loan loss allowance, Tier I capital and nonperforming loans. In
addition, the Bancorp is restricted from declaring or paying a dividend except
for tax dividends to stockholders.
-29-
<PAGE> 37
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N1t
INCOME TAXES
On January 1, 1997, Bancorp and Bank, with the consent of its stockholders,
elected to be taxed under sections of federal and state income tax, which
provide that in lieu of corporation income taxes, the stockholders will
separately account for their pro rata shares of the Company's income,
deductions, losses and credits. As a result of the election, the deferred tax
asset was charged to expense. During 1996, Financial made the same election.
Therefore, these statements do not include any provision for corporation income
taxes on earnings from January 1, 1997 to December 30, 1997.
On December 29, 1997, the Company's stockholders terminated this election
effective December 30, 1997. As a result of the December 29, 1997 termination,
on December 30, 1997, the Company recorded a net deferred tax asset of $328,413,
by a credit to income tax expense, for temporary differences between the
financial reporting and the income tax basis of deferred salaries, unearned loan
fees, property and equipment and the allowance for loan loss.
Deferred income taxes at December 31, 1997, consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Allowance for loan losses $ 218,643
Deferred loan fees 59,006
State net operating loss carryforward 23,260
Leasehold improvements 27,504
Net unrealized loss on securities available for sale 20,426
--------------
348,839
Deferred tax liabilities, land, building
and improvements 150,967
--------------
</TABLE>
-30-
<PAGE> 38
<TABLE>
<CAPTION>
<S> <C>
Net deferred tax assets $ 197,872
==============
No valuation allowance was deemed necessary. The net deferred tax assets are
included in the accompanying balance sheets as other assets.
Income tax expense for the year ended December 31, 1997, consist of the
following:
Write-off of deferred tax asset related to S Corporation election $ 215,885
Reinstatement of deferred tax asset related to termination of S Corporation status -328,413
Current tax expense based upon two days earnings 139,887
---------------
$ 27,359
===============
</TABLE>
Current income tax expense is higher than expected due to the $321,720 taxable
gain on sale of cash value of life insurance (see Note 12).
-31-
<PAGE> 39
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N1t
EMPLOYEE BENEFIT PLAN
Prior to January 1, 1997, the Company had a noncontributory profit sharing plan
which included a 401(k) provision allowing for employee tax-deferred
contributions. Effective January 1, 1997, the plan was amended to include a
company contribution feature. The Company contributes an amount equal to 100% of
the employee's deferral up to $6,000 or 3% of the employee's compensation. The
plan covers all full-time employees who have completed two years of service
unless the individual was enrolled prior to January 1, 1997. Contributions of
$27,104 were made for the year ended December 31, 1997.
N1t
COMMITMENTS AND CONTINGENCIES
Financial instruments with off-balance-sheet risk:
The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and
standby letters of credit. They involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as they do for on-balance-sheet
instruments. A summary of the Bank's commitments is as follows:
<TABLE>
<CAPTION>
<S> <C>
Commitments to extend credit $ 7,083,613
Standby letters of credit 885,773
-------------
$ 7,969,386
=============
</TABLE>
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.
Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Bank upon extension of credit, is based on
-32-
<PAGE> 40
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
management's credit evaluation of the party. Collateral held varies, but
may include accounts receivable, inventory, securities, property and
equipment, residential real estate and income-producing commercial
properties.
-33-
<PAGE> 41
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. Collateral
held varies as specified above and is required in instances which the Bank
deems necessary. At December 31, 1997, all of the standby letters of credit
were collateralized.
Financial instruments with concentration of credit risk:
Substantially all of the Bank's loans, commitments to extend credit, and
standby letters of credit have been granted to customers in the Bank's
market area. The Bank does not extend credit to any single borrower or
group of related borrowers in excess of their legal lending limit.
Management considers the portfolio to be well diversified.
N1t
RESTRICTIONS ON RETAINED EARNINGS AND REGULATORY MATTERS
Under current banking law, there are limitations on the amount of dividends that
can be paid by the Bank to its holding company without obtaining prior approval
from applicable regulatory agencies. However, the availability of dividends may
be further limited because of the need to maintain capital ratios satisfactory
to applicable regulatory agencies.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes the Bank meets all capital adequacy
requirements to which it is subject as of December 31, 1997.
-34-
<PAGE> 42
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1997, the most recent notification from the regulatory
authorities categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table below. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
-35-
<PAGE> 43
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. RESTRICTIONS ON RETAINED EARNINGS AND REGULATORY MATTERS
(CONTINUED)
The Bank's actual capital ratios are also presented in the table.
<TABLE>
<CAPTION>
To be Well
Capitalized
Under Prompt
For Capital Corrective Action
Adequacy Provisions
Actual Purposes
--------------------------------------------------------
Ratio Ratio(a) Ratio(a)
----- -------- --------
<S> <C> <C> <C>
As of December 31, 1997
Total Capital (to Risk-Weighted Assets) 12.5% 8.0% 10.0%
Tier I Capital (to Risk-Weighted Assets) 11.3% 4.0% 6.0%
Tier I Capital (to Average Assets) 7.4% 4.0% 5.0%
</TABLE>
(a) The rates provided are minimums under the regulations.
N1t
RELATED PARTY TRANSACTIONS AND LEASE COMMITMENTS
Loans to officers, directors, former stockholders, their immediate families and
related corporations were made in the ordinary course of business by the Bank.
In the opinion of management, these loans are made on substantially the same
terms, including rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than the
normal risk of collectibility or present unfavorable features.
As of December 31, 1997, these loans aggregated $823,446.
The Bank reimburses a former affiliate for salaries and other operating expenses
directly related to the Bank. At December 31, 1997, the Bank had a payable to
its former affiliate of $41,413. Total expenses for the year ended December 31,
1997, were $46,693.
-36-
<PAGE> 44
RICHMOND BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank has an operating lease agreement for the rental of the Libertyville
branch from a former affiliate. This lease requires an annual rental of $30,478
plus a proportionate share of property taxes and maintenance. The lease expires
June 2003. The total minimum rental commitment at December 31, 1997, under this
lease is $380,531 which is due as follows:
During each of the next five years $ 30,478
During the remaining term of the lease
14,795
N1t
SALE OF CASH VALUE OF LIFE INSURANCE
Richmond Bank sold the cash value of life insurance policies to the former
owners at December 31, 1997. The sales price approximated the carrying value of
the policies of $1,321,720; however, the sale resulted in taxable income of
$321,720.
-37-
