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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from_________to_________ .
Commission file number: 33-18492
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SPRING BANCORP, INC.
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(Exact name of registrant as specified in its charter)
ILLINOIS 37-1224470
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(State other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
2600 STEVENSON DR. SPRINGFIELD, IL. 62703
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(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (217) 529-5555
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Securities registered pursuant to Section 12(b) of the act:
Name of each exchange on
Title of each class which registered
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Common Stock, $1.00 par value None
Securities registered pursuant to Section 12(g) of the act:
NONE
Indicate by 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
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The number of shares outstanding of the registrants' common stock $1.00 par
value was 657,532 at December 31, 1996. No public trading market exists for the
registrants' common stock, $1.00 par value. Total number of pages, including
cover page - 89
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SPRING BANCORP, INC.
INDEX
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PART I. PAGE NO.
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Item 1. Business 1 - 18
Item 2. Properties 19
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 21
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Securities Holder Matters 22 - 23
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 25 - 49
Item 8. Financial Statements 50 - 76
Item 9. Changes in Accountants 77
PART III.
Item 10. Directors and Executive Officers of the Registrant 78 - 81
Item 11. Executive Compensation 82 - 83
Item 12. Security Ownership of Certain Beneficial Owners and
Management 84
Item 13. Certain Relationship and Related Transactions 85
PART IV.
Item 14. Financial Statement, Schedules and Reports on Form 8K 86
Signatures 87
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PART I
Item 1. Business
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Spring Bancorp, Inc. was incorporated on February 10, 1987, under the laws
of the State of Illinois. The business of Spring Bancorp, Inc. is primarily the
ownership, supervision and control of its subsidiary, Bank of Springfield,
including the provision of advice, counsel and specialized advisory services in
the fields of financial and banking policy and operations. Spring Bancorp, Inc's
office is located at the offices of Bank of Springfield, 2600 Stevenson Dr.
Springfield, Illinois 62703. Spring Bancorp, Inc. is authorized to issue
2,000,000 shares of common stock, par value $1.00 per share. As of December 31,
1996, Spring Bancorp, Inc's securities consisted of one class of Common Stock,
par value $1.00 per share, of which there were 657,532 shares outstanding.
On January 3, 1997, the Company filed a form 15 with Securities and
Exchange Commission to suspend the Company's reporting obligations under the
Securities Exchange Act of 1934, as amended, and as such will not file reports
under the 1934 Act until its obligations are no longer suspended.
Spring Bancorp, Inc. is a bank holding company and is required to register
as such with the Federal Reserve Board (the "Board") and Bancorp is subject to
on-going legislation, supervision, and examination by the Board, which has cease
and desist powers over bank holding companies and their non-bank subsidiaries if
their actions represent unsafe or unsound practices. Bancorp is also required to
file with the Board periodic and annual reports and such additional information
as the Board may require pursuant to the Bank Holding Company Act of 1956.
Bank of Springfield, Bancorp's subsidiary, is an Illinois state bank and
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is subject to primary supervision and examination by the Illinois Commissioner
of Banks & Real Estate and the Federal Deposit Insurance Corporation. Various
federal and state laws and regulations apply to many aspects of the operation of
the bank, including interest rates paid on deposits, loans, investments, mergers
and acquisitions and the establishment of branch offices and facilities. The
payment of dividends by the bank is Bancorp's primary source of income, and is
also subject to certain restrictions under the Illinois Banking Act. The
Illinois Banking Act provides that the board of directors of an Illinois state
bank may, from time to time, declare a dividend of so much of the net profits of
the bank as it shall judge expedient, but each bank before the declaration of a
dividend must carry at least one-tenth of its net profits since date of the
declaration of the last preceding dividend as surplus until the surplus account
equals its capital account.
In addition, no dividends may be paid by an Illinois state bank in an
amount greater than its net profits then on hand, after deducting losses and bad
debts (all debts due to a state bank on which interest is past due and unpaid
for a period of six months or more, unless they are well secured and in the
process of collection, must be considered bad debts for this purpose).
There are numerous bank holding companies and groupings of banks located in
the Sangamon County, Illinois area and throughout central Illinois which will
continue to offer substantial competition to Spring Bancorp, Inc. and its bank.
The Bank conducts substantially the same business operations as a typical
commercial bank, but also places special emphasis on retail banking, including
the acceptance of checking and savings deposits, and making commercial, real
estate, personal, home improvement, automobile, and other installment and term
loans.
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It also offers, among other services, travelers cheques, safe deposit,
collection, notary public, trust and other customary bank services to its
customers, as well as drive-up facilities. The Bank of Springfield is an insured
bank under the Federal Deposit Insurance Act, but like most state banks of its
size in Illinois is not a member of the Federal Reserve System.
Most of the Bank's deposits are attracted from individuals and small
business related sources. This results in a relatively small average deposit
balance but makes the bank less subject to adverse effects from the loss of
substantial depositors who may be seeking higher yields in other markets or have
need of money on deposit in the bank, especially during periods of inflation or
tight money. However, the Bank does seek substantial amounts of deposits from
several municipalities and other governmental agencies. These customers are
consequently considered by management of the Bank to be of material importance
to the Bank. Over the past years these municipal deposit balances have been
rather consistent. Although no agreement or understanding exists between these
agencies, Bank management has no reason to believe that the deposit balances
will materially decrease in the foreseeable future. In connection with the
deposits of municipalities or other governmental agencies or entities, the bank
is generally required to pledge securities to secure such deposits (except for
the first $100,000.00 of such deposits which is insured by the Federal Deposit
Insurance Corporation.)
The Bank holds no patents, registered trademarks, licenses (other than
licenses required to be obtained from appropriate regulatory agencies),
franchises or concessions. There has been no significant change in the kinds of
services offered by the Bank during the last three fiscal years. Most of the
Bank's business originates from within Sangamon County, Illinois. The
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business is not seasonal. There has been no material effect upon the capital
expenditures, earnings, or competitive position as a result of Federal, State or
local environmental regulation.
The banking business in Illinois, and specifically in market areas served
by the Bank, is highly competitive with respect to both loans and deposits. The
Bank competes for deposits principally with other commercial banks, savings and
loan associations and credit unions. In addition, other entities (both
governmental and private industries) seeking to raise capital through the
issuance and sale of debt and equity securities, also provide competition for
the Bank of Springfield in the acquisition of deposits.
With regards to loans, the Bank of Springfield competes with banks, savings
& loan associations, credit unions, insurance companies, mortgage companies and
other lending institutions. In late 1992 the Bank of Springfield became active
in the real estate lending area with competitive rates in the market area. The
bank began selling its mortgages to the secondary market (Freddie Mac). The bank
was servicing mortgages in the aggregate outstanding principal amount sold to
the secondary market of $224,939,682.00 in 1994, $233,972,938.00 in 1995 and
$254,300,207.00 in 1996. The Bank receives .25% to .375% of the outstanding
principal balance of each loan, each month, as servicing fees. The Bank has
continued to introduce new product lines in the mortgage area. It has expanded
with additional secondary market entities such as Freddie Mac Affordable Gold
Program, Fannie Mae (which includes Community Homebuyers Program), GE Capital,
Independent National and the Illinois Department of Housing Authority.
The Bank continues to research other avenues of lending in which it can be
competitive and meet the needs of its market area.
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Legislation has been enacted which could have the effect of increasing
direct competition between banks and non banking institutions, particularly
savings & loan associations. Such legislation has the effect of giving savings &
loan associations many of the powers previously denied to them but provided for
banks.
The City of Springfield, in which the bank's only currently operating
office is located, contains 10 bank institutions. The bank`s secondary marketing
area, which encompasses Sangamon County, contains 13 other bank institutions.
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. As a result, the growth and earnings
performance of the Company can be affected not only by management decisions and
general economic conditions, but also by the requirements of applicable state
and federal statutes and regulations and the policies of various governmental
regulatory authorities including, but not limited to, the Illinois Commissioner
of Banks and Real Estate (the "Commissioner"), the Board of Governors of the
Federal Reserve System (the "FRB"), the Federal Deposit Insurance Corporation
(the "FDIC"), the Internal Revenue Service and state taxing authorities and the
Securities and Exchange Commission (the "SEC"). The effect of such statutes,
regulations and policies can be significant, and cannot be predicted with a high
degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiaries, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
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the establishment of branches, mergers, consolidations and dividends. The system
of supervision and regulation applicable to the Company and its subsidiaries
establishes a comprehensive framework for their respective operations and its
intended primarily for the protection of the FDIC's deposit insurance funds and
the depositors, rather than the shareholders, of financial institutions.
The following references to material statutes and regulations affecting the
Company and its subsidiaries are brief summaries thereof and do not purport to
be complete, and are qualified in their entirety by reference to such statutes
and regulations. Any change in applicable law or regulations may have a material
effect on the business of the Company and its subsidiaries.
RECENT REGULATORY DEVELOPMENTS
On September 30, 1996, President Clinton signed into law the "Economic
Growth and Regulatory Paperwork Reduction Act of 1996" (the "Regulatory
Reduction Act"). Subtitle G of the Regulatory Reduction Act consists of the
"Deposit Insurance Funds Act of 1996" (the "DIFA"). The DIFA provides for a one-
time special assessment on each depository institution holding deposits subject
to assessment by the FDIC for the Savings Association Insurance Fund (the
"SAIF") in an amount which, in the aggregate, will increase the designated
reserve ratio of the SAIF (i.e., the ratio of the insurance reserves of the SAIF
to total SAIF-insured deposits) to 1.25% on October 1, 1996. Subject to certain
exceptions, the special assessment was payable in full on November 27, 1996. The
Bank holds no SAIF-assessable deposits and, therefore, was not subject to the
special assessment.
Prior to the enactment of the DIFA, a substantial amount of the SAIF
assessment revenue was used to pay the interest due on bonds issued by the
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Financing Corporation ("FICO"), the entity created in 1987 to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation (the
"FSLIC"), the SAIF's predecessor insurance fund. Pursuant to the DIFA, the
interest due on outstanding FICO bonds will be covered by assessments against
both SAIF and Bank Insurance Fund ("BIF") member institutions beginning January
1, 1997. Between January 1, 1997 and December 31, 1999, FICO assessments against
BIF-member institutions cannot exceed 20% of the FICO assessments charged SAIF-
member institutions. From January 1, 2000 until the FICO bonds mature in 2019,
FICO assessments will be shared by all FDIC-insured institutions on a pro rata
basis. It has been estimated that the FICO assessments for the period January 1,
1997 through December 31, 1999 will be approximately 0.013% of deposits for BIF
members versus approximately 0.064% of deposits for SAIF members, and will be
less than 0.025% of deposits thereafter.
The DIFA also provides for a merger of the BIF and the SAIF on January 1,
1999, provided there are no state or federally chartered, FDIC-insured savings
associations existing on that date. To facilitate the merger of the BIF and the
SAIF, the DIFA directs the Treasury Department to conduct a study on the
development of a common charter and to submit a report, along with appropriate
legislative recommendations, to the Congress by March 31, 1997.
In addition to the DIFA, the Regulatory Reduction Act includes a number of
statutory changes designed to eliminate duplicative, redundant or unnecessary
regulatory requirements. Among other things, the Regulatory Reduction Act
establishes streamlined notice procedures for the commencement of new nonbanking
activities by bank holding companies, establishes time frames within which the
FDIC must act on applications by state banks to engage in activities which,
although permitted for state banks under applicable state law, are not
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permissible activities for national banks, and excludes ATM closures and certain
branch office relocations from the requirements applicable to branch closings.
The Regulatory Reduction Act also clarifies the liability of a financial
institution, when acting as a lender or in a fiduciary capacity, under the
federal environmental laws. Although the full impact of the Regulatory
Reduction Act on the operations of the Company and the Bank cannot be determined
at this time, management believes that the legislation may reduce compliance
costs to some extent and allow the Company and the Bank somewhat greater
operating flexibility.
THE COMPANY
GENERAL. The Company, as the sole stockholder of the Bank, is a bank
holding Company. As a bank holding company, the Company is registered with, and
is subject to regulation by, the FRB under the BHCA. In accordance with FRB
policy, the Company is expected to act as a source of financial strength to the
Bank and to commit resources to support the Bank in circumstances where the
Company might not do so absent such policy. Under the BHCA, the Company is
subject to periodic examination by the FRB and is required to file with FRB
periodic reports of its operations and such additional information as the FRB
may require. The Company is also subject to the requirements of the Illinois
Bank Holding Company Act, as amended.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company
must obtain FRB approval before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank of bank holding
company if, after such acquisition, it would own or control more than 5% of such
shares (unless it already owns or controls the majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank; or (iii)
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merging or consolidating with another bank holding company. Subject to certain
conditions (including certain deposit concentration limits established by the
BHCA), the FRB may allow a bank holding company to acquire banks located in any
state of the United States without regard to whether the acquisition is
prohibited by the law of the state in which the target bank is located. In
approving interstate acquisition, however, the FRB is required to give effect to
applicable state law limitations on the aggregate amount of deposits that may be
held by the acquiring bank holding company and its insured depository
institution affiliates in the state in which the target bank is located or which
require that the target bank have been in existence for a minimum period of time
(not to exceed five years) before being acquired by an out-of-state bank holding
company.
The BHCA also prohibits, with certain exceptions, the Company from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank and from engaging in any business
other than that of banking, managing, and controlling banks or furnishing
services to banks and their subsidiaries. The principal exception to this
prohibition allows bank holding companies to engage in, and to own shares of
companies engaged in, certain businesses found by the FRB to be "so closely
related to banking... as to be a proper incident thereto." Under current
regulations of the FRB, the Company and its non-bank subsidiaries are permitted
to engage in, among other activities, such banking-related businesses as the
operation of a thrift, sales and consumer finance, equipment leasing, the
operation of a computer service bureau, including software development, and
mortgage banking and brokerage. the BHCA generally does not place territorial
restrictions on the activities of non-bank subsidiaries of bank holding
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companies.
Federal legislation also prohibits acquisition of "control" of a bank
of bank holding company, such as the Company, without prior notice to certain
federal bank regulators. "Control" is defined in certain cases as acquisition
of 10% of the outstanding shares of a bank or bank holding company.
Capital Requirements. Bank holding companies are required to maintain
minimum levels of capital in accordance with FRB capital adequacy guidelines.
If capital falls below minimum guideline levels, a bank holding company, among
other things, may be denied approval to acquire or establish additional banks or
non-bank businesses.
The FRB's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies: a risk-based
requirement expressed as a percentage of total risk-weighted assets, and a
leverage requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, of which at least on-half must be Tier 1 capital. The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with minimum requirements of 4% to 5% for
all others. For purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible assets (other than
certain mortgage servicing rights and purchased credit card relationships) and
total capital means Tier 1 capital plus certain other debt and equity
instruments which do not qualify as Tier 1 capital and a portion of the
company's allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
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particular circumstances or risk profiles of individual banking organizations.
Further, any banking organization experiencing or anticipating significant
growth would be expected to maintain capital ratios, including tangible capital
positions (i.e., Tier 1 capital less all intangible assets), well above the
minimum levels.
Under the FRB's guidelines, the capital standards described above
generally apply on a consolidated basis to bank holding companies that have more
than $150 million in total consolidated assets and on a bank-only basis to bank
holding companies that, like the Company, have less than $150 million in total
consolidated assets. Nevertheless, as of December 31, 1996, the Company had
regulatory capital, calculated on a consolidated basis, in excess of the FRB's
minimum requirement,s with a risk-based capital ratio of 8.3 % and a leverage
ratio of 6.7 %.
Dividends. The FRB has issued a policy statement with regard to the
payment of cash dividends by bank holding companies. In the policy statement,
the FRB Expressed its view that a bank holding company should not pay cash
dividends exceeding its net income or which can only be funded in ways that
weaken the bank holding company's financial health, such as by borrowing.
Additionally, the FRB possesses enforcement powers over bank holding companies
and their non-bank subsidiaries to prevent or remedy actions that represent
unsafe or unsound practices or violations of applicable statutes and
regulations. Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies. In addition to the restrictions
on dividends that may be imposed by the FRB, the Delaware General Corporation
Law would allow the Company to pay dividends only out of its surplus, or if the
Company has no such surplus, out of its net profits for the fiscal year in
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which the dividend is declared and/or the preceding fiscal year.
FEDERAL SECURITIES REGULATION. The Company's common stock is registered
with the SEC under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the Company
in subject to the information, proxy solicitation, insider trading and other
restrictions and requirements of the SEC under the Exchange Act.
THE BANK
GENERAL. The Bank is an Illinois chartered bank, the deposit accounts of
which are insured by the BIF of the FDIC. As a BIF-insured, Illinois-chartered
bank, the Bank is subject to the examination, supervision, reporting and
enforcement requirements of the Commissioner, as the chartering authority for
Illinois banks, and the FDIC, as administrator of the BIF.
DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank is required to
pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums based upon
their respective levels of capital and supervisory evaluations. Institutions
classified as well-capitalized (as defined by the FDIC) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (as defined by the FDIC) and considered of substantial supervisory
concern pay the highest premium. Risk classification of all insured institutions
is made by the FDIC for each semi-annual assessment period.
During the year ended December 31, 1996, BIF assessments ranged from 0% of
deposits to 0.27% of deposits. The FDIC has announced that for the semi-annual
assessment period beginning January 1, 1997, BIF assessment rates will continue
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to range from 0% of deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any conditions imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of the Company is not aware of any activity
or condition that could result in termination of the deposit insurance of the
Bank.
FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance
assessments paid by SAIF members has been used to cover interest payments due on
the outstanding obligations of the FICO, the entity created to finance the
recapitalization of the FSLIC, the SAIF's predecessor insurance fund. Pursuant
to federal legislation enacted September 30, 1996, commencing January 1, 1997,
both SAIF members and BIF members will be subject to assessments to cover the
interest payment on outstanding FICO obligations. Such FICO assessments will be
in addition to amounts assessed by the FDIC for deposit insurance. Until January
1, 2000, the FICO assessments made against BIF members may not exceed 20% of the
amount of the FICO assessments made against SAIF members. It is estimated that
SAIF members will pay FICO assessments equal to 0.064% of deposits while BIF
members will pay FICO assessments equal to 0.013% of deposits. Between January
1, 2000 and the maturity of the outstanding FICO obligations in 2019, BIF
members and SAIF members will share the cost of the interest on the FICO bonds
on a pro rata basis. It is estimated that FICO
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assessments during this period will be less than 0.025% of deposits.
COMMISSION ASSESSMENTS. Illinois banks are required to pay supervisory fees
to the Commissioner to fund the operations of the Commissioner. The amount of
such supervisory fees is based upon each institution's total assets, including
consolidated subsidiaries, as reported to the Commissioner. During the year
ended December 31, 1996, the Bank paid supervisory fees to the Commissioner
totaling $12,327.18
CAPITAL REQUIREMENTS. The FDIC has established the following minimum
capital standards for state-chartered insured non-member banks, such as the
Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital to
total assets of 3% for the most highly-rated banks with minimum requirements of
4% to 5% for all others, and a risk-based capital requirement consisting of a
minimum ratio of total capital to total risk-weighted assets of 8%, at least
one-half of which must be Tier 1 capital. For purposes of these capital
standards, Tier 1 capital and total capital consist of substantially the same
components as Tier 1 capital and total capital under the FRB's capital
guidelines for bank holding companies (see "--The Company"--"Capital
Requirements").
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
FDIC provide that additional capital may be required to take adequate account of
interest rate risk or risks posed by concentrations of credit, nontraditional
activities or securities trading activities.
During the year ended December 31, 1996, the Bank was not required by the
FDIC to increase its capital to an amount in excess of the minimum regulatory
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requirements. As of December 31, 1996, the Bank exceeded its minimum regulatory
capital requirements with a leverage ratio of 6.7 % and a risk-based capital
ratio of 8.3%.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or critically
undercapitalized." Depending upon the capital category to which an institution
is assigned, the regulators' corrective powers include: requiring the submission
of a capital restoration plan; placing limits on asset growth and restrictions
on activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the
institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of principal
or interest on subordinated debt; and ultimately, appointing a receiver for the
institution.
DIVIDENDS. Under the Illinois Banking Act, Illinois-chartered banks may not
pay, without prior regulatory approval, dividends in excess of their net
profits.
The payment of dividends by an financial institution or its holding company
is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
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institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described above,
the Bank exceeded its minimum capital requirements under applicable guidelines
as of December 31, 1996. As of December 31, 1996, approximately $ 683,000 was
available to be paid as dividends to the Company by the Bank. Notwithstanding
the availability of funds for dividends, however, the FDIC may prohibit the
payment of any dividends by the Bank if the FDIC determines such payment would
constitute an unsafe or unsound practice.
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions imposed
by the Federal Reserve Act on extensions of credit to the Company and its
subsidiaries, on investments in the stock or other securities of the Company and
its subsidiaries and the acceptance of the stock or other securities of the
Company or its subsidiaries as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by the Bank to
its directors and officers, to directors and officers of the Company and its
subsidiaries, to principal stockholders of the Company, and to "related
interests" of such directors, officers and principal stockholders. In addition,
such legislation and regulations may affect the terms upon which any person
becoming a director or officer of the Company or one of its subsidiaries or a
principal stockholder of the Company may obtain credit from banks with which the
Bank maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. The FDIC has adopted quidelines which
establish operational and managerial standards to promote the safety and
soundness of state non-member banks. The guidelines set forth standards for
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
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compensation, fees and benefits, asset quality and earnings. In general, the
guidelines prescribe the goals to be achieved in each area, and each institution
is responsible for establishing its own procedures to achieve those goals. If an
institution fails to comply with any of the standards set forth in the
guidelines, the FDIC may require the institution to submit a plan for achieving
and maintaining compliance. The preamble to the guidelines states that the FDIC
expects to require a compliance plan from an institution whose failure to meet
one or more of the guidelines is of such severity that it could threaten the
safety and soundness of the institution. Failure to submit an acceptable plan,
or failure to comply with a plan that has been accepted by the FDIC, would
constitute grounds for further enforcement action.
BRANCHING AUTHORITY. Illinois banks, such as the Bank, have the authority
under Illinois law to establish branches anywhere in the State of illinois,
subject to receipt of all required regulatory approvals.
Effective June 1, 1997 (or earlier if expressly authorized by applicable
state law), the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act") allows banks to establish interstate branch
networks through acquisitions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits that may be
held by the surviving bank and all of its insured depository institution
affiliates. The establishment of de novo interstate branches or the acquisition
of individual branches of a bank in another state (rather than the acquisition
of an out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only
if specifically authorized by state law. The legislation allows individual
states to "opt-out" of certain provisions of the Riegle-Neal Act by enacting
appropriate legislation prior to June 1, 1997. Illinois has enacted
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legislation permitting interstate mergers beginning on June 1, 1997.
State Bank Activities. Under federal law and FDIC regulations, FDIC
insured banks are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type or in an amount, that are not permissible
for a national bank. Federal law and FDIC regulations also prohibit FDIC insured
state banks and their subsidiaries, subject to certain exceptions, from engaging
as principal in any activity that is not permitted for a national bank or its
subsidiary, respectively, unless the bank meets, and continues to meet, its
minimum regulatory capital requirements and the FDIC determines the activity
would not pose a significant risk to the deposit insurance fund of which the
bank is a member. Impermissible investments and activities must be divested or
discontinued within certain time frames set by the FDIC. These restrictions have
not had, and are not currently expected to have, a material impact on the
operations of the Bank.
Federal Reserve System. FRB regulations, as presently in effect, require
depository institutions to maintain non-interest earning reserves against their
transaction accounts (primarily NOW and regular checking accounts), as follows:
for transactions accounts aggregating $49.3 million or less, the reserve
requirement is 3% of total transaction accounts; and for transaction accounts
aggregating in excess of $49.3 million, the reserve requirement is $1.479
million plus 10% of the aggregate amount of total transaction accounts in excess
of $49.3 million. The first $4.4 million of otherwise reservable balances are
exempted from the reserve requirements. These reserve requirements are subject
to annual adjustment by the FRB. The Bank is in compliance with the forgoing
requirements.
-18-
<PAGE>
Item 2. Properties
- -------------------
Spring Bancorp, Inc. does not currently own or lease any property, although
its subsidiary, Bank of Springfield, owns the land on which the only presently
operating office is located at 2600 Stevenson Drive, Springfield, Illinois
62703. This property includes a parking lot containing 15 parking places. The
office building is approximately 7,200 square feet and includes full basement
and storage rooms. Also the bank has 5 drive-up lanes (or Tellers). An "L"
shaped portion of property containing approximately 42,500 square feet adjoining
the Bank's property and purchased on June 14, 1974 for a cost of $80,000.00,
this construction being developed to access the drive-up facilities and for
additional parking. The Bank also owns a parcel near the bank building at West
Lake Drive and Lake Plaza Drive, Springfield, Illinois on which a banking
facility could be located in the distant future, if bank growth continues. This
property contains approximately 19,200 square feet and was purchased on February
24, 1971 for $10,200.00.
Early in 1994 the Bank purchased property located at 3400 Wabash Avenue,
Springfield, Il., for the site of another location to service the westside
market area. The property was purchased for $500,000.00 and facility contains
approximately 13,000 square feet at a cost of $1,349,625.00. The facility
provides a five drive up system and ATM for convenience of its customers. The
Wabash facility opened of January 29, 1996 with full service to its customers.
With both locations the Bank has been able to reach the needs of the market area
and position itself for the changing environment of the banking industry in the
Twenty First Century.
-19-
<PAGE>
Item 3. Legal Proceedings
- ---------------------------
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the Bank's business, to which Bancorp or the
Bank is a party or of which the property of the Bank is subject.
-20-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
-21-
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
- --------------------------------------------------------------
Security Holder Matters.
- ------------------------
The capital stock of Spring Bancorp, Inc. is not traded on any exchange or
over-the-counter market, nor is it anticipated that quotation on the common
shares of Bancorp will be available on any exchange or market. The following
table sets forth the reported high and low closing trade prices of Bancorp
Capital stock known to management of Bancorp, based on information given to
Bancorp on an informal basis by trading stockholders, during the period
indicated.
<TABLE>
<CAPTION>
1996 1995
---- ----
Price High Low High Low
Per Share Asked Bid Asked Bid
Quarter ----- ---- ----- ----
<S> <C> <C> <C> <C>
First 3.75 2.40 3.75 2.40
Second 3.75 2.40 3.75 2.40
Third 3.75 2.40 3.75 2.40
Fourth 3.75 2.40 3.75 2.40
</TABLE>
The common shares are the only shares issued and outstanding. In November
1995, Spring Bancorp, Inc. declared (.22) cents cash dividend per share to
shareholders of record date as of November 24, 1995. In November 1996, Spring
Bancorp, Inc. declared (.22) cents cash dividend per share to shareholders of
record date November 25, 1996, and payable to shareholders on December 1, 1996.
The number of shareholders of record for the Bancorp's common stock as of
December 31, 1996 was 292.
On December 3, 1993 Spring Bancorp, Inc. issued a tender offer to purchase
up to 400,000 shares of its issued and outstanding common stock. The par value
of the common stock is $1.00 per share and was bought back at a price of $3.75
per share net to the seller.
-22-
<PAGE>
This offer expired February 4, 1994 @ 5:00 P.M. Central Standard Time. By
the company making the availability of this tender offer, it would accommodate a
shareholder who otherwise may be unable to sell the shares. This offer was
available to all shareholders upon identical terms and conditions.
If the offer would have resulted in fewer than 300 shareholders at
completion, the company would be able to suspend its reporting obligations under
the Securities Exchange Act of 1934. This suspension would benefit the company
by reducing its time and incurred expenses in complying with the reporting
requirements.
Shareholders who did not tender their shares pursuant to this offer may
find it more difficult to obtain information about the Company. In addition, it
is not anticipated that any market will exist for the shares, meaning
shareholders will have little opportunity to sell their shares if they desire to
do so at a later date. The Company will accept for payment and purchases of
400,000 shares which have been validly tendered at or prior to the expiration
date of the offer and not properly withdrawn in accordance with the tender
offer. In the event more than 400,000 shares are tendered, the company will
accept from all shareholders on a pro rata basis a portion of the tendered
shares with the remainder being returned to the holder: however if a shareholder
holds less than 100 shares all of such shares will be purchased and not
prorated.
On May 6, 1994, 175,763 shares of common stock were tendered at $3.75 per
share. Thus the remaining number of shares were 657,532. The results in number
of shareholders did not fall below the 300, therefore reporting obligation under
the Securities Exchange Act of 1934 were still in effect
-23-
<PAGE>
Item 6 Selected Financial Data
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating Income $ 9,196,240 $ 7,423,044 $ 5,797,779 $ 5,752,843 $ 4,521,571
Operating Expenses 7,339,637 5,560,066 4,123,810 3,665,049 3,258,082
Income before
Income Taxes
Security Gains
(losses) & Extra-
ordinary Credits 1,856,603 1,862,978 1,673,969 2,087,794 1,263,489
Provision For
Loan Losses (135,852) (10,288) (8,000) (203,999) (162,200)
Income before
Income Taxes,
Security Gains
(losses) &
Extraordinary
Credits 1,720,751 1,852,690 1,665,969 1,883,795 1,101,289
Income Taxes
Expense (549,262) (712,250) (661,120) (692,083) (381,861)
Earning before
Security Gains
(losses) & extra-
ordinary Credits 1,171,489 1,140,440 l,004,849 1,191,712 719,428
Security Gains
(losses) less
Applicable
Income Taxes -0- -0- -0- (7,000) -0-
Earnings (loss)
before Extra-
ordinary Credits 1,171,489 1,140,440 1,004,849 1,184,712 719,428
Extraordinary
Credits -0- -0- -0- -0- -0-
Net Earnings(loss) $ 1,171,489 $ 1,140,440 $ 1,004,849 $ 1,184,712 $ 719,428
Per Common Share:
Net Income (loss) 1.78 1.73 1.46 1.42 .86
Cash Dividend Paid .22 .22 .20 .17 .17
Balance Sheet Items
at Dec 31:
Total Assets $107,200,397 $88,629,566 $64,429,979 $53,804,707 $44,004,745
Total Stockholders
Equity $ 5,989,860 $ 4,969,944 $ 3,917,707 $ 3,776,946 $ 2,723,895
</TABLE>
-24-
<PAGE>
Item 7. Management Discussion and Analysis of Financial
- ---------------------------------------------------------
Condition and Results of Operations
-----------------------------------
The financial review presents management's discussion and analysis of
Spring Bancorp, Inc. and its subsidiary, consolidated financial condition and
results of operations. This review highlights the major factors affecting
results of operations and any significant changes in financial condition for the
three-year period ended December 31, 1996. It should be read in conjunction with
the accompanying consolidated financial statements and notes to financial
statements appearing in the report.
OVERVIEW:
The Company and subsidiary, recorded a consolidated net income of
$1,171,489 for the year ended December 31, 1996, compared to $1,140,440 and
$1,004,849 for 1995 and 1994, respectively. The Company's improved earnings
during 1996 over 1995 were primarily driven by an increase in net interest
income, along with a slight increase in noninterest income. These increases were
partially offset by an increased provision for loan losses and marginally higher
noninterest expense.
The assets of the Company have continued to show significant growth over
the past five years. In 1996, the total assets were $107,200,397, which was an
increase of $18,570,831 or 20.96% over 1995. 1995 total assets were $88,629,566,
representing an increase of $24,199,587 or 37.56% over 1994. Continued growth in
the loan portfolio of $22,532,280 reflected the strength of the economy and
management's focus on lending. The real estate portfolio continued to show
growth in 1996. An increase of $11,554,326 demonstrated the ability of the Bank
to be competitive in the Central Illinois market area. The installment loan
portfolio again exhibited growth in 1996, increasing
-25-
<PAGE>
$6,986,466 over 1995. This resulted from the competitive rates being offered by
the Bank as compared to other financial institutions in the market area as well
as national competitors.
Increasing competition in the industry has made it necessary for the Bank
to continue to explore other avenues of growth in the lending environment. The
Bank has created a network of banks who participate with it on larger loan
requests. The subsidiary is currently servicing over $27,000.000 in loan
participation's with other financial institutions who need additional avenues of
investment and profit. The subsidiary has maintained underwriting standards that
support the quality of loans in the portfolio.
1996 has proven to be another successful year for the origination of fixed
real estate mortgages. The subsidiary began participating in the secondary
market with Freddie Mac early in 1992, and has since expanded its efforts with
additional secondary market entities such as the Freddie Mac Affordable Gold
Program, and Fannie Mae, which includes the Community Homebuyers Program,
Independent National Mortgage Corporation, GE Capital, and Illinois Department
of Housing Authority. As of year end 1996, the Bank was servicing approximately
$263,000,000 in unpaid principal balances sold to the secondary market. In 1995,
the Bank was servicing $254,000,000 and $224,000,000 in 1994. The subsidiary
also receives between .25% and .375% on each loan monthly, as a servicing fee.
The Bank continues to research other avenues of lending in which it can be
competitive and still meet the market area needs.
The deposit growth in 1996 was $18,342,123 which represented an increase of
22.42% over 1995. This growth was primarily in time deposits and interest
bearing demand deposits. The rise in deposits resulted from an increased
-26-
<PAGE>
customer base which has resulted in part from the opening of a west side
location at 3400 Wabash Avenue and also was attributed to the competitive
pricing of services offered by the Bank. There has also been a rise in
commercial businesses in the area which has lead to the growth in new deposits
at the Bank.
RESULTS OF OPERATIONS:
Net interest income, the Company's principal source of earnings, is the
amount of interest income generated by earning assets less interest expense paid
on interest-bearing liabilities. 1996 again showed a rise in interest and fees
on loans as a primary factor for the improvement in interest income for the
subsidiary. The amount of interest income and fees for 1996 increased to
$6,354,126 as compared to the years 1995 and 1994 which were $5,076,226 and
$3,913,526, respectively.
Offering new products, as well as improving pricing over the past five
years, resulted in the loan demand increase in 1996. The investment portfolio
realized a slight decline in 1996 attributed to paydowns on maturities. However,
the Bank was able to reinvest the proceeds into investments with shorter
maturities and increased yields. This resulted in an improvement in the interest
margin of the subsidiary.
INTEREST EXPENSE:
Interest expense was $4,256,282 in 1996, $3,194,901 in 1995 and $1,685,532
in 1994. The increases were mainly attributed to the amount paid on interest
bearing deposits. The continual growth in interest bearing deposits has had an
impact on the interest paid in 1996. With the growth in certificates of deposit
and other interest bearing deposits, interest expense also increased over that
in 1995 and 1994. This rate difference has resulted in a decline in
-27-
<PAGE>
net interest margin.
Interest on long term debt in 1996 was $48,111. The Company has a note
payable that had a principal balance outstanding at December 31, 1996, and 1995
of $562,692 and $613,846 respectively. This note requires quarterly interest
payments at the current national prim interest rate. Principal payments of
$51,154 are due annually on May 24. The note matures May 24, 2007 and is secured
by all of the Bank common stock.
OTHER INCOME:
Other income includes income from service charges, other charges and fees,
other gain on the sale of loans and other income products. Fees amounted to
$2,212,080, in 1996, $1,719,737 in 1995 and $1,491,986 in 1994. The gains on
sale of loans and mortgage loan service fees have continued to increase as a
result of origination and service fees collected in conjunction primarily with
Freddie Mac and FNMA fixed rate loan programs which the Bank began in 1992. The
Bank originates these mortgages which are then sold into the secondary market,
with the servicing of such loans retained. Fee income generated through loan
origination was $586,773 in 1996, $270,814 in 1995 and $241,595 in 1994.
Servicing fee income on these sold loans totaled $1,396,365, $1,209,702 and
$1,023,061 in 1996, 1995, and 1994, respectively. The decline in the interest
rate environment resulted in mortgagors seeking to refinance their existing
mortgages during portions of this three year period.
OTHER EXPENSE:
Other expense totaled $3,083,355, $2,365,165 and $2,438,278 for the years
ended December 31, 1996, 1995 and 1994, respectively. The major components of
other expense were salaries and employee benefits, which were $1,579,393 in
1996, $1,269,589 in 1995, and $1,193,663 in 1994. The Bank has continued to
-28-
<PAGE>
increase staffing in order to service its increased business and also as a
result of the opening of the west side facility, at 3400 Wabash Ave. Employee
benefits increased again in 1996. The medical benefits for the staff rose
approximately five percent in 1996 in annual premiums. Occupancy and equipment
expense increased in 1996. This was due to the new facility, as well as to the
Company's commitment to continuously updating its equipment to meet the changing
technology demands of the financial services industry. Data processing expense
showed an increase in 1996 of $21,598 over that of 1995. These expenses occurred
due to the increased volume of processing handled by the service bureau, as well
as new service products for the subsidiary in 1996.
PROVISION FOR LOAN LOSSES:
The purpose of the provision for loan losses is to maintain the allowance
for credit losses at a level commensurate with the anticipated credit risk in
the loan portfolio. The quality of the portfolio is influenced by the financial
condition of the borrower, as well as by the economy. Improvements in economic
conditions tend to reduce the amount charged to the allowance. Management has
established various controls in order to limit future losses in the subsidiary
such as a "Watch List" of possible problem loans, a strong policy concerning
loan administration (loan file documentation, disclosures, approval,) and a loan
committee to review the quality and anticipated collectibility of the portfolio.
Also, the subsidiary maintains underwriting practices that support its quality
loan portfolio. If management determines such loans are possibly uncollectible,
additional provision to expense is made for a satisfactory level of provision
for loan losses. In 1996, management made a provision of $135,852. This
provision was made in accordance with guidelines set forth by management for the
increase in the loan portfolio.
-29-
<PAGE>
Management believes that the allowance for loan losses was adequate at December
Management also believes that diligent adherence to sound lending policies,
practices, and administration will help keep loan losses at acceptable levels.
The Company is not aware of any current recommendations by the regulatory
authorities relating to any know trends, events, or uncertainties that would
have a material effect on the liquidity, capital resources or operations of the
Company.
INCOME TAXES:
Income taxes were $549,262 in 1996, $712,250 in 1995, and $661,120 in
1994. Deferred income tax assets and liabilities are computed annually for
difference between financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in future based on enacted tax
laws and rates. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
is the tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. Income taxes are further explained in note eight of
the consolidated financials statements.
CAPITAL:
The Federal Reserve Board has established capital requirements for bank
holding companies which generally parallel the capital requirements for state
chartered banks under the Federal Deposit Insurance Corporation (the "FDIC")
regulations. The regulations provide that such standards will generally be
applied on a bank-only (rather that a consolidated) basis in the case of a bank
holding company with less that $150 million in total assets, such as the
-30-
<PAGE>
Company. The Company's total capital of $6. million, however, well in excess of
the Federal Reserve Board's consolidated minimum capital requirements.
At December 31, 1996, the Bank continued to maintain a sound Tier 1 capital
ratio of 6.7% and a risk based capital ratio of 8.9%. As shown by the following
table, the Bank's capital exceeded the minimum capital requirements:
(dollars in thousands)
<TABLE>
<CAPTION>
AMOUNT PERCENT REQUIRED
------ ------- --------
<S> <C> <C> <C>
Tier 1 Capital $ 6,551 6.7% 4.0%
Risk Based Capital $ 6,969 8.9% 8.0%
</TABLE>
Banks and bank holding companies are generally expected to operate at or
above the minimum capital requirements. The above ratios are well in excess of
regulatory minimums and should allow the Company to operate without capital
adequacy concerns. The Federal Deposit Insurance Corporation Improvement Act of
1991 establishes a bank rating system based on the capital levels of banks. The
Bank is rated "adequately capitalized", which is the second highest rating
available under this capital-based rating system.
EFFECTS OF INFLATION:
The Company's financial statements and accompanying footnotes have been
prepared in accordance with GAAP (generally accepted accounting principles),
which generally requires the measurement of financial position and operating
results in terms of historical dollars without consideration for changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation can be found in the increased cost of the Company's operations because
the assets and liabilities of the Company are primarily monetary and interest
rates have a greater impact on the Company's performance than the effects of
inflation.
-31-
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
This report, including the Chairman's Letter to Stockholders, contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended. The Company intends such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Securities Reform Act of 1995, and is including this statement
for purposes of these safe harbor provisions. Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies and
expectations of the Company are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project," or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain.
Factors could have a material adverse affect on the operations and future
prospects of the Company and the subsidiaries include, but are not limited to,
changes in: interest rates, general economic conditions, legislative/regulatory
changes, monetary and fiscal policies if the U.S. Government, including policies
of the U.S. Treasury and the Federal Reserve Board, the quality or composition
of the loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles, policies and quidelines. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements. Further information concerning the
Company and it business, including additional factors that could materially
affect the Company's financial results, is included in the Company's filings
with the Securities and Exchange Commission.
-32-
<PAGE>
AVERAGE BALANCE AND INTEREST RATES
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 & 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C>
(Rates on Taxable
Equivalent Basis)
Assets
Interest Bearing
Deposits with Banks 30 2 6.67% 104 6 5.77%
------- -------- ------ ------- -------- ------
Federal Funds Sold 4,861 282 5.81% 4,843 287 5.93%
------- -------- ------ ------- -------- ------
Securities
U. S. Gov't & Federal
Agency Obligations 3,957 217 5.49% 3,499 181 5.18%
Obligations of States &
Political Subdivisions 2,171 124 5.72% 2,458 153 6.23%
Other Securities 03 0 0% 13 1 7.70%
------- -------- ------ ------- -------- ------
Total Securities 6,131 341 5.57% 5,970 335 5.62%
Loans
Real Estate & Real
Estate Construction 46,107 4,020 8.72% 35,856 2,948 8.23%
Commercial Loans 14,027 1,189 9.37% 9,637 1,018 10.57%
Installment 15,814 1,384 8.76% 12,557 1,179 9.39%
Credit Cards &
related plans 1,110 124 11.18% 1,272 148 11.64%
A.T.W. 100 06 6.00% 205 12 5.86%
Other Loans -0- -0- -0- -0- -0- -0-
Total Loans (1) 77,158 6,723 8.72% 59,527 5,305 8.92%
------- -------- ------ ------- -------- ------
Total Earning Assets 88,180 7,348 8.34% 70,444 5,933 8.43%
------- -------- ------ ------- -------- ------
Reserve for Possible
Loan Losses (136) --- --- (10) --- ---
Cash & Due from Banks 2,759 --- --- 3,071 --- ---
Other Assets 4,439 --- --- 1,923 --- ---
------- -------- ------ ------- -------- ------
Total Assets 95,378 --- --- 75,428 --- ---
Liabilities & Share-
holders Equity
Time Deposits
Savings 6,073 162 2.67% 5,982 101 1.69%
Time Savings 46,759 2,813 6.02% 35,575 2,201 6.19%
Time Certificate of
Deposit $100,000 &
over 11,617 723 6.23% 8,738 540 6.18%
Interest Bearing
Deposits 14,178 438 3.09% 9,024 234 2.60%
------- -------- ------ ------- -------- ------
Total Time Deposits 78,627 4,136 5.26% 59,319 3,076 5.19%
</TABLE>
-33-
<PAGE>
AVERAGE BALANCE AND INTEREST RATES CONT'D.
<TABLE>
<CAPTION>
1996 1995
BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C>
Federal Funds Borrowed
& Securities Sold
Under Repurchase
Agreement 18 1 5.56% 139 6 4.32%
Long Term Debt 563 48 8.53% 631 57 9.04%
------- ----- ---- ------- ------ -----
Total Borrowed Fund 581 49 8.44% 778 63 8.09%
------- ----- ---- ------- ------ -----
Total Interest Bearing
Liabilities $79,208 4,185 5.29% $60,089 3,139 5.23%
------- ----- ---- ------- ----- ----
Interest Rate Spread 3.05% 3.20%
------- ----- ----- ------- ------ ----
Demand Deposits 10,091 --- --- 10,314 --- ---
Other Liabilities 567 --- --- 485 --- ---
Common Shareholders'
Equity 5,512 --- --- 4,540 --- ---
------- ----- ----- ------- ------ ----
Total Liabilities &
Shareholders' Equity 95,378 75,428
Interest Revenue /
Earning Assets 88,180 7,348 8.34% 70,444 5,977 8.53%
Interest Expense /
Earning Assets 88,180 4,185 4.75% 70,444 3,139 4.46%
------- ----- ----- ------- ------ ----
Net Yield on
Earning Assets 3,163 3.59% 2,838 4.07%
------- ----- ----- ------- ------ ----
</TABLE>
NOTE: (1) Loan fees & unearned discount are included for late calculation
purposes. Nonaccrual loans have also been included in the averages
balance.
-34-
<PAGE>
SPRING BANCORP, INC. AND SUBSIDIARY
YEARS ENDED DECEMBER 31, 1996 & 1995
(Dollars in Thousands)
INVESTMENT SECURITIES:
- ----------------------
Investment securities at December 31, 1996 & 1995 consist of:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Held to maturity, at amortized cost $4,354,323 $4,613,161
Available for sale at estimated fair
value 1,381,772 1,508,179
---------- ----------
$5,736,095 $6,121,340
</TABLE>
The amortized cost and estimated fair value of investment securities at December
31, 1996 & 1995, were as follows:
<TABLE>
<CAPTION>
INVESTMENTS - Held to Maturity 1996
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U. S. Government and
agency securities $2,995,201 $ - $9,801 $2,985,400
Municipal securities 1,356,582 40,206 - 1,396,788
Other securities 2,540 - - 2,540
---------- ------- ------ ----------
Total $4,354,323 $40,206 $9,801 $4,384,728
========== ======= ====== ==========
</TABLE>
<TABLE>
<CAPTION>
INVESTMENTS - Available for Sale 1996
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U. S. Government and
agency securities $ 761,956 $ - $40,038 $721,918
Municipal securities 642,656 17,198 - 659,854
Other securities - - - -
---------- ------- ------- --------
Total $1,404,612 $17,198 $40,038 $1,381,772
========== ======= ======= ==========
</TABLE>
-35-
<PAGE>
SPRING BANCORP, INC. AND SUBSIDIARY
YEARS ENDED DECEMBER 31, 1996 & 1995
(Dollars in Thousands)
INVESTMENT SECURITIES: (CONT'D)
- -------------------------------
<TABLE>
<CAPTION>
INVESTMENTS - Held to Maturity 1995
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--- ----- ------ -----
<S> <C> <C> <C> <C>
U. S. Government and
agency securities $3,006,437 $ - $5,540 $3,000,897
Municipal securities 1,304,184 62,524 - 1,666,708
Other securities 2,540 - - 2,540
---------- ------- ------ ----------
Total $4,613,161 $62,524 $5,540 $4,670,145
========== ======= ====== ==========
INVESTMENTS - Available for Sale 1995
----
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U. S. Government and
agency securities $ 875,614 $ - $33,962 $ 841,652
Municipal securities 644,067 22,460 - 666,527
Other securities - - - -
---------- ------- ------- ----------
Total $1,519,681 $22,460 $33,962 $1,508,179
========== ======= ======= ==========
</TABLE>
The Market values of U. S. Government Federal Agency Obligations,
obligations of State & Political subdivisions and other securities are
established with the assistance of an independent price service and are based on
available market data which often reflects transactions of relatively small size
and are not necessarily indicative of the prices at which large amounts of
particular issues could readily be sold or purchased.
There are no investments in State and Political subdivisions for the
aggregate book value of the investments in any single issue which exceeds ten
percent of stockholder's equity, of the subsidiary.
36
<PAGE>
INVESTMENT SECURITIES CONT'D
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
1996 Maturity Distributions
<TABLE>
<CAPTION>
Within One Year To Six Yrs To After
One Year Five Years Ten Years Ten Years Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Avrge Avrge Avrge Avrge Avrge
Book Yield Book Yield Book Yield Book Yield Book Yield
----------------------------------------------------------------------------------------
U.S.
Treasury
Securities $1,400 6.09% $1,195 5.15% 0 --- 0 --- $2,595 5.66%
U.S. Agency
Obligations 432 6.35% $ 000 --- 0 --- $ 730 7.46% $1,142 6.87%
Obligations
of State &
Political
Subdivisions 612 6.70% $ 845 6.65% 542 5.60% 000 --- $1,999 6.31%
Other
Securities 0 --- 0 --- 3 --- 0 --- 3 0.00%
----------------------------------------------------------------------------------------
Total
Securities $2,444 $2,040 545 $ 730 $5,736
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
Investment securities having a book value of $3,439,149 and $4,157,044, at
December 31, 1996 and 1995, respectively were pledged to secure public and trust
deposits and for other purposes required or permitted by law.
In May 1993 the Financial Accounting Standards Board issued Financial
Accounting Standards Board Statement No. 115, Accounting for Certain Investments
in Debt and Equity Securities. The Company Adopted the provisions of the
standard for investments held as of or acquired after January 1, 1994. In
accordance with the statement, prior period financial statements have not been
restated to reflect the change in accounting principle. The balance of
stockholders' equity was decreased by $13,932(net of $ 8,907 of deferred income
tax benefit) in 1996 to reflect the net unrealized losses on securities
classified as available for sale previously carried at amortized cost.
In 1996, no gains on the sale of U.S. Government & Agency Securities were
seen. The bank did not sell any securities for gain on sale of investments.
-37-
<PAGE>
INVESTMENT SECURITIES CONT'D.
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
1995 Maturity Distributions
<TABLE>
<CAPTION>
Within One Year To Six Yrs To After
One Year Five Years Ten Years Ten Years Total
------------------------------------------------------------------------------------------------------
Avrge Avrge Avrge Avrge Avrge
Book Yield Book Yield Book Yield Book Yield Book Yield
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.
Treasury
Securities $1,505 4.96% $1,101 5.16% 0 -- 0 -- $2,606 5.04%
U.S. Agency
Obligations 0 -- $ 400 4.53% 0 -- $ 875 8.94% $1,267 7.54%
Obligations
of State &
Political
Subdivisions 386 7.24% 1,320 6.74% 302 5.60% 240 5.60% 2,248 6.30%
Other
Securities 0 -- 0 -- 0 -- 3 7.76% 3 7.73%
------------------------------------------------------------------------------------------------------
Total
Securities $1,891 $2,821 302 $1,118 $6,121
======================================================================================================
</TABLE>
-38-
<PAGE>
LOANS
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 & 1995
(DOLLARS IN THOUSANDS)
Loans @ December 31, 1996 & 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
Percent of Percent of
Total Loans Total Loans
<S> <C> <C> <C> <C>
Commercial,Financial
& Agriculture 17.16% $15,039 17.42% $11,336
Real Estate Mortgages 52.09% 45,647 53.95% 35,125
Real Estate Construction 6.50% 5,712 7.19% 4,680
Installment 22.95% 20,110 19.55% 12,727
Credit Cards and
Instant Check 1.30% 1,138 1.89% 1,226
Tax Anticipation
Warrants .00% 00 .00% 00
- --------------------------------------------------------------------------
Total Loans 100.00% 87,646 100.00% 65,094
Less Provision for Loan
Loss (418) (398)
- --------------------------------------------------------------------------
Total $87,228 $64,696
- --------------------------------------------------------------------------
NONACCRUAL AND RESTRUCTURED LOANS:
- ----------------------------------
Set forth below are the principal balances on nonaccrual loans.
1996 1995
---- ----
Nonaccrual Loans $128,291 $710,880
</TABLE>
In December 31, 1996, there was $128,291 of total loans on nonaccrual status. It
is generally a policy of Spring Bancorp's subsidiary to discontinue the accrual
of interest on loans when principal or interest is due and has remained unpaid
for ninety days or more. The subsidiary had no loans classified for regulatory
purposes as loss classified for regulatory purposes as loss, doubtful,
substandard or special mention by the regulators. There were no restructured
loans as of December 31, 1996, or December 31, 1995.
-39-
<PAGE>
LOANS (CONTINUED)
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
The subsidiary was not and is not aware of any current recommendations by the
regulatory authorities to any known trends, events or uncertainties that would
have a material effect on the liquidity, capital resources or operations of the
subsidiary.
<TABLE>
<CAPTION>
MATURITIES AND SENSITIVITIES OF LOANS:
- --------------------------------------
3 month 3 month 1 yr to Over
or less 12 mths 5 years 5 yrs Total
<S> <C> <C> <C> <C> <C>
Fixed Rate Loans:
- -----------------
Installments 1,162 1,218 14,385 3,345 20,110
Real Estate 3,617 1,311 10,898 4,131 19,957
Construction 1,018 4,694 0 0 5,712
Commercial & Financial
& Agriculture 640 1,165 3,652 1,900 7,357
Credit Card & Instant Check 409 729 0 0 1,138
Total Loans (Fixed) $ 6,846 $ 9,117 $28,935 $ 9,376 $54,274
----------------------------------------------
Floating Rate Loans:
- --------------------
Installments 0 0 0 0 0
Real Estate 3,742 21,949 0 0 25,691
Commercial 3,837 3,845 0 0 7,682
Total Floating Loans $ 7,579 $25,794 $ 0 $ 0 $33,373
----------------------------------------------
Total Loans $14,425 $34,911 $28,935 $ 9,376 $87,647
----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Interest Sensitivity
------------------------------------
Predetermined Floating or Adjustable
Interest Rates Interest Rates
(In Thousands)
---------------------------------------------
<S> <C> <C>
Due After One Year $ 25,544 $ -0-
======== =======
</TABLE>
-40-
----
40
<PAGE>
ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES:
- --------------------------------------------
<TABLE>
<CAPTION>
1996 1995
(In Thousands)
<S> <C> <C>
Balance @ beginning of Period $ 398 396
Charge offs:
Real Estate Loans 100 0
Installment Loans 0 0
Credit Cards & Related Plans 16 10
Commercial & Financial 0 0
Recoveries:
Real Estate Loans 0 0
Installment Loans 0 00
Credit Cards & Related Plans 1 0
Commercial & Financial 0 0
Net Charge Offs (115) (8)
Provision for Credit Losses 135 10
----- -----
Balance at End of Period $ 418 $ 398
===== =====
Rates of net charge offs during
period to loans outstanding
during the period .0014 .0002
</TABLE>
The allowance for credit losses is based on management's assessment of
overall risk in the loan portfolio. In determining its exposure to risk Spring
Bancorp's subsidiary has established various controls to monitor the portfolio's
quality. The risk of non collection is the most significant risk faced by the
subsidiary. Therefore the bank manages asset quality and risk through initial
loan analysis and approval, standardized documentation and procedures, monthly
monitoring of the portfolio performances and prompt follow up on problem
credits. A written policy has been adopted by the subsidiary assisting
management in evaluating the risk in their loan portfolio, ensuring timely
charge offs of loans and requiring the bank to document the basis for
determining the adequacy of its allowance for credit losses.
-41-
<PAGE>
LOANS (CONTINUED)
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES CONTINUED
- -----------------------------------------------------
The purpose of a provision for credit losses is to maintain the allowance
for credit losses at a level commensurate with the anticipated credit risk in
the loan portfolio. The quality of the portfolio is influenced by the credit
condition of the borrower, loan collateral, business cycles and other economic
considerations which are continually reviewed by management. Based on
management's assessment of these factors and industry comparisons an appropriate
level is established for the allowance for credit losses. In 1996, management
made provision of $135,852 into the allowance for credit loss. The management
continues to review the allowance for adequacy, in addition to a historical
evaluation. The bank's loan grading system (including problem and non performing
loans) in conjunction with a percentage system by types of loans will be
utilized in the analysis for 1996. The bank foresees no potential problem loan
now that could have a material effect on the liquidity, capital resources or
operations of the company.
ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES 1996:
- ---------------------------------------------------
LOAN LOSS ALLOWANCE
12-31-1996
------------------------
<TABLE>
<CAPTION>
OUTSTANDING HIGH LOW
CATEGORY BALANCE RESERVE
<S> <C> <C> <C> <C>
Credit Cards 1,039,827.00 0.99% 10,398 9,358
.0090%
Residential Mortgages $51,359,631.00 .0025% 129,243 103,383
Home Equity, F.H.A. .0020%
Commercial Loans $15,038,729.00 1.43% 215,040 195,504
TLN, Participation 1.30%
Installments $20,110,439.00 .0030% 60,331 50,276
.0025%
Instant Check $ 98,498.00 .346% 3,408 2,954
.030%
General Portion $ - -% - -
-------------- ------- -------
$87,641,124.00 -% 418,420 361,475
</TABLE>
-42-
<PAGE>
DEPOSITS AND INTEREST RATES PAID
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
Non Interest Bearing
Demand Deposits $ 9,828 $10,336
Interest Bearing
Demand Deposits 20,422 4.89% 8,761 2.60%
Savings Deposits 6,016 2.69% 8,889 2.94%
Time Deposits 47,653 5.90% 39,233 5.61%
Time Deposits of $100,000
and over $12,336 5.86% 14,590 3.71%
--------------------------------------
Total Deposits $96,255 4.29% $81,809 3.73%
======================================
</TABLE>
AMOUNT AND MATURITIES OF TIME DEPOSITS OF $100,000 AND OVER
================================================================================
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(In Thousands)
- --------------------------------------------------------------------------------
Three Months or Less $ 3,312 $ 5,297
Over Three Months
Through Six Months 1,500 5,883
Over Six Months
Through Twelve Months 5,591 2,106
Over Twelve Months 2,900 1,304
-------------------------------
$10,303 $14,598
===============================
</TABLE>
Spring Bancorp, Inc. and its subsidiary supports its interest earning
assets with a wide range of funding sources. These sources are continuously
monitored to maintain sufficient liquidity, to satisfy loan demand and to
maintain also an adequate spread between interest earning asset yields and
funding cost. The companies primary source of funds come from deposits
originating within the community.
-43-
<PAGE>
DEPOSITS AND INTEREST RATES PAID
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
The average deposits rose by 22.42% in 1996 over 1995. Interest bearing
demand deposits resulted in an upward trend over that of 1995. This movement can
be attributed to the uncertainty of interest rates on long term investments. The
consumer therefore is placing funds into a more readily available interest
bearing account, thus enabling the consumer to react more readily for changing
rates.
The non-interest bearing deposits in 1996 remained moderately the same as
1995.
<TABLE>
<CAPTION>
RETURN ON EQUITY AND ASSETS:
- --------------------------------------------------------------------
Selected Ratios 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Return on Assets 1.21% 1.29%
Return on Equity 21.40% 27.49%
Dividend Payout Ratio 12.35% 12.69%
Equity to Assets 6.11% 6.35%
Per Share Data
- --------------
Net Income $ 1.78 $ 1.73
Weighted Average
Shares outstanding
during year 657,532 657,532
Dividends Declared .22 .22
Book Value At December 31, 9.11 7.55
Shares Outstanding Year End 657,532 657,532
</TABLE>
-44-
<PAGE>
SHORT TERM BORROWINGS
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Short-term borrowings are alternative to other funding sources such as
securities sold under agreement to repurchase.
Below is set forth a summary of short-term borrowings.
<TABLE>
<CAPTION>
(In Thousands)
SHORT TERM BORROWINGS 1996 1995
- --------------------------------------------
<S> <C> <C>
Securities Sold Under
Agreement to Repurchase
At End of Year -0- $ -0-
Average Interest Rate on
Amounts outstanding at
End of Year -0- -0-
Maximum Amount Outstanding
At Any Month End 55 $ 223
Average Amount Outstanding
During Year 18 $ 55
Weighted Average Interest
Rate on Average Amount
Outstanding During Year 5.56% 6.14%
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
--------------------------------------------------
The primary role of liquidity management is to ensure ready access to
sufficient funds to meet existing commitments as well as present and future
financial obligations, to withstand fluctuation in deposit levels and to provide
for the customer's credit needs. Liquidity management therefore, is reviewed
from both an asset and a liability perspective.
Asset liquidity is provided mainly through maturities of loans, investment
securities and other interest bearing assets. These assets are not viewed as a
continually reliable source of liquidity because to the
-45-
<PAGE>
SHORT TERM BORROWINGS (CONTINUED)
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
potential impact of volatile interest rates and other outside influences on
marketability. The most important source of liquidity in liability liquidity is
the ability to raise new funds and renew maturing liabilities.
The most important factor in assuring liability liquidity is maintaining
the confidence in Spring Bancorp by its customers. It must be realized that this
confidence is based upon performance and reputation of the company. Spring
Bancorp's financial strength and numerous long term customer relationships
should enable it to raise funds as needed in many markets. Funds are primarily
generated locally.
The objective of interest rate sensitivity management is to minimize
changes in net interest income which results from changes in interest rates.
Below are estimated interest rate sensitivity positions and gaps with time
horizons from 0 months to 35 years (cumulative) at December 31, 1996.
-46-
<PAGE>
SHORT TERM BORROWINGS (CONTINUED)
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
CUMULATIVE RATE SENSITIVITY
AS OF THE END OF DECEMBER, 1995
(000's omitted)
<TABLE>
<CAPTION>
Over Over
3 month 1 year
3 month through through Over
Immediate or less 12 months 5 years 5 years Total
<S> <C> <C> <C> <C> <C> <C>
Assets:
Due from bank
interest bearing 0 0 0 0 0 0
Fed Funds Sold 4,700 0 0 0 0 4,700
Investment
Securities 0 725 1,687 2,072 1,275 5,759
Loans 7,579 6,846 34,911 28,935 9,376 87,647
-------------------------------------------------------
Total interest
sensitive assets 12,279 7,571 36,598 31,007 10,651 98,106
-------------------------------------------------------
Liabilities:
Money Market 3,255 0 0 0 0 3,255
Deposits 5,573 4,130 0 0 0 9,703
Time deposits 14,771 12,903 19,631 14,782 0 62,087
-------------------------------------------------------
Total Interest
sensitive liabilities 23,599 17,033 19,631 14,782 0 75,045
-------------------------------------------------------
Interest-sensitivity
gap:
Incremental (11,320) ( 9,462) 16,967 16,225 10,651
=============================================
Cumulative (11,320) (20,782) (3,815) 12,410 23,061
=============================================
Ratio of interest
sensitive assets
to interest sensitive
liabilities:
Incremental (.52) .44 1.86
Cumulative (.52) (.08) 1.78
</TABLE>
-47-
<PAGE>
SHORT TERM BORROWINGS (CONTINUED)
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
CUMULATIVE RATE SENSITIVITY (CONTINUED)
- ---------------------------------------
It is management's thoughts to measure and manage its rate sensitivity
position to insure the long-run earning power of the subsidiary. In addressing
this challenge, ratios of rate sensitive assets (RSA) to rate sensitive
liabilities (RSL) and gap (RSA minus RSL) to equity are reviewed monthly. More
importantly, however, special emphasis is placed on the change in interest
spread that results from possible fluctuations in interest rates. In particular,
changes in interest spread resulting from increasing, decreasing, and constant
rate scenarios are evaluated. It is management's concern that flexibility to
manage its assets and liabilities as to rates and balances such that changes in
interest spread will be moderated and that undue risks from mis-matching of RSA
and RSL shall be avoided. It is the objective of the subsidiary, by active
reinvestment and careful analysis and monitoring, to achieve and maintain its
position.
A Gap (Rate Sensitive Assets minus Rate Sensitive Liabilities) on a
cumulative basis not exceeding ten (10%) percent of total rate sensitive assets
either positive or negative.
Savings accounts are treated as an immediate repricing liability due to
their elasticity and historical interest rate changes.
It is the concern of management to address the subsidiary to assure that
sufficient funds are available, both on a short term basis and a long term basis
to meet credit demands and deposit withdrawals. In addressing liquidity,
consideration shall be given to historical measures, such as loans and
investments to available deposits and capital, and the federal funds position.
-48-
<PAGE>
SHORT TERM BORROWINGS (CONTINUED)
SPRING BANCORP, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
CUMULATIVE RATE SENSITIVITY (CONTINUED)
- ---------------------------------------
These measures are compared internally on an historical basis with the
subsidiary. Historically these same deposits have been with the subsidiary for a
long term period of time. Liquidity needs are assessed by forecasting the
various assets and liabilities of subsidiary and continue to monitor these
liquid needs on both a short and long term basis.
-49-
<PAGE>
<TABLE>
<CAPTION>
Item 8: Financial Statements
- -----------------------------
<S> <C>
Report of Independent Certified Public Accountants 51
Financial Statements:
Consolidated Balance Sheets
December 31, 1996 and 1995 52
Consolidated Statement of Income
Years Ended December 31, 1996, 1995 & 1994 53
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1996, 1995 & 1994 54
Consolidated Statement of Cash Flows
Years Ended December 31, 1996, 1995 & 1994 55 - 56
Notes to Consolidated Financial Statements 57 - 76
</TABLE>
-50-
<PAGE>
[LOGO OF McGLADREY & PULLEN, LLP]
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Spring Bancorp, Inc. and Subsidiary
Springfield, Illinois
We have audited the accompanying consolidated balance sheet of Spring Bancorp,
Inc. and subsidiary as of December 31, 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Spring Bancorp, Inc.
and subsidiary for the years ended December 31, 1995 and 1994 were audited by
other auditors whose report, dated February 21, 1995 expressed an unqualified
opinion on those statements.
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 1996 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Spring
Bancorp, Inc. and subsidiary as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended, in conformity, with
generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
---------------------------
Springfield, Illinois
January 17, 1997
-51-
<PAGE>
SPRING BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash and due from banks $ 1,918,843 $ 657,218
Interest bearing deposits with
financial institutions - 98,000
Federal funds sold 4,700,000 9,000,000
Securities held to maturity
(fair value 1996 $4,384,728;
1995 $4,670,145) 4,354,323 4,613,161
Securities available for sale 1,381,772 1,508,179
Loans, held for sale (fair value 1996 $1,963,749;
1995 $3,782,118) 1,928,760 3,723,118
Loans:
Loans 87,647,124 65,094,324
Allowance for loan losses (418,406) (397,526)
------------ -----------
Loans, net 87,228,718 64,696,438
Premises and equipment 3,551,243 3,155,478
Other assets 2,136,738 1,177,974
------------ -----------
TOTAL ASSETS $107,200,397 $88,629,566
============ ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES
Deposits:
Non-interest bearing $ 8,974,501 $10,335,992
Interest bearing 91,176,767 71,473,153
------------ -----------
TOTAL DEPOSITS 100,151,268 81,809,145
Long-term debt 562,692 613,846
Other liabilities 496,577 1,236,631
TOTAL LIABILITIES 101,210,537 83,659,622
------------ -----------
STOCKHOLDER'S EQUITY
Common stock, $1 par value; 2,000,000 shares
authorized, 657,532 shares issued
and outstanding 657,532 657,532
Surplus 396,615 396,615
Retained earnings 4,949,645 3,922,813
Unrealized losses on available
for sale, net (13,932) (7,016)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 5,989,860 4,969,944
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $107,200,397 $88,629,566
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-52-
<PAGE>
SPRING BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $6,354,126 $5,076,226 $3,913,526
Securities:
Taxable interest income 216,770 180,898 176,771
Nontaxable interest income 129,700 152,758 183,045
Federal funds sold 281,865 287,338 24,701
Deposits in financial institutions 1,699 6,087 7,750
---------- ---------- ----------
Total interest income 6,984,160 5,703,307 4,305,793
---------- ---------- ----------
INTEREST EXPENSE
Deposits 4,207,098 3,133,816 1,649,785
Short-term borrowings 1,073 3,377 4,875
Long-term debt 48,111 57,708 30,872
---------- ---------- ----------
Total interest expense 4,256,282 3,194,901 1,685,532
---------- ---------- ----------
Net interest income 2,727,878 2,508,406 2,620,261
PROVISION FOR LOAN LOSSES 135,852 10,288 8,000
---------- ---------- ----------
Net interest income after
provision 2,592,026 2,498,118 2,612,261
---------- ---------- ----------
OTHER INCOME
Loan service fees 1,396,365 1,209,702 1,023,061
Gain on sale of loans 586,773 270,814 241,595
Service charges on deposits accounts 146,433 159,135 122,244
Other Income 82,509 80,086 105,086
---------- ---------- ----------
Total other income 2,212,080 1,719,737 1,491,986
---------- ---------- ----------
OTHER EXPENSES
Salaries and employee benefits $1,579,393 $1,269,589 $1,193,663
Equipment expense 299,321 175,689 184,527
Data processing 178,361 156,763 143,877
Occupancy expense 169,177 64,125 62,394
Supplies expense 133,621 65,964 66,954
Advertising expense 124,398 89,743 67,917
FDIC insurance assessments 3,500 10,915 122,654
Other expense 595,584 532,377 596,292
---------- ---------- ----------
Total other expenses 3,083,355 2,365,165 2,438,278
---------- ---------- ----------
Income before income taxes 1,720,751 1,852,690 1,655,969
---------- ---------- ----------
Income taxes 549,262 712,250 661,120
---------- ---------- ----------
NET INCOME $1,171,489 $1,140,440 $1,004,849
========== ========== ==========
NET INCOME PER SHARE $ 1.78 $ 1.73 $ 1.46
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-53-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
LOSSES ON
SECURITIES
COMMON AVAILABLE
STOCK SURPLUS EARNINGS FOR SALE TOTAL
-------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1993 $833,295 $502,633 $2,431,018 $ -- $3,766,946
Implementation of
change in accounting
policy for securities
available for sale -- -- -- (24,837) (24,837)
Purchase and retirement
of 175,763 shares (175,763) (106,018) (377,331) -- (659,112)
Net income -- -- 1,004,849 -- 1,004,849
Cash dividends
$.20 per share -- -- (131,506) -- (131,506)
Change in unrealized
loss on investment
securities available
for sale, net -- -- -- (38,633) (38,633)
-------- -------- ---------- -------- ----------
BALANCE,
DECEMBER 31, 1994 $657,532 $396,615 2,927,030 (63,470) 3,917,707
Net Income -- -- 1,140,440 -- 1,140,440
Cash dividends
$.22 per share -- -- (144,657) -- (144,657)
Change in unrealized
loss on investment
securities available
for sale, net -- -- -- 56,454 56,454
-------- -------- ---------- -------- ----------
BALANCE,
DECEMBER 31, 1995 657,532 396,615 3,922,813 (7,016) 4,969,944
Net Income -- -- 1,171,489 -- 1,171,489
Cash dividends
$.22 per share -- -- (144,657) -- (144,657)
Change in unrealized
loss on investment
securities available
for sale, net -- -- -- (6,916) (6,916)
-------- -------- ---------- -------- ----------
BALANCE,
DECEMBER 31, 1996 $657,532 $396,615 $4,949,645 $(13,932) $5,989,860
======== ======== ========== ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements
-54-
<PAGE>
SPRING BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,171,489 $ 1,140,440 $ 1,004,849
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 234,742 92,064 96,785
Accretion & amortization of
securities 18,482 29,342 35,821
Provision for loan losses 135,852 10,288 8,000
Gain on sale of loans (586,773) (270,814) (241,595)
Deferred income taxes 70,849 (40,930) (4,150)
Loss on sale of premises and
equipment - 29,903 -
Origination of loans held for sale (52,222,521) (57,103,165) (54,085,458)
Proceeds from sales of loans
held for sale 54,603,652 55,352,466 56,926,480
Changes in other assets
and liabilities:
(Increase)in other assets (314,598) (256,081) (382,713)
Increase(decrease) in other
liabilities 806,481 972,880 (252,643)
------------ ------------ ------------
Net cash provided by (used in)
operating activities 2,304,693 (52,607) 3,105,376
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest bearing deposits
with financial institutions 98,000 98,000 95,000
(Increase) decrease in federal
funds sold 4,300,000 (8,800,000) 1,150,000
Securities held to maturity:
Purchases (1,191,233) (1,707,031) (2,764,224)
Proceeds from maturities 1,546,658 1,579,064 2,195,116
Securities available for sale,
proceeds from maturities - - 200,000
Increase in loans (23,312,298) (12,603,387) (13,514,035)
Purchase of premises and equipment (630,507) (1,917,902) (616,472)
------------ ------------ ------------
Net cash (used in)
investing activities (19,189,380) (23,351,256) (12,254,615)
------------ ------------ ------------
</TABLE>
-55-
<PAGE>
SPRING BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customer deposits 18,342,123 22,225,625 10,096,908
Repayment on long-term borrowing (51,154) (51,154) -
Cash dividends paid (144,657) (144,657) (131,506)
Proceeds from long-term borrowing - - 665,000
Purchase of company stock - - (659,112)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 18,146,312 22,029,814 9,971,290
----------- ----------- -----------
NET INCREASE(DECREASE)IN CASH
AND DUE FROM BANKS 1,261,625 (1,374,049) (177,949)
Cash and due from banks:
Beginning of year 657,218 2,031,267 2,209,216
----------- ----------- -----------
End of year $ 1,918,843 $ 657,218 $ 2,031,267
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash payments for:
Interest $ 4,133,079 $ 3,038,115 $ 1,594,613
Income taxes 735,079 495,114 933,982
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING & FINANCING ACTIVITIES
Other real estate acquired in
settlement of loans $ 644,166 - -
Increase (decrease) in unrealized loss
on securities available for sale 11,338 (92,547) 104,049
(Decrease) increase in deferred taxes
attributable to the unrealized (loss)
on securities available for sale (4,422) 36,093 (40,579)
</TABLE>
See Notes to Consolidated Financial Statements.
-56-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Description of business: Spring Bancorp, Inc. (the Company) was incorporated
under the laws of the State of Illinois on February 10, 1987, for the purpose of
serving as a bank holding company for the Bank of Springfield (Bank). Bank of
Springfield was incorporated on June 28, 1965 in the State of Illinois for
purposes of providing and servicing loans and customer deposit accounts. The
Company, through its subsidiary bank, provides a full range of banking and
related financial services to individual and corporate customers located in
central Illinois. The Company's primary source of revenue is providing loans to
customers who are predominantly small and middle market businesses and
individuals.
The significant accounting and reporting policies for Spring Bancorp, Inc. and
its subsidiary follow:
Basis of consolidation: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Bank of Springfield,
Significant intercompany balances and transactions have been eliminated in
consolidation.
The consolidated financial statements of Spring Bancorp, Inc. have been prepared
in conformity with generally accepted accounting principles and conform to
predominant practices with the banking industry.
Use of estimates: In preparing the consolidated financial statements, the
Company's management is required to make estimates and assumptions which
significantly affect the amounts reported in the consolidated financial
statements. Significant estimates which are particularly susceptible to changed
in a short period of time include the determination of the allowance
-57-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
for loan losses and valuation of real estate and other properties acquired in
connection with foreclosures or in satisfaction of amounts due from borrowers on
loans. Actual results could differ from those estimates.
Trust assets: Other than trust cash on deposit at the Company's bank subsidiary,
trust assets are not included in the accompanying consolidated financial
statements because they are not assets of the Company.
Securities held to maturity: Securities classified as held to maturity are those
debt securities the Company has both the positive intent and ability to hold to
maturity regardless of changes in market conditions, liquidity needs or changes
in general economic conditions. These securities are carried at cost adjusted
for amortization of premium and accretion of discount which are recognized in
interest income using the interest method over the period to maturity.
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
Company's assets and liabilities, liquidity needs, regulatory capital
considerations and other similar factors. Securities available for sale are
carried at fair value. The difference between fair value and amortized cost
results in an unrealized gain or loss. Unrealized gains or losses are reported
as increases or decreases in stockholders' equity, net of the related deferred
tax effect. Realized gains or losses, determined on the basis of the cost of
-58-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
specific securities sold, are included in earnings. Where applicable,
amortization of premiums and accretion of discounts are recognized in interest
income using the interest method over the period to maturity.
Loans: Loans are stated at the unpaid principal balances, less the allowance for
loan losses, net of unearned discount.
Unearned discount on consumer loans is amortized to income over the life of the
loans, using the interest method. For all other loans, interest is accrued daily
on the outstanding balances.
Loans held for sale are carried at the lower of aggregate cost or estimated
market value. Net unrealized losses are recognized in a valuation allowance by
charges to income. Gains or losses on sales of loans held for sale are computed
using the specific-identification method and are reflected in income at the time
of sale.
In 1996 the Company adopted Statement of Financial Accounting Standards No. 122,
"Accounting for Mortgage Servicing Rights" (SFAS 122). The cost of mortgage
servicing rights is amortized in proportion to, and over the period of,
estimated net servicing revenues. Impairment of mortgage servicing rights is
assessed based on the fair value of those rights. Fair values are estimated
using discounted cash flows based on a current market interest rate. For
purposes of measuring impairment, the rights are stratified based on the
interest rate and prepayment risk of the underlying loans. The amount of
impairment recognized is the amount by which the capitalized mortgage servicing
rights for a stratum exceed their fair value.
Allowance for loan losses: The allowance for loan losses is increased by a
-59-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
provision for loan losses charged to expense and decreased by charge-offs, net
of recoveries. Loans are charged against the allowance for loan losses when
management believes the collectibility of principal is unlikely. Management's
periodic evaluation of the adequacy of the allowance is based on past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of the
underlying collateral, and current economic conditions. 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 allowance for loan losses, and may
require additions to the allowance based on their judgment about information
available to them at the time of their examination.
The accrual of interest is discontinued on a loan, when in management's opinion
the borrower may be unable to meet payments as the become due. When interest
accrual is discontinued, all unpaid accrued interest is reversed. Interest
income is subsequentially recognized only to the extent cash payments are
received and principal is considered fully collectible.
A loan is considered to be impaired when, based on current information and
events, it is probable the Company will be unable to collect all contractual
principal and interest payments due in accordance with the terms of the loan
agreement. Impaired loans are measured based on the present value of expected
future cash flows discounted at the loans effective interest rate or as a
practical expedient, at the loans observable market price or the fair value of
-60-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
the collateral if the loan is collateral dependent.
Premises and equipment:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets.
Other real estate owned: Other real estate owned (OREO) represents properties
acquired through foreclosure or other proceedings in settlement of loans. OREO
is held for sale and is recorded at the date of foreclosure at the fair value of
the properties less estimated costs of disposal. Any write-down to fair value at
the time of transfer to OREO is charged to the allowance for loan losses.
Property is evaluated regularly to ensure the recorded amount is supported by
its current fair value and valuation allowances to reduce the carrying amount to
fair value less estimated costs to dispose are recorded as necessary.
Income taxes: The Company and its subsidiary file consolidated federal and state
income tax returns with each organization computing its taxes on a separate
entity basis. The provision for income taxes is based on income as reported in
the financial statements.
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future. The deferred tax
assets and liabilities are computed based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to
-61-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Accounting for transfers and servicing of financial assets and extinguishments
of liabilities: In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125 (SFAS 125), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities".
SFAS 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. SFAS 125 also establishes standards
on the initial recognition and measurement of servicing assets and other
retained interests and servicing liabilities, and their subsequent measurement.
SFAS 125 requires that debtors reclassify financial assets pledged as collateral
and that secured parties recognize those assets and their obligation in return
in certain circumstances in which the secured party has taken control of those
assets. In addition, SFAS 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. SFAS 125 is effective for transactions occurring
after December 31, 1996, except for transactions relating to secured borrowings
and collateral for
-62-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
which the effective date is December 31, 1997. The Company believes the adoption
of SFAS 125 will not have a material impact on its consolidated financial
statements.
Net income per share: Net income per share is based upon the weighted-average
number of shares outstanding during the year.
Reclassifications: Certain reclassifications have been made to the balances as
of and for the years ended December 31, 1995 and 1994 to be consistent with the
classification adopted for 1996.
NOTE 2. CASH AND DUE FROM BANKS
The Company's subsidiary is required to maintain certain average cash reserve
balances with the Federal Reserve Bank of Chicago, which may be offset by cash
on hand. The required reserve balances as of December 31, 1996 and 1995 were
approximately $237,000 and $212,000, respectively.
NOTE 3. INVESTMENT SECURITIES
The amortized cost and fair values of securities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held to maturity:
U. S. Government and
agency securities $ 2,995,201 $ - $ 9,801 $2,985,400
Municipal securities 1,356,582 40,206 - 1,396,788
Other securities 2,540 - - 2,540
---------- ---------- ---------- ----------
TOTAL $ 4,354,323 $ 40,206 $ 9,801 $4,384,728
=========== ========== ========== ==========
</TABLE>
-63-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 3. INVESTMENT SECURITIES (CONT'D)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Government and
agency securities $ 761,956 $ - $ 40,038 $ 721,918
Municipal securities 642,656 17,198 - 659,854
---------- ---------- ---------- ----------
TOTAL $1,404,612 $ 17,198 $ 40,038 $1,381,772
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government and
agency securities $3,006,437 $ - $ 5,540 $3,000,897
Municipal securities 1,604,184 62,524 - 1,666,708
Other securities 2,540 - - 2,504
---------- ---------- ---------- ----------
TOTAL $4,613,161 $ 62,524 $ 5,540 $4,670,145
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Government and
agency securities $ 875,614 $ - $ 33,962 $ 841,652
Municipal securities 644,067 22,460 - 666,527
---------- ---------- ---------- ----------
TOTAL $1,519,681 $ 22,460 $ 33,962 $1,508,179
========== ========== ========== ==========
</TABLE>
-64-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 3. INVESTMENT SECURITIES (CONT'D)
The amortized cost and fair value of securities as of December 31, 1996, by
contractual maturity, are shown below:
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
----------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $2,415,489 $2,420,232 $ - $ -
Due after one year
through five years 1,837,432 1,854,415 202,542 207,310
Due after five years
through ten years 101,402 110,081 200,114 202,982
Due after ten years $ - $ - $1,001,956 $ 971,480
---------- ---------- ---------- ----------
$4,354,323 $4,384,728 $1,404,612 $1,381,772
========== ========== ========== ==========
</TABLE>
Investment securities with values of $3,439,149 and $4,157,044 at December 31,
1996 and 1995, respectively, were pledged to secure public deposits and for
other purposes required or permitted by law.
NOTE 4. LOANS
The composition of loans follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996
------------------------
<S> <C> <C>
Commercial and agricultural $15,038,731 $11,335,932
Real estate construction 5,712,251 4,679,819
Real estate - mortgage 45,647,381 35,125,487
Installment:
Commercial 15,376,279 8,389,813
Individuals 4,734,160 4,337,058
Credit cards and instant check 1,138,322 1,225,855
----------- -----------
87,647,124 65,093,964
Less allowance for loan losses 418,406 397,526
----------- -----------
LOANS, NET $87,228,718 $64,696,438
=========== ===========
</TABLE>
The amount of loans serviced by the Company for the benefit of others is not
included in the accompanying consolidated balance sheets. The unpaid principal
balances of these loans were $262,829,045 and $254,300,207 as of December 31,
1996 and 1995 respectively.
-65-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
The loan portfolio includes a concentration of loans for residential real estate
in Sangamon and surrounding counties. Generally these loans are collateralized
by assets of the borrowers. Credit losses arising from lending transactions for
residential real estate are favorable compared with the Company's credit loss
experience on its loan portfolio as a whole.
The Company's opinion as to the ultimate collectibility of loans is subject to
estimates regarding future cash flows from operations and the value of property,
real and personal, pledged as collateral. These estimates are reflected by
changing economic conditions and the economic prospects of borrowers.
The following table presents data on impaired loans:
<TABLE>
<CAPTION>
(Dollars in thousands)
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Impaired loans for which an allowance
has been provided $ - $ -
Impaired loans for which no allowance
has been provided $ 128,291 $ 710,880
---------- ----------
Total loans determined to be impaired $ 128,291 $ 710,880
========== ==========
Allowance for loan loss for impaired loans
included in the allowance for loan losses $ - $ -
Average recorded investment in impaired loans 324,262 481,606
Interest income recognized from impaired loans - -
Cash basis interest income recognized from
impaired loans - -
</TABLE>
NOTE 5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year $397,526 $396,091 $389,457
-------- -------- --------
Provision charged to
operating expense 135,852 10,288 8,000
Recoveries applicable to loan
balances previously charged off 879 1,498 22,795
Loan balances charged off (115,851) (10,351) (24,161)
-------- -------- --------
Balance, ending of year $418,406 $397,526 $396,091
======== ======== ========
</TABLE>
-66-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 6. PREMISES AND EQUIPMENT
Premises and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cost:
Land $ 771,768 $ 703,508
Banking house 2,638,248 625,007
Construction in progress - 1,781,772
Furniture, fixtures and equipment 1,150,153 819,376
---------- ----------
4,560,169 3,929,663
---------- ----------
Less accumulated depreciation 1,008,926 774,185
---------- ----------
TOTAL $3,551,243 $3,155,478
========== ==========
</TABLE>
A new facility was opened on January 29, 1996. The appropriate entries were
made at that time to reclassify construction in progress to the appropriate
component accounts.
NOTE 7. DEPOSITS
The aggregate amount of certificates of deposit and other time deposits, each
with a minimum denomination of $100,000, was approximately $22,634,000 and
$14,590,000 as of December 31, 1996 and 1995, respectively.
As of December 31, the scheduled maturities of certificate of deposit are as
follow:
<TABLE>
<S> <C>
Years ended December 31, 1996:
1997 $34,439,680
1998 11,395,271
1999 1,573,716
2000 -
2001 and thereafter 4,715,934
-----------
$52,124,607
===========
</TABLE>
NOTE 8. INCOME TAXES
Income taxes consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current $478,413 $753,180 $665,270
Deferred 70,849 (40,930) (4,150)
-------- -------- --------
TOTAL INCOME TAX EXPENSE $549,262 $712,250 $661,120
======== ======== ========
</TABLE>
A reconciliation of income taxes at statutory rates to income taxes included in
the statements of income is as follows:
-67-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 8. INCOME TAXES (CONT'D)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax $585,056 $629,915 $566,429
Statutory state income tax 68,246 78,594 72,088
Tax-exempt income-municipal (38,760) (51,938) (62,235)
Other (65,280) 55,679 84,838
-------- -------- --------
TOTAL $549,262 $712,250 $661,120
======== ======== ========
</TABLE>
The significant components of deferred income tax assets and liabilities
consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Unrealized (loss) on securities
available for sale $ (8,908) $ (4,486)
Allowance for loan losses (109,384) (112,542)
Other (557) -
(118,849) (117,028)
--------- ---------
Deferred tax liabilities:
Premises and equipment $ 130,433 $ 134,676
Mortgage servicing rights 72,491 -
--------- ---------
202,924 134,676
--------- ---------
DEFERRED TAX LIABILITY, NET $ 84,075 $ 17,648
========= =========
</TABLE>
NOTE 9. FEDERAL HOME LOAN BANK CREDIT LINE
At December 31, 1995, the Bank had no borrowings on its line of credit agreement
with the Federal Home Loan Bank of Chicago (FHLB). The open line agreement is
secured by all unpledged first mortgage residential real estate loans of the
Bank and the FHLB stock owned by the Bank. At December 31, 1996, the Bank has
utilized this credit line only to obtain letters of credit totaling $5,200,000
as collateral for certain customer deposits. Such letters of credit are
scheduled to expire at various dates in 1996, but may be renewed to meet the
needs of Bank customers.
NOTE 10. LONG-TERM DEBT
The Company has a note payable to bank that had a principal balance outstanding
at December 31, 1996 and 1995 of $562,692, and $613,846, respectively. This
note requires quarterly interest payments at the current national prime interest
rate. Annual principal payments of $51,154 are due annually on May 24. The
note matures May 24, 2007 and is secured by all of the Bank of Springfield
common stock.
-68-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 10. LONG-TERM DEBT (CONT'D)
Future maturities of long-term borrowing are as follows:
<TABLE>
<S> <C>
1997 $ 51,154
1998 51,154
1999 51,154
2000 51,154
2001 and thereafter 358,076
--------
TOTAL $562,692
========
</TABLE>
NOTE 11. TRANSACTIONS WITH RELATED PARTIES
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they are
principal stockholders (commonly referred to as related parties), all of which
have been, in the opinion of management, on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with others. These persons and companies are indebted to the Bank
as follows:
<TABLE>
<S> <C>
Balance at December 31, 1995 $763,194
New Loans 26,000
Repayments (41,322)
--------
Balance at December 31, 1996 $747,872
========
</TABLE>
NOTE 12. PROFIT SHARING PLAN
The Bank has a profit sharing plan, covering substantially all employees,
subject to certain age and length of service requirements. Employer
contributions are at the discretion of the Bank's Board of Directors and are
subject to maximum limitations as defined in the plan. Contributions of
$20,117, $10,000 and $10,000 were made for the years ended December 31, 1996,
1995 and 1994 respectively.
NOTE 13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a 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, letters of credit,
standby letters of credit, home equity lines of credit and credit card
arrangements. Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the balance sheets.
The contract or notional amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments.
-69-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONT'D)
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, letters of
credit, standby letters of credit, home equity lines of credit, and credit card
arrangements, is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Bank does not require collateral or other security
to support financial instruments with credit risk. Commitments to extend credit
are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness on a case-by-
case basis. The amount of collateral obtained if deemed necessary by the Bank
upon extension of credit is based on management's credit evaluation of the
counterpart. Collateral held varies but may include accounts receivable,
inventory, property, plant, and equipment, and income-producing commercial
properties.
Letters of credit, standby letters of credit, credit card arrangements and home
equity lines of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit and credit cards is essentially the same
as that involved in extending loan facilities to customers.
A summary of the Bank's commitments at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
FIXED VARIABLE
----------- -----------
<S> <C> <C>
Home equity lines of credit $ - $3,717,857
Credit card arrangements 3,538,047 -
Instant check lines of credit 428,652 -
Letters of credit 132,700 65,326
Other unused commitments $ 8,427,565 1,423,267
----------- ----------
$12,526,964 $5,206,450
=========== ==========
</TABLE>
NOTE 14. CAPITAL RATIOS
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 quidelines and regulatory framework
for prompt corrective action, the Bank must meet specific capital
-70-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 14. CAPITAL RATIOS (CONT'D)
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.
Quantative 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, as of December 31, 1996, that the bank meets all
capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from the Federal Deposit
Insurance Corporation categorized the banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
adequately capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the following table.
There are no conditions or events since that notification that management
believes have changed the Bank's category.
Actual capital amounts and ratios for the Company and the Bank as of December
31, 1996 are presented in the following table.
<TABLE>
<CAPTION>
TO BE
WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS:
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------------------------------------------------------
Total Capital
(to Risk Weighted
Assets) Consolidated $6,422 8.2% $ - N/A $ - N/A
Bank of Springfield 6,969 8.9% 6,286 8.0% $ 7,858 10.0%
Tier 1 Capital (to Risk
Weighted Assets)
consolidated 6,004 7.6% - N/A - N/A
Bank of Springfield 6,551 8.3% 3,143 4.0% 4,715 6.0%
Tier I Capital (to average
Assets) consolidated 6,004 6.1% - N/A - N/A
Bank of Springfield 6,551 6.7% 3,917 4.0% 4,896 5.0%
</TABLE>
-71-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value:
Cash and cash equivalents: The carry amounts reported in the balance sheet for
cash and due from banks, interest bearing deposits with financial institutions
and federal funds sold approximate those assets' fair values.
Securities: For securities held to maturity and available for sale, fair values
are based on quoted market prices or dealer quotes, where available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities. The carrying amount of accrued interest
receivable approximates fair value.
Loans and loans held for sale: For certain homogeneous categories of loans, such
as some residential mortgages, fair value is estimated using the quoted market
prices for securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the some
remaining maturities. The carrying amount of accrued interest receivable
approximates fair value.
Deposits: The fair value disclosed for demand deposits are, by definition, equal
to the amount payable on demand at the balance sheet date. The carrying values
for variable-rate, fixed-term money market accounts approximate their fair
values at the balance sheet date. Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expedited monthly maturities on time deposits.
Long-term debt: Rates currently available to the Corporation for debt with
similar terms and remaining maturities are used to estimate fair value of
existing debt. The carrying amount of accrued interest payable approximates fair
value.
Commitments to extend credit and standby letters of credit: The fair value of
commitments is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments,
fair value also considers the difference between current levels of interest
rates and the committed rates. The fair value of letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties at
the reporting date. As of December 31, 1996, these items are immaterial in
nature.
-72-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONT'D)
The estimated fair values of the Company's financial instruments at December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
-------------------------------------------
1995 1996
-------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash & short-term instruments $ 6,619 $ 6,619 $ 9,755 $ 9,755
Securities 5,736 5,766 6,121 6,178
Loans held for sale 1,929 1,964 3,723 3,782
Loans, net 87,229 87,198 64,696 64,379
Financial liabilities:
Deposits $100,151 $100,423 $81,809 $81,852
Long-term debt 563 563 614 614
</TABLE>
The above does not include accrued interest receivable and payable which are
also considered financial instruments. The estimated fair value of such items
is considered to be the carrying amount.
The Bank also has off-balance-sheet financial instruments, consisting of
commitments to extend credit and letters of credit. No estimated fair value is
attributable to unused lines of credit and letters of credit as the income
associated with these instruments is not significant.
Limitations: Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics or various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and; therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are considered financial instruments. Significant
assets and liabilities that are not considered financial assets or liabilities
include the benefit of low cost core deposits, property, equipment and goodwill.
-73-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 16. PARENT COMPANY FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C> <C>
ASSETS
Cash $ 975 $ 460
Tax benefit receivable 18,735 -
Investment in subsidiary bank 6,536,891 5,589,049
---------- ----------
TOTAL ASSETS $6,556,601 $5,589,509
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
---------- ----------
CURRENT LIABILITIES
Accrued interest payable $ 4,049 $ 5,719
---------- ----------
LONG-TERM LIABILITIES
Long-term borrowings 562,692 613,846
---------- ----------
TOTAL LIABILITIES 566,741 619,565
---------- ----------
STOCKHOLDERS' EQUITY
Common stock 657,532 657,532
Surplus 396,615 396,615
Retained earnings 4,949,645 3,922,813
Unrealized losses on available for
net sale securities, net of income tax (13,932) (7,016)
---------- ----------
NET STOCKHOLDERS' EQUITY 5,989,860 4,969,944
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,556,601 $5,589,509
========== ==========
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 1996, 1995 AND 1994
1996 1995 1994
---------- ---------- ----------
INCOME
Dividends from subsidiary bank $ 246,357 $ 254,397 $ 174,906
---------- ---------- ----------
</TABLE>
-74-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONDENSED STATEMENTS OF INCOME (CONT'D)
YEARS ENDED DECEMBER 31, 1996, 1995 & 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
EXPENSE
Stock tender offer costs - - 43,010
Interest 48,111 57,708 30,872
Other 250 1,767 5,230
---------- ---------- ----------
TOTAL EXPENSE 48,361 59,475 79,112
---------- ---------- ----------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED INCOME OF
SUBSIDIARY 197,996 194,922 95,794
Equity in undistributed income
of subsidiary 954,758 945,518 909,055
Income tax benefit 18,735 - -
---------- ---------- ----------
NET INCOME $1,171,489 $1,140,440 $1,004,849
========== ========== ==========
Net income per share $ 1.78 $ 1.73 $ 1.46
========== ========== ==========
Weighted average shares outstanding 657,532 657,532 686,826
========== ========== ==========
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 1996, 1995 AND 1994
1996 1995 1994
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,171,489 $1,140,440 $1,004,849
Adjustments to reconcile net
income to cash provided by
operating activities:
Equity in undistributed income
of subsidiary (954,758) (945,518) (909,055)
Changes in operating assets and
liabilities:
Increase (decrease) in accrued
Interest payable (1,670) 413 5,306
Decrease in prepaid stock
tender offer - - 24,250
(Increase) in tax benefit
receivable (18,735) - -
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 196,326 195,335 125,350
---------- ---------- ----------
</TABLE>
-75-
<PAGE>
SPRING BANCORP, INC. AND ITS SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
CONDENSED STATEMENTS OF CASH FLOWS (CONT'D)
YEARS ENDED DECEMBER 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (144,657) (144,657) (131,506)
Repayment on long-term debt (51,154) (51,154) -
Proceeds from long-term borrowing - - 665,000
Purchase of stock - - (659,112)
--------- -------- --------
NET CASH (USED IN) INVESTING
ACTIVITIES (195,811) (195,811) (125,618)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH 515 (476) (268)
Cash:
Beginning of year 460 936 1,204
--------- -------- --------
End of year $ 975 $ 460 $ 936
========= ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Change in unrealized (loss) on
securities available for sale $ 11,338 $ (92,547) $104,049
(Decrease) increase in deferred
income taxes attributable to the
unrealized (loss) on securities
available for sale (4,422) 36,093 (40,579)
</TABLE>
-76-
<PAGE>
Item 9. Changes in Accountants
--------------------------------
On November 18, 1996, Spring Bancorp, Inc., and Illinois Corporation (the
"Company") filed a Form 8-K with Securities and Exchange Commission providing
information under Item 4 of Form 8-K regarding its retention of McGladrey &
Pullen, LLP as its independent auditors for the fiscal year ending December 31,
1996, to replace Clifton, Gunderson LLC, the previous auditors of the Company.
The amendment No 1 was filed to provide the letter from Clifton, Gunderson LLC
required under Item 4 of Form 8-K and items 304(a)(3) and 601(b)(16) of
Regulation S-K.
-77-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- --------------------------------------------------------------
Below is certain information regarding the directors of Bancorp. The
following statements pertain to all individuals listed below.
I. There are no arrangements or understanding between any director listed
below and any person pursuant to which such director was selected as a
director.
II. There is a family relationship between two directors. Tom Marantz is
the son of Jack Marantz.
III. None of the directors listed below have been involved in any
bankruptcy, criminal, or other proceedings. Each of the directors
listed below has served as director of Bancorp since March 31, 1988.
The directors shall be divided into three classes, each class to
consist of two (2) directors; each initial Class One Director shall
hold office until the 1997 annual meeting of shareholders and until his
or her successor shall have been elected and qualified or until his
earlier death, resignation or removal; and each initial Class Two
Director shall hold office until the 1997 annual meetings of
shareholders and until his or her successor shall have been elected and
qualified or until his earlier death, resignation, or removal; and each
initial Class Three Directors shall hold office until the 1998 meeting
of shareholders and until his or her successor
-78-
<PAGE>
shall have been elected and qualified or until his earlier death,
resignation or removal. Thereafter, upon election, each director shall
be elected to and shall serve for a term of (3) three years until his
successor is elected and qualified or until his earlier death,
resignation or removal.
(a) Patrick Antonacci; Director, age 64. Mr. Antonacci's principal
occupation is owner of Lincoln Cab Co., Springfield, Il.
(b) Jerry Jennings; Director, age 46. Mr. Jennings principal occupation
is Comptroller of Nursing Home Managers, in Springfield, Il.
(c) Jack Marantz; Director, age 73. Mr. Marantz is Chairman of Board of
Bancorp. Also Mr. Marantz is Chairman of Board & CEO of the Bank of
Springfield, and has been involved with the Bank since its
inception in 1965 as President.
(d) Wilson J. Park; Director, age 78. Mr. Park's principal business is
as sole proprietor of Wilson Park Funeral Home, Rochester, Il.
(e) William Ken Lemaster; Director, age 49. Mr. Lemaster is Aquatic
Director, Springfield Park District.
(f) Tom Marantz; Director, age 44. Mr. Marantz is President of Bancorp.
Mr. Marantz is also President, of the Bank of Springfield,
Springfield, Il.
-79-
<PAGE>
Below is certain information regarding the principal officers of the
Bancorp. The following statements pertain to all individuals listed
below.
(a) T. Edward McEvers; age 49, Secretary & Treasurer of Spring
Bancorp, Inc. Also, Mr. McEvers is Chief Financial Officer
and Executive Vice President of the Bank of Springfield.
Mr. McEvers joined the bank in April 1973 as assistant
cashier. Later in 1973 he was named Cashier of the Bank.
The Bancorp shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she was director, officer
or agent of the Bancorp, or who is serving at the request on the Bancorp,
as a director, officer or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorney's fee) judgments, fines, and amounts paid in settlement actually
and reasonably incurred by such person in connection with such action,
suit or proceeding to the fullest extent and in the manner set forth in
and permitted by the Ill. Business Corporation Act and any other
applicable law, as from time to time in effect.
Such right of indemnification shall not be deemed exclusive of any other
rights to which such director, officer or agent may be entitled apart
from the foregoing provisions. The foregoing
-80-
<PAGE>
provisions of this Section I shall be deemed to be a contract between
Bancorp and each Director and officer who serves in such capacity at any
time while this Article IX and the relevant provisions of the Illinois
Business Corporation Act and other applicable law, if any are in effect,
and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or
therefore existing or any action suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such
state of facts.
-81-
<PAGE>
Item 11. Executive Compensation
- ---------------------------------
The direct remuneration paid to executive officers and directors is not
paid by the Bancorp. The Bank of Springfield, the subsidiary, does pay direct
remuneration to executive officers and directors. Listed below are the names of
directors whose aggregate direct remunerations during the year ended December
31, 1996 exceeded $100,000.00,
<TABLE>
<CAPTION>
NAME OF CAPACITY IN
INDIVIDUAL OR WHICH REMUNERATION DIRECT CONTINGENT
IDENTITY OF GROUP WAS RECEIVED REMUNERATION REMUNERATION
<S> <C> <C> <C>
Directors & Officers
as a group (8 in
number) $366,046.16 $69,826.89
Jack Marantz President $150,156.00 $33,566.30
</TABLE>
There are no annuity, pension, retirement plans or non-cash remuneration to
be paid under existing plan by the Bancorp, to any officer or director. The Bank
of Springfield has a Profit Sharing Plan covering substantially all employees,
subject to certain age and length of service requirements. Employer
contributions are at the discretion of the Bank's Board of Directors, and are
subject to maximum limitations as defined in the plan. Contributions of $20,117,
$10,000 and $10,000 were made for the years ended December 31, 1996, 1995 and
1994 respectively.
The Bancorp has not had any transaction in the ordinary course of business
with any of its directors or officers. But, the Bank has had, and expects to
have in the future, transactions in the ordinary course of business with many of
its directors and
-82-
<PAGE>
officers and their associates, all on the same terms including interest rates
and collateral on loans, as those prevailing at the time for comparable
transactions with others. These transactions and extensions of credit do not
involve more than the normal risk of being collected or present other
unfavorable features. The following summary represents extension on credit
granted to, or for the benefit of, officers and directors and associates, during
the year in the ordinary course of the Bank's business.
TYPE OF AGGREGATE EXTENSIONS
NAME AND CAPACITY INDEBTEDNESS OF CREDIT
Directors & Officers All Types
As a Group (During Year) $ 593,976.98
(12-31-96) $ 571,155.51
Patrick Antonacci Direct, Indirect (During Year) $ 256,235.45
Personal (12-31-96) $ 253,091.60
Wilson J Park Direct, Indirect (During Year) $ 322,908.22
Personal (12-31-96) $ 305,674.54
The highest aggregate extensions of credit as a percentage of equity capital
during 1996 follows:
NAME PERCENT OF EQUITY CAPITAL
Director & Officers as a group 9.54%
Patrick Antonacci 4.23%
Wilson J Park 5.11%
-83-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
- --------------------------------------------------------------
Management
----------
The following shareholders own (5) five percent or more of Capital stock of
the total voting securities of the Bancorp as of December 31, 1996. Each
individual has beneficial ownership of the shares and each has sole voting power
with respect to the number of shares beneficially owned:
Percent
Amount of of
Title of Class Name & Address Beneficial Ownership Class
l) Common Jack Marantz 114,649 17.44%
#5 Utica Drive
Spfld., Il. 62703
2) Common Tom Marantz 69,458 10.57%
2417 Country Club Dr.
Spfld. Il. 62704
3) Common John R. Sharp, M.D. 56,721 8.63%
(Deceased)
3882 Meadow Lane
Saline, Michigan
4) Common Irmgard Clayton 36,768 5.60%
90 E Hazel Dell Road
Springfield, Il. 62707
5) Common Directors & Officers 237,974 36.20%
as a group
-84-
<PAGE>
Item 13. Certain Relationships and Related Transactions
- ---------------------------------------------------------
There are no transactions within the year or any presently proposed to
which any of the following persons had or is to have had a direct or indirect
material interest:
a. Any director or officer of the Bancorp.
b. Any security holder listed in Item 12. herein.
c. Any associate of the foregoing.
-85-
<PAGE>
PART IV
Item 14. Financial Statement, Schedules and Reports on Form 10K
- -----------------------------------------------------------------
Page
a) (1) The following Financial statements are
included in Part II Item B.
Independent Auditors Report. 51
Financial Statements:
Consolidated Balance Sheets -
December 31, 1996 and 1995 52
Consolidated Statement of Income -
Years Ended December 1996, 1995 and 1994 53
Consolidated Statements of Stockholders
Equity - Years Ended December 31, 1996,
1995, and 1994 54
Consolidated Statement of Cash Flow -
Years Ended December 31, 1996, 1995
and 1994 55 - 56
Notes to Consolidated financial
Statements 57 - 76
(2) The financial schedules for the years 1996, 1995, and 1994 are
omitted because they are not applicable or the required infor-
mation is shown in the financial statements or notes there to:
(3) Exhibits included herein:
3 (a) Articles of Incorporation of Spring Bancorp, Inc. (filed as
Appendix B to definitive proxy statement filed with
the Commission of March 31, 1988 (Commission File No. 33-18492),
and incorporated herein by reference)
3 (b) By-Laws of Spring Bancorp, Inc. (filed as Appendix C to
definitive proxy statement filed with Commission on March 31,
1988 (Commission File No. 33-18492), and incorporated herein by
reference)
b) Reports on Form 8-K:
Form 8-K Amendment Number 1, dated November 12, 1996 filed
pursuant to Section 13 or 15 (d) of the Securities Exchange Act of
1934 (Commission file 33-18492)
-86-
<PAGE>
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Spring Bancorp, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
SPRING BANCORP, INC.
/s/ JACK MARANTZ /s/ T. EDWARD MCEVERS
- ----------------------------- ----------------------------
JACK MARANTZ T. EDWARD MCEVERS
CHAIRMAN OF BOARD SECRETARY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of Registrant and in
the capacities and on the dates indicated:
/s/ Jack Marantz 3 - 11 - 97
- ----------------------------- ----------------------------
Jack Marantz, Director Date
/s/ Tom Marantz 3 - 11 - 97
- ----------------------------- ----------------------------
Tom Marantz, Director Date
/s/ Patrick Antonacci 3 - 11 - 97
- ----------------------------- ----------------------------
Patrick Antonacci, Director Date
/s/ Wilson J. Park 3 - 11 - 97
- ----------------------------- ----------------------------
Wilson J. Park, Director Date
/s/ Jerry Jennings 3 - 11 - 97
- ----------------------------- ----------------------------
Jerry Jennings, Director Date
/s/ William Ken Lemaster 3 - 11 - 97
- ----------------------------- ----------------------------
William Ken Lemaster, Director Date
-87-
