<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
10549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) December 28, 1995
D&N Financial Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware O-17137 38-2790646
- --------------------------------------------------------------------------------
(State or Other Juris- (Commission (I.R.S.
diction of Incorporation) File Number) Identification)
400 Quincy Street, Hancock, Michigan 49930
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code (906) 482-2700
-----------------------------
<PAGE> 2
ITEM 5. Other Events
As previously announced, D & N Financial Corporation (the "Registrant"), D
& N Bank and Macomb Federal Savings Bank ("Macomb") entered into an Agreement
and Plan of Reorganization dated as of November 8, 1995.
Filed herewith as exhibits are the following periodic reports filed by
Macomb with the Office of Thrift Supervision pursuant to the Securities
Exchange Act of 1934: (1) Macomb's Annual Report of Form 10-K for the year
ended June 30, 1995, including those portions thereof incorporated therein by
reference to the portions of (a) Macomb's Proxy Statement dated September 25,
1995, used in connection with the annual meeting of stockholders of Macomb held
on October 26, 1995, under the captions "Election of Directors" and "Executive
Compensation," except for the Performance Graph; and (b) Macomb's 1995 Annual
Report to Shareholders under the caption "Management Discussion and Analysis"
on pages six through twenty-two, and the financial statements, the notes
thereto and the accompanying independent auditor's report on pages 23 through
41 thereof; and (2) Macomb's Quarterly Reports on Form 10-Q for the quarter
ended September 30, 1995.
ITEM 7. Financial Statements and Exhibits
(a) Financial Statements of Business to be Acquired
Independent Auditor's Report.
Statements of Financial Condition - June 30, 1995 and 1994.
Statements of Operations - three years ended June 30, 1995.
Statements of Changes in Stockholders' Equity - three years ended
June 30, 1995.
Statements of Cash Flows - three years ended June 30, 1995.
Notes to Financial Statements.
The financial statements, listed above, notes thereto and auditor's
report appear on pages 23 through 41 of Macomb's 1995 Annual Report
to Shareholders (see (99)c.).
(b) Not Applicable.
(c) Exhibits
(99) Additional exhibits.
a. A copy of Macomb's Annual Report on Form 10-K for the year ended
June 30, 1995 is filed herewith as an Exhibit.
b. A copy of Macomb's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 is filed herewith as an Exhibit.
<PAGE> 3
c. Macomb's Annual Report to Shareholders for 1995 is
incorporated herein as an Exhibit by reference to Exhibit 13 to
Macomb's Annual Report on Form 10-K for the year ended June 30,
1995 which is filed herewith as Exhibit (99)a.; provided,
however, that such Annual Report to Shareholders, except those
portions expressly incorporated by reference in Macomb's Annual
Report on Form 10-K (see Exhibit (99)a., above), is furnished
for the information of the Commission and is not deemed "filed"
as part of this or any other report.
d. Macomb's Proxy Statement dated September 25, 1995 is
incorporated herein as an Exhibit by reference to Exhibit 28 to
Macomb's Annual Report on Form 10-K for the year ended June 30,
1995 which is filed herewith as Exhibit (99)a.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, D & N
Financial Corporation has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
D & N FINANCIAL CORPORATION
/s/ GEORGE J. BUTVILAS
Date: December 28, 1995 ---------------------------
George J. Butvilas
President and
Chief Executive Officer
<PAGE> 4
D & N FINANCIAL CORPORATION
FORM 8-K
_______________________________
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
Number Number
------- ------
<S> <C>
(99) Additional exhibits.
a. A copy of Macomb's Annual Report on Form 10-K for the
year ended June 30, 1995 is filed herewith as an Exhibit.
b. A copy of Macomb's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 is filed herewith
as an Exhibit.
</TABLE>
<PAGE> 1
EXHIBIT 99(a)
OFFICE OF THRIFT SUPERVISION
WASHINGTON, D.C. 20552
_____________________
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 June 30, 1995
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________ to _________
OTS DOCKET NUMBER 6092
MACOMB FEDERAL SAVINGS BANK
(EXACT NAME AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
UNITED STATES 38-1524859
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
23505 GREATER MACK ST. CLAIR SHORES, MI 48080-1997
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code: (810) 771-2500
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value per share
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X .
-------
The aggregate market value of the voting stock held by non-affiliates, as of
September 15, 1995, was $703,170.
As of September 15, 1995, there were outstanding 186,604 shares of Common
Stock, $1.00 par value.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference: (1) Portions of the
Annual Report to Stockholders for the fiscal year ended June 30, 1995 (Parts I
and II); and (2) Portions of the Proxy Statement for the 1995 Annual Meeting of
Stockholders (Part III)
Exhibit Index Appears on Page 36
<PAGE> 2
PART I
Item 1. Business
Macomb Federal Savings Bank (the "Bank"), a federally chartered stock
savings bank, was founded in 1956 and chartered by the Financial Institutions
Bureau of the Michigan Department of Commerce (the "Bureau") that same year as
Macomb Savings and Loan Association (the "Association"). Effective August 13,
1992, the Association converted to federal stock form, chartered by the Office
of Thrift Supervision ("OTS"), an agency within the U.S. Department of the
Treasury. The Bank is a member of the Federal Home Loan Bank System ("FHLB
System"), and its savings accounts are insured up to applicable limits by the
Federal Deposit Insurance Corporation ("FDIC"), successor to the Federal
Savings and Loan Insurance Corporation ("FSLIC"). The Bank maintains its
principal office at 23505 Greater Mack Avenue, St. Clair Shores, situated in
Macomb County, Michigan 48080, telephone number (810) 771-2500.
The principal business of the Bank is the acceptance of deposits from the
general public, the purchase of residential mortgage loans and, on occasion,
the origination of residential mortgage and consumer loans. The Bank's income
is primarily interest and fees derived from its lending activities, and
interest and dividends earned on its investment securities. Its chief expenses
include interest paid on deposits and operating expenses.
The Bank offers a select range of consumer financial services. These
services include: regular and term savings accounts and savings certificates;
residential real estate loans; and consumer loans secured by deposits. The Bank
has historically concentrated its business activities in Macomb, Wayne, and
Oakland Counties, Michigan.
MARKET AREA
The Bank's primary market area is St. Clair Shores, Michigan, and spans
all of Macomb County and portions of Wayne and Oakland Counties. This market
area consists of a diversified industrial economic base with an emphasis on the
production sector that includes major manufacturers of international scope.
Moreover, the distribution sector, primarily in the wholesale and retail
trades, constitutes a substantial portion of the area's economy, both in terms
of product mix, sales receipts and employment. The most rapid growth has
occurred in the manufacturing sector, especially in the production of
automotive and electronics products, and in the service sector with respect to
packaging, warehousing and distribution services.
1
<PAGE> 3
Competition
Thrift institutions experience strong competition both in making real
estate loans and in attracting savings deposits. In the past, thrift
institutions generally competed for real estate loans with commercial banks,
mortgage banking companies, insurance companies and other institutional
lenders. Recent legislative and regulatory actions have increased competition
between thrift institutions and other financial institutions, such as
commercial banks, by expanding the range of services that may be offered such
as demand deposits, trust services and consumer and commercial lending. The
most direct competition for savings has historically come from other thrift
institutions, mutual savings banks, commercial banks, and credit unions. During
periods of generally high interest rates, additional significant competition
for savings accounts comes from corporate and government securities and, more
recently, money market mutual funds. In their competition with other financial
institutions and other alternative investments, thrift institutions have been
materially assisted by recent authorization of a wide variety of types of
deposit accounts. The principal methods generally used by associations to
attract deposit accounts include: competitive interest rates, convenient office
locations, flexible hours for the public and gifts for opening or adding to
deposit accounts.
In addition to competing with local financial institutions, the Bank has
also experienced increasing competition from major money center commercial
banks. This competition is expected to increase further due to Michigan's
recent adoption of an interstate banking law. Effective October 10, 1988, this
legislation allows nationwide interstate banking on a reciprocal basis. This
legislative authority is likely to increase the number or size of financial
institutions competing with the Bank which may have an adverse effect upon the
Bank. See "Regulation-Interstate Banking and Branching."
2
<PAGE> 4
SELECTED FINANCIAL DATA OF THE BANK
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $39,084,300 $39,964,408 $40,299,275 $39,593,160 $41,876,070
Loans receivable,
net.................... 16,712,966 20,222,361 17,256,933 20,604,942 21,270,129
Certificates of
deposit................ 20,224,455 8,377,078 1,276,798 495,000 2,550,000
Interest bearing
deposits in FHLB
of Indianapolis(1)..... 600,629 6,013,993 14,236,016 8,037,457 2,128,526
Investment
Securities (2)......... 183,759 195,159 204,159 206,059 451,043
Deposits (3)............ 34,840,243 35,063,304 33,538,648 32,438,750 34,256,150
Retained earnings
substantially
restricted............. 3,174,319 3,463,094 3,738,248 4,103,328 4,403,330
</TABLE>
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income......... $3,259,858 $3,105,356 $2,671,692 $2,385,882 $2,695,728
Interest expense........ 2,415,798 1,989,941 1,505,763 1,263,522 1,539,422
---------- ---------- ---------- --------- ---------
Net interest
income................. $ 844,060 $1,115,415 $1,165,929 $1,122,360 $1,156,306
Provision (reduction)
for losses on loans ... 18,709 121,291 0 0 0
--------- ---------- ---------- -------- --------
Net interest income
after provision
(reduction) for
losses on loans........ $ 825,351 $ 994,124 $1,165,929 $1,122,360 $1,156,306
Other income 35,728 35,159 31,282 26,513 24,209
Other expenses.......... 538,849 604,888 812,571 663,885 762,025
--------- --------- ---------- --------- ---------
Income (loss) before
provision for
federal income tax..... $ 322,230 $ 424,395 $ 384,640 $ 484,988 $ 418,490
Provision for federal
income tax, current
(benefit).............. 134,777 135,620 109,486 119,908 118,488
-------- -------- ------- -------- ---------
Net income (loss)....... $ 187,453 $ 288,775 $ 275,154 $ 365,080 $ 300,002
======== ======== ======= ======== =========
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Average yield on all
interest-earning
assets............. 8.82% 7.55% 6.87% 6.30% 6.99%
Average cost of all
interest-bearing
liabilities........ 7.15% 5.02% 4.50% 3.89% 4.57%
----- ----- ----- ----- -----
Interest rate spread. 1.67% 2.53% 2.37% 2.41% 2.42%
----- ----- ----- ----- -----
Retained earnings
as a percent of
assets............. 8.12% 8.67% 9.28% 10.36% 10.88%
Number of full
service banking
offices............ 1 1 1 1 1
Return on assets (net
income divided by
average total
assets (4)......... .49% .73% .69% .91% .74%
Return on equity (net
income divided by
average total
equity (4)......... 6.1% 8.7% 7.6% 9.3% 6.8%
Equity-to-assets ratio
(average total equity
divided by average
total assets) (4).... 8.1% 8.4% 9.0% 9.8% 10.8%
</TABLE>
__________________________
(1) Included under "Cash" on the Bank's Balance
Sheet.
(2) Comprised of investments required by law. See "Business of the Bank -
Investment Activities".
(3) Includes accrued interest payable on deposits.
(4) Return on assets and equity have been computed on an annualized basis.
4
<PAGE> 6
Lending Activities
General
The Bank, like most other savings associations, had traditionally
concentrated its lending activities on investments in long-term fixed rate
loans secured by mortgages on residential real estate. However, in response to
a number of factors, including a changing economic and regulatory environment,
the Bank, since 1984, has attempted to invest its funds primarily in adjustable
rate residential mortgages in its market area. In order to lessen its risk from
interest rate fluctuations, the Bank emphasizes the purchase of interest rate
sensitive loan products, such as one year ARM loans. At June 30, 1995,
$3,714,505 or 17.2%, of the Bank's total loan portfolio consisted of adjustable
rate loans.
Residential Mortgage Loans
A substantial portion of the Bank's lending activity involves the purchase
of loans secured by residential real estate, consisting of single family
dwelling units. The residential mortgage loans included in the Bank's portfolio
are primarily conventional loans. At June 30, 1995, $21,534,163 or 99.7% of the
Bank's total loan portfolio consisted of residential mortgage loans.
In 1984, the Bank began to offer ARM loans. Currently, these loans generally
have interest rates which adjust (up or down) every year. Currently in effect
is a maximum adjustment of 6% over the life of these loans with a maximum
adjustment of 2% during any given year. Adjustments are based upon an index
established at the time the commitment letter for the loan is issued by the
Bank. The index used for most loans is tied to the applicable United States
Treasury security index.
During the fiscal year ended June 30, 1995, the Bank purchased $3,645,774
of residential loans of which $2,682,851 were 7 to 15 year fixed rate
mortgages, $251,909 were 30 year fixed-rate loans, and $711,014 were ARM loans.
The rates offered on the Bank's ARM loans are generally competitive with the
rates offered by other savings and loan associations in the Bank's market area
and are based upon the Bank's cost of funds and the rate of return the Bank can
receive on comparable investments. Fixed-rate loans are originated and
purchased only under terms and conditions and using documentation which would
permit their sale in the secondary market and at rates which are offered by
other financial institutions in the Bank's market area.
5
<PAGE> 7
Set forth below are the amounts and percentages of fixed rate and ARM loans
and land contracts in the Bank's portfolio at June 30, 1993, 1994, and 1995.
<TABLE>
<CAPTION>
June 30
- -------------------------------------------------------------------------------------------------
1993 1994 1995
- ---------------------------- -------------------------------------- ----------------------------
Fixed Adjustable Fixed Adjustable Fixed Adjustable
- ------------- ----------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$13,815,784 $3,652,483 $17,367,541 $3,486,460 $17,819,658 $3,714,505
79.1% 20.9% 83.3% 16.7% 82.8% 17.2%
</TABLE>
The terms of the residential loans purchased and originated by the Bank
range from one to thirty years. Experience during recent years indicates that
as a result of prepayments in connection with refinancing and sales of the
underlying properties, residential loans generally remain outstanding for
periods substantially shorter than maturity of the loan contracts. At June 30,
1995, the average contractual maturity of the Bank's portfolio of fixed rate
loans was 20 years and 3 months, and 23 years and 5 months with respect to its
portfolio of adjustable rate loans.
Substantially all of the Bank's residential mortgages include so-called
"due on sale" clauses, which are provisions giving the Bank the right to
declare a loan immediately due and payable in the event that, among other
things, the borrower sells or otherwise disposes of the real property subject
to the mortgage and the loan is not repaid.
Generally, the Bank will not lend more than 80% of the appraised value of a
residential property which is owner-occupied unless the borrower obtains
private mortgage insurance reducing the uninsured portion of the loan to 72% of
the appraised value. If private mortgage insurance is obtained, the Bank's
policy is to lend up to 90% of the appraised value of the property securing the
loan. The Bank applies the same standards to residential loans purchased in the
secondary market.
While the addition of ARM loans will better enable the Bank to maintain a
positive spread during periods of high interest rates, it is not expected that
adjustments in interest rates on ARM loans will match precisely changes in the
Bank's cost of funds. The majority of the ARM loans originated and purchased by
the Bank have limitations on the amount (generally 6%) and frequency of
interest rate changes.
Consumer and Other Loans
State and federal laws and regulations permit savings institutions to make
secured and unsecured consumer loans including home equity loans, (loans
secured by the equity in the borrower's residence, but not necessarily for the
purpose of improvement),
6
<PAGE> 8
home improvement loans (loans secured by a residential second mortgage), loans
on deposit accounts (loans secured by deposit accounts), educational loans
(insured by the State of Michigan) and credit card loans (unsecured).
Currently, the Bank offers only loans secured by deposit accounts. These loans
are made to account holders in an amount up to 90% of their account balance. At
June 30, 1995, the Bank had $64,000 of loans secured by deposits representing
less than 1% of the Bank's loan portfolio.
Federal and state laws and regulations also permit savings institutions to
offer commercial real estate loans and construction loans. Except for one
residential construction loan made in 1990 in the amount of $37,411, which was
repaid in full in 1991, the Bank does not offer these types of loans.
Mortgage Loan Portfolio Maturity
The following table sets forth the estimated maturity of the Bank's mortgage
loan portfolio at June 30, 1995. The estimated maturity amounts reflect
contractual maturities and estimated loan prepayments as provided by the OTS at
June 30, 1995:
<TABLE>
<CAPTION>
Year Ended
June 30, Adjustable Rate Fixed Rate
------------ ---------------- -----------
<S> <C> <C>
1996 $3,714,505 $ 5,440
1997-1998 -- 50,701
1999-2000 -- 77,123
2001-2005 -- 6,446,408
2006-2015 -- 9,428,263
Beyond 2015 -- 1,811,723
---------- -----------
$3,714,505 $17,819,658
========== ===========
</TABLE>
The adjustable rate loans are presented at their repricing maturity versus
contractual maturity.
Loan Portfolio Composition
The following two tables set forth the composition of the Bank's loan
portfolio by type of security and type of loan, at the dates indicated. The
first table includes a reconciliation of total loans receivable after
consideration of accrued interest receivable, discounts on loans and allowance
for possible loss on loans.
7
<PAGE> 9
<TABLE>
<CAPTION>
Type of Security At June 30,
- ---------------- ----------------------------------------------------------------------------------------------
1993 % 1994 % 1995 %
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Residential:
Single Family units... $17,468,266 98.86% $20,854,001 99.03% $21,534,164 99.08%
Loans on deposits...... 87,673 .50 89,228 .42 63,892 .29
Accrued interest rec. 113,362 .64 116,202 .55 137,432 .63
---------- ------- ---------- ----- ---------- -----
$17,669,301 100.00% $21,059,431 100.00% $21,735,488 100.00%
========== ======= ========== ======= ========== =======
Less:
Deferred profit on
land contracts....... $ 3,130 $ 2,303 $ 1,295
Unearned discount..... 145,876 185,984 176,632
Allowance for
possible loss on
loans................ 150,000 150,000 150,000
----------- ---------- ----------
$ 299,006 $ 338,287 $ 327,927
---------- ---------- ----------
Total loans
receivable............ $17,370,295 $20,721,144 $21,407,561
========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Type of Loan At June 30,
- ------------ -----------------------------------------------------------------------------------------------
1993 % 1994 % 1995 %
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans on existing
property:.............
Residential (1)....... $16,125,187 91.26% $19,724,644 93.67% $20,594,493 94.75%
Real Estate land
contracts............ 111,211 .63 110,109 .52 55,930 .26
FHA and VA loans (1)... 1,231,868 6.97 1,019,248 4.84 883,741 4.07
Loans on deposits (2).. 87,673 .50 89,228 .42 63,892 .29
Accrued interest
receivable............ 113,362 .64 116,202 .55 137,432 .63
----------- ------ ---------- ----- ---------- -------
$17,669,301 100.00% $21,059,431 100.00% $21,735,488 100.00%
========== ======= ========== ======= ========== =======
</TABLE>
____________________________
(1) Comprise the category "Residential Mortgage Loans."
(2) Included as part of "Consumer and Other Loans."
All of the loans in the Bank's portfolio at June 30, 1995 were secured by
properties located in the state of Michigan.
Purchase, Origination and Sale of Loans and Loan Concentrations
The Bank purchases and, to a much lesser extent, originates residential
loans in conformity with standard underwriting criteria including compliance
with FNMA guidelines, assurance that loans are at market rates and eligibility
for possible
8
<PAGE> 10
resale in the secondary market. Currently, it is the Bank's policy to purchase
and originate both fixed-rate loans and ARM loans, providing all such loans are
eligible for sale in the secondary market. The Bank, however, does not
currently sell any of its loans. Although the Bank has authority to lend
anywhere in the United States, it has confined its loan purchase and
origination activities primarily in the Bank's service area. Residential
mortgage loan purchases are generated primarily from referrals from loan
brokers who package loans that meet the Bank's underwriting criteria. Loan
originations are generated primarily from real estate brokers and existing and
walk-in customers.
The Bank's loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. Residential loans ranging up
to $100,000 can be approved by the Investment Committee of the Bank. Loans
exceeding $100,000 must be approved by the Bank's Board of Directors. The Bank
utilizes independent qualified appraisers approved by the Board of Directors to
appraise the properties securing its loans and requires title insurance so as
to insure that the Bank has a valid first lien on the mortgaged real estate.
The Bank requires borrowers to maintain fire, casualty and flood (if necessary)
insurance on its secured properties.
The procedure for approval of construction loans is the same as the
residential mortgage loans, except that the appraisal evaluates the building
plans, construction specifications and estimates of constructions costs. The
Bank also evaluates the feasibility of the proposed construction project and
the experience and track record of the developer. In addition, all construction
loans generally require a commitment from a third party lender or from the Bank
for a permanent long-term loan to replace the construction loan upon completion
of construction.
The following table shows mortgage and other loan purchase, origination and
repayment activity for the Bank during the periods indicated:
9
<PAGE> 11
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------
1993 1994 1995
---------------------------------------
<S> <C> <C> <C>
Mortgage loans originated for
the purpose of:
Construction-residential $ 0 $ 0 $ 0
Purchase/refinance-
residential 41,500 0 0
Consumer and other loans
originated 26,600 94,525 5,000
---------- -------- ---------
Total loans originated $ 68,100 $ 94,525 $ 5,000
---------- -------- ---------
Mortgage loans purchased
Residential $2,806,825 $9,099,632 $3,645,774
--------- --------- ---------
Total loans originated and
purchased $2,874,925 $9,194,157 $3,650,774
--------- --------- ---------
Loan credits:
Principal repayments $5,840,352 $5,846,148 $2,985,587
Other:
(Increase) decrease in
accrued interest receivable 22,525 2,840 1,995
---------- --------- ---------
Total credits $5,862,877 $5,848,988 $2,987,582
---------- --------- ---------
Net increases (decreases) in
mortgage and other loans
receivable $(2,987,952) $3,345,169 $ 663,192
========== ========= =========
</TABLE>
Under federal regulations, the aggregate amount of loans that the Bank may
make to any one borrower (including related entities), with certain exceptions,
is limited in general to the lesser of 10% of the Bank's net withdrawable
deposits or 100% of its regulatory capital. The maximum amount which the Bank
could have loaned to one borrower and the borrower's related entities at June
30, 1995 was $3,425,615. At June 30, 1995, the highest outstanding balance of
loans by the Bank to one borrower and related entities was approximately
$296,000.
Interest Rates, Points and Fees
The Bank realizes interest, discounts, point and fee income from its lending
activities. The Bank also realizes income from commitment fees for making
commitments to originate loans, late charges, loan fees, application fees and
fees for other miscellaneous services. All loan origination fees and discounts
are deferred and credited to income over the contractual life of the loan using
the level yield method.
Interest rates charged on the Bank's loans are affected primarily by market
and general economic conditions and such other factors as monetary policies of
the federal government, the general
10
<PAGE> 12
supply of money in the economy, legislative tax policies and governmental
budgetary matters and the Bank's cost of funds.
Fees totalled $29,105, $23,803 and $22,050 for the years ended June 30,
1993, 1994, and 1995 respectively. Deferred unearned discounts at June 30,
1993, 1994, and 1995 were $145,876, $185,984 and $176,632 respectively.
Non-Performing Loans
Loans are reviewed on a regular basis and are placed on nonaccrual status
when the loans become past due 90 days or more, or when, in the judgment of
management, the probability of collection is deemed to be insufficient to
warrant further accrual. When a loan is placed on a nonaccrual status,
previously accrued but unpaid interest is deducted from interest income. When
the Bank is unable to satisfactorily resolve a delinquency within 45 days after
the loan is past due, it will undertake foreclosure or other proceedings, as
necessary, to minimize any potential loss.
Real estate acquired by the Bank as a result of foreclosure or by deed in
lieu of foreclosure is classified as "real estate owned" until it is sold. When
property is so acquired, it is recorded at the lower of cost or fair market
value at the date of acquisition. Periodically, real estate owned is reviewed
to ensure that net realizable value is not less than carrying value and any
allowance resulting therefrom is charged to operations as a provision for loss
on real estate owned. All costs incurred from the date of acquisition in
maintaining the property are expensed.
The following table reflects the amount of loans in delinquent status as of
the dates indicated:
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------------------
1993 1994 1995
----------- ------ -------
<S> <C> <C> <C>
Loans delinquent for:
30 to 59 days $642,495 $387,619 $110,740
60 to 89 days 22,150 26,310 31,239
90 or more days 46,467 0 0
------- ------- -------
Total loans delinquent $711,112 $413,929 $141,979
======= ======= =======
Ratio of total loans
delinquent to total
loans................ 4.11% 2.00% .66%
</TABLE>
The table below sets forth the amounts and categories of non-performing
assets in the Bank's loan portfolio at the dates indicated. All loans which are
90 days past due are placed on non-accrual status. For all years presented, the
Bank has had no trouble debt restructurings (which involved forgiving a portion
of interest or principal on any loans or making loans at a rate materially less
than that of market rates). Foreclosed assets
11
<PAGE> 13
include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-performing Assets
---------------------
Non-accruing loans:
One-to-four-family $155,174 $180,989 $46,467 $ 0 $ 0
Foreclosed assets:
Real estate
repossessed...... 24,065 39,009 49,285 0 0
-------- ------- ------ ---- ----
Total non-performing
assets $179,239 $219,998 $95,752 $ 0 $ 0
======== ======== ======= ===== =====
Total as a percentage
of total assets 0.46% 0.55% 0.24% 0.00% 0.00%
===== ===== ===== ===== ====
</TABLE>
There were no non-accrual loans at June 30, 1995. Therefore the amount
actually recorded during the year ended June 30, 1995 was $0.
When a mortgage loan borrower fails to make a required payment on a loan,
the Bank attempts to cure the deficiency by contacting the borrower. Printed
delinquency notices are sent to borrowers whose payments are more than seven,
16 and 30 days past due. Direct contacts are made after a payment is more than
30 days past due. In most cases, deficiencies are cured promptly. If
deficiencies are not cured within 60 days or satisfactory arrangements to cure
the delinquency are not made, then the Bank will institute measures to
foreclose the mortgage. Periodic inspections are made of the property to
determine the status of the collateral. If foreclosed, the property will be
sold at a public sale, and usually is purchased by the Bank for the outstanding
balance of the loan.
Allowance for Losses on Loans and Real Estate Owned
The allowance for loan losses represents amounts available to absorb future
loan losses. Such allowance is based on management's continuing review of the
loan portfolio, historical charge-offs and current economic conditions.
Provisions for loan losses are charged to earnings to bring the allowance to a
level considered necessary by management. Loans or portions thereof are charged
to the allowance when losses are actually realized. As of June 30, 1994, the
allowance for possible losses on loans and real estate owned totalled $150,000.
As a result of declines in real estate market values and significant losses
experienced by many financial institutions, in recent years, there has been a
greater level of scrutiny by regulatory authorities of the loan portfolio of
financial institutions, undertaken as a part of the examination of such
institutions by the OTS and FDIC or other federal or state regulators.
12
<PAGE> 14
The results of recent examinations of other depository institutions indicate
that these regulators may be applying more conservative criteria in evaluating
real estate market values. The Bank was not required to increase its provisions
for loan losses after its most recent examination concluded as of March 28,
1994.
Although the allowance exceeds any identifiable probable loan losses at this
time, due to the current economic conditions of the Bank's market area,
management has decided to continue the allowance to match the anticipated
increase in the Bank's loan portfolio. The Bank believes it has established its
existing allowance for loan losses in accordance with GAAP at June 30, 1995.
There can be no assurance, however, that the regulatory authorities, when
reviewing the Bank's loan portfolio in the future, will not request the Bank to
increase its allowance for loan losses, thereby adversely affecting the Bank's
financial condition and earnings.
The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30
---------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning
of period $10 $29 $150 $150 $150
-- -- --- --- ---
Provisions for loan
losses 37 147 0 0 0
-- --- --- ---- ---
Charge-offs:
Residential real estate 18 32 0 0 0
Recoveries 0 6 0 0 0
--- --- --- ---- ---
Net Charge-offs 18 26 0 0 0
--- --- --- ---- ---
Balance at end of
period $29 $150 $150 $150 $150
== === === === ===
Ratio of allowance to
total loans outstanding
at the end of the period .17% .74% .87% .72% .70%
Ratio of net charge-offs to
average loans outstanding
during the period .11% .14% 0 0 0
Ratio of allowance to
nonaccrual loans at the
end of the period 18.68% 82.88% 322.81% N/A N/A
Ratio of allowance to
nonperforming assets
at the end of the
period 16.18% 68.18% 156.65% N/A N/A
</TABLE>
13
<PAGE> 15
The following table sets forth the breakdown of the allowance for loan
losses by periods indicated.
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------
1991
--------------------------------------------------------------------
% of Loans
As a % of in Category
Outstanding to Total
Loans in Outstanding
Amount Category(1) Loans(2)
------ ----------- --------
<S> <C> <C> <C>
Allowances:
Mtg. Loans
Residential $28,709 .19% 90.43%
======= === =====
<CAPTION>
At June 30,
--------------------------------------------------------------------
1992 1993
--------------------------------------------------------------------
% of Loans % of Loans
As a % of in Category As a % of in Category
Outstanding to Total Outstanding to Total
Loans in Outstanding Loans in Outstanding
Amount Category(1) Loans(2) Amount Category(1) Loans(2)
------ ------------ --------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Allowances:
Mtg. Loans
Residential $150,000 .79% 93.93% $150,000 .92% 92.48%
======== === ===== ======== === =====
<CAPTION>
At June 30,
--------------------------------------------------------------------
1994 1995
--------------------------------------------------------------------
% of Loans % of Loans
As a % of in Category As a % of in Category
Outstanding to Total Outstanding to Total
Loans in Outstanding Loans in Outstanding
Amount Category(1) Loans(2) Amount Category(1) Loans(2)
------ ----------- ---------- ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Allowances:
Mtg. Loans
Residential $150,000 .76% 94.18% $150,000 .73% 95.35%
======== === ===== ======== === =====
</TABLE>
(1) Calculated by dividing allowance for loan losses by loans outstanding in
category (FHA, VA, consumer and other loans not included).
(2) Calculated by dividing loans outstanding in category (see Note 1) by total
loans outstanding.
Investment Activities
Savings associations have authority to invest in various types of liquid
assets, including United States Treasury obligations and securities of various
federal agencies, certificates of deposit at insured banks, bankers'
acceptances and federal funds. As a member of the FHLB System, the Bank must
maintain minimum levels of liquid assets specified by the OTS which vary from
time to time. See "Regulation."
14
<PAGE> 16
Under federal regulations, federal thrift institutions may also invest a
portion of their assets in certain commercial paper and corporate debt
securities. They are also authorized to invest in mutual funds whose assets
conform to the investments that a federal thrift institution is authorized to
make directly, and to engage in hedging activities. The Bank has not made any
of these types of investments or engaged in hedging activities.
The carrying values of the Bank's investment securities, including its
liquid assets, as of the dates indicated are presented below:
<TABLE>
<CAPTION>
June 30
-----------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
FHLMC preferred stock......$ 13,959 $ 13,959 $243,243
FHLB stock ................ 190,200 192,100 207,800
-------- -------- --------
Total investments.....$204,159 $206,059 $451,043
======== ======== ========
</TABLE>
Source of Funds
Deposits
Deposits have traditionally been the primary source of funds of the Bank for
use in lending and investment activities. In addition to deposits, the Bank
derives funds from loan amortization and income on earning assets. While loan
amortization and income on earning assets are relatively stable sources of
funds, deposit inflows and outflows can vary widely and are influenced by
prevailing interest rates, money market conditions and levels of competition.
Customer deposits are attracted principally from within the Bank's primary
market area through the offering of a broad selection of deposit instruments
including money market accounts, regular savings accounts and term accounts.
The Bank does not actively solicit or advertise for deposits outside of its
primary market area, nor does it engage in the acquisition of third party
commission-based brokered deposits, or aggressively compete for rate negotiated
jumbo deposits of $100,000 or more.
Prior to 1984, the Bank's primary sources of deposits, other than passbook
accounts, were longer-term, fixed-rate, fixed-term certificates. In recent
years, the Bank has relied increasingly on newly authorized types of short term
accounts and other savings alternatives that are more responsive to changes in
market rates of interest than the longer term fixed-rate, fixed-term
certificates that were the Bank's primary sources of deposit prior to 1981. For
example, at June 30, 1995, 16.1% of all deposits were in passbook or money
market accounts which bear a floating rate of interest. At June 30, 1995, 76.5%
of all certificates of deposit carried remaining terms of 12 months or less.
15
<PAGE> 17
Prior to March 31, 1986, federal regulations imposed rate ceilings on
regular savings and NOW accounts; however, such ceilings were abolished on
March 31, 1986. This shifting pattern of deposit mix has resulted primarily
from the progressive elimination of federally imposed rate ceilings on various
types of deposits offered by federally insured financial institutions such as
the Bank. The deregulation of various federal controls on insured deposits has
allowed the Bank to be more competitive in obtaining funds. While the
deregulation of rates payable on deposits has allowed the bank to be
competitive in the acquisition and retention of funds, it has also resulted in
a more volatile cost of funds.
The following table reflects the amount of deposit accounts of the Bank in
the interest rate categories set forth below and weighted average interest
rates as of each date indicated.
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------------
1993 1994 1995
------ ------ ------
Amount % Amount % Amount %
------ - ------ - ------- -
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing:
0% - 0% $ 3,996 $ 8,903 7,948
----------- ---------- ----------
Total $ 3,996 0% $ 8,903 0% $ 7,948 0%
----------- -- ---------- -- ---------- --
Money market deposit:
2.25% - 4.00% $ 1,372,631 $ 1,093,253 $ 905,873
4.01% - 5.00% 0 0 0
5.01% - 6.00% 0 0 0
----------- ---------- ----------
Total $ 1,372,631 3.02% $ 1,093,253 2.52% $ 905,873 2.88%
----------- ----- ---------- ----- ---------- -----
Passbook accounts:
2.50% - 5.50% $ 5,027,264 2.75% $ 5,035,441 2.50% $ 4,614,958 2.50%
----------- ----- ---------- ----- --------- -----
Total $ 5,027,264 2.75% $ 5,035,441 2.50% $ 4,614,958 2.50%
----------- ----- ---------- ----- ---------- -----
Certificate accounts:
2.50% - 6.00% $24,630,370 $24,459,299 $16,727,374
6.01% - 7.00% 921,855 664,969 10,783,156
7.01% - 8.00% 869,312 619,043 783,574
8.01% - 9.00% 359,249 297,273 134,772
9.01% - 10.25% 301,946 237,227 259,795
----------- ---------- ----------
Total $27,082,732 4.75% $26,277,811 4.21% $28,688,671 5.88%
----------- ----- ---------- ----- ---------- -----
Accrued interest 52,025 23,342 38,700
----------- ---------- ----------
Total deposit accounts $33,538,648 4.50% $32,438,750 3.89% $34,256,150 5.35%
========== ===== ========== ===== ========== =====
</TABLE>
16
<PAGE> 18
A major determinant of the Bank's average cost of funds is the
distribution of the Bank's accounts by interest rate paid, and an important
indicator of the Bank's stability of lendable funds is the distribution of the
Bank's accounts by maturity.
The following table presents, by various interest rate categories, the
amounts of certificate accounts at June 30, 1995 maturing during the periods
reflected below.
<TABLE>
<CAPTION>
2.75- 6.01- 7.01- 8.01-
6.00% 7.00% 8.00% 10.25% Total
----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Certificate accts.
maturing in the
12 months ending:
6/30/96 $14,134,904 $7,469,884 $235,035 $129,486 $21,969,309
6/30/97 990,907 2,688,585 367,378 59,056 4,105,926
6/30/98 645,377 488,879 70,805 63,598 1,268,659
Certificate
accounts
maturing
thereafter:
956,186 135,808 110,356 142,427 1,344,777
----------- ---------- -------- -------- -----------
Total $16,727,374 $10,783,156 $783,574 $394,567 $28,688,671
=========== =========== ======== ======== ===========
</TABLE>
Included in the deposit totals in the above table are savings certificates
of deposit with balances of over $100,000. None of these were brokered
deposits. At June 30, 1995, accounts having balances of greater than $100,000
represented 27.00% of total deposits.
Deposit flows historically have been related to general economic conditions.
Reduced deposit inflows or outflows have generally accompanied periods of high
interest rates. To resist these historical trends, the Bank, as well as the
savings and loan industry as a whole, has increasingly relied on short-term
certificate accounts and other deposit alternatives that are more responsive to
market conditions than passbook accounts and fixed-rate, fixed-term
certificates. This greater variety of deposit accounts has allowed the Bank to
be more competitive in obtaining funds. At the same time, however, these
sources of funds are more costly than traditional sources. In addition, the
Bank has become increasingly subject to short-term fluctuations in deposit
flows, as customers have become more interest rate conscious. The ability of
the Bank to attract and maintain savings deposits and the Bank's cost of funds
have been, and will continue to be, significantly affected by money market
conditions.
17
<PAGE> 19
The following table sets forth certain information as to the Bank's deposit
flows at the dates and for the periods indicated:
<TABLE>
<CAPTION>
June 30
--------------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Beginning balance $35,063,304 $33,538,648 $32,438,750
Additional deposits, net
of withdrawals (3,026,324) (2,360,326) 279,409
Interest credited 1,501,668 1,260,428 1,537,991
----------- ----------- ----------
Net increase (decrease) (1,524,656) (1,099,898) 1,817,400
----------- ----------- ----------
Ending balance $33,538,648 $32,438,750 $34,256,150
=========== =========== ===========
</TABLE>
Borrowings
As a member of the FHLB System and the FHLB of Indianapolis, the Bank is
eligible to arrange borrowings or advances for various purposes and on various
terms. At June 30, 1993, 1994, and 1995, the Bank had no FHLB of Indianapolis
advances. The Bank did have borrowings of $153,000 at June 30, 1993, $117,000
at June 30, 1994 and $81,000 at June 30, 1995, relative to its ESOP.
Employees
As of June 30, 1995, the Bank employed five persons on a full-time basis and
two persons on a part-time basis. The Bank provides one of its employees with
hospitalization. A profit sharing plan is provided for all full-time employees
and an employee stock ownership plan is provided for employees meeting certain
eligibility requirements. None of the Bank's employees is represented by any
collective bargaining group and management considers its relations with its
employees to be excellent.
REGULATION
GENERAL
To the extent that the following information describes statutory or
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable law or
regulation may have a material effect on the business and prospects of the
Bank. The operations of the Bank may be affected by legislative changes and by
the policies of various regulatory authorities.
By virtue of its federal charter, membership in the FHLB of Indianapolis and
FDIC insurance, the Bank is subject to extensive
18
<PAGE> 20
regulation by the OTS and the FDIC. The Bank must file reports with the OTS
describing its activities and financial condition and is periodically examined
to test compliance with various regulatory requirements. This supervision and
regulation is intended primarily for the protection of depositors. Certain of
these regulatory requirements are referred to below or elsewhere in this annual
report.
Financial Institutions Reform, Recovery and Enforcement Act of 1989
On August 9, 1989, the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") was enacted. FIRREA substantially
restructured the regulation of savings associations, increased the capital
requirements applicable to savings associations and included other revisions
that may materially impact the future operations of savings associations.
Under FIRREA, the FSLIC was dissolved and a new insurance fund named the
Savings Association Insurance Fund (the "SAIF") was established. The insurance
fund for commercial banks, referred to as the Bank Insurance Fund (the "BIF"),
and the SAIF will not be commingled, although both will be administered by the
FDIC. The FHLBB was replaced by the OTS, which is a bureau of the U.S.
Department of Treasury. The OTS has primary federal regulatory jurisdiction
over all federal and state chartered savings associations and their holding
companies. Deposits in federal and state chartered savings associations that
formerly were insured by the FSLIC up to legally applicable limits ($100,000
per depositor), continue to be insured by the SAIF, as administered by the
FDIC, up to the same legally applicable limits.
Insurance Premiums
Deposit insurance premiums under FIRREA, increased to 0.23% effective
January 1, 1991 and continued at that level through calendar year 1993. The
FDIC has recently passed a new assessment schedule based on risk. Under the new
risk-based schedule, the healthiest banks and savings associations pay premiums
of 0.23% while the weakest institutions have paid premiums of 0.31% since
January 1, 1994. The rate decreased to 0.18% for the period beginning January
1, 1994 to December 31, 1997. By calendar year 1998, premiums are expected to
be reduced to 0.15%. FIRREA also contains a mechanism by which the FDIC could,
in certain circumstances related to fund losses and severe economic conditions,
raise premiums to a maximum of 0.325%. Increases, however, would be limited to
annual increases of no greater than .075% per year.
Qualified Thrift Lender Test
All savings associations, including the Bank, are required to meet a
Qualified Thrift Lender ("QTL") test to avoid certain restrictions on their
operations. Under the recently enacted FDIC
19
<PAGE> 21
Improvement Act (see below), a depository institution must have at least 65% of
its portfolio assets (which consist of total assets less intangibles,
properties used to conduct the savings association's business and liquid assets
not exceeding 20% of total assets) in qualified thrift investments on a monthly
average basis in nine of every twelve months. Loans and mortgage-backed
securities secured by domestic residential housing, as well as certain
obligations of the FDIC and certain other related entities may be included in
qualifying thrift investments without limit. Certain other housing-related and
non-residential real estate loan and investments, including loans to develop
churches, nursing homes, hospitals, and schools, and consumer loans and
investments in subsidiaries engaged in housing-related activities may also be
included. Qualifying assets for the QTL test include investments related to
domestic residential real estate or manufactured housing, the book value of
property used by an association or its subsidiaries for the conduct of its
business, an amount of residential mortgage loans that the association or its
subsidiaries sold within 90 days of origination, shares of stock issued by any
FHLB and shares of stock issued by FHLMC or FNMA.
Any savings association that fails to meet the test must convert to a bank
charter, unless it requalifies as a QTL for two out of three years and
thereafter remains a QTL. If such an association does not requalify and
converts to a bank charter, it must have remained SAIF-insured until at least
December 31, 1993, or until the FDIC permits it to transfer to the BIF, if
later. If an association that fails the test has not yet requalified and has
not converted to a bank, its new investments and activities are limited to
those permissible for a national bank, and it is limited to national bank
branching rights in its home state. In addition, the association is immediately
ineligible to receive any new FHLB advances and is subject to national bank
limits for payment of dividends. If such association has not requalified or
converted to a bank three years after the failure, it must divest of all
investments and cease all activities not permissible for a national bank. In
addition, it must repay promptly any outstanding FHLB advances.
As of June 30, 1995, the Bank was in compliance with the QTL requirements.
Transaction with Affiliates
Savings associations are now subject to Sections 23A and 23B of the Federal
Reserve Act governing transactions with affiliates. Exemptions from Sections
23A and 23B may only be granted by the Federal Reserve Board. In addition,
savings associations may not make any loan to an affiliate unless that
affiliate is engaged only in activities permissible for bank holding companies.
A savings association may not purchase or invest in securities issued by
affiliates (other than securities of a subsidiary). FIRREA also
20
<PAGE> 22
imposes the restrictions of section 22(h) of the Federal Reserve Act on savings
associations as if savings associations were member banks, subject to the OTS
Director's authority to impose more stringent restrictions as necessary to
protect safety and soundness. Section 22(h) generally imposes limitation on
loans and extensions of credit to directors, executive officers and 10%
stockholders.
Loans to One Borrower
FIRREA generally requires savings associations to follow the national bank
loans-to-one borrower restrictions. For loans not fully secured, the total
loans and extensions of credit by a national banking association to a person
outstanding at one time and not fully secured by collateral having a market
value at least equal to the amount of the loan or extension of credit may not
exceed 15% of the unimpaired capital and unimpaired surplus of the association.
Loans in an amount equal to an additional 10% of unimpaired capital and surplus
also may be made to a borrower if the loans are fully secured by readily
marketable collateral.
FIRREA permits certain exceptions to these national bank requirements. A
savings association may make loans to one borrower of up to $500,000 for any
purpose. A savings association may make loans to one borrower of up to the
lesser of $30 million or 30% of unimpaired capital and unimpaired surplus to
develop domestic residential housing units if the purchase price per single
family unit is $500,000 or less, the OTS Director approves the making of the
loans, the association is and continues to be in compliance with its fully
phased-in capital standards, the loans comply with applicable loan-to-value
requirements and loans to all borrowers made under this higher limit do not in
the aggregate exceed 150% of the association's unimpaired capital and surplus.
A savings association may not utilize both of these exceptions with respect to
the same borrower. The Bank's largest amount of loans to one borrower is below
the new statutory requirement. This aspect of the statute is not expected to
affect lending operations of the Bank.
Federal Home Loan Bank System
The Bank is a member of FHLB System, which consists of 12 district FHLBs
which, pursuant to FIRREA, are subject to the supervision and regulation of the
Federal Housing Finance Board. The Bank, as a member of the FHLB of
Indianapolis, is required to acquire and hold shares of capital stock in the
FHLB of Indianapolis in an amount at least equal to 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations at the beginning of each year, or 1/20th of
its FHLB advances, whichever is greater. At June 30, 1995, the Bank was in
compliance with this requirement.
21
<PAGE> 23
OTS regulations use the concept of a QTL to determine eligibility for FHLB
Advances. An association's eligibility for FHLB advances may be reduced if the
association fails to maintain its QTL status.
OTS regulations require member associations to comply with the rules and
regulations promulgated by the FHLB System. These regulations mandate, in part,
a liquidity requirement, currently approximately 5% of liabilities which may be
changed from time to time by the OTS to any amount within the range of 4% to
10% depending upon economic conditions and the deposit flow of member
associations. Member associations are also required to maintain an average
daily balance of short-term liquid assets (those generally with maturities of
one year or less) at a specified percentage (currently 1%) of the total of its
net withdrawable deposits and borrowings payable in one year or less. Monetary
penalties may be imposed for failure to meet liquidity requirements. At June
30, 1995 the Bank's average liquidity exceeded the applicable 5% liquidity
requirement.
Regulatory Capital Requirements
FIRREA substantially changed the capital requirements applicable to savings
associations. The legislation requires three separate measurements of capital
adequacy: a leverage ratio standard, a tangible capital standard and a
risk-based capital standard. Such regulations, effective December 7, 1989,
require standards no less stringent than the capital standards applicable to
national banks. Further, the leverage ratio standard must include a requirement
that savings associations maintain core capital in the amount of not less than
3% of total assets. Core capital is defined in FIRREA as core capital defined
for national banks, plus 90% of purchase mortgage servicing rights (as
permitted by the FDIC) and qualifying supervisory goodwill on a declining basis
until 1995. Core capital is defined for national banks as common stock,
noncumulative preferred stock and retained earnings less nonqualifying
intangibles such as goodwill. The minimum tangible capital requirement is 1.5%
of total assets.
Subsequent to FIRREA, the Office of the Comptroller of the Currency ("OCC")
issued its final core capital leverage ratio regulation which requires national
banks with the highest rating to maintain a leverage ratio of 3%. All other
national banks are required to maintain leverage ratios of at least 4% to 5%.
In accordance with FIRREA, OTS has issued proposed regulations that mirror the
leverage ratio requirement of the OCC. No assurance can be given as to when,
and in what form, the final OTS regulations will be issued. As of June 30,
1995, the Bank's leverage ratio was 14.18%.
The risk-based capital requirement is 8.0% of the value of risk-weighted
assets. The risk-based requirement was phased in with 90%
22
<PAGE> 24
of the 8.0% requirement (7.2%) being effective on December 31, 1990 and 100%
after December 31, 1992. The risk-based rule includes off-balance-sheet risks,
as well as those that are reported on an association's financial statements.
The minimum capital for the credit risk component, i.e., the risk of a loan
being repaid, is calculated by multiplying the value of each asset (including
off-balance-sheet commitments) by one of five risk factors and holding 8.0% of
the result as the minimum requirement capital. The five risk categories range
from 0% for cash to 200% for certain delinquent loans and repossessed property.
On August 31, 1993, the OTS issued a final rule that added an interest-rate
risk component to the risk-based capital rule. Under the final rule, savings
associations with a normal level of interest-rate-risk, as calculated by the
OTS Net Portfolio Value Model, are subject to a deduction from total capital
for purposes of calculating their risk-based capital requirement.
The following presents the Bank's capital levels and ratios relative to its
minimum capital requirements as of June 30, 1995:
<TABLE>
<CAPTION>
Actual Required Excess
-------------- ---------------- ----------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Risk-based $6,089,000 42.0% $1,159,000 8.0% $4,930,000 34.0%
Leverage 5,939,000 14.2% 1,256,000 3.0% 4,683,000 11.2%
Tangible 5,939,000 14.2% 628,000 1.5% 5,311,000 12.7%
</TABLE>
If a savings association fails to comply with the capital standards, the OTS
District Director may restrict asset growth and require that the association
comply with capital directives which may restrict, among other things, the
payment of dividends and certain compensation.
FIRREA prohibits the inclusion in capital of any investments in and
extensions of credit to any subsidiary engaged in activities not permissible
for a national bank, except for investments in mortgage banking subsidiaries,
certain insured institution subsidiaries and in qualifying federal
associations. Through June 1995, if a savings association's subsidiary was, as
of April 12, 1989, engaged in activities not permissible for a national bank,
the savings association may include in calculating capital a specified
percentage of the lesser of: (i) the savings association's investments in and
extensions of credit to the subsidiary on the date as of which the savings
association's capital is being determined. The OTS Director has discretionary
authority to require a lesser percentage on a case-by-case basis in the
interest of safety and soundness of the institution.
Capital Distributions
Capital distributions are defined to include dividends, stock repurchases
and cash-out mergers. Under OTS regulations, the authorization of an insured
association to make capital
23
<PAGE> 25
distributions is predicated upon whether it is a Tier 1, 2, or 3 association.
A Tier 1 association is one having net capital in excess of its fully
phased-in capital requirements. Such an association is permitted to make a
capital distribution without application to the OTS although a 30-day prior
notice provision would apply. A Tier 1 association is authorized to make
capital distributions during a calendar year equal to 100% of its net income to
date during that year plus the amount that would reduce by one-half its surplus
capital ratio at the beginning of the calendar year. A Tier 1 association that
has been notified it is in need of more than normal supervision is treated as a
Tier 2 or 3 association at the discretion of the OTS District Director.
A Tier 2 association is one that has net capital above its regulatory
capital requirements but below its fully phased-in capital requirement. Such an
association is permitted to make a capital distribution without application to
the OTS although a distribution by a Tier 2 association would be limited to
between 25% and 75% of net income over the most recent four-quarter period
dependent upon the association's compliance with the applicable risk-based
capital requirements.
A Tier 3 association is one with net capital below the amount of its
regulatory capital requirements. Such an association is not authorized to make
any capital distribution without prior written OTS approval.
An association subject to restrictions under an agreement or application
condition that are more stringent than the restrictions imposed by this rule
may submit written notice to its District Director seeking to be subject to
this rule. Until such determination is made, the more stringent conditions
apply. Currently, the Bank is considered to be a Tier 1 association as it
exceeds all of its fully phased-in capital requirements.
Accounting Changes
In December 1987, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No 96 ("SFAS No 96") relating to
the method of accounting for income taxes. SFAS No. 96 was amended by SFAS No.
100, 103 and subsequently superseded by SFAS No. 109. SFAS No. 109 was
adopted for fiscal year beginning July 1, 1993, and requires the Bank to take
into account changes in tax rates when valuing the deferred income tax amounts
recorded on the balance sheet. The statement also requires that deferred taxes
be provided for all temporary differences between financial statement income
and tax income (including, for example, differences due to the revaluation of
assets acquired by merger or acquisition) in addition to the timing differences
in the recognition of income for financial statement
24
<PAGE> 26
and tax purposes which were covered by prior accounting rules. The adoption of
this pronouncement had no material effect on the Bank's financial statements.
In December 1990, FASB issued SFAS No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions." SFAS No. 106 focuses primarily
on post-retirement health care benefits, and will significantly change the
prevalent current practice of accounting for post-retirement benefits on a
cash basis by requiring accrual, during the years that the employee renders the
necessary service, of the expected cost of providing those benefits to an
employee and the employee's beneficiaries and covered dependents. SFAS No. 106
was effective for the fiscal year beginning July 1, 1993. The adoption of SFAS
No. 106 had no effect on the Bank's financial statements.
In addition, in December 1991, FASB issued SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments," which is effective for fiscal years
ending after December 15, 1992 (December 15, 1995 in the case of entities with
less than $150 million in total assets). SFAS No. 107 requires financial
institutions to disclose, either in the body of their financial statements or
in the accompanying notes, the "fair value" of financial instruments for which
it is "practicable to estimate that value." SFAS No. 107 defines "fair value"
as the amount at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation
sale. Quoted market prices, if available, are deemed the best evidence of the
fair value of such instruments. Most deposit and loan instruments issued by
financial institutions are subject to SFAS No. 107 and its effect will be to
require financial statement disclosure of the fair value of most of the assets
and liabilities of financial institutions such as the Bank. Such disclosure
requirements could adversely affect the market price of the common stock of
such institutions as well as their ability to raise funds in the financial
market.
In May, 1993, FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," and in January, 1995, FASB issued SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures," which amends the disclosure requirements in SFAS No. 114. These
two statements are effective for fiscal years beginning after December 15,
1994. The Bank will adopt SFAS No. 114 and SFAS No. 118 for the fiscal year
ending June 30, 1996. Management believes any impact if applied earlier would
be immaterial.
In May, 1993 FASB issued SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which is effective for fiscal year 1994. However,
under the early adoption provisions of SFAS NO. 115, savings associations could
have adopted the standard as early as June 30, 1993, depending on their fiscal
year-end. SFAS No. 115 requires financial institutions to report most debt and
25
<PAGE> 27
equity securities at fair value, rather than at amortized cost, except where
there is a positive intent and ability to hold the securities to maturity. The
Bank has classified its securities into the held-to-maturity category and said
securities are reported at amortized cost. Adoption of SFAS No. 115 increased
retained earnings at July 1, 1995 by $133,098.
In March 1995, FASB issued SFAS No. 119, "Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments," which is
effective for fiscal years ending after December 15, 1995 for those entities
with total assets less than $150 million. The Bank will adopt SFAS No. 119 for
the fiscal year ending June 30, 1996. Management believes the adoption of this
pronouncement will have no effect on the Bank's financial statements.
In June, 1995, FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," which is
effective for fiscal years beginning after December 15, 1995. The Bank will
adopt SFAS No. 121 for the fiscal year ending June 30, 1997. Management
believes any impact if applied earlier would be immaterial.
Federal Reserve System
In 1980, Congress enacted legislation which imposed Federal Reserve Board
reserve requirements on all depository institutions that maintain transaction
accounts, nonpersonal time deposits, NOW accounts, money market deposit
accounts and other types of accounts that permit payments or transfers to third
parties which fall within the definition of transaction accounts. Under these
regulations, an association must maintain average daily reserves equal to 3% of
the first $42.2 million of net transaction accounts. If total net transaction
accounts exceed $42.2 million, average daily reserves must equal $1.2 million
plus 12% of the amount which exceeds $42.2 million. In addition, an initial
reserve of 3% must be maintained on nonpersonal time deposits (which include
certain borrowings with original maturities of less than one and one-half
years). These percentages are subject to adjustment by the Federal Reserve
Board. As of June 1995, the Bank was in compliance with this reserve
requirement.
The Depository Institution Deregulation and Monetary Control Act of 1980
also gives savings associations authority to borrow from the Federal Reserve
Bank "discount window." Federal Reserve policy generally requires savings
associations to exhaust all FHLB sources before borrowing from the Federal
Reserve System.
Federal Deposit Insurance Corporation Improvement Act of 1991
On December 19, 1991, the President signed into law the Federal Deposit
Insurance Corporation Improvement Act of 1991 (the "FDIC
26
<PAGE> 28
Improvement Act"). Among its provisions, the FDIC Improvement Act: (1)
provides for a $70 billion recapitalization of the BIF, (2) provides for
annual on-site examinations for all insured institutions, (3) categorizes
banks based upon capital adequacy and restricts the ability of undercapitalized
banks to increase assets, pay interest on subordinated debt or engage in
certain business activities otherwise permitted, (4) changes current FDIC
policy by requiring deposit insurance premiums to vary among banks based upon
the range of risk faced by each bank, (5) bars state banks from engaging in
business activities not permitted for national banks, (6) requires the bank
regulatory agencies to overhaul the risk-based capital standards to take into
account interest rate risk, loan concentration and similar factors, and (7)
includes a number of provisions affecting the operations and management of
insured institutions that confer substantial discretion on the federal
regulatory agencies to develop implementing regulations.
Capital Definitions. The FDIC Improvement Act introduces definitions
relating to the capital condition of insured institutions that determine the
extent to which the institutions can engage in certain activities. At each
successive downward level of capital, institutions become subject to more
restrictions and regulators are given less flexibility in dealing with the
institution. The defined terms are "well capitalized" (significantly exceeding
the required minimum capital requirements), "adequately capitalized" (meeting
the required capital requirements), "undercapitalized" (failing to meet any one
of the capital requirements), "significantly undercapitalized" (significantly
below any one capital requirement) and "critically undercapitalized" (failing
to meet all capital requirements). Within one year of enactment, each federal
banking agency is directed to specify the levels at which an insured
institution falls within each category.
Restrictions on Undercapitalized Institutions
Undercapitalized institutions are subject to close monitoring by the
appropriate federal banking agency and must submit a capital restoration plan
to the agency. If the institution is owned by a holding company, the capital
restoration plan must be guaranteed by the holding company up to 5% of the
institution's total assets. In addition, the FDIC Improvement Act restricts
asset growth of undercapitalized institutions and prohibits acquisitions,
branching and new activities without prior regulatory approval.
Undercapitalized and significantly undercapitalized institutions that fail to
submit and implement capital restoration plans are subject to additional
restrictions on interest rates paid on deposits, transactions with affiliates,
senior officer compensation and, if applicable, capital distributions by the
institutions holding company without the prior approval of the Federal Reserve
27
<PAGE> 29
Board. Additionally, the appropriate federal banking agency may order dismissal
of directors and officers or a new election of board members. Critically
undercapitalized institutions are further prohibited from making principal and
interest payments on subordinated debt.
Operations and Management Standards. In the operations area, the FDIC
Improvement Act requires the federal banking agencies to develop standards
relating to internal controls, loan documentation, credit underwriting,
interest rate exposure and asset growth. These standards are to include
quantitative criteria for classified loans, earnings, reserves and market value
to book value for publicly traded shares. Additionally, the FDIC Improvement
Act requires the federal banking agencies to issue uniform regulations
prescribing standards for real estate lending that are to consider such factors
as the risk to the deposit insurance fund, the need for safe and sound
operation of insured institutions and the availability of credit. As for
management controls, the FDIC Improvement Act requires the federal banking
agencies to establish standards for employee compensation. The standards are to
be used to determine whether compensation is excessive by considering factors
such as the services actually performed by the individual, the financial
condition of the institution, comparable compensation practices at similarly
situated institutions and any connection between the individual and fraudulent
acts regarding the institution.
Other Items. Other significant provisions of the FDIC Improvement Act
include restrictions on the ability of insured institutions to make capital
distributions, such as dividends and stock purchases, if after making the
distribution the institution would be undercapitalized. The FDIC Improvement
Act further prohibits state chartered banks from engaging in activities not
permissible for national banks unless the appropriate federal banking agency
finds that the activity does not pose a significant risk to the deposit
insurance fund and the institution is in compliance with acquiring or retaining
any equity investments of a type that is not permissible for a national bank.
Effective Dates. Many of the FDIC Improvement Act's provisions did not become
effective until final implementing regulations were issued by the appropriate
federal banking agencies or at other times specified in that Act. The
provisions regarding operations and management standards became effective on
December 1, 1993.
It is impossible to predict what impact the FDIC Improvement Act will have
on the Bank, especially since so many of the Act's provisions will be defined
through future regulatory action. Certain provisions such as those requiring
the regulatory agencies to establish uniform standards for certain real estate
loans may affect the way in which the Bank conducts its business and other
provisions such as those relating to the establishment of the risk-
28
<PAGE> 30
based premium system may adversely affect the Bank's results of operations.
Interstate Banking and Branching
Effective October 10, 1988, Michigan adopted an interstate banking law
allowing nationwide interstate banking on a reciprocal basis. Prior to that
date, Michigan's interstate banking region consisted only of Illinois, Indiana,
Ohio, and Wisconsin. Effective July 7, 1987, Michigan law allowed thrifts from
any state to acquire or merge with Michigan thrifts on a reciprocal basis.
In addition, the OTS has recently eliminated virtually all restrictions on
the ability of federal savings associations to branch interstate on a
nationwide basis. Under prior law, interstate branching by federal savings
associations was prohibited if, among other things, the law of the state in
which the branch was to be located did not permit a state chartered thrift to
establish such a branch. This limitation, among others, was eliminated under
the new OTS rule.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Bank.
For federal income tax purposes, the Bank reports its income and expenses
primarily on the cash method of accounting. Both before and after Conversion,
the Bank is and will be subject to the rules of federal income taxation
applicable to corporations. For its taxable year ended June 30, 1995, the Bank
was subject to a maximum federal income tax rate of 34%.
Bad Debt Reserves. Savings institutions such as the Bank
which meet certain definitional tests primarily relating to their assets and
the nature of their business ("qualifying thrifts") are permitted to establish
a reserve for bad debts and to make annual additions thereto, which additions
may, within specified formula limits, be deducted in arriving at their taxable
income.
Earnings appropriated for bad debt reserves are deducted for federal income
tax purposes and cannot be used by the Bank to pay cash dividends without the
payment of income taxes by the Bank at the then current income tax rate on the
amount deemed distributed, which would include the amount of any federal income
taxes
29
<PAGE> 31
attributable to the distribution. Thus, any dividends that would
reduce amounts appropriated to the Bank's bad debt reserves and deducted for
federal income tax purposes could create a tax liability for the Bank. The Bank
does not intend to pay dividends that would result in a recapture of its bad
debt reserves.
Corporate Alternative Minimum Tax. For taxable years beginning after
December 31, 1986, the Code imposes an Alternative Minimum Tax ("AMT") of 20%
on alternative minimum taxable income ("AMTI"). The excess of the bad debt
reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under an experience method is treated
as a preference item for purposes of computing the AMTI. Only 90% of AMTI can
be offset by net operating losses. For taxable years beginning after December
31, 1989, the adjustment to AMTI based on book income will be an amount equal
to 75% of the amount by which a corporation's adjusted current earnings exceed
its AMTI (determined without regard to this preference and prior to reduction
for net operating losses). In addition, for taxable years beginning after
December 31, 1986, and before January 1, 1996, an environmental tax of .12% of
the excess of AMTI (with certain modification) over $2.0 million is imposed on
corporations, including the Bank, whether or not an AMT is paid. The Bank does
not expect to be subject to the AMT.
Distributions. To the extent that (i) the Bank's reserve for losses on
qualifying real property loans exceeds the amount that would have been allowed
under an experience method and (ii) the Bank makes "non-dividend distributions"
to stockholders that are considered to result in distributions from the excess
bad debt reserve or the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be
included in the Bank's taxable income. Non-dividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax
purposes, will not be considered to result in a distribution from the Bank's
bad debt reserves.
The amount of additional taxable income created an Excess Distribution is an
amount that when reduced by the tax attributable to the income is equal to the
amount of the distribution. Thus, if after the conversion, certain portions of
the Bank's accumulated tax bad debt reserve are used for any purpose other than
to absorb qualified bad debt loans, such as for the payment of dividends or
other distributions with respect to the Bank's capital stock (including
distributions upon redemption or liquidation), approximately one and one-half
times the amount so used would be includable in gross income for federal income
tax purposes,
30
<PAGE> 32
assuming a 34% corporate income tax (exclusive of state taxes). See
"Regulation" for limits on the payment of dividends by the Bank.
The Bank's federal income tax returns have been audited by the Internal
Revenue Service through the fiscal year ended June 30, 1973.
State Taxation
The State of Michigan imposes a tax on tangible personal property in the
amount of $.20 per $1,000 of deposits of a thrift institution less the amount
of deposits owed to the federal or Michigan state government, their agencies or
certain other financial institutions. The State of Michigan also imposes a
"Single Business Tax." The Single Business Tax is a value-added type of tax and
is for the privilege of doing business in the State of Michigan. The
computation of the single business tax begins with federal taxable income, and
the base is subject to various adjustments that increase the tax base for
compensation, depreciation and net operating loss carryforwards, if any,
utilized in arriving at federal taxable income. The tax base is decreased by
the cost of acquisition of tangible assets during the year. The tax rate is
2.35% of the Michigan adjusted tax base.
Item 2. Properties.
The Bank owns one banking office located in St. Clair Shores,
Michigan.
The following table provides certain information with respect to the Bank's
office at June 30, 1995.
<TABLE>
<CAPTION>
Net Book
Office Date Opened Value
- ------ ----------- -----
<S> <C> <C>
23505 Greater Mack Avenue October 1956 $81,828
St. Clair Shores, Michigan
</TABLE>
The total net book value of the Bank's premises and equipment at June 30,
1995 was $81,828. The Bank intends to renovate its office and purchase computer
equipment at an estimated cost of $250,000. See Note 4 to the Bank's Financial
Statements for additional information.
Item 3. Legal Proceedings
The Bank is not a party to any pending legal proceedings other than routine
litigation incidental to its business activities.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of members or security holders during
the fourth quarter ended June 30, 1995. On July 27,
31
<PAGE> 33
1992, members of the Association approved the Association's Plan of Conversion
providing for the conversion of the Association from state mutual to federal
stock form. As part of the conversion, the Association changed its name to
Macomb Federal Savings Bank.
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
Reference is made to page 1 of the Bank's 1995 Annual Report to Shareholders
for the information required by this item, which is incorporated herein by
reference.
Item 6. Selected Financial Data
See "Selected Financial Data of the Bank" under Item 1, "Business" hereof.
Item 7. Management's Discussion and Analysis of Operations and
Financial Condition
Reference is made to pages 6 - 22 of the Bank's 1995 Annual Report for the
information required by this item, which is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements contained in the 1995 Annual Report to Stockholders
which are listed under Part IV, Item 14 hereof, are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to pages 2 - 3 of the Bank's definitive
proxy statement for the Bank's 1995 Annual Meeting of Shareholders (the "Proxy
Statement") for the information required by this item, which is incorporated
herein by reference.
Item 11. Executive Compensation
Reference is made to pages 6 - 14 of the Proxy Statement for the information
required by this item, which is incorporated herein by reference.
32
<PAGE> 34
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Reference is made to pages 4 - 5 of the Proxy Statement for the information
required by this item, which is incorporated herein by reference.
Item 13, Certain Relationships and Related Transactions
Reference is made to page 14 of the Proxy Statement for the information
required by this item, which is incorporated herein by reference.
PART IV
Item 14, Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following financial statements of the Bank, included in the Bank's
1995 Annual Report to Shareholders, are incorporated by reference in Item 8
hereof.
1. Financial Statements
Independent Auditor's Report
Balance Sheets as of June 30, 1994 and 1995
Statements of changes in Stockholders' Equity for the years
ended June 30, 1993, 1994, and 1995
Statements of Operations for the years ended June 30, 1993,
1994, and 1995
Statements of Cash Flows for the years ended June 30,
1993, 1994, and 1995
Notes to Financial Statements
Supplementary Information
Schedule I - Other Assets and Liabilities
33
<PAGE> 35
2. Financial Statement Schedules
All schedules have been omitted because they are not
required or applicable, or the required information is
shown in the financial statements or the notes thereto.
3. Exhibits
Exhibit No. Description of Exhibit
3.2 Bylaws
10.1 Employment Agreement with Stanley A. Jacobson
10.2 Employment Agreement with Jeffrey I. Kopelman
13 1995 Annual Report to Shareholders
28 Proxy Statement for 1995 Annual Meeting
(b) No reports on Form 8-K were filed during the last quarter of the fiscal
year ended June 30, 1995.
34
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MACOMB FEDERAL SAVINGS BANK
September 25, 1995 By: /s/ Stanley A. Jacobson
-------------------------------------
Stanley A. Jacobson, President,
Principal Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
September 25, 1995 /s/ Stanley A. Jacobson
--------------------------------------
Stanley A. Jacobson, President,
Principal Executive Officer and
Director
September 25, 1995 /s/ Esther Mason
--------------------------------------
Esther Mason, Executive Vice
President, Principal Financial and
Accounting Officer and Director
September 25, 1995 /s/ Mark T. Jacobson
--------------------------------------
Mark T. Jacobson, Chairman of the
Board of Directors
September 25, 1995 /s/ Paul E. Andrews
--------------------------------------
Paul E. Andrews, Director
September 25, 1995 /s/ Jon M. Fox
--------------------------------------
Jon M. Fox, Director
September 25, 1995 /s/ James H. Hudnut
--------------------------------------
James H. Hudnut, Secretary and
Director
September 25, 1995 /s/ Steven E. Zack
--------------------------------------
Steven E. Zack, Director
35
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page at Which
Exhibit Appears
Exhibit In Sequentially
Number Description of Exhibit Numbered Copy
- ------ ---------------------- ---------------
<S> <C> <C>
3.2 Bylaws 38
10.1 Employment Agreement with Stanley A.
Jacobson 52
10.2 Employment Agreement With Jeffrey I.
Kopelman 62
13 1995 Annual Report to Shareholders 71
28 Proxy Statement for 1995 Annual Meeting 113
</TABLE>
36
<PAGE> 38
EXHIBIT 3.2
BYLAWS
<PAGE> 39
BYLAWS
OF
MACOMB FEDERAL SAVINGS BANK
ARTICLE I - HOME OFFICE
The home office of the Savings Bank shall be at 23505 Greater Mack
Avenue, St. Clair Shores, in the County of Macomb, in the State of Michigan.
ARTICLE II - STOCKHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
stockholders shall be held at the home office of the Savings Bank or at such
other place in the State in which the principal place of business of the
Savings Bank is located as the board of directors may determine.
Section 2. Annual Meeting. A meeting of stockholders of the Savings
Bank for the election of directors and for the transaction of any other
business of the Savings Bank shall be held annually within 120 days after the
end of the Savings Bank's fiscal year, on the fourth Thursday of October if not
a legal holiday, and if a legal holiday, then on the next day following which
is not a legal holiday, at 4:00 p.m., or at such other date and time within
such 120-day period as the board of directors may determine.
Section 3. Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by the regulations of
the Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all the outstanding capital stock of the Savings Bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the
meeting and shall be delivered at the home office of the Savings Bank addressed
to the chairman of the board, the president or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of
Order unless otherwise prescribed by regulations of the Office or these bylaws.
The board of directors shall designate, when present, either the chairman of
the board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day
and hour of the meeting and the purpose or purposes for which the meeting is
called shall be delivered not fewer than 10 nor more than 50 days before the
date of the meeting, either
<PAGE> 40
personally or by mail, by or at the direction of the chairman of the board, the
president, or the secretary, or the directors calling the meeting, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the mail, addressed to the
stockholder at the address as it appears on the stock transfer books or records
of the Savings Bank as of the record date prescribed in Section 6 of this
Article II, with postage prepaid. When any stockholders' meeting, either
annual or special, is adjourned for 30 days or more, notice of the adjourned
meeting shall be given as in the case of an original meeting. It shall not be
necessary to give any notice of the time and place of any meeting adjourned for
less than 30 days or of the business to be transacted at the meeting, other
than an announcement at the meeting at which such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a date as the
record date for any such determination of stockholders. Such date in any case
shall be not more than 60 days and, in case of a meeting of stockholders, not
fewer than 10 days prior to the date on which the particular action requiring
such determination of stockholders is to be taken. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
Section 7. Voting Lists. At least 20 days before each meeting of
stockholders, the officer or agent having charge of the stock transfer books
for shares of the Savings Bank shall make a complete list of the stockholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each.
This list of stockholders shall be kept on file at the home office of the
Savings Bank and shall be subject to inspection by any stockholder at any time
during usual business hours for a period of 20 days prior to such meeting.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any stockholder during the
entire time of the meeting. The original stock transfer book shall constitute
prima facie evidence of the stockholders entitled to examine such list or
transfer books or to vote at any meeting of stockholders. In lieu of making
the list of stockholders available for inspection by stockholders as provided
in the preceding paragraph, the board of directors may elect to follow the
procedures prescribed in Section 552.6(d) of the Office's regulations as now or
hereafter in effect.
2
<PAGE> 41
Section 8. Quorum. A majority of the outstanding shares of the Savings
Bank entitled to vote, represented in person or by proxy, shall constitute
a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally notified. The stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to constitute less than a quorum.0
Section 9. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
more than 11 months from the date of its execution except for a proxy coupled
with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Savings Bank to the contrary, at any meeting of the
stockholders of the Savings Bank any one or more such stockholders may cast, in
person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in
the name of another corporation may be voted by any officer, agent or proxy as
the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine. Shares
held by an administrator, executor, guardian or conservator may be voted by
him, either in person or by proxy, without a transfer of such shares into his
name. Shares standing in the name of a trustee may be voted by him, either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name. Shares standing in the name
of a receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer
thereof into his name if authority to do so
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is contained in an appropriate order of the court or other public authority by
which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Savings Bank nor
shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
Savings Bank, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Every stockholder entitled to vote at
an election for directors shall have the right to vote, in person or by proxy,
the number of shares owned by the stockholder for as many persons as there are
directors to be elected and for whose election the Stockholder has a right to
vote, or to cumulate the votes by giving one candidate as many votes as the
number of such directors to be elected multiplied by the number of shares shall
equal, or by distributing such votes on the same principle among any number of
candidates.
Section 13. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors may appoint any persons other than
nominees for office as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three.
Any such appointment shall not be altered at the meeting. If inspectors of
election are not so appointed, the chairman of the board or the president may,
or on the request of not less than 10 percent of the votes represented at the
meeting shall, make such appointment at the meeting. If appointed at the
meeting, the majority of the votes present shall determine whether one or three
inspectors are to be appointed. In case any person appointed as inspector
fails to appear or fails or refuses to act, the vacancy may be filled by
appointment by the board of directors in advance of the meeting or at the
meeting by the chairman of the board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, the authenticity, validity and effect of proxies; receiving votes,
ballots or consents; hearing and determining all challenges and questions in
any way arising in connection with the right to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper
to conduct the election or vote with fairness to all stockholders.
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Section 14. Nominating Committee. The board of directors or a
committee of the board of directors consisting of not less than three members
shall act as a nominating committee for selecting the management nominees for
election as directors. Except in the case of a nominee substituted as a result
of the death or other incapacity of a management nominee, the nominating
committee shall deliver written nominations to the secretary at least 20 days
prior to the date of the annual meeting. Upon delivery, such nominations shall
be posted in a conspicuous place in each office of the Savings Bank. No
nominations for directors except those made by the nominating committee shall
be voted upon at the annual meeting unless other nominations by stockholders
are made in writing and delivered to the secretary of the Savings Bank at least
five days prior to the date of the annual meeting. Upon delivery, such
nominations shall be posted in a conspicuous place in each office of the
Savings Bank. Ballots bearing the names of all the persons nominated by the
nominating committee and by stockholders shall be provided for use at the
annual meeting. However, if the nominating committee shall fail or refuse to
act at least 20 days prior to the annual meeting, nominations for directors may
be made at the annual meeting by any stockholder entitled to vote and shall be
voted upon.
Section 15. New Business. Any new business to be taken up at the
annual meeting shall be stated in writing and filed with the secretary of the
Savings Bank at least 5 days before the date of the annual meeting, and all
business so stated, proposed and filed shall be considered at the annual
meeting, but no other proposal shall be acted upon at the annual meeting. Any
stockholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least five days before the meeting such proposal shall be laid
over for action at an adjourned, special or annual meeting of the stockholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors, and committees; but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated and filed
as herein provided.
Section 16. Informal Action by Stockholders. Any action required to be
taken at a meeting of the stockholders, or any other action which may be taken
at a meeting of the stockholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
stockholders entitled to vote with respect to the subject matter thereof.
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ARTICLE III - BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Savings Bank
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of
seven (7) members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One class
shall be elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of stockholders. The board of
directors may provide, by resolution, the time and place, within the Savings
Bank's normal lending territory, for the holding of additional regular meetings
without other notice than such resolution.
Section 4. Qualifications. No person may be elected as a director, who,
at the time of his election, is over 72 years of age. If any director shall
reach 72 years of age during his term of office as director, such director
shall serve as director until his term expires. Each director shall at all
times be the beneficial owner of not less than 100 shares of capital stock of
the Savings Bank unless the Savings Bank is a wholly-owned subsidiary of a
holding company.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the Savings Bank's regular
lending area, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person but shall not constitute attendance for
the purpose of compensation pursuant to Section 12 of this Article.
Section 6. Notice. Written notice of any special meeting shall be given
to each director at least two days prior thereto when delivered personally or
by telegram or at least five days
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prior thereto when delivered by mail at the address at which the director is
most likely to be reached. Such notice shall be deemed to be delivered when
deposited in the mail so addressed, with postage thereon prepaid if mailed or
when delivered to the telegraph company if sent by telegram. Any director may
waive notice of any meeting by a writing filed with the secretary. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall
be given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by
sending a written notice of such resignation to the home office of the Savings
Bank addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt thereof by the
chairman of the board or the president. More than three consecutive absences
from regular meetings of the board of directors, unless excused by resolution
of the board of directors, shall automatically constitute a resignation,
effective when such resignation is accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors
by the stockholders. Any directorship to be filled by reason of an
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increase in the number of directors may be filled by election by the board of
directors for a term of office continuing only until the next election of
directors by the stockholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a
reasonable fixed sum, and reasonable expenses of attendance, if any, may be
allowed for actual attendance at each regular or special meeting of the board
of directors. Members of either standing or special committees may be allowed
such compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 13. Presumption of Assent. A director of the Savings Bank who
is present at a meeting of the board of directors at which action on any
Savings Bank matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the Savings
Bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 14. Removal of Directors. At a meeting of stockholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of
the shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority thereto shall not operate to relieve the board of directors, or any
director, of any responsibility imposed by law or regulation.
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Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority
of the board of directors except to the extent, if any, that such authority
shall be limited by the resolution appointing the executive committee; and
except also that the executive committee shall not have the authority of the
board of directors with reference to: the declaration of dividends; the
amendment of the charter or bylaws of the Savings Bank, or recommending to the
stockholders a plan of merger, consolidation or conversion; the sale, lease or
other disposition of all or substantially all of the property and assets of the
Savings Bank otherwise than in the usual and regular course of its business; a
voluntary dissolution of the Savings Bank; a revocation of any of the
foregoing; or the approval of a transaction in which any member of the
executive committee, directly or indirectly, has any material beneficial
interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his designation
and until his successor is designated as a member of the executive committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than one day's notice stating
the place, date and hour of the meeting, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in
person. The notice of a meeting of the executive committee need not state the
business proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
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Section 8. Resignation and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution
adopted by a majority of the full board of directors. Any member of the
executive committee may resign from the executive committee at any time by
giving written notice to, the president or secretary of the Savings Bank.
Unless otherwise specified, such resignation shall take effect upon its
receipt. The acceptance of such resignation shall not be necessary to make it
effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information
at the meeting thereof held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by
resolution establish an audit, loan or other committee composed of directors as
they may determine to be necessary or appropriate for the conduct of the
business of the Savings Bank and may prescribe the duties, constitution and
procedures thereof.
ARTICLE V - OFFICERS
Section 1. Positions. The officers of the Savings Bank shall be a
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The president shall be
the chief executive officer unless the board of directors designates the
chairman of the board as chief executive officer. The president shall be a
director of the Savings Bank. The offices of the secretary and treasurer may
be held by the same person and a vice president may also be either the
secretary or the treasurer. The board of directors may designate one or more
vice presidents as executive vice president or senior vice president. The
board of directors may also elect or authorize the appointment of such other
officers as the business of the Savings Bank may require. The officers shall
have such authority and perform such duties as the board of directors may from
time to time authorize or determine. In the absence of action by the board of
directors, the officers shall have such power and duties as generally pertain
to their respective offices.
Section 2. Election and Term of Office. The officers of the Savings
Bank shall be elected annually at the first meeting of the board of directors
held after each annual meeting of the
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stockholders. If the election of officers is not held at such meeting, such
election shall be held as soon thereafter as possible. Each officer shall hold
office until a successor has been duly elected and qualified or until the
officer's death, resignation or removal in the manner hereinafter provided.
Election or appointment of an officer, employee or agent shall not of itself
create contractual rights. The board of directors may authorize the Savings
Bank to enter into an employment contract with any officer in accordance with
regulations of the Office; but no such contract shall impair the right of the
board of directors to remove any officer at any time in accordance with Section
3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the Savings Bank will
be served thereby, but such removal, other than for cause, shall be without
prejudice to the contract rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the
office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the Savings Bank to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the Savings Bank.
Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Savings Bank and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or
confined to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in
the name of the Savings Bank shall be signed by one or more officers, employees
or agents of the Savings Bank in such manner as shall from time to time be
determined by the board of directors.
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Section 4. Deposits. All funds of the Savings Bank not otherwise
employed shall be deposited from time to time to the credit of the Savings Bank
in any duly authorized depositories as the board of directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares
of capital stock of the Savings Bank shall be in such form as shall be
determined by the board of directors and approved by the Office. Such
certificates shall be signed by the chief executive officer or by any other
officer of the Savings Bank authorized by the board of directors, attested by
the secretary or an assistant secretary, and sealed with the corporate seal or
a facsimile thereof. The signatures of such officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar other than the Savings Bank itself or one of its employees.
Each certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the
certificates are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Savings Bank. All certificates
surrendered to the Savings Bank for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that in case of a lost
or destroyed certificate, a new certificate may be issued therefor upon such
terms and indemnity to the Savings Bank as the board of directors may
prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the Savings Bank shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a power of attorney duly executed and filed with the
Savings Bank. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Savings Bank shall be deemed by the Savings
Bank to be the owner thereof for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Savings Bank shall end on the last day of June
of each year. The Savings Bank shall be subject to an annual audit as of the
end of its fiscal year by independent public accountants appointed by and
responsible to the board of directors. The appointment of such accountants
shall be subject to annual ratification by the stockholders.
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ARTICLE IX - DIVIDENDS
Subject to the terms of the Savings Bank's charter and the regulations
and orders of the Office, the board of directors may, from time to time,
declare, and the Savings Bank may pay, dividends on its outstanding shares of
capital stock.
ARTICLE X - CORPORATE SEAL
The board of directors shall provide a Savings Bank seal which shall be
two concentric circles between which shall be the name of the Savings Bank.
The year of incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with the regulations
of the Office at any time by a majority of the full board of directors or by a
majority of the votes cast by the stockholders of the Savings Bank at any legal
meeting.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT WITH STANLEY A. JACOBSON
<PAGE> 53
EMPLOYMENT AGREEMENT
AGREEMENT dated as of this 13th day of August, 1992 (the
"Agreement"), by and between Macomb Federal Savings Bank, a federally chartered
stock savings bank (the "Savings Bank"), and Stanley A. Jacobson ("Employee").
B A C K G R 0 U N D
Employee is the President and Chief Executive Officer of the
Savings Bank, and he is a member of the Board of Directors of the Savings Bank
(the "Savings Bank Board") . The Savings Bank Board has determined that the
future services of Employee as President, Chief Executive Officer and as a
member of the Savings Bank Board will be of value to the Savings Bank and,
accordingly, the Savings Bank Board wishes to have Employee's services
available to the Savings Bank for a minimum of three (3) years from the
Effective Date (as defined herein) of this Agreement and to provide
supplemental benefits to Employee should his employment with the Savings Bank
terminate or should he die or become disabled prior to the expiration of this
Agreement or any extensions thereof.
In consideration of the mutual covenants and agreements herein
contained, and intending to be legally bound hereby, the parties agree as
follows:
1. Term of Employment.
The term of Employee's employment shall continue or
a three (3) year period beginning on the date of this Agreement ("Effective
Date") and ending on the last day of the month three years from the Effective
Date (the "Term"). on each anniversary of the Effective Date, each such Term
may be renewed and recommenced in its entirety by mutual consent in writing (a
copy of which is to be appended hereto) of the Employee and the Savings Bank.
Such consent is conditioned upon an annual review of this Agreement by the
Savings Bank Board and the Employee.
2. Employment and Services.
The Savings Bank agrees to employ Employee during
the Term of his employment as President and Chief Executive Officer of the
Savings Bank. Employee will be responsible for supervision of the affairs of
the Association, including the loans and investments made by the Association
and shall report to the Savings Bank Board on the affairs of the Association at
all regular and special meetings of the Savings Bank Board. Employee shall
supervise the Executive Vice President of the Association, Esthier Mason, and
consult with her regularly with respect to the day to day operations of the
Association. The Savings Bank agrees to nominate Employee to successive terms
as a member of the Savings Bank Board and to use its best efforts to elect and
<PAGE> 54
re-elect Employee as a member of the Savings Bank Board. The Savings Bank
further agrees that Employee is required to devote a minimum of one third (1/3)
of his time or, on the average over a year period, twelve (12) hours per week
to the business and affairs of the Savings Bank and to use his best efforts to
promote the interests of the Savings Bank. Employee agrees to accept such
employment, to devote a minimum of one third (1/3) of his time or, on the
average over a year period, twelve (12) hours per week to the business and
affairs of the Savings Bank and to use his best efforts to promote the
interests of the Savings Bank.
3. Place of Performance.
Employee shall be furnished with a private office, stenographic and
other necessary on the business and affairs of the at the offices of the
secretarial assistance, and with Savings Bank or at such locations as he deems
necessary and such other facilities, amenities appropriate and services
as are, in the reasonable judgment of Employee, appropriate for Employee's
position as President and Chief Executive Officer of the Savings Bank and
adequate for the performance of his duties hereunder at the principal executive
offices of the Savings Bank, currently located in St. Clair Shores, Macomb
County, Michigan. Employee shall be entitled to work on the business and
affairs of the Savings Bank either at the Offices of the Savings Bank or at
such other places and locations as he deems necesary and appropriate to
perform the services required under this Agreement, including, but not limited
to, services he maintains for his other business activities separate and apart
from the offices of the Savings Bank.
4. Compensation.
Subject to the provisions of any agreement between
the Savings Bank and Employee relating to the payment of deferred compensation,
if any:
4.1 The Savings Bank shall pay Employee for the services to be
rendered by him hereunder during the Term of his employment the following
compensation, payable at regular intervals in accordance with the Savings
Bank's normal payroll practices now or hereafter in effect. During the Term of
his employment, Employee shall be paid a base salary at the rate of not less
than $42,000 per year, subject to an annual review and subject to such upward
adjustments (including annual cost-of living adjustments) as may be deemed
appropriate by the Savings Bank Board or designated committee thereof
("Committee"). (For purposes of this Agreement, except as otherwise stated, a
"year" shall be deemed to commence on January 1st of each year; compensation
for a portion of a year The Savings Bank Board or Committee may recommend an
increase in salary for Employee hereunder, but shall have no obligation to do
so.
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4.2 Employee shall attend, at his discretion, those
professional meetings, conventions, and/or similar functions that he deems
appropriate and useful for purposes of keeping abreast of current developments
in the industry and/or promoting the interests of the Savings Bank.
4.3 The Savings Bank will during the Term of his
employment, reimburse Employee for all expenses incurred by him which are
reasonably necessary (in accordance with its normal reimbursement practices now
or hereafter in effect) for Employee to carry out his duties under this
Agreement.
5. Plans and Fringe Benefits.
During the Term of his employment, Employee shall be entitled (a)
to participate in any bonus programs (including, but not limited to Christmas
bonuses), incentive compensation programs, retirement plans, stock option plans
and stock purchase plans, now or hereafter in effect, which are generally made
available from time to time to executive officers of the Savings Bank, and (b)
to such other fringe benefits as the Savings Bank Board or the Committee shall
deem appropriate or otherwise made available to executive employees of the
Savings Bank.
6. Disability Benefits.
If Employee becomes permanently disabled during the Term of his
employment and consequently cannot perform his duties under this Agreement, the
Savings Bank nevertheless shall continue to compensate him under Sections 4 and
5 of this Agreement for two years following disability or the remaining Term of
this Agreement, whichever is greater. For purposes of this Agreement,
"disabled" shall mean any incapacity of Employee resulting from sickness or
accidental bodily injury that (a) prevents Employee from performing the
essential duties of his occupation with the Savings Bank and (b) requires
regular care and treatment by a physician.
7. Termination by the Savings Bank.
7.1 The Savings Bank shall have the right to terminate
Employee's employment hereunder for cause. The term "cause", as used herein,
shall refer only to the following events:
(i) personal dishonesty, incompetence or willful
misconduct;
(ii) breach of fiduciary duty involving personal
profit;
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(iii) intentional failure to perform stated duties;
(iv) willful violation of any law, rule or regulation
(other than traffic violations or similar
offenses);
(v) violation, of any kind, of a final cease and
desist order; and
(vi) material breach of any provision of this
Agreement.
If the savings Bank exercises its right under this Section
7.1, Employee's right to receive compensation and benefits under this Agreement
shall terminate immediately upon the effective date of the termination for
cause, except that any vested rights of Employee shall not be affected.
7.2 The savings Bank shall have the right to terminate
Employee's employment hereunder, without cause, upon the payment to Employee,
within thirty (30) days after termination, 2.99 times his W-2 income.
7.3 If Employee's employment is terminated without cause
during the one year period following a "change in ownership or control," as
defined in Section 10.1 hereof, the benefits provided under Section 10.2 hereof
shall be payable in lieu of the benefits provided under Section 7.2 hereof.
7.4 The failure to elect, re-elect or appoint Employee as
a member of the Savings Bank Board, or a substantial reduction in the duties or
responsibilities of Employee, shall be deemed to be a termination without cause
under Sections 7.2 and 7.3 of this Agreement.
8. Supervisory Suspension.
If Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12
U.S.C. 1818(e)(3) and (g) the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Savings Bank may in its discretion (i) pay Employee all or part of the
compensation withheld while its obligations under this Agreement were
suspended and (ii) reinstate (in whole or in part) any of its obligations which
were suspended.
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9. Supervisory Removal.
If Employee is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
1818(e)(4) and (g)(1)), all obligations of the Savings Bank under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the parties to the Agreement shall not be affected.
10. Change in Ownership or Control of the Savings Bank.
10.1 In the event that (a) there is a "change in ownership or
control" of the Savings Bank or a substantial portion of the Savings
Bank's respective assets and (b) any of the events referred to in Section 7.4
hereof occurs, Employee shall have the right to terminate his employment with
the Savings Bank upon five (5) days written notice to the Savings Bank Board,
such notice to be delivered to the Savings Bank Board within one hundred eighty
(180) days of the date upon which such "change in ownership or control" is
deemed to have occurred. For purposes of this Agreement, a "change in
ownership or control" has the same meaning as in Section 280G(b)(2)(A)(i)(I)
and (II) of the Internal Revenue Code, as amended (the "Code").
10.2 If Employee exercises his right under Section 10.1,
or is terminated by the Savings Bank without cause on or before the first
anniversary date of a "change in ownership or control," Employee shall be
entitled to a lump sum severance payment equal to 2.99 times Employee's "base
amount," computed as of the date of termination; for these purposes, the term
base amount shall have the same meaning as set forth in Section 280G(b)(3) of
the Code; such severance payment shall be made to Employee within sixty (60)
days of termination.
10.3 In the event that the compensation to Employee
pursuant to Section 10.2 above would (in whole or in part) be nondeductible as
a result of Section 280G of the Code or raise imposition of an excise tax
pursuant to Section 4999 of the Code (or successor provisions to such
sections), the payments to Employee under this Section 10 shall be reduced to
the extent necessary to make such sections inapplicable to the payments. In
the event that there is a dispute between the parties regarding whether or the
extent to which payments must be reduced pursuant to the foregoing sentence,
such dispute shall be resolved in accordance with Section 14 below.
11. Waivers Not to be Continued.
Any waiver by a party of any breach of this Agreement by another
party shall not be construed as a continuing
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<PAGE> 58
waiver or as a consent to any subsequent breach by the other party.
12. Notices.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, to the following addresses or to such other
address as either party may designate by like notice.
A. If to the Savings Bank to:
Macomb Federal Savings Bank
23505 Greater Mack Avenue
St. Clair Shores, Michigan 48080
Attention: Board of Directors
B. If to Employee, to:
Stanley A. Jacobson
c/o Mark Jacobson & Associates 32400 Telegraph Road
Suite 200
Bingham Farms, Michigan 48010
with a copy in each case to:
James Hudnut, Esq.
Hudnut & Ravitz
24100 Southfield Road Suite 201
Southfield, Michigan 48075-2819
and
Edward L. Lublin, Esq.
Manatt, Phelps, Phillips & Kantor
1200 New Hampshire Avenue, N.W.
Suite 200
Washington, D.C. 20036
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
13. Unauthorized Disclosure.
During the period of his employment hereunder, Employee shall
not, except as required by any court, supervisory authority or administrative
agency, without the written consent
6
<PAGE> 59
of the Savings Bank Board or a person authorized thereby, disclose to any
person, other than an employee of the Savings Bank or a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by Employee of his duties as an executive of the Savings Bank, any
confidential information obtained by him while in the employ of the Savings
Bank; provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by the Employee). For the period ending two years
following the termination of employment hereunder, Employee shall not disclose
any confidential information of the type described above except as required by
any court, supervisory authority or administrative agency.
14. Arbitration.
Any dispute or controversy arising or in connection with this
Agreement shall be settled exclusively by arbitration in the State of Michigan
in accordance with the rules of the American Arbitration Association then in
effect. Notwithstanding the pendency of any such dispute or controversy, the
Savings Bank will continue to pay Employee's full compensation in effect when
the Notice giving rise to the dispute was given (including, but not limited to,
base salary and installments under this Agreement) and continue Employee as a
participant in all compensation, benefit and insurance plans in which Employee
was participating when the notice giving rise to the dispute was given, until
the dispute is finally resolved, except that no such continuation of
compensation or benefits shall apply if Employee is terminated for cause under
Section 7.1 hereof. Amounts paid under this Section are in addition to all
other amounts due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement. Judgment may be entered on
the arbitrator's award in any court of competent jurisdiction.
15. Estate Benefit.
Any monetary payment or benefit to be funded by the payment of
money required to be paid to Employee upon a termination of Employee's
employment under Sections 7 and 10 of this Agreement shall be paid to the
estate or legal representative of Employee if he is deceased.
16. Regulators' Termination.
16.1 All obligations under this Agreement may be
terminated, except to the extent determined that the continuation of the
Agreement is necessary for the continued operation of the Savings Bank: (a) by
the Director of the Office of Thrift supervision or his or her designee
("Director"), at the time the Federal Deposit Insurance Corporation or
Resolution Trust Corporation enters into an agreement to provide assistance to
or
7
<PAGE> 60
on behalf of the Savings Bank under the authority contained in Section 13(c) of
the Federal Deposit Insurance Act; or (b) by the Director at the time such
Director approves a supervisory merger to resolve problems related to operation
of the Association or when the Association is determined by such Director to be
in an unsafe and unsound condition. Any rights of the parties that have
already vested, however, shall not be affected by any such action.
16.2 If the Savings Bank is in default (as defined in
Section 3(x)(1) of the Federal Deposit Insurance Act), all obligations under
this Agreement shall terminate as of the date of default, provided, however,
that any vested rights of the parties shall not be affected by such default.
16.3 The provisions of Sections 7 and 10 hereof shall be
suspended in the event the Savings Bank, at the time payments under such
sections are to be made or as a result of such payments, would fail to meet any
of its capital requirements under the provisions of 12 C.F.R. Part 567;
provided, however, that any vested rights of the parties to this Agreement
shall not be affected by such failure. All suspended obligations and payments
shall be automatically reinstated once capital compliance is achieved.
17. General Provisions.
17.1 This Agreement constitutes the entire agreement among
the parties with respect to the subject matter hereof, and supersedes and
replaces all prior agreements among or between the parties with the exception
of any agreement between the Savings Bank and Employee relating to the payment
of deferred compensation. No amendment, waiver or termination of any of the
provisions hereof shall be effective unless in writing and signed by the party
against whom it is sought to be enforced. Any written amendment, waiver or
termination hereof executed by the Savings Bank and Employee (or his estate)
shall be binding upon them and upon all other Persons, without the necessity of
securing the consent of any other Person, and no Person shall be deemed to be a
third-party beneficiary under this Agreement.
17.2 "Person" as used in this Agreement means a natural
person, joint venture, corporation, sole proprietorship, trust, estate,
partnership, cooperative, association, non-profit organization or any other
legally cognizable entity.
17.3 This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
8
<PAGE> 61
17.4 Except as otherwise expressly set forth herein, no
failure on the part of any party hereto to exercise and no delay in exercising
any right, power or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy.
17.5 The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall in no way restrict or
modify any of the terms or provisions hereof.
17.6 This Agreement shall be governed and construed and
the legal relationships of the parties determined in accordance with the laws
of the State of Michigan applicable to contracts executed and to be performed
solely in the State of Michigan.
17.7 The parties hereto acknowledge that this Agreement
was drafted by the law firm of Manatt, Phelps, Phillips & Kantor, counsel
solely to the Savings Bank. Employee acknowledges that he is sophisticated in
business matters (including, but not limited to, employment agreements) and
that he has had the opportunity to seek independent legal advice. Employee
specifically waives any actual or apparent conflict of interest of Manatt,
Phelps, Phillips & Kantor in connection with the preparation and negotiation of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first stated above.
MACOMB FEDERAL SAVINGS BANK
ATTEST:
Lenore Burgess By: Esther Mason
- ----------------- -----------------------------
LENORE BURGESS Name: ESTHER MASON
Title: EXECUTIVE V.P. & TREASURER
Stanley A. Jacobson
-----------------------------
STANLEY A. JACOBSON
<PAGE> 62
EXHIBIT 10.2
EMPLOYMENT AGREEMENT WITH JEFFREY I. KOPELMAN
<PAGE> 63
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 1st day of September, 1995 (the "Agreement"),
by and between Macomb Federal Savings Bank, a federally chartered stock savings
bank (the "Savings Bank"), and Jeffrey I. Kopelman ("Employee").
BACKGROUND
Employee is currently employed by Savings Bank under an Agreement dated
December 31, 1993, which will be superseded by this Agreement. The Savings
Bank Board wishes to continue Employee's services for a minimum of Two (2)
years from the Effective Date (as defined herein) of this Agreement and to
continue to provide supplemental benefits to Employee should his employment
with the Savings Bank terminate or should he die or become disabled prior to
the expiration of this Agreement or any extensions thereof.
In consideration of the mutual covenants and agreements herein
contained, and intending to be legally bound hereby, the parties agree as
follows:
1. TERM OF EMPLOYMENT
The term of the Employee's employment shall continue for a period
beginning on the date of this Agreement ("Effective Date") and ending on the
31st day of August, 1997 (the "Term"). At each anniversary of the Effective
Date, each such Term may be renewed in its entirety by mutual consent in
writing (a copy of which is to be appended hereto) of the Employee and the
Savings Bank. Such consent is conditioned upon an annual review of this
Agreement by the Savings Bank Board and the Employee.
2. EMPLOYMENT AND SERVICES
The Savings Bank agrees to employ Employee during the Term of his
employment as Executive Vice-President and Chief Operating Officer of the
Savings Bank. Employee will be responsible for day to day operations of the
affairs of the Savings Bank, including oversight of the loans and investments
made by the Savings Bank, and shall report to the President and Chief Executive
Officer of Savings Bank on the affairs of the Savings Bank at such times and as
directed by the President. Employee shall supervise all personnel of the
Savings Bank and consult with the President regularly with respect to the day
to day operations of the Savings Bank. The Employee shall devote his full time
and attention to the
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<PAGE> 64
business and affairs of the Savings Bank and to use his best efforts to promote
the interests of the Savings Bank.
At the direction of the Board of Directors of the Savings Bank employee
shall serve on such committees of the Board as shall be designated from time to
time, but without additional compensation.
3. PLACE AND PERFORMANCE
Employee shall be furnished with a private office, stenographic and
other necessary secretarial assistance, and with such other facilities,
amenities and services as are, in the reasonable judgment of Employer,
appropriate for Employee's position and adequate for the performance of his
duties hereunder at the principal executive offices of the Savings Bank
currently located in St. Clair Shores, Macomb County, Michigan.
4. COMPENSATION
As, and for, compensation for the faithful performance of the duties
imposed and undertaken hereby:
4.1 The Savings bank shall pay Employee for the services to be
rendered by him during the term of his employment an annual salary of
$75,000.00 per year payable at regular intervals in accordance with the Savings
Bank's normal payroll practices as it may be determined from time to time. For
purposes of this Agreement, except as otherwise stated, a "year" shall be
deemed to commence on September 1st of each year; compensation for a portion of
a year shall be prorated.
4.2 Employee shall attend, at the direction of the President those
professional meetings, conventions, or similar functions that the President
deems appropriate and useful for purposes of keeping abreast of current
developments in the industry and/or promoting the interests of the Savings
Bank.
4.3 The Savings Bank will during the Term of his employment,
reimburse Employee for all expenses incurred by him which are reasonably
necessary (in accordance with its normal reimbursement practices now or
hereafter in effect) for Employee to carry out his duties under this Agreement.
4.4 In addition to salary employee shall be allowed reimbursement
for his private health and accident insurance coverage in the maximum sum of
$4,800.00 per year in equal monthly installments; and, an allowance for
automobile expense
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<PAGE> 65
which includes insurance, maintenance and ownership or lease costs, the sum of
$6,000.00 per year.
4.5 Notwithstanding the foregoing, the Savings Bank agrees that in
the event the combined total contribution credited to employee's accounts in
the Savings Bank ESOP at fiscal year end 1995 is not equal to $10,000.00, the
Savings Bank will increase the bonus provisions described in paragraph 4.6 by
direct payment to Employee of the difference between the actual combined total
contribution and the aforesaid sums prior to the calendar year end.
4.6 Employee shall be entitled to an annual bonus in addition to
any other compensation provided, payable at calendar year end in a sum equal to
3 weeks salary, excepting, that in the event that this Agreement is not renewed
Employee shall be entitled to payment of the bonus on August 31, 1997.
5. PLANS AND FRINGE BENEFITS
During the Tenn of his employment, Employee shall be entitled (a) to
participate in any incentive compensation programs, retirement plans, stock
option plans and stock purchase plans, now or hereafter in effect, which are
generally made available from time to time to employees of the Savings Bank,
and (b) to such other fringe benefits as the Savings Bank Board shall deem
appropriate.
6. VACATIONS AND SICK LEAVE
Employee shall be entitled to three (3) weeks vacation each calendar
year with full compensation. Reasonable time off for illness and sick leave
shall be allowed.
7. DISABILITY BENEFITS
If Employee becomes permanently disabled during the Term of his
employment and consequently cannot perform his duties under this Agreement, the
Savings Bank nevertheless shall continue to compensate him under Sections 4 and
5 of this Agreement for two (2) years following disability or the remaining
Term of this Agreement, whichever is the least. For purposes of this Agreement
"disabled:" shall mean any incapacity of Employee resulting from sickness or
accidental bodily injury that (a) prevents Employee from performing the
essential duties of his occupation with the Savings Bank and (b) requires
regular care and treatment by a physician.
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<PAGE> 66
8. Termination by the Savings Bank
8.1 The Savings Bank shall have the right to terminate Employee's
employment hereunder for cause. The term "cause", as used herein, shall
refer only to the following events.
(i) personal dishonesty, incompetence or willful misconduct;
(ii) breach of fiduciary duty involving personal profit;
(iii) intentional failure to perform stated duties;
(iv) willful violation of any law, rule or regulation (other than
traffic violations or similar offenses);
(v) violation, of any kind, of a final cease and desist order; and,
(vi) material breach of any provision of this Agreement.
If the Savings Bank exercises its right under this Section 8.1,
Employees right to receive compensation and benefits under this Agreement shall
terminate immediately upon the effective date of the termination for cause,
except that any vested rights of Employee shall not be affected.
8.2 The substantial reduction in the duties or responsibilities of
Employee shall be deemed to be termination without cause under this Agreement.
9. SUPERVISORY SUSPENSION
If Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
18181(e)(3) and (g)(1), the Savings Bank's obligations under this Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings, or, unless the Savings Bank is otherwise permitted by the notice
to continue payment under the contract. If the charges in the notice are
dismissed, the Savings Bank may in its discretion (i) pay Employee all or part
of the compensation withheld while its obligations under this Agreement were
suspended and (ii) reinstate (in whole or in part) any of its obligation which
were suspended.
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<PAGE> 67
10. SUPERVISORY REMOVAL
If Employee is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12
U.S.C. 1818(e)(4) and (8)(1), all obligations of the Savings Bank under this
Agreement shall terminate as of the effective date of this order, but vested
rights of the parties to the Agreement shall not be affected.
11. CHANGE IN OWNERSHIP OR CONTROL OF THE SAVINGS BANK
In the event that (a) there is a "change in ownership or control" of the
Savings Bank or a substantial portion of the Savings Bank's respective assets
and (b) any of the events referred to in Section 8.2 hereof occurs, subsequent
to the date of this Agreement, Employee shall have the right to terminate his
Employment with the Savings Bank upon five (5) days written notice to the
Savings Bank Board, such notice to be delivered to the Savings Bank Board
within one hundred eighty (180) days of the date upon which such "change in
ownership or control" is deemed to have occurred. For purposes of this
Agreement a "change in ownership or control" has the same meaning as in Section
280G(b)(2)(A)(i)(1) and (11) of the Internal Revenue Code, as amended (The
"Code"). If Employee terminates his employment under such circumstances he
shall be entitled to payment of the remainder of his total compensation due by
virtue of this agreement or a minimum sum equal to one years compensation.
Such sum shall be paid in a single payment 20 days from the termination date of
employment.
12. WAIVERS NOT TO BE CONTINUED
Any waiver by a party of any breach of this Agreement by another party
shall not be construed as a continuing waiver or as a consent to any subsequent
breach by the other party.
13. NOTICES
All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed, certified or registered mail, return receipt requested, with
postage prepaid, to the following addresses or to such other addresses, as
either party may designate by like notice.
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<PAGE> 68
A. If to the Bank to:
Macomb Federal Savings Bank
23505 Greater Mack Ave.
St. Clair Shores, MI 48080
Attn: Mr. Mark T. Jacobson, Chairman
B. If to Employee to:
Jeffrey I. Kopelman
30895 Oakleaf Lane
Franklin, MI 48025
C. With a copy in each case to:
James H. Hudnut, Esq.
3250 W. Big Beaver Road
Suite 124
Troy, MI 48084
and
Stanley A. Jacobson
903 S. Woodward Ave.
Royal Oak, MI 48067
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
14. UNAUTHORIZED DISCLOSURE
During the period of his employment hereunder, Employee shall not,
except as required by any court, supervisory authority or administrative
agency, without the written consent of the Savings Bank Board or a person
authorized thereby, disclose to any person, other than an employee or director
of the Savings Bank or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by Employee of his duties as an
executive of the Savings Bank, any confidential information obtained by him
while in the employ of the Savings Bank; provided, however, that confidential
information shall not include any information concerning the Savings Bank known
generally to the public, or
6
<PAGE> 69
not specifically, or impliedly, related to the Savings Bank affairs, (other
than as a result of unauthorized disclosure by the Employee). For the period
ending two (2) years following the termination of Employment hereunder,
Employee shall not disclose any confidential information of the type described
above except as required by any court, supervisory authority or administrative
agency.
15. ARBITRATION
Any dispute or controversy arising or in connection with this Agreement
shall be settled exclusively by arbitration in the State of Michigan in
accordance with the Commercial Rules of the American Arbitration Association
then in effect. In any such arbitration proceeding, rules of discovery allowed
by Michigan Court Rules, which may be modified by the Arbitrator, shall be
available. Notwithstanding the pendency of any such dispute or controversy,
the Savings Bank will continue to pay Employee's full compensation in effect
when the Notice giving rise to the dispute was given, (including but not
limited to, base salary and installments under this Agreement) so long as the
Term of this Agreement remains unperformed and continue Employee as a
participant in all compensation, benefit and insurance plans in which Employee
was participating when the notice giving rise to the dispute was given, until
the dispute is finally resolved, except that no such continuation of
compensation or benefits shall apply if Employee is terminated for cause under
Section 8.1 hereof. Amounts paid under this Section are in addition to any
other amounts due under this Agreement. Judgment may be entered on
Arbitrator's award in any court of competent jurisdiction.
16. ESTATE BENEFIT
Any monetary payment or benefit to be funded by the payment of money
required to be paid to Employee upon a termination of Employee's employment
under Section 8 and II of this Agreement shall be paid to the estate or legal
representative of Employee if he is deceased.
17. REGULATOR'S TERMINATION
17.1 All obligations under this Agreement may be terminated, except
to the extent determined that the continuation of the Agreement is necessary
for the continued operation of the Savings Bank; (a) buy the Director of the
Office of Thrift Supervision or his or her designee ("Director"), at the time
the Federal Deposit Insurance Corporation or Resolution Trust Corporation
enters into an agreement to provide assistance to or on behalf of the Savings
Bank under the authority contained in Section 13(c) of the Federal Deposit
Insurance Act; or, (b) by the Director at the time such Director approves a
supervisory merger to resolve
7
<PAGE> 70
problems related to operation of the Savings Bank or when the Savings Bank is
determined by such Director to be in an unsafe and unsound condition. Any
rights or the parties that have already vested, however, shall not be affected
by any such action.
17.2 If the Savings Bank is in default (as defined in Section
3(x)(1) of the Federal Deposit Insurance Act) all obligations under this
Agreement shall terminate as of the date of default, provided, however, that
any vested rights of the parties shall not be affected by such default.
17.3 The provisions of Section 8 and 11 hereof shall be suspended
in the event the Savings bank at the time such payments under such sections are
to be made or as a result of such payments, would fail to meet any of its
capital requirements under the provision of 12 C.F.R. Part 567; provided,
however, that any vested rights of the parties to this Agreement shall not be
affected by such failure. All suspended obligations and payments shall be
automatically reinstated once capital compliance is achieved.
18. GENERAL PROVISIONS
18.1 This Agreement constitutes the entire Agreement among the
parties with respect to the subject matter hereof, and supersedes and replaces
all prior agreements among or between the parties with the exception of any
agreement between the Savings Bank and Employee relating to the payment of
deferred compensation. No amendment, waiver or termination of any of the
provisions hereof shall be effective unless in writing and signed by the party
against whom it is sought to be enforced. Any written amendment, waiver or
termination hereof executed by Savings Bank and Employee (or his estate,) shall
be binding upon them and upon all other Persons, without the necessity of
securing the consent of any other Person, and no Person shall be deemed to be a
third party beneficiary under this Agreement.
18.2 "Person" as used in this Agreement means a natural person,
joint venture, corporation, sole proprietorship, trust, estate, partnership,
cooperative, association, non-profit organization or any other legally
cognizable entity.
18.3 This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which taken together
constitutes one and the same Agreement.
18.4 Except as otherwise expressly set forth herein, no failure on
the part of any party hereto to exercise and no delay in exercising any right,
power or remedy
8
<PAGE> 71
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or remedy hereunder preclude any other or,
further, exercise thereof, or the exercise of any other right, power of remedy.
18.5 The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall in no way restrict or
modify any of the terms or provisions hereof.
18.6 The Agreement shall be governed and construed and the legal
relationships of the parties determined accordance with the laws of the State
of Michigan applicable to contracts executed and to be performed solely in the
State of Michigan. However, in the event any provision of this Agreement
violates any mandatory provision of any statute, law or regulation applicable
to the Bank such mandatory provision shall govern the rights and obligations of
the parties.
18.7 The parties hereto acknowledge that this Agreement was drafted
by the law firm of James H. Hudnut, P.C. counsel solely to the Savings bank.
Employee acknowledges that he is sophisticated in business matters (including,
but not limited to, Employment Agreements) and that he has had the opportunity
to seek independent legal advice. Employee specifically waives any actual or
apparent conflict of interest with the law firm of James H. Hudnut, P.C. in
connection with the preparation and negotiation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first stated above.
WITNESS: MACOMB FEDERAL SAVINGS BANK
Esther Mason BY: James H. Hudnut, Secretary
- --------------------------- --------------------------------
JAMES H. HUDNUT, SECRETARY
Patricia M. Degruck Jeffrey I. Kopelman
- --------------------------- --------------------------------
JEFFREY I. KOPELMAN
9
<PAGE> 72
EXHIBIT 13
1995 ANNUAL REPORT TO SHAREHOLDERS
<PAGE> 73
MACOMB FEDERAL SAVINGS BANK
1995 ANNUAL REPORT
23505 GREATER MACK AVENUE
ST. CLAIR SHORES, MICHIGAN 48080
<PAGE> 74
MACOMB FEDERAL SAVINGS BANK
<TABLE>
<CAPTION>
CONTENTS ANNUAL MEETING
<S> <C>
Corporate Information............1 The Annual Meeting of Shareholders of
Selected Financial Data..........3 Macomb Federal Savings Bank will be
Letter to Shareholders...........5 held October 26, 1995 at 4:00 p.m., at
Management's Discussion and the Bank's office, 23505 Greater Mack
Analysis of Financial Condition Avenue, St. Clair Shores, Michigan 48080
and Results of Operations......6
Independent Auditor's Report....23
Financial Statements............24
</TABLE>
________________________________________________________________________
CORPORATE PROFILE
Macomb Federal Savings Bank (the "Bank") operates as a federally chartered
stock savings bank. It began operations in 1956 as a state chartered mutual
savings and loan association and converted to a federal stock savings bank in
August 1992. The Bank is a member of the Federal Home Loan Bank System and its
deposits are insured by the Federal Deposit Insurance Corporation.
The Bank is a community-oriented institution offering a select range of
consumer financial services, including savings accounts and certificates,
residential real estate loans and consumer loans secured by deposits. The Bank
concentrates its business activities in Macomb, Wayne and Oakland Counties,
Michigan.
CONVERSION SUMMARY
The Bank completed its conversion on August 13, 1992, with the sale of 186,604
shares of common stock at a price of $10.00 per share. Net proceeds totaled
$1,610,452.
As of September 15, 1995, there were 48 stockholders of record. The Bank's
stock is traded over-the-counter, although there is no established public
trading market for the stock.
________________________________________________________________________
CORPORATE INFORMATION
Form 10-K-Report
A copy of the Bank's Form 10-K for the year ended June 30, 1995, as filed with
the Office of Thrift Supervision, will be furnished without charge to
shareholders of the Bank upon written request to the Bank's Secretary, Macomb
Federal Savings Bank, 23505 Greater Mack Avenue, St. Clair Shores, Michigan
48080-1997.
Independent Auditors
Kelman, Rosenbaum, Rollins & Quayhackx, P.C.
30230 Orchard Lake Road, Suite 200
Farmington Hills, Michigan 48334-2269
1
<PAGE> 75
Legal Counsel
James H. Hudnut
3250 West Big Beaver, Suite #124
Troy, Michigan 48084-2902
Stock Transfer Agent
Macomb Federal Savings Bank
23505 Greater Mack Avenue
St. Clair Shores, Michigan 48080-1997
Executive Officers
Stanley A. Jacobson, President and Chief Executive Officer
Esther Mason, Executive Vice President, Treasurer and Chief Financial Officer
Jeffrey I. Kopelman, Executive Vice President and Chief Operating Officer
Board of Directors
Mark T. Jacobson, Chairman of the Board
President of Mark Jacobson & Associates
Stanley A. Jacobson
President and Chief Executive Officer of Macomb Federal Savings Bank
Dr. Paul E. Andrews
Former Executive Director of the Wayne State University Alumni Association,
currently retired
Jon M. Fox
Partner in Woodward Financial Group, Inc.
James H. Hudnut
Attorney and Secretary of Macomb Federal Savings Bank
Esther Mason
Executive Vice President, Treasurer and Chief Financial Officer of
Macomb Federal Savings Bank
Steven E. Zack
Independent Insurance Agent
2
<PAGE> 76
SELECTED FINANCIAL DATA OF THE BANK
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...... $39,084,300 $39,964,408 $40,299,275 $39,593,160 $41,876,070
Loans receivable,
net.............. 16,712,966 20,222,361 17,256,933 20,604,942 21,270,129
Certificates of
deposit.......... 20,224,455 8,377,078 1,276,798 495,000 2,550,000
Interest bearing
deposits in FHLB
of Indianapolis(1) 600,629 6,013,993 14,236,016 8,037,457 2,128,526
Investment
Securities (2).... 183,759 195,159 204,159 206,059 451,043
Deposits (3)....... 34,840,243 35,063,304 33,538,648 32,438,750 34,256,150
Retained earnings
substantially
restricted........ 3,174,319 3,463,094 3,738,248 4,103,328 4,403,330
</TABLE>
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income.... $3,259,858 $3,105,356 $2,671,692 $2,385,882 $2,695,728
Interest expense... 2,415,798 1,989,941 1,505,763 1,263,522 1,539,422
---------- ---------- ---------- --------- ---------
Net interest
income............ $ 844,060 $1,115,415 $1,165,929 $1,122,360 $1,156,306
Provision (reduction)
for losses on loans 18,709 121,291 0 0 0
--------- ---------- ---------- -------- --------
Net interest income
after provision
(reduction) for
losses on loans... $ 825,351 $ 994,124 $1,165,929 $1,122,360 $1,156,306
Other income 35,728 35,159 31,282 26,513 24,209
Other expenses...... 538,849 604,888 812,571 663,885 762,025
--------- --------- ---------- -------- ---------
Income (loss) before
provision for
federal income tax. $ 322,230 $ 424,395 $ 384,640 $ 484,988 $ 418,490
Provision for federal
income tax, current
(benefit).......... 134,777 135,620 109,486 119,908 118,488
-------- -------- ------- -------- ---------
Net income (loss)... $ 187,453 $ 288,775 $ 275,154 $ 365,080 $ 300,002
======== ======== ======= ======= =========
</TABLE>
3
<PAGE> 77
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Average yield on all
interest-earning
assets................ 8.82% 7.55% 6.87% 6.30% 6.99%
Average cost of all
interest-bearing
liabilities........... 7.15% 5.02% 4.50% 3.89% 4.57%
----- ----- ----- ----- -----
Interest rate spread.... 1.67% 2.53% 2.37% 2.41% 2.42%
----- ----- ----- ----- -----
Retained earnings
as a percent of
assets................ 8.12% 8.67% 9.28% 10.36% 10.88%
Number of full
service banking
offices............... 1 1 1 1 1
Return on assets (net
income divided by
average total
assets (4)............ .49% .73% .69% .91% .74%
Return on equity (net
income divided by
average total
equity (4)............ 6.1% 8.7% 7.6% 9.3% 6.8%
Equity-to-assets ratio
(average total equity
divided by average
total assets) (4)..... 8.1% 8.4% 9.0% 9.8% 10.8%
</TABLE>
- --------------------------
(1) Included under "Cash" on the Bank's Balance Sheet.
(2) Comprised of investments required by law. See "Business of the Bank -
Investment Activities".
(3) Includes accrued interest payable on deposits.
(4) Return on assets and equity have been computed on an annualized
basis.
<PAGE> 78
Dear Shareholder:
I am pleased to report to you that Macomb Federal Savings Bank earned slightly
more than $300,000 for the year ended June 30, 1995. It is the second
consecutive year that profits have exceeded $300,000.
Macomb continues to concentrate on purchasing home mortgages and acceptance of
retail savings deposits in our local community. Our business plan emphasizes a
similar strategy for the coming year.
The Bank is classified as well-capitalized and continues to exceed all three
separate capital requirements. Our credit quality remains excellent.
We remain optimistic that Macomb Federal will have another profitable year.
However, we are mindful of the federal government's existing budget deficit and
the still uncertain outlook for interest rates.
We would like to take this opportunity to thank our shareholders, customers and
employees for their loyalty, confidence and support.
Sincerely,
Mark T. Jacobson
Mark T. Jacobson
Chairman of the Board
5
<PAGE> 79
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the interest earned on its loan and
investment portfolios and its cost of funds, consisting of the interest paid on
its deposits. Operating results are also affected to a lesser extent by the
type of lending, fixed rate versus adjustable or short-term, each of which has
a different rate and fee structure. The Bank's operating expenses principally
consist of employee compensation, occupancy expenses, federal insurance
premiums and other general and administrative expenses. The Bank's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and actions of regulatory authorities.
Management Strategy
The Bank has historically focused its lending activities on traditional
single family residential loans. Because of this focus, and as a result of its
relatively conservative underwriting standards, the Bank has historically
experienced minimal losses on its loans. This lack of diversification in its
asset structure does, however, increase the Bank's portfolio concentration risk
by making the value of the portfolio more susceptible when declines in real
estate values occur in its market area.
Management's strategy has been to maintain profitability and a strong
capital position by growing at a rate that does not exceed its ability to
generate earnings. Although capital does not eliminate the exposure of the
Bank's net interest income to fluctuations in interest rates, it does allow the
Bank greater protection and flexibility when net interest income decreases as a
result of increases in the cost of funds. This strategy has been accomplished
by (i) maintaining a high asset quality, (ii) maintaining a higher level of
interest-earning assets than interest-bearing liabilities, (iii) purchasing
single family residential mortgage loans at competitive rates, either fixed or
adjustable in order to maintain controlled growth, (iv) managing deposit rates
and maintaining a strong deposit base by providing convenient and quality
service, and (v) controlling operating expenses. Since 1984, the Bank has also
sought to reduce its vulnerability to interest rate risk by purchasing ARM
loans and maintaining investments with maturities generally less than five
years. Management intends to continue its conservative lending policies while
strengthening the Bank's position within its community.
Consistent with management's strategy discussed above, the Bank
concentrates its lending activities on purchasing, rather than
6
<PAGE> 80
originating mortgage loans. The size of the Bank, the small number of employees
(five full-time and two part-time employees) and the cost of establishing an
origination department have created a situation in which the purchase of
mortgage loans is more economically advantageous to the Bank than the
origination of such loans. Because of the lower cost to the Bank of purchasing
rather than originating loans, the Bank is better able to generate earnings
from its lending activities.
The Bank maintains a policy of having a high level of liquidity. As a
result, 31.79% of the Bank's assets were invested in mortgage-backed securities
and United States Treasury obligations at June 30, 1995.
Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and
by monitoring an institution's interest rate sensitivity "gap". An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets anticipated, based upon certain assumptions, to mature
or reprice within a specific time period and the amount of interest-bearing
liabilities anticipated, based upon certain assumptions, to mature or reprice
within that time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to
adversely affect net interest income while a positive gap would tend to result
in an increase in net interest income. During a period of falling interest
rates, a negative gap would tend to result in an increase in net interest
income while a positive gap would tend to adversely affect net interest income.
The Bank has taken steps to reduce or control its gap by maintaining
investments with short terms to maturity and by emphasizing loans that mature
or reprice more rapidly while preserving higher yields, such as shorter term
mortgage loans. At June 30, 1995, total interest-bearing liabilities maturing
or repricing within one year exceeded total interest-earning assets maturing or
repricing in the same time period by $9.7 million, representing a negative
cumulative one-year gap ratio of 23.2%. Thus, during periods of rising
interest rates, it is expected that the cost of the Bank's interest-bearing
liabilities would rise more quickly than the yield on its interest-earning
assets, which would adversely affect net interest income. In periods of
falling interest rates, the opposite effect on net interest income is
7
<PAGE> 81
expected. In periods of substantial interest rate declines, the Bank could
experience increased prepayments of its fixed-rate mortgage loans which may
result in the reinvestment of such proceeds at market rates which are lower
than current rates. The risk of repayment is reduced by the level of
short-term, fixed-rate mortgages originated and purchased by the Bank. Of all
mortgage loans at June 30, 1995, 82.07% are either ARMs or fixed-rate mortgages
with a remaining term of 15 years or less. In addition, management of the
Bank believes that, given the high level of capital of the Bank and the excess
of interest-earning assets over interest-bearing liabilities, the increased net
income resulting from a mismatch in the maturity of its asset and liability
portfolios provides sufficient returns during periods of declining or stable
interest rates to justify the increased vulnerability to sudden and unexpected
increases in interest rates. Nonetheless, the Bank closely monitors its
interest rate risk as such risk relates to management's strategy.
The following table sets forth the amounts of interest-earnings assets and
interest-bearing liabilities outstanding at June 30, 1995, which are
anticipated by the Bank, based upon certain assumptions, to reprice or mature
in each of the future time periods shown. Except as stated below, the amount
of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the contractual terms of the asset or
liability. Loans that have adjustable interest rates are shown as being due in
the period during which the interest rates are next subject to change.
Prepayment assumptions are made to indicate the rate at which the loan will
repay in excess of its scheduled amortization. Adjustable rate single-family
residential loans are expected to prepay at an annual rate of 22.00%. Fixed
rate single-family residential mortgage loans maturing within 5 years are
expected to prepay at an annual rate of 8.76%.
8
<PAGE> 82
<TABLE>
<CAPTION>
At June 30, 1995
------------------------------------------------------------------
More than More than More than
one year three years five years
1-180 181-365 to three to five to ten
Days Days years years years
----- ------- -------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-sensitive assets:
- --------------------------
Adjustable rate loans (net).......... $ 1,796 $1,919 $ 0 $ 0 $ 0
Fixed rate loans (net)............... 0 5 51 77 6,446
Investment securities(1)............. 451 0 0 0 0
Mortgage-backed securities........... 0 0 0 4,480 0
U.S. Treasury Bills.................. 6,765 1,871 0 0 0
Consumer and other loans(2).......... 64 0 0 0 0
Other interest-sensitive assets(3)... 4,455 493 99 0 0
------ ------ --- ----- ----
Total interest sensitive assets.... $13,531 $4,288 $ 150 $4,557 $ 6,446
------- ------ ------- ------ --------
Non-interest sensitive assets......
Total assets.......................
Interest-sensitive liabilities:
Certificates of deposit(4)........... $15,781 $6,188 $ 5,375 $1,174 $ 170
Passbook accounts(4)................. 4,615 0 0 0 0
Money Market accounts(4)............. 906 0 0 0 0
ESOP borrowing....................... 18 18 45 0 0
------- ------ ------ ------ ------
Total interest-sensitive
liabilities....................... $21,320 $6,206 $ 5,420 $1,174 $ 170
------- ------ ------- ------ -------
Non-interest sensitive
Liabilities........................
Total liabilities..................
Shareholders' equity.................
Total liabilities and
Shareholders' equity...............
Excess (deficiency) of rate
sensitive assets over rate
sensitive liabilities.............. $(7,789) $(1,918) $(5,270) $3,383 $ 6,276
======= ======= ======= ====== ========
Cumulative excess (deficiency)
of rate sensitive assets
over rate sensitive
liabilities........................ $(7,789) $( 9,707) $(14,977) $(11,594) $ (5,318)
-------- --------- --------- --------- ---------
Ratio of cumulative excess
to total assets.................... (18.6)% (23.2)% (35.8)% (27.7)% (12.7)%
<CAPTION>
At June 30, 1995
--------------------------------
More than
ten years Over
to twenty twenty
years years Total
---------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C>
Interest-sensitive assets:
- --------------------------
Adjustable rate loans (net).......... $ 0 $ 0 $ 3,715
Fixed rate loans (net)............... 9,428 1,812 17,819
Investment securities(1)............. 0 0 451
Mortgage-backed securities........... 0 0 4,480
U.S. Treasury Bills.................. 0 0 8,636
Consumer and other loans(2).......... 0 0 64
Other interest-sensitive assets(3)... 0 0 5,047
------ ---- -------
Total interest sensitive assets.... $ 9,428 $1,812 $40,212
------- ------ -------
Non-interest sensitive assets...... 1,664
-------
Total assets....................... $41,876
=======
Interest-sensitive liabilities:
Certificates of deposit(4)........... $ 0 $ 0 $28,688
Passbook accounts(4)................. 0 0 4,615
Money Market accounts(4)............. 0 0 906
ESOP borrowing....................... 0 0 81
------- ----- -------
Total interest-sensitive
liabilities....................... $ 0 $ 0 $34,290
------- ----- -------
Non-interest sensitive
Liabilities........................ 1,496
------
Total liabilities.................. $35,786
Shareholders' equity................. 6,090
------
Total liabilities and
Shareholders' equity............... $41,876
=======
Excess (deficiency) of rate
sensitive assets over rate
sensitive liabilities.............. $9,428 $1,812 $ 5,922
====== ====== =======
Cumulative excess (deficiency)
of rate sensitive assets
over rate sensitive
liabilities........................ $4,110 $5,922 $ 5,922
------ ------ =======
Ratio of cumulative excess
to total assets.................... 9.8% 14.1% 14.1%
</TABLE>
- ------------------------------------------
(1) Includes investments required by law.
(2) Consumer loans are based on contractual maturities.
(3) Includes certificates of deposit, time deposits and other interest-earning
deposit accounts.
(4) Certificate accounts are based on contractual maturities. Passbook and
money market accounts are all assumed to be completely interest-rate
sensitive.
9
<PAGE> 83
Fixed-rate, single-family mortgage loans with maturities of greater than 5
years are assumed to prepay at varying rates depending on the contractual rate
of the loan as follows:
<TABLE>
<CAPTION>
Annual
Loan Rate Prepayment Rate
--------- ---------------
<S> <C>
Less than 8.00%................. 8.76%
8.00% to 8.99% ................. 10.14%
9.00% to 9.99% ................. 16.56%
10.00% to 10.99%................ 25.86%
11.00% or more ................. 38.04%
</TABLE>
Decay rates are assumed to indicate the annual rate at which an
interest-bearing liability will be withdrawn in favor of an account with a more
favorable interest rate. Decay rates have been assumed for passbook and money
market accounts. The decay rates assumed in this evaluation are as follows:
<TABLE>
<CAPTION>
Annual Percentage Rates
--------------------------------------------------------
Less
than 1 to 3 3 to 5 5 to 10 10 to 20
1 year years years years years
------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C>
Passbook...... 5.66% 25.82% 16.83% 21.37% 14.78%
Money Market.. 26.33% 11.00% 6.24% 4.01% 0.72%
</TABLE>
The above prepayment and decay rates are the latest national
assumptions published by the OTS as of June, 1995. The assumptions used at the
dates indicated, although standardized, may not be indicative of actual
prepayments and withdrawals experienced by the Bank.
Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in
different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates. Additionally, certain assets, such as ARM
loans, have features which restrict changes in interest rates on a short-term
basis and over the life of the asset. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Finally, the
ability of many borrowers to service their debt may decrease in the event of an
interest rate increase.
10
<PAGE> 84
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.
Average Balance Sheet
The following table sets forth certain information relating to the Bank's
statement of financial condition at June 30, 1995, and statements of financial
condition and the statements of shareholders' equity averaged for the years
ended June 30, 1993, 1994, and 1995, and reflects the average yield on assets
and average cost of liabilities for the periods indicated. Such yields and
costs are derived by dividing income or expense by the average balance of
assets or liabilities, respectively, for the periods shown. Yields and costs
at June 30, 1995, are the nominal weighted average yields and costs. Average
balances are derived from average monthly balances. The average balance of
loans receivable includes loans on which the Bank has discontinued accruing
interest. Total interest-earning assets are net of discounts and premiums and
accrued interest payable, which are non-interest-bearing. The yields and costs
include fees which are considered adjustments to yields.
11
<PAGE> 85
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------------
1993 1994
--------------------------------- ---------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
-------- -------- ---- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest earnings assets:
Mortgage Loans and
other Loans receivable... $19,075,930 $1,757,708 9.21% $19,335,098 $1,607,010 8.31%
Investment securities........ 198,159 22,283 11.25 204,159 14,537 7.12
Mortgage-backed securities... 6,460,398 303,037 4.69 4,815,547 285,560 5.93
Other Investments............ 13,684,637 588,664 4.30 13,270,206 478,775 3.61
----------- ---------- ------ ---------- --------- -----
Total interest
earning assets............. $39,419,124 $2,671,692 6.78 $37,625,010 $2,385,882 6.34
----------- ---------- ------ ----------- ---------- -----
Interest Bearing liabilities:
Deposits................... $34,631,613 $1,501,668 4.34 $32,785,587 $1,260,428 3.84
FHLB advances and ESOP Loan.. 153,750 11,450 7.45 130,500 9,766 7.48
----------- ---------- ------ ---------- --------- ----
Total interest bearing
liabilities................ $34,785,363 $1,513,118 4.35 $32,916,087 $1,270,194 3.86
----------- ---------- ------ ----------- ---------- ----
Net interest income (loss)/
interest rate spread....... $1,158,574 2.43% $1,115,688 2.48%
========== ===== ========== ====
Net interest earning
assets/net yield on
interest earning assets.... $ 4,633,761 $ 314,170 6.78% $4,708,923 $ 298,545 6.34%
=========== ========== ===== ========== ========== ====
Ratio of interest earning
assets to interest
bearing liabilities........ 113.3% 176.6% 155.9% 114.3% 187.8% 164.2%
====== ====== ====== ====== ====== ======
<CAPTION>
Year Ended June 30,
------------------------------------
1995
------------------------------------
Average
Balance Interest Rate
------- -------- -----
<S> <C> <C> <C>
Interest earnings assets:
Mortgage Loans and
other Loans receivable... $20,845,686 $1,691,122 8.11%
Investment securities........ 403,800 17,841 4.42%
Mortgage-backed securities... 4,676,543 264,809 5.66%
Other Investments............ 13,196,219 721,957 5.47%
---------- --------- -----
Total interest
earning assets............. $39,122,248 $2,695,729 6.89%
---------- --------- -----
Interest Bearing liabilities:
Deposits................... $33,481,395 $1,537,991 4.59%
FHLB advances and ESOP Loan.. 96,000 7,098 7.39%
---------- --------- -----
Total interest bearing
liabilities................ $33,577,395 $1,545,089 4.60%
---------- --------- -----
Net interest income (loss)/
interest rate spread....... $1,150,640 2.29%
========== =====
Net interest earning
assets/net yield on
interest earning assets.... $ 5,544,853 $ 382,040 6.89%
=========== ========== =====
Ratio of interest earning
assets to interest
bearing liabilities........ 116.5% 174.5% 149.8%
====== ====== ======
</TABLE>
12
<PAGE> 86
The following table sets forth the combined monthly weighted average
effective interest rate earned by the Bank on its loan portfolio and
investments, the combined monthly weighted average effective cost of the Bank's
deposits and other liabilities, the interest rate spread of the Bank, and the
net yield on combined monthly weighted average interest earning assets of the
Bank on its loan portfolio and investments for the periods shown:
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average effective
interest rate earned:
Loans (1)................... 9.21% 8.31% 8.11%
Investment securities (2)... 11.25 7.12 4.42
Mortgage-backed securities.. 4.69 5.93 5.66
Other investments (3)....... 4.30 3.61 5.47
----- ---- ----
Combined.................... 6.78% 6.34% 6.89%
----- ----- -----
Weighted average effective cost:
Deposits.................... 4.34 3.84 4.59
Borrowings.................. 7.45 7.48 7.39
----- ---- ----
Combined.................... 4.35 3.86 4.60
----- ---- ----
Interest rate spread (4)............. 2.43 2.48 2.29
==== ==== ====
Net yield on weighted average
interest-earning assets (4) 2.94% 2.97% 2.94%
</TABLE>
- ---------------------------------
(1) "Loans" means loans receivable, net.
(2) Includes investments required by law.
(3) Includes certificates of deposit, federal funds and interest-
earning deposits.
(4) Interest rate spread is calculated by subtracting combined monthly
weighted average effective cost from combined monthly weighted average
effective interest rate earned for the period indicated, and the net
yield on monthly weighted average interest earning assets is calculated by
dividing net interest yield by monthly weighted average interest
earning assets for the period indicated.
13
<PAGE> 87
The following table sets forth corresponding information as of the dates
shown:
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average effective
interest rate earned:
Loans (1)................... 8.50% 7.55% 7.41%
Investment securities (2)... 10.29 7.19 4.95
Mortgage-backed securities.. 6.06 4.63 5.37
Other investments (3)....... 3.47 4.28 5.94
----- ---- ----
Combined.................... 6.87 6.64 6.65
----- ---- ----
Weighted average effective cost:
Deposits.................... 4.50 3.88 4.28
Borrowings.................. 7.25 7.25 6.59
---- ---- ----
Combined.................... 4.50 3.90 4.28
---- ---- ----
Interest rate spread (4)......... 2.37 2.74 2.37
==== ==== ====
Net yield on weighted average
interest-earning assets (4) 2.91% 3.30% 2.98%
</TABLE>
- ---------------------------------
(1) "Loans" means loans receivable, net related accrued interest receivable,
of $113,362, 116,202 and 114,207 at June 30, 1993, 1994 and 1995,
respectively.
(2) Includes investments required by law.
(3) Includes certificates of deposit, federal funds and interest-earning
deposits.
(4) Interest rate spread is calculated by subtracting combined
weighted average effective cost from combined weighted average effective
interest rate earned at the dates indicated, and the net yield on
weighted average interest earning assets is calculated by dividing net
interest yield by weighted average interest earning assets at the dates
indicated.
Rate/Volume Analysis
The following table represents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Bank's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume), and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
14
<PAGE> 88
<TABLE>
<CAPTION>
Increase (Decrease) in
Net Interest Income
--------------------------------------------------------------
Total Rate Volume Rate/Volume
----- ---- ------ -----------
<S> <C> <C> <C> <C>
Year Ended June 30, 1995
compared to year ended
June 30, 1994
Loans........................ $ 84,112 $ (41,691) $ 122,509 $ 3,294
Investment securities........ 3,304 (10,903) 8,824 5,383
Mortgage-backed securities... (20,751) (12,627) (7,868) (256)
Other investments............ 243,182 245,450 (4,047) 1,779
--------- --------- --------- -------
Change in interest income.... $ 309,847 $ 180,229 $ 119,418 $ 10,200
--------- --------- --------- -------
Deposits..................... $ (277,563) $ (251,110) $ (31,937) $ 5,484
Borrowings................... 2,668 86 2,550 32
--------- --------- --------- -------
Change in interest expense... $ (274,895) $ (251,024) $ (29,387) $ 5,516
--------- --------- --------- -------
Change in net interest income. $ 34,952 $ ( 70,795) $ 90,031 $ 15,716
========= ========= ========= =======
Year Ended June 30, 1994
compared to year ended
June 30, 1993
Loans........................ $ (150,698) $ (171,683) $ 23,869 $ (2,884)
Investment securities........ (7,746) (8,184) 675 (237)
Mortgage-backed securities... (17,477) 80,109 (77,144) (20,442)
Other investments............ (109,889) (94,424) (17,821) 2,356
--------- --------- --------- -------
Change in interest income.... $ (285,810) $ (194,182) $ (70,421) $ (21,207)
--------- --------- --------- -------
Deposits..................... $ 241,240 $ 173,158 $ 80,118 $ 12,036
Borrowings................... 1,684 (46) 1,732 (2)
--------- --------- --------- -------
Change in interest expense... $ 242,924 $ 173,112 $ 81,850 $ (12,038)
--------- --------- --------- -------
Change in net interest income. $ (42,886) $ (21,070) $ 11,429 $ (33,245)
========= ========= ========= =======
Year Ended June 30, 1993
compared to year ended
June 30, 1992
Loans........................ $ (51,476) $ (12,455) $ (269,557) $ 230,536
Investment securities........ (1,249) (2,244) 1,085 (90)
Mortgage-backed securities... 296,527 (35,574) 276,267 55,834
Other investments............ (677,466) (486,369) (213,615) 22,518
--------- --------- --------- -------
Change in interest income.... $ (433,664) $ (536,642) $ (205,820) $ 308,798
--------- --------- --------- -------
Deposits..................... $ 487,538 $ 87,668 $ 494,393 $ (94,523)
Borrowings................... (10,715) (18,900) 11,744 (3,559)
--------- --------- --------- -------
Change in interest expense... $ 476,823 $ 68,768 $ 506,137 $ (98,082)
--------- --------- --------- -------
Change in net interest income. $ 43,159 $ (467,874) $ 300,317 $ 210,716
========= ========= ========= =======
</TABLE>
15
<PAGE> 89
Changes in Financial Condition Over the Years Ended June 30, 1995 and June 30,
1994
Total assets increased $2.3 million or 5.77% to $41.9 million at June 30,
1995 from $39.6 million at June 30, 1994. This increase was due primarily to a
$2.1 million increase in certificates of deposit to $2.6 million at June 30,
1995. Total liabilities increased $1.8 million or 5.2% to $35.8 million at
June 30, 1995 from $34.0 million at June 30, 1994. Shareholders' equity
increased $.5 million or 8.8% to $6.1 or 14.54% of total assets at June 30,
1995, as a result of increased earnings for the 12-month period.
Comparison of Operating Results for the Year Ended June 30, 1995 and June 30,
1994
General. Net income for the year ended June 30, 1995 was $300,002 as
compared to $365,080 for the year ended June 30, 1994. An increase in
non-interest expense more than offset an increase in net interest income and is
more fully explained below.
Interest Income. Interest income increased $309,846 to $2,695,728 for the
year ended June 30, 1995 from $2,385,882 for the year ended June 30, 1994. The
increase resulted primarily from an increase in income from other investments,
especially United States Treasury obligations and an increase in interest and
fees on loans. Interest income from loans increased $84,112 or 5.2% for the
year ended June 30, 1995 from the year ended June 30, 1994, which is due to an
increase in average rates and an increase in average balances of mortgage
loans.
Interest Expense. Interest expense for the year ended June 30, 1995
increased $275,900 to $1,539,422 from the year ended June 30, 1994. The
increase is attributable to an increase in the cost of deposits due to an
increase in the average cost and balance of passbook and certificate accounts
to 4.57% in the year ended June 30, 1995 from 3.89% for the year ended June 30,
1994 as a result of general market conditions.
Net Interest Income Before Provision for Loan Losses. Net interest income
before provision for loan losses increased $33,946 to $1,156,306 for the year
ended June 30, 1995. The increase resulted primarily from an increase in
interest and fees on loans for the year ended June 30, 1995 from the year ended
June 30, 1994, due to generally higher levels of market rates of interest and
higher loan balances.
Provisions for Loan Losses. No increase in the provision for
loan losses was recorded for the year ended June 30, 1995. Management
determined that the loss reserves were adequate as of June 30, 1995.
16
<PAGE> 90
The Bank believes it has established its existing allowance for loan losses
in accordance with GAAP at June 30, 1995. There can be no assurance, however,
that the regulatory authorities, when reviewing the Bank's loan portfolio in
the future, will not request the Bank to increase its allowance for loan
losses, thereby adversely affecting the Bank's financial condition and
earnings.
Non-Interest Income. The Bank had a decrease in non-interest income in the
year ended June 30, 1995 of $2,304 or 8.7% over the year ended June 30, 1994.
The Bank had no gains or losses on the sale of investment securities in either
period.
Non-Interest Expense. Non-interest expense was $762,025 for the year ended
June 30, 1995 as compared to $663,885 for the year ended June 30, 1994. The
increase was attributable to an increase in salaries and benefits.
Income Tax Expense. Income tax expense for the year ended June 30, 1995
decreased by $1,420 as a result of a decrease in income over the prior period
for the year ended June 30, 1994.
Changes in Financial Condition Over the Years Ended June 30, 1994 and June 30,
1993
Total assets decreased $.7 million or 1.75% to $39.6 million at June 30,
1994 from $40.3 million at June 30, 1993. This decrease was due primarily to a
$.8 million or 38.8% decrease in certificates of deposit to $.5 million at June
30, 1994. Total liabilities decreased $1.1 million or 3.2% to $34.0 million at
June 30, 1994 from $35.1 million at June 30, 1993. Shareholders' equity
increased $.4 million or 7.7% to $5.6 or 14.14% of total assets at June 30,
1994, as a result of increased earnings for the 12-month period.
Comparison of Operating Results for the Year Ended June 30, 1994 and June 30,
1993
General. Net income for the year ended June 30, 1994 was $365,080 as
compared to $275,154 for the year ended June 30, 1993. A decrease in
non-interest expense more than offset a decrease in net interest income and is
more fully explained below.
Interest Income. Interest income decreased $285,810 to $2,385,882 for the
year ended June 30, 1994 from $2,671,692 for the year ended June 30, 1993. The
decrease resulted primarily from a decrease in certificates of deposit in
other institutions and was partially offset by an increase in the average
balance of mortgage-backed securities, loans receivable and interest on
investments. Interest income from loans decreased $150,698 or 8.6% for the year
ended June 30, 1994 from the year ended June 30, 1993, which is due to a
decrease in average rates and a decrease in average yield of
17
<PAGE> 91
mortgage loans.
Interest Expense. Interest expense for the year ended June 30, 1994
decreased $242,241 to $1,263,522 from the year ended June 30, 1993. The
decrease is attributable to a decrease in the cost of deposits due to a
decrease in the average cost of passbook and certificate accounts to 3.89% in
the year ended June 30, 1994 from 4.34% for the year ended June 30, 1993 as a
result of general market conditions.
Net Interest Income Before Provision for Loan Losses. Net interest income
before provision for loan losses decreased $43,569 to $1,122,360 for the year
ended June 30, 1994. The decrease resulted primarily from a decrease in
interest and fees on loans for the year ended June 30, 1994 from the year ended
June 30, 1993, due to generally lower levels of market rates of interest.
Provisions for Loan Losses. No increase in the provision for
loan losses was recorded for the year ended June 30, 1994. Management
determined that the loss reserves were adequate as of June 30, 1994. As a
result of declines in real estate market values and significant losses
experienced by many financial institutions, there has been a greater level of
scrutiny by regulatory authorities of the loan portfolios of financial
institutions, in recent years undertaken as a part of the examinations of such
institutions by the OTS and FDIC or other federal or state regulators. The
results of recent examinations of other depository institutions indicate that
these regulators may be applying more conservative criteria in evaluating real
estate market values. The Bank was not required to increase its provisions for
loan losses after its most recent examination concluded as of March 28, 1994.
The Bank believes it has established its existing allowance for loan losses
in accordance with GAAP at June 30, 1994. There can be no assurance, however,
that the regulatory authorities, when reviewing the Bank's loan portfolio in
the future, will not request the Bank to increase its allowance for loan
losses, thereby adversely affecting the Bank's financial condition and
earnings.
Non-Interest Income. The Bank had a decrease in non-interest income in the
year ended June 30, 1994 of $4,769 or 15.3% over the year ended June 30, 1993.
The Bank had no gains or losses on the sale of investment securities in either
period.
Non-Interest Expense. Non-interest expense was $663,885 for the year ended
June 30, 1994 as compared to $812,571 for the year ended June 30, 1993. The
decrease was attributable to a $90,201 decrease in legal and audit fees.
Additionally, salaries and benefits decreased $50,371 due principally to a
one-time adjustment of $44,000 to the cash surrender value of the officers
benefit plan.
18
<PAGE> 92
Income Tax Expense. Income tax expense for the year ended June 30, 1994
increased by $10,422 as a result of an increase in income over the prior period
for the year ended June 30, 1993.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and investments, and
proceeds from principal and interest payments on loans. While maturities and
scheduled amortization of loans and investments are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, competition and most recently the
restructuring of the thrift industry.
The primary investing activity of the Bank is the purchase of mortgage
loans. During the years ended June 30, 1993, 1994 and 1995, the Bank purchased
or originated mortgage loans in the amounts of $2,839,416, $9,048,850, and
$3,645,774, respectively. Other investing activities include investing in
short-term certificates of deposit of other financial instruments. During the
years ended June 30, 1993, 1994 and 1995, this activity was funded primarily by
principal repayments on loans totalling $4,261,645, $5,848,988, and
$2,947,300, respectively.
The Bank has other sources of liquidity if a need for additional funds
arises. Additional sources of funds include FHLB of Indianapolis advances
although no such advances were outstanding at June 30, 1995. Other sources of
liquidity can be found in the Bank's balance sheet, such as investments in
certificates of deposit maturing within one year.
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which may be varied at the direction of
the OTS depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The required minimum ratio is
currently 5.0%. The Bank's liquidity ratios were 46.1%, 37.5% and 41.3% at June
30, 1993, 1994, and 1995, respectively.
The Bank's most liquid assets are cash and cash equivalents, which include
investments in highly liquid short-term investments. The level of these assets
are dependent on the Bank's operating, financing and investing activities
during any given period. At June 30, 1993, 1994 and 1995, cash and cash
equivalents totalled $14,747,703, $8,703,457 and $2,490,204 respectively.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. The Bank's large portfolio of cash, cash equivalents
and marketable securities are more than sufficient to meet the Bank's cash
requirements. At June 30, 1995, the Bank had commitments to purchase
residential mortgages of $577,450. Customer deposits which are scheduled to
mature in one year or less at June 30, 1995, totalled $27,490,000.
19
<PAGE> 93
Management believes that a significant portion of such deposits will remain
with the Bank.
Impact of Inflation and Changing Prices
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with generally accepted accounting principals, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Bank's operations. Unlike most
industrial companies, nearly all of the assets and liabilities of the Bank are
monetary in nature. As a result, interest rates have a greater impact on the
Bank's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
Impact of New Accounting Standards
In December 1987, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 96 ("SFAS No. 96") relating to
the method of accounting for income taxes. SFAS No. 96 was amended by SFAS No.
100, 103 and subsequently superseded by SFAS No. 109. SFAS No. 109 was adopted
for fiscal year beginning July 1, 1993, and requires the Bank to take into
account changes in tax rates when valuing the deferred income tax amounts
recorded on the balance sheet. The statement also requires that deferred taxes
be provided for all income (including, for example, differences due to the
revaluation of assets acquired by merger or acquisition) in addition to the
timing differences in the recognition of income for financial statement and tax
purposes which were covered by prior accounting rules. The adoption of this
pronouncement had no material effect on the Bank's financial statements.
In December 1990, FASB issued SFAS No, 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions." SFAS No. 106 focuses primarily
on post-retirement health care benefits, and will significantly change the
prevalent current practice of accounting for post-retirement benefits on a cash
basis by requiring accrual, during the years that the employee renders the
necessary service, of the expected cost of providing those benefits to an
employee and the employee's beneficiaries and covered dependents.
SFAS No. 106 was effective for the fiscal year beginning July 1, 1993.
The adoption of SFAS No. 106 had no effect on the Bank's financial statements.
20
<PAGE> 94
In addition, in December 1991, FASB issued SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments," which is effective for fiscal years
ending after December 15, 1992 (December 15, 1995 in the case of entities with
less than $150 million in total assets). SFAS No. 107 requires financial
institutions to disclose, either in the body of their financial statements or
in the accompanying notes, the "fair value" of financial instruments for which
it is "practicable to estimate that value." SFAS No. 107 defines "fair value"
as the amount at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation
sale. Quoted market prices, if available, are deemed the best evidence of the
fair value of such instruments. Most deposit and loan instruments issued by
financial institutions are subject to SFAS No. 107 and its effect will be to
require financial statement disclosure of the fair value of most of the assets
and liabilities of financial institutions such as the Bank. Such disclosure
requirements could adversely affect the market price of the common stock of
such institutions as well as their ability to raise funds in the financial
markets.
In May, 1993, FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," and in January, 1995, FASB issued No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures,"
which amends the disclosure requirements in SFAS No. 114. These two statements
are effective for fiscal years beginning after December 15, 1994. The Bank will
adopt SFAS No. 114 and No. 118 for the fiscal year ending June 30, 1996.
Management believes any impact if applied earlier would be immaterial.
In May, 1993, FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which was effective for fiscal year
1994. However, under the early adoption provisions of SFAS No. 115, savings
associations could have adopted the standard as early as June 30, 1993,
depending on their fiscal year-end. SFAS No. 115 requires financial
institutions to report most debt and equity securities at fair value, rather
than at amortized cost, except where there is a positive intent and ability to
hold the securities to maturity. The Bank has classified its securities into
the held-to-maturity category and said securities are reported at amortized
cost. Adoption of SFAS No. 115 increased retained earnings at July 1, 1995 by
$133,098.
In March 1995, FASB issued SFAS No. 119, "Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments," which is
effective for fiscal years ending after December 15, 1995, for those entities
with total assets less than $150 million. The Bank will adopt SFAS No. 119 for
the fiscal year ending June 30, 1996. Management believes the adoption of this
pronouncement will have no effect on the Bank's financial statements.
21
<PAGE> 95
In June, 1995, FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," which is
effective for fiscal years beginning after December 15, 1995. The Bank will
adopt SFAS No. 121 for the fiscal year ending June 30, 1997. Management
believes any impact if applied earlier would be immaterial.
22
<PAGE> 96
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Macomb Federal Savings Bank
St. Clair Shores, MI
We have audited the accompanying statements of financial condition of
Macomb Federal Savings Bank as of June 30, 1994 and 1995, and the
related statements of income, changes in stockholders' equity, and cash flows
for each of the years in the three-year period ended June 30, 1995. The
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Macomb
Federal Savings Bank at June 30, 1994 and 1995, and the results of its
operations and its cash flows for the three-year period ended June 30, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the bank changed
its method of accounting for certain investment securities effective
July 1, 1994 to conform to new accounting guidance.
/s/ KELMAN, ROSENBAUM, ROLLINS & QUAYHACKX
-----------------------------------------
KELMAN, ROSENBAUM, ROLLINS & QUAYHACKX, P.C.
Certified Public Accountants
Farmington Hills, MI
August 30, 1995
Page 23
<PAGE> 97
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
As of June 30, 1994 and 1995
A S S E T S
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Cash and equivalents $ 8,703,457 $ 2,490,204
Certificates of deposit 495,000 2,550,000
Loans receivable, net 20,604,942 21,270,129
U.S. Treasury Bills, held-to-maturity
(estimated market value of $2,904,700
on June 30, 1994 and $8,852,109 on
June 30, 1995) 2,916,891 8,832,902
Mortgage-backed securities, held-to-maturity
(estimated market value of $4,750,762 on
June 30, 1994 and $4,413,680 on June 30, 1995) 4,931,057 4,480,111
Accrued interest receivable, net 136,812 137,432
Stock in Federal Home Loan Bank, at cost 192,100 207,800
Stock in Federal Home Loan Mortgage Corporation
(estimated market value of $215,622 on
June 30, 1994) 13,959 -
Stock in Federal Home Loan Mortgage Corporation,
available-for-sale, at fair value - 243,243
Property and equipment, net 80,859 81,828
Deferred federal income taxes 243,777 149,480
Policy cash value - Officers' and
directors' benefit plan 1,179,400 1,300,800
Other assets 94,906 132,141
----------- -----------
TOTAL ASSETS $ 39,593,160 $ 41,876,070
============ ============
</TABLE>
Page 24
<PAGE> 98
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Deposits $ 32,438,750 $ 34,256,150
Advances from borrowers for taxes and insurance 661,456 528,766
ESOP loan payable - Comerica Bank - Current portion 36,000 36,000
Employees' and directors' pension fund payable 710,051 854,934
Other liabilities 69,123 65,020
------------ ------------
Total Current Liabilities $ 33,915,380 $ 35,740,870
LONG-TERM LIABILITIES
ESOP loan payable - Comerica Bank 81,000 45,000
------------ ------------
TOTAL LIABILITIES $ 33,996,380 $ 35,785,870
------------ ------------
STOCKHOLDERS' EQUITY
Capital Stock
Authorized 3,000,000 shares common, issued
and outstanding 186,604 shares at $1 par value $ 186,604 $ 186,604
Additional Paid-in Capital 1,423,848 1,429,939
Retained Earnings (Substantially restricted) 4,103,328 4,403,330
Net unrealized appreciation on available-for-sale
securities, net of tax of $77,957 as of
June 30, 1995 - 151,327
------------ ------------
Totals $ 5,713,780 $ 6,171,200
Less: Unearned ESOP shares 117,000 81,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 5,596,780 $ 6,090,200
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 39,593,160 $ 41,876,070
============ ============
</TABLE>
See accompanying notes to financial statements.
Page 25
<PAGE> 99
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Retained Net Unrealized
Additional Earnings, appreciation on Unearned
Common Paid-in Substantially available-for-sale ESOP
Stock Capital Restricted Stock in FHLMC Total Shares Total
--------- ----------- ------------- ------------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1992 $ - $ - $ 3,463,094 $ - $ 3,463,094 $ - $3,463,094
Issuance of 186,604
shares of common stock
at $10 per share, net
of conversion costs
of $255,588 186,604 1,423,848 - - 1,610,452 - 1,610,452
Net income for the year
ended June 30, 1993 - - 275,154 - 275,154 - 275,154
Value of ESOP shares
used as collateral
for ESOP loan - - - - - (180,000) (180,000)
Value of ESOP shares
released - - - - - 27,000 27,000
--------- ----------- ----------- --------- ----------- --------- -----------
BALANCE, JUNE 30, 1993 $ 186,604 $ 1,423,848 $ 3,738,248 $ - $ 5,348,700 $(153,000) $ 5,195,700
Net income for the year
ended June 30, 1994 - - 365,080 - 365,080 - 365,080
Value of ESOP shares
released - - - - - 36,000 36,000
--------- ----------- ----------- --------- ----------- --------- -----------
BALANCE, JUNE 30, 1994 $ 186,604 $ 1,423,848 $ 4,103,328 $ - $ 5,713,780 $(117,000) $ 5,596,780
Additional contributions
to paid-in capital - 6,091 - - 6,091 - 6,091
Net income for the year
ended June 30, 1995 - - 300,002 - 300,002 - 300,002
Cumulative effect of
change in accounting for
available-for-sale stock,
net of $68,565 tax - - - 133,098 133,098 - 133,098
Net change in unrealized
appreciation on available-
for-sale stock, net of
$9,392 tax - - - 18,229 18,229 - 18,229
Value of ESOP shares
released - - - - - 36,000 36,000
--------- ----------- ----------- --------- ----------- --------- -----------
BALANCE, JUNE 30, 1995 $ 186,604 $ 1,429,939 $ 4,403,330 $ 151,327 $ 6,171,200 $ (81,000) $ 6,090,200
========= =========== =========== ========= =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
Page 26
<PAGE> 100
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF INCOME
For the Years Ended June 30, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,757,708 $ 1,607,010 $ 1,691,121
Interest on investments 22,283 14,537 17,841
Interest on mortgage-backed securities 303,037 285,560 264,809
Other 588,664 478,775 721,957
----------- ----------- -----------
TOTAL INTEREST INCOME $ 2,671,692 $ 2,385,882 $ 2,695,728
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits $ 1,494,313 $ 1,253,756 $ 1,532,324
Interest on borrowings 11,450 9,766 7,098
----------- ----------- -----------
TOTAL INTEREST EXPENSE $ 1,505,763 $ 1,263,522 $ 1,539,422
----------- ----------- -----------
NET INTEREST INCOME $ 1,165,929 $ 1,122,360 $ 1,156,306
Provision for losses on loans - - -
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES ON LOANS $ 1,165,929 $ 1,122,360 $ 1,156,306
----------- ----------- -----------
OTHER INCOME
Charges and other fees $ 30,951 $ 26,323 $ 24,177
Other 331 190 32
----------- ----------- -----------
TOTAL OTHER INCOME $ 31,282 $ 26,513 $ 24,209
----------- ----------- -----------
OTHER EXPENSES
Salaries and benefits $ 454,331 $ 403,960 $ 517,842
Occupancy 26,420 25,270 21,179
Insurance 77,878 96,763 95,988
Legal, audit and examination fees 163,514 73,313 67,208
Office supplies and postage 12,504 12,957 13,352
State intangibles and single business tax 37,307 32,035 9,126
Dues and assessments 20,948 18,691 22,293
Provision (reduction) for losses
on real estate owned (785) (19,850) (1,007)
Other 20,454 20,746 16,044
----------- ----------- -----------
TOTAL OTHER EXPENSES $ 812,571 $ 663,885 $ 762,025
----------- ----------- -----------
NET INCOME BEFORE INCOME TAX $ 384,640 $ 484,988 $ 418,490
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
Page 27
<PAGE> 101
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF INCOME (CONTINUED)
For the Years Ended June 30, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
FEDERAL INCOME TAX
Current $ 184,807 $ 153,113 $ 102,148
Deferred (75,321) (33,205) 16,340
----------- ----------- -----------
TOTAL FEDERAL INCOME TAX $ 109,486 $ 119,908 $ 118,488
----------- ----------- -----------
NET INCOME $ 275,154 $ 365,080 $ 300,002
=========== =========== ===========
AVERAGE SHARES OUTSTANDING 169,879 173,733 177,333
=========== =========== ===========
EARNINGS PER SHARE $ 1.62 $ 2.10 $ 1.69
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
Page 28
<PAGE> 102
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 275,154 $ 365,080 $ 300,002
------------ ------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation $ 3,956 $ 9,169 $ 5,325
Interest on U.S. Treasury bills - - (374,924)
Loss on scrapped assets - 1,303 -
ESOP compensation expense 27,000 36,000 36,000
Provision (benefit) for deferred
income tax (75,322) (33,205) 16,340
Interest paid in advance (914) (244) 139
(Increase) Decrease in:
Accrued interest receivable 51,453 (16,244) (620)
Prepaid expenses 190,273 (12,782) (37,265)
Accounts receivable 255 (38) 30
Deposit - Office building improvements (1,726) (28,984) -
Increase (Decrease) in:
Pension fund payable 161,227 137,553 144,883
Old outstanding checks and money orders (633) 271 1,504
Accrued expenses and accounts payable (13,243) 10,495 (5,746)
Federal income tax payable (79,935) - -
------------ ------------ ------------
Total Adjustments $ 262,391 $ 103,294 $ (214,334)
------------ ------------ ------------
Net Cash Provided by
Operating Activities $ 537,545 $ 468,374 $ 85,668
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in certificates of deposit $ 7,100,280 $ 781,798 $ (2,055,000)
Purchased loans (2,806,825) (9,099,632) (3,645,774)
Originated loans (32,591) (94,525) (5,000)
Principal collections on loans 5,713,686 5,876,017 2,985,587
Purchase of mortgage-backed securities (2,273,715) (1,968,750) -
Purchase of U.S. Treasury bills - (2,890,538) (11,541,087)
Proceeds from repayment on
mortgage-backed securities - 2,300,824 450,946
Proceeds from repayment on U.S.
Treasury bills - - 6,000,000
Capital expenditures (1,806) (8,308) (6,294)
Net increase in cash value -
Directors' benefit plan (113,493) (171,752) (121,400)
Purchase of stock in FHLB (9,000) (1,900) (15,700)
Real estate held for redemption 77,381 (607) -
Real estate owned 3,500 20,023 -
------------ ------------ ------------
Net Cash Provided (Used)
by Investing Activities $ 7,657,417 $ (5,257,350) $ (7,953,722)
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
Page 29
<PAGE> 103
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended June 30, 1993, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock $ 1,610,452 $ - $ -
Additional funds contributed - - 6,091
Advances by borrowers (92,585) (119,372) (132,690)
Payments to ESOP (27,000) (36,000) (36,000)
Net increase (decrease) in
customer deposits (1,524,656) (1,099,898) 1,817,400
------------ ------------ ------------
Net Cash Provided (Used)
by Financing Activities $ (33,789) $ (1,255,270) $ 1,654,801
------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS $ 8,161,173 $ (6,044,246) $ (6,213,253)
CASH AND EQUIVALENTS,
BEGINNING OF YEARS 6,586,530 14,747,703 8,703,457
------------ ------------ ------------
CASH AND EQUIVALENTS,
END OF YEARS $ 14,747,703 $ 8,703,457 $ 2,490,204
============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<S> <C> <C> <C>
Cash paid during the years for:
Income taxes $ 299,935 $ 121,000 $ 126,002
Interest 1,514,729 1,299,326 1,530,179
</TABLE>
NON-CASH FINANCING AND INVESTING ACTIVITIES:
For the year ended June 30, 1993, loans in the amount of $126,666 were
defaulted upon and reclassified to real estate held for redemption.
$39,009 of the real estate owned was sold on a land contract.
For the year ended June 30, 1994, a loan in the amount of $49,892 was held
for the redemption period and then transferred to real estate owned.
The real estate owned was sold for $68,500.
See accompanying notes to financial statements.
Page 30
<PAGE> 104
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
June 30, 1993, 1994 and 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Equivalents - For purposes of the statement of
cash flows, the Bank considers all tellers cash funds,
bank accounts and Federal Funds accounts to be cash
equivalents.
<TABLE>
<CAPTION>
Non-Interest Interest
Bearing Bearing
------------- ------------
<S> <C> <C>
June 30, 1993 $ 242,678 $ 14,505,025
June 30, 1994 316,784 8,386,673
June 30, 1995 228,527 2,261,677
</TABLE>
(b) Certificates of Deposit - Certificates of deposit are
interest bearing deposits in other financial
institutions. The maximum investment in any one
institution is $100,000 and all of the institutions are
federally insured. All certificates are stated at
cost.
(c) Federal Home Loan Mortgage Corporation - Available-for-Sale -
Available for sale consist of those securities not
classified as trading or held to maturity. Such securities
might be sold due to availability of alternative investments,
liquidity needs or other factors. At July 1, 1994, the bank
adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity
Securities (SFAS No. 115). As required by SFAS No. 115,
securities classified as available for sale are reported at
their fair market value and the related unrealized holding
gain or loss is reported, net of related income tax effects,
as a separate component of retained earnings, until realized.
Adoption of SFAS No. 115 increased retained earnings at July
1, 1995 by $133,098.
Gains and losses on the sale of securities available for sale
are determined using the specific identification method.
Prior to adoption of SFAS No. 115, equity securities were
recorded at the lower of aggregate cost or fair market value.
(d) Mortgage-Backed Securities Held to Maturity - Mortgage-backed
securities are stated at cost, adjusted for amortization
of premiums and discounts using a method that approximates
level yield. The Bank has the necessary capital and adequate
liquidity to hold the assets to maturity, and it is
management's intention to hold such assets to maturity.
Page 31
<PAGE> 105
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1993, 1994 and 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Loans Receivable - Loans receivable are stated at unpaid
principal balances, less the allowance for loan losses
and net deferred fees and discounts.
Deferred fees and discounts on mortgage loans purchased
are credited to income on a method that approximates
level yield.
The allowance for loan losses is increased by charges
to income and decreased by charge-offs (net of
recoveries). Management's periodic evaluation of the
adequacy of the allowance is based upon a review and
assessment of the risk inherent in the loan portfolio
in relation to the level of the allowance for loan
losses, economic conditions, loan loss experience, loan
delinquency experience, the borrowers' ability to
repay, value of underlying collateral and changes in
the nature and volume of the loan portfolio.
Uncollectible interest on loans that are contractually
past due is accrued as earned. Interest on loans of
ninety days or more delinquent or in foreclosure is
excluded from income.
(f) Federal Income Taxes - The Bank has qualified under
provisions of the Internal Revenue Code which permits
it to deduct from taxable income an allowance for bad
debts based on a percentage of taxable income before
such deduction. The current tax law allows an eight
percent deduction. If the amounts that qualify as
deductions for federal income tax purposes are later
used for purposes other than for bad debt losses, then
they will be subject to federal income tax at the
prevailing corporate tax rate. Retained earnings
included $1,095,856 at June 30, 1995 and $1,069,653 at
June 30, 1994 for which federal income tax has not been
provided.
The deferral of federal income taxes arises principally
from the recognition of items as income for tax
purposes in periods different from the periods in which
they were included in the financial statements.
The Financial Accounting Standards Board has issued
FASB No. 109 - "Accounting for Income Taxes" which
requires the liability method of accounting for
deferred income taxes. This statement was adopted for
the year ended June 30, 1994. The adoption of this
pronouncement had no material effect on the Bank's
statements.
Page 32
<PAGE> 106
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1993, 1994 and 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Property and Equipment - Land is carried at cost.
Building, furniture, fixtures and equipment are carried
at cost, less accumulated depreciation. The Bank
computes depreciation on its property and equipment
using various methods over the estimated useful lives
of the assets.
(h) Earnings Per Share - Earnings per share are calculated
based on adjusting the weighted average number of
shares outstanding during the period to reflect the
issuance of common stock on August 13, 1992 and
prorating the earnings to present earnings per share
from the date of conversion to June 30, 1993. The
weighted average shares outstanding are also adjusted
for unreleased shares in the ESOP. The average shares
outstanding were 177,333 for the year ended June 30,
1995, 173,733 for the year ended June 30, 1994 and
169,879 for the year ended June 30, 1993.
NOTE 2: LOANS RECEIVABLE
A summary of loans receivable follows:
<TABLE>
<CAPTION>
June 30, June 30,
1994 1995
------------ ------------
<S> <C> <C>
Mortgage loans on real estate $ 20,743,892 $ 21,478,233
Deposit loans 89,228 63,892
Land contracts 110,109 55,930
------------ ------------
TOTALS $ 20,943,229 $ 21,598,055
Less: Deferred fees and discounts 185,984 176,631
Allowance for loan losses 150,000 150,000
Deferred profit 2,303 1,295
------------ ------------
TOTALS $ 20,604,942 $ 21,270,129
============ ============
</TABLE>
At June 30, 1995 and 1994, nonaccrual loans were $0 and $0,
respectively.
Page 33
<PAGE> 107
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1993, 1994 and 1995
NOTE 3: 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 financing
needs of its customers. These financial instruments include
commitments to make loans. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans is
represented by the contractual amount of those instruments.
The Bank follows the same credit policy to make such
commitments as is followed for those loans and investments
recorded in the financial statements.
As of June 30, 1994, the Bank had outstanding commitments to
make loans totaling $772,800 as follows:
<TABLE>
<CAPTION>
Interest Rates
--------------
<S> <C> <C>
15 year fixed $ 171,000 7.75 to 8.50%
10 year fixed 55,000 7.75%
7 year balloon 546,800 7.75 to 8.50%
---------
TOTAL $ 772,800
=========
</TABLE>
As of June 30, 1995, the Bank had outstanding commitments to
make loans totaling $577,450 as follows:
<TABLE>
<CAPTION>
Interest Rates
--------------
<S> <C> <C>
15 year fixed $ 110,000 7.125%
7 year balloon 467,450 7.0 to 8.0%
---------
TOTAL $ 577,450
=========
</TABLE>
NOTE 4: PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classification
as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1994 1995
--------- ---------
<S> <C> <C>
Land $ 31,500 $ 31,500
Office building 38,500 38,500
Automobile 17,463 17,463
Building improvements 23,919 28,548
Furniture and equipment 47,660 49,325
--------- ---------
TOTALS $ 159,042 $ 165,336
Less: Accumulated depreciation 78,183 83,508
--------- ---------
NET PROPERTY AND EQUIPMENT $ 80,859 $ 81,828
========= =========
</TABLE>
Page 34
<PAGE> 108
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1993, 1994 and 1995
NOTE 5: DEPOSITS
<TABLE>
<CAPTION>
June 30, 1994 June 30, 1995
----------------- -----------------
Rate Amount Rate Amount
----- ----------- ----- -----------
<S> <C> <C> <C> <C>
Regular savings 2.50% $ 1,779,369 2.50% $ 1,697,187
30 day savings 2.50% 3,264,975 2.50% 2,925,720
Six-month money market 2.75% 4,938,033 4.75% 4,774,385
Daily money market 2.52% 1,093,253 2.88% 905,873
Certificate accounts 4.67% 21,339,778 4.87% 23,914,285
---- ----------- ---- -----------
Totals 3.89% $32,415,408 4.48% $34,217,450
==== ====
Accrued interest payable 23,342 38,700
----------- -----------
TOTALS $32,438,750 $34,256,150
=========== ===========
</TABLE>
A summary of certificate accounts at June 30, 1994, by maturity
dates:
<TABLE>
<CAPTION>
Amount % of Total
------------ ----------
<S> <C> <C>
Maturing:
July 1, 1994 - December 31, 1994 $ 10,692,000 50.10
January 1, 1995 - June 30, 1995 4,727,000 22.15
July 1, 1995 - June 30, 1997 4,300,000 20.15
July 1, 1997 - June 30, 1999 1,279,000 6.00
July 1, 1999 - June 30, 2002 342,000 1.60
------------ ------
TOTALS $ 21,340,000 100.00
============ ======
</TABLE>
A summary of certificate accounts at June 30, 1995, by maturity
dates:
<TABLE>
<CAPTION>
Amount % of Total
------------ ----------
<S> <C> <C>
Maturing:
July 1, 1995 - December 31, 1995 $ 11,007,000 46.03
January 1, 1996 - June 30, 1996 6,188,000 25.87
July 1, 1996 - June 30, 1998 5,375,000 22.48
July 1, 1998 - June 30, 2000 1,174,000 4.91
July 1, 2000 - June 30, 2004 170,000 .71
------------ ------
TOTALS $ 23,914,000 100.00
============ ======
</TABLE>
Page 35
<PAGE> 109
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1993, 1994 and 1995
NOTE 6: FEDERAL INCOME TAXES
The federal income tax expense includes:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current provision $ 184,807 $ 153,113 $ 102,148
Deferred portion (75,321) (33,205) 16,340
--------- --------- ---------
TOTALS $ 109,486 $ 119,908 $ 118,488
========= ========= =========
</TABLE>
Temporary differences resulting in deferred federal income
taxes and the tax effect of each are as follows:
<TABLE>
<S> <C> <C> <C>
Income and expense
reported on a
cash basis $ (75,321) $ (33,205) $ 16,340
========= ========= =========
</TABLE>
The tax effects of temporary differences between the
financial statement carrying amounts and tax basis of
assets and liabilities that gave rise to significant
portions of the deferred tax asset (liability) as of June
30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
June 30,
1995
----------
<S> <C>
Deferred tax assets $ 227,437
Deferred tax liabilities (77,957)
Valuation reserve
---------
Net Deferred Tax Asset $ 149,480
=========
</TABLE>
The following is a reconciliation of the statutory federal
income tax rate to the effective income tax rate:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income
tax rate 34.0% 34.0% 34.0%
Bad debt deduction, net (4.2) (2.9) (2.9)
Non-taxable income
(deductions), net (1.6) (5.0) (4.1)
Other .3 (1.4) 1.3
---- ---- ----
TOTALS 28.5% 24.7% 28.3%
==== ==== ====
</TABLE>
Page 36
<PAGE> 110
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1993, 1994 and 1995
NOTE 7: REGULATORY CAPITAL REQUIREMENTS
Regulations for savings institutions' minimum capital
requirements require institutions to have a minimum
regulatory tangible capital ratio equal to 1.5% of adjusted
tangible assets, a minimum 3% core capital ratio and an 8%
risk-based capital ratio.
At June 30, 1995, Macomb Federal Savings Bank met all three
minimum capital requirements. The regulatory capital
requirements and Macomb Federal Savings Bank's capital
position as of June 30, 1994 and June 30, 1995 follows:
<TABLE>
<CAPTION>
ACTUAL REQUIRED CAPITAL EXCESS
------------------- ------------------ -------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ------ ----------- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1994
-------------
Tangible capital $ 5,596,000 14.14% $ 594,000 1.50% $ 5,002,000 12.64%
Leverage 5,596,000 14.14% 1,188,000 3.00% 4,408,000 11.14%
Risk-based capital 5,740,000 39.40% 1,164,000 8.00% 4,576,000 31.40%
June 30, 1995
-------------
Tangible capital $ 5,939,000 14.18% $ 628,000 1.50% $ 5,311,000 12.68%
Leverage 5,939,000 14.18% 1,256,000 3.00% 4,683,000 11.18%
Risk-based capital 6,089,000 42.03% 1,159,000 8.00% 4,930,000 34.03%
</TABLE>
NOTE 8: CONVERSION TO FEDERAL STOCK SAVINGS BANK
On August 13, 1992, the Bank completed its conversion from a
state mutual association to a federal stock savings bank (the
"Conversion"). As part of the Conversion, the Bank issued
186,604 shares of $1 par value common stock at $10 per share
for total proceeds of $1,866,040. The costs of the
Conversion and the Employee Stock Ownership Debt was $255,588
and $180,000, respectively.
As required by OTS regulations, a Liquidation Account was
established at the time of conversion in an amount equal to
approximately $3,378,000. Each Eligible Account Holder will
be entitled to a proportionate share of this account in the
event of complete liquidation of the Bank, and only in such
an event. The Account Holder's share will be eliminated if
the account is closed. The Liquidation Account will never be
increased despite any increase after conversion in the
Qualifying Deposits of an Eligible or Supplemental Eligible
Account Holder.
The regulations of the OTS do not permit the Bank to pay
dividends on its common stock if its regulatory net worth
would be reduced below the level required by OTS regulations
or the amount required for the Liquidation Account
established by the Plan. In addition, for a period of three
years after the conversion, the Bank is not permitted (except
with the prior approval of the OTS) to declare or pay a cash
dividend or repurchase stock in an amount in excess of
one-half of the greater of its net income (as defined by the
OTS) for the then current year or the average of its net
income for the then current year and not more than the two
immediately preceding years.
Page 37
<PAGE> 111
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1993, 1994 and 1995
NOTE 9: STOCK IN FEDERAL HOME LOAN BANK
The Bank is required to maintain an investment in capital stock
of the Federal Home Loan Bank of Indianapolis in an amount
equal to at least 1.0% of the unpaid principal balance of the
bank's residential mortgage loans, 0.3% of its total assets,
or 5.0% of its outstanding advances from the Federal Home
Loan Bank of Indianapolis, whichever is greater. Purchases
and sale of stock are made directly with the Federal Home
Loan Bank of Indianapolis at par value.
NOTE 10: MORTGAGE-BACKED SECURITIES AND U.S. TREASURY BILLS
The carrying value and estimated market value of
mortgage-backed securities and U.S. Treasury Bills are
summarized as follows:
<TABLE>
<CAPTION>
June 30, 1994
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held-to-Maturity
----------------
Federal Home Loan
Corporation $1,931,120 $ - $ 79,005 $1,852,115
GNMA certificates 1,030,680 - 47,033 983,647
FNMA certificates 1,969,257 - 54,257 1,915,000
---------- ------- -------- ----------
TOTALS $4,931,057 $ - $180,295 $4,750,762
========== ======= ======== ==========
Held-to-Maturity
----------------
U.S. Treasury Bills $2,916,891 $ - $ 12,191 $2,904,700
========== ======= ======== ==========
</TABLE>
All maturities are within twelve months.
<TABLE>
<CAPTION>
June 30, 1995
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held-to-Maturity
----------------
Federal Home Loan
Corporation $1,649,891 $ - $ 26,010 $1,623,881
GNMA certificates 856,953 - 30,654 826,299
FNMA certificates 1,973,267 - 9,767 1,963,500
---------- -------- -------- ----------
TOTALS $4,480,111 $ - $ 66,431 $4,413,680
========== ======== ======== ==========
Held-to-Maturity
----------------
U.S. Treasury Bills $8,832,902 $ 19,207 $ - $8,852,109
========== ======== ======== ==========
</TABLE>
All maturities are within twelve months.
Page 38
<PAGE> 112
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1993, 1994 and 1995
-----------------------------------------
NOTE 11: ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Mortgage-backed securities $ 8,164 $ 7,830
Loans receivable 116,202 114,206
Other 12,446 15,395
--------- ---------
TOTALS $ 136,812 $ 137,431
========= =========
</TABLE>
NOTE 12: PROFIT SHARING
The Bank operates a noncontributory profit sharing plan for all
eligible employees. The contribution for the year ended June
30, 1995 was $16,337, and the contribution for the year ended
June 30, 1994 was $0, and the contribution for the year ended
June 30, 1993 was $19,209.
NOTE 13: DEFERRED COMPENSATION PLAN
The Bank instituted a non-contributory non-qualified deferred
compensation plan, effective November 1, 1988 for the
Directors and officers of the Bank. The plan provides for
payment upon retirement, death or disability. The Bank has
purchased whole-life insurance contracts on the directors.
The policy cash surrender values of $1,179,400 and $1,300,800
at June 30, 1994 and June 30, 1995, respectively, are
included in assets. The Bank has paid and expensed net costs
related to this plan of $161,227 for the year ended June 30,
1993, $142,438 for the year ended June 30, 1994 and $144,445
for the year ended June 30, 1995.
NOTE 14: EMPLOYEE STOCK OWNERSHIP PLAN
On July 23, 1992, the Bank established a leveraged Employee
Stock Ownership Plan (ESOP) and Trust to provide retirement
benefits to substantially all employees. On August 13, 1992,
18,000 shares of Macomb Federal Savings Bank stock were
purchased by the Employee Stock Ownership Trust (ESOT) which
was established to fund the ESOP. The trust purchased these
shares with $180,000 borrowed from Comerica Bank. The Bank
has guaranteed the repayment of this loan. Under the
guarantee agreement, the Bank is obligated to make cash
contributions to the trust to enable the trust to make
payments against the bank loan. The agreement requires
quarterly principal payments of $9,000, plus interest. The
annual interest rate on the note of $180,000 is 7.25%. For
financial statement purposes, the Bank accounts for its
Page 39
<PAGE> 113
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1993, 1994 and 1995
NOTE 14: EMPLOYEE STOCK OWNERSHIP PLAN
ESOP in accordance with ETIF 89-8. Accordingly, the ESOT
obligation has been reflected as a liability and
stockholders' equity has been reduced by a like amount. As
principal payments are made compensation expense is recorded
and shares become outstanding for earnings-per share (EPS)
computations. ESOP compensation expense was $36,000 for year
ended June 30, 1995 and $36,000 for year ended June 30, 1994.
<TABLE>
<CAPTION>
June 30, 1994 June 30, 1995
------------- -------------
<S> <C> <C>
Allocated shares 3,060 3,672
Shares released for allocation 3,819 6,879
Unreleased shares 11,121 7,449
------- -------
Total ESOP Shares 18,000 18,000
======= =======
</TABLE>
NOTE 15: CONCENTRATION OF CREDIT RISK
The Bank is primarily engaged in providing mortgage loans on
residential properties in the metropolitan Detroit area. A
substantial portion of the Bank's cash is maintained at the
Federal Home Loan Bank of Indianapolis (FHLB). The Bank has
exposure to credit risk due to the fact that these funds are
not covered by the Federal Deposit Insurance Corporation.
However, all funds held at the FHLB have an implicit
guarantee of the United States Department of the Treasury.
At June 30, 1995, funds held by the FHLB totaled $2,128,526.
In addition, the Bank maintains cash equivalents in a money
market account held by a broker that is insured up to
$100,000 by the Securities Investor Protection Corporation.
The funds in the money market account are invested 100% in
U.S. Government securities. At June 30, 1995, these funds
totaled $133,151. Management believes that their credit risk
is not significant.
NOTE 16: INCENTIVE STOCK OPTION AGREEMENT
The bank has adopted an incentive stock option agreement for
the chief operating officer under which options are available
to purchase 4,500 shares of the common stock (par value
$1.00) at an exercise price of $21.00 per share. This option
is exercisable from September 22, 1995 through September 22,
2005. An expense is accrued for the amount by which the
market value of the stock exceeds the option price for each
outstanding right. As of June 30, 1995, no stock rights have
been excercised.
Page 40
<PAGE> 114
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1993, 1994 and 1995
NOTE 17: CONTINGENT LIABILITIES
The FDIC has proposed a one-time assessment on all SAIF-insured
deposits, in the range of 85 cents to 90 cents per $100 of
domestic deposits, held as of March 31, 1995. This one-time
assessment is intended to recapitalize the SAIF to the
required level of 1.25% of insured deposits and would be
payable on January 1, 1996.
If the assessment is made at the proposed rate, the effect on
Macomb Federal Savings Bank would be a pretax charge of
approximately $285.6 thousand (0.85% on deposits of $33,600
thousand at March 31, 1995) or $188.5 thousand after tax (34%
assumed tax rate).
* * * * *
Page 41
<PAGE> 115
EXHIBIT 28
PROXY STATEMENT FOR 1995 ANNUAL MEETING
<PAGE> 116
MACOMB FEDERAL SAVINGS BANK
23505 GREATER MACK AVENUE
ST. CLAIR SHORES, MICHIGAN 48080
September 25, 1995
Dear Shareholder:
We invite you to attend the annual meeting of the shareholders of
Macomb Federal Savings Bank, which will be held on Thursday, October 26, 1995,
at 4:00 p.m., at the Bank's office, 23505 Greater Mack Avenue, St. Clair
Shores, Michigan.
Shareholders will be asked at the annual meeting to vote on the
election of three directors and to approve the auditors for the fiscal year.
During the meeting, members of the Bank's management will also report on
operations and other matters affecting the Bank and will be available to
respond to shareholders' questions.
Your vote is important, regardless of the number of shares you own.
On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed proxy card as soon as possible, even if you currently plan to attend
the annual meeting. This will not prevent you from voting in person, but will
assure that your vote is counted if you are unable to attend the meeting.
Coffee and soft drinks will be available prior to the meeting, during
which time the members of the Board of Directors hope to visit with you
personally.
Sincerely,
Stanley A. Jacobson
Stanley A. Jacobson
President
<PAGE> 117
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 26, 1995
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders of
Macomb Federal Savings Bank (the "Bank") will be held at the Bank's office,
23505 Greater Mack Avenue, St. Clair Shores, Michigan, on Thursday, October 26,
1995, at 4:00 p.m., local time, for the following purposes:
1. To elect three directors.
2. To approve the appointment of Kelman, Rosenbaum, Rollins
& Quayhackx, P.C., independent certified public accountants,
as the auditors of the Bank for the fiscal year ending
June 30, 1996.
3. To transact such other business as may properly come before
the annual meeting or any adjournment thereof.
The Board of Directors has selected September 15, 1995, as the record
date for the annual meeting. Only those shareholders of the Bank of record at
the close of business on that date will be entitled to notice of and to vote at
the annual meeting or any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
James H. Hudnut
James H. Hudnut
Secretary
St. Clair Shores, Michigan
September 25, 1995
<PAGE> 118
MACOMB FEDERAL SAVINGS BANK
23505 GREATER MACK AVENUE
ST. CLAIR SHORES, MICHIGAN 48080
_____________________
ANNUAL MEETING
______________
PROXY STATEMENT
_______________
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Macomb Federal Savings Bank (the
"Bank") for use at the annual meeting of the shareholders of the Bank to be
held on Thursday, October 26, 1995, and at any adjournments thereof. The
approximate date of mailing of this proxy statement is September 25, 1995.
The close of business on September 15, 1995, has been selected as the
record date for the determination of shareholders entitled to notice of and to
vote at the annual meeting. On that date 186,604 shares of the Bank's common
stock, par value $1.00 per share, were outstanding. Shareholders will be
entitled to one vote for each share of the Bank's common stock held by them of
record at the close of business on the record date on any matter that may be
presented for consideration and action by the shareholders.
A majority of the votes eligible to be cast at the annual meeting will
be necessary for approval of Proposal 1 described herein. A majority of the
votes cast by shareholders at the annual meeting in person or by proxy will be
necessary for approval of Proposal 2 described herein.
All valid proxies received in response to this solicitation will be
voted in accordance with the instructions indicated thereon by the shareholders
giving such proxies. If no instructions are given, such proxies will be voted
in favor of the election of the directors named in this proxy statement, in
favor of the appointment of auditors and in the discretion of the proxyholders
on such other matters as may properly be brought before the annual meeting.
The Board of Directors does not know of any business to be presented
for action at the annual meeting other than that described herein and
procedural matters incident to the conduct of the meeting. However, if any
other business is properly presented before the annual meeting and may properly
be voted upon, the proxies solicited hereby will be voted on such matters in
accordance with the best judgment of the proxyholders named therein. Any
shareholder has the power to revoke his proxy at any
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<PAGE> 119
time before it is voted at the annual meeting by giving written notice of such
revocation to the Secretary of the Bank (including the filing of a duly
executed proxy bearing a later date) or upon request if the shareholder is
present at the annual meeting and chooses to vote in person.
PROPOSAL 1
ELECTION OF DIRECTORS
Three directors will be elected at the meeting to serve for a three-year
period. Unless authority is withheld, all proxies received in response to this
solicitation will be voted for the election of the nominees listed below. The
nominees have indicated a willingness to serve if elected. However, if any of
the nominees become unable to serve, the proxies received in response to this
solicitation will be voted for a replacement nominee selected in accordance
with the best judgment of the proxyholders named therein.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING NOMINEES
TO THE BANK'S BOARD OF DIRECTORS.
NOMINEES FOR ELECTION AS DIRECTOR
<TABLE>
<CAPTION>
YEAR
PRESENT
POSITION HELD DIRECTOR TERM WILL
NAME WITH BANK SINCE EXPIRE
- ---- ------------- -------- --------
<S> <C> <C> <C>
NOMINEES FOR THREE-YEAR TERM:
Paul E. Andrews Director 1985 1995
Esther Mason Executive Vice President, 1969 1995
Treasurer and Director
Steven E. Zack Director 1989 1995
DIRECTORS CONTINUING IN OFFICE:
Jon M. Fox Director 1986 1996
James H. Hudnut Secretary and Director 1956 1996
Mark T. Jacobson Chairman of the Board 1956 1996
Stanley A. Jacobson President, Chief Executive 1975 1997
Officer and Director
</TABLE>
Directors and Nominees
The business experience of each director and nominee is set forth
below. Unless otherwise stated, all directors have held the positions
described for at least the past five years.
2
<PAGE> 120
MARK T. JACOBSON, age 71, is President of Mark Jacobson and
Associates, Inc., a building development and property management firm. From
1956 until 1989, Mr. Jacobson served as both Chairman of the Board and
President of the Bank. Mark T. Jacobson is the father of Stanley A. Jacobson.
STANLEY A. JACOBSON, age 45, became Vice President of the Bank in
1985, Senior Vice President in 1986, and President of the Bank in 1989. Stanley
A. Jacobson is the son of Mark T. Jacobson.
JAMES H. HUDNUT, age 67, is an attorney with the law firm of James H.
Hudnut, located in Troy, Michigan.
ESTHER MASON, age 64, has served in various capacities with the Bank
since 1956. She is currently the Bank's managing officer, Executive Vice
President and Treasurer.
DR. PAUL E. ANDREWS, age 72, served as Executive Director of the Wayne
State University Alumni Association until his retirement in 1991. Dr. Andrews
remains actively involved with the University.
JON M. FOX, age 53, is a partner in Woodward Financial Group, Inc., a
mortgage banking firm, located in Bloomfield Hills, Michigan.
STEVEN E. ZACK, age 45, is currently an independent insurance agent
associated with J.A. Versical and Associates in St. Clair Shores, Michigan.
From June 1991 to May 1992, Mr. Zack served as National Marketing Coordinator
of Burns and Wilcox, Ltd., a national insurance underwriting and brokerage
firm, located in Southfield, Michigan. From 1986 through 1990, Mr. Zack was
President and Chief Executive Officer of Republic Hogg Robinson, a national
retail insurance broker, located in Southfield, Michigan.
Executive Officer of the Bank who is not a Director
Jeffrey I. Kopelman, Executive Vice President and Chief Operating
Officer of the Bank is not a director.
Corporate Governance and Other Matters
The Bank's Board of Directors meets monthly and may have
additional special meetings. The Board of Directors met 12 times during the
year ended June 30, 1995. All directors attended at least 75% of all Board
meetings and all meetings held by the committees of the Board on which he or
she served.
The Board of Directors has established a Salary Committee and an
Investment Committee. The Board of Directors does not have standing audit and
nominating committees. The Salary Committee
3
<PAGE> 121
meets on call of the Board of Directors of the Bank to review the salaries of
all officers and employees. Members of this committee are Mark T. Jacobson,
Stanley A. Jacobson and James H. Hudnut. The Investment Committee recommends
investment policies to the Board of Directors as well as specific investments
for the Bank. The members of this committee are Mark T. Jacobson, Stanley A.
Jacobson, James H. Hudnut and Esther Mason.
Each director of the Bank receives a fee of $5,040 per year. Members
of the Investment Committee receive a fee of $2,520 per year. The Chairman of
the Board receives an additional $5,040 per year. Fees paid to directors
totalled $50,400 for the year ended June 30, 1995. These fees are deferred and
applied toward the Bank's deferred compensation plan. See "Executive
Compensation and Related Transactions -- Deferred Compensation Plan."
Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Bank's Common Stock as of September 15, 1995 by (i)
each director; (ii) all persons known by the Bank to be beneficial owners of 5%
or more of the Bank's common stock; and (iii) all directors and officers of the
Bank as a group. Unless otherwise indicated, each shareholder has sole voting
and investment power with respect to the shares beneficially owned.
4
<PAGE> 122
<TABLE>
<CAPTION>
Number Percent
SHAREHOLDER OF SHARES OF CLASS
- ----------- --------- --------
<S> <C> <C>
Mark T. Jacobson, Chairman of the Board 32,455 17.39%
Stanley A. Jacobson, President, Chief 32,225 17.27
Executive Officer and Director
Esther Mason, Executive Vice President, 9,000 (1) 4.82
Treasurer and Director
James H. Hudnut, Secretary and Director 4,650 (2) 2.49
Paul E. Andrews, Director 5,400 (3) 2.89
Jon M. Fox, Director 4,000 2.14
Steven E. Zack, Director 17,000 (4) 9.11
Directors and officers as a group 105,080 56.31
(8 persons)
Macomb Federal Savings Bank Employee 18,000 9.65
Stock Ownership Plan
23505 Greater Mack Avenue
St. Clair Shores, MI 48080
Karen Jacobson 19,479 (5) 10.44
4857 Dover Road
Bloomfield Hills, MI 48304
Scott R. Jacobson 17,000 (6) 9.11
455 Aspen
Birmingham, MI 48009
Lance S. Gad 9,500 5.09
1250 Fence Row Drive
Fairfield, Connecticut 06430
</TABLE>
- -------------------------
(1) All of the shares owned by Mrs. Mason are held jointly with her
spouse with shared voting and investment power.
(2) All of the shares owned by Mr. Hudnut are held by his spouse as
trustee, with sole voting and investment power.
(3) All of the shares owned by Dr. Andrews are held jointly with his
spouse with shared voting and investment power. Does not include the
shares owned by the Macomb Federal Savings Bank Employee Stock
Ownership Plan, of which Dr. Andrews serves as trustee. Dr. Andrews
disclaims beneficial ownership of such shares.
(4) Of the shares owned by Mr. Zack, 9,000 are held by him with sole
voting and investment power, 5,500 are held by him with sole voting
and investment power as custodian under a trust for the benefit of his
niece and 2,500 are held by his sister with sole voting and investment
power. Mr. Zack disclaims beneficial ownership of shares owned by his
sister.
(5) Karen Jacobson is the daughter of Mark T. Jacobson and the sister
of Stanley A. Jacobson and Scott R. Jacobson.
(6) Scott R. Jacobson is the son of Mark T. Jacobson and the brother of
Stanley A. Jacobson and Karen Jacobson.
5
<PAGE> 123
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation.
The following table sets forth cash and certain other compensation paid or
accrued by the Bank for the chief executive officer and for each of the other
most highly compensated key policy making executive officers of the Bank. The
Bank has paid or accrued substantially all of the cash compensation shown.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION 1/ LONG TERM COMPENSATION
- -----------------------------------------------------------------------------------------------------------------------------------
AWARDS PAYOUTS
- -----------------------------------------------------------------------------------------------------------------------------------
Name and Year Ended Salary($) Bonus($) Other Restricted Option/ LTIP All Other
Principal June 30, 3/ Annual Stock SARS (#) Payouts Compensation
Positions 2/ Compensation Award ($) ($)
($) 4/ ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanley A. Jacobson 1993 42,000 0 19,545 0 0 0 0
CEO and President 1994 42,000 0 49,066 0 0 0 0
1995 42,000 0 31,240 0 0 0 0
Esther Mason 1993 57,965 13,500 66,060 0 0 0 0
Executive Vice-President 1994 76,035 8,500 79,203 0 0 0 0
and Treasurer 1995 85,210 8,500 102,769 0 0 0 0
No other officers
compensation exceeded
$100,000
</TABLE>
1/ Deferred compensation includable in category and year earned.
2/ CEO and four highest paid officers earning over $100,000 in latest
fiscal year are the individuals required to be disclosed for the three years.
Calculation of highest paid is based on the total of 3 annual compensation
columns.
3/ Cash Bonus
4/ Includes (a) annual contribution to vested pension plan (b) annual
value of stock certificates allocated within the Bank's E.S.O.P. (year ended
June 30, 1995 only) and (c) increase in accrued deferred officer and director
compensation plan.
6
<PAGE> 124
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholders return on
the common stock of the Bank with that of the S&P Stock 500 Index, a broad
market index published by Standard & Poor's Corporation and the SNL Index of
All Thrifts, a thrift market index published by SNL Securities beginning in
August, 1992 when the Bank became a reporting company.
Comparison of Three-Year Cumulative Total Return
Among the Bank, the S&P 500 Index and the SNL Thrift Index.
<TABLE>
<CAPTION>
1992 1993 1994 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Macomb Federal Savings Bank 100.00 150.50 210.00 260.00
- --------------------------------------------------------------------------
S&P 500 Index 100.00 109.25 107.73 132.08
- --------------------------------------------------------------------------
SNL Thrift Index: All Thrifts 100.00 146.80 181.10 210.62
- --------------------------------------------------------------------------
</TABLE>
7
<PAGE> 125
Profit-Sharing Plan
The Bank maintains a profit-sharing plan (the "Plan") for all eligible
employees (the "Participants"). In order to be eligible, an employee must
attain age 21, complete 12 consecutive months of credited service with the
Bank, and complete 1,000 hours of credited service in such 12 month period.
The Plan is funded by the Bank through contributions to a trust administered by
the Bank and for which the trustees are James H. Hudnut, Mark T. Jacobson,
Stanley A. Jacobson and Esther Mason. Each plan year, the Bank may make a
contribution to the Plan, although no Bank contribution is required to be made.
If the Plan is "top heavy" for purposes of ERISA for any plan year, a minimum
contribution is required and certain allocation procedures must be followed.
Participants are not allowed to make contributions.
The Plan is designed to provide periodic benefits of vested amounts to
Participants upon (i) retirement or (ii) total and permanent disability. The
Plan also provides a pension benefit upon severance from employment and an
automatic beneficiary pension benefit in the event of death, so long as the
Participant had not yet begun to receive any benefit payments. Plan benefits
are paid in the form of (i) a single life annuity if the Participant is single
at the time benefits are to commence, (ii) a 50% qualified joint and survivor
annuity if the Participant is married at the time benefits are to commence or
(iii) a qualified pre-retirement survivor annuity if the Participant was
married at the time of death, so long as death occurs prior to retirement or
other separation from service and prior to the commencement of payment of any
other benefit under the Retirement Plan. However, if properly elected,
alternative forms of benefits are available.
Each Bank contribution is allocated to an account for each Participant
in the same proportion as such Participant's compensation bears to the total
compensation of all Participants. In order to be entitled to receive an
allocation for a plan year, a Participant must (i) be employed by the Bank on
the last day of the plan year and (ii) must have completed at least 1,000 hours
of credited service for the Bank during the plan year.
A Participant becomes 100% vested in his or her account over a period
of six years, commencing with 20% vesting after two years of service and
increasing by 20% each year thereafter. If a Participant becomes totally and
permanently disabled while serving as an active employee of the Bank and such
disability continues for at least six months, such Participant will become 100%
vested in his or her account regardless of the number of years of service
completed.
For the fiscal year ended June 30, 1995, the Bank allocated $22,051
to the Plan participants. Of this amount, $15,945 was attributable to the
accounts of Esther Mason and Jeffrey I. Kopelman. Stanley A. Jacobson,
President of the Bank, is ineligible
8
<PAGE> 126
to participate in the Plan.
Bonus Plan
The Bank has a bonus plan for all full-time and part-time employees of
the Bank. Under the plan, bonus money is made available to the extent of the
net profits of the Bank up to 10% of an employee's base salary. Bonuses are
paid to employees based upon a percentage of an employee's base annual salary
as defined in the plan. The determination of the amount of a bonus to be paid
under the plan is made by the Board of Directors. During the fiscal year ended
June 30, 1995, bonuses under this plan aggregating $13,668 were paid to
employees of the Bank.
Deferred Compensation Plan
The Bank maintains a Deferred Compensation Plan for its directors and
provides separate retirement benefits as part of such plan for Esther Mason,
the Executive Vice President of the Bank, and Mark T. Jacobson, the Chairman of
the Board of Directors of the Bank and the former President of the Bank. Under
the Deferred Compensation Plan, directors are permitted to elect to defer a
portion of their directors' and committee fees in order to receive retirement
or death benefits. Deferral is required for 10 years and the amounts deferred
are not required to be reported as income of the director in the year of
deferment.
In order to fund the Deferred Compensation Plan, the Bank has obtained
key man insurance contracts on the life of each participating director. When a
director dies, the Bank receives the insurance proceeds from the policy and the
funds received are used to fund the Bank's obligation under the Deferred
Compensation Plan. Any proceeds in excess of the Bank's obligations under the
plan are retained by the Bank. The cash surrender value of these insurance
policies was $1,300,800 at June 30, 1995.
As a result of OTS supervisory concerns about the Deferred
Compensation Plan, the Bank restructured the plan in May 1992 to eliminate all
Bank contributions toward the plan except for directors' deferred fees. The
OTS had criticized the plan, including the rate of return which the Bank is
receiving on the investment portion of the plan. In response to this
criticism, the Bank engaged an independent actuarial firm to determine the
effect of the Bank discontinuing premium payments except to the extent of the
director deferrals. The actuarial firm concluded that, as a result of such
discontinuation, director deferrals of their fees would be sufficient to fund
the Bank's obligations under the plan, except that the retirement benefits
payable to Mark T. Jacobson, Chairman, Stanley A. Jacobson, President and
Steven E. Zack, director, would be reduced. Based on this actuarial
determination, the Bank has discontinued making premium payments except to the
extent of director deferrals. Furthermore, Mark T. Jacobson, Stanley A.
Jacobson and Steven E. Zack have agreed to accept
9
<PAGE> 127
reduced benefits under the Deferred Compensation Plan.
Under the directors' portion of the Deferred Compensation Plan, the
Bank enters into a contractual agreement with the directors to pay a monthly
benefit in the event of retirement or death, whichever occurs first. Upon
retirement, the director receives monthly income for five years. If the
director dies prior to the end of such five year period, the director's
beneficiary will receive the remaining benefits. In the event of death prior
to retirement, the director's beneficiary will receive monthly benefits for
five years.
The Bank has entered into separate retirement benefits arrangements as
part of its Deferred Compensation Plan with Esther Mason and Mark T. Jacobson.
Prior to May 1992, the Bank funded these benefits through contributions toward
the premiums on the key man insurance contracts on the lives of these
individuals. Effective May 1992, the Bank discontinued making such
contributions. Under these separate deferred compensation arrangements, Mrs.
Mason and Mark T. Jacobson will receive retirement benefits of 70% of their
average base pay for the last five years prior to retirement, if retiring at
age 65, or an additional 1% per year worked after age 65, up to a maximum of
75% of average base pay. In no event shall benefits exceed $1,838 per month
payable monthly for 180 months for Mark T. Jacobson and $4,764 per month
payable monthly for 180 months for Mrs. Mason.
The following table sets forth certain information regarding the
Deferred Compensation Plan for directors as of June 30, 1995.
<TABLE>
<CAPTION>
Date
Accrued Benefits Estimated
Amount Retirement Scheduled Monthly Benefits
Fees Deferred Benefits to Begin for Five Years
------------- -------- -------- --------------
<S> <C> <C> <C> <C>
Paul Andrews $50,880 $42,002 1993 $ 1,185
Jon M. Fox 55,920 69,861 2007 11,280
James H. Hudnut 72,180 125,045 1998 5,125
Mark T. Jacobson 97,350 108,253 1994 2,464
Stanley A. Jacobson 72,180 76,549 2014 33,760
Esther Mason 72,180 118,405 2001 7,217
Steven E. Zack 47,880 42,631 2015 19,751
</TABLE>
The separate retirement benefits for Esther Mason under the plan are
scheduled to begin in 1996. These benefits are estimated to be $4,764 per
month for 15 years. Separate retirement benefits for Mark T. Jacobson of
$1,838 per month for 14 years and $1,341 per month in the 15th year began to be
paid in December, 1994.
10
<PAGE> 128
Employment Agreements
The Bank has entered into employment agreements with Stanley A.
Jacobson, President and Chief Executive Officer of the Bank and Jeffrey I.
Kopelman, Executive Vice President and Chief Operating Officer of the Bank.
Mr. Jacobson's agreement is for a term of three years beginning August 13,
1995, and requires him to devote a minimum of one-third of his time or an
average of twelve hours per week each year to the business and affairs of the
Bank. Mr. Jacobson will receive an annual base salary of not less than $42,000
subject to annual review and such upward adjustments as deemed appropriate by
the Board of Directors of the Bank, and an annual cost of living increase. In
addition, Mr. Jacobson will be entitled to participate in the Bank's bonus
programs, incentive compensation programs, and retirement, stock option and
stock purchase plans as now, or to be, in effect, as well as such other fringe
benefits as deemed appropriate by the Board or otherwise made available to
executive officers. If Mr. Jacobson becomes disabled during the term of his
employment, the Bank will continue to compensate him for the greater of the
remaining term of his agreement or two years.
The Bank may terminate Mr. Jacobson's employment for "cause," which is
defined under the agreement as personal dishonesty, incompetence or willful
misconduct, the breach of fiduciary duty involving personal profit, the
intentional failure to perform stated duties, the willful violation of any law,
rule, regulation (other than traffic violations or similar offenses),
violation, of any kind, of a cease and desist order, or a material breach of
the employment agreement. Upon such termination, Mr. Jacobson's right to
receive compensation and other benefits under the employment agreement will
terminate immediately, except that any vested rights of Mr. Jacobson will not
be affected. The Bank may also terminate Mr. Jacobson's employment without
cause, upon payment to him of 2.99 times his W-2 income. The failure of Mr.
Jacobson to be elected, re-elected or appointed as a member of the Board of
Directors or a substantial reduction in his duties or responsibilities will be
deemed to be a termination without cause by the Bank.
Mr. Jacobson's employment agreement provides that, in the event of (1)
a change in ownership or control of the Bank or a substantial portion of its
assets and (2) a substantial reduction in his duties or a failure to elect him
as a member of the Board of Directors, Mr. Jacobson will have the right to
terminate his employment upon five day's written notice to the Board, which
notice must be delivered during the 180-day period following the change in
ownership or control. If Mr. Jacobson exercises this right, or if he is
terminated by the Bank without cause on or before the first anniversary date of
a change in control, he will be entitled to receive within 60 days of
termination, a lump sum compensation. As of June 30, 1995, these benefits are
estimated to have a value of $125,580.
11
<PAGE> 129
Mr. Kopelman's agreement is for a term of two years. Mr. Kopelman
will receive a base salary of $75,000, beginning September 1, 1995, and an
automobile and health insurance allowance. In addition, he is entitled to
participate in any incentive compensation, retirement plans, stock options
plans and stock purchase plans, bonus programs, profit sharing and ESOP plans
made available. If Mr. Kopelman becomes disabled during the term of his
employment, the Bank will continue to compensate him for the two years or the
remaining term of the agreement, whichever is the least.
The Bank may terminate Mr. Kopelman's employment for "cause" which is
defined under the agreement as personal dishonesty, incompetence or willful
misconduct, the breach of fiduciary duty involving personal profit, the
intentional failure to perform stated duties, the willful violation of any law,
rule, regulation (other than traffic violations or similar offenses),
violation, of any kind, of a cease and desist order, or a material breach of
the employment agreement. Upon such termination, Mr. Kopelman's right to
receive compensation and other benefits under the employment agreement will
terminate immediately except that any vested rights of Mr. Kopelman will not be
affected. A substantial reduction in his duties or responsibilities will be
deemed to be a termination without cause under the agreement.
Mr. Kopelman's employment agreement provides that, in the event of (1)
a change in ownership or control of the Bank or a substantial portion of its
assets and (2) a substantial reduction in his duties or responsibilities
occurs, Mr. Kopelman will have the right to terminate his employment upon five
day's written notice to the Board, which notice must be delivered during the
180-day period following the change in ownership or control. If Mr. Kopelman
exercises this right, he will be entitled to receive the compensation remaining
under the agreement, or a minimum of one years compensation from the date of
termination, payable 20 days from the termination date of employment. As of
September 1, 1995, these benefits are estimated to have a value of $180,000.
The aforementioned employment agreements may tend to discourage a
non-negotiated takeover attempt of the Bank due to the increased expenses
arising out of a change in ownership or control of the Bank or a substantial
portion of its assets.
Employee Stock Ownership Plan
In April 1992, the Board of Directors of the Bank adopted the Macomb
Federal Savings Bank Employees Stock Ownership Plan (the "ESOP" or "Plan").
The ESOP invests primarily in the common stock of the Bank ("Employer Stock")
which, along with other ESOP assets are held in trust by Paul E. Andrews, as
ESOP Trustee, pursuant to a trust agreement. Subject to eligible participants'
right to diversify the investment of up to 50% of their plan benefits in
12
<PAGE> 130
investment vehicles other than Employer Stock (as explained in the paragraphs
below), the Trustee is authorized to invest in and hold up to 100% of the trust
in Employer Stock but is also authorized to invest in other securities, such as
equity stocks, corporate obligations and other investments.
Any employee of the Bank is eligible to become a participant
in the ESOP upon the completion of at least 500 hours of service in a 12-month
period and the attainment of age 21.
The ESOP purchased 18,000 shares (9.65%) of Employer Stock in the
conversion with funds borrowed from Manufacturers Bank, N.A., Southfield,
Michigan, now known as Comerica Bank. The Bank makes scheduled cash
contributions to the ESOP sufficient to support the debt service of the loan,
which is approximately $48,000 per year. The Bank may, in any plan year, make
additional discretionary contributions in either shares of Employer Stock or
cash subject to limitations imposed by law. Shares purchased with loan
proceeds are held unallocated in a suspense account and released for allocation
among participants as the loan is repaid.
Shares of Employer Stock released from the suspense account are
allocated among the participants in proportion to their compensation.
Compensation is defined by the Plan to include base salary and wages paid,
including overtime, bonuses and commissions. All participants must have
completed at least 500 hours of service during the plan year (July 1 through
June 30) and be employed on June 30 each plan year to be entitled to share in
an allocation with respect to such plan year. Forfeitures (nonvested employer
contributions associated with terminated participants) will be reallocated
among participants in the same manner as employer contributions are allocated.
The ESOP is administered by a committee appointed by the Board of
Directors (the "Committee") which oversees the day-to-day operations of the
ESOP. The Committee also directs the Trustee on the investments that may be
made by the ESOP and the loans that may be incurred for the purchase of shares
of Employer Stock. The members of the Committee are Stanley A. Jacobson, James
H. Hudnut and Jon M. Fox.
Each participant becomes vested (i.e., acquires an ownership interest)
in 100% of his or her account balance after five years of service. If a
participant terminates employment with the Bank prior to the completion of five
years of service, he or she will not have any ownership interest in any
benefits held under the ESOP. For purposes of determining a participant's
years of vesting service, an employee begins accruing vesting service beginning
on the initial effective date of the Plan, which is the date of the Conversion.
If the ESOP is top heavy in any plan year (any plan year in which 60% or more
of the accumulated plan benefits are allocated to key employees), then the ESOP
must vest participants
13
<PAGE> 131
on a more accelerated vesting schedule: 20% after two years of
service, 20% for each subsequent year of service until full vesting after six
years of service.
A participant will be entitled to direct the Trustee as to the manner
in which all shares of Employer Stock allocated to his or her account are to be
voted. The Trustee will vote the shares in the same proportion that
participants vote. In addition, the ESOP provides that the Trustee will vote
unallocated Employer Stock in the manner determined by the Committee.
Adoption of the ESOP may be considered an anti-takeover device since
the ESOP may become the owner of a sufficient percentage of the total
outstanding Employer Stock so that the vote of the Trustee (or of Plan
participants) may serve as a defense in a hostile takeover.
As of September 15, 1995, the ESOP held 18,000 shares (9.65%) of
Employer Stock and had allocated 10,551 shares to participant accounts. The
Bank made contributions of $43,098 to the ESOP during the year ended June 30,
1995. This amount was charged to expense in the accompanying statements.
Incentive Stock Option Plan
On September 22, 1994, the Board of Directors approved an incentive
stock option plan. On that date the directors granted the Executive Vice
President, Chief Operating Officer, 4,500 stock options at $21.00 per share.
Transactions with Certain Related Persons
The Bank has followed the policy of offering loans to its directors,
officers and employees for the financing of their principal residences and for
other purposes. In accordance with FIRREA, these loans are made in the
ordinary course of business on substantially the same terms and collateral,
including interest rates, as those of comparable transactions prevailing at the
time and do not involve more than the normal risk of collectibility or present
other unfavorable features. The Bank currently has no outstanding loans with
any of its directors, officers or employees.
The law firm of James H. Hudnut, of which James H. Hudnut, a director
of the Bank, was a principal, served as general counsel to the Bank. Fees paid
to James H. Hudnut by the Bank did not exceed 5% of the firm's gross revenues
for that firm's last fiscal year.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Bank's directors and executive officers, and persons who own
14
<PAGE> 132
more than 10% of a registered class of the Bank's equity securities, to file
with the OTS initial reports of ownership and reports of changes in ownership
of equity securities of the Bank. Officers, directors and greater than 10%
shareholders are required by regulation to furnish the Bank with copies of all
Section 16(a) forms they file. During the fiscal year ended June 30, 1995, the
Bank's Chairman of the Board and President were subject to the Section 16(a)
filing requirements.
PROPOSAL 2
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Kelman, Rosenbaum,
Rollins & Quayhackx, P.C., independent certified public accountants, to audit
the financial statements of the Bank for the fiscal year ending June 30, 1996.
A proposal to approve the appointment of Kelman, Rosenbaum, Rollins, &
Quayhackx, P.C. will be presented to the Bank's shareholders at the annual
meeting. Representatives of Kelman, Rosenbaum, Rollins & Quayhackx, P.C. are
expected to be present at the annual meeting and available to respond to
questions. The representatives will also be provided an opportunity to make a
statement, if they desire.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPOINTMENT OF KELMAN, ROSENBAUM, ROLLINS & QUAYHACKX, P.C.
COSTS OF SOLICITATION
The costs of this proxy solicitation will be paid by the Bank. To the
extent necessary, proxies may be solicited by personnel of the Bank in person
or by telephone, telegram or other means. Bank personnel will not receive any
additional compensation for solicitation of proxies unless such solicitation
requires such persons to work overtime. If deemed necessary, the Bank may
retain a proxy solicitation firm. The Bank will request record holders of
shares beneficially owned by others to forward this proxy statement and related
materials to the beneficial owners of such shares and will reimburse such
record holders for their reasonable expenses incurred therewith.
FORM 10-K ANNUAL REPORT
THE BANK WILL PROVIDE (WITHOUT CHARGE) TO ANY SHAREHOLDER SOLICITED
HEREBY A COPY OF ITS 1995 ANNUAL REPORT ON FORM 10-K FILED WITH THE OFFICE OF
THRIFT SUPERVISION UPON THE WRITTEN REQUEST OF SUCH SHAREHOLDER. REQUESTS
SHOULD BE DIRECTED TO THE BANK'S SECRETARY, 23505 GREATER MACK AVENUE, ST.
CLAIR SHORES, MICHIGAN 48080.
15
<PAGE> 133
OTHER MATTERS
Management does not know of any other matters to be presented for
action by shareholders at the annual meeting. If, however, any other matters
not now known are properly brought before the meeting, the persons named in the
accompanying proxy will vote such proxy in accordance with their judgment on
such matters.
SHAREHOLDER PROPOSALS
All proposals of shareholders to be presented for consideration at the
next annual meeting must be received by the Bank no later than May 24, 1996.
MACOMB FEDERAL SAVINGS BANK
September 25, 1995
16
<PAGE> 1
EXHIBIT 99(b)
OFFICE OF THRIFT SUPERVISION
WASHINGTON, D.C. 20552
____________________
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934
For the transition period from to
------------- ----------
OTS Docket Number 6092
MACOMB FEDERAL SAVINGS BANK
---------------------------
(Exact name of registrant as specified in its charter)
United States 38-1524859
- ------------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
23505 Greater Mack, St. Clair Shores, Michigan 48080
- ---------------------------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (810) 771-2500
--------------
N/A
---------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, par value $1.00 per share 186,604
- --------------------------------------- -------
Class Outstanding at 11/3/95
<PAGE> 2
MACOMB FEDERAL SAVINGS BANK
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Condition - June 30,
1995 and September 30, 1995 (unaudited) 1-2
Statements of Operations - Three month periods
ended September 30, 1994 and September 30,
1995 (unaudited) 3-4
Statements of Cash Flows - Three month periods
ended September 30, 1994 and September 30,
1995 (unaudited) 5-6
Statement of Changes in Stockholders' Equity -
Three months ended September 30, 1995 (unaudited) 7
Notes to Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and reports on Form 8-K 15
Signatures 16
Exhibit II 17
</TABLE>
<PAGE> 3
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
As of June 30, 1995 and September 30, 1995
A S S E T S
<TABLE>
<CAPTION>
June 30, September 30,
1995 1995
------------ -------------
(Unaudited)
<S> <C> <C>
Cash and equivalents $ 2,490,204 $ 2,777,891
Certificates of deposit 2,550,000 2,452,000
Loans receivable, net 21,270,129 21,317,268
U.S. Treasury Bills, held-to-maturity
(estimated market value of $8,852,109
on June 30, 1995 and $8,894,850 on
September 30, 1995) 8,832,902 8,887,051
Mortgage-backed securities, held-to-
maturity (estimated market value of
$4,413,680 on June 30, 1995 and
$4,294,730 on September 30, 1995) 4,480,111 4,353,322
Accrued interest receivable, net 137,432 149,922
Stock in Federal Home Loan Bank, at cost 207,800 207,800
Stock in Federal Home Loan Mortgage
Corporation available-for-sale, at
fair value 243,243 246,362
Property and equipment, net 81,828 80,808
Deferred federal income taxes 149,480 177,684
Policy cash value - Officers' and
directors' benefit plan 1,300,800 1,313,391
Other assets 132,141 83,974
------------ ------------
TOTAL ASSETS $ 41,876,070 $ 42,047,473
============ ============
</TABLE>
See accompanying notes to financial statements.
Page 1
<PAGE> 4
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
<TABLE>
<CAPTION>
June 30, September 30,
1995 1995
------------ -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Deposits $ 34,256,150 $ 34,534,490
Advances from borrowers for taxes and insurance 528,766 310,744
E.S.O.P. loan payable - Comerica Bank - Current portion 36,000 36,000
Employees' and directors' pension fund payable 854,934 881,698
Other liabilities 65,020 84,876
------------ ------------
Total Current Liabilities $ 35,740,870 $ 35,847,808
LONG-TERM LIABILITIES
E.S.O.P. loan payable - Comerica Bank 45,000 36,000
------------ ------------
TOTAL LIABILITIES $ 35,785,870 $ 35,883,808
------------ ------------
STOCKHOLDERS' EQUITY
Capital Stock
Authorized 3,000,000 shares common, issued and
outstanding 186,604 shares at $1 par value $ 186,604 $ 186,604
Additional Paid-in Capital 1,429,939 1,429,939
Retained Earnings (Substantially restricted) 4,403,330 4,465,736
Net unrealized appreciation on available-for-sale
securities, net of tax of $77,957 as of June 30,
1995 and $79,017 as of September 30, 1995 151,327 153,386
------------ ------------
Totals $ 6,171,200 $ 6,235,665
Less: Unearned E.S.O.P. shares 81,000 72,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 6,090,200 $ 6,163,665
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,876,070 $ 42,047,473
============ ============
</TABLE>
See accompanying notes to financial statements.
Page 2
<PAGE> 5
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF OPERATIONS
Three Month Periods Ended September 30, 1994 and 1995
<TABLE>
<CAPTION>
Period Ended Period Ended
September 30, 1994 September 30, 1995
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 410,989 $ 437,606
Interest on investments 3,711 6,340
Interest on mortgage-backed securities 69,704 63,744
Other 145,745 210,981
--------- ---------
TOTAL INTEREST INCOME $ 630,149 $ 718,671
--------- ---------
INTEREST EXPENSES
Interest on deposits $ 337,684 $ 441,040
Interest on borrowings 2,124 1,370
--------- ---------
TOTAL INTEREST EXPENSE $ 339,808 $ 442,410
--------- ---------
NET INTEREST INCOME $ 290,341 $ 276,261
PROVISION FOR LOSSES ON LOANS - -
--------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES ON LOANS $ 290,341 $ 276,261
--------- ---------
OTHER INCOME
Charges and other fees $ 5,671 $ 5,183
Net gain on sale of real estate owned 428 1,295
Other 2 -
--------- ---------
TOTAL OTHER INCOME $ 6,101 $ 6,478
--------- ---------
OTHER EXPENSES
Salaries and benefits $ 118,600 $ 119,379
Occupancy 6,347 6,341
Insurance 23,148 23,205
Legal, audit and examination fees 24,020 23,648
Office supplies and postage 2,916 3,215
State intangibles and single business tax 1,640 12,734
Dues and assessments 5,632 3,638
Other 3,573 2,976
--------- ---------
TOTAL OTHER EXPENSES $ 185,876 $ 195,136
--------- ---------
</TABLE>
See accompanying notes to financial statements.
Page 3
<PAGE> 6
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF OPERATIONS (CONTINUED)
Three Month Periods Ended September 30, 1994 and 1995
<TABLE>
<CAPTION>
Period Ended Period Ended
September 30, 1994 September 30, 1995
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET INCOME BEFORE INCOME TAXES $ 110,566 $ 87,603
--------- ---------
FEDERAL INCOME TAX
Current $ 32,695 $ 54,461
Deferred 2,261 (29,264)
--------- ---------
TOTAL FEDERAL INCOME TAX $ 34,956 $ 25,197
--------- ---------
NET INCOME $ 75,610 $ 62,406
========= =========
AVERAGE SHARES OUTSTANDING 175,504 179,104
========= =========
EARNINGS PER SHARE $ .43 $ .35
========= =========
</TABLE>
See accompanying notes to financial statements.
Page 4
<PAGE> 7
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
Three Month Periods Ended September 30, 1994 and 1995
<TABLE>
<CAPTION>
Period Ended Period Ended
September 30, 1994 September 30, 1995
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 75,610 $ 62,406
----------- -----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation $ 532 $ 1,565
Interest on mortgage-backed securities (1,540) (1,537)
Interest on U.S. Treasury bills - (135,065)
E.S.O.P. compensation expense 9,000 9,000
Provision for deferred income taxes 2,261 (29,264)
Interest paid in advance (1,043) 41
(Increase) Decrease in:
Accrued interest receivable (48,799) (12,490)
Prepaid expenses (21,994) 2,164
Accounts receivable (499) (19)
Increase (Decrease) in:
Accrued interest on deposits 41,736 69,382
Pension fund payable 40,413 26,764
Accrued expenses and accounts payable (2,492) 11,376
Federal income tax payable 32,695 54,461
----------- -----------
Total Adjustments $ 50,270 $ (3,622)
----------- -----------
Net Cash Provided by Operating Activities $ 125,880 $ 58,784
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in certificates of deposit $ (293,000) $ 98,000
Purchased loans (862,000) (929,050)
Originated loans - (9,000)
Principal collections on loans 930,634 890,911
Purchase of U.S. Treasury bills (2,900,540) (4,919,084)
Proceeds from repayment on mortgage-backed securities 165,751 128,326
Proceeds from repayment on U.S. Treasury Bills - 5,000,000
Capital expenditures (4,629) (545)
Net increase in policy cash value -
Officers' and directors' benefit plan (9,782) (12,591)
----------- -----------
Net Cash Used by Investing Activities $(2,973,566) $ 246,967
----------- -----------
</TABLE>
See accompanying notes to financial statements.
Page 5
<PAGE> 8
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS (CONTINUED)
Three Month Periods Ended September 30, 1994 and 1995
<TABLE>
<CAPTION>
Period Ended Period Ended
September 30, 1994 September 30, 1995
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances by borrowers $ (184,725) $ (218,022)
Payments to E.S.O.P. (9,000) (9,000)
Net increase (decrease) in customer savings 925,743 208,958
----------- -----------
Net Cash Provided (Used) by
Financing Activities $ 732,018 $ (18,064)
----------- -----------
NET INCREASE (DECREASE)
IN CASH AND EQUIVALENTS $(2,115,668) $ 287,687
CASH AND EQUIVALENTS, BEGINNING OF PERIODS 8,703,457 2,490,204
----------- -----------
CASH AND EQUIVALENTS, END OF PERIODS $ 6,587,789 $ 2,777,891
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Income taxes $ - $ -
Interest 298,098 374,051
</TABLE>
See accompanying notes to financial statements.
Page 6
<PAGE> 9
MACOMB FEDERAL SAVINGS BANK
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Month Period Ended September 30, 1995
<TABLE>
<CAPTION>
Retained Net Unrealized
Additional Earnings, Appreciation on Unearned
Common Paid-in Substantially Available-For-Sale ESOP
Stock Capital Restricted Stock in FHLMC Total Shares Total
--------- ----------- -------------- ------------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JULY 1, 1995 $ 186,604 $ 1,429,939 $ 4,403,330 $ 151,327 $ 6,171,200 $ (81,000) $ 6,090,200
Net income for
the period - - 62,406 - 62,406 - 62,406
Net change in unrealized
appreciation on available-
for-sale stock, net of
$1,060 tax - - - 2,059 2,059 - 2,059
Value of E.S.O.P. shares
released - - - - - 9,000 9,000
--------- ----------- ----------- --------- ----------- --------- -----------
BALANCE,
SEPTEMBER 30, 1995 $ 186,604 $ 1,429,939 $ 4,465,736 $ 153,386 $ 6,235,665 $ (72,000) $ 6,163,665
========= =========== =========== ========= =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
Page 7
<PAGE> 10
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Basis of Presentation:
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation. The results of operations for the three months
ended September 30, 1995, are not necessarily indicative of the results that
may be expected for the entire year. The interim financial information
should be read in conjunction with the financial statements and notes in the
1995 annual report of Macomb Federal Savings Bank (The "Bank").
Earnings per Share:
Earnings per share are calculated based on adjusting the weighted average
number of shares outstanding during the period to reflect the unreleased
shares held by the E.S.O.P. As principal payments are made, compensation
expense is recorded and shares become outstanding for earnings per share
(EPS) computations. The weighted average shares outstanding during the
three month period ended September 30, 1994 was 175,504 and for the three
month period ended September 30, 1995 was 179,104.
Provision for Probable Losses:
A provision for probable losses on loans and real estate is charged to
operations based upon management's evaluation of the potential losses in its
loan and real estate portfolios. The major factors considered in evaluating
potential losses are recent loss experience, current economic conditions,
and the overall balance and composition of the loan and real estate
portfolios.
The following table sets forth certain information concerning the Bank's non-
performing assets:
<TABLE>
<CAPTION>
June 30, September 30,
1995 1995
-------- -------------
<S> <C> <C>
Accruing loans past due more than
90 days $ 0 $ 24,082
Nonaccrual loans 0 53,248
Real estate held for redemption 0 0
------- --------
Total non-performing assets $ 0 $ 77,330
======= ========
</TABLE>
Income Taxes:
The Bank's provision for federal income taxes, for all the periods presented,
varies from the statutory rates due principally from the recognition of
income and expenses on the cash basis of accounting for income tax purposes.
Page 8
<PAGE> 11
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES AND U.S. TREASURY BILLS:
The carrying value and estimated market value of mortgage-backed securities
and U.S. Treasury Bills are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1995
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held-to-Maturity
Federal Home Loan
Corporation $ 1,649,891 $ - $ 26,010 $ 1,623,881
GNMA Certificates 856,953 - 30,654 826,299
FNMA Certificates 1,973,267 - 9,767 1,963,500
----------- --------- --------- -----------
Totals $ 4,480,111 $ - $ 66,431 $ 4,413,680
=========== ========= ========= ===========
Held-to-Maturity
U.S. Treasury Bills $ 8,832,902 $ 19,207 $ - $ 8,852,109
=========== ========= ========= ===========
</TABLE>
All maturities are within twelve months.
<TABLE>
<CAPTION>
September 30, 1995
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held-to-Maturity
Federal Home Loan
Corporation $ 1,587,901 $ - $ 29,256 $ 1,558,645
GNMA certificates 793,342 - 28,427 764,915
FNMA certificates 1,972,079 - 909 1,971,170
----------- --------- --------- -----------
Totals $ 4,353,322 $ - $ 58,592 $ 4,294,730
=========== ========= ========= ===========
Held-to-Maturity
U.S. Treasury Bills $ 8,887,051 $ 7,799 $ - $ 8,894,850
=========== ========= ========= ===========
</TABLE>
All maturities are within twelve months.
* * * * *
Page 9
<PAGE> 12
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PART I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the interest earned on its loan and
investment portfolios and its cost of funds, consisting of the interest paid on
its deposits. Operating results are also affected to a lesser extent by the
type of lending, fixed rate versus adjustable or short-term, each of which has
a different rate and fee structure. The Bank's operating expenses principally
consist of employee compensation, occupancy expenses, federal insurance
premiums and other general and administrative expenses. The Bank's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and actions of regulatory authorities.
Management Strategy
The Bank has historically focused its lending activities on traditional
single family residential loans. Because of this focus, and as a result of its
relatively conservative underwriting standards, the Bank experienced minimal
losses on its loans. This lack of diversification in its asset structure does,
however, increase the Bank's portfolio concentration risk by making the value
of the portfolio more susceptible when declines in real estate values occur in
its market area.
Management's strategy has been to maintain profitability and a strong
capital position by growing at a rate that does not exceed its ability to
generate earnings. Although capital does not eliminate the exposure of the
Bank's net interest income to fluctuation in interest rates, it does allow the
Bank greater protection and flexibility when net interest income decreases as a
result of increases in the cost of funds. This strategy has been accomplished
by (i) maintaining a high asset quality, (ii) maintaining a higher level of
interest-earning assets than interest-bearing liabilities, (iii) purchasing
single family residential mortgage loans at competitive rates, either fixed or
adjustable in order to maintain controlled growth, (iv) managing deposit rates
and maintaining a strong deposit base by providing convenient and quality
service, and (v) controlling operating expenses. Since 1984, the Bank has also
sought to reduce its vulnerability to interest rate risk by purchasing ARM
loans and maintaining investments with maturities generally less than five
years. Management intends to continue its conservative lending policies while
strengthening the Bank's position within its community.
Page 10
<PAGE> 13
Consistent with management's strategy discussed above, the Bank
concentrates its lending activities on purchasing, rather than originating
mortgage loans. The size of the Bank, the small number of employees (five
full-time and two part-time employees) and the cost of establishing an
origination department have created a situation in which the purchase of
mortgage loans is more economically advantageous to the Bank than the
origination of such loans. Because of the lower cost to the Bank of purchasing
rather than originating loans, the Bank is better able to generate earnings
from its lending activities.
In recent years, the Bank did not have sufficient high quality mortgage
loans available for purchase to justify extensive investment in the mortgage
market. As a result, 21.1% of the Bank's assets were invested in United States
Treasury obligations and 10.4% of the Bank's assets were invested in
mortgage-backed securities at September 30, 1995.
Interest Rate Sensitivity
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and
by monitoring an institution's interest rate sensitivity "gap". An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets anticipated, based upon certain assumptions, to mature
or reprice within a specific time period and the amount of interest-bearing
liabilities anticipated, based upon certain assumptions, to mature or reprice
within that time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to
adversely affect net increase income while a positive gap would tend to result
in an increase in net interest income. During a period of falling interest
rates, a negative gap would tend to result in an increase in net interest
income while a positive gap would tend to adversely affect net interest income.
The Bank has taken steps to reduce or control its gap by maintaining
investments with short terms to maturity and by emphasizing loans that mature
or reprice more rapidly while preserving higher yields, such as shorter term
mortgage loans. In addition, management of the Bank believes that, given the
high level of capital of the Bank and the excess of interest-earning assets
over interest-bearing liabilities, the increased net income resulting from a
mismatch in the maturity of its asset and liability portfolios provides
sufficient returns during periods of declining or stable interest rates to
justify the increased vulnerability to sudden and unexpected increases in
interest rates. Nonetheless, the Bank closely monitors its interest rate risk
as such risk relates to management's strategy.
Page 11
<PAGE> 14
Changes in Financial Condition Over the Three-Month Period Ended September 30,
1995
Total assets increased $.1 million to $42.0 million at September 30, 1995
from $41.9 million at June 30,1995. Total liabilities increased $.1 million to
$35.9 million at September 30, 1995 from $35.8 million at June 30, 1995. This
increase was primarily due to a $.3 million increase in deposits from $34.2
million at June 30, 1995 to $34.5 million at September 30, 1995. Stockholders'
equity increased $.1 million to $6.2 million or 14.6% of total assets at
September 30, 1995.
Comparison of Operating Results for the Three Months Ended September 30, 1995
and September 30, 1994
General.
Net income for the three months ended September 30, 1995 was $62,406 as
compared to $75,610 for the three months ended September 30, 1994. A decrease
in net-interest income accounted for the decrease and is more fully explained
below.
Interest Income.
Interest income increased $88,522 to $718,671 for the three months ended
September 30, 1995 from $630,149 for the three months ended September 30, 1994.
The increase resulted primarily from an increase in loans receivable and an
increase in the average yields on United States Treasury obligations. Interest
income from loans increased $26,617 or 6.4% for the three-month period ended
September 30, 1995 from the same period in 1994, which was due to an increase
in average loan yields. Interest income from other investments including United
States Treasury obligations increased $65,236, but was more than offset by an
increase in interest expense in the three months ended September 30, 1995 from
the same period in 1994.
Interest Expense.
Interest expense for the three months ended September 30, 1995 increased
$102,602 to $442,410. This increase is primarily attributable to an increase in
average balance of passbook and certificate accounts to $34.5 million during
the three months ended September 30, 1995 from $34.2 million during the same
period in 1994, and an increase in the average cost of funds. The average cost
of passbook and certificate accounts increased to 5.29% in the three-month
period ended September 30, 1995 from 4.26% in the same period in 1994 as a
result of general market conditions.
Page 12
<PAGE> 15
Net Interest Income Before Provision for Loan Losses.
Net interest income before provision for loan losses decreased $14,080 to
$276,261 for the three months ended September 30, 1995 from $290,341 for the
three months ended September 30, 1994. The decrease resulted primarily from an
increase in the average cost of funds during the same period in 1994.
Provision for Loan Losses.
No increase in the provision for loan losses was recorded for the
three-month period ended September 30, 1995 and September 30, 1994. Management
determined that the loss reserves were adequate as of September 30, 1995 and
September 30, 1994.
Non-Interest Income.
The Bank's non-interest income in the three months ended September 30, 1995
remained virtually identical over the same period in 1994.
Non-Interest Expense.
Non-interest expense was $195,136 in the three months ended September 30,
1995 as compared to $185,876 for the same period in 1994. The increase is
attributable to an increase in the Michigan Single business tax at September
30, 1995 as compared to the period in 1994.
Income Tax Expense.
Income tax expense for the three months ended September 30, 1995 decreased
by $9,759 as a result of a decrease in net income for the three months ended
September 30, 1995 over the same period in 1994.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and investments, and
proceeds from principal and interest payments on loans. While maturities and
scheduled amortization of loans and investments are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, competition and most recently the
restructuring of the thrift industry.
The primary investing activity of the Bank is the purchase of mortgage
loans. During the three-month period ended September 30, 1995, the Bank
purchased mortgage loans in the amount of $929,000. Other investing activities
include investing in mortgage-backed securities and United States Treasury
obligations. During the three-month period ended September 30, 1995, this
activity was funded primarily by principal repayments on loans totalling
$884,000.
Page 13
<PAGE> 16
The Bank has other sources of liquidity if a need for additional funds
arises. Additional sources of funds include FHLB of Indianapolis advances
although no such advances were outstanding at September 30, 1995. Other sources
of liquidity can be found in the Bank's balance sheet, such as investments in
certificates of deposit maturing within one year.
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which may be varied at the direction of
the OTS depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The required minimum ratio
is currently 5.0%. The Bank's liquidity ratio was 40.02% at September 30, 1995.
The Bank's most liquid assets are cash and cash equivalents, which
include investments in highly liquid short-term investments. The level of
these assets are dependent on the Bank's operating, financing and investing
activities during any given period. At September 30, 1995, cash and cash
equivalents totalled $2,777,891.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. At September 30, 1995, the Bank had commitments to
purchase residential mortgages of $194,000. Customer deposits which are
scheduled to mature in one year or less at September 30, 1995 totalled $19.2
million. Management believes that a significant portion of such deposits will
remain with the Bank.
The following table, which summarizes the Bank's regulatory capital
requirements versus actual capital, shows that the Bank exceeded all
requirements at September 30, 1995.
<TABLE>
<CAPTION>
Regulatory Required Excess
Capital Capital (Shortage)
------- ------- ----------
Amount % Amount % Amount %
------- - ------- - --------- -
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $6,010,000 14.3 $ 629,000 1.5 $5,381,000 12.8
Core Leverage Capital $6,010,000 14.3 $1,257,000 3.0 $4,753,000 11.3
Risk-Based Capital $6,160,000 42.4 $1,163,000 8.0 $4,997,000 34.4
</TABLE>
The OTS has issued a final rule adding an interest rate risk component to
the present capital rules. The rule requires the OTS to measure an
institution's interest rate risk as the percentage change in the market value
of its portfolio resulting from a hypothetical 200 basis point shift in
interest rates. The additional capital an institution would be required to
maintain would be calculated as one-half of the difference between the measured
risk and 2 percent multiplied by the market value of the institution's assets.
Institutions with less than $300 million in assets and a risk-based capital
ratio in excess of 12 percent are exempt from the OTS' regulations.
Page 14
<PAGE> 17
Part II Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security
Holders
(a) The Bank held its annual meeting of
shareholders on October 26, 1995.
(b) The following directors were elected at the meeting
to serve for a three-year term: Paul E. Andrews, Esther
Mason and Steven E. Zack. The term of office of the
following directors continued after the meeting: Mark T.
Jacobson, Stanley A. Jacobson, Jon M. Fox and James H.
Hudnut.
(c) The other matter voted upon at the meeting was the
approval of auditors. The vote on this matter was as
follows:
Affirmative votes 156,227 .
---------
Negative votes 682 .
---------
Item 5. Other Information.
On October 20, 1995, the Bank announced it had entered
into a letter of intent to be acquired by D & N Financial
Corporation, subject to definitive agreement being entered
into, shareholder and regulatory approval.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibit II - Computation of per share earnings is
attached hereto
(b) Reports of Form 8-K - No reports on Form 8-K were filed
during the three months ended September 30, 1995
Page 15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACOMB FEDERAL SAVINGS BANK
---------------------------
Registrant
November 6, 1995 /s/ Stanley A. Jacobson
- ------------------- ---------------------------
Date Stanley A. Jacobson
President and Principal
Executive Officer
November 6, 1995 /s/ Esther Mason
- ------------------- ---------------------------
Date Esther Mason
Executive Vice President,
Principal Financial and
Accounting Officer
Page 16
<PAGE> 19
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
Exhibit 11 Computation of Earnings Per Share
<PAGE> 20
Exhibit 11:
The calculation of earnings per share for the three months ended September 30,
1994 and September 30, 1995 follows:
September 30, 1994:
Net earnings for the three month period ended
September 30, 1994 applicable to common stock $ 75,610
=========
Average number of common shares outstanding 175,504
Earnings per share $ .43
=========
September 30, 1995:
Net earnings for the three month period ended
September 30, 1995 applicable to common stock $ 62,406
=========
Average number of common shares outstanding 179,104
Earnings per share $ .35
=========
Common shares outstanding are reduced for unreleased shares held by the
Employee Stock Ownership Plan (E.S.O.P.). As principal payments are made on
the guaranteed E.S.O.P. loan, shares are released and become outstanding for
earnings per share (EPS) computations. Unreleased shares amounted to 10,800
shares at September 30, 1994 and 6,586 shares at September 30, 1995.
