<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File Number 0-21298
ST. FRANCIS CAPITAL CORPORATION
------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
WISCONSIN 39-1747461
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
13400 BISHOPS LANE, SUITE 350, BROOKFIELD, WISCONSIN 53005-6203
---------------------------------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
(262) 787-8700
-------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes x No
(2) Yes x No
The number of shares outstanding of the issuer's common stock, $.01 par
value per share, was 9,977,597 at April 28, 2000.
Page 1 of 29 pages
<PAGE> 2
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited):
Consolidated Statements of Financial Condition...................................................... 3
Consolidated Statements of Income................................................................... 4
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income................. 5
Consolidated Statements of Cash Flows............................................................... 6
Notes to Consolidated Financial Statements.......................................................... 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 18
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.......................................... 27
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings................................................................................... 28
ITEM 2. Changes In Securities and Use of Proceeds........................................................... 28
ITEM 3. Defaults Upon Senior Securities..................................................................... 28
ITEM 4. Submission of Matters to a Vote of Security Holders................................................. 28
ITEM 5. Other Information................................................................................... 28
ITEM 6. Exhibits and Reports on Form 8-K.................................................................... 28
SIGNATURES ................................................................................................... 29
</TABLE>
2
<PAGE> 3
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
March 31, September 30,
2000 1999
----------------- ------------------
(In thousands)
ASSETS
<S> <C> <C>
Cash and due from banks...................................................... $ 32,838 $ 29,074
Federal funds sold and overnight deposits.................................... 1,802 3,488
----------------- ------------------
Cash and cash equivalents.................................................... 34,640 32,562
----------------- ------------------
Assets available for sale, at fair value:
Debt and equity securities............................................... 211,747 216,649
Mortgage-backed and related securities................................... 833,016 919,879
Mortgage loans held for sale, at lower of cost or market..................... 11,092 8,620
Securities held to maturity, at amortized cost:
Debt securities (fair values of $523 and $834, respectively)............. 510 810
Mortgage-backed and related securities (fair values of $30,843
and $39,250, respectively)............................................... 31,668 39,475
Loans receivable, net........................................................ 1,244,211 1,113,391
Federal Home Loan Bank stock, at cost........................................ 29,322 30,827
Accrued interest receivable.................................................. 14,440 14,090
Foreclosed properties........................................................ 316 371
Real estate held for investment.............................................. 27,868 28,402
Premises and equipment, net.................................................. 31,842 32,924
Other assets................................................................. 36,639 35,356
----------------- ------------------
Total assets................................................................. $ 2,507,311 $ 2,473,356
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits..................................................................... $ 1,538,430 $ 1,484,303
Short term borrowings........................................................ 743,361 588,790
Long term borrowings......................................................... 80,920 245,948
Advances from borrowers for taxes and insurance.............................. 4,243 8,904
Accrued interest payable and other liabilities............................... 12,745 13,897
----------------- ------------------
Total liabilities............................................................ 2,379,699 2,341,842
----------------- ------------------
Commitments and contingencies................................................ - -
Shareholders' equity:
Preferred stock $.01 par value: Authorized, 6,000,000 shares;
None issued.............................................................. - -
Common stock $.01 par value: Authorized 24,000,000 shares;
Issued, 14,579,240 shares;
Outstanding, 9,997,669 and 10,156,770 shares, respectively............... 146 146
Additional paid-in-capital................................................... 87,993 82,426
Accumulated other comprehensive loss......................................... (23,048) (13,057)
Unearned ESOP compensation................................................... (366) (2,260)
Treasury stock at cost (4,581,571 and 4,422,470 shares, respectively)........ (61,455) (58,934)
Retained earnings, substantially restricted.................................. 124,342 123,193
----------------- ------------------
Total shareholders' equity................................................... 127,612 131,514
----------------- ------------------
Total liabilities and shareholders' equity................................... $ 2,507,311 $ 2,473,356
================= ==================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
March 31, March 31,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------- ------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans................................................. $48,606 $38,002 $24,963 $19,465
Mortgage-backed and related securities................ 29,646 22,910 14,736 12,601
Debt and equity securities............................ 6,563 3,524 3,257 2,372
Federal funds sold and overnight deposits ............ 29 586 12 188
Federal Home Loan Bank stock ......................... 1,162 898 557 513
Trading account securities............................ 32 16 5 5
------------ ------------- ------------- -------------
Total interest and dividend income......................... 86,038 65,936 43,530 35,144
------------ ------------- ------------- -------------
INTEREST EXPENSE:
Deposits.............................................. 35,066 27,239 18,009 13,517
Advances and other borrowings......................... 22,874 15,268 11,586 8,727
------------ ------------- ------------- -------------
Total interest expense..................................... 57,940 42,507 29,595 22,244
------------ ------------- ------------- -------------
Net interest income before provision for loan losses....... 28,098 23,429 13,935 12,900
Provision for loan losses.................................. 1,000 960 500 480
------------ ------------- ------------- -------------
Net interest income........................................ 27,098 22,469 13,435 12,420
------------ ------------- ------------- -------------
OTHER OPERATING INCOME (EXPENSE), NET:
Loan servicing and loan related fees.................. 1,204 904 629 385
Depository fees and service charges................... 2,377 1,923 1,138 971
Securities gains (losses)............................. 3 (372) 19 (400)
Gain on sales of loans ............................... 358 2,124 230 860
Insurance, annuity and brokerage commissions.......... 714 705 370 319
Gain (loss) on foreclosed properties.................. 14 (33) 7 (11)
Income from affordable housing........................ 1,498 2,172 729 826
Gain on sale of real estate held for sale............. - 1,225 - 492
Other income.......................................... 460 503 342 244
------------ ------------- ------------- -------------
Total other operating income, net.......................... 6,628 9,151 3,464 3,686
------------ ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and employee benefits.................... 17,476 10,393 7,248 5,009
Office building, including depreciation............... 2,170 2,182 1,146 1,179
Furniture and equipment, including depreciation ...... 2,122 2,110 1,048 1,096
Federal deposit insurance premiums.................... 114 348 78 185
Affordable housing expenses........................... 1,565 2,345 779 936
Other general and administrative expenses............. 4,504 4,520 2,300 2,500
------------ ------------- ------------- -------------
Total general and administrative expenses.................. 27,951 21,898 12,635 10,905
------------ ------------- ------------- -------------
Income before income tax expense........................... 5,775 9,722 4,264 5,201
Income tax expense......................................... 2,610 2,287 1,305 1,531
------------ ------------- ------------- -------------
Net income................................................. $ 3,165 $ 7,435 $ 2,959 $ 3,670
============ ============= ============= =============
Basic earnings per share................................... $ 0.32 $ 0.82 $ 0.30 $ 0.39
============ ============= ============= =============
Diluted earnings per share................................. $ 0.31 $ 0.78 $ 0.29 $ 0.37
============ ============= ============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of
Changes in Shareholders' Equity and Comprehensive Income
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Shares of
Common Additional Unearned
Stock Common Paid-In ESOP
Outstanding Stock Capital Compensation
------------------------------------------------------------
(In thousands, except Shares of Common Stock Outstanding)
<S> <C> <C> <C> <C>
Six months ended March 31, 1999
Balance at September 30, 1998 - as
previously reported.................... 4,787,683 $ 73 $ 75,310 $ (2,678)
2-for-1 stock split declared March 23, 1999. 4,787,683 73 (73) -
-------------- --------- ----------- -----------
Balance at September 30, 1998............... 9,575,366 $ 146 $ 75,237 $ (2,678)
Net income.................................. - - - -
Unrealized loss on securities available
for sale............................... - - - -
Reclassification adjustment for losses
realized in net income................. - - - -
Incomes taxes............................... - - - -
Comprehensive income........................
Cash dividend - $0.16 per share............. - - - -
Shares of common stock issued for
acquisition............................ 734,564 - 5,556 -
Purchase of treasury stock.................. (479,974) - - -
Exercise of stock options, net.............. 289,286 - 63 -
Amortization of unearned compensation....... - - 917 211
-------------- --------- ----------- -----------
Balance at March 31, 1999................... 10,119,242 $ 146 $ 81,773 $ (2,467)
============== ========= =========== ===========
Six months ended March 31, 2000
Balance at September 30, 1999............... 10,156,770 $ 146 $ 82,426 $ (2,260)
Net income.................................. - - - -
Unrealized loss on securities available
for sale............................... - - - -
Reclassification adjustment for gains
realized in net income................. - - - -
Incomes taxes............................... - - - -
Comprehensive loss..........................
Cash dividend - $0.18 per share............. - - - -
Purchase of treasury stock.................. (191,488) - - -
Exercise of stock options, net.............. 32,387 - - -
Amortization of unearned compensation....... - - 5,567 1,894
-------------- --------- ----------- -----------
Balance at March 31, 2000................... 9,997,669 $ 146 $ 87,993 $ (366)
============== ========= =========== ===========
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Accumulated
Other
Comprehensive
Retained Income/ Treasury
Earnings (Loss) Stock Total
-----------------------------------------------------------
(In thousands, except Shares of Common Stock Outstanding)
<S> <C> <C> <C> <C>
Six months ended March 31, 1999
Balance at September 30, 1998 - as
previously reported.................... $ 112,362 $ 381 $ (63,903) $121,545
2-for-1 stock split declared March 23, 1999. - - - -
----------- ------------ ---------- -------------
Balance at September 30, 1998............... $ 112,362 $ 381 $ (63,903) $121,545
Net income.................................. 7,435 - - 7,435
Unrealized loss on securities available
for sale............................... - (7,014) - (7,014)
Reclassification adjustment for losses
realized in net income................. - 372 - 372
Incomes taxes............................... - 2,619 - 2,619
-------------
Comprehensive income........................ 3,412
Cash dividend - $0.16 per share............. (1,540) - - (1,540)
Shares of common stock issued for
acquisition............................ - 9,727 15,283
Purchase of treasury stock.................. - - (8,988) (8,988)
Exercise of stock options, net.............. (2,511) - 3,730 1,282
Amortization of unearned compensation....... - - - 1,128
----------- ------------ ---------- -------------
Balance at March 31, 1999................... $ 115,746 $ (3,642) $(59,434) $132,122
=========== ============ ========== =============
Six months ended March 31, 2000
Balance at September 30, 1999............... $ 123,193 $ (13,057) $(58,934) $131,514
Net income.................................. 3,165 - - 3,165
Unrealized loss on securities available
for sale............................... - (15,956) - (15,956)
Reclassification adjustment for gains
realized in net income................. - (3) - (3)
Incomes taxes............................... - 5,968 - 5,968
-------------
Comprehensive loss.......................... (6,826)
Cash dividend - $0.18 per share............. (1,824) - - (1,824)
Purchase of treasury stock.................. - - (2,950) (2,950)
Exercise of stock options, net.............. (192) - 429 237
Amortization of unearned compensation....... - - - 7,461
----------- ------------ ---------- -------------
Balance at March 31, 2000................... $ 124,342 $ (23,048) $ (61,455) $127,612
=========== ============ ========== =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Six months ended
March 31,
------------------------
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 3,165 $ 7,435
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses...................................................... 1,000 960
Depreciation, accretion and amortization....................................... 3,279 4,804
Deferred income taxes.......................................................... 3,194 507
Securities (gains) losses...................................................... (3) 372
Originations of loans held for sale............................................ (31,725) (139,436)
Proceeds from sales of loans held for sale..................................... 28,895 131,643
ESOP expense................................................................... 7,461 1,128
Gain on sale of real estate held for sale...................................... - (1,225)
Other, net..................................................................... (1,912) 3,215
---------- ----------
Total adjustments................................................................... 10,189 1,968
---------- ----------
Net cash provided by operating activities........................................... 13,354 9,403
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of debt securities held to maturity...................... 300 1,004
Proceeds from maturities of mortgage-backed and related securities................ - 3,909
Principal repayments on mortgage-backed and related securities held to maturity... 7,807 10,558
Purchases of mortgage-backed securities available for sale........................ - (419,685)
Proceeds from sales of mortgage-backed securities available for sale.............. 19,098 28,572
Principal repayments on mortgage-backed securities available for sale............. 54,488 154,549
Purchase of debt and equity securities available for sale......................... - (214,748)
Proceeds from sales of debt and equity securities available for sale.............. 1,768 75,520
Proceeds from maturities of debt and equity securities available for sale......... 451 29,730
Net cash used for acquisitions.................................................... - (4,286)
Purchases of Federal Home Loan Bank stock......................................... (1,495) (12,150)
Redemption of Federal Home Loan Bank stock........................................ 3,000 3,504
Purchase of loans................................................................. (22,634) (11,979)
Increase in loans, net of loans held for sale..................................... (108,186) (85,469)
Proceeds from sale of real estate held for sale................................... - 21,997
Increase in real estate held for investment....................................... (179) (603)
Purchases of premises and equipment, net.......................................... (166) (2,306)
---------- ----------
Net cash used in investing activities............................................... (45,748) (421,883)
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
6
<PAGE> 7
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flow, cont.
<TABLE>
<CAPTION>
Six months ended
March 31,
------------------------
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits........................................................ 54,127 85,165
Proceeds from advances and other borrowings..................................... 826,621 777,320
Repayments on advances and other borrowings..................................... (847,616) (572,263)
Increase in securities sold under agreements to repurchase...................... 10,538 145,640
Decrease in advances from borrowers for taxes and insurance..................... (4,661) (5,434)
Dividends paid.................................................................. (1,824) (1,540)
Stock option transactions....................................................... 237 1,282
Purchase of treasury stock...................................................... (2,950) (8,988)
---------- ----------
Net cash provided by financing activities......................................... 34,472 421,182
---------- ----------
Increase in cash and cash equivalents............................................. 2,078 8,702
Cash and cash equivalents:
Beginning of period.......................................................... 32,562 30,746
---------- ----------
End of period................................................................ $ 34,640 $ 39,448
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest..................................................................... $ 56,291 $ 42,654
Income taxes................................................................. 2 102
Supplemental schedule of noncash investing and financing activities:
The following summarizes significant noncash investing and financing
activities:
Mortgage loans secured as mortgage-backed securities......................... $ 7,586 $ 5,961
Transfer from loans to foreclosed properties................................. 508 174
Transfer of mortgage loans to mortgage loans held for sale................... 7,976 30,029
Acquisitions:
Assets acquired.............................................................. $ - $ 42,866
Cash paid for purchase of stock.............................................. - (10,132)
Cash acquired................................................................ - 5,846
---------- ----------
Net cash used for acquisitions.......................................... - (4,286)
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
7
<PAGE> 8
ST. FRANCIS CAPITAL CORPORTATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
(1) Principles of Consolidation
The consolidated financial statements include the accounts and balances
of St. Francis Capital Corporation (the "Company"), its wholly-owned
subsidiary, St. Francis Bank, F.S.B. (the "Bank"), and the Bank's
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(2) Basis of Presentation
The accompanying interim consolidated financial statements are
unaudited and do not include information or footnotes necessary for a
complete presentation of financial condition, results of operations or
cash flows in accordance with generally accepted accounting principles.
However, in the opinion of management, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the
consolidated financial statements have been included. Operating results
for the three and six-month periods ended March 31, 2000 are not
necessarily indicative of the results which may be expected for the
entire year ending September 30, 1999.
Certain previously reported balances have been reclassified to conform
with the 2000 presentation.
(3) Commitments and Contingencies
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit and involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the
consolidated financial statements. The contractual or notional amounts
of those instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for the commitments to
extend credit is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for instruments that
are reflected in the consolidated financial statements.
The contractual or notional amounts of off-balance sheet financial
instruments are as follows:
<TABLE>
<CAPTION>
Contractual or Notional Amount(s)
March 31, September 30,
2000 1999
----------------- ------------------
(In thousands)
<S> <C> <C>
Commitments to extend credit:
Fixed-rate loans..................................... $ 5,104 $ 959
Variable-rate loans.................................. 22,110 50,043
Mortgage loans sold with recourse........................ 19,687 17,053
Guarantees under IRB issues.............................. 33,567 24,484
Interest rate swap agreements (notional amount).......... 410,000 350,000
Unused and open-ended lines of credit:
Consumer.............................................. 182,547 176,958
Commercial............................................. 75,094 40,855
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates of 45 days
or less or other termination clauses and may require a fee. Fixed rate
loan commitments as of March 31, 2000 have interest rates ranging from
7.875% to 8.625%. Because some commitments expire without being drawn
upon, the total commitment amounts do not necessarily represent cash
requirements. The Company evaluates the creditworthiness of each
customer on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counterparty. The Company
generally extends credit on a secured basis. Collateral obtained
consists primarily of one- to four-family residences and other
residential and commercial real estate.
8
<PAGE> 9
ST. FRANCIS CAPITAL CORPORTATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
Loans sold with recourse represent one- to four-family mortgage loans
that are sold to secondary market agencies, primarily Federal National
Mortgage Association ("FNMA"), with the servicing of these loans being
retained by the Company. The Company's exposure on loans sold with
recourse is the same as if the loans remained in the Company's loan
portfolio. The Company receives a larger servicing spread on those
loans being serviced than it would if the loans had been sold without
recourse.
The Company has entered into agreements whereby, for an initial and
annual fee, it will guarantee payment on letters of credit backing
industrial revenue bond issues ("IRB"). The IRBs are issued by
municipalities to finance real estate owned by a third party. Potential
losses on the letters of credit are the notional amount of the
guarantees less the value of the real estate collateral. At March 31,
2000, appraised values of the real estate collateral exceeded the
amount of the guarantees.
Interest rate swap agreements generally involve the exchange of fixed
and variable rate interest rate payments without the exchange of the
underlying notional amount on which the interest rate payments are
calculated. The notional amounts of these agreements represent the
amounts on which interest payments are exchanged between the
counterparties. The notional amounts do not represent direct credit
exposures. The Company is exposed to credit-related losses in the event
of nonperformance by the counterparties on interest rate payments, but
does not expect any counterparty to fail to meet their obligations. The
fixed pay-floating receive agreements were entered into as hedges on
the interest rates on debt securities. The fixed receive-floating pay
agreements were entered into as hedges of the interest rates on fixed
rate certificates of deposit. Interest receivable or payable on
interest rate swaps is recognized using the accrual method. The use of
interest rate swaps enables the Company to synthetically alter the
repricing characteristics of designated interest-bearing liabilities.
At March 31, 2000, the Company had $20 million in fixed pay-floating
receive agreements with maturity dates ranging from 2000 to 2001. The
agreements have fixed interest rates ranging from 6.75% to 7.05% and
variable interest rates ranging from 6.98% to 7.13%. At March 31, 2000,
the Company had $390 million in fixed receive-floating pay agreements
with maturity dates ranging from 2001 to 2009 and call dates ranging
from 2000 to 2001. The agreements have fixed interest rates ranging
from 5.85% to 7.13% and variable interest rates ranging from 5.21% to
6.16%.
The fair value of interest rate swaps, which is based on the present
value of the swap using dealer quotes, represent the estimated amount
the Company would receive or pay to terminate the agreements taking
into account current interest rates and market volatility. The interest
rate swaps are off-balance sheet items; therefore, at March 31, 2000,
the gross unrealized gains and losses of $24,000 and $14.9 million,
respectively, equals the fair value loss of the interest rate swaps of
$14.9 million.
The unused and open consumer lines of credit are conditional
commitments issued by the Company for extensions of credit such as home
equity, auto, credit card, or other similar consumer-type financing.
Furthermore, the unused and open commercial lines of credit are also
conditional commitments issued by the Company for extensions of credit
such as working capital, agricultural production, equipment or other
similar commercial type financing. The credit risk involved in
extending these lines of credit is essentially the same as that
involved in extending loan facilities to customers. Collateral held for
these commitments may include, but may not be limited to, real estate,
investment securities, equipment, accounts receivable, inventory, and
Company deposits.
9
<PAGE> 10
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(4) Securities
The Company's securities available for sale and held to maturity at
March 31, 2000 were as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
----------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains (Losses) Value
------------ ------------ ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
DEBT AND EQUITY SECURITIES:
U.S. Treasury obligations and obligations of
U.S. Government Agencies................ $ 218,067 $ - $ 8,682 $ 209,385
Corporate notes and bonds................... 1,000 - 2 998
Marketable equity securities............... 1,835 - 471 1,364
------------ ------------ ------------- -------------
TOTAL DEBT AND EQUITY SECURITIES............. $ 220,902 $ - $ 9,155 $ 211,747
============ ============ ============= =============
MORTGAGE-BACKED & RELATED SECURITIES:
Participation certificates:
FHLMC..................................... $ 877 $ - $ 8 $ 869
FNMA...................................... 29,243 - 1,809 27,434
Private issue............................. 59,082 173 1,521 57,734
REMICs:
FHLMC..................................... 142,124 2 5,704 136,422
FNMA...................................... 34,068 10 1,015 33,063
Private issue............................. 595,938 86 18,566 577,458
CMO residual................................ 36 - - 36
------------ ------------ ------------- -------------
TOTAL MORTGAGE-BACKED AND RELATED
SECURITIES............................. $ 861,368 $ 271 $ 28,623 $ 833,016
============ ============ ============= =============
</TABLE>
<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY
----------------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains (Losses) Value
------------ ------------ ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
DEBT SECURITIES:
State and municipal obligations............ $ 510 $ 13 $ - $ 523
============ ============ ============= =============
TOTAL DEBT SECURITIES...................... $ 510 $ 13 $ - $ 523
============ ============ ============= =============
MORTGAGE-BACKED & RELATED SECURITIES:
REMICs:
FNMA...................................... $ 139 $ - $ 1 $ 138
Private issue............................. 31,529 - 824 30,705
------------ ------------ ------------- -------------
TOTAL MORTGAGE-BACKED AND RELATED
SECURITIES............................ $ 31,668 $ - $ 825 $ 30,843
============ ============ ============= =============
</TABLE>
During the six month periods ended March 31, 2000 and 1999, gross
proceeds from the sale of securities available for sale totaled
approximately $20.9 million and $104.1 million, respectively. The gross
realized gains on such sales totaled approximately $41,000 and $130,000
for the six month periods ended March 31, 2000 and 1999, respectively.
The gross realized losses on such sales totaled approximately $53,000
and $498,000 for the six month periods ended March 31, 2000 and 1999,
respectively.
10
<PAGE> 11
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
During the three month periods ended March 31, 2000 and 1999, gross
proceeds from the sale of securities available for sale totaled
approximately $7.2 million and $33.1 million, respectively. The gross
realized gains on such sales totaled approximately $11,000 and $64,000
for the three month periods ended March 31, 2000 and 1999,
respectively. The gross realized losses on such sales totaled
approximately zero and $410,000 for the three month periods ended March
31, 2000 and 1999, respectively.
At March 31, 2000 and 1999, $454.7 million and $498.4 million,
respectively, of mortgage-related securities were pledged as collateral
for Federal Home Loan Bank ("FHLB") advances.
(5) Loans
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
-----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
First mortgage - one- to four-family............................... $ 368,352 $ 294,438
First mortgage - residential construction........................... 72,555 103,100
First mortgage - multi-family...................................... 163,609 160,593
Commercial real estate............................................. 298,176 251,914
Home equity........................................................ 170,564 156,695
Commercial and agriculture......................................... 127,481 123,899
Consumer secured by real estate..................................... 84,782 89,991
Interim financing and consumer loans............................... 13,390 13,744
Indirect auto....................................................... 39,980 44,299
Education.......................................................... 2,122 984
--------------- ----------------
Total gross loans................................................ 1,341,011 1,239,657
--------------- ----------------
Less:
Loans in process.................................................. 74,600 106,960
Unearned insurance premiums...................................... (200) (21)
Deferred loan and guarantee fees................................. 496 614
Purchased loan discount.......................................... 710 737
Allowance for loan losses........................................ 10,102 9,356
--------------- ----------------
Total deductions................................................. 85,708 117,646
--------------- ----------------
Total loans receivable............................................. 1,255,303 1,122,011
Less: First mortgage loans held for sale.......................... 11,092 8,620
--------------- ----------------
Loans receivable, net.............................................. $ 1,244,211 $ 1,113,391
=============== ================
</TABLE>
11
<PAGE> 12
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(6) Allowance For Loan Losses
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Six months ended Three months ended
March 31, March 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- -------------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Beginning Balance.................................. $ 9,356 $ 7,530 $ 9,764 $ 7,964
Charge-offs:
Real estate - mortgage........................... (74) - (40) -
Commercial real estate........................... - - - -
Commercial loans................................. - (11) - (1)
Consumer........................................ (257) (133) (176) (91)
------------- -------------- ------------- --------------
Total charge-offs.................................. (331) (144) (216) (92)
------------- -------------- ------------- --------------
Recoveries:
Real estate - mortgage........................... 31 - 31 -
Commercial real estate........................... - - - -
Commercial loans................................. - - - -
Consumer........................................ 46 29 23 23
------------- ------------- -------------- -------------
Total recoveries................................... 77 29 54 23
------------- ------------- -------------- -------------
Net charge-offs.................................... (254) (115) (162) (69)
------------- -------------- ------------- --------------
Acquired bank's allowance.......................... - 303 - 303
Provision.......................................... 1,000 960 500 480
------------- ------------- -------------- -------------
Ending balance..................................... $ 10,102 $ 8,678 $ 10,102 $ 8,678
============= ============== ============= ==============
</TABLE>
(7) Earnings Per Share
Basic earnings per share of common stock for the six and three months
ended March 31, 2000 and 1999, have been determined by dividing net
income for the period by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share
of common stock for the six and three month periods ended March 31,
2000 and 1999, have been determined by dividing net income for the
period by the weighted average number of shares of common stock
outstanding during the period adjusted for the dilutive effect of
outstanding stock options. Book value per share of common stock at
March 31, 2000 and September 30, 1999 have been determined by dividing
total shareholders' equity by the number of shares of common stock
outstanding during the period adjusted for the dilutive effect of
outstanding stock options at the respective dates. Stock options are
regarded as potential common stock and are, therefore, considered in
per share calculations if not considered to be antidilutive. Total
shares outstanding for earnings per share calculation purposes have
been reduced by the Employee Stock Ownership Plan ("ESOP") shares that
have not been committed to be released. The Company incurred an
additional expense in the six and three month periods ended March 31,
2000 related to the voluntary acceleration of loan principal owed to
the Company's ESOP, which accounted for a charge to diluted earnings
per share of approximately $0.57 and $0.14, respectively.
12
<PAGE> 13
ST. FRANCIS CAPITAL CORPORTATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
The computation of earnings per common share is as follows:
<TABLE>
<CAPTION>
Six months ended Three months ended
March 31, March 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net income for the period........................ $3,165,000 $ 7,435,000 $2,959,000 $ 3,670,000
============ =========== ========== ===========
Average common shares issued...................... 14,579,240 14,579,240 14,579,240 14,579,240
Weighted average treasury shares.................. 4,452,908 5,034,146 4,488,374 4,763,866
Unallocated ESOP shares........................... 223,455 503,154 134,502 492,650
------------ ----------- ---------- -----------
Weighted average common shares
outstanding during the period................. 9,902,877 9,041,940 9,956,364 9,322,724
Effect of dilutive stock options outstanding...... 234,347 491,367 127,855 469,537
------------ ----------- ---------- -----------
Diluted weighted average common shares
outstanding................................... 10,137,224 9,533,307 10,084,219 9,792,261
============ =========== ========== ===========
Basic earnings per share.......................... $ 0.32 $ 0.82 $ 0.30 $ 0.39
Diluted earnings per share........................ $ 0.31 $ 0.78 $ 0.29 $ 0.37
</TABLE>
The computation of book value per common share is as follows:
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
-------------- ----------------
<S> <C> <C>
Common shares outstanding at the end
of the period.......................................... 9,924,540 9,705,600
Incremental shares relating to dilutive stock
options outstanding at the end of the period............ 92,658 370,243
-------------- ----------------
10,017,198 10,075,843
============== ================
Total shareholders' equity at the end of
the period............................................. $ 127,612,000 $ 131,514,000
Book value per common share............................... $ 12.74 $ 13.05
</TABLE>
(8) Stock Option Plans
The Company has adopted stock option plans for the benefit of directors
and officers of the Company. The option exercise price cannot be less
than the fair value of the underlying common stock as of the date of
the option grant, and the maximum term cannot exceed ten years. Stock
options awarded to directors may be exercised at any time or on a
cumulative basis over varying time periods, provided the grantee
remains a director of the Company. The stock options awarded to
officers are exercisable on a cumulative basis over varying time
periods, depending on the individual option grant terms, which may
include provisions for acceleration of vesting periods.
13
<PAGE> 14
ST. FRANCIS CAPITAL CORPORTATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
At March 31, 2000, 228,310 shares were reserved for future grants.
Further information concerning the options is as follows:
<TABLE>
<CAPTION>
Six months ended March 31,
--------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------
Average Average
Exercise Exercise
Options Price Options Price
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period........ 1,565,682 $15.70 1,163,620 $ 10.76
Granted................................... 5,000 22.00 782,264 18.65
Canceled.................................. - - (40,550) 17.31
Exercised................................. (32,854) 7.48 (304,120) 5.01
------------- -------------- ------------ ----------------
Outstanding at end of period.............. 1,537,828 $15.90 1,601,214 $15.55
============= ============== ============ ================
Options exercisable....................... 769,013 $5.00 - 21.31 434,940 $5.00 - 20.25
============= =============== ============ ================
</TABLE>
(9) Income Taxes
Actual income tax expense differs from the "expected" income tax
expense computed by applying the statutory Federal corporate tax rate
to income before income tax expense, as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Six months ended March 31,
2000 1999
------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Federal income tax expense at statutory rate of 35%.................. $ 2,021 $ 3,403
State income taxes, net of Federal income tax benefit................ 10 233
Tax exempt interest.................................................. (62) (70)
Non-deductible compensation.......................................... 1,846 229
Acquisition intangible amortization.................................. 107 117
Affordable housing credits........................................... (1,294) (1,654)
Other, net........................................................... (18) 29
------------ ------------
$ 2,610 $ 2,287
============ ============
</TABLE>
Included in other assets is a deferred tax asset of $9.0 million and
$3.3 million at March 31, 2000 and September 30, 1999.
(10) Acquisition
In January 1999, the Company completed the acquisition of Reliance
Bancshares, Inc. ("Reliance") for $25.4 million in stock and cash.
Under the terms of the agreement each share of Reliance common stock
was converted into either .25 shares of common stock of the Company or
$5.20 in cash in accordance with elections made by Reliance
shareholders and subject to certain specified allocation and proration
procedures. The Company issued 734,564 shares of common stock in
connection with this transaction. The acquisition was treated as a
purchase transaction for accounting purposes. The related accounts and
results of operations are included in the Company's consolidated
financial statements from the date of acquisition. The acquisition of
Reliance added $43.0 million in assets, including additions of $25.7
million to net loans and $16.6 million to deposits.
14
<PAGE> 15
ST. FRANCIS CAPITAL CORPORTATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
(11) Current Accounting Developments
The FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities'" which established new rules for the
recognition and measurement of derivatives and hedging activities. It
requires all derivatives to be recorded on the balance sheet at fair
value, although the timing of recognition in earnings will depend on
the classification of the hedge according to criteria established by
SFAS 133. Changes in the fair value of derivatives that do not meet
these criteria are required to be included in earnings in the period of
the change.
The FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, an Amendment of FASB Statement No. 133" in June
1999, which statement deferred the effective date of Statement No. 133.
Statement No. 133, as amended, is now effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000, although earlier
adoption is encouraged.
Statement No. 133 generally requires that derivatives embedded in
hybrid instruments be separated from their host contracts and be
accounted for separately as derivative contracts. For instruments
existing at the date of adoption, Statement No. 133, as modified by
Statement No. 137, provides an entity the option of not applying this
provision to such hybrid instruments entered into before January 1,
1999 and not substantially modified thereafter.
The Company will adopt this standard on October 1, 2000 and expects
that it will not materially effect results of operations or financial
position.
(12) Segment Information
The Company's operations include four strategic business segments:
Retail Banking, Commercial Banking, Mortgage Banking and Investments.
Financial performance is primarily based on the individual segments'
direct contribution to Company net income. The Company's segments do
not include the operations of the parent holding company, nor the
operations of the Bank's operating subsidiaries. Capital is not
allocated to the segments and thus net interest income related to the
free funding associated with capital is not included in the individual
segments. The Company only charges the segments with direct expenses.
Costs associated with administrative and centralized back-office
support areas of the Bank are not allocated to the segments. Income
taxes are allocated to the segments based on the Bank's effective tax
rate prior to the consolidation with its affordable housing subsidiary.
The Retail Banking segment consists of the Bank's retail deposits,
branch and ATM network, consumer lending operations, annuity and
brokerage services and call center. The segment includes a much higher
level of interest-bearing liabilities than earning assets. The Company
views this segment as a significant funding vehicle for the other
lending segments. The Company's transfer pricing model has the effect
of viewing this segment as a comparison to the cost of wholesale funds.
The Commercial Banking segment consists of the Bank's commercial,
commercial real estate and multifamily lending operations. It also
includes the lending aspects of the Company's affordable housing
subsidiary.
The Mortgage Banking segment consists of the Bank's single-family
mortgage lending operation. Single-family lending consists of three
primary operations: portfolio lending, lending for sale in the
secondary market and loan servicing.
The Investment segment consists of the Company's portfolio of
mortgage-backed and related securities, its debt and equity securities
and other short-term investments. This segment also includes the
Company's wholesale sources of funding including Federal Home Loan Bank
("FHLB") advances, brokered certificates of deposits, reverse
repurchase agreements and federal funds purchased.
15
<PAGE> 16
ST. FRANCIS CAPITAL CORPORTATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
<TABLE>
<CAPTION>
----------------------------------------- ----------- ---------- --------- ----------- ------------
BUSINESS SEGMENTS Retail Commercial Mortgage Total
Banking Banking Banking Investments Segments
----------------------------------------- ----------- ---------- --------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED MARCH 31, 2000
Net interest income $ 11,978 $ 7,192 $ 3,563 $ 3,926 $ 26,659
Provision for loan losses 395 473 132 - 1,000
Other operating income 3,473 375 806 (8) 4,646
General and administrative expenses 10,588 1,523 1,895 389 14,395
Income taxes 1,679 2,093 880 1,326 5,979
---------- ---------- --------- ----------- -------------
Segment profit $ 2,790 $ 3,477 $ 1,462 $ 2,202 $ 9,931
========== ========== ========= =========== =============
Segment average assets $ 311,875 $ 534,873 $382,182 $1,185,632 $ 2,414,562
========== ========== ========= =========== =============
SIX MONTHS ENDED MARCH 31, 1999
Net interest income $ 7,349 $ 5,698 $ 2,615 $ 4,341 $ 20,003
Provision for loan losses 253 587 121 - 961
Other operating income 2,981 466 2,311 (435) 5,323
General and administrative expenses 11,270 1,393 2,254 385 15,302
Income taxes (428) 1,426 882 428 2,308
---------- ---------- --------- ----------- -------------
Segment profit $ (765) $ 2,758 $ 1,670 $ 3,093 $ 6,755
========== ========== ========= =========== =============
Segment average assets $ 283,811 $ 387,814 $278,325 $ 953,911 $ 1,903,861
========== ========== ========= =========== =============
THREE MONTHS ENDED MARCH 31, 2000
Net interest income $ 6,150 $ 3,567 $ 1,789 $ 1,884 $ 13,390
Provision for loan losses 198 236 66 - 500
Other operating income 1,718 200 411 12 2,341
General and administrative expenses 5,432 692 898 200 7,222
Income taxes 927 1,170 507 707 3,312
---------- ---------- --------- ----------- -------------
Segment profit $ 1,312 $ 1,668 $ 729 $ 988 $ 4,697
========== ========== ========= =========== =============
Segment average assets $ 313,897 $ 552,633 $395,484 $1,173,628 $ 2,435,642
========== ========== ========= =========== =============
THREE MONTHS ENDED MARCH 31, 1999
Net interest income $ 3,564 $ 2,957 $ 1,295 $ 2,868 $ 10,684
Provision for loan losses 127 293 60 - 480
Other operating income 1,455 238 878 (409) 2,162
General and administrative expenses 5,502 695 1,116 204 7,517
Income taxes (224) 777 361 - 914
---------- ---------- --------- ----------- -------------
Segment profit $ (386) $ 1,430 $ 636 $ 2,255 $ 3,935
========== ========== ========= =========== =============
Segment average assets $ 285,850 $ 413,542 $276,946 $1,068,864 $ 2,045,202
========== ========== ========= =========== =============
</TABLE>
16
<PAGE> 17
ST. FRANCIS CAPITAL CORPORTATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements, continued
RECONCILEMENT OF SEGMENT INFORMATION TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Six months ended March 31, Three months ended March 31,
2000 1999 2000 1999
----------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
NET INTEREST INCOME AND OTHER OPERATING INCOME
Total for segments $ 31,305 $ 25,326 $ 15,731 $ 12,846
Unallocated transfer pricing credit (primarily on
capital) 2,687 5,062 1,218 2,934
Income from affordable housing subsidiary 1,498 2,172 729 826
Gain on sale of real estate not allocated to
segments - 1,225 - 492
Holding company interest expense (746) (798) (429) (444)
Elimination of intercompany interest income (558) (865) (273) (301)
Other 540 458 423 233
----------------------------------------------------------------
Consolidated total revenue $ 34,726 $ 32,580 $ 17,399 $ 16,586
================================================================
PROFIT
Total for segments $ 9,931 $ 6,755 $ 4,697 $ 3,934
Unallocated transfer pricing credit (primarily on
capital) 1,612 3,037 731 1,760
Unallocated administrative and centralized support
costs (a) (3,028) (2,254) (1,581) (1,266)
Holding company net loss (622) (818) (392) (510)
Elimination of intercompany interest income (335) (519) (164) (181)
Gain on sale of real estate not allocated to
segments - 735 - 295
Affordable housing tax credits 1,294 1,654 644 551
Additional ESOP expense not allocated to segments (5,714) - (1,329) -
Other 27 (1,156) 353 (914)
----------------------------------------------------------------
Consolidated net income $ 3,165 $ 7,435 $ 2,959 $ 3,670
================================================================
AVERAGE ASSETS
Total for segments $ 2,414,562 $ 1,903,861 $ 2,435,642 $ 2,045,202
Elimination of intercompany loans (13,388) (13,859) (13,350) (9,662)
Other assets not allocated 113,918 121,421 89,408 112,533
----------------------------------------------------------------
Consolidated average assets $ 2,515,092 $ 2,011,423 $ 2,511,700 $ 2,148,073
================================================================
</TABLE>
(a)After-tax effect of $5.0 million and $3.8 million of general and
administrative expenses for the six month periods ended March 31,
2000 and 1999, respectively. After-tax effect of $2.6 million and
$2.2 million of general and administrative expenses for the three
month periods ended March 31, 2000 and 1999, respectively.
17
<PAGE> 18
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Report contains certain forward looking statements with respect to the
financial condition, results of operation and business of St. Francis Capital
Corporation (the "Company"). The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made, and to advise readers that various factors could affect the
Company's financial performance and could cause actual results for future
periods to differ materially from those anticipated or projected. Such factors
include, but are not limited to: (i) general market rates, (ii) general economic
conditions, (iii) legislative/regulatory changes, (iv) monetary and fiscal
policies of the U.S. Treasury and Federal Reserve, (v) changes in the quality or
composition of the Company's loan and investment portfolios, (vi) demand for
loan products, (vii) deposit flows, (viii) competition, (ix) demand for
financial services in the Company's markets, and (x) changes in accounting
principles, policies or guidelines.
FINANCIAL CONDITION
The Company's total assets increased $34.0 million or 1.4% to $2.51 billion at
March 31, 2000 from $2.47 billion at September 30, 1999. The primary area of
growth was an increase of $133.3 million increase in loans receivable, including
loans held for sale offset by a decline of $86.9 million in mortgage-backed and
related securities available for sale. Funding the increase in assets was an
increase in deposits of $54.1 million. The Company's ratio of shareholders'
equity to total assets was 5.09% at March 31, 2000, compared to 5.32% at
September 30, 1999. The Company's fully dilutive book value per share was $12.74
at March 31, 2000, compared to $13.05 at September 30, 1999.
Loans receivable, including mortgage loans held for sale, increased $133.3
million to $1.26 billion at March 31, 2000 from $1.11 billion at September 30,
1999. The Company has been actively diversifying and growing its loan portfolio
and, as a result, the increase in loans was due to a variety of lending areas
including commercial real estate, single-family construction, multi-family, and
commercial. For the six month period ended March 31, 2000, the Company
originated approximately $296.5 million in loans, as compared to $443.0 million
for the same period in the prior year. Of the $296.5 million in loans
originated, $48.4 million were in commercial loans, $86.4 million were in
consumer and interim financing loans and $161.7 million were in first mortgage
loans. Despite the decrease in originations, the loan portfolio continues to
grow due to a decline in repayments and loans sold.
Mortgage-backed and related securities, including securities available for sale,
decreased $94.7 million to $864.7 million at March 31, 2000 from $959.4 million
at September 30, 1999. The Company is in the process of restructuring the
balance sheet and will continue to reduce the level of mortgage-backed and
related securities as repayments of principal from those portfolios are used to
fund the loan growth.
Deposits increased $54.1 million to $1.538 billion at March 31, 2000 from $1.484
billion at September 30, 1999. The increase in deposits was primarily due to
increases of $53.2 million in certificates of deposit and $3.7 million in money
market demand deposits. However, slight decreases in other types of deposit
products have partially offset the increases. At March 31, 2000, the Company had
approximately $437.8 million in brokered certificates of deposit compared with
$421.8 million at September 30, 1999. The brokered deposits generally consist of
terms from three months to ten years in maturity with interest rates that
approximate the Company's retail certificate rates. The level of deposit flows
during any given period is heavily influenced by factors such as the general
level of interest rates as well as alternative yields that investors may obtain
on competing instruments, such as money market mutual funds. The Company
believes that the likelihood for retention of brokered certificates of deposit
is more a function of the rate paid on such accounts, as compared to retail
deposits which may be established due to branch location or other undefined
reasons.
Advances and other borrowings decreased by $10.4 million to $824.3 million at
March 31, 2000 from $834.7 million at September 30, 1999. Short term borrowings
increased $154.6 million to $743.4 million at March 31, 2000, compared to $588.8
million at September 30, 1999. Long term borrowings decreased $165.0 million to
$80.9 million at March 31, 2000, compared to $245.9 million at September 30,
1999. At March 31, 2000, $450.0 million of the short term borrowings are
callable FHLB advances with maturities from five to ten years and are callable
by the FHLB after three to six months. At March 31, 2000, the Company had an
additional borrowing capacity of $109.9 million available from the FHLB.
At March 31, 2000, the Company had $410.0 million in interest rate swaps
outstanding compared with $350.0 million at September 30, 1999. The swaps are
designed to offset the changing interest payments of some of the Company's
borrowings and brokered certificates. Fixed receive-floating pay swaps totaled
$390.0 million at March 31, 2000 and were entered into to hedge interest rates
on fixed rate certificates of deposits. Fixed receive-floating pay swaps will
provide for a lower interest expense (or interest
18
<PAGE> 19
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2. Management's Discussion and Analysis, continued
income) in a falling rate environment while adding to interest expense in a
rising rate environment. Fixed pay-floating receive swaps totaled $20.0 million
at March 31, 2000 and were entered into as hedges on the interest rates on
investment securities. Fixed pay-floating receive swaps will provide for a lower
interest expense (or interest income) in a rising rate environment while adding
to interest expense in a falling rate environment. During the six month period
ended March 31, 2000, the Company recorded a net reduction of interest expense
of $1.0 million as a result of the Company's interest rate swap agreements
compared with a net reduction of $1.1 million for the six month period ended
March 31, 1999.
There are certain risks associated with swaps, including the risk that the
counterparty may default and that there may not be an exact correlation between
the indices on which the swap agreements are based and the terms of the hedged
liabilities. In order to offset these risks, the Company generally enters into
swap agreements only with nationally recognized securities firms and monitors
the credit status of counterparties, the level of collateral for such swaps and
the correlation between the hedged liabilities and indices utilized.
RESULTS OF OPERATIONS
NET INCOME. Net income for the six month period ended March 31, 2000 decreased
$4.3 million or 57.4% to $3.2 million from $7.4 million for the six month period
ended March 31, 1999. Net income for the three month period ended March 31, 2000
was $3.0 million compared to $3.7 million for the three month period ended March
31, 1999. Net income for both the six and three month periods ended March 31,
2000 decreased due to an increase in general and administrative expenses as a
result of an additional expense of $6.4 million and $1.5 million, respectively
due to the voluntary acceleration of loan principal repayment to the Company's
Employee Stock Ownership Plan ("ESOP"), and a decrease in other operating income
partially offset by an increase in net interest income.
The following table shows the return on average assets and return on average
equity ratios for each period:
<TABLE>
<CAPTION>
Six months ended Three months ended
March 31, March 31,
------------------------------- ------------------------------
2000 1999 2000 1999
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Return on average assets.................. 0.25% 0.74% 0.47% 0.69%
Return on average equity.................. 4.88% 12.40% 9.36% 11.93%
</TABLE>
NET INTEREST INCOME. Net interest income before provision for loan losses
increased $4.7 million or 19.9% and $1.0 million or 8.0% for the six and three
month periods ended March 31, 2000, respectively, compared to the same periods
in the prior year. The increase was due primarily to an increase of $533.7
million and $406.5 million in average earning assets for the six and three month
periods ended March 31, 2000, respectively. The net interest margin decreased to
2.33% for the six month period ended March 31, 2000, compared with 2.51% in the
prior year and decreased to 2.32% for the three month period ended March 31,
2000, compared with 2.60% in the prior year. Over the past year, the margin has
been affected by decreasing interest rate spreads that the Company has been
experiencing in its asset and liability base primarily due to the rising level
of interest rates that have occurred over that period.
Total interest income increased $20.1 million or 30.5% to $86.0 million for the
six month period ended March 31, 2000, compared to $65.9 million for the six
month period ended March 31, 1999, and increased $8.4 million or 23.9% to $43.5
for the three month period ended March 31, 1999, compared to $35.1 million for
the three month period ended March 31, 1999. The increase in interest income was
primarily the result of increases in interest on loans and securities. The
increase in interest on loans was primarily the result of an increase in the
average balance of loans to $1.2 billion from $931.9 million for the six month
period ended March 31, 2000 and 1999, respectively, partially offset by a
decrease in the average yield on loans to 8.00% from 8.18% for the same period
in the prior year. The increase in net interest income on loans for the three
month period ended March 31, 2000 compared with the three month period ended
March 31, 1999 was the result of an increase in the average balance of loans to
$1.2 billion from $957.8 million, partially offset by decreases in the average
yield on loans to 8.04% from 8.24% for the same period in the prior year. The
increase in the average balance of loans is due primarily to the Company's
recent efforts to emphasize commercial, consumer and home equity lending.
Although interest rates are generally higher than the previous year, the rates
on such loans being originated during much of the year were lower than the loans
in the existing portfolio. As loans repay, they are replaced in the Company's
portfolio by new loans which generally have lower interest rates than the loans
previously put in the portfolio.
19
<PAGE> 20
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
The increase in interest income on mortgage-backed and related securities was
due to an increase in the average balance of such securities to $933.8 million
from $759.96 million for the six month period ended March 31, 2000 and 1999,
respectively, in conjunction with an increase in the average yield on such
securities to 6.35% from 6.05% for the same periods. The increase in interest
income on mortgage-backed and related securities for the three month period
ended March 31, 2000 compared with the three month period ended March 31, 1999
was due to an increase in the average balance of such securities to $915.3
million from $837.1 million, in conjunction with an increase in the average
yield on such securities to 6.48% from 6.10% for the same periods. The increase
in interest income on debt and equity securities was the result of an increase
in the average balance to $223.9 million from $131.4 million for the six month
period ended March 31, 2000 and 1999, respectively, in conjunction with an
increase in the average yield on such securities to 5.86% from 5.38% for the
same periods. The increase in interest income on debt and equity securities was
the result of an increase in the average balance to $223.1 million from $172.8
million for the three month period ended March 31, 2000 and 1999, respectively,
in conjunction with an increase in the average yield on such securities to 5.87%
from 5.57% for the same periods.
Total interest expense increased $15.4 million or 36.3% to $57.9 million for the
six month period ended March 31, 2000, compared to $42.5 million for the six
month period ended March 31, 1999. For the three month period ended March 31,
2000, total interest expense increased $7.4 million, or 33.1%, to $29.6 million
compared to $22.2 million for the three month period ended March 31, 1999. The
increase in interest expense was the result of increases in the average balances
of deposits and advances and other borrowings, and therefore, the cost. The
average balances of deposits were $1.5 billion for the six and three month
periods ended March 31, 2000, as compared to $1.2 billion for the same periods
in the prior year. The increases in the balances of deposits are due to the
Company's offering of additional deposit products and the use of brokers to sell
certificates of deposit. The average balance of brokered deposits increased to
$450.1 million for the six months ended March 31, 2000 compared to $220.5
million for the same period in the prior year. The average cost of deposits
increased to 4.82% and 4.94% for the six and three month periods ended March 31,
2000, respectively, from 4.55% and 4.46% for the same periods in the prior year.
As part of a continuing strategy, the Company continues to offer deposit
products that compete more effectively with money market funds and other
non-financial deposit products. Such accounts have generally changed the
Company's traditional mix of deposit accounts to one that is more adjustable to
current interest rates such as the money market demand account. This has
resulted in passbook and certificate of deposit accounts representing a lower
percentage of the Company's total deposit portfolio. The average balance of
advances and other borrowings were $843.7 million and $845.7 million for the six
and three month periods ended March 31, 2000, respectively, as compared to
$606.9 million and $716.4 million for the same periods in the prior year. The
average cost of advances and other borrowings increased to 5.42% and 5.51% for
the six and three month periods ended March 31, 2000, respectively, from 5.04%
and 4.94% for the same periods in the prior year. The borrowings are primarily
adjustable-rate FHLB advances, reverse repurchase agreements and Federal Funds
purchased which have repriced to reflect the changes in rate levels associated
with the respective borrowing rate indexes from the same period in the prior
year.
The following table sets forth information regarding: (1) average assets and
liabilities, (2) average yield on assets and average cost on liabilities, (3)
net interest margin, (4) net interest rate spread, and (5) the ratio of earning
assets to interest-bearing liabilities for the six and three month periods ended
March 31, 2000 and 1999, respectively. Tax-exempt investments are not material
and the tax-equivalent method of presentation is not included in the schedule.
20
<PAGE> 21
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
------------------------------------------------------------------
2000 1999
------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold and overnight
deposits................................ $ 1,204 $ 29 4.82% $ 22,846 $ 586 5.14%
Trading account securities.............. 691 32 9.26 423 16 7.59
Debt and equity securities.............. 223,851 6,563 5.86 131,443 3,524 5.38
Mortgage-backed and related securities.. 933,833 29,646 6.35 759,916 22,910 6.05
Loans:
First mortgage....................... 779,239 30,166 7.74 550,191 21,941 8.00
Home equity........................... 165,641 7,129 8.61 141,001 5,840 8.31
Consumer ............................. 146,220 6,106 8.35 142,264 6,122 8.63
Commercial and agricultural........... 124,547 5,205 8.36 98,411 4,099 8.35
------------------- -------------------
Total loans....................... 1,215,647 48,606 8.00 931,867 38,002 8.18
Federal Home Loan Bank stock............ 32,003 1,162 7.26 27,076 898 6.65
------------------- -------------------
Total earning assets.............. 2,407,229 86,038 7.15 1,873,571 65,936 7.06
------- -------
Valuation allowances.................... (37,526) (12,879)
Cash and due from banks................. 35,532 33,355
Other assets............................ 109,857 117,376
---------- ----------
Total assets...................... $2,515,092 $2,011,423
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts ......................... $ 76,394 259 0.68 $ 70,023 424 1.21
Money market demand accounts.......... 361,648 8,052 4.45 339,033 7,289 4.31
Passbook.............................. 108,329 1,189 2.20 128,852 1,857 2.89
Certificates of deposit.............. 907,276 25,566 5.64 661,999 17,669 5.35
------------------- -------------------
Total interest-bearing deposits.......... 1,453,647 35,066 4.82 1,199,907 27,239 4.55
Advances and other borrowings............ 843,748 22,866 5.42 606,863 15,259 5.04
Advances from borrowers for taxes and
insurance................................ 5,341 8 0.30 4,398 9 0.41
------------------- -------------------
Total interest-bearing
liabilities....................... 2,302,736 57,940 5.03 1,811,168 42,507 4.71
Non interest-bearing deposits............ 73,569 68,097
Other liabilities........................ 9,050 11,937
Shareholders' equity..................... 129,737 120,221
---------- ----------
Total liabilities and shareholders'
equity................................... $2,515,092 $2,011,423
========== ==========
Net interest income...................... $28,098 $23,429
======= =======
Net yield on interest-earning assets..... 2.33 2.51
Interest rate spread..................... 2.12 2.35
Ratio of earning assets to
interest-bearing liabilities............. 104.54 103.45
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
-------------------------------- ----------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold and overnight
deposits................................ $ 926 $ 12 5.21% $ 15,401 $ 188 4.95%
Trading account securities.............. 185 5 10.87 307 5 6.61
Debt and equity securities.............. 223,054 3,257 5.87 172,831 2,372 5.57
Mortgage-backed and related securities.. 915,296 14,736 6.48 837,138 12,601 6.10
Loans:
First mortgage....................... 810,433 15,684 7.78 569,236 11,437 8.15
Home equity........................... 169,729 3,679 8.72 139,403 2,837 8.25
Consumer ............................. 144,356 2,987 8.32 145,949 3,072 8.54
Commercial and agricultural........... 124,390 2,613 8.45 103,211 2,119 8.33
-------------------- ---------------------
Total loans....................... 1,248,908 24,963 8.04 957,799 19,465 8.24
Federal Home Loan Bank stock............ 31,993 557 7.00 30,367 513 6.85
-------------------- ---------------------
Total earning assets.............. 2,420,362 43,530 7.23 2,013,843 35,144 7.08
------- -------
Valuation allowances.................... (43,288) (14,907)
Cash and due from banks................. 33,461 33,651
Other assets............................ 101,165 115,486
---------- ----------
Total assets...................... $2,511,700 $2,148,073
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts ......................... $ 76,400 124 0.65 $ 71,231 209 1.19
Money market demand accounts.......... 360,575 4,072 4.54 345,160 3,541 4.16
Passbook.............................. 103,513 558 2.17 126,644 864 2.77
Certificates of deposit.............. 924,782 13,255 5.76 687,203 8,903 5.25
-------------------- ---------------------
Total interest-bearing deposits.......... 1,465,270 18,009 4.94 1,230,238 13,517 4.46
Advances and other borrowings............ 845,745 11,584 5.51 716,438 8,725 4.94
Advances from borrowers for taxes and
insurance................................ 2,691 2 0.30 1,782 2 0.46
-------------------- ---------------------
Total interest-bearing
liabilities....................... 2,313,706 29,595 5.14 1,948,458 22,244 4.63
Non interest-bearing deposits............ 68,604 63,255
Other liabilities........................ 2,307 11,592
Shareholders' equity..................... 127,083 124,768
---------- ----------
Total liabilities and shareholders'
equity................................... $2,511,700 $2,148,073
========== ==========
Net interest income...................... $13,935 $12,900
======= =======
Net yield on interest-earning assets..... 2.32 2.60
Interest rate spread..................... 2.09 2.45
Ratio of earning assets to
interest-bearing liabilities............. 104.61 103.36
</TABLE>
21
<PAGE> 22
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
PROVISION FOR LOAN LOSSES. The following table summarizes the allowance for loan
losses for each period:
<TABLE>
<CAPTION>
Six months ended Three months ended
March 31, March 31,
------------------------------- ------------------------------
2000 1999 2000 1999
------------- ------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Beginning balance......................... $ 9,356 $ 7,530 $ 9,764 $ 7,964
Provision for loan losses................. 1,000 960 500 480
Recoveries................................ 77 29 54 23
Charge-offs............................... (331) (144) (216) (92)
Acquired bank's allowance................. - 303 - 303
------------- ------------- ------------ -------------
Ending balance............................ $ 10,102 $ 8,678 $ 10,102 $ 8,678
============= ============= ============ =============
Ratio of allowance for loan losses to
gross loans receivable at the end
of the period........................ 0.75% 0.79% 0.75% 0.79%
Ratio of allowance for loan losses to
total non-performing loans at the
end of the period.................... 300.48% 253.97% 300.48% 253.97%
Ratio of net charge-offs to average
gross loans (annualized)............. 0.04% 0.03% 0.05% 0.03%
</TABLE>
Management believes that the allowance for loan losses is adequate to provide
for probable losses as of March 31, 2000, based upon its current evaluation of
loan delinquencies, non-performing loans, charge-off trends, economic conditions
and other factors. Such evaluation, which includes a review of all loans on
which full collectibility may not be reasonably assured, considers, among other
matters, the estimated net realizable value of the underlying collateral,
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an accurate provision for loan losses. At
March 31, 2000, the provision for loan losses was $1.0 million compared to
$960,000 for the same period in the prior year. The Company's loan portfolio is
becoming increasingly more diversified than in previous years. The Company has
and continues to expect to increase its commercial, consumer and commercial real
estate loan portfolios which are generally presumed to have more risk than
standard single-family mortgage loans. Charge-offs for the six and three month
periods ended March 31, 2000 were $331,000 and $216,000, respectively, compared
to $144,000 and $92,000 for the six and three month periods ended March 31,
1999. The Company believes that the allowance for loan losses is adequate to
provide for anticipated probable losses based upon current known conditions.
OTHER OPERATING INCOME. Other operating income decreased by $2.5 million to $6.6
million for the six month period ended March 31, 2000, compared to the same
period in the prior year. Other operating income decreased by $222,000 to $3.5
million for the six month period ended March 31, 2000, compared to the same
period in the prior year. The following table shows the percentage of other
operating income to average assets for each period:
<TABLE>
<CAPTION>
Six months ended Three months ended
March 31, March 31,
------------------------------- ------------------------------
2000 1999 2000 1999
------------- ------------- ------------ -------------
(In thousands)
<S> <C> <C> <C> <C>
Other operating income.................... $ 6,628 $ 9,151 $ 3,464 $ 3,686
Percent of average assets (annualized).... 0.53% 0.91% 0.55% 0.70%
</TABLE>
The decreases were due primarily to decreases in gains on sales of mortgage
loans, income from the Company's affordable housing subsidiary and gains on the
sale of real estate held for sale, partially offset by increases in depository
fees and loan servicing fees.
22
<PAGE> 23
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
Gains on the sale of mortgage loans decreased to $358,000 and $230,000 for the
six and three month periods ended March 31, 2000, respectively, compared to
gains of $2.1 million and $860,000 for the same periods in the prior year. The
Company's volume of mortgage loan sales were $27.8 million and $12.9 million for
the six and three month periods ended March 31, 2000, compared to $131.6 million
and $47.6 million for the same periods in the prior year. The higher interest
rate environment has decreased the level of the Company's fixed rate loan
production. Income from the operations of the Company's affordable housing
subsidiary (which represents primarily rental income) decreased to $1.5 million
and $729,000 for the six and three month periods ended March 31, 2000, compared
with $2.2 million and $826,000 for the same periods in the prior year. During
the six and three month periods ended March 31, 1999, the Company realized gains
of $1.2 million and $492,000 on the sale of 13 affordable housing properties
which had been classified as real estate held for sale at September 30, 1998.
Income from depository fees and service charges increased to $2.4 million and
$1.1 million for the six and three months ended March 31, 2000, respectively,
compared to $1.9 million and $971,000 for the same periods in the prior year.
Income from loan servicing increased to $1.2 million and $629,000 for the six
and three months ended March 31, 2000, respectively, compared to $904,000 and
$385,000 for the same periods in the prior year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $6.1 million or 27.6% and $1.7 million or 15.9% for the six and
three month periods ended March 31, 2000, compared to the same periods in the
prior year. The following table shows the percentage of general and
administrative expenses to average assets for each period:
<TABLE>
<CAPTION>
Six months ended Three months ended
March 31, March 31,
------------------------------- ------------------------------
2000 1999 2000 1999
------------- ------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
General and administrative expenses....... $ 27,951 $ 21,898 $ 12,635 $ 10,905
Percent of average assets (annualized).... 2.22% 2.18% 2.02% 2.06%
</TABLE>
The increase in general and administrative expenses is due primarily to an
additional ESOP expense, partially offset by a decrease in affordable housing
expenses resulting from the sale of investments during the prior year. The
Company made a voluntary acceleration of loan principal to its ESOP plan. The
increased payment resulted in additional expense of $6.4 million and $1.5
million for the six and three month periods ended March 31, 2000. The Company
intends to continue paying off the remaining ESOP loan on an accelerated basis
during the three months ended June 30, 2000. Thus, the Company expects
additional ESOP expense will be recognized. The effect on net income of the
remaining ESOP expense for the three months ended June 30, 2000 is expected to
be approximately $700,000, assuming the current price of the Company's common
stock during that quarter. Thereafter, the loan will be repaid, eliminating
expenses. The expense is recognized as ESOP shares are earned by employees.
INCOME TAX EXPENSE. Income tax expense increased to $2.6 million and $1.3
million for the six and three month periods ended March 31, 2000, compared to
$2.3 million and $1.5 million for the same periods in the prior year. The
effective tax rate for the six and three month periods ended March 31, 2000 was
45.19% and 30.61% respectively, compared with 23.52% and 29.44% for the six and
three month periods ended March 31, 1999. The increase in the effective tax rate
is due primarily to the fact that the majority of the ESOP expense is
non-deductible for tax purposes and because of a decrease in tax credits earned
by the Company's affordable housing subsidiary, as a result of the sale of 13 of
the properties in the prior year's six and three month periods.
ASSET QUALITY
Total non-performing assets were $3.7 million, or 0.15% of total assets at March
31, 2000, compared with $3.2 million, or 0.13% of total assets at September 30,
1999. Non-performing assets include loans which have been placed on nonaccrual
status and property upon which a judgment of foreclosure has been entered but
prior to the foreclosure sale, as well as property acquired as a result of
foreclosure. Non-performing assets includes a single $798,000 commercial real
estate loan on a shopping center, which has an associated reserve of $798,000.
23
<PAGE> 24
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
Non-performing assets are summarized as follows:
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
----------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Non-performing loans.............................. $ 3,362 $ 2,840
Foreclosed properties.............................
316 371
----------------- -----------------
Non-performing assets............................. $ 3,678 $ 3,211
================= =================
Non-performing loans to gross loans............... 0.25% 0.23%
Non-performing assets to total assets............. 0.15% 0.13%
</TABLE>
There are no material loans about which management is aware that there exists
serious doubts as to the ability of the borrower to comply with the loan terms,
except as disclosed above.
Impaired loans totaled $798,000 at March 31, 2000 compared to $809,000 at
September 30, 1999. These loans had associated impairment reserves of $798,000
and $400,000 at March 31, 2000 and September 30, 1999, respectively.
ASSET/LIABILITY MANAGEMENT
Asset and liability management is an ongoing process of managing asset and
liability maturities to control the interest rate risk of the Company.
Management controls this risk through pricing of assets and liabilities and
maintaining specific levels of maturities. In recent periods, management's
strategy has been to (1) sell substantially all new originations of long-term,
fixed-rate, single-family mortgage loans in the secondary market, (2) invest in
various adjustable-rate and short-term mortgage-backed and related securities,
(3) invest in adjustable-rate, single-family mortgage loans, and (4) increase
its investments in consumer and commercial loans with generally shorter interest
rate characteristics. Although management believes that its asset/liability
management strategies have reduced the potential effects of changes in interest
rates on its operations, increases in interest rates may adversely affect the
Company's results of operations because interest-bearing liabilities will
reprice more quickly than interest-earning assets
At March 31, 2000, the Company's estimated cumulative one-year gap between
assets and liabilities was a negative 24.45% of total assets. A negative gap
occurs when a greater dollar amount of interest-bearing liabilities are
repricing or maturing than interest earning assets. The Company's three-year
cumulative gap as of March 31, 2000 was a negative 16.79% of total assets. With
a negative gap position, during periods of rising interest rates it is expected
that the cost of the Company's interest-bearing liabilities will rise more
quickly than the yield on its interest-earning assets, which will have a
negative effect on its net interest income. Although the opposite effect on net
interest income would occur in periods of falling interest rates, the Company
could experience substantial prepayments of its fixed-rate mortgage loans and
mortgage-backed and related securities in periods of falling interest rates,
which would result in the reinvestment of such proceeds at market rates which
are lower than current rates.
24
<PAGE> 25
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
The following table summarizes the Company's gap position as of March 31, 2000.
<TABLE>
<CAPTION>
More than More than
Within Four to One Year Three
Three Twelve to Three Years to Over Five
Months Months Years Five Years Years Total
----------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS: (1)
Loans: (2)
Fixed.............................. $ 69,687 $ 32,985 $ 38,456 $ 23,396 $ 45,607 $ 210,131
Variable........................... 139,101 115,025 179,610 204,521 84,985 723,242
Consumer loans (2)...................... 169,251 64,803 34,714 27,115 14,955 310,838
Mortgage-backed and related securities.. 3,624 8,866 10,302 5,913 2,963 31,668
Assets available for sale:
Mortgage loans..................... 11,092 - - - - 11,092
Fixed rate mortgagE related........ 56,825 85,993 210,482 125,944 15,540 494,784
Variable rate mortgage related..... 338,232 - - - - 338,232
Investment securities.............. 20,814 52,349 48,691 50,758 39,135 211,747
Trading account securities.............. - - - - - -
Other assets............................ 31,124 - - - - -
Impact of interest rate swaps........... 20,000 (10,000) (10,000) - - -
--------------------------------------------------------------------------------
Total.............................. $ 859,750 $ 350,021 $ 512,255 $ 438,157 $ 203,185 $2,363,368
================================================================================
INTEREST-BEARING LIABILITIES:
Deposits: (3)
NOW accounts....................... $ 6,882 $ 20,649 $ 24,841 $ 13,828 $ 11,264 $ 77,464
Passbook savings accounts.......... 1,956 5,868 13,379 10,837 46,202 78,242
Money market deposit accounts...... 91,959 275,878 12,879 5,232 3,623 389,571
Certificates of deposit............ 168,114 250,193 161,054 120,566 219,061 918,988
Borrowings (4).......................... 296,363 315,000 162,918 50,000 - 824,281
Impact of interest rate swaps........... 390,000 - (55,000) (115,000) (220,000) -
--------------------------------------------------------------------------------
Total.............................. $ 955,274 $ 867,588 $ 320,071 $ 85,463 $ 60,150 $2,288,546
================================================================================
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities............. $ (95,524) $(517,567) $ 192,184 $ 352,694 $ 143,035 $ 74,822
================================================================================
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities............ $ (95,524) $(613,091) $(420,907) $ (68,213) $ 74,822
====================================================================
Cumulative excess (deficiency) of
interest-earning assets over
interest- bearing liabilities as
a percent of total assets............. (3.81%) (24.45%) (16.79%) (2.72%) 2.98%
====================================================================
</TABLE>
- --------------------------------------------------------------------------------
(1) Adjustable and floating rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period
in which they are due, and fixed rate assets are included in the
periods in which they are scheduled to be repaid based on scheduled
amortization, in each case adjusted to take into account estimated
prepayments utilizing the Company's historical prepayment statistics,
modified for forecasted statistics using the Public Securities
Association model of prepayments. For fixed rate mortgage loans and
mortgage-backed and related securities, annual prepayment rates ranging
from 8% to 30%, based on the loan coupon rate, were used.
(2) Balances have been reduced for undisbursed loan proceeds, unearned
insurance premiums, deferred loan fees, purchased loan discounts and
allowances for loan losses, which aggregated $85.7 million at March 31,
2000.
(3) Although the Company's negotiable order of withdrawal ("NOW") accounts,
passbook savings accounts and money market deposit accounts generally
are subject to immediate withdrawal, management considers a certain
portion of such accounts to be core deposits having significantly
longer effective maturities based on the Company's retention of such
deposits in changing interest rate environments. NOW accounts, passbook
savings accounts and money market deposit accounts are assumed to be
withdrawn at annual rates of 37%, 17% and 88%, respectively, of the
declining balance of such accounts during the period shown. The
withdrawal rates used are higher than the Company's historical rates,
but are considered by management to be more indicative of expected
withdrawal rates in a rising interest rate environment. If all the
Company's NOW accounts, passbook savings accounts and money market
deposit accounts had been assumed to be repricing within one year, the
one-year cumulative deficiency of interest-earning assets to
interest-bearing liabilities would have been $694.1 million or 27.7% of
total assets.
(4) Adjustable and floating rate borrowings are included in the period in
which their interest rates are next scheduled to adjust rather than in
the period in which they are due.
25
<PAGE> 26
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 2: Management's Discussion and Analysis, continued
Assumptions regarding withdrawals and prepayments are based on historical
experience, and management believes such assumptions are reasonable, although
actual withdrawals and repayments of assets and liabilities may vary
substantially. Certain shortcomings are inherent in the method of analysis
presented in the gap table. For example, although certain assets and liabilities
may have similar maturities to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on other types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans and
mortgage-backed and related securities, have features which restrict changes in
interest rates both on a short-term basis and over the life of the asset.
Further, in the event of an actual change in interest rates, actual prepayment
and early withdrawal levels could deviate significantly from those assumed in
calculating the data in the table.
LIQUIDITY AND CAPITAL RESOURCES
The Company's most liquid assets are cash and cash equivalents, which include
investments in highly-liquid, short-term investments. The level of these assets
is dependent on the Company's operating, financing and investing activities
during any given period. Cash and cash equivalents totaled $34.6 million and
$32.6 million as of March 31, 2000 and September 30, 1999, respectively.
The Company's primary sources of funds are deposits, including brokered
certificates of deposit, borrowings from the FHLB and proceeds from principal
and interest payments on loans and mortgage-backed and related securities.
Although maturities and scheduled amortization of loans are predictable sources
of funds, deposit flows, prepayments on mortgage loans and mortgage-backed and
related securities are influenced significantly by general interest rates,
economic conditions and competition. Additionally, the Bank is limited by the
FHLB to borrowing up to 35% of its assets. At March 31, 2000, the Company had
additional borrowing capacity of $109.9 million available from the FHLB.
Under federal and state laws and regulations, the Company and its wholly-owned
subsidiary are required to meet certain tangible, core and risk-based capital
requirements. Tangible capital generally consists of shareholders' equity minus
certain intangible assets. Core capital generally consists of tangible capital
plus qualifying intangible assets. The risk-based capital requirements presently
address credit risk related to both recorded and off-balance sheet commitments
and obligations.
The Bank is required to follow Office of Thrift Supervision ("OTS") capital
regulations which require savings institutions to meet two capital standards:
(i) "tier 1 core capital" in an amount not less than 4% of adjusted total assets
and (ii) "risk-based capital" of at least 8% of risk-weighted assets.
The following table summarizes the Bank's capital ratios at the dates indicated:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- ----------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------- --------- ----------- ------------ --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 2000:
Tangible capital.............. 158,437 6.30% > 99,597 >4.0% >125,743 > 5.0%
- - - -
Core capital ................. 158,437 6.30% > 99,597 >4.0% >125,743 > 5.0%
- - - -
Tier 1 risk-based capital..... 158,437 10.41% > 60,858 >4.0% > 91,288 > 6.0%
- - - -
Risk-based capital............ 167,296 11.00% >121,717 >8.0% >152,146 >10.0%
- - - -
As of September 30, 1999:
Tangible capital.............. 144,222 5.82% > 99,136 >4.0% >123,921 > 5.0%
- - - -
Core capital ................. 144,222 5.82% > 99,136 >4.0% >123,921 > 5.0%
- - - -
Tier 1 risk-based capital..... 144,222 9.98% > 57,803 >4.0% > 86,704 > 6.0%
- - - -
Risk-based capital............ 153,578 10.63% >115,606 >8.0% >144,507 >10.0%
- - - -
</TABLE>
The capital of the Company and the Bank exceed all regulatory capital
requirements.
26
<PAGE> 27
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The following table sets forth the amounts of estimated cash flows for the
various interest-earning assets and interest-bearing liabilities outstanding at
March 31, 2000.
<TABLE>
<CAPTION>
More than More than
Within One Year Two Years
One Year to Two Years to Three Years
------------------ ------------------ -----------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets
Mortgage and
Commercial loans:
Fixed rate $ 65.8 8.38% $ 43.2 8.32% $ 14.1 8.32%
Adjustable rate 183.6 8.54% 95.5 8.61% 58.8 8.50%
Consumer loans:
Fixed rate 11.3 8.30% 18.3 8.39% 12.7 8.40%
Adjustable rate 34.0 8.53% 23.8 8.53% 59.6 8.53%
Mortgage-backed
securities:
Fixed rate 142.8 6.37% 105.2 6.43% 105.2 6.51%
Adjustable rate 64.3 6.80% 50.7 6.80% 44.0 6.80%
Debt and equity
securities 73.2 5.78% 24.4 5.78% 24.3 5.78%
Other 31.1 5.60% - - - -
-------- ------ ------
Total interest
earning assets $ 606.1 7.34% $361.1 7.48% $318.7 7.39%
======== ====== ======
Interest bearing liabilities
Deposits:
NOW accounts $ 27.5 0.50% $ 15.4 0.50% $ 15.4 0.50%
Passbooks 7.8 1.00% 6.7 1.00% 6.7 1.00%
Money market 367.8 4.61% 6.5 4.61% 6.5 4.61%
Certificates 418.3 5.58% 132.5 6.08% 28.5 6.45%
Borrowings
Fixed rate 505.3 5.50% 185.0 5.70% 25.0 5.02%
Adjustable rate 109.1 6.14% - 5.53% - -
-------- ------ ------
Total interest
bearing
liabilities $1,435.8 5.22% $346.1 5.50% $ 82.1 4.31%
======== ====== ======
<CAPTION>
More than More than
Three Years Four Years Over
To Four Years to Five Years Five Years
------------------- ------------------ ------------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets
Mortgage and
Commercial loans:
Fixed rate $ 16.4 8.36% $ 21.2 8.37% $ 49.4 8.61%
Adjustable rate 73.4 8.49% 88.1 8.50% 235.0 8.51%
Consumer loans:
Fixed rate 12.7 8.42% 16.9 8.42% 68.9 9.07%
Adjustable rate 28.9 8.53% 23.8 8.53% - -
Mortgage-backed
securities:
Fixed rate 63.0 6.74% 63.0 6.58% 47.2 6.50%
Adjustable rate 40.6 6.80% 37.2 6.80% 101.5 6.80%
Debt and equity
securities 25.4 5.78% 25.4 5.78% 39.1 5.78%
Other - - - - 0.5 5.15%
------ ------ ------
Total interest
earning assets $260.4 7.53% $275.6 7.57% $541.6 7.89%
====== ====== ======
Interest bearing liabilities
Deposits:
NOW accounts $ 6.9 0.50% $ 6.9 0.50% $ 5.3 0.50%
Passbooks 5.4 1.00% 5.4 1.00% 46.2 1.00%
Money market 2.6 4.61% 2.6 4.61% 3.6 4.61%
Certificates 27.9 5.92% 92.7 6.31% 219.1 6.52%
Borrowings
Fixed rate - - - - - -
Adjustable rate - - - - - -
------ ------ ------
Total interest
bearing
liabilities $ 42.8 4.35% $107.6 5.63% $274.2 5.45%
====== ====== ======
<CAPTION>
Fair
Market
Total Value
----------------- ---------
(Dollars in millions)
<S> <C> <C> <C>
Interest earning assets
Mortgage and
Commercial loans:
Fixed rate $ 210.1 8.42% $ 210.1
Adjustable rate 734.4 8.53% 734.4
Consumer loans:
Fixed rate 140.8 8.72% 140.8
Adjustable rate 170.1 8.53% 170.1
Mortgage-backed
securities:
Fixed rate 526.4 6.49% 508.2
Adjustable rate 338.3 6.80% 320.8
Debt and equity
securities 211.8 5.78% 202.6
Other 31.6 5.59% 31.6
-------- --------
Total interest
earning assets $2,363.5 7.54% $2,318.6
======== ========
Interest bearing liabilities
Deposits:
NOW accounts $ 77.4 0.50% $ 82.1
Passbooks 78.2 1.00% 59.7
Money market 389.6 4.61% 389.6
Certificates 919.0 5.99% 918.4
Borrowings
Fixed rate 715.3 5.53% 711.0
Adjustable rate 109.1 6.14% 109.1
-------- --------
Total interest
bearing
liabilities $2,288.6 5.26% $2,269.9
======== ========
</TABLE>
27
<PAGE> 28
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Bank is involved in any pending legal
proceedings involving amounts in the aggregate which management
believes are material to the financial condition and results of
operations of the Company and the Bank.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on January 26, 2000.
Only shareholders of record at the close of business on December
1, 1999 (the "Voting Record Date") were entitled to vote at the
annual meeting. On the Voting Record Date, there were 10,164,357
shares of common stock outstanding, and 9,298,062 shares present
at the meeting by the holders thereof in person or by proxy, which
constituted a quorum. The following is a summary of the matters
voted upon at the meeting.
<TABLE>
<CAPTION>
NUMBER OF VOTES
--------------------------------------------------------------
BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
--- -------- ----------- ---------
<S> <C> <C> <C> <C>
NOMINEES FOR DIRECTOR FOR
THREE-YEAR TERM EXPIRING IN 2002
Jeffrey A. Reigle 9,191,801 106,261 - -
Edmund O. Templeton 9,190,601 107,461 - -
RATIFICATION OF APPOINTMENT OF
KPMG LLP AS AUDITORS 9,240,841 35,684 21,537 -
</TABLE>
ITEM 5. OTHER INFORMATION
On April 21, 2000, the Company announced the declaration of a
dividend of $0.09 per share on the Company's common stock for the
quarter ended March 31, 2000. The dividend is payable on May 19,
2000 to shareholders of record as of May 10, 2000. This will be
the nineteenth consecutive cash dividend payment since the Company
became a publicly-held company in June 1993.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.11 2000 Employment Agreement (Bank) - Thomas R. Perz
10.18 2000 Employment Agreement (Company) - Thomas R. Perz
11.1 Statement Regarding Computation of Earnings Per Share
(See Footnote 7 in "Notes to Unaudited Consolidated
Financial Statements")
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report was filed.
28
<PAGE> 29
SIGNATURE
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.
ST. FRANCIS CAPITAL CORPORATION
Dated: May 15, 2000 By: /s/ Jon D. Sorenson
-------------- --------------------------------
Jon D. Sorenson
Chief Financial Officer
29
<PAGE> 1
ST. FRANCIS BANK, F.S.B.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is effective as of January 1, 2000 between
St. Francis Bank, F.S.B. (the "Bank"), a federally-chartered savings and loan,
its successors and assigns, and Thomas R. Perz (the "Executive").
RECITALS
WHEREAS, Executive is a key employee, whose extensive background,
knowledge and experience in the savings and loan industry has substantially
benefited the Bank and whose continued employment as an executive member of its
management team in the positions of President and Chief Executive Officer
("Corporate Position") will continue to benefit the Bank in the future; and
WHEREAS, the parties are mutually desirous of entering into this
Agreement setting forth the terms and conditions for the employment relationship
between the Bank (sometimes referred to herein as the "Employer"), and
Executive; and
WHEREAS, the Board of Directors of the Employer has approved and
authorized the Bank's entry into this Agreement with Executive.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below:
1. Employment. The Bank shall continue to employ Executive, and
Executive shall continue to serve the Bank, on the terms, conditions and for the
period set forth in Section 2 of this Agreement.
2. Term of Employment. The period of Executive's employment under
this Agreement shall begin as of October 1, 1999 (the Commencement Date) and
expire on the third anniversary of the date immediately preceding the
Commencement Date, unless sooner terminated as provided herein; provided that,
on each date immediately preceding the anniversary of the Commencement Date, the
term of employment may be extended by action of the Bank's Board of Directors,
following an explicit review by said Board of the Executive's performance under
this Agreement (with appropriate documentation thereof and after taking into
account all relevant factors including Executive's performance hereunder), to
add one additional year to the remaining term of employment annually restoring
such term to a full three-years. The Board of Directors or Executive shall each
provide the other with at least ninety (90) days' advance written notice of any
decision on their respective parts not to extend the Agreement on any date
<PAGE> 2
immediately preceding an anniversary of the Commencement Date. The term of
employment as in effect from time to time hereunder shall be referred to as the
"Employment Term".
3. Positions and Duties. Executive shall serve the Bank in his
Corporate Position as President and Chief Executive Officer. As such, Executive
shall report directly to the Board of Directors, be elected to the Board of
Directors upon expiration of each term thereon while this Agreement remains in
effect, serve as a member of the Bank's Management Committee and be generally
responsible for selection and supervision of the Bank's management personnel and
for the formulation of its business and personnel policies, rendering executive,
policy-making and other management services of the type customarily performed by
persons serving in similar capacities at other institutions, together with such
other duties and responsibilities as may be appropriate to Executive's position
and as may be from time to time determined by the Bank's Board of Directors to
be necessary to their operations and in accordance with their bylaws.
4. Compensation. As compensation for services provided pursuant
to this Agreement, Executive shall receive from the Bank the compensation and
benefits set forth below:
(I) Base Salary. During the Employment Term, Executive
shall receive from Employer a base salary ("Base Salary") in such
amount as may from time to time be approved by its Board of Directors.
The Base Salary shall at no time be less than $400,000 per annum,
payable by the Bank; provided, however, that the Bank may receive
reimbursement of some or all of such amount from St. Francis Capital
Corporation (the "Company") as may be jointly determined by their
respective Boards of Directors to appropriately reflect the allocation
of Executives time and efforts between the Bank and Company. The Base
Salary may be increased from time to time as determined by the Bank's
Board of Directors, provided that no such increase in Base Salary or
other compensation shall in any way limit or reduce any other
obligation of the Employers under this Agreement. Once established at a
specified annual rate, Executive's Base Salary shall not thereafter be
reduced except as part of a general pro-rata reduction in compensation
applicable to all Executive Officers; provided, however, that no such
reduction shall be permitted following a "change in control" as defined
herein. Executive's Base Salary and other compensation shall be paid in
accordance with the Bank's regular payroll practices as from time to
time in effect. For purposes of this Agreement, the term "Executive
Officers" shall mean all officers of the Bank having a written
Employment Agreement.
(II) Bonus and Incentive Plans. Executive shall be
entitled, during the Employment Term, to participate in and receive
payments from all Bank bonus and other incentive compensation plans (as
currently in effect, as modified from time to time, or as subsequently
adopted); provided, however, that nothing contained herein shall grant
Executive the right to continue in any bonus or other incentive
compensation plan following its discontinuance by the Board (except to
the extent Executive had earned or otherwise accumulated vested rights
therein prior to such discontinuance). In addition,
-2-
<PAGE> 3
Executive shall participate in all stock purchase, stock option, stock
appreciation right, stock grant, or other stock based incentive
programs of any type made available by the Bank to their Executive
Officers. The Employer shall not make any changes in such plans,
benefits or privileges which would adversely affect Executive's rights
or benefits thereunder, unless such change occurs pursuant to a program
applicable to all Executive Officers of the Bank and does not result in
a proportionately greater adverse change in the rights and benefits of
Executive as compared with other Executive Officers.
(III) Other Benefits. During the Employment Term, the Bank
shall provide to Executive all other benefits of employment (or, with
Executive's consent, equivalent benefits) generally made available to
other Executive Officers. Such benefits shall include participation by
Executive in any group health, life, disability, or similar insurance
program and in any pension, profit-sharing, Employee Stock Ownership
Plan ("ESOP"), 401(k) or other or similar retirement program. The Bank
shall continue in effect any individual insurance plans or deferred
compensation agreements in effect as of the Commencement Date and
Executive shall be entitled to use of an automobile provided by the
Bank under the terms of such corporate automobile policy as is
maintained in effect and as it may be amended from time to time.
Executive shall receive vacation, sick time, personal days and
other perquisites in the same manner and to the same extent as provided
under the Bank's policies as in effect from time to time for other
Executive Officers. The Bank shall also reimburse Executive or
otherwise provide for or pay all reasonable expenses incurred by
Executive in furtherance of or in connection with the business of the
Bank, including but not by way of limitation, travel expenses and all
reasonable entertainment expenses (whether incurred at Executive's
residence, while traveling or otherwise) subject to such reasonable
documentation and other limitations as may be imposed by the Boards of
Directors of the Bank.
Nothing contained herein shall be construed as granting
Executive the right to continue in any benefit plan or program, or to
receive any other perquisite of employment provided under this
subsection 4(iii) following termination or discontinuance of such plan,
program or perquisite by the Board (except to the extent Executive had
previously earned or accumulated vested rights therein).
5. Termination Other Than Following a Change-In-Control. This
Agreement may be terminated, subject to payment of the compensation and other
benefits described below, upon occurrence of any of the events described herein.
In case of such termination, the date on which Executive ceases to be employed
under this Agreement, after giving effect to any prior notice requirement, is
referred to as the "Termination Date".
(I) Death, Retirement. This Agreement shall terminate at
the death or retirement of Executive. As used herein, the term
"retirement" shall mean Executive's retirement in accordance with and
pursuant to any retirement plan of the Employer
-3-
<PAGE> 4
generally applicable to Executive Officers or in accordance with any
retirement arrangement established for Executive with his consent.
If termination occurs for such reason, no additional compensation shall
be payable to Executive under this Agreement except as specifically
provided herein. Notwithstanding anything to the contrary contained
herein, Executive shall receive all compensation and other benefits to
which he was entitled under Section 4 through the Termination Date and,
in addition, shall receive all other benefits available to him under
the Bank's benefit plans and programs to which he was entitled by
reason of employment through the Termination Date.
(II) Disability. This Agreement shall terminate upon the
disability of Executive. As used in this Agreement, "disability" shall
mean Executive's inability, as the result of physical or mental
incapacity, to substantially perform his employment duties for a period
of 90 consecutive days. Any question as to the existence of Executive's
disability upon which Executive and Employer cannot agree shall be
determined by a qualified independent physician mutually agreeable to
Executive and Employer or, if the parties are unable to agree upon a
physician within ten (10) days after notice from either to the other
suggesting a physician, by a physician designated by the then president
of the medical society for the county in which Executive maintains his
principal residence. The costs of any such medical examination shall be
borne by the Employer. If Executive is terminated due to disability, he
shall be paid 100% of his Base Salary at the rate in effect at the time
notice of termination is given for one year and thereafter an annual
amount equal to 75% of such Base Salary for any remaining portion of
the Employment Term, such amounts to be paid in substantially equal
monthly installments and offset by any monthly payments actually
received by Executive during the payment period from (i) any disability
plans provided by the Employers, and/or (ii) any governmental social
security or workers compensation program.
If termination occurs for such reason, no additional
compensation shall be payable to Executive except as specifically
provided herein. Notwithstanding anything to the contrary contained
herein, Executive shall receive all compensation and other benefits to
which he was entitled under Section 4 through the Termination Date and,
in addition, shall receive all other benefits under the Bank's benefit
plans and programs to which he was entitled by reason of employment
through the Termination Date.
(III) Cause. Employer may terminate Executive's employment
under this Agreement for cause at any time, and thereafter their
obligations under this Agreement shall cease and terminate.
Notwithstanding anything to the contrary contained herein, Executive
shall receive all compensation and other benefits in which he was
vested or to which he was otherwise entitled under Section 4, and the
plans and programs provided therein, by reason of employment through
the Termination Date.
For purposes of this Agreement, "Cause" shall mean:
-4-
<PAGE> 5
(A) The intentional failure by Executive to substantially
perform assigned duties (appropriate to his position
and level of compensation) with the Bank (other than
any such failure resulting from the Executive's
incapacity due to physical or mental illness) after a
written demand for substantial performance is
delivered to Executive by the Board, which demand
specifically identifies the manner in which the Board
believes Executive has not substantially performed his
duties, advises Executive of what steps must be taken
to achieve substantial performance, and allows
Executive Sixty (60) days in which to demonstrate such
performance;
(B) Any willful act of misconduct by Executive;
(C) A criminal conviction of Executive for any act
involving dishonesty, breach of trust or a violation
of the banking or savings and loan laws of the United
States;
(D) A criminal conviction of Executive for the commission
of any felony;
(E) A breach of fiduciary duty involving personal profit;
(F) A willful violation of any law, rule or regulation
(other than a traffic violation or similar offenses)
or final cease and desist order; or
(G) Personal dishonesty or material breach of any
provision of this Agreement.
For purposes of this Subsection (5)(iii), no act, or failure
to act, on Executive's part shall be deemed "willful" unless done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that the action or omission was in the best interest
of the Employer.
(IV) Voluntary Termination by Executive. Executive may
voluntarily terminate his employment under this Agreement at any time
by giving at least thirty (30) days prior written notice to the Bank.
In such event, Executive shall receive all compensation and other
benefits in which he was vested or to which he was otherwise entitled
under Section 4 through the date specified in such notice (the
"Termination Date"), in addition to all other benefits available to him
under benefit plans and programs to which he was entitled by reason of
employment through the Termination Date.
(V) Suspension or Termination Required by the OTS
(A) If Executive is suspended and/or temporarily
prohibited from participating in the conduct of the
Bank's affairs by a notice served under section
8(e)(3), or section 8(g)(1), of the Federal Deposit
Insurance Act [12 U.S.C. euro 1818(e)(3) and (g)(1)],
the Bank's obligations under the Agreement shall
-5-
<PAGE> 6
be suspended as of the date of service of the notice
unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Employer
shall (i) pay Executive all of the compensation
withheld while their obligations under this Agreement
were suspended, and (ii) reinstate such obligations as
were suspended.
(B) If Executive is removed and/or permanently prohibited
from participating in the conduct of the Bank's
affairs by an order issued under section 8(e)(4) or
section 8(g)(1) of the Federal Deposit Insurance Act
[12 U.S.C. euro 1818(e)(4) or (g)(1)], the obligations
of the Employer under the Agreement shall terminate as
of the effective date of the order, but vested rights
of the contracting parties shall not be affected.
(C) If the Bank is in default as defined in section
3(x)(1) of the Federal Deposit Insurance Act [12
U.S.C. 1813 (x)(1)], all obligations under the
Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights
of the Executive.
(D) All obligations under the Agreement shall be
terminated, except to the extent determined that
continuation of the contract is necessary for the
Employers' continued operations (i) by the Director of
the OTS, or his or her designee at the time the FDIC
or Resolution Trust Corporation ("RTC") enters into an
agreement to provide assistance to or on behalf of the
Employers under the authority contained in section
13(c) of the Federal Deposit Insurance Act; or (ii) by
the Director of the OTS, or his or her designee, at
the time it approves a supervisory merger to resolve
problems related to operation of the Employer or when
the Employer is determined by the Director of the OTS
to be in an unsafe or unsound condition. Any rights of
the parties that have already vested, however, shall
not be affected by such action.
(E) In the event that 12 C.F.R. euro 563.39, or any
successor regulation, is repealed, this section 5(v)
shall cease to be effective on the effective date of
such repeal. In the event that 12 C.F.R. euro 563.39,
or any successor regulation, is amended or modified,
this Agreement shall be revised to reflect the amended
or modified provisions if: (1) the amended or modified
provision is required to be included in this
Agreement; or (2) if not so required, the Executive
requests that the Agreement be so revised.
(VI) Other Termination. If this Agreement is terminated (1)
by the Employer other than for cause, death, disability or retirement
(and other than following a change in control as defined in Section 6),
or (2) by Executive due to a failure by Employer to comply with any
material provision of this Agreement, which failure has not been cured
within thirty (30) days after notice of such non-compliance has been
given by Executive to Employer; then following the Termination Date:
-6-
<PAGE> 7
(A) In lieu of any further salary payments to Executive
subsequent to the Termination Date, Executive shall
receive Severance Pay for a twenty-four (24) month
period in accordance with the Bank's normal payroll
practices, beginning with the first pay date following
the Termination Date. The monthly rate of Severance
Pay shall be the monthly Base Salary received by
Executive (based on his highest rate of Base Salary
within the 3 years preceding his Termination Date)
plus one-twelfth of the total bonus and incentive
compensation paid to or vested in Executive on the
basis of his most recently completed calendar year of
employment.
(B) Employer shall maintain and provide for the period
during which Severance Payments are to be made and
ending at the earlier of (i) the expiration of such
period, or (ii) the date of the Executive's full-time
employment by another employer (provided that the
Executive is entitled under the terms of such
employment to benefits substantially similar to those
described in this subparagraph (B)), at no cost to the
Executive, the Executive's continued participation in
all group insurance, life insurance, health and
accident, disability and other employee benefit plans,
programs and arrangements in which Executive was
entitled to participate immediately prior to the
Termination Date (other than retirement plans,
deferred compensation, or stock compensation plans of
the Employer), provided that in the event Executive's
participation in any plan, program or arrangement as
provided in this subparagraph (B) is barred, or during
such period any such plan, program or arrangement is
discontinued or the benefits thereunder are materially
reduced, the Employer shall arrange to provide the
Executive with benefits substantially similar to those
which the Executive was entitled to receive under such
plans, programs and arrangements immediately prior to
the Termination Date.
(C) In addition to such Severance Pay and continued
benefits, Executive shall receive all other
compensation and benefits in which he was vested or to
which he was otherwise entitled under Section 4 and
the plans and programs provided therein by reason of
employment through the Termination Date.
6. Termination by Executive After Change in Control.
(i) Definition "Change in Control". For purposes of this
Agreement, a "change in control" shall mean any change in control with
respect to the Bank or Company that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended ("Exchange Act")
or any successor thereto; provided that, without limitation, a change
in control shall be deemed to have occurred if (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities
-7-
<PAGE> 8
representing 25% or more of the combined voting power of the Bank's or
Company's then outstanding securities; or (ii) during any period of two
consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Bank or Company cease for any
reason to constitute at least a majority thereof unless the election,
or the nomination for election by stockholders, of each new director
was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
(ii) Good Reason for Executive Termination. The Executive
may terminate his employment under this Agreement for "good reason" by
giving at least thirty (30) days prior written notice to the Bank at
any time within twenty-four (24) months of the effective date of a
change in control. Occurrence of any of the following events shall
constitute good reason:
(A) Without the Executive's express written consent,
assignment by the Employer of any duties which are
materially inconsistent with Executive's positions,
duties, responsibilities and status with the Employer
immediately prior to a change in control, or a
material change in the Executive's reporting
responsibilities, titles or offices as in effect
immediately prior to such change in control, or any
removal of the Executive from or any failure to
re-elect the Executive to all or any portion of his
Corporate Position, except in connection with a
termination of Executive's employment for cause,
disability, retirement or death (or by the Executive
other than for good reason as defined in this section
6(B)).
(B) Without the Executive's express written consent, a
reduction by the Employer in the Executive's Base
Salary as in effect on the date of the change in
control or as the same may have been increased from
time to time thereafter;
(C) The principal executive offices of either of the
Employer are relocated outside of the Milwaukee,
Wisconsin metropolitan area or, without the
Executive's express written consent, the Employer
requires the Executive to be based anywhere other than
an area in which the Bank's principal executives
offices are located, except for required travel on
business of the Employer to an extent substantially
consistent with the Executive's present business
travel obligations;
(D) Without Executive's express written consent, the
Employer fails or refuses to continue Executive's
participation in incentive compensation and stock
incentive programs comparable to either (1) those in
effect prior to the change in control or (2) those
subsequently in effect for the senior executives of
any acquiring company effecting the change in control;
(E) Without Executive's express written consent, Employer
fails to provide
-8-
<PAGE> 9
the Executive with the same fringe benefits that were
provided to Executive immediately prior to a change in
control, or with a package of fringe benefits
(including paid vacations) that, though one or more of
such benefits may vary from those in effect
immediately prior to such change in control, is
substantially comparable in all material respects to
such fringe benefits taken as a whole;
(F) Any purported termination of the Executive's
employment for cause, disability or retirement which
is not effected in accordance with the notice
requirements applicable under this Agreement; or
(G) Failure by either of the Employer to obtain the
assumption of, or an agreement to perform this
Agreement by any successor as contemplated in Section
7(i) hereof;
(iii) Benefits Upon Termination by Executive After a "Change
in Control". If this Agreement is terminated by Executive for good
reason following a change in control, then following the Termination
Date:
(A) In lieu of any further salary payments to Executive
subsequent to the Termination Date, Executive shall
receive Severance Pay for the longer of (i) the
remaining unexpired term of the agreement as in effect
immediately prior to the Termination Date, or (ii) a
thirty-six (36) month period. Payments shall be made
in accordance with the Employer's normal payroll
practices, beginning with the first pay date following
the Termination Date. The monthly rate of Severance
Pay shall be the average monthly Base Salary received
by Executive (based on his highest rate of Base Salary
within the 3 years preceding his Termination Date)
plus one-twelfth of the total bonus and incentive
compensation paid to or vested in Executive on the
basis of his most recently completed calendar year of
employment.
(B) The Bank shall maintain and provide for the period
during which Severance Payments are to be made and
ending at the earlier of (i) the expiration of such
period, or (ii) the date of the Executive's full-time
employment by another employer (provided that the
Executive is entitled under the terms of such other
employment to benefits substantially similar to those
described in this subparagraph (B)), at no cost to the
Executive, the Executive's continued participation in
all group insurance, life insurance, health and
accident, disability and other employee benefit plans,
programs and arrangements in which the Executive was
entitled to participate immediately prior to the
Termination Date (other than retirement and deferred
compensation plans and individual insurance policies
covered under subsection 6(C) or stock compensation
plans of the Employers), provided that in the event
Executive's participation in any
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<PAGE> 10
plan, program or arrangement as provided in this
subparagraph (B) is barred, or during such period any
such plan, program or arrangement is discontinued or
the benefits thereunder are materially reduced, the
Employer shall arrange to provide Executive with
benefits substantially similar to those Executive was
entitled to receive under such plans, programs and
arrangements immediately prior to the Termination
Date.
(C) Executive shall also receive all other compensation
and benefits in which he was vested or to which he was
otherwise entitled under section 4 and the plans and
programs provided therein by reason of employment
through the Termination Date. In addition to benefits
to which Executive is entitled under retirement and
deferred compensation plans and individual insurance
policies maintained by the Bank (hereinafter
collectively referred to as "Plan"), Executive shall
receive as additional severance benefits a benefit
paid under this Agreement, which benefit shall be
determined in accordance with and paid under this
Agreement, but in the form and at the times provided
in the Plan. Such benefits shall be determined as if
Executive were fully vested under the Plan and had
accumulated (after any termination under this
Agreement) the additional years of credit service
under the applicable Plan that he would have received
had he continued in the employment of the Bank for the
period during which Severance Payments are to be made
and at the annual compensation level represented by
such payments. Such Severance Payment level shall be
deemed to represent the compensation received by
Executive during each such additional year for
purposes of determining his additional benefits under
this Subsection 6(C).
(iv) Limitation of Benefits under Certain Circumstances. If
the severance benefits payable to Executive under this Section 6
("Severance Benefits"), or any other payments or benefits received or
to be received by Executive from Employer (whether payable pursuant to
the terms of this Agreement, any other plan, agreement or arrangement
with the Employer or any corporation affiliated with the Employer
("Affiliate") within the meaning of Section 1504 of the Internal
Revenue Code of 1954, as amended (the "Code")), in the opinion of tax
counsel selected by the Bank's independent auditors and acceptable to
Executive, constitute "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and the present value of such
"parachute payments" equals or exceeds three times the average of the
annual compensation payable to Executive by the Employer (or an
Affiliate) and includable in Executive's gross income for federal
income tax purposes for the five (5) calendar years preceding the year
in which a change in ownership or control of the Employers occurred
("Base Amount"), such Severance Benefits shall be reduced, in a manner
determined by Executive, to an amount the present value of which (when
combined with the present value of any other payments or benefits
otherwise received or to be received by Executive from the Employer (or
an Affiliate) that are deemed "parachute payments") is equal to
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<PAGE> 11
2.99 times the Base Amount, notwithstanding any other provision to the
contrary in this Agreement. The Severance Benefits shall not be reduced
if (A) Executive shall have effectively waived his receipt or enjoyment
of any such payment or benefit which triggered the applicability of
this Section 6(iv), or (B) in the opinion of such tax counsel, the
Severance Benefits (in its full amount or as partially reduced, as the
case may be) plus all other payments or benefits which constitute
"parachute payments" within the meaning of Section 280G(b)(2) of the
Code are reasonable compensation for services actually rendered, within
the meaning of Section 280G (b)(4) of the code, and such payments are
deductible by the Employer. The Base Amount shall include every type
and form of compensation includable in Executive's gross income in
respect of his employment by the Employers (or an Affiliate), except to
the extent otherwise provided in temporary or final regulations
promulgated under Section 280G (b) of the Code. For purposes of this
Section 6(iv), a "change in ownership or control" shall have the
meaning set forth in Section 280G(b) of the Code and any temporary or
final regulations promulgated thereunder. The present value of any
non-cash benefit or any deferred cash payment shall be determined by
the Bank's independent auditors in accordance with the principles of
Sections 280G (b)(3) and (4) of the Code, with the value of any amount
by which the Severance Benefits payable under this Agreement are
reduced pursuant to this Section 6 and/or the value of any other
benefit not provided plus any other amount not paid by the Bank, the
Company, or any plan maintained by either (regardless of its source)
being referred to collectively herein as the Unpaid Severance.
In the event that Bank and/or the Executive do not agree with
the opinion of such counsel, (A) Employers shall pay to the Executive
the maximum amount of payments and benefits pursuant to Section 6, as
selected by the Executive, which in the opinion of counsel may be made
without a substantial risk that such payments and benefits will be
treated as non-deductible to the Employer and subject to the excise tax
imposed under Section 4999 of the Code and (B) Employer may request,
and Executive shall have the right to demand the Employer request, a
ruling from the IRS as to whether the disputed payments and benefits
pursuant to Section 6 hereof have such consequences. Any such request
for a ruling from the IRS shall be promptly prepared and filed by the
Employer, but in no event later than thirty (30) days from the date of
the opinion of counsel referred to above, and shall be subject to
Executive's approval prior to filing, which shall not be unreasonably
withheld. Employer and Executive agree to be bound by any ruling
received from the IRS and to make appropriate payments to each other to
reflect any such rulings, together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code. Nothing
contained herein shall result in a reduction of any payments or
benefits to which the Executive may be entitled upon termination of
employment under any circumstances other than as specified herein or a
reduction in payments and benefits other than those provided in this
Section 6.
In the event that Section 280G, or any successor statute, is
repealed, this Section 6 shall cease to be effective on the effective
date of such repeal. The parties to this Agreement recognize that final
regulations under Section 280G of the Code may affect
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<PAGE> 12
the amounts that may be paid under this Agreement and agreed that, upon
issuance of such final regulations this Agreement may be modified as in
good faith deemed necessary in light of the provisions of such
regulations to achieve the purposes of this Agreement, and that consent
to such modifications shall not be unreasonably withheld.
7. General Provisions.
(i) Successors; Binding Agreement.
(A) Employer will require any successor (whether direct or
indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business
and/or assets of the Employer ("successor
organization") to expressly assume and agree to
perform this Agreement in the same manner and to the
same extent that Employer would have been required to
perform if no such succession had taken place or to
re-execute this Agreement as provided pursuant to
section 6(ii)(G). If such succession is the result of
a "change in control" as defined herein, such
assumption shall specifically preserve to Executive,
for the greater of twenty-four (24) months or the then
remaining term of this Agreement, the same rights and
remedies (recognizing them as being available and
applicable as the result of the "change in control"
effectuating said succession) as provided under this
Agreement upon a "change in control".
As used in this Agreement "Employer" shall
mean the Bank as hereinbefore defined (and any
successor to its business and/or assets) which
executes and delivers the agreement provided for in
this Section 7 or which otherwise becomes bound by
the terms and provisions of this Agreement by
operation of this Agreement or law. Failure of the
Employer to obtain such agreement prior to the
effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Executive,
if he elects to terminate this Agreement, to
compensation from the Employer in the same amount and
on the same terms as he would be entitled to under
this Agreement if he terminated his employment under
Section 6. For purposes of implementing the
foregoing, the date on which any such succession
becomes effective shall be deemed the Termination
Date.
(B) No right or interest to or in any payments or benefits
under this agreement shall be assignable or
transferable in any respect by the Executive, nor
shall any such payment, right or interest be subject
to seizure, attachment or creditor's process for
payment of any debts, judgments, or obligations of
Executive.
(C) This Agreement shall be binding upon and inure to the
benefit of and be
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<PAGE> 13
enforceable by (1) Executive and his heirs,
beneficiaries and personal representatives, and (2)
the Employer and any successor organization.
(ii) Noncompetition Provision. Executive acknowledges that
the development of personal contacts and relationships is an essential
element of the savings and loan business, that the Bank has invested
considerable time and money in his development of such contacts and
relationships, that the Bank could suffer irreparable harm if he were
to leave employment and solicit the business of the Bank's customers,
and that it is reasonable to protect the Employers against competitive
activities by Executive. Executive covenants and agrees, in recognition
of the foregoing and in consideration of the mutual promises contained
herein, that in the event of a voluntary termination of employment by
Executive pursuant to Section 5(iii), or upon expiration of this
Agreement as a result of Executive's election (but not as the result of
an election by the Bank) not to continue automatic annual renewals,
Executive shall not accept employment with any Significant Competitor
of the Bank for a period of twelve (12) months following such
termination. For purposes of this Agreement, the term Significant
Competitor means any financial institution including, but not limited
to, any commercial bank, savings bank, savings and loan association,
credit union, or mortgage banking corporation which, at the time of
termination of Executive's employment, or during the period of this
covenant not to compete, has a home, branch or other office in
Milwaukee County or which has, during the twelve (12) months preceding
Executive's termination, originated, or which during the period of this
covenant not to compete originates, more than $50,000,000 in commercial
or mortgage loans secured by real property in any such county.
Executive agrees that the non-competition provisions set forth
herein are necessary for the protection of the Bank and are reasonably
limited as to (i) the scope of activities affected, (ii) their duration
and geographic scope, and (iii) their effect on Executive and the
public. In the event Executive violates the non-competition provisions
set forth herein, the Bank shall be entitled, in addition to its other
legal remedies, to enjoin the employment of Executive with any
Significant Competitor for the period set forth herein. If Executive
violates this covenant and the Bank brings legal action for injunctive
or other relief, the Bank shall not, as a result of the time involved
in obtaining such relief, be deprived of the benefit of the full period
of the restrictive covenant. Accordingly, the covenant shall be deemed
to have the duration specified herein, computed from the date such
relief is granted, but reduced by any period between commencement of
the period and the date of the first violation.
(iii) Notice. For purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered or
mailed by United States registered mail, return receipt requested,
postage prepaid, addressed as follows:
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<PAGE> 14
If to the Bank:
St. Francis Bank, F.S.B.
13400 Bishops Lane
Brookfield, WI 53005
If to the Executive:
Mr. Thomas R. Perz
2326 Misty Lane
Waukesha, WI 53186
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change
of address shall be effective only upon receipt.
(IV) Expenses. If any legal proceeding is necessary to
enforce or interpret the terms of this Agreement (or to recover damages
for breach of it) in the absence of a change in control, the prevailing
party shall be entitled to recover from the other party reasonable
attorneys' fees and necessary costs and disbursements incurred in such
litigation, in addition to any other relief to which such prevailing
party may be entitled.
Notwithstanding the foregoing, in the event of a legal
proceeding to enforce or interpret the terms of this Agreement
following a change in control or a re-execution of this Agreement
pursuant to section 6(ii)(G), the only recoverable costs shall be those
which Executive shall be entitled to recover from the Bank (i.e.
reasonable attorneys' fees and necessary costs and disbursements
incurred in such litigation), which fees shall be recoverable only if
the Executive is the prevailing party. Recovery of attorneys' fees and
costs as provided herein following a change in control or re-execution
shall be in addition to any other relief to which Executive may be
entitled.
(V) Withholding. The Bank shall be entitled to withhold
from amounts to be paid to Executive under this Agreement any federal,
state, or local withholding or other taxes or charges which it is from
time to time required to withhold. The Bank shall be entitled to rely
on an opinion of counsel if any question as to the amount or
requirement of any such withholding shall arise.
(VI) Notice of Termination. Any purported termination by
the Bank under Sections 5(i), (ii), (iii) or (iv), or by Executive
under Sections 5(vi) or 6(ii) shall be communicated by written "Notice
of Termination" to the other party. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, (iii)
specifies a Date of Termination, which shall be not less than thirty
(30) nor more than ninety (90) days after such Notice of Termination is
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<PAGE> 15
given, except in the case of termination of Executive's employment for
Cause; and (iv) is given in the manner specified in Section 7(iii) of
this Agreement.
(VII) Miscellaneous. No provision of this Agreement may be
amended, waived or discharged unless such amendment, waiver or
discharge is agreed to in writing and signed by Executive and such
officers of the Bank as may be specifically designated by the Board. No
waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth
in this Agreement and it is agreed that execution of this Agreement
shall result in its superseding and extinguishing any rights of
Executive under any other employment agreement previously in effect
between himself, the Employers, or any of their affiliates; provided,
however, that nothing contained herein shall supercede or extinguish
any additional written agreement of employment between the Executive
and the Company. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Wisconsin.
(VIII) Mitigation; Exclusivity of Benefits. The Executive
shall not be required to mitigate the amount of any benefits hereunder
by seeking other employment or otherwise, nor shall the amount of any
such benefits be reduced by any compensation earned by the Executive as
a result of employment by another employer after the Termination Date
or otherwise.
(IX) (ix) Validity. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
(X) Counterparts. This Agreement may be executed in
several counterparts, each of which together will constitute one and
the same instrument.
(XI) Headings. Headings contained in this Agreement are for
reference only and shall not affect the meaning or interpretation of
any provision of this Agreement.
(XII) Effective Date. The effective date of this Agreement
shall be the date indicated in the first section of this Agreement,
notwithstanding the actual date of execution by any party.
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<PAGE> 16
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of this 19th day of January, 2000.
Executive:
------------------------------------
Thomas R. Perz
ST. FRANCIS BANK, F.S.B.
By:
--------------------------------
Its:
-------------------------------
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<PAGE> 1
ST. FRANCIS CAPITAL CORPORATION
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is effective as of January 1, 2000 (the
"Commencement Date") between St. Francis Capital Corporation, its successors and
assigns, a Wisconsin corporation (hereinafter referred to as the "Company"),
having its principal offices located at 13400 Bishops Lane, Brookfield,
Wisconsin 53005, and Thomas R. Perz (the "Executive").
RECITALS
WHEREAS, Executive is a key employee, whose extensive background,
knowledge and experience in the financial services industry has substantially
benefited both St. Francis Bank, FSB (the "Bank") and the Company and whose
continued employment by the Company in the capacities of President, Chief
Executive Officer and Chairman of the Board ("Corporate Position") will benefit
the Company in the future; and
WHEREAS, the parties are mutually desirous of entering into this
Agreement setting forth the terms and conditions for the employment relationship
between the Company and Executive; and
WHEREAS, the Company's Board of Directors has approved and authorized
its entry into this Agreement with Executive.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below:
1. Employment. The Company shall employ Executive, and Executive shall
serve the Company, on the terms and conditions set forth in this Agreement.
2. Term of Employment. The period of Executive's employment under this
Agreement shall coincide with his period of employment by the Bank under the St.
Francis Bank, FSB Employment Agreement (the "Bank Agreement") entered into
between the Bank and Executive and bearing even date herewith. The term of
employment as in effect from time to time hereunder shall be referred to as the
"Employment Term".
3. Position and Duties. Executive shall serve the Company in his
Corporate Position as its President and Chief Executive Officer. As such,
Executive shall report directly to the Company's Board of Directors, be
nominated as a management candidate for election to the Board of Directors upon
expiration of each term thereon while this Agreement remains in effect, and be
generally responsible for selection and supervision of the Company's management
team and for the formulation of Company business and personnel policies, and
shall render executive, policy-making and other management services of the type
customarily performed by persons serving in similar capacities at other bank and
savings bank holding companies, together with such other duties and
responsibilities as may be appropriate to Executive's position and as may
<PAGE> 2
be from time to time determined by the Bank's Board of Directors to be necessary
to its operations and in accordance with its bylaws.
4. Compensation. As compensation for services provided pursuant to this
Agreement, Executive shall receive from the Company the compensation and
benefits set forth below:
(i) Base Salary. During the Employment Term, Executive shall
receive a base salary payable by the Bank ("Base Salary") in such
amount as may from time to time be approved by the Board of Directors
of the Bank; provided, however, that the Company and Executive agree
that (i) a portion of the amount received by Executive from the Bank
will be allocable to time and effort of the Executive spent on behalf
of the Company pursuant to this Agreement, and (ii) that the Company
may reimburse the Bank in an amount jointly determined by the Boards of
Directors of the Company and Bank to reflect such allocable portion. No
increase in Base Salary paid by the Bank (or the amount thereof
reimbursed by the Company) or other compensation granted by the Company
or Bank shall in any way limit or reduce any other obligation of the
Company under this Agreement. Executive's Base Salary and other
compensation shall be paid in accordance with the Bank's regular
payroll practices, as then in effect.
(ii) Bonus Payments. In addition to Base Salary, Executive
shall be entitled, during the Employment Term, to participate in and
receive payments from all bonus and other incentive compensation plans
(as currently in effect, as modified from time to time, or as
subsequently adopted) of the Company; provided, however, that nothing
contained herein shall grant Executive the right to continue in any
bonus or other incentive compensation plan following its discontinuance
by the Board (except to the extent Executive had earned or otherwise
accumulated vested rights therein prior to such discontinuance).
(iii) Other Benefits. During the Employment Term, the Company
shall provide to Executive all other benefits of employment (or, with
Executive's consent, equivalent benefits) generally made available to
other Executive Officers of the Company. In addition, Executive shall
participate in any stock purchase, stock option or stock appreciation
rights, plans, or any other stock based program of any type, made
available by the Company to its Executive Officers.
Executive shall be entitled to the same vacation, sick time,
personal days and other perquisites in the same manner and to the same
extent as such benefits are available under the Bank Agreement;
provided that this Agreement is intended to allow Executive to utilize
the perquisites as provided pursuant to the Bank Agreement and not to
create additional perquisites hereunder.
Nothing contained herein shall be construed as granting
Executive the right to continue in any benefit plan or program, or to
receive any other perquisite of employment provided under this
paragraph 4(iii) (except to the extent Executive had previously earned
or accumulated vested rights therein) following termination or
discontinuance of such plan, program or perquisite by the Board.
2
<PAGE> 3
5. Termination. This Agreement shall terminate upon the effective date
of termination of the Bank Agreement.
Upon termination of this Agreement simultaneous with termination of the
Bank Agreement, Executive shall be entitled to the receipt of
termination/severance benefits from the Bank as determined under all applicable
provisions of the Bank Agreement ("Severance Benefits"). The Bank shall be
primarily responsible for the payment of Severance Benefits; provided, however,
that the Company may reimburse the Bank for a portion of the cost of Executive's
Severance Benefits in any amount jointly determined by the Boards of Directors
of the Company and Bank to correspond to the allocation of Executive's time and
effort between Bank and Company matters during the 12-month period preceding
termination of the Bank Agreement. Notwithstanding the foregoing, if the
application of Section 6 of the Bank Agreement results in Unpaid Severance as
defined therein, the Company shall be responsible for payment to Executive of
the entire amount of the Unpaid Severance and shall also pay to Executive an
additional amount (the "Reimbursement Payment") such that the net amount
retained by Executive after deduction of (i) any tax imposed by Section 4999 of
the Internal Revenue Code (the "Excise Tax") and any interest charges or
penalties in respect to the imposition of such Excise Tax (but not any federal,
state or local income tax) on the Total Payments (which shall include Severance
Benefits and the Unpaid Severance, together with any other payments and/or the
value of any benefits provided by the Bank or Company, including but not limited
to any amount or value attributable to the vesting of stock options upon
Executive's termination and to which said Excise Tax applies by reason of
Section 280G of the Code), and (ii) any federal, state and local income tax and
Excise Tax upon the payment pursuant to Section 5(i) above, so that the total
received by Executive after deduction of said Excise Taxes shall be equal to the
Total Payments. For purposes of determining the amount of Reimbursement Payment,
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Reimbursement
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Executive's domicile for income
tax purposes on the date the Reimbursement Payment is made, net of the maximum
reduction of federal income taxes that could be obtained from deduction of such
state and local taxes.
6. General Provisions.
(i) Successors; Binding Agreement.
(A) The Company will require any successor (whether
direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company
("successor organization") to expressly assume and
agree to perform this Agreement in the same manner
and to the same extent that the Company would have
been required to perform if no such succession had
taken place. If such succession is the result of a
"change in control" as defined herein, such
assumption shall specifically preserve to Executive,
for the greater of twelve (12) months or the then
remaining term under the Bank Agreement, the same
rights and remedies (recognizing them as being
available and
3
<PAGE> 4
applicable as the result of the "change in control"
effectuating said succession) provided under this
Agreement upon a "change in control".
As used in this Agreement "Company" shall
mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid
which executes and delivers the agreement provided
for in this Section 6 or which otherwise becomes
bound by the terms and provisions of this Agreement
by operation of this Agreement or law. Failure of the
Company to obtain such agreement prior to the
effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Executive
as his exclusive remedy to compensation from the
Company in the same amount and on the same terms as
he would be entitled to pursuant to this Agreement
under Section 5. For purposes of implementing the
foregoing, the date on which any such succession
becomes effective shall be deemed the Termination
Date.
(B) No right or interest to or in any payments or
benefits under this agreement shall be assignable or
transferable in any respect by the Executive, nor
shall any such payment, right or interest be subject
to seizure, attachment or creditor's process for
payment of any debts, judgments, or obligations of
Executive.
(C) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by Executive and his
heirs, beneficiaries and personal representatives and
the Company and any successor organization.
(ii) Noncompetition Provision. Executive acknowledges that the
development of personal contacts and relationships is an essential
element in the financial services industry, that the Company has
invested considerable time and money in his development of such
contacts and relationships, that the Company could suffer irreparable
harm if he were to leave employment and solicit the business of Company
customers, and that it is reasonable to protect the Company against
competitive activities by Executive. Executive covenants and agrees, in
recognition of the foregoing and in consideration of the mutual
promises contained herein, that in the event of a voluntary termination
of employment by Executive pursuant to Section 5(iii) of the Bank
Agreement, or upon expiration of the Bank Agreement as a result of
Executive's election (but not as the result of an election by the
Company) not to continue automatic annual renewals, Executive shall not
accept employment with any Significant Competitor of the Bank or
Company for a period of twelve (12) months following such termination.
For purposes of this Agreement, the term Significant Competitor means
any financial institution including, but not limited to, any commercial
bank, savings bank, savings and loan association, credit union, or
mortgage banking corporation which, at the time of termination of this
Agreement, or during the period of this covenant not to compete, has a
home, branch or other office in Milwaukee County or which has, during
the twelve (12) months preceding Executive's termination, originated,
or which during the period of this covenant not to compete originates,
more than $50,000,000 in commercial or mortgage loans secured by real
property in any such county.
4
<PAGE> 5
Executive agrees that the non-competition provisions set forth
herein are necessary for the protection of the Bank and Company and are
reasonably limited as to (i) the scope of activities affected, (ii)
their duration and geographic scope, and (iii) their effect on
Executive and the public. In the event Executive violates the
non-competition provisions set forth herein, Bank shall be entitled, in
addition to its other legal remedies, to enjoin the employment of
Executive with any Significant Competitor for the period set forth
herein. If Executive violates this covenant and the Company brings
legal action for injunctive or other relief, the Company shall not, as
a result of the time involved in obtaining such relief, be deprived of
the benefit of the full period of the restrictive covenant.
Accordingly, the covenant shall be deemed to have the duration
specified herein, computed from the date such relief is granted, but
reduced by any period between commencement of the period and the date
of the first violation. In addition to such other relief as may be
awarded, if the Company is the prevailing party it shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees,
incurred in enforcing its rights hereunder.
(iii) Notice. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by
the Company, United States registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Company:
St. Francis Capital Corporation
13400 Bishops Lane
Brookfield, WI 53005
or if to Executive, at the address set forth below:
Mr. Thomas R. Perz
2326 Misty Lane
Waukesha, WI 53186
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change
of address shall be effective only upon receipt.
(iv) Expenses. In the event of any legal proceedings to
enforce or interpret the terms of this Agreement (or to recover damages
for breach of it) in the absence of a change in control, each of the
parties shall be responsible for their own respective attorneys' fees
and necessary costs and disbursements incurred in such proceeding
regardless of the outcome.
Notwithstanding the foregoing, in the event of a legal
proceeding to enforce or interpret the terms of this Agreement
following a change in control, or an assumption or re-execution of this
Agreement pursuant to section 6(i), the only recoverable costs shall be
those which Executive shall be entitled to recover from the Bank (i.e.
reasonable attorneys' fees and necessary costs and disbursements
incurred in such litigation), which fees shall be recoverable only if
the Executive is the prevailing party. Recovery of
5
<PAGE> 6
attorneys' fees and costs as provided herein following a change in
control or re-execution shall be in addition to any other relief to
which Executive may be entitled.
(v) Withholding. The Company shall be entitled to withhold
from amounts to be paid to Executive under this Agreement any federal,
state, or local withholding or other taxes of charges which it is from
time to time required to withhold. The Company shall be entitled to
rely on an opinion of counsel if any question as to the amount or
requirement of any such withholding shall arise.
(vi) Miscellaneous. No provision of this Agreement may be
amended, waived or discharged unless such amendment, waiver of
discharge is agreed to in writing and signed by Executive and such
Company officer as may be specifically designated by the Board. No
waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth
in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Wisconsin.
(vii) Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
(viii) Counterparts. This Agreement may be executed in several
counterparts, each of which together will constitute one and the same
instrument.
(ix) Headings. Headings contained in this Agreement are for
reference only and shall not affect the meaning or interpretation of
any provision of this Agreement.
(x) Effective Date. The effective date of this Agreement shall
be the date indicated in the first section of this Agreement,
notwithstanding the actual date of execution by any party.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of this 19th day of January, 2000.
St. Francis Capital Corporation Executive:
By ___________________________ _________________________
Title __________________________
Witness
By ____________________________
Title ___________________________
6
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED MARCH 31, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 32,838
<INT-BEARING-DEPOSITS> 1,802
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,044,763
<INVESTMENTS-CARRYING> 32,178
<INVESTMENTS-MARKET> 31,366
<LOANS> 1,255,303
<ALLOWANCE> 10,102
<TOTAL-ASSETS> 2,507,311
<DEPOSITS> 1,538,430
<SHORT-TERM> 743,361
<LIABILITIES-OTHER> 16,988
<LONG-TERM> 80,920
0
0
<COMMON> 146
<OTHER-SE> 127,466
<TOTAL-LIABILITIES-AND-EQUITY> 2,507,311
<INTEREST-LOAN> 48,606
<INTEREST-INVEST> 36,209
<INTEREST-OTHER> 1,223
<INTEREST-TOTAL> 86,038
<INTEREST-DEPOSIT> 35,066
<INTEREST-EXPENSE> 57,940
<INTEREST-INCOME-NET> 28,098
<LOAN-LOSSES> 1,000
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 4,504
<INCOME-PRETAX> 5,775
<INCOME-PRE-EXTRAORDINARY> 5,775
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,165
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 2.33
<LOANS-NON> 3,362
<LOANS-PAST> 51
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,356
<CHARGE-OFFS> 331
<RECOVERIES> 77
<ALLOWANCE-CLOSE> 10,102
<ALLOWANCE-DOMESTIC> 10,102
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
