TBS FINANCIAL, INC.
December 6, 1996
Dear Stockholder:
On behalf of the Board of Directors and management of TSB Financial,
Inc., we cordially invite you to attend the Annual Meeting of Stockholders of
TSB Financial, Inc. to be held at 6:30 p.m. on January 7, 1997, at the main
office of the Tremont Savings Bank, located at 100 South Sampson Street,
Tremont, Illinois. The accompanying Notice of Annual Meeting of Stockholders and
Proxy Statement discuss the business to be conducted at the meeting. We have
also enclosed a copy of the Company's 1996 Annual Report to Stockholders for
your review. At the meeting we shall report on Company operations and the
outlook for the year ahead.
Your Board of Directors has nominated two persons to serve as Class III
directors, each of whom are incumbent directors. Stockholders will also be asked
to ratify the appointment of Geo. S. Olive & Co., LLC as independent public
accountants for the current fiscal year.
We recommend that you vote your shares for the nominees and the
ratification of our accountants.
We encourage you to attend the meeting in person. WHETHER OR NOT YOU
PLAN TO ATTEND, HOWEVER, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED ENVELOPE. This will assure that your shares are
represented at the meeting.
We look forward with pleasure to seeing and visiting with you at the
meeting.
Very truly yours,
/s/ Richard A. Jameson
Richard A. Jameson
President
100 S. SAMPSON STREET * P.O. BOX 9 * TREMONT, IL * 61568
PHONE (309) 925-2511 * FAX (309) 925-7411
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 7, 1997
To the stockholders of
TSB FINANCIAL, INC.
The Annual Meeting of the Stockholders of TSB Financial, Inc., a
Delaware corporation (the "Company"), will be held at the main office of the
Tremont Savings Bank, located at 100 South Sampson Street, Tremont, Illinois,
61568 on Tuesday, January 7, 1997, at 6:30 p.m., local time, for the following
purposes:
1. to elect two (2) Class III directors for terms of three years.
2. to ratify the appointment of Geo. S. Olive & Co., LLC as
independent public accountants for the Company for the fiscal
year ending September 30, 1997.
3. to transact such other business as may properly be brought
before the meeting and any adjournments or postponements
thereof.
The Board of Directors has fixed the close of business on November 22,
1996, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the meeting.
By order of the Board of Directors
/s/ Jane M. Hinman
Jane M. Hinman
Secretary
Tremont, Illinois
December 6, 1996
100 S. SAMPSON STREET * P.O. BOX 9 * TREMONT, IL * 61568
PHONE (309) 925-2511 * FAX (309) 925-7411
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of TSB Financial, Inc. (the "Company") of proxies to
be voted at the Annual Meeting of Stockholders to be held at the main office of
the Tremont Savings Bank (the "Bank"), located at 100 South Sampson Street,
Tremont, Illinois, 61568, on Tuesday, January 7, 1997, at 6:30 p.m., local time,
and at any adjournments or postponements thereof.
If you do not expect to be present at this meeting, please sign and
date the enclosed proxy and return it in the accompanying postage-paid return
envelope as promptly as possible. You have the power to revoke your proxy at any
time before it is voted by giving written notice to the Secretary of the
Company, provided such written notice is received by the Secretary prior to the
annual meeting or any adjournment thereof, by submitting a later dated proxy or
by attending the annual meeting and choosing to vote in person. The giving of a
proxy will not affect your right to vote in person if you attend the meeting.
The Company's principal executive offices are located at 100 South
Sampson Street, Tremont, Illinois 61568. This Proxy Statement and the
accompanying proxy card are being mailed to stockholders on or about December 6,
1996. The Company's 1996 Annual Report to Stockholders is enclosed.
The Company, a Delaware corporation, was organized in March, 1994 for
the purpose of becoming the holding company for the Bank, an Illinois-chartered
mutual savings bank located in Tremont, Illinois. On September 30, 1994, the
Bank was converted from an Illinois-chartered mutual savings bank to an
Illinois-chartered stock savings bank (the "Conversion"), and the Company
acquired all of the stock issued by the Bank in connection with the Conversion.
The Bank is the Company's only subsidiary, and the Company's business presently
consists solely of the ownership of the Bank. At September 30, 1996, the end of
the Company's fiscal year, the Company had total assets of approximately
$29,810,078.
Only holders of the Company's Common Stock (the "Common Stock") of
record at the close of business on November 22, 1996, will be entitled to vote
at the annual meeting or any adjournments or postponements of such meeting. On
November 22, 1996, the Company had 242,888 shares of Common Stock, par value
$0.01 per share, issued and outstanding. For all matters to be voted upon at the
annual meeting, each issued and outstanding share is entitled to one vote.
All shares of Common Stock represented at the annual meeting by
properly executed proxies received prior to or at the annual meeting, and not
revoked, will be voted at the annual meeting in accordance with the instructions
thereon. If no instructions are indicated, properly executed proxies will be
voted for the nominees and for adoption of the proposals set forth in this proxy
statement.
A majority of the outstanding shares of the Common Stock must be
present in person or represented by proxy to constitute a quorum for purposes of
the annual meeting. Abstentions and broker non-votes will be counted for
purposes of determining a quorum. Directors shall be elected by a plurality of
the votes present in person or represented by proxy at the meeting and entitled
to vote. In all matters other than the election of directors, the affirmative
vote of the majority of shares present in person or represented by proxy at the
annual meeting and entitled to vote on the subject matter shall be required to
constitute stockholder approval. Abstentions will be treated as votes against a
proposal and broker non-votes will have no effect on the vote.
ELECTION OF DIRECTORS
At the Annual Meeting of Stockholders to be held on January 7, 1997,
the stockholders will be entitled to elect two (2) Class III directors for terms
expiring in 2000. The directors of the Company are divided into three classes
having staggered terms of three years. All of the nominees for election as Class
III directors are incumbent directors. The Company has no knowledge that the
nominees will refuse or be unable to serve, but if a nominee becomes unavailable
for election, the holders of the proxies reserve the right to substitute another
person of their choice as a nominee when voting at the meeting. Set forth below
is information concerning the nominees for election and for the other persons
whose terms of office will continue after the meeting, including the age, the
year first elected a director and business experience during the previous five
years of each. The nominees, if elected at the annual meeting, each will serve
as a Class III director for a three year term expiring in 2000.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH OF
THE NOMINEES FOR DIRECTOR.
NOMINEES
Name Director Positions with the Company
(Age) SINCE(1) and the Bank
- ----- -------- ------------
CLASS III
(TERM EXPIRES 2000)
Roland E. Hoffman 1969 Director and Vice Chairman of the Company
(Age 63) and the Bank
James D. Petrov 1987 Director of the Company and the Bank
(Age 53)
CONTINUING DIRECTORS
CLASS I
(TERM EXPIRES 1998)
Ben A. Miller 1956 Director of the Company and the Bank
(Age 74)
Richard D. Wartick 1987 Director and Chairman of the Company and
(Age 49) the Bank
Donald L. Swigert 1995 Director of the Company and the Bank
(Age 60)
CLASS II
(TERM EXPIRES 1999)
Richard A. Jameson 1994 Director and President of the Company and the
(Age 43) Bank
Dan Steiner, Jr. 1986 Director of the Company and the Bank
(Age 58)
- --------------------------
(1) Reflects the year in which each individual was first selected to the Board
of Directors of the Bank. Each of the nominees and continuing directors became
directors of the Company in March, 1994, except Donald L. Swigert who became a
director in January, 1995.
All of the Company's directors will hold office for the terms
indicated, or until their earlier death, resignation, removal or
disqualification, and until their respective successors are duly elected and
qualified. All executive officers hold office for a term of one year. There are
no arrangements or understandings between any of the directors, executive
officers or any other person pursuant to which any of the Company's directors or
executive officers have been selected for their respective positions.
The business experience of each of the nominees and continuing
directors for the past five years is as follows:
MR. HOFFMAN has been a director and vice chairman of the Company since
March, 1994 and Vice Chairman of the Board of Directors of the Bank since 1986,
and has been a self-employed farmer in Tazewell County for the past 25 years.
MR. JAMESON has been a director and President of the Company since
March, 1994, has been a director of the Bank since January, 1994 and has been
President of the Bank since 1985. Mr. Jameson received a B.A. degree from
Northern Illinois University in 1976, graduated from the School of Savings
Institution Management in 1989 and earned a Degree of Distinction from the
Institute of Financial Education in 1988.
MR. MILLER has been a director of the Company since March, 1994 and its
Chairman from that time until November, 1994. He has also been a director of the
Bank since 1956 and its Chairman from 1986 through November, 1994, and has been
the Tremont Township Road Commissioner since 1981.
MR. PETROV has been a director of the Company since March, 1994 and a
director of the Bank since 1987. He is a cofounder of Petrov-Watkins Insurance
in Tremont, Illinois, of which he has been its President since 1988.
He was the managing officer of the Bank from 1969 to 1983.
MR. STEINER has been a director of the Company since March, 1994 and a
director of the Bank since 1986. He has been a carpenter with Jerry Kaiser
Construction in Tremont, Illinois since 1989 and for the 28 previous years had
been the owner of Tremont Counter Tops, Inc. until he sold the business.
MR. SWIGERT has been a director of the Company and of the Bank since
January, 1995. He is a co-founder and president of Tremont Foods, Inc. since
1986, and is the manager of its operating subsidiary, Tremont Super Valu, a
grocery store located in Tremont, Illinois.
MR. WARTICK has been Chairman of the Company since November, 1994, a
director of the Company since March, 1994 and a director of the Bank since 1987.
He also has been the owner (until September, 1996) and chief pharmacist at
Tremont Pharmacy, Inc. of Tremont, Illinois since 1982.
BOARD COMMITTEES AND MEETINGS
There presently are no committees of the Board of Directors of the
Company, other than the compensation and audit committees. The compensation
committee meets to review salaries and the performance of officers, and
recommends compensation adjustments and promotions of officers. Messrs. Jameson
(ex officio), Petrov, Steiner and Swigert serve on the compensation committee,
which met three times during the fiscal year.
The audit committee is responsible for overseeing the internal and
external audit functions of the Company. The committee reviews and approves the
scope of the Bank's annual external audit and consults with the Bank's
independent auditors regarding the results of their auditing procedures. Messrs.
Swigert, Miller and Steiner serve on the audit committee, which met one time
during the fiscal year.
The Board of Directors of the Bank has three standing committees: loan,
compliance and investment. Messrs. Jameson, Miller, Swigert and Wartick are
members of the loan committee. The loan committee is responsible for policy
review and oversight of the loan functions of the Bank and approves all real
estate loans. The committee also reviews in detail the lending activities of the
Bank. The committee attempts to meet on a weekly basis and met 46 times during
the fiscal year.
The compliance committee is responsible for overseeing the Bank's
compliance with, and the current status of, federal and state banking laws and
regulations that affect the Bank. Messrs. Hoffman, Jameson and Wartick serve on
the compliance committee, which met three times during the fiscal year.
The investment committee plans the Bank's investment strategy,
primarily concerning the investment of cash and securities. Messrs. Jameson and
Petrov and Ms. Jane Hinman, the Company's Secretary and Treasurer, serve on the
investment committee, which met six times during the fiscal year.
During the fiscal year ended September 30, 1996, the Company's Board of
Directors held 13 meetings. During fiscal 1996, all directors of the Company
attended at least 75 percent of the meetings of the Board and the committees on
which they serve.
The Chairman of the Board of the Bank receives fees of $400 and all
other Bank directors receive fees of $350 per Bank Board of Directors meeting
that they attend and, except for Mr. Jameson, $15 for each committee meeting
that they attend. There are no fees paid for attending Company Board meetings.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid or granted to the Company's Chief Executive Officer for the fiscal year
ended September 30, 1996.
<TABLE>
<CAPTION>
===============================================================================================================================
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------------
Long Term
Compensation
Annual Compensation Awards
- -------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (f) (g) (i)
FISCAL
YEAR Securities All Other
Name and ENDED RESTRICTED Underlying Compensation
Principal Position SEPTEMBER 30TH Salary($) Bonus($) STOCK AWARD(S)(1) Options/SARs(#) ($)(2)
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Richard A. Jameson 1994 $43,700 $7,300 - - $10,563
President 1995 $48,332 $3,725 $34,947 8,093 $12,107
1996 $51,515 - - - $15,691
===============================================================================================================================
</TABLE>
(1) Represents the fair market value of 3,778 shares granted
under the Company's Management Retention Plan (the "MRP") on the date
of the grant. The MRP shares vest in five equal portions annually
commencing January 2, 1996. The aggregate fair market value of such
shares at September 30, 1996, was 149,114. Dividends are paid on MRP
shares prior to vesting.
(2) Represents Company contributions to the Company's Employee
Stock Ownership Plan ("ESOP"), and, for 1996, amounts paid to lease an
automobile for use by Mr. Jameson.
Upon consummation of the Conversion, the Company entered into a change
of control agreement with Mr. Jameson which is intended to secure his continuing
employment. The continued success of the Company and the Bank depends to a
significant degree on the skill and competence of Mr. Jameson.
The agreement with Mr. Jameson provides for a rolling three-year term
unless the agreement has been terminated, or the Company or Mr. Jameson has
provided a notice of non-renewal, in either case pursuant to the terms of the
agreement. Notwithstanding any such notice, the term of the agreement will be
extended to three years upon any change in control of the Company. The agreement
will terminate upon the death or disability of Mr. Jameson, in the event of
certain regulatory actions or upon notice by either the Company or Mr. Jameson,
with or without cause. In the event of termination of Mr. Jameson's employment
following a "change of control" of the Company, the successor to the Company is
obligated to make a lump sum payment to him equal to (i) the compensation due to
him at the time of such termination of employment and (ii) an amount equal to
three times his base annual salary, as defined in the agreement, and to continue
benefits for thirty-six (36) months following the date of termination of
employment or until comparable coverage is obtained from a subsequent employer.
For purposes of the agreement, Mr. Jameson's employment will be considered
terminated following a "change of control" or a "change in duties," in each case
as defined in the agreement. The agreement includes a covenant which will limit
his ability to compete with the Company and the Bank in an area encompassing a
fifty mile radius from the Bank's main office for a period of one year following
the termination of his employment with the Company and the Bank.
No stock options were granted in the last fiscal year to the
individuals named in the Summary Compensation Table.
The following table sets forth certain information concerning the
number of stock options at September 30, 1995 held by the individuals named in
the Summary Compensation Table.
<TABLE>
<CAPTION>
================================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES
- ----------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FY-END ($)
FY-END (#)
- ----------------------------------------------------------------------------------------------------------------
SHARES ACQUIRED
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE
================================================================================================================
<S> <C> <C> <C> <C> <C>
Richard A. Jameson (1) --- $--- 1,618 6,475 $6,472
================================================================================================================
</TABLE>
(1) Represents options which become exercisable in five equal portions annually
commencing January 1, 1996.
TRANSACTIONS WITH MANAGEMENT
Directors and officers of the Company and the Bank and their associates
were customers of and had transactions with the Company and the Bank during the
fiscal year ended September 30, 1996. Additional transactions are expected to
take place in the future. All outstanding loans, commitments to loan, and
certificates of deposit and depository relationships, in the opinion of
management, were made in the ordinary course of business, on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and did not involve more
than the normal risk of collectibility or present other unfavorable features.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned on November 22, 1996 with respect to
all persons known to the Company to be the beneficial owner of more than five
percent of the Company's Common Stock, to each director and nominee, to each
executive officer named in the Summary Compensation Table and to all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AND AMOUNT AND NATURE OF PERCENT
NUMBER OF PERSONS IN GROUP BENEFICIAL OWNERSHIP(1) OF CLASS
- -------------------------- ----------------------- --------
5% STOCKHOLDERS
<S> <C> <C>
First Bankers Trust Co., N.A., as Trustee 13,494(2) 5.6%
for the TSB Financial, Inc. ESOP
1201 Broadway
Quincy, Illinois 62301
DIRECTORS AND NOMINEES
Roland E. Hoffman 3,404 1.4%
Richard A. Jameson 13,385(3) 5.5%
Ben A. Miller 1,404(4) 0.6%
James D. Petrov 8,454(5) 3.5%
Dan Steiner, Jr. 4,004(6) 1.6%
Donald L. Swigert 2,356(7) 1.0%
Richard D. Wartick 3,554(8) 1.5%
All directors and executive officers as a group 43,842(9) 17.7%
(8 persons)
</TABLE>
- ------------------------------
(1) The information contained in this column is based upon information
furnished to the Company by the persons named above and the members of the
designated group. Such information includes shares vested under the Company's
MRP and shares subject to exercisable options granted under the Company's 1994
Stock Option Plan. The number of vested MRP shares and shares subject to
exercisable options for each named individual, respectively, are: 134 and 270
for Messrs. Hoffman, Miller, Steiner and Wartick; 86 and 270 for Mr. Swigert;
and 756 and 1,618 for Mr. Jameson. The nature of beneficial ownership for shares
shown in this column is sole voting and investment power, except as set forth
above and in the footnotes below.
(2) Represents shares held by the ESOP and not allocated to specific
employees.
(3) Includes 4,770 shares held in joint tenancy with Mr. Jameson's
spouse, 3,231 shares held in an Individual Retirement Account ("IRA") and 150
shares held as custodian for Mr. Jameson's minor children. Also includes 2,861
shares held in the ESOP, over which shares Mr. Jameson has sole voting and no
investment power.
(4) Includes 1,000 shares held in joint tenancy with Mr. Miller's
spouse.
(5) Includes 3,650 shares held in an IRA account.
(6) Includes 1,600 shares held by Mr. Steiner's spouse.
(7) Includes 2,000 shares held in joint tenancy with Mr. Swigert's
spouse.
(8) Includes 3,000 shares held in joint tenancy with Mr. Wartick's
spouse, 100 shares held in joint tenancy with minor children and 50 shares held
in joint tenancy with an adult child.
(9) Includes an aggregate of 2,051 vested MRP shares and 4,317 shares
subject to exercisable options.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires that the Company's executive officers and directors and persons
who own more than 10% of the Company's Common Stock file reports of ownership
and changes in ownership with the Securities and Exchange Commission and with
the exchange on which the Company's shares of Common Stock are traded. Such
persons are also required to furnish the Company with copies of all Section
16(a) forms they file. Based solely on the Company's review of the copies of
such forms furnished to the Company, the Company is not aware that any of its
directors and executive officers or 10% stockholders failed to comply with the
filing requirements of Section 16(a) during the twelve month period ending
September 30, 1996.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Stockholders will be asked to ratify the appointment of Geo. S. Olive &
Co., LLC as the Company's independent public accountants for the year ending
September 30, 1997. A representative of Geo. S. Olive & Co., LLC is expected to
attend the annual meeting and will be available to respond to appropriate
questions and to make a statement if he or she so desires. If the appointment is
not ratified by the Company's stockholders, the Board of Directors will
reconsider the matter.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF GEO. S. OLIVE & CO., LLC.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposals of stockholders intended to be presented at the 1998
Annual Meeting of Stockholders must be received by the Secretary of the Company
at its principal executive offices at 100 South Sampson Street, Tremont,
Illinois 61568, on or before August 8, 1997, to be considered for inclusion in
the Company's proxy statement and proxy relating to such meeting.
GENERAL
Your proxy is solicited by the Board of Directors and the cost of
solicitation will be paid by the Company. In addition to the solicitation of
proxies by use of the mails, officers, directors and regular employees of the
Company or the Bank, acting on the Company's behalf, may solicit proxies by
telephone, facsimile or personal interview. The Company will, at its expense,
upon the receipt of a request from brokers and other custodians, nominees and
fiduciaries, forward proxy soliciting material to the beneficial owners of
shares held of record (as of the record date for the annual meeting) by such
persons.
OTHER BUSINESS
It is not anticipated that any action will be asked of the stockholders
other than that set forth above, but if other matters properly are brought
before the meeting, the persons named in the proxy will vote in accordance with
their best judgment.
FAILURE TO INDICATE CHOICE
If any stockholder fails to indicate a choice in items (1) and (2) on
the proxy card, the shares of such stockholder shall be voted (FOR) in each
instance.
REPORT ON FORM 10-KSB
THE COMPANY'S REPORT ON FORM 10-KSB (WITHOUT EXHIBITS) WILL BE INCLUDED AS PART
OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS, WHICH WILL BE MAILED TO EACH
STOCKHOLDER OF RECORD AS OF THE RECORD DATE FOR THE ANNUAL MEETING. THE COMPANY
WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS SOLICITED, AND TO EACH
PERSON REPRESENTING THAT HE OR SHE WAS A BENEFICIAL OWNER OF THE COMPANY'S
COMMON STOCK AS OF THE RECORD DATE FOR THE ANNUAL MEETING, UPON WRITTEN REQUEST,
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, TOGETHER WITH THE FINANCIAL STATEMENTS AND
SCHEDULES THERETO. SUCH WRITTEN REQUEST SHOULD BE SENT TO MR. RICHARD A.
JAMESON, TSB FINANCIAL, INC., 100 SOUTH SAMPSON STREET, TREMONT, ILLINOIS 61568.
By order of the Board of Directors
Richard A. Jameson
President
Tremont, Illinois
December 6, 1996
ALL STOCKHOLDERS ARE URGED TO SIGN
AND MAIL THEIR PROXIES PROMPTLY
APPENDIX A
SUPERVISION AND REGULATION
GENERAL
The growth and earnings performance of TSB Financial, Inc. (the
"Company") and Tremont Savings Bank (the "Bank") can be affected not only by
management decisions and general economic conditions, but also by the policies
of various governmental regulatory authorities including, but not limited to,
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), the Federal Deposit Insurance Corporation (the "FDIC"), the Illinois
Commissioner of Banks and Real Estate (the "Commissioner"), the Internal Revenue
Service and state taxing authorities. Financial institutions and their holding
companies are extensively regulated under federal and state law. The effect of
such statutes, regulations and policies can be significant, and cannot be
predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to
financial institutions, such as the Company and the Bank, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers, consolidations and dividends. The system
of supervision and regulation applicable to the Company and the Bank establishes
a comprehensive framework for their respective operations and is intended
primarily for the protection of the FDIC's deposit insurance funds and the
depositors, rather than the shareholders, of financial institutions.
The following references to material statutes and regulations affecting
the Company and the Bank are brief summaries thereof and do not purport to be
complete, and are qualified in their entirety by reference to such statutes and
regulations. Any change in applicable law or regulations may have a material
effect on the business of the Company and the Bank.
RECENT REGULATORY DEVELOPMENTS
On September 30, 1996, President Clinton signed into law the "Economic
Growth and Regulatory Paperwork Reduction Act of 1996" (the "Regulatory
Reduction Act"). Subtitle G of the Regulatory Reduction Act consists of the
"Deposit Insurance Funds Act of 1996" (the "DIFA"). The DIFA provides for a
one-time special assessment on each depository institution holding deposits
subject to assessment by the FDIC for the Savings Association Insurance Fund
(the "SAIF") in an amount which, in the aggregate, will increase the designated
reserve ratio of the SAIF (I.E., the ratio of the insurance reserves of the SAIF
to total SAIF-insured deposits) to 1.25% on October 1, 1996. Subject to certain
exceptions, the special assessment is payable in full on November 27, 1996. As a
SAIF-member, the Bank is subject to the special assessment.
Under the DIFA, the amount of the special assessment payable by an
institution is to be determined on the basis of the amount of SAIF-assessable
deposits held by the institution on March 31, 1995, or acquired by the
institution after March 31, 1995 from another institution which held the
deposits as of that date but is no longer in existence on November 27, 1996. The
DIFA provides for a 20% discount in calculating the SAIF-assessable deposits of
certain "Oakar" banks (I.E., Bank Insurance Fund ("BIF") member banks that hold
deposits acquired from a SAIF member that are deemed to remain SAIF insured) and
certain "Sasser" banks (I.E., banks that converted from thrift to bank charters
but remain SAIF members). Although the Bank is a "Sasser" bank, the Bank does
not meet the requirements established in the DIFA to qualify for this 20%
discount. The DIFA also exempts certain institutions from payment of the special
assessment (including institutions that are undercapitalized or that would
become undercapitalized as a result of payment of the special assessment), and
allows an institution to pay the special assessment in two installments if there
is a significant risk that by paying the special assessment in a lump sum, the
institution or its holding company would be in default under or in violation of
terms or conditions of debt obligations or preferred stock issued by the
institution or its holding company and outstanding on September 13, 1995.
On October 8, 1996, the FDIC adopted a final regulation implementing
the SAIF special assessment. In that regulation, the FDIC set the special
assessment rate at 0.657% of SAIF-assessable deposits held on March 31, 1995.
The FDIC has notified the Bank that the dollar amount of the special assessment
payable by the Bank is $118,820. As a result of the special assessment,
the Bank has taken a charge against earnings for the quarter ended September 30,
1996, in the amount of $118,820. As discussed below, however, the
recapitalization of the SAIF resulting from the special assessment should
significantly reduce the Bank's ongoing deposit insurance expense.
In light of the recapitalization of the SAIF pursuant to the special
assessment authorized by the DIFA, the FDIC, on October 8, 1996, issued a
proposed rule that would reduce regular semi-annual SAIF assessments from the
current range of 0.23% - 0.31% of deposits to a range of 0% - 0.27% of deposits.
Under the proposal, the new rates would be effective October 1, 1996 for Oakar
and Sasser banks, but would not take affect for other SAIF- assessable
institutions until January 1, 1997. From October 1, 1996 through December 31,
1996, SAIF-assessable institutions other than Oakar and Sasser banks would,
under the proposal, be assessed at rates ranging from 0.18% to 0.27% of
deposits, which represents the amount the FDIC calculates as necessary to cover
the interest due for that period on outstanding obligations of the Financing
Corporation (the "FICO"), discussed below. Because SAIF- assessable institutions
have already been assessed at current rates (I.E., 0.23% - 0.31% of deposits)
for the semi-annual period ending December 31, 1996, the proposal contemplates
that the FDIC will refund the amount collected from such institutions for the
period from October 1, 1996 through December 31, 1996 which exceeds the amount
due for that period under the reduced assessment schedule. Assuming the proposal
is adopted as proposed, and assuming the Bank retains its current risk
classification under the FDIC's risk-based assessment system, the deposit
insurance assessments payable by the Bank will be reduced significantly, to the
same level currently paid by the Bank's BIF-member competitors.
Prior to the enactment of the DIFA, a substantial amount of the SAIF
assessment revenue was used to pay the interest due on bonds issued by the FICO,
the entity created in 1987 to finance the recapitalization of the Federal
Savings and Loan Insurance Corporation (the "FSLIC"), the SAIF's predecessor
insurance fund. Pursuant to the DIFA, the interest due on outstanding FICO bonds
will be covered by assessments against both SAIF and BIF member institutions
beginning January 1, 1997. Between January 1, 1997 and December 31, 1999, FICO
assessments against BIF-member institutions cannot exceed 20% of the FICO
assessments charged SAIF-member institutions. From January 1, 2000 until the
FICO bonds mature in 2019, FICO assessments will be shared by all FDIC-insured
institutions on a PRO RATA basis. The FDIC estimates that the FICO assessments
for the period January 1, 1997 through December 31, 1999 will be approximately
0.013% of deposits for BIF members versus approximately 0.064% of deposits for
SAIF members, and will be less than 0.025% of deposits thereafter.
The DIFA also provides for a merger of the BIF and the SAIF on January
1, 1999, provided there are no state or federally chartered, FDIC-insured
savings associations existing on that date. To facilitate the merger of the BIF
and the SAIF, the DIFA directs the Treasury Department to conduct a study on the
development of a common charter and to submit a report, along with appropriate
legislative recommendations, to the Congress by March 31, 1997.
In addition to the DIFA, the Regulatory Reduction Act includes a number
of statutory changes designed to eliminate duplicative, redundant or unnecessary
regulatory requirements. Among other things, the Regulatory Reduction Act
establishes streamlined notice procedures for the commencement of new nonbanking
activities by bank holding companies, establishes time frames within which the
FDIC must act on applications by state banks to engage in activities which,
although permitted for the state bank under applicable state law, are not
permissible activities for national banks, and excludes ATM closures and certain
branch office relocations from the prior notice requirements applicable to
branch closings. The Regulatory Reduction Act also clarifies the liability of a
financial institution, when acting as a lender or in a fiduciary capacity, under
the federal environmental clean-up laws. Although the full impact of the
Regulatory Reduction Act on the operations of the Company and the Bank cannot be
determined at this time, management believes that the legislation will reduce
compliance costs to some extent and allow the Company and the Bank somewhat
greater operating flexibility.
On August 10, 1996, President Clinton signed into law the Small
Business Job Protection Act of 1996 (the "Job Protection Act"). Among other
things, the Job Protection Act eliminates the percent-of-taxable-income ("PTI")
method for computing additions to a savings bank's tax bad debt reserves for tax
years beginning after December 31, 1995, and requires all savings banks that
have used the PTI method to recapture, over a six year period, all or a portion
of their tax bad debt reserves added since the last taxable year beginning
before January 1, 1988. The Job Protection Act allows a savings bank to postpone
the recapture of bad debt reserves for up to two years if the institution meets
a minimum level of mortgage lending activity during those years. The Bank
believes that it will engage in sufficient mortgage lending activity during 1996
and 1997 to be able to postpone any recapture of its bad debt reserves until
1998. As a result of these provisions of the Job Protection Act, the Bank will
determine additions to its tax bad debt reserves using the same method as a
commercial bank of comparable size, and, if the Bank were to decide to convert
to a commercial bank charter, the changes in the tax bad debt recapture rules
enacted in the Job Protection Act should make such conversion less costly.
THE COMPANY
GENERAL. The Company, as the sole shareholder of the Bank, is currently
a bank holding company. As a bank holding company, the Company is registered
with, and is subject to regulation by, the Federal Reserve Board under the Bank
Holding Company Act (the "BHCA"). In accordance with Federal Reserve Board
policy, the Company is expected to act as a source of financial strength to the
Bank and to commit resources to support the Bank in circumstances where the
Company might not do so absent such policy. Under the BHCA, the Company is
subject to periodic examination by the Federal Reserve Board and is required to
file periodic reports of its operations and such additional information as the
Federal Reserve Board may require.
Because the Bank is chartered under the Illinois Savings Bank Act (the
"ISBA"), the Company is also registered with, and subject to regulation by, the
Commissioner under the ISBA.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must
obtain Federal Reserve Board approval before: (i) acquiring, directly or
indirectly, ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than 5%
of such shares (unless it already owns or controls the majority of such shares);
(ii) acquiring all or substantially all of the assets of another bank or bank
holding company; or (iii) merging or consolidating with another bank holding
company. The Federal Reserve Board may allow a bank holding company to acquire
banks located in any state of the United States without regard to geographic
restrictions or reciprocity requirements imposed by state law, but subject to
certain conditions, including limitations on the aggregate amount of deposits
that may be held by the acquiring holding company and all of its insured
depository institution affiliates.
The BHCA also prohibits, with certain exceptions noted below, the
Company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to banks and their subsidiaries, except that bank holding
companies may engage in, and may own shares of companies engaged in, certain
businesses found by the Federal Reserve Board to be "so closely related to
banking . . . as to be a proper incident thereto." Under current regulations of
the Federal Reserve Board, the Company and any non-bank subsidiaries are
permitted to engage in, among other activities, such banking-related businesses
as the operation of a thrift, sales and consumer finance, equipment leasing, the
operation of a computer service bureau, including software development, and
mortgage banking and brokerage. The BHCA does not place territorial restrictions
on the activities of non-bank subsidiaries of bank holding companies.
Federal legislation also prohibits the acquisition of "control" of a
bank or bank holding company, such as the Company, without prior notice to
certain federal bank regulators. "Control" is defined in certain cases as the
acquisition of 10% of the outstanding shares of a bank or bank holding company.
CAPITAL REQUIREMENTS. The Federal Reserve Board uses capital adequacy
guidelines in its examination and regulation of bank holding companies. If
capital falls below minimum guideline levels, a bank holding company, among
other things, may be denied approval to acquire or establish additional banks or
non-bank businesses.
The Federal Reserve Board capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies: a risk-based
requirement expressed as a percentage of total risk-weighted assets, and a
leverage requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, of which at least one-half must be Tier 1 capital (which consists
principally of stockholders' equity). The leverage requirement consists of a
minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated
bank holding companies, with minimum requirements of 4% to 5% for all others.
The risk-based and leverage standards presently used by the Federal
Reserve Board are minimum requirements, and higher capital levels will be
required if warranted by the particular circumstances or risk profiles of
individual banking organizations. Further, any banking organization experiencing
or anticipating significant growth would be expected to maintain capital ratios,
including tangible capital positions (I.E., Tier 1 capital less all intangible
assets), well above the minimum levels.
Under the Federal Reserve Board's guidelines, the capital standards
described above are generally applied on a bank-only (rather than a
consolidated) basis to bank holding companies that, like the Company, have less
than $150 million in total consolidated assets. Nevertheless, as of September
30, 1996, the Company had regulatory capital, calculated on a consolidated
basis, in excess of the Federal Reserve's minimum requirements, with a risk-
based capital ratio of approximately 28% and a leverage ratio of approximately
13%.
DIVIDENDS. The Federal Reserve Board has issued a policy statement on
the payment of cash dividends by bank holding companies. In the policy
statement, the Federal Reserve Board expressed its view that a bank holding
company experiencing earnings weaknesses should not pay cash dividends exceeding
its net income or which could only be funded in ways that weakened the bank
holding company's financial health, such as by borrowing. Additionally, the
Federal Reserve Board possesses enforcement powers over bank holding companies
and their non-bank subsidiaries to prevent or remedy actions that represent
unsafe or unsound practices or violations of applicable statutes and
regulations. Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies.
In addition to the restrictions on dividends imposed by the Federal
Reserve Board, the Delaware General Corporation Law would allow the Company to
pay dividends only out of its surplus, or if the Company has no such surplus,
out of its net profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year.
THE BANK
GENERAL. The Bank is an Illinois-chartered savings bank, the deposit
accounts of which are insured by the SAIF of the FDIC. As a SAIF-insured,
Illinois-chartered savings bank, the Bank is subject to the examination,
supervision, reporting and enforcement requirements of the Commissioner, as the
chartering authority for Illinois savings banks, and the FDIC, as administrator
of the SAIF, and to the statutes and regulations administered by the
Commissioner and the FDIC governing such matters as capital standards, mergers,
establishment of branch offices, subsidiary investments and activities and
general investment authority. The Bank is required to file reports with the
Commissioner and the FDIC concerning its activities and financial condition and
is required to obtain regulatory approvals prior to entering into certain
transactions, including mergers with, or acquisitions of, other financial
institutions.
DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank is required
to pay deposit insurance premium assessments to the FDIC. The amount each
institution pays for FDIC deposit insurance coverage is determined in accordance
with a risk-based assessment system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their level of capital and supervisory evaluation.
SAIF-member institutions classified as well-capitalized (as defined by the FDIC)
and considered healthy pay the lowest premium while SAIF-member institutions
that are less than adequately capitalized (as defined by the FDIC) and
considered of substantial supervisory concern pay the highest premium. Risk
classification of all insured institutions is made by the FDIC for each
semi-annual assessment period.
During the year ended September 30, 1996, SAIF assessments ranged from
0.23% of deposits to 0.31% of the deposits. The FDIC has proposed to reduce SAIF
assessments to a range of 0.18% of deposits to 0.27% of deposits for the period
October 1, 1996 through December 31, 1996, and to a range of 0% of deposits to
0.27% of deposits for the semi-annual assessment period beginning January 1,
1997. SEE "Recent Regulatory Developments."
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of the Company is not aware of any activity
or condition that could result in termination of the deposit insurance of the
Bank.
FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance
assessments paid by SAIF members, such as the Bank, have been used to cover
interest payments due on the outstanding obligations of the FICO, the entity
created to finance the recapitalization of the FSLIC, the SAIF's predecessor
insurance fund. Pursuant to federal legislation enacted September 30, 1996,
commencing January 1, 1997, SAIF members and BIF members will be subject to
assessments to cover the interest payment on outstanding FICO obligations. Such
FICO assessments will be in addition to amounts assessed by the FDIC for deposit
insurance. Until January 1, 2000, the FICO assessments made against BIF members
may not exceed 20% of the amount of the FICO assessments made against SAIF
members. It is estimated that SAIF members will pay FICO assessments equal to
0.064% of deposits while BIF members will pay FICO assessments equal to 0.013%
of deposits. Between January 1, 2000 and the maturity of the outstanding FICO
obligations in 2019, BIF members and SAIF members will share the cost of the
interest on the FICO bonds on a PRO RATA basis. It is estimated that FICO
assessments during this period will be less than 0.025% of deposits.
COMMISSIONER ASSESSMENTS. Illinois savings banks are required to pay
supervisory fees to the Commissioner to fund the operations of the Commissioner.
The amount of such supervisory fees is based upon each institution's total
assets, including consolidated subsidiaries, as reported to the Commissioner.
During the year ended September 30, 1996, the Bank paid supervisory fees to the
Commissioner totalling $10,424.
CAPITAL REQUIREMENTS. Under the ISBA and the regulations of the
Commissioner, an Illinois savings bank must maintain a minimum level of total
capital equal to the higher of 3% of total assets or the amount required to
maintain insurance of deposits by the FDIC. The Commissioner has the authority
to require an Illinois savings bank to maintain a higher level of capital if the
Commissioner deems it necessary based on the savings bank's financial condition,
history, management or earnings prospects.
The FDIC has established the following minimum capital standards for
state-chartered, FDIC-insured, non-member banks, such as the Bank: a leverage
requirement consisting of a minimum ratio of Tier 1 capital to total assets of
3% for the most highly rated banks, with minimum requirements of 4% to 5% for
all other banks, and a risk-based capital requirement consisting of a minimum
ratio of total capital to total risk-weighted assets of 8%, at least one-half of
which must be Tier 1 capital. The FDIC capital requirements are minimum
requirements. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual institutions. FDIC
regulations provide, for example, that higher capital requirements may be
imposed to take account of interest rate risk exposure, or the risks posed by
concentrations of credit or nontraditional activities.
At September 30, 1996, the Bank exceeded the FDIC's minimum capital
requirements, with a leverage ratio of 13% and a risk-based capital ratio of
28%.
Federal law provides the FDIC with broad power to take prompt
corrective action to resolve the problems of undercapitalized state non-member
banks. The extent of the FDIC's powers depends on whether the institution in
question is "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Depending
upon the capital category to which an institution is assigned, the FDIC's
corrective powers include: requiring the submission of a capital restoration
plan; placing limits on asset growth and restrictions on activities; requiring
the institution to issue additional capital stock (including additional voting
stock) or to be acquired; restricting transactions with affiliates; restricting
the interest rate the institution may pay on deposits; ordering a new election
of directors of the institution; requiring that senior executive officers or
directors be dismissed; prohibiting the institution from accepting deposits from
correspondent banks; requiring the institution to divest certain subsidiaries;
prohibiting the payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution.
DIVIDENDS. Under the ISBA and the regulations of the Commissioner,
dividends may be paid by the Bank out of its net profits (I.E., earnings from
current operations, investments and other assets plus actual recoveries on
loans, net of current expenses including dividends or interest on deposits,
additions to reserves as required by the Commissioner, actual losses, accrued
dividends on preferred stock, if any, and all state and federal taxes). In
general, without the prior written approval of the Commissioner, the Bank may
not declare dividends in any twelve-month period which, in the aggregate, exceed
its net profits for that twelve-month period. If, however, the Bank's capital
falls below 6% of its total assets, the Bank may not declare dividends in any
twelve-month period which, in the aggregate, exceed 50% of its net profits for
that period, without the prior written approval of the Commissioner.
Additionally, the Bank will be unable to pay dividends in an amount which would
reduce its capital below the greater of (i) the amount required by the FDIC or
(ii) the amount required for the liquidation account established by the Bank in
connection with its conversion to the stock form of organization. The
Commissioner and the FDIC also have the authority to prohibit the payment of any
dividends by the Bank if the Commissioner or the FDIC determines that the
distribution would constitute an unsafe or unsound practice.
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions
imposed by the Federal Reserve Act on any extensions of credit to the Company,
on investments in the stock or other securities of the Company and the
acceptance of the stock or other securities of the Company as collateral for
loans. Certain limitations and reporting requirements are also placed on
extensions of credit by the Bank to its directors and officers, to directors and
officers of the Company, to principal stockholders of the Company and to
"related interests" of such directors, officers and principal stockholders. In
addition, such legislation and regulations may affect the terms upon which any
person becoming a director or officer of the Company or one of its subsidiaries
or a principal stockholder of the Company may obtain credit from banks with
which the Bank maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS. The FDIC has issued guidelines
establishing operational and managerial standards to promote the safety and
soundness of federally insured state non-member banks. The guidelines establish
standards for internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, asset quality and earnings. In general, the
guidelines prescribe the goals to be achieved in each area, and each institution
will be responsible for establishing its own procedures to achieve those goals.
If a state non-member bank fails to comply with any of the standards set forth
in the guidelines, the FDIC may require the institution to submit a plan for
achieving and maintaining compliance. The preamble to the guidelines states that
the FDIC expects to require a compliance plan from an institution whose failure
to meet one or more of the standards is of such severity that it could threaten
the safe and sound operation of the institution. Failure to submit an acceptable
compliance plan, or failure to adhere to a compliance plan that has been
accepted by the FDIC, would constitute grounds for further enforcement action.
STATE BANK ACTIVITIES. Under federal law and FDIC regulations,
FDIC-insured state banks, such as the Bank, are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an
amount, that are not permissible for a national bank. Federal law and FDIC
regulations also prohibit FDIC-insured state banks and their subsidiaries,
subject to certain exceptions, from engaging as principal in any activity that
is not permitted for a national bank or its subsidiary, respectively, unless the
bank meets, and continues to meet, its minimum regulatory capital requirements
and the FDIC determines the activity would not pose a significant risk to the
deposit insurance fund of which the bank is a member.
BRANCHING AUTHORITY. Illinois savings banks, such as the Bank, have the
authority under Illinois law to establish branches any where in the State of
Illinois, subject to receipt of all required regulatory approvals. Effective
June 1, 1997 (or earlier if expressly authorized by applicable state law), the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act") allows banks to establish interstate branch networks through
acquisitions of other banks, subject to certain conditions, including certain
limitations on the aggregate amount of deposits that may be held by the
surviving bank and all of its insured depository institution affiliates. The
establishment of DE NOVO interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of an
out-of-state bank in its entirety) is allowed by the Riegel-Neal Act only if
specifically authorized by state law. The legislation allows individual states
to "opt-out" of certain provisions of the Riegle-Neal Act by enacting
appropriate legislation prior to June 1, 1997. Illinois has enacted legislation
permitting interstate mergers beginning on June 1, 1997.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the Federal Home
Loan Bank ("FHLB") System, which consists of twelve regional FHLBs. The FHLB
System provides a central credit facility primarily for member institutions. The
Bank is a member of the FHLB of Chicago, and as such is required to own shares
of capital stock in that FHLB in an amount at least equal to 1% of the aggregate
principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20th of its advances
(borrowings) from the FHLB of Chicago, whichever is greater. The Bank is in
compliance with this requirement with an investment in FHLB of Chicago stock of
$318,300 at September 30, 1996.
The FHLBs are required to provide funds to cover certain FICO
obligations and to contribute funds for affordable housing programs. These
requirements could reduce the dividends paid by the FHLBs on their outstanding
stock and could also result in the FHLBs imposing higher rates of interest on
advances to their members, which could reduce the Bank's net interest income.
During the fiscal year ended September 30, 1996, the Bank received dividends on
its stock in the FHLB of Chicago totalling $14,010.
FEDERAL RESERVE SYSTEM. Federal Reserve Board regulations require
savings institutions to maintain non-interest earning reserves against their
transaction accounts (primarily NOW and regular checking accounts), as follows:
for accounts aggregating $52.0 million or less, the reserve requirement is 3%;
and for accounts aggregating over $52.0 million, the reserve requirement is $1.6
million plus 10% of the amount of total transaction accounts in excess of $52.0
million. The first $4.3 million of otherwise reservable balances are exempted
from the reserve requirements. These reserve requirements are subject to annual
adjustment by the Federal Reserve Board. The Bank is in compliance with the
foregoing requirements.
Appendix B
Selected Statistical Information
The following tables should be read in conjunction with the balance of
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Set forth below are summaries of historical financial and other data
regarding the Company and, where specified, the Bank.
Fiscal Year
Ended
September 30
1996
SELECTED OPERATING DATA
Total interest income $2,034,801
Total interest expense 1,066,057
----------
Net interest income 968,744
Provision for loan losses 13,500
----------
Net interest income after provision for loan losses 955,244
Total non-interest income 98,432
Total non-interest expense 751,485
----------
Income before Income taxes 302,191
Income tax expense 95,139
----------
Net income $ 207,052
OTHER DATA
Return on average assets 0.77%
Return on average equity 5.28%
Equity to total assets 12.72%
Net interest rate spread (1) 3.07%
Net interest margin (2) 3.68%
Ratio of average interest earning assets to average interest
bearing liabilities 114.96%
Non-interest expense to average assets 2.78%
Nonperforming loans to total adjusted loans 0.21%
Net charge-offs (recoveries) to average loans 0.02%
Nonperforming assets to total assets 0.17%
Loan originations $11,836,447
Number of full service Bank offices 1
- ------------------------
(1) Represents the difference between the average yield on interest earning
assets and the cost of interest bearing liabilities. (7.72% - 4.65%)
(2) Represents net interest income as a percentage of average interest
earning assets.
The following table sets forth the composition of the Company's loan
portfolio by type of loan and the portion of the Company's total loans which
each category of loan constitutes.
1996 Percent of
Amount Total loans
------ -----------
Real estate loans:
Residential one-to-four family $21,263,476 88.90%
Multi-family 154,186 0.65%
Commercial real estate 892,803 3.73%
----------- -----
Total real estate loans $22,310,465 93.28%
Other loans (1) 1,607,503 6.72%
----------- -----
Total loans $23,917,968 100.00%
Less:
Unearned fees, discounts 27,654
Undisbursed loan funds 1,284,444
Allowance for losses 124,624
-----------
Net loans $22,481,246
-----------
- ------------------------------
(1) Other loans consist of secured and unsecured consumer loans and savings
account loans.
The following table sets forth the contractual maturities of the Company's
loans at September 30, 1996. The table does not include scheduled principal
payments or unscheduled prepayments. Scheduled principal payments and
unscheduled prepayments on the loan portfolio totalled $5.1 million for the
fiscal period ended September 30, 1996, and $2.9 million and $4.7 million for
the fiscal periods ended September 30, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
At September 30, 1996
---------------------
After 1 After 3 After 5
Up to 1 year to 3 years to 5 years to 10 Beyond 10
year years years years years Total
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans $34,426 $246,757 $456,273 $3,159,724 $17,128,841 $21,026,021
Other Loans 140,303 304,416 1,147,969 14,815 -- 1,607,503
Less:
Unearned discounts and
deferred loans fees 27,654
Allowance for loan losses 124,624
-----------
Loans receivable, net $22,481,246
-----------
</TABLE>
The following table sets forth the dollar amount of all loans with maturities
in excess of one year at September 30, 1996, and classifies such loans by
whether they have fixed or adjustable interest rates:
<TABLE>
<CAPTION>
Fixed Adjustable Total
----- ---------- -----
<S> <C> <C> <C>
Residential one-to-four family $10,884,444 $ 9,072,042 $19,956,486
Residential multifamily and non-
residential 195,740 839,369 1,035,109
Other loans 1,467,200 -- 1,467,200
----------- ----------- -----------
Total $12,547,384 $ 9,911,411 $22,458,795
----------- ----------- -----------
</TABLE>
The following table sets forth information concerning delinquent loans at
September 30, 1996, 1995, and 1994, respectively, in dollar amount and as a
percentage of the Company's total loans. The amounts presented represent the
total outstanding principal balances of the related loans rather than the actual
payment amounts which are overdue.
Principal Percent of
Number Balance Total Loans (1)
------ ------- ---------------
September 30, 1996
Loans delinquent for:
30-59 days 8 $127,752 0.53%
60-89 days 3 31,099 0.13%
90 days and over 4 50,395 0.21%
-- -- -------- ----
Total delinquent loans 15 $209,246 0.87%
-- -- -------- ----
September 30, 1995
Loans delinquent for:
30-59 days 10 $156,642 0.91%
60-89 days 8 152,722 0.89%
90 days and over 0 -- --
Total delinquent loans 18 $309,364 1.80%
-- -- -------- ----
September 30, 1994
Loans delinquent for:
30-59 days 10 $191,432 1.19%
60-89 days 5 110,209 0.68%
90 days and over 3 56,793 0.35%
-- -- -------- ----
Total delinquent loans 18 $358,434 2.22%
-- -- -------- ----
- ---------------------------
(1) Percentages are based on the loan balances, not on the number of loans.
The following table sets forth information with respect to the Company's
nonperforming assets, including non-accrual loans and real estate acquired
through foreclosure or by deed-in-lieu of foreclosure ("real estate owned").
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total non-accrual loans $ 50,395 $ 0 $ 56,793 $ 141,930 $ 121,513
Real estate owned ("REO") -- -- -- -- --
Total nonperforming assets $ 50,395 $ 0 $ 56,793 $ 141,930 $ 121,513
Nonperforming assets to total
adjusted loans 0.21% NA 0.36% 0.83% 0.72%
Nonperforming assets to total assets 0.17% NA 0.24% 0.68% 0.58%
Allowance for loan losses to non-
accrual loans and REO 247.29% NA 194.57% 65.10% 58.37%
</TABLE>
The following table sets forth information with respect to the Company's
classified assets at September 30, 1996. As of the date of this Annual Report on
Form 10-KSB, management is not aware of any potential problem loans with respect
to which it has serious doubts as to the ability of the borrower to comply with
the payment terms of the loans such that additional disclosure in the following
table would be warranted.
<TABLE>
<CAPTION>
Special
Mention Doubtful Substandard Loss Total
------- -------- ----------- ---- -----
<S> <C> <C> <C> <C> <C>
Real Estate Loans:
One-to-four family -- -- $31,099 -- $31,099
Multifamily -- -- -- -- --
Commercial -- -- -- -- --
Construction -- -- -- -- --
REO -- -- -- -- --
Consumer Loans -- -- -- -- --
Total Classified 0 0 $31,099 0 $31,099
</TABLE>
The following table sets forth an analysis of the Company's allowance for
loan losses at the dates indicated.
<TABLE>
<CAPTION>
At or For the Fiscal Year Ended
September 30
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $115,564 $110,500 $92,400 $68,500 $50,400
Provision for loan losses 13,500 20,000 18,100 18,000 18,100
Recoveries -- -- -- 5,900 --
Charge-Offs 4,440 14,936 -- -- --
Balance at end of period $124,624 $115,564 $110,500 $92,400 $68,500
-------- -------- -------- ------- -------
Ratio of allowance for
loan losses to total
outstanding loans (gross) 0.52% 0.67% 0.69% 0.54% 0.41%
---- ---- ---- ---- ----
Ratio of net charge-offs
(recoveries) during the
period to average loans
outstanding during the
period 0.02% 0.09% -- 0.03% --
---- ---- ---- ---- ----
Allowance for loan losses
to total non-performing loans 247.29% NA 194.57% 65.10% 48.25%
-------- -------- -------- ------- -------
</TABLE>
The following table sets forth the allocation of the allowance for loan losses
at the dates indicated by category of loans.
<TABLE>
<CAPTION>
At September 30,
1996 1995 1994
---- ---- ----
% of loans % of loans % of loans
in each in each in each
category category category
to to to
Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Allocated to:
Mortgage loans $116,000 93.28% $115,564 97.93% $110,500 99.30%
Non-mortgage
loans 8,624 6.72% -- 2.07% -- 0.70%
----- ---- ---- ----
Total $124,624 100.00% $115,564 100.00% $110,500 100.00%
-------- ------ -------- ------ -------- ------
</TABLE>
The following table sets forth the composition and maturities of the Company's
Investment securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
September 30
1996 1995
---- ----
Percent Percent
Carrying of Carrying of
Value Total Value Total
----- ----- ----- -----
<S> <C> <C> <C> <C>
Investment securities
Available for sale
Federal agencies $1,251,813 22.96% $ 258,673 5.09%
State and municipal 1,354,609 24.85% -- --
Mortgage-backed securities 2,476,846 45.44% 1,785,648 35.16%
---------- ------ ---------- ------
Total available for sale 5,083,268 93.25% 2,044,321 40.25%
---------- ------ ---------- ------
Held to maturity
Federal agencies -- -- 1,082,708 21.32%
State and municipal 306,037 5.62% 1,133,814 22.32%
Mortgage-backed securities 61,829 1.13% 818,017 16.11%
---------- ------ ---------- ------
Total held to maturity 367,866 6.75% 3,034,539 59.75%
---------- ------ ---------- ------
Total investment securities $5,451,134 100.00% $5,078,860 100.00%
---------- ------ ---------- ------
</TABLE>
<TABLE>
<CAPTION>
Carrying Value at September 30, 1996
Available Held to Weighted
For Sale Maturity Total Average Yield
-------- -------- ----- -------------
<S> <C> <C> <C> <C>
Due in one year or less $1,251,813 -- $1,251,813 6.93%
Due after one through five years 110,000 306,037 416,037 5.06%
Due after five through ten years 443,443 -- 443,443 6.13%
Due after ten years 801,166 -- 801,166 7.27%
---------- ---------- ---------- ----
$2,606,422 $ 306,037 $2,912,459
Mortgage backed securities $2,476,846 $ 61,829 $2,538,675 7.47%
---------- ---------- ---------- ----
Totals $5,083,268 $ 367,866 $5,451,134 7.02%
---------- ---------- ---------- ----
</TABLE>
The following table sets forth information relating to the Company's deposit
flows and total deposits for the fiscal year ended September 30, 1996.
Total deposits at the beginning of period $18,467,844
Net increase (decrease) in deposits before
interest crediting 805,899
Interest credited 876,194
-----------
Net increase (decrease) during period 1-682,093
-----------
Total deposits at end of period $20,149,937
-----------
The following table sets forth the amounts of deposits by type of account at
September 30, 1996
<TABLE>
<CAPTION>
Weighted
Percent average
of nominal
Total rate Amount
----- ---- ------
<S> <C> <C> <C>
Transaction Accounts:
Checking/NOW 7.19% 1.27% $ 1,449,164
Money Market Deposits 12.58% 4.40% 2,534,775
Savings 12.83% 2.25% 2,584,679
------ ---- -----------
Total Transaction Accounts 32.60% 2.86% $ 6,568,618
Time Deposits
Certificate accounts with original maturities of:
3-5 months 0.51% 4.76% 102,281
6-11 months 7.85% 4.98% 1,580,943
12-23 months 18.38% 5.36% 3,705,030
24-35 months 9.77% 5.59% 1,968,097
36 months or more 16.52% 5.98% 3,328,357
IRA 4.23% 5.90% 852,782
Jumbos 10.14% 5.12% 2,043,829
------ ---- -----------
Total Time Deposits 67.40% 5.49% 13,581,319
------ ---- -----------
Total Deposits 100.00% 4.64% $20,149,937
------ ---- -----------
</TABLE>
The following table sets forth the amount of certificates of deposit outstanding
by various rate categories at September 30, 1996.
4.00% - 4.99% $ 3,389,013
5.00% - 5.99% 7,334,666
6.00% - 6.99% 2,005,198
7.00% - 7.99% 852,442
-----------
TOTAL $13,581,319
-----------
The following table sets forth the aggregate amount of outstanding jumbo
certificates of deposit in amounts of $100,000 or more and the maturity of these
certificates of deposit at September 30, 1996.
3 months or less $ 574,370
Over 3 months through 6 months 410,875
Over 6 months through 12 months 558,584
Over 12 months 500,000
----------
$2,043,829
----------
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1996, which are
expected to reprice or mature in each of the future time periods shown. The
amounts of assets and liabilities shown which reprice or mature within a
particular period were determined in accordance with management's assumptions as
to the prepayment characteristics of certain assets and duration of certain
liabilities. Loans with adjustable rates are shown as being due in the next
adjustment period. The interest rate sensitivity of the Bank's assets and
liabilities illustrated in the following table could vary substantially if
different assumtpions are used or if actual experience differs from that
indicated by such assumptions.
<TABLE>
<CAPTION>
At September 30, 1996
---------------------
1 year 1 year to 2 years to 3 years to
or less 2 years 3 years 5 years
------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits $ 726,497 $ -- $ 98,000 $ --
Investment securities, net (1) 2,464,195 -- 225,937 416,037
Net loans 6,582,661 3,690,674 4,619,586 3,221,907
------------ ------------ ------------ ------------
Total interest-earning assets $ 9,773,353 $ 3,690,674 $ 4,943,523 $ 3,637,944
------------ ------------ ------------ ------------
Interest-bearing liabilities:
Certificates of deposit $ 8,731,527 $ 2,465,206 $ 1,856,111 $ 528,475
Money market deposit accounts 1,267,388 392,890 271,094 241,361
Savings accounts 516,936 310,161 263,637 388,426
NOW accounts 236,903 120,820 100,281 166,467
FHLB advances 3,250,000 -- 1,000,000 --
------------ ------------ ------------ ------------
Total interest-bearing liabilities $ 14,002,754 $ 3,289,077 $ 3,491,123 $ 1,324,729
------------ ------------ ------------ ------------
Interest sensitivity gap per period (4,229,401) 401,597 1,452,400 2,313,215
Cumulative interest
sensitivity gap (4,229,401) (3,827,804) (2,375,404) (62,189)
Cumulative gap as a percent
of total interest-earning assets (14.61)% (13.22)% (8.20)% (0.22)%
Cumulative interest sensitive
assets as a percent of cumulative
interest sensitive liabilities 69.80% 77.86% 88.57% 99.72%
[WIDE TABLE CONTINUED FROM ABOVE]
At September 30, 1996
---------------------
5 years to Over
10 years 10 years Total
----------- ----------- -----------
<S> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits $ -- $ -- $ 824,497
Investment securities, net (1) 460,395 1,957,490 5,524,054
Net loans 3,982,874 508,168 22,605,870
----------- ----------- -----------
Total interest-earning assets $ 4,443,269 $ 2,465,658 $28,954,421
----------- ----------- -----------
Interest-bearing liabilities:
Certificates of deposit $ -- $ -- $13,581,319
Money market deposit accounts 362,042 -- 2,534,775
Savings accounts 718,587 386,932 2,584,679
NOW accounts 274,670 48,471 947,612
FHLB advances 1,000,000 365,992 5,615,992
----------- ----------- -----------
Total interest-bearing liabilities $ 2,355,299 $ 801,395 $25,264,377
----------- ----------- -----------
Interest sensitivity gap per period 2,087,970 1,664,263 3,690,044
Cumulative interest
sensitivity gap 2,025,781 3,690,044
Cumulative gap as a percent
of total interest-earning assets 7.00% 12.74%
Cumulative interest sensitive
assets as a percent of cumulative
interest sensitive liabilities 108.28% 114.61%
(1) Includes both securities "Available for Sale" and "Held to Maturity". Those
securities available for sale, are included at their amortized cost.
</TABLE>
The table below sets forth the Company's total loan origination and loan
portfolio repayment and amortization experience during the periods indicated.
The Company does not purchase or sell loans in the secondary market.
<TABLE>
<CAPTION>
For the Fiscal Years Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Loans receivable, beginning of period $ 17,214,531 $ 16,135,596 $ 16,911,475
Loan originations:
Residential one-to-four family:
Adjustable-rate 3,996,080 1,928,176 1,648,650
Fixed rate 5,496,714 1,591,141 2,123,155
------------ ------------ ------------
Total residential one-to-four family 9,492,794 3,519,317 3,771,805
Residential multifamily and
Commercial real estate 367,500 100,300 --
------------ ------------ ------------
Total real estate mortgages 9,860,294 3,619,617 3,771,805
Other loans 1,976,153 344,331 143,683
------------ ------------ ------------
Total loan originations 11,836,447 3,963,948 3,915,488
Total principal repayments 5,133,010 2,885,013 4,691,367
Increase (decrease) in gross loans
receivable 6,703,437 1,078,935 (775,879)
------------ ------------ ------------
Loans receivable, end of period $ 23,917,968 $ 17,214,531 $ 16,135,596
------------ ------------ ------------
</TABLE>
The following tables set forth information relating to month-end average
balances of the Company's statements of financial condition for the fiscal years
ended September 30, 1996, 1995, and 1994, and reflect the average yields on
assets and average costs of liabilities for the periods indicated (derived by
dividing income or expense by the month-end average balance of assets or
liabilities, respectively) as well as the "net interest margin" (which reflects
the net interest divided by average interest earning assets) for the periods
shown and annualized yields on assets and annualized costs of liabilities at
September 30, 1996. Management believes that the use of month-end average
balances instead of daily average balances for the periods presented has not
caused any material difference in the information presented.
<TABLE>
<CAPTION>
Year Ended September 30, 1996 Year Ended September 30, 1995 Year Ended September 30, 1994
Average Average Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
---------- -------- ---------- ---------- --------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest bearing
deposits $1,059,049 $58,095 5.49% $1,265,725 $74,565 5.89% $2,135,710 $80,112 3.75%
Investment
securities 3,092,358 207,375 6.71% 2,150,496 136,892 6.37% 360,592 19,196 5.32%
Mortgage-backed
and mortgage-
deritive
securities 2,894,744 194,958 6.74% 2,625,455 162,644 6.19% 2,443,873 125,192 5.12%
Loans receivable,
net (1) 19,086,983 1,560,363 8.18% 15,942,140 1,268,099 7.95% 16,027,213 1,263,321 7.88%
Investment in
stock at FHLB,
at cost 211,133 14,010 6.64% 178,175 11,570 6.49% 183,267 11,174 6.10%
----------- ---------- ----------- ---------- ----------- ----------
Total interest earning
assets $26,344,267 $2,034,801 7.72% $22,161,991 $1,653,770 7.46% $21,150,655 $1,498,995 7.09%
---------- ---------- ----------
Non-interest earning
assets 663,544 499,071 516,736
----------- ----------- -----------
Total $27,007,811 $22,661,062 $21,667,391
----------- ----------- -----------
Liabilities and retained
earnings:
Interest bearing
liabilities:
Certificates of
deposit $13,017,119 $715,248 5.50% $11,936,530 $575,409 4.82% $12,134,822 $499,579 4.12%
Now and
Money Market
deposits 3,834,264 95,962 2.50% 3,627,711 93,705 2.58% 4,318,877 103,512 2.40%
Savings
accounts 2,785,658 64,984 2.33% 2,813,988 70,717 2.51% 3,111,547 78,033 2.51%
FHLB advances
and other 3,279,187 189,863 5.79% 250,000 16,585 6.63% 125,000 3,393 2.71%
----------- ---------- ----------- ---------- ---------- ----------
Total interest bearing
liabilities $22,916,228 $1,066,057 4.65% $18,628,229 $756,416 4.06% $19,690,246 $684,527 3.48%
---------- ---------- ----------
Non-interest bearing
liabilities 171,952 175,004 178,128
----------- ---------- ----------
Retained earnings 3,919,631 3,857,829 1,799,017
----------- ---------- ----------
Total $27,008,711 $22,661,062 $21,667,391
----------- ----------- -----------
Net interest income $968,744 $897,354 $814,478
Interest rate spread (2) 3.07% 3.40% 3.61%
Net interest margin (3) 3.68% 4.05% 3.85%
Ratio of average
Interest earning
assets to average
interest bearing
liabilities 114.96% 119.00% 107.40%
</TABLE>
- -------------------------
(1) Includes non-accrual loans.
(2) Interest rate spread represents the difference between the average rate on
interest earning assets and the average cost of interest.
(3) Net interest margin represents net interest income divided by average
interest earning assets.
<TABLE>
<CAPTION>
The following table sets forth the change in interest income and interest
expense for the respective periods shown.
Fiscal Year Ended Fiscal Year Ended
September 30, 1995 vs. 1996 September 30, 1994 vs. 1995
Increase/(Decrease) Increase/(Decrease)
Attributable to Attributable to
Volume Rate Net Volume Rate Net
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Deposits $(11,665) $ (4,805) $(16,470) $(40,382) $ 34,835 $ (5,547)
Investment securities 62,826 7,657 70,483 113,195 4,501 117,696
Mortgage-backed
securities 17,462 14,852 32,314 9,823 27,629 37,452
Loans receivable 254,882 37,382 292,264 (6,606) 11,384 4,778
Stock in FHLB 2,170 270 2,440 (312) 708 396
-------- -------- -------- -------- -------- --------
Total 325,675 55,356 381,031 75,718 79,057 154,775
Interest expense:
Deposits 124,451 11,922 136,373 (49,487) 108,194 58,707
FHLB borrowings 175,181 (1,913) 173,268 5,393 7,799 13,192
-------- -------- -------- -------- -------- --------
Total 299,632 10,009 309,641 (44,094) 115,993 71,899
-------- -------- -------- -------- -------- --------
Net interest income $ 26,043 $ 45,347 $ 71,390 $119,812 $(36,936) $ 82,876
-------- -------- -------- -------- -------- ---------
</TABLE>
PROXY PROXY
TSB FINANCIAL, INC.
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- JANUARY 7, 1997
The undersigned hereby appoints Roland E. Hoffman, James D. Petrov and
Dan Steiner, Jr., or any of them acting in the absence of the others, with power
of substitution, attorneys and proxies, for and in the name and place of the
undersigned, to vote the number of shares of Common Stock that the undersigned
would be entitled to vote if then personally present at the Annual Meeting of
Stockholders of TSB Financial, Inc., to be held at the main office of the
Tremont Savings Bank, located at 100 South Sampson Street, Tremont, Illinois
61568, on Tuesday, January 7, 1997, at 6:30 p.m., local time, or any
adjournments or postponements thereof, upon the matters set forth in the Notice
of Annual Meeting and Proxy Statement (receipt of which is hereby acknowledged)
as designated on the reverse side, and in their discretion, the proxies are
authorized to vote upon such other business as may come before the meeting.
|_| Check here for address change. |_| Check here if you plan to attend
the meeting.
New Address:
(Continued and to be signed on reverse side.)
1. Nominees: Roland E. Hoffman and James D. Petrov
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF ALL PROPOSALS.
2. To ratify the appointment of Geo. S. Olive & Co., LLC as independent
public accountants for the fiscal year ending September 30, 1997.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 AND 2.
Dated:_____________________________, 19
_______________________________________
Signature(s)
Please date proxy and sign it exactly as name appears hereon. Joint owners
should each sign personally. Executors, trustees, etc., should indicate their
titles when signing.
