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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _______________
Commission File Number 0-19445
SHELBY COUNTY BANCORP
(Exact name of registrant as specified in its charter)
INDIANA 35-1832715
(State or other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
29 East Washington Street
Shelbyville, Indiana 46176
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code:
(317) 398-9721
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, without par value
Common Share Purchase Rights
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of December 6, 1996, was $2,955,360.
The number of shares of the Registrant's Common Stock, without par value,
outstanding as of December 6, 1996, was 175,950 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
September 30, 1996, are incorporated into Part II. Portions of the Proxy
Statement for the 1997 Annual Meeting of Shareholders are incorporated into Part
I and Part III.
Exhibit Index on Page 36
Page 1 of 75 Pages
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SHELBY COUNTY BANCORP
Form 10-K
INDEX
Page
PART I
Item 1 Business................................................... 3
Item 2. Properties................................................. 27
Item 3. Legal Proceedings.......................................... 27
Item 4. Submission of Matters to a Vote of Security Holders........ 27
Item 4.5. Executive Officers of the Registrant....................... 27
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters.................................... 28
Item 6. Selected Financial Data.................................... 29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 29
Item 8. Financial Statements and Supplementary Data................ 30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 30
PART III
Item 10. Directors and Executive Officers of Registrant............. 30
Item 11. Executive Compensation..................................... 30
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................. 30
Item 13. Certain Relationships and Related Transactions............. 30
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K................................ 30
SIGNATURES ....................................................... 31
Item 1. Business.
General
Shelby County Bancorp (the "Holding Company") is an Indiana corporation
organized in June, 1991, to become a unitary savings and loan holding company.
The Holding Company became a unitary savings and loan holding company upon the
conversion of Shelby County Savings Bank, FSB ("SCSB") from a federal mutual
savings bank to a federal stock savings bank on October 17, 1991 (the
"Conversion"). The principal asset of the Holding Company consists of 100% of
the issued and outstanding shares of common stock, $.01 par value per share, of
SCSB. SCSB began operations in Shelbyville, Indiana and received its federal
charter in 1937. SCSB primarily serves the needs of residents of Shelby County,
Indiana.
SCSB directly, and indirectly, through its service corporation subsidiary,
offers a number of consumer and commercial financial services. These services
include: (i) residential and non-residential real estate loans; (ii) home equity
loans; (iii) auto loans; (iv) installment loans; (v) loans secured by deposits;
(vi) home improvement loans; (vii) commercial loans; (viii) NOW accounts; (ix)
consumer and commercial demand deposit accounts; (x) individual retirement
accounts; and (xi) insurance products. SCSB provides these services through its
four full-service offices, two in Shelbyville, Indiana, one in St. Paul, Indiana
and one in Morristown, Indiana. It has two automated teller machines, located at
its offices in Shelbyville. Historically, SCSB has concentrated business
activities within Shelby County.
SCSB's primary source of revenue is interest income from lending
activities, primarily the origination of residential mortgage loans. At
September 30, 1996, $47.4 million, or 65.9% of SCSB's total loan and
mortgage-backed securities portfolio consisted of mortgage loans on one-to-four
family residential real property. These loans are generally secured by first
mortgages on the property. Substantially all of the real estate loans originated
by SCSB are secured by properties located in Shelby County, although SCSB has
authority to make or purchase real estate loans throughout the United States.
SCSB's portfolio of mortgage-backed securities constituted 7.3% of its total
loan and mortgage-backed securities portfolio at September 30, 1996.
Multi-family loans constituted 4.7% of SCSB's loan and mortgage-backed
securities portfolio at September 30, 1996.
SCSB also makes non-residential real estate loans which totaled $10.4
million at September 30, 1996, or 14.5% of SCSB's total loan and mortgage-backed
securities portfolio. All other loans, including residential construction, home
equity and improvement, installment, auto loans, loans secured by deposits and
commercial loans, totaled $10.7 million, or 14.9% of SCSB's total loan and
mortgage-backed securities portfolio, at September 30, 1996.
In the early 1980s, most savings associations' loan portfolios consisted of
long-term, fixed-rate loans, which then carried low interest rates. At the same
time, most savings associations had to pay competitive and high market interest
rates on deposits in order to be competitive and maintain deposit accounts. This
resulted in a "negative" interest spread. SCSB experienced these problems, but
responded to them as changes in regulations over the period permitted, and it
has thus been quite successful in managing its interest rate risk. Among its
strategies are an emphasis on originating adjustable-rate mortgages, short-term
consumer loans, and adjustable rate home equity loans. Additionally, SCSB
attempts to lengthen liability repricing periods by aggressively pricing longer
term certificates of deposit during periods of relatively low interest rates.
Lending Activities
Loan Portfolio Data. The following table sets forth the composition of
SCSB's loan portfolio by loan type and security type as of the dates indicated,
including a reconciliation of gross loans receivable and mortgage-backed
securities after consideration of the allowance for possible loan losses and
deferred net loan fees on loans.
At September 30,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------- ----------------- ------------------ ---------------- ------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
TYPE OF LOAN
Mortgage loans:
One-to-four family ......... $42,131 58.65% $33,961 61.11% $32,762 66.84% $32,936 66.58% $33,145 80.79%
Mortgage-backed
securities ............... 5,216 7.26 4,649 8.37 5,470 11.16 7,403 14.97 360 .88
Residential construction ... 1,003 1.39 545 .98 506 1.03 357 .72 251 .61
Multi-family ............... 3,406 4.74 2,606 4.69 1,863 3.80 1,743 3.52 1,148 2.80
Non-residential ............ 10,418 14.50 7,415 13.34 4,577 9.34 3,988 8.06 3,281 8.00
Home equity loans .......... 740 1.03 591 1.06 416 .85 520 1.05 653 1.59
Consumer loans:
Installment loans .......... 2,494 3.47 1,200 2.16 900 1.84 953 1.93 758 1.85
Auto loans ................. 3,423 4.76 2,466 4.44 1,175 2.40 955 1.93 1,095 2.66
Home improvement loans ..... -- -- 38 .07 3 .00 10 .02 24 .06
Loans secured by deposits .. 169.24 189.34 324.66 127.26 108.26
Commercial loans .............. 2,838 3.95 1,916 3.44 1,021 2.08 476 .96 204 .50
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans receivable and
mortgage-backed securities $71,838 100.00% $55,576 100.00% $49,017 100.00% $49,468 100.00% $41,027 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
TYPE OF SECURITY
One-to-four family (1) ........ $49,090 68.33% 39,240 70.61% $38,651 78.85% $40,869 82.62% $34,182 83.32%
Non-residential real estate ... 10,418 14.50 7,415 13.34 4,577 9.34 3,988 8.06 3,281 8.00
Multi-family .................. 3,406 4.74 2,606 4.69 1,863 3.80 1,743 3.52 1,148 2.80
Autos ......................... 3,423 4.76 2,466 4.44 1,175 2.40 955 1.93 1,095 2.66
Deposits ...................... 169 .24 189 .34 324 .66 127 .26 108 .26
Other security ................ 3,010 4.19 2,261 4.07 1,566 3.19 1,585 3.20 778 1.90
Unsecured ..................... 2,322 3.24 1,399 2.51 861 1.76 201 .41 435 1.06
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Gross loans receivable and
mortgage-backed securities $71,838 100.00% $55,576 100.00% $49,017 100.00% $49,468 100.00% $41,027 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
Deduct:
Allowance for possible
losses on loans .......... 326 .45% $ 241 .43% $ 189 .39% $ 141 .28% $ 128 .31%
Deferred net loan fees .... 198 .28 206 .37 222 .45 227 .46 134 .33
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Net loans receivable including
mortgage-backed securities $71,314 99.27% $55,129 99.20% $48,606 99.16% $49,100 99.26% $40,765 99.36%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
(1) Includes mortgage-backed securities, home equity loans and home improvement
loans.
SCSB's portfolio includes no highly leveraged transaction loans. SCSB does
not intend to make such loans in the future. The following table sets forth
certain information at September 30, 1996, regarding the dollar amount of loans
maturing in SCSB's loan portfolio based on the due date of each payment. Demand
loans having no stated schedule of repayments and no stated maturity are
reported as due in one year or less. This schedule does not reflect the effects
of possible prepayments or enforcement of due-on-sale clauses. Management
expects prepayments will cause actual maturities to be shorter.
Balance Due during years ended September 30,
Outstanding 1999 2001 2006 2011
September 30, to to to and
1996 1997 1998 2000 2005 2010 following
-------------------------------------------------------------------------------
(In thousands)
Mortgages:
Residential one-to-four
family mortgage loans...... $42,131 $ 2,647 $1,891 $1,944 $4,147 $11,451 $20,051
Mortgage-backed securities... 5,216 775 797 1,468 1,850 250 76
Residential construction..... 1,003 1,003 --- --- --- --- ---
Multi-family loans........... 3,406 240 261 309 379 1,074 1,143
Non-residential.............. 10,418 1,449 858 532 991 2,957 3,631
Home equity.................. 740 114 97 151 216 94 68
Consumer loans:
Home improvement loans....... --- --- --- --- --- --- ---
Auto......................... 3,423 1,119 891 731 649 33 ---
Installment loans............ 2,494 1,893 218 136 110 137 ---
Loans secured by deposits.... 169 118 16 14 20 1 ---
Commercial loans ............. 2,838 1,759 298 265 314 202 ---
------- ------- ------ ------ ------ ------- -------
Gross loans receivable and
mortgage-backed securities. $71,838 $11,117 $5,327 $5,550 $8,676 $16,199 $24,969
======= ======= ====== ====== ====== ======= =======
The following table sets forth, as of September 30, 1996, the dollar amount
of all loans due after one year which have fixed interest rates and floating or
adjustable interest rates.
Due After September 30, 1997
Fixed Rates Variable Rates Total
----------- -------------- -----
(In thousands)
Mortgages:
Residential one-to-four family
mortgage loans.............................. $37,200 $2,350 $39,550
Mortgage-backed
securities.................................. 4,095 326 4,421
Multi-family loans............................ 2,414 752 3,166
Non-residential............................... 1,105 7,864 8,969
Home equity .................................. --- 629 629
Consumer loans:
Home improvement loans........................ --- --- ---
Auto.......................................... 2,304 --- 2,304
Installment loans............................. 601 --- 601
Loans secured by deposits..................... 51 --- 51
Commercial loans ............................ 1,079 --- 1,079
------- ------- -------
Total....................................... $48,849 $11,921 $60,770
======= ======= =======
Residential Loans. Approximately $47.4 million, or 65.9% of SCSB's total
loan and mortgage-backed securities portfolio at September 30, 1996, consisted
of one-to-four family mortgage loans, of which approximately 91.1% had
fixed-rates. Such loans are generally not written on terms that are in
conformity with the standard underwriting criteria of the Federal Home Loan
Mortgage Corporation ("FHLMC") or the Federal National Mortgage Association
("FNMA"), thereby making resale of such loans difficult. See "--Origination,
Purchase and Sale of Loans." SCSB's fixed-rate mortgages generally have terms of
15, 20, 25 or 30 years.
SCSB began originating adjustable rate mortgages in April 1988. As of
September 30, 1996, approximately 8.9% of the mortgage loans on one-to-four
family residences included in SCSB's loan and mortgage-backed securities
portfolio had adjustable rates. The adjustment for all of SCSB's adjustable rate
mortgage loans is indexed to U.S. Treasury securities. Such loans have interest
rates which adjust annually, with maximum rate changes of 2.0% per adjustment.
These loans have terms of 25 years.
The rates offered on SCSB's adjustable rate and fixed-rate residential
mortgage loans are competitive with the rates offered by other mortgage lenders
in SCSB's market area.
Although SCSB's residential mortgage loans are written for amortization
terms up to 30 years, due to prepayments and refinancings, its residential
mortgage loans generally have remained outstanding for a substantially shorter
period of time than the maturity terms of the loan contracts.
Substantially all of the residential mortgage loans that SCSB has
originated since 1987 include "due on sale" clauses, which give SCSB the right
to declare a loan immediately due and payable in the event that, among other
things, the borrower sells or otherwise disposes of the real property subject to
the mortgage and the loan is not repaid. SCSB requires private mortgage
insurance on all conventional residential single-family mortgage loans with
loan-to-value ratios in excess of 89%. SCSB will not lend more than 95% of the
lower of current cost or appraised value of a residential single family
property. At September 30, 1996, residential mortgage loans amounting to
247,000, or .3% of SCSB's total loan and mortgage-backed securities portfolio,
were included in non-performing assets.
SCSB offers residential construction loans only in conjunction with
residential mortgage loans. Interest is charged on the money disbursed under the
loan. After the construction phase (typically 3 to 12 months), SCSB makes a
mortgage loan, the proceeds of which are used to pay off the construction loan.
At September 30, 1996, SCSB had $1.0 million, or 1.4% of its total loan and
mortgage-backed securities portfolio, in residential construction loans
outstanding.
Mortgage-Backed Securities. As of September 30, 1996, $5.2 million, or 7.3%
of SCSB's total loan and mortgage-backed securities portfolio consisted of
mortgage-backed securities. These mortgage-backed securities had an estimated
market value of $4.9 million at September 30, 1996. Management has classified
these securities into held to maturity and available for sale portfolios in
accordance with Statement of Financial Accounting Standards No 115, "Accounting
for Certain Investments in Debt and Equity Securities."
Non-Residential Real Estate Loans. At September 30, 1996, $10.4 million, or
14.5%, of SCSB's total loan and mortgage-backed securities portfolio consisted
of mortgage loans secured by non-residential real estate. The non-residential
mortgage loans, substantially all adjustable rate, are written for terms not
exceeding 25 years, and generally require a 70% or lower loan-to-value ratio.
The largest non-residential mortgage loan as of September 30, 1996, had a
balance of $522,000. At that date, all of SCSB's non-residential mortgage loans
consisted of loans secured by real estate located in Indiana.
Under the Financial Institutions Reform, Recovery, and Enforcement Act
("FIRREA"), a savings association's portfolio of non-residential real estate
loans is limited to 400% of its capital. In addition, the application of the
Qualified Thrift Lender ("QTL") test has had the effect of limiting the
aggregate investment in non-residential real estate loans made by SCSB. See
"Regulation -- Qualified Thrift Lender." SCSB currently complies with the
non-residential real estate loan limitations.
Generally, non-residential mortgage loans involve greater risk than do
residential loans. Non-residential mortgage loans typically involve larger loan
balances to single borrowers or groups of related borrowers. In addition, the
payment experience on loans received by income-producing properties is typically
dependent on the successful operation of the related project and thus may be
subject to adverse conditions in the real estate market or in the economy in
general.
Multi-Family Loans. At September 30, 1996, $3.4 million, or 4.7%, of SCSB's
total loan and mortgage-backed securities portfolio consisted of mortgage loans
secured by multi-family dwellings (those consisting of more than four units).
All of SCSB's multi-family loans are secured by apartment complexes located in
Shelby County. The largest such multi-family mortgage loan as of September 30,
1996, had a balance of $574,000 and none of these loans was non-performing at
that time. As with SCSB's non-residential real estate loans, multi-family
mortgage loans are substantially all adjustable rate loans, are written for
terms not exceeding 25 years, and require at least a 75% loan-to-value ratio.
Multi-family loans, like non-residential real estate loans, involve a
greater risk than do residential loans. See "Non-Residential Real Estate Loans"
above. Also, the more stringent loans-to-one borrower limitation, described
below in "Origination, Purchase and Sale of Loans," limits the ability of SCSB
to make loans to developers of apartment complexes and other multi-family units.
Home Equity Loans. SCSB markets a home equity line of credit loan. The
maximum loan-to-value ratio for such loans is 80%, and the minimum draw on a
home equity line of credit is $250. As of September 30, 1996, SCSB had $740,000
outstanding home equity loans, or 1.0% of its total loan and mortgage-backed
securities portfolio, with $547,000 of additional credit available to its
borrowers under existing home equity lines of credit. Home equity line of credit
loans are adjustable rate loans, indexed to the base rate on corporate loans at
large U.S. money center commercial banks that the Wall Street Journal publishes
as the Prime Rate.
Consumer Loans. Federal laws and regulations permit federally chartered
savings associations to make secured and unsecured consumer loans in an
aggregate amount of up to 35% of the association's total assets. In addition, a
federally chartered savings association has lending authority above the 35%
limit for certain consumer loans, such as property improvement loans and deposit
account secured loans. However, the QTL test places additional limitations on a
savings association's ability to make consumer loans. See "Regulation --
Qualified Thrift Lender."
In the spring of 1989, SCSB, as part of its strategy of becoming a
community bank for Shelby County, hired a Vice President --Consumer Loans to
guide SCSB's entry into the consumer loan area. By September 30, 1996,
approximately seven and one-half years after SCSB began making consumer loans,
these loans, consisting primarily of auto, installment, loans secured by
deposits and home improvement loans, were $6.1 million, or approximately 8.5% of
SCSB's total loan and mortgage-backed securities portfolio. Although consumer
loans are currently only a small portion of its lending business, SCSB
consistently originates consumer loans to meet the needs of its customers, and
SCSB intends to originate more such loans to assist in meeting its
asset/liability management goals.
Although consumer loans generally involve a higher level of risk than
one-to-four family residential mortgage loans, their relatively higher yields
and shorter terms to maturity are believed to be helpful in reducing the
interest-rate risk of SCSB's portfolio. At September 30, 1996, no consumer loans
were included in non-performing assets.
SCSB's portfolio of automobile loans was $3.4 million, or 4.8% of its total
loan and mortgage-backed securities portfolio at September 30, 1996. These loans
are for a maximum term of 66 months, and the borrower must provide proof of
insurance.
Installment loans, loans secured by deposits and home improvement loans
totaled $2.7 million, or 3.7% of SCSB's total loan and mortgage-backed
securities portfolio at September 30, 1996.
Commercial Loans. SCSB makes a limited number of secured commercial loans.
At September 30, 1996, these loans, which included inventory financing for a
lawn and garden equipment supplier, totaled $2.8 million, or 3.9% of SCSB's
total loan and mortgage-backed securities portfolio. All commercial loans are
currently performing under their original terms.
Origination, Purchase and Sale of Loans. SCSB currently does not originate
its residential mortgage loans in conformity with the standard criteria of the
FHLMC or FNMA. SCSB would therefore experience some difficulty selling such
loans in the secondary market, although most loans could be brought into
conformity. SCSB has no intention, however, of attempting to sell such loans.
SCSB's mortgage loans vary from secondary market criteria because SCSB
capitalizes taxes rather than using escrow accounts. This practice allows SCSB
to keep its administrative costs down and have thus provided SCSB with the
competitive advantage of being able to make mortgage loans without charging
points. However, SCSB's inability to quickly and easily sell its residential
mortgage loans may subject SCSB to increased interest rate risk (since most of
SCSB's residential mortgage loans have fixed rates) and could adversely affect
SCSB's liquidity position during periods of rising interest rates.
Although SCSB currently has authority to lend anywhere in the United
States, it has confined its loan origination activities primarily to Shelby
County, Indiana. SCSB's loan originations are generated from referrals from
builders, developers, real estate brokers and existing customers, newspaper,
radio and periodical advertising, and walk-in customers. Loans are originated at
either the main or branch office. All loan applications are processed and
underwritten at SCSB's main office.
Under FIRREA, a savings association generally may not make any loan to a
borrower or its related entities if the total of all such loans by the savings
association exceeds 15% of its capital (plus up to an additional 10% of capital
in the case of loans fully collateralized by readily marketable collateral);
provided, however, that loans up to $500,000 regardless of the percentage
limitations may be made and certain housing development loans of up to $30
million or 30% of capital, whichever is less, are permitted. The maximum amount
which SCSB could have loaned to one borrower and the borrower's related entities
under the 15% of capital limitation was $788,770 at September 30, 1996. SCSB's
portfolio of loans and mortgage-backed securities currently contains no group of
loans-to-one- borrower that in the aggregate exceed the 15% of capital
limitation.
SCSB's loan approval process is intended to assess the borrower's ability
to repay the loan, the viability of the loan and the adequacy of the value of
the property that will secure the loan. SCSB studies the employment and credit
history and information on the historical and projected income and expenses of
its individual and corporate mortgagors to assess their ability to repay its
mortgage loans. It uses an independent appraiser to appraise the property
securing its loans and requires title insurance and a valid lien on its
mortgaged real estate. Generally, appraisals on real estate underlying most real
estate loans in excess of $100,000 are required to be performed by either
state-licensed or state-certified appraisers, depending on the type and size of
the loan. SCSB requires fire and extended coverage insurance in amounts at least
equal to the principal amount of the loan. It may also require flood insurance
to protect the property securing its interest. SCSB generally makes
disbursements for taxes and insurance on the borrower's behalf, adding the
amount of such disbursements to the principal of the loan.
SCSB applies consistent underwriting standards to the several types of
consumer loans it makes to protect SCSB adequately against the risks inherent in
making such loans. Borrower character, paying habits, net worth and underlying
collateral are important considerations.
SCSB does not sell and rarely purchases loans. SCSB may enter into
participations to diversify its portfolio, to supplement local loan demand and
to obtain more favorable yields. During the year ended September 30, 1992, SCSB
acquired a $114,000 participation in a mobile home park in Shelby County. During
the year ended September 30, 1993, SCSB acquired additional $182,000
participation in the same mobile home park. During the year ended September 30,
1996, SCSB acquired an additional $366,000 in loan participations. As of
September 30, 1996, SCSB held in its loan and mortgage-backed securities
portfolio 12 participations. SCSB's portion of the outstanding balance of such
participations on that date was $2,770,000.
The following table shows loan origination, purchase, sale and repayment
activity for SCSB during the periods indicated:
Year Ended September 30,
1996 1995 1994
------- ------- -------
(In thousands)
Gross loans receivable and
mortgage-backed securities
at beginning of period ............... $55,576 $49,017 $49,468
------- ------- -------
Originations:
First mortgage loans:
Residential ........................ 17,084 8,024 7,772
Non-residential .................... 3,087 2,319 1,896
Miscellaneous additions ............ 271 1,583 7,251
------- ------- -------
Total first mortgage loans ..... 20,442 11,926 10,393
------- ------- -------
Consumer loans:
Installment loans .................. 10,302 6,335 4,342
Loans secured by deposits .......... 72 273 392
Miscellaneous additions ............ -- -- --
------- ------- -------
Total consumer loans ........... 10,374 6,608 4,734
------- ------- -------
Commercial loans ..................... 3,920 2,187 1,247
------- ------- -------
Total originations ............. 34,736 20,721 16,374
------- ------- -------
Purchases:
Mortgage-backed securities ........... 2,650 200 5,511
First mortgage loans ................. 1,636 388 22
------- ------- -------
Total originations and purchases 39,022 21,309 21,907
------- ------- -------
Sales:
First mortgage loans ................. -- -- --
Mortgage-backed securities ........... 1,017 485 7,094
------- ------- -------
Total sales ........................ 1,017 485 7,094
------- ------- -------
Repayments and other deductions ......... 21,743 14,265 15,264
------- ------- -------
Gross loans receivable and
mortgage-backed securities
at end of period ..................... $71,838 $55,576 $49,017
======= ======= =======
Origination and Other Fees. SCSB realizes income from fees for originating
loans, late charges, checking account service charges, and fees for other
miscellaneous services, including cashier's checks. In order to increase its
competitive position with respect to other mortgage lenders, SCSB currently does
not charge points and charges a flat mortgage origination fee of $300, not
dependent on the size of the loan, payable at loan closing. Late charges are
assessed if payment is not received within a specified number of days after it
is due.
SCSB charges miscellaneous fees for appraisals, inspections (including a 1%
inspection fee for construction loans), obtaining credit reports, certain loan
applications, recording and similar services. SCSB also collects fees for Visa
and Mastercard applications which it refers to another institution. SCSB does
not make credit card loans directly.
Non-Performing Assets
Mortgage loans are reviewed by SCSB on a regular basis and are generally
placed on a non-accrual status when the loans become contractually past due 90
days or more. Once a mortgage loan is fifteen days past due, a notice of
delinquency is mailed to the borrower. Telephone contact with the borrower is
made, and another written notice follows at the end of the month, with a demand
to pay-in-full notice sent on the 32nd day. SCSB attempts to arrange a personal
interview after a loan has been delinquent for two months. When the loan is 75
days delinquent, a title search or abstract update is ordered. By the time a
mortgage loan is 90 days past due, management has decided whether to foreclose.
Further, the loan status is reported to the Board of Directors. The Board of
Directors normally confers foreclosure authority at that time, but management
may continue to work with the borrower if circumstances warrant.
Consumer and commercial loans other than mortgage loans are treated
similarly. It is SCSB's policy to recognize losses on these loans as soon as
they become apparent. The Board will determine whether to charge off a loan by
the time it is four months past due.
At September 30, 1996, $247,000, or .30%, of SCSB's total assets were
non-performing.
At September 30, 1996, SCSB did not have any real estate acquired as a
result of foreclosure, voluntary deed, or other means. When SCSB has such real
estate, it is classified as "real estate owned" or "REO" until it is sold. When
property is so acquired, it is recorded at the lower of the unpaid principal
balance at the date of acquisition plus foreclosure and other related costs or
at fair value. Interest accrual ceases no later than the date of acquisition and
all costs incurred from that date in maintaining the property are expensed.
The table below sets forth the amounts and categories of SCSB's
non-performing assets (non-accrual loans, real estate owned and troubled debt
restructurings) for the last three years. It is the policy of SCSB that all
earned but uncollected interest on all loans be reviewed monthly to determine if
any portion thereof should be classified as uncollectible for any loan past due
in excess of 90 days.
Year Ended September 30,
1996 1995 1994
-------------------------------------------
(In thousands)
Non-performing assets:
Non-accrual loans (1) ............................... $247 $454 $541
Real estate owned - net................................ --- --- 205
Troubled debt restructurings........................... --- --- ---
---- ---- ----
Total non-performing assets.......................... $247 $454 $541
==== ==== ====
Non-performing assets to total assets..................... .30% 0.67% 0.95%
==== ==== ====
- ----------
(1) SCSB generally places loans on a nonaccrual status when the loans become
contractually past due 90 days or more. At September 30, 1996, all
$247,000 of nonaccrual loans were residential loans. For the fiscal years
ended September 30, 1996, 1995 and 1994, the income that would have been
recorded had the non-accrual loans not been in a non-performing status
was approximately $15,585, $38,529, and $52,729, respectively, compared
to actual income recorded of $8,696, $8,195 and $10,151, respectively.
As of September 30, 1996, SCSB held loans delinquent from 30 to 89 days
aggregating $2,030,000, or 2.5% of total assets. The amount past due on such
loans aggregated approximately $35,000. Management does not believe that the
amount of delinquent loans represents a material deterioration of SCSB's loan
portfolio. SCSB is not aware of any loans not classified as non-accrual or
delinquent of which the borrowers were experiencing financial difficulties.
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained through the provision
for losses on loans, which is charged to earnings. The provision is determined
in conjunction with management's review and evaluation of current economic
conditions (including those of SCSB's lending area), changes in the character
and size of the loan portfolio, loan delinquencies (current status as well as
past and anticipated trends) and adequacy of collateral securing loan
delinquencies, historical and estimated net charge-offs, and other pertinent
information derived from a review of the loan portfolio. Loans or portions
thereof are charged to the allowance when losses are considered probable. In
management's opinion, SCSB's allowance for possible loan losses is adequate to
absorb anticipated future losses from loans at September 30, 1996.
The following table analyzes changes in the allowance during the three
years ended September 30, 1996.
Year Ended September 30,
-------------------------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
Balance of allowance at beginning of period............... $241,094 $188,879 $140,998
Add:
Provision for loan losses.............................. 100,000 55,000 66,000
Recoveries of loans previously charged off............ 329 --- 2,828
Less gross charge-offs:
Residential real estate loans.......................... --- --- 4,354
Consumer loans......................................... 15,523 2,785 16,593
-------- -------- --------
Net charge-offs...................................... 15,523 2,785 18,119
-------- -------- --------
Balance of allowance at end of period..................... $325,900 $241,094 $188,879
======== ======== ========
Net charge-offs to total average loans outstanding........ .02% .01% .04%
======== ======== ========
Allowance at end of period to
total average loans outstanding........................ .45% .51% .38%
======== ======== ========
In management's opinion, SCSB's allowance for possible loan losses at
September 30, 1996, is adequate to absorb anticipated future losses from
nonperforming and other loans.
Investments
SCSB's investment portfolio consists of corporate and municipal bonds,
banker acceptances and investments in Federal Home Loan Bank ("FHLB") time and
demand deposits and stock. At September 30, 1996, approximately $7.8 million, or
9.5%, of SCSB's total assets consisted of such investments.
The following table sets forth the carrying value (cost for held to
maturity investments and market for available for sale investments) of SCSB's
investment portfolio at the dates indicated.
Year Ended September 30,
------------------------------------------------
1996 1995 1994
------ ------ ------
(In thousands)
Government trust mutual fund ........................... $ --- $ --- $ ---
Banker Acceptances........................................ --- 633 ---
Federal Home Loan Bank time and
demand accounts ................................... 3,880 6,428 2,989
Municipal and corporate bonds............................. 2,515 1,484 2,698
Federal Home Loan Bank stock.............................. 620 409 409
Other..................................................... 818 443 418
------ ------ ------
Total investments...................................... $7,833 $9,397 $6,514
====== ====== ======
The following table sets forth the amount of investment securities which mature
during each of the periods indicated and the weighted average yields for each
range of maturities at September 30, 1996.
Amount at September 30, 1996 which matures in
----------------------------------------------------------------------------
One Year or Less, One Year to Five Years, Over Ten Years
--------------------- ----------------------- ----------------------
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- -----
(In thousands)
FHLB time and demand accounts $3,879 4.62% $ --- ---% $--- ---%
Municipal and corporate bonds --- --- 2,597 7.45 --- ---
Banker Acceptances --- --- --- --- --- ---
Federal regulations require an FHLB-member savings association to maintain
an average daily balance of liquid assets equal to a monthly average of not less
than a specified percentage of its net withdrawable savings deposits plus
short-term borrowings. Liquid assets include cash, certain time deposits,
certain bankers' acceptances, specified U.S. government, state or federal agency
obligations, certain corporate debt securities, commercial paper, certain mutual
funds, certain mortgage-related securities, and certain first lien residential
mortgage loans. This liquidity requirement may be changed from time to time by
the OTS to any amount within the range of 4% to 10%, and is currently 5%. Also,
a savings association currently must maintain short-term liquid assets
constituting at least 1% of its average daily balance of net withdrawable
deposit accounts and current borrowings. Monetary penalties may be imposed for
failure to meet these liquidity requirements. At September 30, 1996, SCSB had
liquid assets of $5.3 million, and a regulatory liquidity ratio of 8.1%, of
which 100.00% were short-term investments.
Sources Of Funds
General. Deposits have traditionally been SCSB's primary source of funds
for use in lending and investment activities. In addition to deposits, SCSB
derives funds from loan amortization, prepayments, retained earnings and income
on earning assets. While loan amortization and income on earning assets are
relatively stable sources of funds, deposit inflows and outflows can vary widely
and are influenced by prevailing interest rates, market conditions and levels of
competition.
Deposits. Deposits are attracted, principally from within Shelby County,
through the offering of a broad selection of deposit instruments including NOW
accounts, fixed-rate certificates of deposit, individual retirement accounts,
and savings accounts. SCSB does not actively solicit or advertise for deposits
outside of Shelby County, although deposits at the St. Paul branch may come from
neighboring Decatur County and certain advertising media may extend into other
nearby areas. Substantially all of SCSB's depositors are residents of Shelby
County. Deposit account terms vary, with the principal differences being the
minimum balance required, the amount of time the funds remain on deposit and the
interest rate. Although SCSB has accepted a limited number of brokered deposits
in the past (for which it paid no commissions), SCSB does not solicit such
deposits and does not anticipate accepting such deposits in the future.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by SCSB on a periodic basis. Determination of rates and terms
are predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals, and federal regulations.
An analysis of SCSB deposit accounts by type, maturity, and rate at
September 30, 1996, is as follows:
Minimum Balance at Weighted
Opening September 30, % of Average
Type of Account Balance 1996 Deposits Rate
--------------- ------- ---- -------- ----
(Dollars in thousands)
Withdrawable:
Savings accounts......................... $ 25 $10,028 15.36% 2.82%
NOW...................................... 100 13,533 20.73 2.15
------- ------
Total withdrawable.......................... 23,561 36.09
------- ------
Certificates (original terms):
31 days.................................. 2,500 74 .11 3.40
3 months................................. 1,000 446 .68 4.50
6 months................................. 1,000 7,984 12.23 5.46
12 months................................ 500 3,134 4.80 5.36
18 months................................ 500 1,147 1.76 5.61
30 months................................ 500 5,150 7.89 5.45
48 months................................ 500 2,444 3.75 6.01
60 months................................ 500 11,241 17.22 6.67
72 months................................ 1,000 --- --- ---
96 months................................ 1,000 --- --- ---
IRA's
31 days.................................. 2,500 --- --- ---
6 months................................. 1,000 133 .21 5.51
12 months................................ 500 98 .15 5.40
18 months................................ 500 55 .08 5.50
30 months................................ 500 538 .82 5.58
48 months................................ 500 22 .03 5.74
60 months................................ 500 2,627 4.02 6.60
96 months................................ 1,000 --- --- ---
Jumbo certificates.......................... 100,000 6,632 10.16 6.52
------- ------
Total certificates....................... 41,725 63.91
------- ------
Total deposits........................... $65,286 100.00%
======= ======
The following table sets forth by various interest rate categories the
composition of time deposits of SCSB at the dates indicated:
At September 30,
-------------------------------------------
1996 1995 1994
------- ------- -------
(In thousands)
Under 5%................... $ 5,374 $6,987 $15,153
5.01 - 7.00%............... 33,106 29,107 9,244
7.01 - 9.00%............... 3,245 3,265 1,231
9.01 - 11.00%.............. --- --- ---
11.01% and over............ --- --- ---
------- ------- -------
Total.................... $41,725 $39,359 $25,628
======= ======= =======
The following table represents, by various interest rate categories, the
amounts of time deposits maturing during each of the three years following
September 30, 1996. Matured certificates which have not been renewed as of
September 30, 1996, have been allocated based upon certain rollover assumptions.
Amounts At
September 30, 1996, Maturing in
-----------------------------------------------------------
One Year Two Three Greater Than
or Less Years Years Three Years
------- ----- ----- -----------
(In thousands)
Under 5%....................... $5,912 $ 40 $ 142 $ ---
5.01 - 7.00 %.................. 13,861 6,541 2,244 10,460
7.01 - 9.00%................... 340 15 198 2,692
9.01 - and over................ --- --- --- ---
------- ------ ------ -------
Total....................... $19,393 $6,596 $2,584 $13,152
======= ====== ====== =======
The following table indicates the amount of SCSB's jumbo certificates of
deposit of $100,000 or more by time remaining until maturity as of September 30,
1996.
Maturity (In thousands)
Three months or less............................. $1,042
Greater than three months
through six months.......................... 726
Greater than six months
through twelve months....................... 305
Over twelve months............................... 4,559
------
Total....................................... $6,632
======
The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by SCSB at the dates indicated, and
the amount of increase or decrease in such deposits as compared to the previous
period.
Deposit Activity
Increase Increase
(Decrease) (Decrease)
Balance at from Balance at from Balance at
September 30, % of September 30, September 30, % of September 30, September 30, % of
1996 Deposits 1995 1995 Deposits 1994 1994 Deposits
---- -------- ---- ---- -------- ---- ---- --------
(Dollars in thousands)
Withdrawable:
Savings accounts..... $10,028 15.36% $ 101 $ 9,927 16.22% $(3,855) $13,782 26.99%
NOW.................. 13,533 20.73 1,617 11,916 19.47 258 11,658 22.83
------- ------ ------ ------- ------ ------- ------- ------
Total withdrawable. 23,561 36.09 1,718 21,843 35.69 (3,597) 25,440 49.82
------- ------ ------ ------- ------ ------- ------- ------
Certificates (original terms):
31 days.............. 74 .11 51 23 .04 (14) 37 .07
3 months............. 446 .68 249 197 .32 68 129 .25
6 months............. 7,984 12.23 (1,006) 8,990 14.69 5,637 3,353 6.57
12 months............ 3,134 4.80 1,083 2,051 3.35 35 2,016 3.95
18 months............ 1,147 1.76 370 777 1.27 57 720 1.41
30 months............ 5,150 7.89 (90) 5,240 8.56 (702) 5,942 11.64
48 months............ 2,444 3.75 (207) 2,651 4.33 42 2,609 5.11
60 months............ 11,241 17.22 936 10,305 16.84 4,923 5,382 10.54
72 months............ --- --- (30) 30 .05 2 28 .05
96 months............ --- --- (2) 2 .01 (212) 214 .42
IRA's
31 days.............. --- --- --- -- -- -- -- --
6 months............. 133 .21 32 101 .16 74 27 .05
12 months............ 98 .15 79 19 .03 (91) 110 .22
18 months............ 55 .08 8 47 .08 (20) 67 .13
30 months............ 538 .82 (86) 624 1.02 (280) 904 1.77
48 months............ 22 .03 (1) 23 .04 (3) 26 .05
60 months............ 2,627 4.02 958 1,669 2.73 728 941 1.84
96 months............ --- --- --- -- -- (21) 21 .04
Jumbo certificates...... 6,632 10.16 22 6,610 10.78 3,508 3,102 6.07
------- ------ ------ ------- ------ ------- ------- ------
Total certificates... 41,725 63.91 2,366 39,359 64.31 13,731 25,628 50.18
------- ------ ------ ------- ------ ------- ------- ------
Total deposits....... $65,286 100.00% $4,084 $61,202 100.00% $10,134 $51,068 100.00%
======= ====== ====== ======= ====== ======= ======= ======
Borrowings. Generally, SCSB focuses on generating high quality loans and then
funds such loans from deposits and investments. SCSB may obtain advances from
the FHLB of Indianapolis to supplement its supply of lendable funds. See
"Regulation -- Federal Home Loan Bank System" and "--Qualified Thrift Lender."
These limitations are not expected to have any impact on SCSB's ability to
borrow from the FHLB of Indianapolis. At September 30, 1996, SCSB had
approximately $10.1 million in borrowings outstanding, of which approximately
$9.7 million were FHLB advances. SCSB does not anticipate any problem obtaining
addtional advances appropriate to meet its requirements in the future, if such
advances should become necessary.
Asset/Liability Management
SCSB, like other savings associations, is subject to interest rate risk to
the degree that its interest-bearing liabilities, primarily deposits with short
and medium-term maturities, mature or reprice more rapidly than its
interest-earning assets. Although having liabilities that mature or reprice more
frequently on average than assets will be beneficial in times of declining
interest rates, such an asset/liability structure will result in lower net
income during periods of rising interest rates, unless offset by other factors
such as non-interest income. Therefore, a key element of SCSB's asset/liability
plan is to protect net earnings from changes in interest rates by reducing the
maturity or repricing mismatch between its interest-earning assets and
rate-sensitive liabilities.
Principal elements of SCSB's asset/liability management strategy include
the origination of residential and small commercial mortgage loans with
adjustable interest rates and increasing the origination of consumer loans. For
example, SCSB has increased its adjustable rate mortgages from $107,000 at
September 30, 1987, to $6,021,000 at September 30, 1996. Consumer lending was
initiated in March 1989 and had a balance of $6,146,000 at September 30, 1996.
The difference between SCSB's assets and liabilities having maturities and
repricing periods of one year or less ("Interest Rate Gap") was negative 12.71%
at September 30, 1996. A negative Interest Rate Gap leaves SCSB's earnings
vulnerable to periods of rising interest rates because during such periods the
interest expense paid on liabilities will generally increase more rapidly than
the interest income earned on assets. Conversely, in a falling interest rate
environment, the total expense paid on liabilities will generally decrease more
rapidly than the interest income earned on assist. A positive Interest Rate Gap
will have the opposite effect. During the years ended September 30, 1990, and
1989, SCSB's negative Interest Rate Gap did not result in increased net interest
income even though interest rates were falling. During that period of time, the
expected decrease in the average rate paid on deposits due to falling interest
rates was offset by depositors reinvesting their time deposits from lower-rate
short-term certificates to higher-rate long-term certificates. Additionally, new
deposit customer accounts were attracted to the higher rate certificates. Net
interest income during that period was also reduced because a significant
portion of the increased funds derived from deposits was invested in short-term
interest-earning instruments with a lower yield than long-term fixed-rate loans.
During the years ended September 30, 1991 through and including September 30,
1996 interest income was positively affected by falling interest rates.
SCSB has used a portion of the proceeds from the conversion to originate
both consumer loans and adjustable rate mortgages, which have assisted in the
management of Interest Rate Gap. Recently, the demand for adjustable-rate
mortgage loans in SCSB's lending area has decreased and customers have sought
fixed-rate loans due to the relatively low long-term interest rates. SCSB
remains committed to originating adjustable rate mortgage loans, although market
conditions may require that it originate more fixed rate mortgages in the
future. SCSB will respond to a continued stronger demand for fixed-rate loans by
emphasizing longer-term deposits and the purchase of adjustable-rate mortgages.
Management of SCSB believes that its Interest Rate Gap in recent periods
has generally been, and currently is, acceptable in view of the prevailing
interest rate environment. However, because of SCSB's concentration of earning
assets in fixed-rate mortgage loans, net interest income will continue to be
adversely affected by a significant rising interest rate environment. SCSB will
continue to seek to improve the matching of its assets and liabilities as market
conditions permit.
The following table illustrates the projected maturities and the repricing
mechanisms of the major asset and liability categories of SCSB as of September
30, 1996. Maturity and repricing dates have been projected by applying the
assumptions set forth below to contractual maturity and repricing dates. The
information presented in the following table is derived from data that is
provided to the OTS in "Schedule CMR: Consolidated Maturity/Rate" filed as part
of SCSB's September 30, 1996, quarterly report. That information in Schedule CMR
was reformulated by the Federal Home Loan Bank of Indianapolis (the "FHLBI")
based upon certain repricing and other assumptions determined by the FHLBI. The
repricing and other assumptions determined by the FHLBI are based on a study
done by the FHLBI of industry interest rate and repricing trends and are not
necessarily representative of SCSB's actual results. Classifications of such
items are different from those presented in other schedules and financial
statements included herein.
At September 30, 1996
Maturing or Repricing in
(Dollars in Thousands)
6 Months
0 to 3 3 to 6 to 1 to 3 3 to 5 5 to 10 10 to 20 Over 20
Months Months 1 Year Years Years Years Years Years Total
---------------------------------------------------------------------------------
Assets:
Adjustable rate mortgages..... $4,014 $4,821 $ --- $ --- $ --- $ --- $ --- $ --- $ 8,835
Fixed-rate mortgages.......... 614 612 3,426 4,891 5,948 14,145 15,680 5,628 50,944
Non-mortgage loans............ 659 675 1,398 5,079 2,004 --- --- --- 9,815
Non-mortgage investments...... 6,033 --- --- --- 2,921 1,087 --- --- 10,041
------- ------ -------- ------- ------- ------ ------ ---- -------
Total interest-
earning assets........... $11,320 $6,108 $ 4,824 $9,970 $ 10,873 $15,232 $15,680 $5,628 $79,635
======= ====== ======== ======= ======= ====== ====== ==== =======
Interest-bearing liabilities:
Fixed maturity deposits....... $10,126 $5,899 $ 4,147 $8,773 $13,125 $ --- $ --- $ --- $42,070
Other deposits................ 1,878 1,704 2,958 7,109 3,010 3,988 2,612 728 23,987
Variable-rate fixed maturity.. 9,746 --- --- --- --- --- --- --- 9,746
------- ------ -------- ------- ------- ------ ------ ---- -------
Total interest-bearing
liabilities.............. $21,750 $7,603 $ 7,105 $15,882 $16,135 $3,988 $2,612 $728 $75,803
======= ====== ======== ======= ======= ====== ====== ==== =======
Excess (deficiency) of interest-
bearing assets over
interest-bearing
liabilities............... $(10,430) $(1,495) $ (2,281) $(5,912)$(5,262) $11,244 $13,068 $4,900 $ 3,832
Cumulative excess (deficiency)
of interest-bearing
assets over interest-
bearing liabilities........$(10,430) $(11,925) $ (14,206)$(20,118)$(25,380)$(14,136)$(1,068) $3,832 $ ---
Cummulative interest sensitivity
gap as a percentage of
total assets............... (12.71)% (14.53)% (17.31)% (24.52)% (30.93)%(17.23)% (1.30)% 4.67% ---%
In preparing the table above, it has been assumed, consistent with the
assumptions used by the FHLBI at September 30, 1996, in assessing the
interest-rate sensitivity of savings institutions, that (i) adjustable rate
first mortgage loans on one-to four-family residences will repay at the rate of
22.0% per year; (ii) first mortgage loans on residential properties of five or
more units and non-residential properties will prepay at the rate of 15.0% per
year; (iii) fixed-rate first mortgage loans on one-to four-family residences
with terms to maturity of 5 years or less will prepay at a rate of 7.8% per
maturity classification; (iv) second mortgage loans on one-to four-family
residences will prepay at a rate of 26.0% per maturity classification; (v)
non-mortgage loans and investments will not prepay; and (vi) fixed-rate mortgage
loans on one-to four-family residential properties with remaining terms to
maturity of more than 5 years will prepay annually as follows:
Interest Rate Prepayment Assumption
------------- ---------------------
Less than 8% 7.8%
8 to 8.99% 8.6%
9 to 9.99% 9.5%
10 to 10.99% 15.5%
11 and over 24.5%
In addition, it is assumed that fixed maturity deposits are not withdrawn
prior to maturity, and that other deposits are withdrawn or reprice as follows:
6 Months
0 to 3 3 to 6 to 1 to 3 3 to 5 5 to 10 10 to 20 Over 20
Months Months 1 Year Years Years Years Years Years
------------------------------------------------------------------------------
Passbook..................... 4.55% 4.34% 8.11% 25.82% 16.83% 21.37% 14.78% 4.20%
Money market accounts........ 32.31% 21.87% 24.82% 11.00% 5.24% 4.01% .72% .03%
Transaction accounts......... 10.91% 9.72% 16.37% 33.87% 9.06% 12.16% 6.68% 1.22%
Non-interest bearing
accounts.................. 2.60% 2.53% 4.87% 17.10% 13.85% 24.18% 22.71% 12.16%
In evaluating SCSB's exposure to interest rate movements, certain
shortcomings inherent in the method of analysis presented in the foregoing
tables must be considered. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable rate mortgages,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their debt may decrease in the event of an interest rate increase.
SCSB considers all of these factors in monitoring its exposure to interest rate
risk.
Service Corporation Subsidiary
Office of Thrift Supervision ("OTS") regulations permit federal savings
associations to invest in the capital stock, obligations, or other specified
types of securities of subsidiaries (referred to as "service corporations") and
to make loans to such subsidiaries and joint ventures in which such subsidiaries
are participants in an aggregate amount not exceeding 2% of an association's
assets, plus an additional 1% of assets if the amount over 2% is used for
specified community or inner-city development purposes. In addition, federal
regulations permit associations to make specified types of loans to such
subsidiaries (other than special-purpose finance subsidiaries), in which the
association owns more than 10% of the stock, in an aggregate amount not
exceeding 50% of the association's regulatory capital if the association's
regulatory capital is in compliance with applicable regulations. FIRREA requires
a savings association that acquires a non-savings association subsidiary, or
that elects to conduct a new activity within a subsidiary, to give the Federal
Deposit Insurance Corporation (the "FDIC") and the OTS at least 30 days advance
written notice. The FDIC may, after consultation with the OTS, prohibit specific
activities if it determines such activities pose a serious threat to the Savings
Association Insurance Fund (the "SAIF"). Moreover, FIRREA requires savings
associations to deduct from capital, for purposes of meeting the core capital,
tangible capital, and risk-based capital requirements, their entire investment
in and loans to a subsidiary engaged in activities not permissible for a
national bank (other than exclusively agency activities for its customers or
mortgage banking subsidiaries).
SCSB wholly owns two subsidiaries. First Tier One Corporation, an Indiana
corporation ("First Tier One"), holds common stock issued by Savings & Loan Data
Corporation. Through March 1994, it offered tax-deferred annuity products. The
Shelby Group, Inc., an Indiana Corporation ("TSGI"), offered a full line of
insurance products, including health, life, auto and medical insurance. SCSB
ceased the operations of TSGI as of November 1, 1996.
Employees
As of September 30, 1996, the Holding Company employed no persons on a
full- or part-time basis. As of September 30, 1995, SCSB employed 29 persons on
a full-time basis and 6 persons on a part-time basis. None of SCSB's employees
are represented by a collective bargaining group. Management considers its
employee relations to be good.
Competition
SCSB originates most of its loans to, and accepts most of its deposits
from, residents of Shelby County, Indiana and surrounding counties. SCSB is the
only locally-owned financial institution remaining in Shelby County.
SCSB is subject to competition from various financial institutions,
including state and national banks, state and federal savings associations,
credit unions, certain nonbanking consumer lenders, and other companies or
firms, including brokerage houses and mortgage brokers, that provide similar
services in Shelby County with significantly larger resources than SCSB. In
particular, three commercial banks and one savings association compete with SCSB
in its market area. To some extent, SCSB must also compete with banks and
savings associations in Indianapolis, since media advertising from Indianapolis
reaches Shelbyville. SCSB also competes with money market funds and with
insurance companies with respect to its individual retirement accounts.
Under current law, bank holding companies may acquire savings associations.
Savings associations may also acquire banks under federal law. To date, several
bank holding company acquisitions of healthy savings associations in Indiana
have been completed. Affiliations between banks and healthy savings associations
based in Indiana may also increase the competition faced by SCSB and the Holding
Company.
In addition, The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire
banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana recently passed a law establishing
interstate branching provisions for Indiana state chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law authorizes Indiana banks to branch interstate by merger or
de novo expansion and authorizes out-of-state banks meeting certain requirements
to branch into Indiana by merger or de novo expansion. The Indiana Branching Law
became effective March 15, 1996, provided that prior to June 1, 1997, interstate
mergers and de novo branches are not permitted to out-of-state banks unless the
laws of their home states permit Indiana banks to merge or establish de novo
branches on a reciprocal basis. This new legislation may also result in
increased competition for SCSB and the Holding Company.
Because of recent changes in Federal law, interstate acquisitions of
banks are less restricted than they were under prior law. Savings associations
have certain powers to acquire savings associations based in other states, and
Indiana law expressly permits reciprocal acquisition of Indiana savings
associations. In addition, Federal savings associations are permitted to branch
on an interstate basis.
The primary factors influencing competition for deposits are interest
rates, service and convenience of office locations. SCSB competes for loan
originations primarily through the efficiency and quality of services it
provides borrowers, builders and realtors and through interest rates and loan
fees it charges. Competition is affected by, among other things, the general
availability of lendable funds, general and local economic conditions, current
interest rate levels, and other factors that are not readily predictable.
In the current environment, with many savings associations
undercapitalized, SCSB will attempt to differentiate itself from other providers
of financial services by emphasizing its strong capital base.
Regulation
General
SCSB, as a federally chartered stock savings bank, is a member of the
Federal Home Loan Bank System ("FHLB System") and its deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC. SCSB is subject to extensive regulation by the OTS. Federal associations
may not enter into certain transactions unless certain regulatory tests are met
or they obtain prior governmental approval, and the associations must file
reports with the OTS about their activities and their financial condition.
Periodic compliance examinations of SCSB are conducted by the OTS which has, in
conjunction with the FDIC in certain situations, examination and enforcement
powers. This supervision and regulation are intended primarily for the
protection of depositors and federal deposit insurance funds. SCSB is also
subject to certain reserve requirements under regulations of the Board of
Governors of the Federal Reserve System ("FRB").
Congress is considering legislation that would consolidate the
supervision and regulation of all U.S. financial institutions in one
administrative body (the "Legislation"). It cannot be predicted with certainty
whether or when the Legislation will be enacted or the extent to which SCSB
would be affected thereby.
An OTS regulation establishes a schedule for the assessment of fees
upon all savings associations to fund the operations of the OTS. The regulation
also establishes a schedule of fees for the various types of applications and
filings made by savings associations with the OTS. The general assessment, to be
paid on a semiannual basis, is based upon the savings association's total
assets, including consolidated subsidiaries, as reported in a recent quarterly
thrift financial report. Currently, the assessment rates range from .0172761% of
assets for associations with assets of $67.0 million or less to .0045864% for
associations with assets in excess of $35.0 billion. SCSB's current semiannual
assessment, based upon total assets at September 30, 1996, is $14,175.
SCSB is also subject to federal and state regulation as to such matters
as loans to officers, directors, or principal shareholders, required reserves,
limitations as to the nature and amount of its loans and investments, regulatory
approval of any merger or consolidation, issuance or retirements of their own
securities, and limitations upon other aspects of banking operations. In
addition, the activities and operations of SCSB are subject to a number of
additional detailed, complex and sometimes overlapping federal and state laws
and regulations. These include state usury and consumer credit laws, state laws
relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act, anti-redlining legislation and anti-trust
laws.
Federal Home Loan Bank System
SCSB is a member of the FHLB System, which consists of 12 regional
banks. The Federal Housing Finance Board ("FHFB"), an independent agency,
controls the FHLB System including the FHLB of Indianapolis. The FHLB System
provides a central credit facility primarily for member savings associations and
other member financial institutions. SCSB is required to hold shares of capital
stock in the FHLB of Indianapolis in an amount at least equal to the greater of
1% of the aggregate principal amount of its unpaid residential mortgage loans,
home purchase contracts and similar obligations at the end of each calendar
year, .3% of its assets or 1/20 (or such greater fraction established by the
FHLB) of outstanding FHLB advances, commitments, lines of credit and letters of
credit. SCSB is currently in compliance with this requirement. At September 30,
1996, SCSB's investment in stock of the FHLB of Indianapolis was $620,100.
In past years, SCSB has received dividends on its FHLB stock. All 12
FHLB's are required by law to provide funds for the resolution of troubled
savings associations and to establish affordable housing programs through direct
loans or interest subsidies on advances to members to be used for lending at
subsidized interest rates for low- and moderate-income, owner-occupied housing
projects, affordable rental housing, and certain other community projects. These
contributions and obligations could adversely affect the FHLB's ability to pay
dividends and the value of FHLB stock in the future. For the year ending
September 30, 1996, dividends paid to SCSB by the FHLB of Indianapolis totaled
$35,000, for an annual rate of 7.87%. A reduction in value of such stock may
result in a corresponding reduction of SCSB's capital.
The FHLB of Indianapolis serves as a reserve or central bank for member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
advances to members in accordance with policies and procedures established by
the FHFB and the Board of Directors of the FHLB of Indianapolis.
All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. Eligible collateral includes first mortgage loans less
than 90 days delinquent or securities evidencing interests therein, securities
(including mortgage-backed securities) issued, insured or guaranteed by the
federal government or any agency thereof, FHLB deposits and, to a limited
extent, real estate with readily ascertainable value in which a perfected
security interest may be obtained. Other forms of collateral may be accepted as
over collateralization or, under certain circumstances, to renew outstanding
advances. All long-term advances are required to provide funds for residential
home financing and the FHLB has established standards of community service that
members must meet to maintain access to long-term advances.
Interest rates charged for advances vary depending upon maturity, the
cost of funds to the FHLB of Indianapolis and the purpose of the borrowing.
Under current law, savings associations which cease to be Qualified Thrift
Lenders are ineligible to receive advances from their FHLB.
Liquidity
For each calendar month, SCSB is required to maintain an average daily
balance of liquid assets (cash, certain time deposits, bankers' acceptances,
specified United States Government, state or federal agency obligations, shares
of certain mutual funds and certain corporate debt securities and commercial
paper) equal to an amount not less than a specified percentage of its net
withdrawable deposit accounts plus short-term borrowings during the preceding
calendar month. This liquidity requirement may be changed from time to time by
the OTS to any amount within the range of 4% to 10% depending upon economic
conditions and the savings flows of member institutions, and is currently 5%.
OTS regulations also require each member savings institution to maintain an
average daily balance of short-term liquid assets at a specified percentage
(currently l%) of the total of its net withdrawable deposit accounts and
short-term borrowings during the preceding calendar month. Monetary penalties
may be imposed for failure to meet these liquidity requirements. The daily
average liquidity of SCSB for September, 1996 was 11.9% which exceeded the
applicable 5% liquidity requirement. Its average short-term liquidity ratio for
September, 1996 was 8.1%. SCSB has never been subject to monetary penalties for
failure to meet its liquidity requirements.
Insurance of Deposits
The FDIC is an independent federal agency that insures the deposits, up
to prescribed statutory limits, of banks and thrifts and safeguards the safety
and soundness of the banking and thrift industries. The FDIC administers two
separate insurance funds, the BIF for commercial banks and state savings banks
and the SAIF for savings associations and banks that have acquired deposits from
savings associations. The FDIC is required to maintain designated levels of
reserves in each fund. The reserves of the SAIF are currently below the level
required by law, primarily because a significant portion of the assessments paid
into the SAIF have been used to pay the cost of prior thrift failures, while the
reserves of the BIF met the level required by law in May, 1995. Thrifts are
generally prohibited from converting from one insurance fund to the other until
Congress approves the merger of bank and thrift charters, except with the prior
approval of the FDIC in certain limited cases, and provided certain fees are
paid. The insurance fund conversion provisions do not prohibit a SAIF member
from converting to a bank charter or merging with a bank during the moratorium
as long as the resulting bank continues to pay the applicable insurance
assessments to the SAIF during such period and as long as certain other
conditions are met.
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance for members of the BIF and members of the SAIF. The FDIC
may increase assessment rates for either fund if necessary to restore the fund's
ratio of reserves to insured deposits to the target level within a reasonable
time and may decrease such rates if such target level has been met. The FDIC has
established a risk-based assessment system for both SAIF and BIF members. Under
this system, assessments vary depending on the risk the institution poses to its
deposits insurance fund. Such risk level is determined based on the
institution's capital level and the FDIC's level of supervisory concern about
the institution.
Because of the differing reserve levels of the SAIF and the BIF,
deposit insurance assessments paid by well-capitalized BIF-insured institutions
were recently reduced significantly below the level paid by well-capitalized
SAIF-insured institutions. Assessments paid by well-capitalized SAIF-insured
institutions exceeded those paid by well-capitalized BIF-insured institutions by
approximately $.19 per $100 in deposits in late 1995 and exceeded them by $.23
per $100 in deposits beginning in 1996. Such premium disparity could have a
negative competitive impact on the Holding Company and other institutions with
SAIF deposits.
Congress recently enacted legislation designed to recapitalize the SAIF
and eliminate some of the significant premium disparity between the BIF and the
SAIF. The Deposit Insurance Funds Act, enacted on September 30, 1996, requires
the FDIC to assess a special one-time premium on deposits insured by the SAIF to
raise the ratio of SAIF insurance funds to insured deposits to 1.25%. Certain
BIF-insured banks holding SAIF-insured deposits will receive an approximately
20% reduction in their special assessment. In addition, the cost of prior thrift
failures will be shared by both the SAIF and the BIF. Pursuant to the Deposit
Insurance Funds Act, SCSB was assessed a special assessment of $332,077, which
it paid in November, 1996. However, this special assessment was required to be
reported as a fourth quarter expense.
The Deposit Insurance Funds Act also provides that SAIF assessments for
well-capitalized SAIF-insured institutions can never be reduced below the level
set for well-capitalized BIF-insured institutions. The Deposit Insurance Funds
Act also calls for the merger of the SAIF with and into the BIF by the year
1999. However, the merger cannot take place until the bank and thrift charters
are combined. The Treasury Department has until March 31, 1997 to deliver a
report to Congress on merging the charters. Until the charters are merged,
thrifts are prohibited from shifting SAIF deposits to BIF deposits.
Regulatory Capital
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common stockholders' equity
(including retained income), noncumulative perpetual preferred stock and related
surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill (on a declining basis until 1995), purchased mortgage
servicing rights (which may be included in an amount up to 50% of core capital,
but which are to be reported on an association's balance sheet at the lesser of
90% of their fair market value, 90% of their original purchase price, or 100% of
their remaining unamortized book value), and purchased credit card relationships
(which may be included in an amount up to 25% of core capital) less
nonqualifying intangibles. Under the tangible capital requirement, a savings
association must maintain tangible capital (core capital less all intangible
assets except purchased mortgage servicing rights which may be included after
making the above-noted adjustments) of at least 1.5% of total assets. Under the
risk-based capital requirements, a minimum amount of capital must be maintained
by a savings association to account for the relative risks inherent in the type
and amount of assets held by the savings association. The risk-based capital
requirement requires a savings association to maintain capital (defined
generally for these purposes as core capital plus general valuation allowances
and permanent or maturing capital instruments such as preferred stock and
subordinated debt less assets required to be deducted) equal to 8.0% of
risk-weighted assets. Assets are ranked as to risk in one of four categories
(0-100%) with a credit risk-free asset such as cash requiring no risk-based
capital and an asset with a significant credit risk such as a non-accrual loan
being assigned a factor of 100%. At September 30, 1996, based on the capital
standards then in effect, SCSB was in compliance with all capital requirements.
The OTS has delayed implementation of a rule which sets forth the
methodology for calculating an interest rate risk component to be incorporated
into the OTS regulatory capital rule. Under the rule, only savings associations
with "above normal" interest rate risk (institutions whose portfolio equity
would decline in value by more than 2% of assets in the event of a hypothetical
200-basis point move in interest rates) will be required to maintain additional
capital for interest rate risk under the risk-based capital framework. An
institution with an "above normal" level of exposure will have to maintain
additional capital equal to one-half the difference between its measured
interest rate risk (the most adverse change in the market value of its portfolio
resulting from a 200-basis point move in interest rates divided by the estimated
market value of its assets) and 2%, multiplied by the market value of its
assets. That dollar amount of capital is in addition to an institution's
existing risk-based capital requirement. The OTS has stated that it intends to
reduce or eliminate the leverage ratio capital requirements once the interest
rate risk component rule is implemented. Although the OTS has decided to delay
implementation of this rule, it will continue to closely monitor the level of
interest rate risk at individual institutions and it retains the authority, on a
case-by-case basis, to impose additional capital requirements for individual
institutions with significant interest rate risk.
The following is a summary of SCSB's regulatory capital and capital
requirements at September 30, 1996:
Tangible Core Risk-based
capital capital capital
------- ------- -------
Regulatory capital $5,256 $5,256 $5,582
Minimum capital requirement 1,232 2,464 4,352
------ ------ ------
Excess capital $4,024 $2,792 $1,230
Regulatory capital ratio 6.4% 6.4% 10.3%
Minimum capital ratio 1.50% 3.00% 8.00%
If an association is not in compliance with its capital requirements,
the OTS is required to prohibit asset growth and to impose a capital directive
that may restrict, among other things, the payment of dividends and officers'
compensation. In addition to the specific sanctions provided in FIRREA for
failing to meet the capital requirements, the OTS and the FDIC generally are
authorized to take enforcement actions against a savings association that fails
to meet its capital requirements, which actions may include restrictions on
operations and banking activities, the imposition of a capital directive, a
cease and desist order, civil money penalties or harsher measures such as the
appointment of a receiver or conservator or a forced merger into another
institution.
Prompt Corrective Regulatory Action
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FedICIA") requires, among other things, federal bank regulatory authorities to
take "prompt corrective action" with respect to institutions that do not meet
minimum capital requirements. For these purposes, FedICIA establishes five
capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. At September
30, 1996, SCSB was categorized as "adequately capitalized."
An institution is deemed to be "well capitalized" if it has a total
risk-based capital ratio of 10% or greater, a Tier I risk-based capital ratio of
6% or greater, and a leverage ratio of 5% or greater, and is not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure. An institution is deemed to be "adequately
capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier
I risk-based capital of 4% or greater, and generally a leverage ratio of 4%
greater. An institution is deemed to be "undercapitalized" if it has a total
risk-based capital ratio of less than 8%, a Tier I risk-based capital ratio of
less than 4%, or generally a leverage ratio of less than 4%; and (d)
"significantly undercapitalized" if it has a total risk-based capital ratio of
less than 6%, a Tier I risk-based capital ratio of less than 3%, or a leverage
ratio of less than 3%. An institution is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%.
"Undercapitalized" institutions are subject to growth limitations and
are required to submit a capital restoration plan. If an "undercapitalized"
institution fails to submit, or fails to implement in a material respect, an
acceptable plan, it is treated as if it is "significantly undercapitalized."
"Significantly undercapitalized" institutions are subject to one or more of a
number of requirements and restrictions, including an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cease receipt of deposits from correspondent banks, and
restrictions on compensation of executive officers. "Critically
undercapitalized" institutions may not, beginning 60 days after becoming
"critically undercapitalized," make any payment of principal or interest on
certain subordinated debt or extend credit for a highly leveraged transaction or
enter into any transaction outside the ordinary course of business. In addition,
"critically undercapitalized" institutions are subject to appointment of a
receiver or conservator.
Capital Distributions Regulation
An OTS regulation imposes limitations upon all "capital distributions"
by savings associations, including cash dividends, payments by an institution to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility being afforded to well-capitalized institutions. A
savings association which has total capital (immediately prior to and after
giving effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier l institution ("Tier 1
Institution"). An institution that has total capital at least equal to its
minimum capital requirements, but less than its fully phased-in capital
requirements, would be a Tier 2 institution ("Tier 2 Institution"). An
institution having total capital that is less than its minimum capital
requirements would be a Tier 3 institution ("Tier 3 Institution"). However, an
institution which otherwise qualifies as a Tier 1 institution may be designated
by the OTS as a Tier 2 or Tier 3 institution if the OTS determines that the
institution is "in need of more than normal supervision." SCSB is currently a
Tier l Institution.
A Tier 1 Institution could, after prior notice but without the approval
of the OTS, make capital distributions during a calendar year up to 100% of its
net income to date during the calendar year plus an amount that would reduce by
one-half its "surplus capital ratio" (the excess over its fully phased-in
capital requirements) at the beginning of the calendar year. Any additional
amount of capital distributions would require prior regulatory approval.
The OTS has proposed revisions to these regulations which would permit
savings associations to declare dividends in amounts which would assure that
they remain adequately capitalized following the dividend declaration. Savings
associations in a holding company system which are rated Camel 1 or 2 and which
are not in troubled condition would need to file a notice with the OTS
concerning such dividend declaration.
Safety and Soundness Standards
On February 2, 1995, the federal banking agencies adopted final safety
and soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. Additional standards on earnings and classified assets are expected
to be issued in the near future.
Real Estate Lending Standards
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval, and reporting requirements to monitor compliance with the
association's real estate lending policies.
The association's written real estate lending policies must be reviewed
and approved by the association's board of directors at least annually. Further,
each association is expected to monitor conditions in its real estate market to
ensure that its lending policies continue to be appropriate for current market
conditions.
Federal Reserve System
Under FRB regulations, SCSB is required to maintain reserves against
its transaction accounts (primarily checking and NOW accounts) and non-personal
money market deposit accounts. The effect of these reserve requirements is to
increase SCSB's cost of funds. SCSB is in compliance with its reserve
requirements. A federal savings association, like other depository institutions
maintaining reservable accounts, may borrow from the Federal Reserve Bank
"discount window," but the FRB's regulations require the savings association to
exhaust other reasonable alternative sources, including borrowing from its
regional FHLB, before borrowing from the Federal Reserve Bank. FDICIA imposes
certain limitations on the ability of undercapitalized depository institutions
to borrow from Federal Reserve Banks.
Holding Company Regulation
The Holding Company is regulated as a "non-diversified unitary savings
and loan holding company" within the meaning of the Home Owners' Loan Act, as
amended ("HOLA"), and subject to regulatory oversight of the Director of the
OTS. As such, the Holding Company is registered with the OTS and thereby subject
to OTS regulations, examinations, supervision and reporting requirements. As a
subsidiary of a savings and loan holding company, SCSB is subject to certain
restrictions in its dealings with the Holding Company and with other companies
affiliated with the Holding Company.
HOLA generally prohibits a savings and loan holding company, without
prior approval of the Director of the OTS, from (i) acquiring control of any
other savings association or savings and loan holding company or controlling the
assets thereof or (ii) acquiring or retaining more than 5% of the voting shares
of a savings association or holding company thereof which is not a subsidiary.
Additionally, under certain circumstances, a savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
previously unissued voting shares of an under-capitalized savings association
for cash without that savings association being deemed controlled by the holding
company. Except with the prior approval of the Director of the OTS, no director
or officer of a savings and loan holding company or person owning or controlling
by proxy or otherwise more than 25% of such company's stock may also acquire
control of any savings institution, other than a subsidiary institution, or any
other savings and loan holding company.
The Holding Company's Board of Directors presently intends to continue
to operate the Holding Company as a unitary savings and loan holding company.
There are generally no restrictions on the permissible business activities of a
unitary savings and loan holding company. However, if the Director of OTS
determines that there is reasonable cause to believe that the continuation by a
savings and loan holding company of an activity constitutes a serious risk to
the financial safety, soundness, or stability of its subsidiary savings
association, the Director of the OTS may impose such restrictions as deemed
necessary to address such risk and limiting (i) payment of dividends by the
savings association, (ii) transactions between the savings association and its
affiliates, and (iii) any activities of the savings association that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings association.
Notwithstanding the above rules as to permissible business activities
of unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the Qualified Thrift Lender
("QTL") test, then such unitary holding company would become subject to the
activities restrictions applicable to multiple holding companies. (Additional
restrictions on securing advances from the FHLB also apply). See "--Qualified
Thrift Lender." At September 30, 1996, SCSB's asset composition was in excess of
that required to qualify SCSB as a Qualified Thrift Lender.
If the Holding Company were to acquire control of another savings
institution other than through a merger or other business combination with SCSB,
the Holding Company would thereupon become a multiple savings and loan holding
company. Except where such acquisition is pursuant to the authority to approve
emergency thrift acquisitions and where each subsidiary savings association
meets the QTL test, the activities of the Holding Company and any of its
subsidiaries (other than SCSB or other subsidiary savings associations) would
thereafter be subject to further restrictions. HOLA provides that, among other
things, no multiple savings and loan holding company or subsidiary thereof which
is not a savings association shall commence or continue for a limited period of
time after becoming a multiple savings and loan holding company or subsidiary
thereof, any business activity other than (i) furnishing or performing
management services for a subsidiary savings association, (ii) conducting an
insurance agency or escrow business, (iii) holding, managing, or liquidating
assets owned by or acquired from a subsidiary savings institution, (iv) holding
or managing properties used or occupied by a subsidiary savings institution, (v)
acting as trustee under deeds of trust, (vi) those activities previously
directly authorized by the FSLIC by regulation as of March 5, 1987, to be
engaged in by multiple holding companies or (vii) those activities authorized by
the FRB as permissible for bank holding companies, unless the Director of the
OTS by regulation prohibits or limits such activities for savings and loan
holding companies. Those activities described in (vii) above must also be
approved by the Director of the OTS prior to being engaged in by a multiple
holding company.
The Director of the OTS may also approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the institution to be acquired is located
specifically permit institutions to be acquired by state-chartered institutions
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings institutions). Also, the Director of the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings
associations in more than one state in the case of certain emergency thrift
acquisitions.
No subsidiary saving association of a savings and loan holding company
may declare or pay a dividend on its permanent or nonwithdrawable stock unless
it first gives the Director of the OTS 30 days advance notice of such
declaration and payment. Any dividend declared during such period, or without
the giving of such notice, shall be invalid.
Federal Securities Law
The shares of Common Stock of the Holding Company are registered with
the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act").
The Holding Company is subject to the information, proxy solicitation, insider
trading restrictions and other requirements of the 1934 Act and the rules of the
SEC thereunder. If the Holding Company has fewer than 300 shareholders, it may
deregister its shares under the 1934 Act and cease to be subject to the
foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the
Holding Company may not be resold without registration unless sold in accordance
with the resale restrictions of Rule 144 under the Securities Act of 1933, as
amended (the "1933 Act"). If the Holding Company meets the current public
information requirements under Rule 144, each affiliate of the Holding Company
who complies with the other conditions of Rule 144 (including a two-year holding
period and conditions that require the affiliate's sale to be aggregated with
those of certain other persons) will be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) l % of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks.
Qualified Thrift Lender
Under current OTS regulations, the QTL test requires that a savings
association have at least 65% of its portfolio assets invested in "qualified
thrift investments" on a monthly average basis in 9 out of every 12 months.
Qualified thrift investments under the QTL test include: (i) loans made to
purchase, finance, construct, improve or repair domestic residential housing or
manufactured housing; (ii) home equity loans; (iii) mortgage-backed securities;
(iv) direct or indirect existing obligations of either the FDIC or the Federal
Savings and Loan Insurance Corporation ("FSLIC") for ten years from the date of
issuance, if issued prior to July 1, 1989; (v) obligations of the FDIC, FSLIC,
FSLIC Resolution Fund and the Resolution Trust Corporation for a five year
period from July 1, 1989, if issued after such date; (vi) FHLB stock; (vii) 50%
of the dollar amount of residential mortgage loans originated and sold within 90
days of origination; (viii) investments in service corporations that derive at
least 80% of their gross revenues from activities directly related to
purchasing, refinancing, constructing, improving or repairing domestic
residential real estate or manufactured housing; (ix) 200% of the dollar amount
of loans and investments made to acquire, develop and construct
one-to-four-family residences that are valued at no more than 60% of the median
value of homes constructed in the area; (x) 200% of the dollar amount of loans
for the acquisition or improvement of residential real property, churches,
schools, and nursing homes located within, and loans for any purpose to any
small business located within, an area where credit needs of its low and
moderate income residents are determined not to have been adequately met; (xi)
loans for the purchase, construction, improvement or upkeep of churches,
schools, nursing homes and hospitals not qualified under (x); (xii) up to 10% of
portfolio assets held in consumer loans or loans for educational purposes; and
(xiii) FHLMC and FNMA stock. However, the aggregate amount of investments in
categories (vii)-(xiii) which may be taken into account for the purpose of
whether an institution meets the QTL test cannot exceed 15% of portfolio assets.
Portfolio assets under the QTL test include all of an association's assets less
(i) goodwill and other intangibles, (ii) the value of property used by the
association to conduct its business, and (iii) its liquid assets as required to
be maintained under law up to 20% of total assets.
A savings association which fails to meet the QTL test must either
convert to a bank (but its deposit insurance assessments and payments will be
those of and paid to SAIF) or be subject to the following penalties: (i) it may
not enter into any new activity except for those permissible for a national bank
and for a savings association; (ii) its branching activities shall be limited to
those of a national bank; (iii) it shall not be eligible for any new FHLB
advances; and (iv) it shall be bound by regulations applicable to national banks
respecting payment of dividends. Three years after failing the QTL test, the
association must (i) dispose of any investment or activity not permissible for a
national bank and a savings association and (ii) repay all outstanding FHLB
advances. If such a savings association is controlled by a savings and loan
holding company, then such holding company must, within a prescribed time
period, become registered as a bank holding company and become subject to all
rules and regulations applicable to bank holding companies (including
restrictions as to the scope of permissible business activities).
A savings association failing to meet the QTL test may requalify as a
QTL if it thereafter meets the QTL test. In the event of such requalification,
it shall not be subject to the penalties described above. A savings association
which subsequently again fails to qualify under the QTL test shall become
subject to all of the described penalties without application of any waiting
period.
At September 30, 1996, 61.3% of SCSB's portfolio assets (as defined on
that date) were invested in qualified thrift investments (as defined on that
date), and therefore SCSB's asset composition was in excess of that required to
qualify SCSB as a QTL. SCSB does not expect to significantly change its lending
or investment activities in the near future, and therefore expects to continue
to qualify as a QTL, although there can be no such assurance.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- using terms such as satisfactory and
unsatisfactory -- and a written evaluation of each institution's performance.
Each FHLB is required to establish standards of community investment or service
that its members must maintain for continued access to long-term advances from
the FHLBs. The standards take into account a member's performance under the CRA
and its record of lending to first-time home buyers. The FHLBs have established
an "Affordable Housing Program" to subsidize the interest rate of advances to
member associations engaged in lending for long-term, low- and moderate-income,
owner-occupied and affordable rental housing at subsidized rates. SCSB is
participating in this program. The examiners have determined that SCSB has an
outstanding record of meeting community credit needs.
Taxation
Federal Taxation
The Holding Company and its subsidiary file a consolidated federal
income tax return on the accrual basis for each fiscal year ending September 30.
The consolidated federal income tax return has the effect of eliminating
intercompany distributions, including dividends, in the computation of
consolidated taxable income. Income of the Holding Company generally would not
be taken into account in determining the bad debt deduction allowed to SCSB,
regardless of whether a consolidated tax return is filed. However, certain
"functionally related" losses of the Holding Company would be required to be
taken into account in determining the permitted bad debt deduction which,
depending upon the particular circumstances, could reduce the bad debt
deduction. SCSB's federal income tax returns have not been audited in the last
five years.
Historically, savings associations, such as SCSB, have been permitted
to compute bad debt deductions using either the bank experience method or the
percentage of taxable income method. However, for years beginning after December
31, 1995, SCSB will no longer be able to use the percentage of taxable income
method of computing its allocable tax bad debt deduction. SCSB will be required
to compute its allocable deduction using the experience method. As a result of
the repeal of the percentage of taxable income method, reserves taken after 1987
using the percentage of taxable income method generally must be included in
future taxable income over a six-year period, although a two-year delay may be
permitted for institutions meeting a residential mortgage loan origination test.
In addition, the pre-1988 reserve, in which no deferred taxes have been
recorded, will not have to be recaptured into income unless (i) SCSB no longer
qualifies as a bank under the Code, or (ii) excess dividends are paid out by
SCSB.
Depending on the composition of its items of income and expense, a
savings institution may be subject to the alternative minimum tax. A savings
institution must pay an alternative minimum tax equal to the amount (if any) by
which 20% of alternative minimum taxable income ("AMTI"), as reduced by an
exemption varying with AMTI, exceeds the regular tax due. AMTI equals regular
taxable income increased or decreased by certain tax preferences and
adjustments, including depreciation deductions in excess of that allowable for
alternative minimum tax purposes, tax-exempt interest on most private activity
bonds issued after August 7, 1986 (reduced by any related interest expense
disallowed for regular tax purposes), the amount of the bad debt reserve
deduction claimed in excess of the deduction based on the experience method and
75% of the excess of adjusted current earnings over AMTI (before this adjustment
and before any alternative tax net operating loss). AMTI may be reduced only up
to 90% by net operating loss carryovers, but alternative minimum tax paid that
is attributable to most preferences (although not to post-August 7, 1986
tax-exempt interest) can be credited against regular tax due in later years.
On August 20, 1996, the "Small Business Job Protection Act of 1996" was
passed into law. One provision of this act repeals the special bad debt reserve
method for thrift institutions currently provided for in Section 593 of the
Internal Revenue Code ("IRC"). The provision requires thrifts to recapture any
reserves accumulated after 1987 but forgives taxes owed on reserves accumulated
prior to 1988. Thrift institutions will be given six years to account for the
recaptured excess reserves, beginning with the first taxable year after 1995,
and will be permitted to delay the timing of this recapture for one or two years
subject to whether they meet certain residential loan test requirements.
Management does not believe that this legislation will have a material adverse
effect on the SCSB's consolidated financial position.
State Taxation
SCSB is subject to Indiana's Financial Institutions Tax ("FIT"), which
is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted gross
income," for purposes of FIT, begins with taxable income as defined by Section
63 of the Code, and thus, incorporates federal tax law to the extent that it
affects the computation of taxable income. Federal taxable income is then
adjusted by several Indiana modifications. Other applicable state taxes include
generally applicable sales and use taxes plus real and personal property taxes.
SCSB's state income tax returns have not been audited in the last five
years.
Current Accounting Issues
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," is effective for fiscal years beginning after December 15,
1995. This statement establishes accounting standards for the impairment of
long-lived assets, certain liabilities, certain intangibles and goodwill.
Management does not believe the adoption of SFAS 121 will have a material effect
on the financial position or results of operations of the Holding Company.
Statement of Financial Accounting Standards No. 122 ("SFAS 122"),
"Accounting for Mortgage Servicing Rights - an Amendment of FASB Statement No.
65," is effective for fiscal years beginning after December 15, 1995. This
Statement specifies condition under which mortgage servicing rights should be
accounted for separately from the underlying mortgage loans. Management does not
believe the adoption of SFAS 122 will have a material effect on the financial
position or results of operations of the Holding Company.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," is effective for fiscal years
beginning after December 15, 1995. The statement establishes a fair value based
method for accounting for stock-based compensation. As allowed by SFAS 123, the
Holding Company plans to continue to use the existing intrinsic method of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for stock options. Certain pro forma and other
information will be disclosed as if the Holding Company had measured costs in a
manner consistent with the new statement.
Statement of Financial Accounting Standards No. 125 ("SFAS 125"),
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," was issued in June 1996 and provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. SFAS 125 applies to transfers occurring after December 15, 1996.
Management does not believe the adoption of SFAS 125 will have a material effect
on the financial position or results of operations of the Holding Company.
Item 2. Properties.
At September 30, 1996, SCSB conducted its business from its main office at
29 East Washington Street, Shelbyville, Indiana, and three branch offices. All
four offices are full-service offices either owned by SCSB or the Holding
Company.
The following table provides certain information with respect to SCSB's
offices as of September 30, 1996:
Net Book Value
of Property,
Year Opened Furniture & Approximate
Description and Address or Acquired Fixtures Square Footage
Locations in Shelbyville
Main Office-
29 East Washington Street ................ 1975 $895,705 15,000
Rampart Office-
34 Rampart Street......................... 1995 $882,297 3,000
Location in Morristown
127 East Main Street...................... 1995 $ 46,567 1,800
Location in St. Paul
105 County Line Road...................... 1989 $ 49,432 1,476
SCSB has two automatic teller machines ("ATM"), one of which is located at
its main office and the other which is located at its Rampart office. SCSB's
ATMs are on the MELLON ATM interchange system and participates in the nationwide
CIRRUS ATM network.
SCSB owns computer and data processing equipment which is used for
transaction processing, accounting, financial forecasting, and loan document
preparation. The net book value of electronic data processing equipment owned by
SCSB was $149,702 at September 30, 1996.
SCSB also has contracted for the data processing and reporting services of
Savings and Loan Data Corporation, Inc. of Cincinnati, Ohio ("Data
Corporation"). SCSB's service corporation subsidiary owns common stock of Data
Corporation having a book value of $15,000. See "Business--Service Corporation
Subsidiary." The cost of these data processing services is approximately $18,000
per month.
Item 3. Legal Proceedings.
Neither the Holding Company, SCSB, nor SCSB's service corporation
subsidiaries is a party to any material pending legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Holding Company's shareholders
during the quarter ended September 30, 1996.
Item 4.5. Executive Officers of the Registrant.
Presented below is certain information regarding the executive officers of
the registrant. Each of the executive officers of the Holding Company is a
member of the Board of Directors of both the Holding Company and SCSB.
Name Position
-------------------- -----------------------------------------
James M. Robison Chairman of the Holding Company
Rodney L. Meyerholtz President of the Holding Company and SCSB
Leonard J. Fischer Vice President of the Holding Company
David A. Carmony Secretary of the Holding Company
Robert E. Thomas Treasurer of the Holding Company
Ronald L. Lanter Vice President-- Consumer Lending of SCSB
Joyce E. Ford Vice President-- Mortgage Lending of SCSB
David A. Carmony (age 47) has been the Secretary of the Holding Company
since its incorporation in June, 1991. He also has been President and a 50%
shareholder of Carmony-Ewing Funeral Homes, Inc., which provides funeral
services in the Shelby County area, since 1988. Prior to 1988, Mr. Carmony owned
and operated Carmony Funeral Home, Incorporated, a similar business. In
addition, Mr. Carmony, prior to 1991, owned 50% of Powakaddy, U.S.A., a
distributor of golf equipment. Powakaddy, U.S.A. began operations in September
1988, but filed Chapter 11 bankruptcy proceedings and ceased operations and
existence in April 1991.
Leonard J. Fischer (age 59) has been a Vice President of the Holding
Company since its incorporation in June 1991, and is also a self-employed metal
fabricator. Prior to 1986, Mr. Fischer was manager of plants and equipment for
Shelby Steel, Inc.
Joyce E. Ford (age 44) became Vice President -- Mortgage Lending of SCSB in
1991. Before her appointment as Vice President --Mortgage Lending, she was
Assistant Vice President of SCSB from 1989 to 1991, and was a loan officer from
1986 to 1989.
Ronald L. Lanter (age 52) has served as Vice President -- Consumer Lending
of SCSB since 1989. From 1986 until joining SCSB in 1989, Mr. Lanter was a Vice
President of Ameritrust National Bank in Shelbyville.
Rodney L. Meyerholtz (age 42) has been President of the Holding Company
since its incorporation in June, 1991, and President and a director of SCSB
since 1986.
James M. Robison (age 69) became a director and Chairman of the Board of
Directors of the Holding Company at the time of the conversion and of SCSB in
1991, and has served as legal counsel to SCSB since prior to 1986. Mr. Robison
is an attorney with the Shelbyville law firm of Robison & Apsley, P.A.
Robert E. Thomas (age 71) became a Director of the Holding Company in1995.
Mr. Thomas has served as a general agent for the Franklin Life Insurance Company
(Shelbyville, Indiana) since prior to 1991.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
SCSB converted from a mutual savings bank to a federal stock savings bank
effective October 17, 1991 and simultaneously formed a savings and loan holding
company, Shelby County Bancorp. The Holding Company's common stock, without par
value ("Common Stock"), is traded in the over-the-counter market. The following
table sets forth the high and low bid prices for the quarters indicated. Such
over-the-counter quotations, garnered through pink sheets, reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
Price Range Dividends
QuarterEnded High Bid Low Bid Per Share
- -----------------------------------------------------------------------
December 31, 1994 $17.85 $17.00 $.08750
March 31, 1995 $18.00 $17.00 $.08750
June 30, 1995 $18.00 $17.00 $.08750
September 30, 1995 $18.00 $17.00 $.10
December 31, 1995 $18.00 $17.00 $.10
March 31, 1996 $18.00 $17.00 $.10
June 30, 1996 $20.00 $18.00 $.10
September 30, 1996 $20.00 $18.00 $.10
As of December 6, 1996, the Holding Company had 234 shareholders of record.
It is currently the policy of the Holding Company's Board of Directors to
continue to pay quarterly dividends at this rate, but any future dividends are
subject to the Board's discretion based on its consideration of the Holding
Company's operating results, financial condition, capital, income tax
considerations, regulatory restrictions and other factors.
Since the Holding Company has no independent operations or other
subsidiaries to generate income, its ability to accumulate earnings for the
payment of cash dividends to its shareholders is directly dependent upon the
ability of SCSB to pay dividends to the Holding Company.
Under OTS regulations, a converted savings association may not declare or
pay a cash dividend if the effect would be to reduce its net worth below the
amount required for the liquidation account created at the time it converted. In
addition, under OTS regulations, the extent to which a savings association may
make a "capital distribution," which includes, among other things, cash
dividends, will depend upon in which one of three categories, based upon levels
of capital, that savings association is classified. SCSB is now and expects to
continue to be a "tier one institution" and therefore would be able to pay cash
dividends to the Holding Company during any calendar year up to 100% of its net
income during that calendar year plus the amount that would reduce by one half
its "surplus capital ratio" (the excess over its capital requirements) at the
beginning of the calendar year. See "Regulation --Capital Distributions
Regulation." Prior notice of any dividend to be paid by SCSB to the Holding
Company will have to be given to the OTS.
Income of SCSB appropriated to bad debt reserves and deducted for federal
income tax purposes is not available for payment of cash dividends or other
distributions to the Holding Company without the payment of federal income taxes
by SCSB on the amount of such income deemed removed from the reserves at the
then-current income tax rate. At September 30, 1996, approximately $1.1 million
of SCSB's retained income represented bad debt deductions for which no federal
income tax provision had been made. See "Taxation--Federal Taxation."
Unlike SCSB, generally there is no regulatory restriction on the payment of
dividends by the Holding Company. Indiana law, however, would prohibit the
Holding Company from paying a dividend if, after giving effect to the payment of
that dividend, the Holding Company would not be able to pay its debts as they
become due in the usual course of business or the Holding Company's total assets
would be less than the sum of its total liabilities plus preferential rights of
holders of preferred stock, if any.
On April 17, 1995, the Board of Directors of the Holding Company declared a
dividend of one common share purchase right (a "Right" or "Rights") for each
outstanding share of Common Stock. The dividend was paid on April 30, 1995 to
the shareholders of record as of April 17, 1995. If and when the Rights become
exercisable, each Right will entitle the registered holder to purchase from the
Holding Company one Common Share at a purchase price of $70.00 (the "Purchase
Price"), subject to adjustment as described in the Rights Agreement between the
Holding Company and Bank One, Indianapolis, NA (the "Rights Agreement") which
specifies the terms of the Rights. The Rights will be represented by the
outstanding Common Share certificates and the Rights cannot be bought, sold or
otherwise traded separately from the Common Shares until the "Distribution
Date," which is the earliest to occur of (i) 10 calendar days following a public
announcement that a person or group (an "Acquiring Person") has (a) acquired
beneficial ownership of 15% or more of the outstanding Common Shares or (b)
become the beneficial owner of an amount of the outstanding Common Shares (but
not less than 10%) which the Board of Directors determines to be substantial and
which ownership the Board of Directors determines is intended or may be
reasonably anticipated, in general, to cause the Holding Company to take actions
determined by the Board of Directors to be not in the Holding Company's best
long-term interests (an "Adverse Person"), or (ii) 10 business days following
the commencement or announcement of an intention to make a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 30% or more of such outstanding Common Shares.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire the Holding
Company on terms not approved by the Board of Directors of the Holding Company,
except pursuant to an offer conditioned on a substantial number of Rights being
acquired. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors since the Rights may be redeemed
by the Holding Company at $.01 per Right prior to the tenth calendar day
following the date of a public announcement that a person or group has becom an
Acquiring Person.
Item 6. Selected Consolidated Financial Data.
The information required by this item is incorporated by reference to the
material under the heading "Selected Consolidated Financial Data" on pages 3 and
4 of the Holding Company's 1996 Shareholder Annual Report (the "Shareholder
Annual Report").
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
The information required by this item is incorporated by reference to pages
6 through 13 of the Shareholder Annual Report.
Item 8. Financial Statements and Supplementary Data.
The Holding Company's Consolidated Financial Statements and Notes thereto
contained on pages 14 through 29 in the Shareholder Annual Report are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There were no such changes or disagreements during the applicable period.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to directors is
incorporated by reference to pages 2 through 4 and page 6 of the Holding
Company's Proxy Statement for its Annual Shareholder Meeting to be held January
23, 1997 (the "1997 Proxy Statement"). Information concerning the Registrant's
executive officers is included in Item 4.5 in Part I of this report.
Item 11. Executive Compensation.
The information required by this item with respect to executive
compensation is incorporated by reference to pages 4 through 6 of the 1997 Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to pages
1 through 3 of the 1997 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to page
6 of the 1997 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) List the following documents filed as part of the report:
Financial Statements Annual Report Page No.
Consolidated Statements of Financial Condition
at September 30, 1996, and 1995...................... 15
Consolidated Statements of Earnings for the Years
Ended September 30, 1996, 1995 and 1994.............. 16
Consolidated Statements of Shareholders' Equity for the
Years Ended September 30, 1996, 1995 and 1994........ 17
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1996, 1995 and 1994.............. 18
Notes to Consolidated Financial Statements................ 19
(b) Reports on Form 8-K.
The Registrant filed no Reports on Form 8-K for the quarter ending
September 30, 1996.
(c) The exhibits filed herewith or incorporated by reference herein are set
forth on the Exhibit Index on page 32.
(d) All financial statement schedules are omitted as the required information
is not applicable or the required information is included in the
Consolidated Financial Statements or related notes.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.
SHELBY COUNTY BANCORP
Date: December 26, 1996 By: /s/ Rodney L. Meyerholtz
-------------------------------
Rodney L. Meyerholtz, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 26th day of December,
1996.
/s/ Rodney L. Meyerholtz
-------------------------------
Rodney L. Meyerholtz,
President and Director
(Principal Executive Officer)
/s/ James M. Robison
-------------------------------
James M. Robison,
Chairman of the Board
/s/ Leonard J. Fischer
-------------------------------
Leonard J. Fischer,
Vice President and Director
/s/ Robert E. Thomas
-------------------------------
Robert E. Thomas, Treasurer (Principal Financial
and Accounting Officer) and Director
/s/ David A. Carmony
-------------------------------
David A. Carmony, Secretary and Director
EXHIBIT INDEX
Exhibit Page
3(1) The Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3(1) to the
Registration Statement on Form S-1 (Registration No.
33-40540).
3(2) The Code of By-Laws of the Registrant are incorporated by
reference to Exhibit 3(2) to the Registration Statement
on Form S-1 (Registration No. 33-40540).
4(1) Rights Agreement, dated as of April 17, 1995, between
Registrant and Bank One, Indianapolis, NA, as Rights
Agent, as incorporated by reference to Exhibit 2 to the
Registration Statement on Form 8-A (Registration No.
19445).
10(1) Employment Agreement entered into between SCSB and Rodney
L. Meyerholtz is incorporated by reference to Exhibit
10(2) to the Registration Statement on Form S-1
(Registration No. 33-40540).
10(2) Employment Agreement entered into between SCSB and Ronald
L. Lanter is incorporated by reference to Exhibit 10(3)
to the Registration Statement on Form S-1 (Registration
No. 33-40540).
10(3) Employment Agreement entered into by SCSB and Joyce E.
Ford is incorporated by reference to Exhibit 10(4) to the
Registration Statement on Form S-1 (Registration No.
33-40540).
10(4) Registrant's Stock Option Plan is incorporated by
reference to Exhibit A to Registrant's Proxy Statement in
respect of its 1992 Annual Meeting, filed on or about
December 27, 1991.
11 Statement of Computation of Per Share Earnings.
13 1996 Shareholder Annual Report.
22 Subsidiaries of the Registrant are incorporated by
reference to Exhibit 22 to the Registration Statement on
Form S-1 (Registration No. 33-40540).
27 Financial Data Schedule