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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
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 [No Fee Required]
Commission file number 0-25484
DAMEN FINANCIAL CORPORATION
(Exact Name of Issuer as Specified in its Charter)
Delaware 36-4029638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 West Higgins Road, Schaumburg, Illinois 60195
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (847) 882-5320
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve months (or for
such shorter period that the Issuer was required to file such reports), and (2)
has been subject to such requirements for the past 90 days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of Issuer'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. [ ]
As of December 23, 1996, there were issued and outstanding 3,750,278
shares of the Issuer's Common Stock. The aggregate market value of the voting
stock held by non-affiliates of the Issuer, computed by reference to the
average of the closing bid and asked price of such stock on the Nasdaq National
Market System as of December 23, 1996 was approximately $43.5 million. (The
exclusion from such amount of the market value of the shares owned by any
person shall not be deemed an admission by the Issuer that such person is an
affiliate of the Issuer.)
DOCUMENTS INCORPORATED BY REFERENCE
PART II of Form 10-K--Annual Report to Stockholders for the fiscal year ended
September 30, 1996.
PART III of Form 10-K--Proxy Statement for the Annual Meeting of Stockholders
to be held in 1997 for the fiscal year ended September 30, 1996.
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PART I
ITEM 1. BUSINESS
GENERAL
Damen Financial Corporation ("DFC" or the "Company") was formed at the
direction of Damen Federal Savings Bank ("Damen" or the "Bank") in 1995 for the
purpose of becoming a savings and loan holding company and owning all of the
outstanding stock of the Bank issued on September 29, 1995 in connection with
the Bank's conversion from the mutual to stock form of organization (the
"Conversion"). The Company is incorporated under the laws of the State of
Delaware and is authorized to do business in the State of Illinois, and
generally is authorized to engage in any activity that is permitted by the
Delaware General Corporation Law. The Company issued 3,967,500 shares of
Common Stock at $10.00 per share in the Conversion.
At September 30, 1996, the Company had total assets of $234.6 million,
deposits of $119.0 million and stockholders' equity of $52.9 million. The
Company's Common Stock is quoted on the Nasdaq National Market System under the
symbol "DFIN." Unless the context otherwise requires, all references herein to
the Bank or the Company include the Company and the Bank on a consolidated
basis.
Damen was originally chartered in 1916 to service a primarily Slovak
community on Chicago's South Side and became a federal savings bank in 1990.
The Company serves the financial needs of communities in its market area
through its main office located at 200 West Higgins Road, Schaumburg, Illinois
and two branch offices located in Chicago and Burbank, Illinois.
The Company's business involves attracting deposits from the general
public and using such deposits, together with other funds, to originate one- to
four-family residential mortgage loans and, to a much lesser extent,
multi-family, commercial real estate and consumer loans primarily in its market
area. See " - Lending Activities." At September 30, 1996, $77.7 million, or
83.09% of the Damen's total loan portfolio consisted of residential one- to
four-family mortgage loans.
The Company also invests in mortgage-backed and related securities and
investment securities and other permissible investments. See " - Investment
Securities" and " - Mortgage-Backed and Related Securities."
The executive offices of the Company and the Bank are located at 200 West
Higgins Road, Schaumburg, Illinois 60195-3788, and the telephone number at that
address is (847) 882-5320.
The Company's and the Bank's operations are regulated by the Office of
Thrift Supervision (the "OTS"). The Bank is a member of the Federal Home Loan
Bank System ("FHLB System") and a stockholder in the Federal Home Loan Bank
("FHLB") of Chicago. The Bank is also a member of the Savings Association
Insurance Fund ("SAIF") and its deposit
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accounts are insured up to applicable limits by the Federal Deposit Insurance
Corporation ("FDIC").
LENDING ACTIVITIES
GENERAL. With the exception of a loan to its Employee Stock Ownership
Plan, all of the Company's lending activities are conducted through the Bank.
The principal lending activity of the Bank is originating for its portfolio
primarily fixed-rate mortgage loans secured by one- to four-family residences
located primarily in Damen's market area. In addition, in order to provide
more comprehensive financial services in its market area, the Bank also
originates a limited amount of multi-family, commercial real estate and
consumer loans, primarily in its market area. See " - Originations, Purchases
and Sales of Loans and Mortgage-Backed and Related Securities." At September
30, 1996, the Bank's total loans receivable, net, totaled $91.1 million.
Damen's President and Senior Vice President have the authority to approve
owner occupied, one- to four-family residential mortgage loans which satisfy
the following criteria: (i) the applicant and the property fall within Damen's
loan underwriting guidelines; (ii) the borrower is salaried; (iii) the
mortgage's loan-to-value ratio does not exceed 80%; and (iv) the mortgage
amount does not exceed $200,000. All other loan applications are considered by
Damen's Loan Committee and those loans which satisfy the Bank's lending
policies are submitted to the Bank's Board of Directors for ratification.
Under Damen's loan policy, the loan officer processing an application is
responsible for ensuring that all documentation is obtained prior to the
submission of the application to the Loan Committee. In addition, the loan
officer verifies that the application meets the underwriting guidelines
described below.
All of the Bank's lending is subject to its written underwriting standards
and to loan origination procedures. Decisions on loan applications are made on
the basis of detailed applications and property valuations (consistent with the
Bank's appraisal policy). The loan applications are designed primarily to
determine the borrower's ability to repay and the more significant items on the
application are verified through use of credit reports, financial statements,
tax returns or confirmations.
The Bank requires title insurance on its mortgage loans as well as fire
and extended coverage casualty insurance in amounts at least equal to the
principal amount of the loan or the value of improvements on the property,
depending on the type of loan. The Bank also requires flood insurance to
protect the property securing its interest when the property is located in a
flood plain.
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LOAN PORTFOLIO COMPOSITION. The following information concerning the
composition of the Bank's loan portfolios in dollar amounts and in percentages
(before deductions for loans in process, deferred fees and discounts and
allowances for losses) as of the dates indicated.
September 30, November 30,
---------------------------------- ----------------------------------------------------
1996 1995 1994 1993 1992
---------------- ---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Real Estate Loans:
One- to four-family .............. $77,725 83.09% $75,471 83.56% $76,736 84.71% $77,460 86.41% $75,094 90.11%
Multi-family ..................... 12,239 13.08 12,060 13.35 11,218 12.38 10,171 11.34 6,835 8.20
Commercial ....................... 3,317 3.55 2,598 2.88 2,473 2.73 1,802 2.01 1,238 1.49
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans ....... 93,281 99.72% 90,129 99.79% 90,427 99.82% 89,433 99.76% 83,167 99.80%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Other Loans:
Consumer Loans:
Deposit account ................ 260 .28 188 .21 167 .18 219 .24 166 .20
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total consumer loans .......... 260 .28% 188 .21% 167 .18% 219 .24% 166 .20%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans ................... 93,541 100.00% 90,317 100.00% 90,594 100.00% 89,652 100.00% 83,333 100.00%
====== ====== ====== ====== ======
Less:
Loans in process ............... 466 792 527 3,007 3,206
Deferred fees and discounts ...... 1,584 1,694 1,717 1,706 1,455
Allowance for losses ............. 345 275 125 125 125
------- ------- ------- ------- -------
Total loans receivable, net ... $91,146 $87,556 $88,225 $84,814 $78,547
======= ======= ======= ======= =======
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The following table shows the composition of the Bank's loan portfolios by
fixed- and adjustable-rate at the dates indicated.
September 30, November 30,
---------------------------------- ----------------------------------------------------
1996 1995 1994 1993 1992
---------------- ---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Fixed-Rate Loans:
Real Estate:
One- to four-family .............. $77,577 82.93% $75,321 83.40% $76,509 84.45% $76,857 85.73% $72,739 87.29%
Multi-family ..................... 12,239 13.08 12,060 13.35 11,218 12.38 10,171 11.34 6,835 8.20
Commercial real estate ........... 3,317 3.55 2,598 2.88 2,473 2.73 1,802 2.01 1,238 1.49
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans ....... 93,133 99.56% 89,979 99.63 90,200 99.56 88,830 99.08 80,812 96.98
------- ------
Consumer .......................... 260 .28 188 .21 167 .18 219 .24 166 .20
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total fixed-rate loans ....... 93,393 99.84 90,167 99.84 90,367 99.74 89,049 99.32 80,978 97.18
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Adjustable-Rate Loans:
Real estate:
One- to four-family .............. 148 .16% 150 .16 227 .26 603 .68 2,355 2.82
Total loans ................... ------- ------ ------- ------ ------- ------ ------- ------ ------- ------
93,541 100.00% 90,317 100.00% 90,594 100.00% 89,652 100.00% 83,333 100.00%
====== ====== ====== ====== ======
Less:
Loans in process ............... 466 792 527 3,007 3,206
Deferred fees and discounts ...... 1,584 1,694 1,717 1,706 1,455
Allowance for loan losses ........ 345 275 125 125 125
------- ------- ------- ------- -------
Total loans receivable, net ... $91,146 $87,556 $88,225 $84,814 $78,547
======= ======= ======= ======= =======
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The following schedule sets forth the weighted average interest rate by
contractual maturity of the Bank's loan portfolio at September 30, 1996. The
table does not reflect prepayments, scheduled principal repayments or
enforcement of due-on-sale clauses. Loans which have adjustable or
renegotiable interest rates are shown as maturing in the period during which
the contract is due.
Real Estate
------------------------------------------------
Multi-family and
One- to Four-Family Commercial real estate Consumer Total
---------------------- ------------------------ ---------------- ------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate
---------- ---------- ----------- ----------- ------ -------- -------- --------
(Dollars in Thousands)
Due During
Twelve Months
Ending September 30,
- --------------------
1997 ................. $ 117 8.13% $ --- ---% $ 89 7.84% $ 206 8.00%
1998 ................. 149 9.29 8 13.00 98 7.19 255 8.60
1999 and 2000 ........ 2,651 7.63 373 7.95 73 7.24 3,097 7.66
2001 to 2005 ......... 19,823 7.49 5,388 8.03 -- -- 25,211 7.61
2006 to 2020 ......... 45,617 7.40 9,787 8.04 -- -- 55,404 7.51
2021 and following ... 9,368 7.87 --- --- -- -- 9,368 7.87
------- --------- ------- ----- ---- ---- ------- ----
$77,725 $15,556 $260 $93,541
======= ======= ==== =======
The total amount of loans due after September 30, 1996, which have
predetermined interest rates is approximately $93.4 million, while the total
amount of loans due after such dates which have floating or adjustable interest
rates is $148,000.
Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), the aggregate amount of loans that the Bank is permitted to
make to any one borrower is generally limited to 15% of unimpaired capital and
surplus (25% if the security for such loan has a "readily ascertainable" value
or 30% for certain residential development loans). At September 30, 1996,
based on the above, the Bank's regulatory loans-to-one borrower limit was
approximately $5.5 million. On the same date, the Bank had no borrowers with
outstanding balances in excess of this amount. As of September 30, 1996, the
two largest dollar amounts outstanding to one borrower or, group of related
borrowers, were approximately $961,000 and $848,000. These loans are secured
by both one- to four-family and multi-family properties located primarily in
the Bank's market area and, as of September 30, 1996, were performing in
accordance with their terms.
ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LENDING. The cornerstone of
the Bank's lending program is the origination of loans secured by mortgages on
owner-occupied one- to four-family residences. The Bank offers fixed-rate
loans with terms of 7, 10, 15, 20 and 30 years and during the mid 1980s
originated a limited amount of one and three year adjustable rate mortgage
loans ("ARMs"). At September 30, 1996, $77.7 million, or 83.09% of the Bank's
loan portfolio consisted of mortgage loans on one- to four-family residences.
At that date, the average outstanding residential loan balance was
approximately $48,800.
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Substantially all of the one- to four-family residential loans originated
by Damen are secured by properties located in the Bank's market area and all
mortgage loans originated by the Bank are retained and serviced by it. Because
of competitive factors, most of the Bank's one- to four-family residential
loans have been made to persons residing near its Chicago office, which is
located in a low and moderate income community. The Bank has been an active
lender in this market for many years and has never experienced a delinquency
level on these loans which was not consistent with that of its loan portfolio
as a whole.
The Bank offers fixed-rate loans with maximum terms of up to 30 years for
retention in its own portfolio as a central part of its lending program.
However, consistent with its asset/liability management philosophy, the Bank
focuses its fixed-rate loan origination activities on loans having terms to
maturity of 15 years or less. At September 30, 1996, $80.4 million or 86.2% of
the Bank's mortgage loans had original terms of 15 years or less. The interest
rate on the Bank's fixed-rate loans is generally set based on competitive
factors.
During the mid 1980s, the Bank originated a limited amount of ARMs for
retention in its own portfolio. However, as a result of strong competition and
price cutting on these loans in its market area, the Board concluded that
continued efforts to originate ARMs were no longer justified from an economic
point of view. In the future, the Board may consider reinstating the Bank's
ARM lending program, although there can be no assurance as to when, if ever,
this will be the case.
In underwriting one- to four-family residential real estate loans, the
Bank evaluates the borrower's ability to make principal, interest and escrow
payments, the value of the property that will secure the loan and the
borrower's debt to income ratios. Because of the economic conditions in parts
of the Bank's market area, the Bank's underwriting practices do not comply in
every way with those required by most purchasers in the secondary market. For
instance, some of the Bank's low and moderate income borrowers do not have the
net worth or income/debt service levels required by many secondary market
purchasers. The non-compliance of many of the Bank's loans with secondary
market standards limits the Bank's ability to build a held-for-sale portfolio,
which could be useful for asset/liability management structuring and for the
development of non-interest income. Also, such non-compliance may limit to
some extent the Bank's ability to use such loans as collateral for borrowings.
However, the Bank believes that non-compliance with secondary market standards
does not in and of itself cause credit problems since the Bank has engaged in
this type of lending for many years and its delinquency experience on these
loans has been satisfactory to date.
Properties securing one- to four-family residential real estate loans made
by Damen are appraised by independent appraisers. Damen originates virtually
all of its residential mortgage loans with loan-to-value ratios of less than
95%; provided, however, that private mortgage insurance is obtained in an
amount sufficient to reduce the Bank's exposure to not more than 80% of the
appraised value or sales price, as applicable.
The Bank's residential mortgage loans customarily include due-on-sale
clauses giving the Bank the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.
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Many of the Bank's one- to four-family loans are on properties with more
than one unit. In some cases, at least one unit in the property is occupied by
the borrower while other one- to four-family loans are on non-owner occupied
properties.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. During recent years,
Damen has increased its origination of permanent multi-family and commercial
real estate loans secured by properties generally located in its market area.
At September 30, 1996, the Bank had $12.2 million in multi-family loans
representing 13.08% of the Bank's total loan portfolio, and $3.3 million in
commercial real estate loans, or 3.55% of the Bank's total loan portfolio.
The Bank's multi-family and commercial real estate loan portfolio includes
loans secured by apartment buildings and other non-residential building
properties. Because of competitive factors, most of the Bank's multi-family
and commercial real estate loans are originated in the southern portion of the
Bank's market area.
Permanent multi-family and commercial real estate loans are generally
originated for a maximum term of 15 years and have fixed rates. Multi-family
and commercial real estate loans are written in amounts of up to 75% of the
appraised value of the property.
Appraisals on properties serving multi-family and commercial real estate
loans originated by the Bank are performed by an independent appraiser prior to
the time the loan is made. All appraisals on commercial and multi-family real
estate are reviewed by the Bank's management. The Bank's underwriting
procedures require verification of the borrower's credit history, income and
financial statements, banking relationships. The Bank generally requires
personal guarantees on loans secured by multi-family and commercial real
estate.
Multi-family and commercial real estate loans generally present a higher
level of risk than loans secured by one- to four-family residences. This
greater risk is due to several factors, including the concentration of
principal in a limited number of loans and borrowers, the effects of general
economic conditions on income producing properties and the increased difficulty
of evaluating and monitoring these types of loans. Furthermore, the repayment
of loans secured by multi-family and commercial real estate is typically
dependent upon the successful operation of the related real estate project. If
the cash flow from the project is reduced (for example, if leases are not
obtained or renewed), the borrower's ability to repay the loan may be impaired.
At September 30, 1996, the Bank had two multi-family loans totaling $252,000
and no commercial real estate loans 90 days or more delinquent.
In the future, the Bank intends to continue to emphasize multi-family and
commercial real estate lending.
CONSUMER LENDING. The Bank offers only consumer loans secured by certain
types of deposit accounts. At September 30, 1996, deposit loans totaled
$260,000 or .28% of net loans outstanding.
The Bank's consumer loans secured by deposit accounts are made in amounts
not to exceed 90% of the deposit holders available passbook or certificate of
deposit balance and carry a maximum term of three years when secured by
passbook accounts and as of the maturity date
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for loans secured by certificates of deposit. Such loans carry an interest
rate which is 2.5% above the stated interest rate for the pledged account. The
Bank may determine to increase the types of consumer loan products offered.
ORIGINATIONS, PURCHASES AND SALES OF LOANS AND MORTGAGE-BACKED AND RELATED
SECURITIES
Real estate loans are originated by Damen's staff of salaried loan
officers through referrals from real estate brokers, attorneys and customers.
In addition, in the future, the Bank may utilize commissioned loan originators
in an attempt to increase loan production, although there are no specific plans
to do so at this time. Loan applications are taken and processed at each of
Damen's offices.
The Bank's ability to originate loans is dependent upon customer demand
for loans in its market and to a limited extent, various marketing efforts.
Demand is affected by both the local economy and the interest rate environment.
Historically, all loans originated by Damen are retained in the Bank's
portfolio.
In order to supplement loan originations, the Company has acquired
mortgage-backed and related securities which are held, depending on the
investment intent, in the "held-to-maturity" or "available-for-sale"
portfolios. During the year ended September 30, 1996 and the ten months ended
September 30, 1995, the Company purchased $23.2 million and $21.9 million,
respectively, of mortgaged-backed and related securities. During the same
periods, the Company sold $920,000 and $1.3 million, respectively, of
mortgage-backed and related securities. In the future, in order to supplement
loan production, the Bank may also consider purchasing loans from third party
originators, although there are no specific plans to do so at this time and the
Bank has not done so in recent years. See " - Investment Activities -
Mortgage-Backed and Related Securities" and Notes 4 and 5 to the Notes to
Consolidated Financial Statements in the Annual Report to Stockholders for the
fiscal year ended September 30, 1996 attached hereto as Exhibit 13 (the "Annual
Report").
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The following table shows the loan origination, purchase, sale and
repayment activities of the Company for the periods indicated.
Ten Months
Year Ended Ended Year Ended
September 30, September 30, November 30,
------------- ------------- ------------
1996 1995 1994
------------- ------------- ------------
(In Thousands)
ORIGINATIONS BY TYPE:
Fixed rate:
Real estate - one- to four-family ....... $15,612 $ 9,280 $14,881
- multi-family .............. 2,137 2,051 3,777
- commercial ................ 1,528 626 1,058
Consumer ................................ 212 315 146
------- ------- -------
Total loans originated .............. 19,489 12,272 19,862
------- ------- -------
PURCHASES:
Mortgage-backed securities (excluding
REMICs and CMOs) ...................... 21,828 18,911 25,565
REMICs and CMOs ........................ 1,365 2,986 14,491
------- ------- -------
Total purchased ...................... 23,193(1) 21,897 40,056
------- ------- -------
SALES AND REPAYMENTS:
Mortgage-backed securities ............. 920 1,288 3,575
------- ------- -------
Total sales ......................... 920 1,288 3,575
Principal repayments .................... 31,888 20,212 51,046
------- ------- -------
Total reductions ..................... 32,808 21,500 54,621
Increase (decrease) in other items, net .. (377) 1,111 594
------- ------- -------
Net increase ......................... $ 9,497 $13,780 $ 5,891
======= ======= =======
- --------------
(1) Includes $8.6 million of adjustable-rate mortgage-backed and related
securities.
DELINQUENCIES AND NON-PERFORMING ASSETS
DELINQUENCY PROCEDURES. When a borrower fails to make a required payment
on a loan, the Bank attempts to cure the delinquency by contacting the
borrower. A late notice is sent on all delinquent loans. Additional written
and verbal contacts may be made with the borrower between 30 and 90 days after
the due date. If the loan is contractually delinquent 90 days, the Bank either
arranges payment with the borrower or institutes appropriate action to
foreclose on the property. If a borrower agrees to a payment plan to bring a
delinquent loan current, a designated officer monitors the loan for compliance
with the payment agreement. If foreclosed, the property is sold at sheriff's
sale and may be purchased by the Bank. Delinquent consumer loans are generally
handled in a similar manner. Once a loan has been set to Damen's attorney to
begin foreclosure proceedings, no payments are accepted without the prior
approval of Damen's President.
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Real estate acquired by Damen as a result of foreclosure or by deed in
lieu of foreclosure is classified as real estate owned until it is sold. When
property is acquired by foreclosure or deed in lieu of foreclosure, it is
recorded at the lower of cost or estimated fair value less estimated selling
costs. After acquisition, all costs incurred in maintaining the property are
expensed. Costs relating to the development and improvement of the property,
however, are capitalized.
The following table sets forth the Bank's loan delinquencies by type, by
amount and by percentage of type at September 30, 1996.
Loans Delinquent For:
--------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
------------------------ ------------------------ ----------------------------
Percent Percent Percent
of Total of Total of Total
Number Amount Loans Number Amount Loans Number Amount Loans
------ ------ -------- ------ ------ -------- -------- -------- --------
(Dollars in Thousands)
Real Estate:
One- to four-family ..... 3 $29 .03% 6 $ 99 .11% 9 $128 .14%
Multi-family ............ -- -- -- 2 252 .27 2 252 .27
Commercial real estate .. -- -- -- -- -- -- -- -- --
Consumer ................. -- -- -- -- -- -- -- -- --
---- --- --- ---- ---- ----
Total 3 $29 .03% 8 $351 .38% 11 $380 .41%
==== === ==== === ==== ==== ==== ==== ====
CLASSIFICATION OF ASSETS. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets:
Substandard, Doubtful and Loss. Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the Bank will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of Substandard assets, with the additional characteristics that
the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified Loss is considered uncollectible and
of such little value that continuance as an asset on the balance sheet of the
institution is not warranted. Assets classified as Substandard or Doubtful
require the institution to establish prudent general allowances for loan
losses. If an asset or portion thereof is classified as Loss, the institution
must either establish specific allowances for loan losses in the amount of 100%
of the portion of the asset classified Loss, or charge off such amount. If an
institution does not agree with an examiner's classification of an asset, it
may appeal this determination to the District Director of the OTS.
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On the basis of management's review of its assets, at September 30, 1996,
the Bank had classified a total of $351,000 of its loans and other assets as
follows:
At
September 30,
1996
--------------
(In Thousands)
Special Mention ................ $--
Substandard .................... 243
Doubtful assets ................ 108
Loss assets .................... --
----
Total ...................... 351
====
General loss allowance ......... 345
====
Specific loss allowance ........ --
====
Charge-offs .................... --
====
Damen's classified assets consist of the non-performing loans and loans
and other assets of concern discussed herein. As of the date hereof, these
asset classifications are materially consistent with those of the OTS and FDIC.
NON-PERFORMING ASSETS. Loans are reviewed monthly and any loan whose
collectibility is doubtful is placed on non-accrual status. Loans are placed
on non-accrual status when either principal or interest is 90 days or more past
due, unless, in the judgment of management, the loan is well collateralized and
in the process of collection. Interest accrued and unpaid at the time a loan
is placed on non-accrual status is charged against interest income. Subsequent
payments are either applied to the outstanding principal balance or recorded as
interest income, depending on the assessment of the ultimate collectibility of
the loan. Restructured loans include troubled debt restructurings (which
involved forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than the market rate). At September 30, 1996,
the Bank had no restructured loans or foreclosed assets.
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NON-PERFORMING ASSETS. The following table sets forth the amounts and
categories of non-performing assets in the Bank's portfolio.
September 30, November 30,
---------------- -----------------------
1996 1995 1994 1993 1992
------- ------- ----- ----- ---------
(Dollars in Thousands)
Non-accruing loans:
One- to four-family ................... $ 99 $65 $109 $156 $ 159
Multi-family .......................... 252 -- -- -- --
Commercial real estate ................ -- -- -- -- --
Consumer .............................. -- -- 7 -- --
---- --- ---- ---- ------
Total .............................. 351 65 116 156 159
---- --- ---- ---- ------
Accruing loans delinquent more than 90 days:
Total ............................... -- -- -- -- --
---- --- ---- ---- ------
Foreclosed assets:
Commercial real estate ................. -- -- -- -- 2,079(1)
---- --- ---- ---- ------
Total ............................... -- -- -- -- 2,079
---- --- ---- ---- ------
Total non-performing assets ............. $351 $65 $116 $156 $2,238
==== === ==== ==== ======
Total as a percentage of total assets ... .15% .03% .06% .09% 1.27%
==== === ==== ==== ======
- --------------
(1) Represents Damen's Schaumburg office.
For the year ended September 30, 1996 and the ten months ended September
30, 1995, gross interest income which would have been recorded had the
non-accruing loans been current in accordance with their original terms
amounted to $8,900 and $4,800, respectively.
OTHER LOANS OF CONCERN. In addition to the non-performing assets set
forth in the table above, as of September 30, 1996, there were no loans with
respect to which known information about the possible credit problems of the
borrowers or the cash flows of the security properties have caused management
to have concerns as to the ability of the borrowers to comply with present loan
repayment terms and which may result in the future inclusion of such items in
the non-performing asset categories.
Management has considered the Bank's non-performing and "of concern"
assets in establishing its allowance for loan losses.
13
14
ALLOWANCE FOR LOSSES ON LOANS. The following table sets forth information
with respect to the Bank's allowance for loan losses for the periods indicated.
During each of the periods presented, there were no recoveries of amounts
charged off.
Ten Months
Year Ended Ended
September 30, September 30, Year Ended November 30,
------------- ------------- ----------------------------
1996 1995 1994 1993 1992
------------- ------------- -------- -------- --------
(Dollars in Thousands)
Balance at beginning of period .................. $275 $ 125 $125 $125 $100
Charge-offs:
One- to four-family ........................... -- 9 -- -- 4
Multi-family .................................. -- -- -- -- --
Consumer ...................................... -- 4 -- -- --
---- ------ ---- ---- ----
Total ...................................... -- 13 -- -- 4
---- ------ ---- ---- ----
Recoveries:
Total ...................................... -- -- -- -- --
---- ------ ---- ---- ----
Net charge-offs ................................. -- 13 -- -- 4
---- ------ ---- ---- ----
Additions charged to operations ................. 70 163 -- -- 29
---- ------ ---- ---- ----
Balance at end of period ........................ $345 $ 275 $125 $125 $125
==== ====== ==== ==== ====
Ratio of net charge-offs during the period to
average loans outstanding during the period .... --% .01% -- % -- % .01%
==== ====== ==== ==== ====
Ratio of net charge-offs during the period to
average non-performing assets .................. --% 11.21% -- % -- % .02%
==== ====== ==== ==== ====
14
15
The following table sets forth the allocation of the Bank's allowance for
loan losses by loan category and the percent of loans in each category to total
loans receivable, net, at the end of the periods indicated. The portion of the
loan loss allowance allocated to each loan category does not represent the
total available for future losses which may occur within the loan category
since the total loan loss allowance is a valuation reserve applicable to the
entire loan portfolio.
September 30,
------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- --------
(In Thousands)
One- to four-family ...... $201 $77,725 83.09% $196 $75,471 83.56%
Multi-family ............. 119 12,239 13.08 57 12,060 13.35
Commercial real estate ... 25 3,317 3.55 19 2,598 2.88
Consumer ................ -- 260 .28 -- 188 .21
Unallocated .............. -- -- -- 3 -- --
---- ------- ------ ---- ------- ------
Total ................ $345 $93,541 100.00% $275 $90,317 100.00%
==== ======= ====== ==== ======= ======
November 30,
-------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------- ----------------------------- -----------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- -------- --------- -------- --------
(In Thousands)
One- to four-family ...... $ 82 $76,736 84.71 $ 85 $77,460 86.41 $ 86 $75,094 90.11
Multi-family ............. 22 11,218 12.38 20 10,171 11.34 14 6,835 8.20
Commercial real estate ... 6 2,473 2.73 5 1,802 2.01 1 1,238 1.49
Consumer ................ 1 167 .18 -- 219 .24 --- 166 .20
Unallocated .............. 14 -- -- 15 --- --- 24 --- ---
---- ------- ------ ---- ------ ------ --------- -------- -------
Total ................ $125 $90,594 100.00% $125 $89,652 100.00% $125 $83,333 100.00%
==== ======= ====== ==== ======= ======= ========= ======== =======
15
16
The allowance for losses on loans is established through a provision for
losses on loans charged to earnings based on management's evaluation of the risk
inherent in its entire loan portfolio and changes in the nature and volume of
its loan activity. Such evaluation, which includes a review of all loans of
which full collectibility may not be reasonably assured, considers specific
occurrences, general and local economic conditions, loan portfolio composition,
historical and local experience and other factors that warrant recognition in
providing for an adequate allowance for loan losses. In determining the general
reserves under these policies, historical charge-offs and recoveries, changes in
the mix and levels of the various types of loans, net realizable values, the
current loan portfolio and current economic conditions are considered. The Bank
also requires additional reserves for all classified loans.
While management believes that it uses the best information available to
determine the allowance for losses on loans, unforeseen economic and market
conditions could result in adjustments to the allowance for losses on loans,
and net earnings could be significantly affected, if circumstances differ
substantially from the assumptions used in making the final determination.
INVESTMENT ACTIVITIES
GENERAL. Damen must maintain minimum levels of investments and other
assets that qualify as liquid assets under OTS regulations. Liquidity may
increase or decrease depending upon the availability of funds and comparative
yields on investments in relation to the return on loans. Historically, Damen
has maintained liquid assets at levels significantly above the minimum
requirements imposed by the OTS regulations and above levels believed adequate
to meet the requirements of normal operations, including potential deposit
outflows. At September 30, 1996, Damen's liquidity ratio for regulatory
purposes was 8.36%. Damen's level of liquidity is a result of management's
asset/liability strategy. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset/Liability Management"
and " - Liquidity and Capital Resources" in the Annual Report.
Generally, the investment policy of DFC and the Bank is to invest funds
among categories of investments and maturities based upon the Company's and the
Bank's asset/liability management policies, investment quality, loan and
deposit volume, liquidity needs and performance objectives. Prior to
December 1, 1994, the Company recorded its investments in its investment
securities portfolio at the lower of cost or current market value if
held-for-sale or at amortized cost if held-for-investment. Unrealized declines
in the market value of securities held-to-maturity were not reflected in the
financial statements; however, unrealized losses in the market value of
securities held-for-sale were recorded as a charge to current earnings.
Effective December 1, 1994, the Company adopted SFAS 115, which resulted in a
one-time charge to stockholders' equity of approximately $1.1 million,
while the cumulative effect of this change in accounting principle, net of
taxes, resulted in a one-time $907,000 credit to earnings. As required by SFAS
115, securities are classified into three categories: trading, held-to-maturity
and available-for-sale. Securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and are reported at fair value with unrealized gains and losses included in
trading account activities in the statement of operations. Securities that DFC
has the positive intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost. All other securities not
classified as held-to-maturity are classified as available-for-sale. At
September 30, 1996, DFC had no
16
17
securities which were classified as trading. Available-for-sale securities
are reported at fair market value with unrealized gains and losses included, on
an after-tax basis, in a separate component of stockholders' equity. At
September 30, 1996, $43.3 million of investment securities and $52.6 million of
mortgage-backed and related securities were classified as available-for-sale.
INVESTMENT SECURITIES. The Company and the Bank have used investment
securities to supplement loan volume and to provide adjustable rate and/or
short and intermediate-term assets for asset/liability management purposes. To
date, the Company's and the Bank's investments have been directed toward
high-quality assets with various terms to maturity. In the last several years,
the Bank has increased its holdings in tax-exempt investments based on their
after tax yield. In addition to federal agency obligations and tax-exempt
municipal bonds, but to a much lesser extent, the Company and the Bank invest
in FHLB stock, equity securities and mutual funds. At September 30, 1996 and
1995, the Company's investment securities portfolio totaled $48.2 million and
$37.3 million, respectively. At September 30, 1996, the Company did not own
any investment securities of a single issuer which exceeded 10% of the
Company's equity, other than federal agency obligations, Federal Home Loan
Mortgage Corporation ("FHLMC") stock and FHLB stock. See Notes 2 and 3 of the
Notes to the Consolidated Financial Statements in the Annual Report for
additional information regarding the Company's investment securities portfolio.
As part of DFC's asset/liability management strategy, the Company's
investment securities portfolio contains both short- and intermediate-term
(five years or less) securities. At September 30, 1996, $17.9 million of the
Company's investment securities (excluding FHLB stock) had terms to maturity of
five years or less. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset/Liability Management" in the Annual
Report.
In the past several years, DFC carried a portion of this investment
portfolio as "held-for-sale", contributing to some earnings' volatility.
However, subsequent to the adoption of SFAS 115 effective December 1, 1994 and
the recording of a cumulative effect adjustment, the effect of changes in the
value of securities available-for-sale caused by interest rate movements will
affect the Company's stockholders' equity and not results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Recent Accounting Pronouncements" in the Annual Report.
17
18
The following table sets forth the carrying value of the Company's
investment securities and FHLB stock at the dates indicated. At September 30,
1996, the market value of the Company's held-to-maturity investment securities
portfolio was $4.9 million.
September 30, November 30,
-------------------------------------------- ---------------------
1996 1995 1994
--------------------- --------------------- ---------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
------------ ------- ------------ ------- ------------ -------
(Dollars in Thousands)
Investment securities:
Held-to-Maturity:
Tax-Exempt securities(1) ...................... $ -- -- % $ -- -- % $16,711 59.27%
FHLB stock .................................... 3,110 6.45 2,570 6.88 2,220 7.87
Other ......................................... 1,777 3.68 1,090 2.92 1,017 3.61
------- ------ ------- ------ ------- ------
Subtotal ..................................... 4,887 10.13 3,660 9.80 19,948 70.75
------- ------ ------- ------ ------- ------
Available-for-Sale:
Tax-Exempt securities(1) ...................... $24,905 51.64% $20,478 54.83% $ -- -- %
Federal Agency Obligations .................... 14,785 30.66 11,166 29.90 6,407 22.73
Equity securities .............................. 3,653 7.57 2,045 5.47 1,839 6.52
------- ------ ------- ------ ------- ------
Subtotal ..................................... 43,343 89.87 33,689 90.20 8,246 29.25
------- ------ ------- ------ ------- ------
Total investment securities ................. $48,230 100.00% $37,349 100.00% $28,194 100.00%
======= ====== ======= ====== ======= ======
Average remaining life of investment securities
(excluding FHLB stock and other equities) ....... 9.4 years 11.3 years 9.9 years
Other interest-earning assets:
Interest-earning deposits with banks ............ $ 1,011 100.00% $19,938 100.00% $ 172 100.00%
======= ====== ======= ====== ======= ======
- --------------
(1) Effective with the adoption of SFAS 115 on December 1, 1994, the Company's
tax-exempt securities were classified as available-for-sale.
The following table sets forth certain information regarding the
composition and maturities of the securities portfolio, excluding FHLB stock,
equity securities and other items, at September 30, 1996. See Note 3 of the
Notes to the Consolidated Financial Statements in the Annual Report for a
discussion of the Company's investment securities portfolio. A portion of the
Company's municipal bonds have been prerefunded and the maturity on these bonds
reflect the prerefunded maturity dates.
September 30, 1996
------------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 Years Total Investment Securities
---------- ---------- ---------- ---------- ------------------------------
Book Value Book Value Book Value Book Value Book Value Market Value
---------- ---------- ---------- ---------- -------------- --------------
(Dollars in Thousands)
Municipal bonds ......................... $1,929 $ 5,054 $1,375 $16,547 $24,905 $24,905
Federal agency obligations .............. 2,497 8,409 3,879 --- 14,785 14,785
------ ------- ------ ------- ------- -------
Total investment securities
(excluding FHLB stock, equity
securities and other items) ......... $4,426 $13,463 $5,254 $16,547 $39,690 $39,690
====== ======= ====== ======= ======= =======
Weighted average yield ................... 6.87% 6.41% 6.67% 5.97% 6.31% 6.31%
18
19
MORTGAGE-BACKED AND RELATED SECURITIES. In order to supplement loan and
investment activities and achieve its asset/liability management goals, the
Company invests in mortgage-backed and related securities. As of September 30,
1996, all of the mortgage-backed and related securities owned by the Company
are issued, insured or guaranteed either directly or indirectly by a federal
agency or are rated "A" (in most cases "AAA") or higher by a nationally
recognized credit rating agency. However, it should be noted that, while a
(direct or indirect) federal guarantee or a high credit rating may indicate a
high degree of protection against default, they do not indicate that the
securities will be protected from declines in value based on changes in
interest rates or prepayment speeds.
At September 30, 1996, DFC had $88.1 million of mortgage-backed and
related securities, representing 37.6% of total assets. On that date, the
Company had $48.1 million of Federal National Mortgage Association ("FNMA"),
FHLMC and Government National Mortgage Association ("GNMA") participation
certificates and conventional mortgage-backed securities and $40.0 million of
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs"). At September 30, 1996, $40.9 million of the
Company's mortgage-backed securities were issued by either FHLMC, FNMA or GNMA
and the remaining $7.2 million were privately issued mortgage-backed
securities. On that date, $12.5 million of the Company's CMOs and REMICs were
issued either by FHLMC or FNMA and the remaining $27.5 million were privately
issued securities. None of the Company's privately issued mortgage-backed or
related securities are insured or guaranteed by FHLMC or FNMA. All of the
privately issued securities were rated "AA" or higher by a nationally
recognized credit rating agency at the time of purchase.
Consistent with its asset/liability management strategy, at September 30,
1996, $40.2 million or 45.6% of DFC's mortgage-backed and related securities
had adjustable interest rates. In addition, the Company has a substantial
portfolio of CMOs and REMICs with anticipated average lives of five years or
less. For information regarding the Company's mortgage-backed and related
securities portfolio, see Notes 4 and 5 of the Notes to the Consolidated
Financial Statements in the Annual Report.
At September 30, 1996, the Company did not have any mortgage-backed or
related securities in excess of 10% of stockholders' equity except for FNMA,
FHLMC and GNMA issues, amounting to $18.9 million, $9.6 million and $24.9
million, respectively.
In addition to its conventional mortgage-backed securities, the Company
invests in CMOs and REMICs. CMOs and REMICs are securities derived by
reallocating the cash flows from mortgage-backed securities or pools of
mortgage loans in order to create multiple classes, or tranches, of securities
with coupon rates and average lives that differ from the underlying collateral
as a whole. The terms to maturity of any particular tranche is dependent upon
the prepayment speed of the underlying collateral as well as the structure of
the particular CMO or REMIC. Although a significant proportion of the
Company's CMOs are interests in tranches which have been structured (through
the use of cash flow priority and "support" tranches) to give somewhat more
predictable cash flows, the cash flow and hence the value of CMOs and REMICs
are subject to change.
19
20
The Company invests in CMOs and REMICs as an alternative to mortgage loans
and conventional mortgage-backed securities as part of its asset/liability
management strategy. Management believes that CMOs and REMICs can represent
attractive investment alternatives relative to other investments due to the
wide variety of maturity and repayment options available through such
investments. In particular, the Company has from time to time concluded that
short and intermediate duration CMOs and REMICs (five year or less average
life) represent a better combination of rate and duration than adjustable rate
mortgage-backed securities. Because the Company's CMOs and REMICs (with the
exception of those classified as "high risk" at the time of purchase, as
described below) are purchased as an alternative to mortgage loans and because
the Company has the ability and intent to hold such securities to maturity, all
such securities (with the exception of those classified as "high risk" at the
time of purchase) are classified as held-to-maturity. At September 30, 1996,
the Company held $40.0 million of CMOs and REMICs, including $34.4 million of
short and intermediate duration (five year or less average life) or adjustable
rates.
Substantially all mortgage derivatives recently purchased by the Company
are not classified as "high-risk" under regulatory guidelines and are subject
to normal effects of changes in interest rates. To assess price volatility,
the Federal Financial Institutions Examination Council ("FFIEC") adopted a
policy in 1992 which requires an annual "stress" test of mortgage derivative
securities. This policy, which has been adopted by the OTS, requires the Bank
to annually test its CMOs and other mortgage-related securities to determine
whether they are high-risk or nonhigh-risk securities. Mortgage derivative
products with an average life or price volatility in excess of a benchmark
30-year mortgage-backed pass-through security are considered high-risk mortgage
securities. Under the policy, savings institutions may generally only invest
in high-risk mortgage securities in order to reduce interest rate risk. In
addition, all high-risk mortgage securities acquired after February 9, 1992
which are classified as high risk at the time of purchase must be carried in
the institution's trading account or as assets held-for-sale. Additionally,
DFC's investment policy limits the amount of "high-risk" CMOs that the Company
may purchase to 12% of total assets and mandates that these assets must be
retested and monitored quarterly. At September 30, 1996, the Company held CMOs
and REMICs that did not meet the criteria established by the FFIEC policy and
were classified as "high-risk" with a carrying value of $12.0 million
(including $8.6 million of securities which were held for investment because
there was an ability and intent to hold to maturity and such securities were
either acquired before February 9, 1992 or were not classified as high risk
until sometime after purchase) and a market value of $11.6 million. While the
Company's current investment policy permits its investment, subject to certain
limitations, in CMOs and REMICs classified as "high-risk," it is currently
anticipated that any future investments in "high-risk" securities will be
minimal. To date, the OTS has not required the Company to dispose of any
high-risk securities.
20
21
The following table sets forth the contractual maturities of the Company's
mortgage-backed and related securities at the dates indicated. These
securities are anticipated to be repaid in advance of their contractual
maturities as a result of projected mortgage loan prepayments. In addition,
under the structure of the Company's REMICs, the Company's short- and
intermediate-tranche interests have repayment priority over the longer term
tranches of the same underlying mortgage pool. The amounts set forth below
represent principal balances only and do not include premiums, discounts and
market value adjustments.
September 30, 1996
5 to 10 10 to 20 Over 20 Balance
Years Years Years Outstanding
------- -------- ------- ------------------
(In Thousands)
CMOs and REMICs $ -- $8,136 $32,144 $40,280
FNMA participation certificates -- 27 10,832 10,859
Conventional mortgage-backed securities -- -- 7,117 7,117
FHLMC participation certificates -- 156 4,846 5,002
GNMA participation certificates -- -- 24,929 24,929
---- ------ ------- -------
Total $ -- $8,319 $79,868 $88,187
==== ====== ======= =======
The Company's holdings of mortgage-backed and related securities have
increased in recent years as a result of loan competition and deposit growth.
Since federal agency mortgage-backed securities generally carry a yield
approximately 50 to 100 basis points below that of the corresponding type of
residential loan (due to the implied federal agency guarantee fee and the
retention of a servicing spread by the loan servicer), and the Company's other
mortgage related securities also carry lower yields (due to the implied federal
agency guarantee and because such securities tend to have shorter actual
durations than 30 year loans), in the event that the proportion of the
Company's assets consisting of mortgage-backed and related securities
increases, the Company's asset yields could be somewhat adversely affected.
The Company will evaluate mortgage-backed and related securities purchases in
the future based on its asset/liability objectives, market conditions and
alternative investment opportunities.
The market values of a significant portion of the Company's
mortgage-backed and related securities held-to-maturity have been from time to
time significantly lower than their carrying values. However, for financial
reporting purposes, such declines in value are considered to be temporary in
nature since they have been due to changes in interest rates rather than credit
concerns. See Note 4 of the Notes to the Consolidated Financial Statements in
the Annual Report.
21
22
The following table sets forth the carrying value of the Company's
mortgage-backed and related securities at the dates indicated. At September
30, 1996, the market value of the Company's mortgage-backed and related
securities portfolio was $87.2 million.
September 30, November 30,
---------------------------------- ----------------
1996 1995 1994
---------------- ---------------- ----------------
Book % of Book % of Book % of
Value Total Value Total Value Total
------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Held-to-Maturity:
CMOs and REMICs ................................. $35,504 40.30% $42,533 51.75% $44,832 66.18%
------- ------ ------- ------ ------- ------
Subtotal ..................................... 35,504 40.30 42,533 51.75 44,832 66.18
------- ------ ------- ------ ------- ------
Available-for-Sale:
CMOs and REMICs ................................. $ 4,458 5.06% $ 3,636 4.42% $ 3,386 5.00%
FNMA participation certificates ................. 10,928 12.40 13,711 16.68 7,978 11.78
FHLMC participation certificates ................ 5,149 5.85 7,232 8.80 6,214 9.17
GNMA participation certificates ................. 24,826 28.18 7,833 9.53 2,717 4.01
Conventional mortgage-backed securities ......... 7,233 8.21 7,247 8.82 2,615 3.86
------- ------ ------- ------ ------- ------
Subtotal .................................... 52,594 59.70 39,659 48.25 22,910 33.82
------- ------ ------- ------ ------- ------
Total mortgage-backed securities ............ $88,098 100.00% $82,192 100.00% $67,742 100.00%
======= ====== ======= ====== ======= ======
SOURCES OF FUNDS
GENERAL. The Company's primary sources of funds are deposits, payments
(including prepayments) of loan principal, interest earned on loans and
securities, repayments of securities, borrowings and funds provided from
operations.
DEPOSITS. Damen offers a variety of deposit accounts having a wide range
of interest rates and terms. The Bank's deposits consist of passbook, NOW,
money market and various certificate accounts. The Bank relies primarily on
competitive pricing policies and customer service to attract and retain these
deposits.
The variety of deposit accounts offered by the Bank has allowed it to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. However, as customers have become more interest rate
conscious, the Bank has become more susceptible to short-term fluctuations in
deposit flows.
22
23
The Bank manages the pricing of its deposits in keeping with its
asset/liability management, profitability and growth objectives. For instance,
the Bank has recently implemented several marketing initiatives in order to
attract intermediate and long term deposits. However, the Bank has found it
difficult to increase rapidly its deposits on a cost effective basis as a
result of intense competition throughout its market area and slow economic
growth in the community located near its Chicago office. For information
regarding the amount of the Bank's deposit accounts in prior periods, see Note
10 of the Notes to the Consolidated Financial Statements in the Annual Report.
The following table sets forth the savings flows at the Bank during the
periods indicated.
Ten Months
Year Ended Ended Year Ended
September 30, September 30, November 30,
------------- ------------- ------------
1996 1995 1994
------------- ------------- ------------
(Dollars in Thousands)
Opening balance ................ $126,632 $126,210 $126,586
Deposits ....................... 66,969 67,709 82,777
Withdrawals .................... (79,781) (71,146) (87,316)
Interest credited .............. 5,153 3,859 4,163
-------- -------- --------
Ending balance ................. $118,973 $126,632 $126,210
======== ======== ========
Net increase (decrease) ........ $ (7,659) $ 422 $ (376)
======== ======== ========
Percent increase (decrease) .... (6.05)% .33% (.30)%
======== ======== ========
23
24
Deposits in the Bank as of September 30, 1996, were represented by various
types of savings programs described below.
September 30, November 30,
-------------------------------------- --------------------
1996 1995 1994
------------------ ------------------ --------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- --------- ---------
(Dollars in Thousands)
TRANSACTIONS AND SAVINGS DEPOSITS:
Passbook Accounts 3.05%(1) ................... $ 20,386 17.13% $ 23,350 18.44% $ 27,181 21.54%
NOW and Money Market Accounts 2.50 -
4.35%(1) .................................. 10,764 9.05 11,467 9.05 12,292 9.74
-------- ------ -------- ------ -------- ------
Total Non-Certificates .................. 31,150 26.18 34,817 27.49 39,473 31.28
-------- ------ -------- ------ -------- ------
CERTIFICATES:
2.00 - 3.99% ................................. -- -- 1 .03 15,134 11.99
4.00 - 5.99% ................................. 63,143 53.07 54,536 43.05 53,810 42.64
6.00 - 7.99% ................................. 23,390 19.66 35,729 28.21 12,433 9.85
8.00 - 9.99% ................................. 1,290 1.09 1,549 1.22 5,360 4.24
-------- ------ -------- ------ -------- ------
Total Certificates ........................ 87,823 73.82 91,815 72.51 86,737 68.72
-------- ------ -------- ------ -------- ------
Total Deposits ........................... $118,973 100.00% $126,632 100.00% $126,210 100.00%
======== ====== ======== ====== ======== ======
- --------------
(1) Rates in effect at September 30, 1996.
24
25
The following table shows rate and maturity information for the Bank's
certificates of deposit as of September 30, 1996.
0.00- 4.00- 5.00- 6.00- 7.00- 8.00- 9.00- Percent
3.99% 4.99% 5.99% 6.99% 7.99% 8.99% 9.99% Total of Total
----- ------- -------- -------- ------- ----- ----- ------- --------
(Dollars in Thousands)
Certificate accounts maturing in
quarter ending:
December 31, 1996 .................. $--- $3,600 $12,906 $ 1,502 $1,358 $--- $218 $19,584 22.30%
March 31, 1997 ..................... --- 772 12,275 352 4,523 18 --- 17,940 20.43
June 30, 1997 ...................... --- 195 6,766 1,007 --- --- --- 7,968 9.07
September 30, 1997 ................. --- 123 6,547 1,914 --- --- --- 8,584 9.77
December 31, 1997 .................. --- 13 2,323 398 --- --- 7 2,741 3.12
March 31, 1998 ..................... --- --- 3,333 118 --- 75 --- 3,526 4.01
June 30, 1998 ...................... --- --- 2,987 218 --- 331 400 3,936 4.48
September 30, 1998 ................. --- --- 2,984 4,354 --- --- --- 7,338 8.36
December 31, 1998 .................. --- --- 2,558 145 74 --- 91 2,868 3.27
March 31, 1999 ..................... --- --- 2,756 151 7 --- 107 3,021 3.44
June 30, 1999 ...................... --- --- 1,340 737 --- --- 43 2,120 2.41
September 30, 1999 ................. --- --- 253 1,879 --- --- --- 2,132 2.43
Thereafter ......................... --- --- 1,412 3,222 1,431 --- --- 6,065 6.91
----- ------ ------- ------- ------ ---- ---- -------
Total ........................... $--- $4,703 $58,440 $15,997 $7,393 $424 $866 $87,823 100.00%
===== ====== ======= ======= ====== ==== ==== ======= =======
Percent of total ................ ---% 5.36% 66.54% 18.22% 8.42% .48% .98%
===== ====== ======= ======= ====== ==== ====
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The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of September
30, 1996.
Maturity
-------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
-------- ------- ------- --------- -------
(In Thousands)
Certificates of deposit less than $100,000 ................. $ 9,848 $12,524 $11,481 $25,203 $59,056
Certificates of deposit of $100,000 or more ................. 4,534 1,874 4,294 8,544 19,246
(excluding Public Funds)
Public funds(1) ............................................ 5,202 3,542 777 --- 9,521
-------- ------- ------- --------- -------
Total certificates of deposit ............................... $19,584 $17,940 $16,552 $33,747 $87,823
======== ======= ======= ========= =======
- --------------
(1) Deposits from governmental and other public entities.
For additional information regarding the composition of the Bank's
deposits, see Note 10 of the Notes to the Consolidated Financial Statements in
the Annual Report.
BORROWINGS. The Bank's other available sources of funds include advances
from the FHLB of Chicago and other borrowings. As a member of the FHLB of
Chicago, the Bank is required to own capital stock in the FHLB of Chicago and
is authorized to apply for advances from the FHLB of Chicago. Each FHLB credit
program has its own interest rate, which may be fixed or variable, and range of
maturities. The FHLB of Chicago may prescribe the acceptable uses for these
advances, as well as limitations on the size of the advances and repayment
provisions.
Consistent with its asset/liability management strategy, the Bank may
utilize FHLB advances to extend the term to maturity of its liabilities. Also,
the Bank uses FHLB borrowings to fund loan demand and other investment
opportunities and to offset deposit outflows. At September 30, 1996, the Bank
had $59.6 million of FHLB advances outstanding with a weighted average interest
rate of 6.05%. See Note 11 of the Notes to the Consolidated Financial
Statements in the Annual Report.
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The following table sets forth the maximum month-end balance and average
balance of FHLB advances and all other borrowings for the periods indicated.
Ten Months
Year Ended Ended Year Ended
September 30, September 30, November 30,
------------- ------------- ------------
1996 1995 1994
------------- ------------- ------------
(In Thousands)
MAXIMUM BALANCE:
FHLB advances ........ $61,800 $51,400 $44,400
AVERAGE BALANCE:
FHLB advances ........ $51,950 $45,949 $37,564
The following table sets forth certain information as to the Bank's FHLB
advances at the dates indicated.
September 30, November 30,
------------------ ------------
1996 1995 1994
-------- -------- ------------
(Dollars in Thousands)
FHLB advances ...................................... $59,600 $45,500 $44,000
------- ------- -----------
Total borrowings .............................. $59,600 $45,500 $44,000
======= ======= ===========
Weighted average interest rate of FHLB advances .... 6.05% 6.33% 6.10%
SUBSIDIARY AND OTHER ACTIVITIES
As a federally chartered savings bank, Damen is permitted by OTS
regulations to invest up to 2% of its assets in the stock of, or loans to,
service corporation subsidiaries, and may invest an additional 1% of its assets
in service corporations where such additional funds are used for inner-city or
community development purposes. In addition to investments in service
corporations, federal institutions are permitted to invest an unlimited amount
in operating subsidiaries engaged solely in activities which a federal savings
bank may engage in directly.
At September 30, 1996, Damen had one wholly-owned service corporation,
Dasch, Incorporated ("Dasch" or the "Subsidiary"). Dasch, an Illinois
corporation, was incorporated on March 25, 1976 for the purpose of operating a
retail insurance agency selling primarily homeowners and mortgage disability
insurance. The insurance agency was sold in August 1985 and since that time
the Subsidiary has remained inactive. The Company may utilize Dasch in the
future to promote investment sales operations through a third party.
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At September 30, 1996, the Subsidiary's assets consisted entirely of
$185,700 in a savings and a money market account at Damen. At that date, the
Subsidiary had liabilities of $3,400 and equity consisted of $5,000 of capital
stock owned by Damen and $177,300 of retained earnings. Net income for the
year ended September 30, 1996 and the ten months ended September 30, 1995 was
$3,895 and $3,115, respectively.
COMPETITION
The Bank faces strong competition both in originating real estate and
consumer loans and in attracting deposits. Competition in originating loans
comes primarily from other savings institutions, commercial banks, credit
unions and mortgage bankers which also make loans secured primarily by real
estate located in the Bank's market area. The Bank competes for loans
principally on the basis of the interest rates and loan fees it charges, the
types of loans it originates and the quality of services it provides to
borrowers.
The Bank attracts its deposits through its main and branch offices,
primarily from the communities in which those offices are located; therefore,
competition for those deposits is principally from other savings institutions,
commercial banks, credit unions, mutual funds and securities firms located in
the same communities. The ability of the Bank to attract and retain deposits
depends on its ability to provide an investment opportunity that satisfies the
requirements of investors as to rate of return, liquidity, risk, convenient
locations and other factors. The Bank competes for these deposits by offering
a variety of deposit accounts at competitive rates, convenient business hours,
interbranch deposit and withdrawal privileges and a customer oriented staff.
The Bank's share of the loan and deposit markets in its market area is less
than 1%.
EMPLOYEES
At September 30, 1996, the Company had a total of 32 full-time employees.
None of the Company's employees are represented by any collective bargaining
agreement. Management considers its employee relations to be good.
REGULATION
GENERAL. Damen is a federally chartered mutual savings bank, the deposits
of which are federally insured and backed by the full faith and credit of the
United States Government. Accordingly, Damen is subject to broad federal
regulation and oversight extending to all its operations. Damen is a member of
the FHLB of Chicago and is subject to certain limited regulation by the Federal
Reserve Board. Damen is a member of the SAIF and the deposits of Damen are
insured by the FDIC. As a result, the FDIC has certain regulatory and
examination authority over Damen.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
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FEDERAL REGULATION OF SAVINGS ASSOCIATIONS. The OTS has extensive
authority over the operations of savings associations. As part of this
authority, Damen is required to file periodic reports with the OTS and is
subject to periodic examinations by the OTS and the FDIC. The last regular OTS
and FDIC examinations of Damen were as of December 31, 1995 for the OTS
examination and September 30, 1990, respectively. Under agency scheduling
guidelines, it is likely that another examination will be initiated in the near
future. When these examinations are conducted by the OTS and the FDIC, the
examiners may require Damen to provide for higher general or specific loan loss
reserves. All savings associations are subject to a semi-annual assessment,
based upon the savings association's total assets, to fund the operations of
the OTS. The Bank's OTS assessment for the fiscal period ended September 30,
1996 was approximately $62,000.
The OTS also has extensive enforcement authority over all savings
institutions, including Damen and the Company. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease-and-desist or removal orders and to initiate injunctive actions.
In general, these enforcement actions may be initiated for violations of laws
and regulations and unsafe or unsound practices. Other actions or inactions
may provide the basis for enforcement action, including misleading or untimely
reports filed with the OTS. Except under certain circumstances, public
disclosure of final enforcement actions by the OTS is required.
In addition, the investment, lending and branching authority of Damen is
prescribed by federal laws and it is prohibited from engaging in any activities
not permitted by such laws. For instance, no savings association may invest in
non-investment grade corporate debt securities. In addition, the permissible
level of investment by federal associations in loans secured by non-residential
real property may not exceed 400% of total capital, except with approval of the
OTS. Federal savings associations are also generally authorized to branch
nationwide. Damen is in compliance with the noted restrictions.
Damen's general permissible lending limit for loans-to-one-borrower is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus).
At September 30, 1996, Damen's lending limit under this restriction was $5.5
million. Damen is in compliance with the loans-to-one borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any
institution which fails to comply with these standards must submit a compliance
plan. A failure to submit a plan or to comply with an approved plan will
subject the institution to further enforcement action. The OTS and the other
federal banking agencies have also proposed additional guidelines on asset
quality and earnings standards. No assurance can be given as to whether or in
what form the proposed regulations will be adopted.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC. Damen is a member of
the SAIF, which is administered by the FDIC. Deposits are insured up to
applicable limits by the FDIC and such insurance is backed by the full faith
and credit of the United States Government. As
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insurer, the FDIC imposes deposit insurance premiums and is authorized to
conduct examinations of and to require reporting by FDIC-insured institutions.
It also may prohibit any FDIC-insured institution from engaging in any activity
the FDIC determines by regulation or order to pose a serious risk to the FDIC.
The FDIC also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound
condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, based upon their level of
capital and supervisory evaluation. Under the system, institutions classified
as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier
1 or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or
a risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all
insured institutions will be made by the FDIC for each semi-annual assessment
period.
On September 30, 1996, federal legislation was enacted that requires the
Savings Association Insurance Fund ("SAIF") to be recapitalized with a one-time
assessment on virtually all SAIF-insured institutions, such as the Bank, equal
to 65.7 basis points on SAIF-insured deposits maintained by those institutions
as of March 31, 1995. This SAIF assessment, which is to be paid to the FDIC by
November 27, 1996, is approximately $860,000 and has been accrued by the
Company at September 30, 1996.
As a result of the SAIF recapitalization, the FDIC has proposed to amend
its regulation concerning the insurance premiums payable by SAIF-insured
institutions. Effective October 1, 1996 through December 31, 1996, the FDIC
has proposed that the SAIF insurance premium for all SAIF-insured institutions
that are required to pay the Financing Corporation (FICO) obligation, such as
the Bank, be reduced to a range of 18 to 27 basis points from 23 to 31 basis
points per $100 of domestic deposits. The Bank currently qualifies for the
minimum SAIF insurance premium of 23 basis points. The FDIC has also proposed
to further reduce the SAIF insurance premium to a range of 0 to 27 basis points
per $100 of domestic deposits, effective January 1, 1997. Management cannot
predict whether or in what form the FDIC's final regulation may be promulgated.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings associations,
such as Damen, are required to maintain a minimum level of regulatory capital.
The OTS has established capital standards, including a tangible capital
requirement, a leverage ratio (or core capital) requirement and a risk-based
capital requirement applicable to such savings associations. These capital
requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.
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The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital. At September 30, 1996, Damen
had no intangible assets which were required to be deducted from tangible
capital. Unrealized gains and losses on debt securities available-for-sale are
excluded from tangible, core and risk-based capital.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the Bank's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. The Bank's Subsidiary is an includable subsidiary.
At September 30, 1996, Damen had tangible capital of $36.6 million, or
16.48% of adjusted total assets, which is approximately $33.3 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital
plus certain intangible assets, including a limited amount of purchased credit
card relationships. As a result of the prompt corrective action provisions
discussed below, however, a savings association must maintain a core capital
ratio of at least 4% to be considered adequately capitalized unless its
supervisory condition is such to allow it to maintain a 3% ratio. At September
30, 1996, Damen had no intangibles which were subject to these tests.
At September 30, 1996, Damen had core capital equal to $36.6 million, or
16.48% of adjusted total assets, which is $29.9 million above the minimum
leverage ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be
used to satisfy the risk-based requirement only to the extent of core capital.
At September 30, 1996, Damen had no capital instruments that qualify as
supplementary capital and $345,000 of general loss reserves, which was less
than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Damen had no such
exclusions from capital and assets at September 30, 1996.
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In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.
The OTS has adopted a final rule that requires every savings association
with more than normal interest rate risk exposure to deduct from its total
capital, for purposes of determining compliance with such requirement, an
amount equal to 50% of its interest-rate risk exposure multiplied by the
present value of its assets. This exposure is a measure of the potential
decline in the net portfolio value of a savings association, greater than 2% of
the present value of its assets, based upon a hypothetical 200 basis point
increase or decrease in interest rates (whichever results in a greater
decline). Net portfolio value is the present value of expected cash flows from
assets, liabilities and off-balance sheet contracts. The rule provides for a
two quarter lag between calculating interest rate risk and recognizing any
deduction from capital. The rule will not become effective until the OTS
evaluates the process by which savings associations may appeal an interest rate
risk deduction determination. It is uncertain as to when this evaluation may
be completed. Any savings association with less than $300 million in assets
and a total capital ratio in excess of 12% is exempt from this requirement
unless the OTS determines otherwise.
On September 30, 1996, Damen had total capital of $36.9 million (including
$36.6 million in core capital and $345,000 in qualifying supplementary capital)
and risk-weighted assets of $75.4 million (including no converted off-balance
sheet assets); or total risk-based capital of 48.97% of risk-weighted assets.
This amount was $30.9 million above the 8% requirement in effect on that date.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to
meet their capital requirements. The OTS is generally required to take action
to restrict the activities of an "undercapitalized association" (generally
defined to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized
associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically
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undercapitalized" (i.e., a tangible capital ratio of 2% or less) is subject to
further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the
OTS must appoint a receiver (or conservator with the concurrence of the FDIC)
for a savings association, with certain limited exceptions, within 90 days
after it becomes critically undercapitalized. Any undercapitalized association
is also subject to the general enforcement authority of the OTS and the FDIC,
including the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the Bank
may have a substantial adverse effect on the Bank's operations and
profitability. DFC shareholders do not have preemptive rights, and therefore,
if the Company is directed by the OTS or the FDIC to issue additional shares of
Common Stock, such issuance may result in the dilution in the percentage of
ownership of the Company.
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. OTS regulations
impose various restrictions or requirements on associations with respect to
their ability to pay dividends or make other distributions of capital. OTS
regulations prohibit an association from declaring or paying any dividends or
from repurchasing any of its stock if, as a result, the regulatory capital of
the Bank would be reduced below the amount required to be maintained for the
liquidation account established in connection with its mutual to stock
conversion.
The OTS utilizes a three-tiered approach to permit associations, based on
their capital level and supervisory condition, to make capital distributions
which include dividends, stock redemptions or repurchases, cash-out mergers and
other transactions charged to the capital account. See " - Regulatory Capital
Requirements."
Generally, Tier 1 associations, which are associations that before and
after the proposed distribution meet their fully phased-in capital
requirements, may make capital distributions during any calendar year equal to
the greater of 100% of net income for the year-to-date plus 50% of the amount
by which the lesser of the Bank's tangible, core or risk-based capital exceeds
its fully phased-in capital requirement for such capital component, as measured
at the beginning of the calendar year, or the amount authorized for a Tier 2
association. However, a Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association as a result of such a determination. Damen meets the requirements
for a Tier 1 association and has not been notified of a need for more than
normal supervision. Tier 2 associations, which are associations that before
and after the proposed distribution meet their current minimum capital
requirements, may make capital distributions of up to 75% of net income over
the most recent four quarter period.
Tier 3 associations (which are associations that do not meet current
minimum capital requirements) that propose to make any capital distribution and
Tier 2 associations that propose to make a capital distribution in excess of
the noted safe harbor level must obtain OTS approval prior to making such
distribution. Tier 2 associations proposing to make a capital distribution
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within the safe harbor provisions and Tier 1 associations proposing to make any
capital distribution need only submit written notice to the OTS 30 days prior
to such distribution. As a subsidiary of the Holding Company, Damen will also
be required to give the OTS 30 days' notice prior to declaring any dividend on
its stock. The OTS may object to the distribution during that 30-day period
based on safety and soundness concerns. See " - Regulatory Capital
Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. The proposal eliminates the current tiered
structure and the safe-harbor percentage limitations. Under the proposal a
savings association may make a capital distribution without notice to the OTS
(unless it is a subsidiary of a holding company) provided that it has a CAMEL 1
or 2 rating, is not in troubled condition and would remain adequately
capitalized (as defined in the OTS prompt corrective action regulations)
following the proposed distribution. Savings associations that would remain
adequately capitalized following the proposed distribution but do not meet the
other noted requirements must notify the OTS 30 days prior to declaring a
capital distribution. The OTS stated it will generally regard as permissible
that amount of capital distributions that do not exceed 50% of the
institution's excess regulatory capital plus net income to date during the
calendar year. An institution may not make a capital distribution without
prior approval of the OTS and the FDIC if it is undercapitalized before, or as
a result of, such a distribution. As under the current rule, the OTS may
object to a capital distribution if it would constitute an unsafe or unsound
practice. No assurance may be given as to whether or in what form the
regulations may be adopted.
LIQUIDITY. All savings associations, including Damen, are required to
maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. For a discussion of what
the Bank includes in liquid assets, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of
all savings associations. At the present time, the minimum liquid asset ratio
is 5%.
In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury obligations)
currently must constitute at least 1% of the Bank's average daily balance of
net withdrawable deposit accounts and current borrowings. Penalties may be
imposed upon associations for violations of either liquid asset ratio
requirement. At September 30, 1996, Damen was in compliance with both
requirements, with an overall liquid asset ratio of 8.36% and a short-term
liquid assets ratio of 2.91%.
ACCOUNTING. An OTS policy statement applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance
with GAAP. Under the policy statement, management must support its
classification of and accounting for loans and securities (i.e., whether
held-for-investment, sale or trading) with appropriate documentation. Damen is
in compliance with these amended rules.
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The OTS has adopted an amendment to its accounting regulations, which may
be made more stringent then GAAP by the OTS, to require that transactions be
reported in a manner that best reflects their underlying economic substance and
inherent risk and that financial reports must incorporate any other accounting
regulations or orders prescribed by the OTS.
QUALIFIED THRIFT LENDER TEST. All savings associations, including Damen,
are required to meet a qualified thrift lender ("QTL") test to avoid certain
restrictions on their operations. This test requires a savings association to
have at least 65% of its portfolio assets (as defined by regulation) in
qualified thrift investments on a monthly average for nine out of every 12
months on a rolling basis. Such assets primarily consist of residential
housing related loans and investments. At September 30, 1996, Damen met the
test and has always met the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after
the failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act ("CRA"),
every FDIC insured institution has a continuing and affirmative obligation
consistent with safe and sound banking practices to help meet the credit needs
of its entire community, including low and moderate income neighborhoods. The
CRA does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the OTS, in connection
with the examination of the Bank, to assess the institution's record of meeting
the credit needs of its community and to take such record into account in its
evaluation of certain applications, such as a merger or the establishment of a
branch, by the Bank. An unsatisfactory rating may be used as the basis for the
denial of an application by the OTS.
The federal banking agencies, including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's compliance
with the CRA. Due to the heightened attention being given to the CRA in the
past few years, the Bank may be required to devote additional funds for
investment and lending in its local community. The Bank was examined for CRA
compliance in 1996 and received a rating of "satisfactory."
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TRANSACTIONS WITH AFFILIATES. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms
as favorable to the Bank as transactions with non-affiliates. In addition,
certain of these transactions are restricted to a percentage of the Bank's
capital. Affiliates of Damen include the Company and any company which is
under common control with Damen. In addition, a savings association may not
lend to any affiliate engaged in activities not permissible for a bank holding
company or acquire the securities of most affiliates. Damen's subsidiary is
not deemed an affiliate, however; the OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
persons.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW, and Super checking
accounts). At September 30, 1996, Damen was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See " - Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds,
including FHLB borrowings, before borrowing from the Federal Reserve Bank.
FEDERAL HOME LOAN BANK SYSTEM. Damen is a member of the FHLB of Chicago,
which is one of 12 regional FHLBs, that administers the home financing credit
function of savings associations. Each FHLB serves as a reserve or central
bank for its members within its assigned region. It is funded primarily from
proceeds derived from the sale of consolidated obligations of the FHLB System.
It makes loans to members (i.e., advances) in accordance with policies and
procedures established by the board of directors of the FHLB. These policies
and procedures are subject to the regulation and oversight of the Federal
Housing Finance Board. All advances from the FHLB are required to be fully
secured by sufficient collateral as determined by the FHLB. In addition, all
long-term advances are required to provide funds for residential home
financing.
As a member, Damen is required to purchase and maintain stock in the FHLB
of Chicago. At September 30, 1996, Damen had $3.1 million in FHLB stock, which
was in compliance with this requirement. In past years, Damen has received
substantial dividends on its FHLB stock. Over the past five calendar years
such dividends have averaged 6.4% and were 6.6% for calendar year 1995.
36
37
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies
on advances targeted for community investment and low- and moderate-income
housing projects. These contributions have affected adversely the level of
FHLB dividends paid and could continue to do so in the future. These
contributions could also have an adverse effect on the value of FHLB stock in
the future. A reduction in value of Damen's FHLB stock may result in a
corresponding reduction in Damen's capital.
FEDERAL AND STATE TAXATION. Savings associations such as Damen that meet
certain definitional tests relating to the composition of assets and other
conditions prescribed by the Internal Revenue Code of 1986, as amended (the
"Code"), are permitted to establish reserves for bad debts and to make annual
additions thereto which may, within specified formula limits, be taken as a
deduction in computing taxable income for federal income tax purposes. The
amount of the bad debt reserve deduction for "non-qualifying loans" is computed
under the experience method. The amount of the bad debt reserve deduction for
"qualifying real property loans" (generally loans secured by improved real
estate) may be computed under either the experience method or the percentage of
taxable income method (based on an annual election).
Under the experience method, the bad debt reserve deduction is an amount
determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.
The percentage of specially computed taxable income that is used to
compute a savings association's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") is 8%. The
percentage bad debt deduction thus computed is reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permits qualifying
savings associations to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally (approximately 31.3% assuming
the maximum percentage bad debt deduction).
If an association's specified assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, Damen may
not deduct any addition to a bad debt reserve and generally must include
existing reserves in income over a four-year period. No representation can be
made as to whether Damen will meet the 60% test for subsequent taxable years.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year or the greater of (i) the
amount deductible under the experience method or (ii) the amount which when
added to the bad debt deduction for "non-qualifying loans" equals the amount by
which 12% of the amount comprising savings accounts at year-end exceeds the sum
of surplus, undivided profits and reserves at the beginning of the year. The
12% limitation has restricted the percentage bad debt deduction available to
the Bank effective with the tax year ended November 30, 1994 and, subsequently,
the tax periods ended September 30, 1995 and 1996, as well.
37
38
In August 1996, legislation was enacted that repeals the reserve method of
accounting used by many thrifts to calculate their bad debt reserve for federal
income tax purposes. As a result, small thrifts such as the Bank must recapture
that portion of the reserve that exceeds the amount that could have been taken
under the experience method for post-1987 tax years. The legislation also
requires thrifts to account for bad debts for federal income tax purposes on
the same basis as commercial banks for tax years beginning after December 31,
1995. The recapture will occur over a six-year period, the commencement of
which will be delayed until the first taxable year beginning after December 31,
1997, provided the institution meets certain residential lending requirements.
The management of the Company does not believe that the legislation will have a
material impact on the Company or the Bank.
In addition to the regular income tax, corporations, including savings
associations such as Damen, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings associations such
as Damen, are also subject to an environmental tax equal to 0.12% of the excess
of alternative minimum taxable income for the taxable year (determined without
regard to net operating losses and the deduction for the environmental tax)
over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of Damen's supplemental reserves for losses
on loans ("Excess"), such Excess may not, without adverse tax consequences, be
utilized for the payment of cash dividends or other distributions to a
shareholder (including distributions on redemption, dissolution or liquidation)
or for any other purpose (except to absorb bad debt losses). As of September
30, 1996, Damen's Excess for tax purposes totaled approximately $4.9 million.
The Company and its subsidiaries filed separate federal income tax returns
on a fiscal year basis using the accrual method of accounting. Savings
associations, such as Damen, that file federal income tax returns as part of a
consolidated group are required by applicable Treasury regulations to reduce
their taxable income for purposes of computing the percentage bad debt
deduction for losses attributable to activities of the non-savings association
members of the consolidated group that are functionally related to the
activities of the savings association member.
Neither Damen nor its subsidiary have been audited by the IRS with respect
to their federal income tax returns during the last ten years. In the opinion
of management, any examination of still open returns (including returns of
subsidiaries and predecessors of, or entities merged into, Damen) would not
result in a deficiency which could have a material adverse effect on the
financial condition of Damen and its consolidated subsidiary.
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39
ILLINOIS TAXATION. The Company and its subsidiaries file separate income
tax returns. For Illinois income tax purposes, corporations are presently
taxed at a rate equal to 7.2% of net income. For these purposes, "net income"
generally means federal taxable income, subject to certain adjustments
(including the addition of interest income on state and municipal obligations
and the exclusion of interest income on United States Treasury obligations).
The exclusion of income on United States Treasury obligations has the effect of
reducing Illinois taxable income. Damen has been audited by the Illinois
Department of Revenue for the years ended November 30, 1992 and 1993, resulting
in no additional liability.
DELAWARE TAXATION. As a Delaware holding company, the Company is exempted
from Delaware corporate income tax but is required to file an annual report
with and pay an annual fee to the State of Delaware. The Company is also
subject to an annual franchise tax imposed by the State of Delaware.
ITEM 2. DESCRIPTION OF PROPERTIES
DFC conducts its business at its main office and two other locations in
its market area. The following table sets forth information concerning each of
DFC's offices as of September 30, 1996. At September 30, 1996, the total net
book value of DFC's premises and equipment (including land, building and
leasehold improvements, and furniture, fixtures and equipment) was
approximately $3.5 million.
YEAR OWNED OR NET BOOK VALUE AT
LOCATION ACQUIRED LEASED SEPTEMBER 30, 1996
----------------------- -------- -------- ------------------
Main Office:
200 West Higgins Road
Schaumburg, Illinois 1993(1) Owned $2,000,000
Full Service Branches:
5100 South Damen Avenue
Chicago, Illinois 1964 Owned 181,000
5750 West 87th Street
Burbank, Illinois 1991 Owned 758,000
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(1) Office first occupied in 1975.
The Company believes that its current facilities are adequate to meet the
present and foreseeable future needs of the Company. The Company's Schaumburg
office currently has approximately 15,300 square feet of unoccupied office
space which Damen intends to lease to a third party.
The Bank's depositor and borrower customer files are maintained by an
independent data processing company. The net book value of the data processing
and computer equipment utilized by the Company at September 30, 1996 was
approximately $351,000. The Company upgraded its data processing and computer
equipment during fiscal 1996 at a cost of $333,000.
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40
ITEM 3. LEGAL PROCEEDINGS
From time to time, DFC is involved as plaintiff or defendant in various
legal proceedings arising in the normal course of its business. While the
ultimate outcome of these various legal proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these legal
actions should not have a material effect on DFC's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of Stockholders (the "Meeting") of Damen Financial
Corporation was held May 9, 1996 at 10:30 a.m. at the William Rainey Harper
College located at 1200 West Algonquin Road, Building H, Room 108, Palatine,
Illinois.
(b) Proxies for the Meeting were solicited pursuant to Section 14 of the
Securities and Exchange Act of 1934; there were no soliciations in opposition.
(c) The following are the results of each matter voted upon at the
Meeting:"
(i) The ratification of the adoption of the 1996 Stock Option and
Incentive Plan; and
Votes For: 2,327,656
Votes Against: 420,024
Abstentions: 181,816
Broker Non-Votes: 82,357
(ii) The ratification of the adoption of the 1996 Recognition and
Retention Plan.
Votes For: 2,278,827
Votes Against: 552,272
Abstentions: 180,754
Broker Non-Votes: -0-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Page 45 of the attached 1996 Annual Report to Stockholders is herein
incorporated by reference.
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41
ITEM 6. SELECTED FINANCIAL DATA
Pages 8 and 9 of the attached 1996 Annual Report to Stockholders is herein
incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pages 10 through 21 of the attached 1996 Annual Report to Stockholders is
herein incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information appearing in the Company's Annual Report to
Stockholders for the year ended September 30, 1996, is incorporated by
reference in this Annual Report on Form 10-K as Exhibit 13.
PAGES IN
ANNUAL
ANNUAL REPORT SECTION REPORT
- --------------------- --------
Report of Independent Auditors ................................................... 22
Consolidated Statement of Financial Condition as of September 30, 1996 and
September 30, 1995 ............................................................ 23
Consolidated Statement of Earnings for the Periods Ended September 30, 1996
and September 30, 1995 and November 30, 1994 .................................. 24 and 25
Consolidated Statement of Changes in Stockholders' Equity for the Periods Ended
September 30, 1996 and September 30, 1995 and November 30, 1994 ................ 26
Consolidated Statement of Cash Flows for the Periods Ended September 30, 1996
and September 30, 1995 and November 30, 1994 ................................... 27 and 28
Notes to Consolidated Financial Statements ........................................ 29 through 43
With the exception of the aforementioned information, the Company's Annual
Report to Stockholders for the year ended September 30, 1996, is not deemed
filed as part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no Current Report on Form 8-K filed within 24 months prior
to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting
principle or financial statement disclosure.
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42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Information concerning directors of the Registrant is incorporated herein
by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in 1997, a copy of which will be filed not
later than 120 days after the close of the fiscal year.
EXECUTIVE OFFICER WHO IS NOT A DIRECTOR
The following is a description of the Company's and Bank's executive
officer who is not also a director as of September 30, 1996.
KENNETH D. VANEK. Mr. Vanek, age 66, has served as a branch manager and
Senior Vice President of the Bank since 1988, and of the Company since its
incorporation in 1995. Mr. Vanek joined Damen in 1971 as an accounting clerk.
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the SEC reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 1996, the
Registrant complied with all Section 16(a) filing requirements applicable to
its officers, directors and greater than 10 percent beneficial owner were
complied with.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1997, a copy of which will be filed not later than
120 days after the close of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in 1997, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
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43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1997, a copy of which will be
filed not later than 120 days after the close of the fiscal year.
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44
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
SEQUENTIAL PAGE
NUMBER WHERE
REFERENCE TO ATTACHED EXHIBITS
REGULATION PRIOR FILING OR ARE LOCATED IN
S-K EXHIBIT EXHIBIT NUMBER THIS FORM 10-K
NUMBER DOCUMENT ATTACHED HERETO REPORT
- ------------------------------------------------------------------------------------------------------------------------------------
2 Plan of acquisition, reorganization, arrangement, liquidation or succession None Not applicable
3(a) Articles of Incorporation * Not applicable
3(b) By-Laws * Not applicable
4 Instruments defining the rights of security holders, including debentures * Not applicable
9 Voting Trust Agreement None Not applicable
10 Material contracts
Profit Sharing Plan and Trust
Money Purchase Plan and Trust
Form of 1995 Stock Option and Incentive Plan * Not applicable
Employment Agreements of Mary Beth Poronsky * Not applicable
Stull, Janine M. Poronsky, Gerald J. Gartner and * Not applicable
Kenneth D. Vanek * Not applicable
Form of Recognition and Retention Plan ** Not applicable
Employee Severance Compensation Plan ** Not applicable
11 Statement regarding computation of per share earnings None Not applicable
13 Annual Report to Security Holders
16 Letter regarding change in certifying accountants None Not applicable
18 Letter regarding change in accounting principles None Not applicable
21 Subsidiaries of Registrant
22 Published report regarding matters submitted to vote of security holders None Not applicable
23 Consents of Experts and Counsel
24 Power of Attorney None Not applicable
27 Financial Data Schedule
28 Information from reports furnished to state insurance regulatory authorities None Not applicable
99 Additional Exhibits None Not applicable
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* Filed as exhibits to the Company's Form S-1 registration statement filed
on June 23, 1995 (File No. 33-93868) pursuant to Section 5 of the
Securities Act of 1933. All of such previously filed documents are hereby
incorporated herein by reference in accordance with Item 601 of Regulation
S-K.
** Filed as exhibits to the Company's Amendment No. 1 to Form S-1
registration statement filed on August 4, 1995 (File No. 33-93868)
pursuant to Section 5 of the Securities Act of 1933. All of such
previously filed documents are hereby incorporated herein by reference in
accordance with Item 601 of Regulation S-K.
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45
B) REPORTS ON FORM 8-K
During the quarter ended September 30, 1996, the Company filed the
following current reports on Form 8-K.
1. Current Report on Form 8-K dated July 9, 1996 (File No. 0-25484).
2. Current Report on Form 8-K dated July 23, 1996 (File No. 0-25484).
3. Current Report on Form 8-K dated July 30, 1996 (File No. 0-25484).
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SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DAMEN FINANCIAL CORPORATION
By: /s/ Mary Beth Poronsky Stull
--------------------------------------------
Mary Beth Poronsky Stull, Chairman of the
Board, President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
/s/ Edward R. Tybor /s/ Mary Beth Poronsky Stull
- ------------------------------ -------------------------------------------
Edward R. Tybor, Director Mary Beth Poronsky Stull, Chairman of the
Board, President and Chief Executive
Officer
(Principal Executive and Operating Officer)
December 30, 1996 December 30, 1996
Date: Date:
/s/ Charles J. Caputo /s/ Carol A. Diver
- ------------------------------ ------------------------------------------
Charles J. Caputo, Director Carol A. Diver, Director
December 30, 1996 December 30, 1996
Date: Date:
/s/ Mark C. Guinan, M.D. /s/ Janine M. Poronsky
- ------------------------------ ------------------------------------
Mark C. Guinan, M.D., Director Janine M. Poronsky, Vice President,
Corporate Secretary and Director
December 30, 1996 December 30, 1996
Date: Date:
/s/ Gerald J. Gartner
- -----------------------------------
Gerald J. Gartner, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date:
December 30, 1996
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47
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
13 Annual Report to Security Holders
21 Subsidiaries of Registrant
23 Consent of Experts and Counsel
27 Financial Data Schedule