SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2001
Commission File No.: 0-19829
UMBRELLA BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3620612
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5818 South Archer Road, Summit, Illinois, 60501
(Address of principal executive offices)
(708) 458-2002
(Registrant's telephone number, including area code)
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 $0.01 PER SHARE
(Title of Class)
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by the Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the Registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by checkmark if there is disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K and is not contained herein and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to this Form 10-K. / /
The aggregate market value of the voting and nonvoting common equity held by
nonaffiliates of the Registrant, i.e., persons other than directors and
executive officers of the Registrant is $3.014 million and is based upon the
last sales price as quoted on Nasdaq for MARCH 22, 2002.
The Registrant had 1,711,238 shares outstanding as of March 28, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December 31,
2001 are incorporated by reference into Part II of this Form 10-K.
Portions of the Proxy Statement for the 2002 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
INDEX
PART I PAGE NO.
- ------ --------
Item 1. Business....................................................................... 3
Item 2. Properties..................................................................... 18
Item 3. Legal Proceedings.............................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............................ 19
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................................... 19
Item 6. Selected Consolidated Financial Data........................................... 19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................ 19
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk.................................................................. 19
Item 8. Consolidated Financial Statements and Supplementary
Data......................................................................... 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................................... 20
PART III
Item 10. Directors and Executive Officers of the Registrant............................. 20
Item 11. Executive Compensation......................................................... 20
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................................... 20
Item 13. Certain Relationships and Related Transactions................................. 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................................. 20
SIGNATURES ........................................................................................ 23
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PART 1
SAFE HARBOR STATEMENT
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Company and its subsidiary include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or securities portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area, the Company's implementation of new technologies, the
Company's ability to develop and maintain secure and reliable electronic systems
and accounting principles, policies and guidelines. These risks and
uncertainties should be considered in evaluating forward-looking statements and
undue reliance should not be placed on such statements. Further information
concerning the Company and its business, including additional factors that could
materially affect the Company's financial results, is included in the Company's
filings with the Securities and Exchange Commission.
BUSINESS OF UMBRELLA BANCORP, INC.
ITEM 1. BUSINESS
Umbrella Bancorp, Inc. ("Umbrella Bancorp" or "Company") (formerly
known as Argo Bancorp, Inc.) was incorporated in Delaware in August 1987, for
the purpose of acquiring UmbrellaBank, fsb, ("UmbrellaBank" or "Savings Bank")
(formerly known as Argo Federal Savings, fsb). The Company is a unitary savings
and loan holding company and is registered as such with the Office of Thrift
Supervision ("OTS"), Federal Deposit Insurance Corporation ("FDIC") and the
Securities and Exchange Commission ("SEC"). The Company's business activities
currently consist of ownership of the Savings Bank, and investments in other
equity and debt securities. The Savings Bank's principal business consists of
attracting deposits from the public primarily through its Internet banking
platform and, to a lesser extent, through its two traditional branch locations
and investing these deposits, together with funds generated from operations,
primarily in commercial real estate and residential real estate secured loans,
and mortgage backed securities. Additionally, UmbrellaBank operates a network of
more than 2,000 ATM machines in 17 states. The Savings Bank's deposit accounts
are insured to the maximum allowable by the Federal Deposit Insurance
Corporation (the "FDIC").
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On April 18, 2001, the Company repurchased 365,796 shares of common
stock from The Deltec Banking Corporation Ltd. ("Deltec"), in accordance with
the terms of a stock purchase agreement (the "Purchase AGREEMENT") and a
stockholder agreement ("Stockholder Agreement") originally executed by the
Company and Deltec on December 31, 1996. An additional 135,428 shares were
purchased from Deltec at the same price per share by officers and directors of
the Registrant. After completion of the transaction, 1,657,313 common shares of
the Registrant were issued and outstanding.
BUSINESS OF UMBRELLABANK, FSB
UmbrellaBank is a federally chartered savings institution and was
acquired by the Company on November 17, 1987. The Savings Bank operates under
the authority of the OTS, its deposits are insured by the FDIC, and it is a
member of the FHLB System. UmbrellaBank's primary business is the solicitation
of savings deposits from the general public, and the purchase or origination of
loans secured by one-to-four-family residential and commercial real estate,
together with investments in a portfolio of mortgage backed securities and
municipal bonds. UmbrellaBank's retail banking operations are conducted from two
traditional branch facilities, as well through an Internet banking platform
accessible via the Internet at http://www.umbrellabank.com. At December 31,
2001, umbrellabank.com deposits totaled $296.3 million and represented 64.7% of
total Company deposits of $458.1 million.
During 2001, the Savings Bank continued to originate single-family
one-to-four family real estate secured loans and purchase and originate
commercial real estate secured loans. To a lesser extent, UmbrellaBank also
participated in or directly originated construction loans for the development of
residential real estate, as well as commercial loans secured by assets other
than real estate. Commercial real estate loans and commercial loans comprised
approximately 35.6% of UmbrellaBank's total loans at December 31, 2001.
Additionally, the Savings Bank offered 'purchase/repurchase' mortgage loan
facilities ("Purchase/Repurchase Lines") to a number of third party mortgage
banking firms. These facilities are used to originate one-to-four-family secured
mortgage loans held for sale by the Savings Bank. The mortgage loans acquired by
UmbrellaBank are generally delivered for sale to third party investors, pursuant
to commitments to purchase, within 30-60 of closing days of closing. In 2001,
outstanding purchase/repurchase lines of credit averaged $54.6 million with
approximately $526.5 million of loans acquired and sold during the period.
In prior periods, the Savings Bank operated a wholesale
mortgage-banking conduit using a network of brokers, correspondents and third
party investors. UmbrellaBank has retained, for its portfolio, certain
adjustable rate mortgage ("ARM") loans and Expanded Criteria Loans resulting
from conduit activity. Expanded Criteria Loans consist of one-to-four-family
mortgage loans which are generally not Agency qualified, due to the borrower's
credit profile, and are not as readily saleable in the secondary market as
conventional loans. There were no Expanded Criteria loans originated for
portfolio in 2001.
In addition to its lending activities, UmbrellaBank also generates
interest and fee income from an expanding network of regionally deployed ATMs.
Deployment activities have been concentrated
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primarily in the Midwest and mid-Atlantic regions of the country. Revenues are
derived from interchange and surcharge fees, together with income from related
equipment leasing and interest on currency used in operations. At December 31,
2001, the Savings Bank had 2,019 ATMs deployed in 17 states.
The principal executive offices of the Company and administrative
headquarters of the Savings Bank are located at 5818 South Archer Road, Summit,
Illinois. UmbrellaBank operates two retail banking facilities in Cook County,
Illinois, and manages its Internet operations from a leased facility in
Westmont, Illinois.
MARKET AREA
UmbrellaBank considers its current primary market area to be the
greater Chicago metropolitan area (hereinafter referred to as its "primary
market area"). The primary market area supporting traditional operations by the
Savings Bank is urban and is comprised of high-density residential neighborhoods
interspersed with mixed-use and heavily industrialized areas. As Umbrellabank
experiences continued growth through its Internet operations, the Company
anticipates that the Savings Bank's primary market area may include more
regional delineations or encompass a number of individual cities or areas. In
recent periods UmbrellaBank has extended its lending activities outside of its
primary market area, through its Purchase/Repurchase Line facilities and its
expanding commercial loan and participation activities. The future primary
market area or areas is dependent on the growth of the Internet delivery
channel, and the location of consumers utilizing its retail deposit and lending
services. UmbrellaBank will continue to analyze the geographic spread of
deposits and loans generated from Internet operations, and adjust the definition
of the Savings Bank's primary market area as concentrations of customers are
determined.
LENDING ACTIVITIES
The Company has focused lending activities on the generation of profits
from the sale of mortgage loans. The Savings Bank's Purchase/Repurchase Line
program generates third party origination of long-term, fixed-rate mortgage
loans with 15- and 30-year maturities and ARMs for immediate sale in the
secondary mortgage market by the third party originator. Prior to 2001,
UmbrellaBank's lending activity has also included the origination of primarily
ARM loans through the offering of portfolio ARM products in conduit activities
and the purchase of ARM loans in the secondary market. Additionally, a
significant portion of the growth in UmbrellaBank's loan balances in the current
year is due to origination and participation activities relating to commercial
real estate loans and commercial lending. The Savings Bank originated and
purchased approximately $625.9 million of loans both for portfolio and for sale
during 2001.
Loan Originations and Purchases. UmbrellaBank's primary business is the
solicitation of savings deposits from the general public and the purchase or
origination of real estate loans secured by one-to-four-family residential and
commercial properties. To a lesser extent, the Savings Bank also originates
commercial loans, home equity loans, and other consumer loans, including
consumer credit card facilities through the umbrellabank.com Internet channel.
In prior periods and in limited amounts, the Savings Bank has also purchased
discounted loans. Discounted loans are residential
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real estate secured loans for which the borrowers may not be current as to
payment of principal and interest, or which may be comprised of incomplete or
nonstandard documentation loans. Discounted loans were purchased with a view
toward bringing such loans current for the Savings Bank's portfolio, for resale
in the secondary market, or for foreclosure and liquidation. In 1998,
UmbrellaBank discontinued new investments in discounted loans. The Savings Bank
continues to purchase performing seasoned one-to-four family mortgage loans. For
the year ended December 31, 2001, $34.8 million of performing seasoned
one-to-four family mortgage loans were purchased by UmbrellaBank.
Primarily as a result of its discounted loan activities, UmbrellaBank's
level of nonperforming loans to total loans has been historically higher than
that of its peers. Although UmbrellaBank's ratio of nonperforming loans
decreased in the periods since 1998, when new investments in discounted loans
were discontinued, the Savings Bank's level of nonperforming loans to total
loans increased at December 31, 2001, primarily as a result of delinquencies
attributable to loans associated with purchase/repurchase activity.
One-to-Four-Family Residential Loans. UmbrellaBank originates,
purchases, and sells fixed-rate and ARM loans secured by one-to-four-family
residences. The loans generally fall into three categories: (1) Conventional
Loans--loans which conform to all of the underwriting guidelines of Fannie Mae
and Freddie Mac ("Agency Qualified"); (2) Expanded Criteria Loans--loans which
are (a) not Agency Qualified, generally due to the borrower's credit profile,
(b) not as readily saleable in the secondary market as Conventional Loans and
(c) generally fixed-rate loans which are originated at interest rates higher
than those of fixed-rate Conventional Loans; and (3) Portfolio ARM loans which
are (a) not Agency Qualified, (b) originated under specific criteria set forth
by UmbrellaBank and (c) not Conventional or Expanded Criteria Loans.
Commercial Real Estate Lending and Commercial Loans. Historically,
UmbrellaBank has originated and purchased small numbers of real estate secured
commercial loans for the acquisition or refinance of existing multifamily (5-12
unit), small office building and income producing commercial properties, located
within the Savings Banks' primary market area. Since 1999, UmbrellaBank has
significantly increased its commercial real estate lending and commercial loan
activities. UmbrellaBank believes that prudent commercial lending operations can
provide the Savings Bank with shorter term, higher yielding assets, facilitating
portfolio diversification and improved interest rate risk management. Working
with primarily local developers in its market area, and often participating with
other local lenders, the Savings Bank has increased its commercial real estate
secured loan portfolio, concentrating new credit facilities in residential
development and construction loans. UmbrellaBank's expanded commercial real
estate lending activities have also included the origination of and
participation in permanent financing credits secured by small office facilities
and user owned commercial properties in the Chicagoland market area. In certain
instances and to a lesser extent, non-real estate secured commercial loans have
also been granted, including financing the acquisition of equipment and
receivables and providing working capital loans. At December 31, 2001,
UmbrellaBank's commercial and commercial real estate loan portfolio totaled
$113.7 million, or 33.6% of UmbrellaBank's total loan portfolio, which included
$38.7 million of commercial multifamily secured real estate loans and $75
million of other secured commercial loans.
UmbrellaBank has also participated in a number of similarly structured,
larger bank originated commercial real estate loans secured by properties
outside the Chicagoland area. These commercial real
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estate secured loans are also primarily residential development and construction
loans, principally concentrated in the greater Denver, Colorado area. The
Savings Bank also continues to invest in a portfolio of real estate secured
loans with improvements that consist of Charter School educational facilities
principally located in the Southwest United States. Out of territory commercial,
residential development and construction loans are subject to all of the Savings
Bank's underwriting and lending policies, and are periodically inspected by
management during on-site due diligence review. At December 31, 2001, $35.7
million, or 31.4% of UmbrellaBank's commercial real estate secured loan
portfolio was secured by properties outside of the Chicagoland area.
Commercial real estate lending and commercial loans often entail
significant additional risks as compared with one-to-four-family residential
property lending. Commercial real estate loans typically involve larger loan
balances to a single borrower or groups of affiliated borrowers. The payment
experience on such loans is typically dependent on the successful sale or
operation of the real estate project. These risks can be significantly impacted
by supply and demand conditions in the market for housing, office and retail
space, and as such may be subject to a greater extent to adverse conditions in
the economy generally.
INVESTMENT ACTIVITIES
The Savings Bank must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Cash flow projections are
regularly reviewed and updated to assure that adequate liquidity is maintained.
At December 31, 2001, UmbrellaBank's liquidity ratio (liquid assets as a
percentage of deposits and borrowings payable in one year or less) was 9.95%.
Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
In prior periods, the investment policy of the Savings Bank was to
invest funds among various categories of investments and maturities based upon
the Savings Bank's asset/liability management policies, liquidity needs and
performance objectives, and investment quality and marketability. These
investments generally included certificates of deposit, overnight funds, and
securities of government sponsored entities and federal agency obligations, and
other issues that are rated investment grade. During 2001, the Savings Bank
increased its investment securities portfolio, concentrating new investments
primarily in government agency collateralized mortgage obligations ("CMOs") and
mortgage backed securities ("MBS") principally issued by the Federal Home Loan
Mortgage Corporation ("FREDDIE MAC") and Federal National Mortgage Association
("FANNIE MAE"), trust preferred securities ("TPS") issued by a diverse group of
U.S. banks, savings associations and their related holding companies, as well
as a portfolio of municipal securities issued by nationally diversified local
governmental units.
Investment activities by the Savings Bank are governed by the OTS, with
limitations on both quantity (as either a percent of capital or assets) and
quality (as determined by various national rating
7
services) prescribed under various laws, regulations and bulletins giving effect
to the regulatory framework underlying UmbrellaBank's activities in this area.
As a result of a regularly scheduled review of the Savings Bank's operations in
the fourth quarter of 2001, UmbrellaBank was advised by the OTS that certain
violations of applicable quantitative and qualitative limitations had been
determined with respect to the Savings Bank's investment portfolio. With respect
to TPS investments held by the Savings Bank, the OTS determined that
UmbrellaBank had exceeded authorized investment levels, which are limited to a
percent of the Savings Bank's tangible capital. The Savings Bank undertook a
controlled plan of disposition of the excess amount of TPS securities then held
by UmbrellaBank, and came into compliance with regulatory investment limitations
on March 21, 2002. At December 31, 2001, the Company had $123.1 million of
securities available-for-sale (which includes CMOs, MBS, TPS and municipal
securities discussed herein) with an aggregate fair value of $123.1 million and
$1.9 million of securities held-to-maturity with an aggregate fair value of $1.8
million.
In addition to investment activities at UmbrellaBank, the Company
maintained a portfolio of marketable securities, generally comprised of TPSs and
equity securities consisting of noncontrol positions in financial institution
equities which management believe, after analysis of market pricing, business
practices, and earnings potential, were under-valued and represent an
opportunity for profit from sales of such securities, together with mutual fund
investments whose activities include investments in government securities and
tax free investments. At December 31, 2001, the Company had $47.5 million in
these securities, which are included in the available-for-sale totals above.
Finally, both the Savings Bank and the Company have been actively
trading various marketable equity securities, primarily FANNIE MAE and FREDDIE
MAC stock. These securities are classified as trading securities and totaled
$6.1 million and $1.1 million at December 31, 2001 and 2000, with market value
approximately equal to cost.
SOURCES OF FUNDS AND BORROWINGS
General. Deposits are the major source of UmbrellaBank's funds for
lending and other investment purposes. In addition to deposits, the Savings Bank
derives funds from loan principal repayments, fees generated with lending and
ATM activities, borrowings (which includes advances from the FHLB and $3.0
million of subordinated debentures issued in the period) and the custodial
balances associated with PMSRs. Loan repayments are a relatively stable source
of funds, while deposit inflows and outflows are significantly influenced by
general interest rates and market conditions. Additionally, the Company's
sources of funds include borrowed money, margin accounts and federal funds
purchased. The Company has also issued junior subordinated debentures.
Borrowings may be used to compensate for
8
reductions in the availability of other sources of funds. They may also be used
on a longer-term basis for general business purposes.
Although savings deposits are the primary source of funds for
UmbrellaBank's lending and investment activities and for its general business
purposes, the Savings Bank can also borrow funds from the FHLB. As an FHLB
member, UmbrellaBank is required to own capital stock in the FHLB and is
authorized to apply for advances on the security of such stock and certain of
its home mortgages and other assets (principally, securities that are
obligations of, or guaranteed by, the United States Government or its agencies)
provided certain standards related to creditworthiness have been met. At
December 31, 2001, UmbrellaBank had $12.8 million of fixed rate advances from
the FHLB with interest rates ranging from 6.13% to 6.58% and a weighted average
interest rate of 6.48%.
As an alternative to accessing savings deposits and FHLB advances to
fund lending and investment activities, on November 28, 2001, UmbrellaBank
issued and sold $3.0 million subordinated debenture in a pooled security
offering which included nonaffiliated banks, savings institutions and their
related holding companies. The debenture has a maturity date of December 8,
2011, and its coupon interest rate is adjustable and paid semi annually at 375
basis points over the 180 day London Interbank Offered Rate ("LIBOR"), with a
cap of 12%. The debenture is subordinated to all other claims against the
Savings Bank, is not collateralized by the assets of UmbrellaBank, and can be
purchased by only "qualified institutional buyers" as defined by Rule 144A of
the Securities Act of 1934. On December 5, 2001 UmbrellaBank filed an
application with the OTS seeking inclusion of the proceeds of the sale of the
debentures in regulatory "Tier II" (risk weighted) capital, which application is
still pending as of March 28, 2002. At December 31, 2001, $3.0 million of
subordinated debentures were outstanding, at a weighted rate of 6.01%.
SUBSIDIARIES
In October of 1998, the Company formed Argo Capital Trust Co. ("Argo
Capital Trust"), a statutory business trust formed under the laws of the State
of Delaware. In November 1998, the Company and Argo Capital Trust offered 11%
Capital Securities with a liquidation amount of $10.00 per security. The
proceeds from the offering were $17,250,000. Argo Capital Trust used the gross
proceeds from the sale of the Capital Securities to purchase Junior Subordinated
Debentures of the Company. The Junior Subordinated Debentures carry an interest
rate of 11% paid quarterly in arrears and are scheduled to mature, subject to
the Company's right to prepay the debentures under certain circumstances, on
November 6, 2028.
On June 24, 2000, the Company incorporated a wholly owned subsidiary,
Argo Redemption Corporation, an Illinois corporation ("ARC"). ARC was chartered
to effectuate, from time to time, purchases of the Company's outstanding Capital
Securities by tender, in the open market or by private agreement. Acquisitions
through the over-the-counter dealer market are anticipated to comprise the
majority of purchase activity. As of December 31, 2001, ARC held 64,717 shares
of Argo Capital Trust Preferred securities at an average price of $9.85 per
share.
UmbrellaBank has a wholly owned subsidiary, Dolton-Riverdale Savings
Service Corp. ("Dolton-Service"). At December 31, 2001, UmbrellaBank had an
equity investment in Dolton-Service of $1,626,000. The assets of Dolton-Service
include 50,000 shares of the Class A common stock of The Synergy Plan, Ltd.
9
("Synergy"), a professional employer organization, valued at $15.00 per share,
16,666 shares of Synergy Convertible Preferred Stock also valued at $15.00 per
share, 11,630 shares of FBA Bancorp, Inc., the parent company of the First Bank
of the Americas, S.S.B., a Department of the Treasury Community Development Fund
Institution, valued in total at $134,675, 2,500 shares of Commercial Loan
Corporation, a commercial loan originator, valued at $125,000, and 454,545
shares of Guaranteed Rate, Inc., a residential mortgage loan originator, valued
at $250,000.
COMPETITION
UmbrellaBank faces strong competition in attracting deposits and in
originating loans. Its most direct competition for deposits has historically
come from other savings institutions, credit unions and community banks, as well
as from commercial banks located in its primary market area. Particularly in
times of high interest rates, the Savings Bank also faces additional significant
competition for investor funds from short-term money market securities and other
corporate and government securities. UmbrellaBank's competition for loans comes
principally from other thrift institutions, commercial banks and mortgage
banking companies. Competition may also increase as a result of the lifting of
restrictions on the interstate operations of financial institutions, as well as
the expansion of retail banking services into the Internet.
The Savings Bank competes for loans principally through the interest
rates and loan fees it charges, extensive mortgage product offerings, and the
efficiency and quality of the services it provides borrowers, real estate
brokers and home builders. It competes for deposits by offering consumers a wide
variety of savings, checking, money market and certificate of deposit accounts,
and expanded convenience of branch office facilities, a network of ATM machines
and the 24/7 availability of its umbrellabank.com Internet retail delivery
channel.
UmbrellaBank competes with many financial institutions in its current
primary market area, most of which have assets which are significantly larger
than the assets of the Savings Bank. Management considers the Savings Bank's
reputation for financial strength and customer service as a major competitive
advantage in attracting and retaining customers in its market area. The Savings
Bank also believes it benefits from its use of available technologies to provide
low cost, accessible banking services, reflected by its growing core deposit
base in its umbrellabank.com Internet division.
PERSONNEL
Effective October 1, 1999 the Company entered into a Client Services
Agreement with Synergy, a professional employer organization. Under the Client
Services Agreement, all employees of the Company were transferred to Synergy
with Synergy assigning employees to the Company as the workplace employer. At
December 31, 2001, 50 employees of Synergy were assigned to the Company and
subsidiaries.
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REGULATION AND SUPERVISION
GENERAL
The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS under the Home Owners' Loan Act, as amended (the "HOLA"). In addition, the
activities of savings institutions, such as the Savings Bank, are governed by
the HOLA and the Federal Deposit Insurance Act ("FDI Act").
UmbrellaBank is subject to extensive regulation, examination and
supervision by the OTS, as its primary federal regulator, and the FDIC, as the
deposit insurer. The Savings Bank is a member of the FHLB System and its deposit
accounts are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") managed by the FDIC. The Savings Bank must file reports
with the OTS and the FDIC concerning its activities and financial condition in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other savings
institutions. The OTS and/or the FDIC conduct periodic examinations to test the
Savings Bank's safety and soundness and compliance with various regulatory
requirements. The Company and the Savings Bank were most recently examined as of
September 30, 2001, and matters of note are set forth throughout the discussions
of "Applicable Legislation", below. This regulation and supervision establishes
a comprehensive framework of activities in which an institution can engage and
is intended primarily for the protection of the insurance fund and depositors.
The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulatory requirements and
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company, the Savings Bank and their operations. Certain of
the regulatory requirements applicable to the Savings Bank and to the Company
are referred to below or elsewhere herein. The description of statutory
provisions and regulations applicable to savings institutions and their holding
companies set forth in this Form 10-K does not purport to be a complete
description of such statutes and regulations and their effects on UmbrellaBank
and the Company.
HOLDING COMPANY REGULATION
The Company is a nondiversified unitary savings and loan holding
company within the meaning of the HOLA. As a unitary savings and loan holding
company, the Company generally is not restricted under existing laws as to the
types of business activities in which it may engage, provided that the Savings
Bank continues to be a qualified thrift lender ("QTL"). Upon any nonsupervisory
acquisition by the Company of another savings institution or savings bank that
meets the QTL test and is deemed to be a savings institution by the OTS, the
Company would become a multiple savings and loan holding company (if the
acquired institution is held as a separate subsidiary) and would be subject to
extensive limitations on the types of business activities in which it could
engage. The HOLA limits the activities of a multiple savings and loan holding
company and its noninsured institution subsidiaries primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company Act ("BHC Act"), subject to the prior approval of the OTS, and certain
activities authorized by OTS
11
regulation, and no multiple savings and loan holding company may acquire more
than 5% the voting stock of a company engaged in impermissible activities.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution or holding company thereof,
without prior written approval of the OTS or acquiring or retaining control of a
depository institution that is not insured by the FDIC. In evaluating
applications by holding companies to acquire savings institutions, the OTS must
consider the financial and managerial resources and future prospects of the
company and institution involved, the effect of the acquisition on the risk to
the insurance funds, the convenience and needs of the community and competitive
factors.
The OTS is prohibited from approving any acquisition that would result
in a multiple savings and loan holding company controlling savings institutions
in more than one state, subject to two exceptions: (i) the approval of
interstate supervisory acquisitions by savings and loan holding companies and
(ii) the acquisition of a savings institution in another state if the laws of
the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions as described below. UmbrellaBank must notify the OTS 30
days before declaring any dividend to the Company. In addition, the financial
impact of a holding company on its subsidiary institution is a matter that is
evaluated by the OTS and the agency has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a threat to the safety
and soundness of the institution.
RECENT REGULATORY DEVELOPMENTS
The Gramm Leach-Bliley Act (the "Act"), which was enacted in November,
1999, allows eligible bank holding companies to engage in a wider range of
nonbanking activities, including greater authority to engage in securities and
insurance activities. Under the Act, an eligible bank holding company that
elects to become a financial holding company may engage in any activity that the
Federal Reserve, in consultation with the Secretary of the Treasury, determines
by regulation or order is financial in nature, incidental to any such financial
activity, or complementary to any such financial activity and does not pose a
substantial risk to the safety or soundness of depository institutions or the
financial system generally. National banks are also authorized by the Act to
engage, through "financial subsidiaries", in certain activity that is
permissible for financial holding companies (as described above) and certain
activity that the Secretary of the Treasury, in consultation with the Federal
Reserve, determines is financial in nature or incidental to any such financial
activity.
The Act limits the nonbanking activities of unitary savings and loan
holding companies by generally prohibiting any savings and loan holding company
from engaging in any activity other than activities that are currently permitted
for multiple savings and loan holding companies or are permissible for financial
holding companies (as described above) (collectively "permissible activities").
The Act also generally prohibits any company from acquiring control of a savings
association or savings and loan holding company unless the acquiring company
engages solely in permissible activities. The Act creates
12
an exemption from the general prohibitions for unitary savings and loan holding
companies in existence, or formed pursuant to an application pending before the
OTS, on or before May 4, 1999.
Although various bank regulatory agencies have issued regulations as
mandated by the Act, except for the jointly issued privacy regulations, the Act
and its implementing regulations have had little impact on the daily operations
of the Company and the Savings Bank and, at this time, it is not possible to
predict the impact the Act and its implementing regulations may have on the
Company or the Savings Bank.
The OTS is currently proposing to require certain savings and loan
holding companies to notify the OTS before engaging in, or committing to engage
in, a limited set of debt transactions, transactions that reduce capital,
certain asset acquisitions, and other transactions. The proposal would generally
exclude savings and loan holding companies whose subsidiary savings
associations' assets represent a small percent of consolidated assets and
holding companies that would have consolidated tangible capital of 10% or
greater following the transaction. The OTS is also currently seeking comment on
its proposal to codify its current practices for reviewing the capital adequacy
of savings and loan holding companies and, when necessary, requiring additional
capital on a case-by- case basis.
FEDERAL SAVINGS INSTITUTION REGULATION
Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage (core) capital ratio and an 8% risk-based capital ratio.
Core capital is defined as common stockholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related surplus,
and minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain mortgage servicing rights and credit card
relationships. The OTS regulations require that, in meeting the tangible,
leverage (core) and risk-based capital standards, institutions must generally
deduct investments in and loans to subsidiaries engaged in activities that are
not permissible for a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of
risk-weighted assets, all assets, including certain off-balance sheet assets,
are multiplied by a risk-weight factor of 0% to 100%, as assigned by the OTS
capital regulation based on the risks the OTS believes are inherent in the type
of asset. The components of core capital are equivalent to those discussed
earlier under the 3% leverage standard. The components of supplementary capital
currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock and, within specified limits, the allowance for loan and lease
losses. Overall, the amount of supplementary capital included as part of total
capital cannot exceed 100% of core capital.
The OTS regulatory capital requirements also incorporate an interest
rate risk component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value of its
assets (i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts) that would result
13
from a hypothetical 200 basis point increase or decrease in market interest
rates divided by the estimated economic value of the institution's assets, as
calculated in accordance with guidelines set forth by the OTS.
A savings institution whose measured interest rate risk exposure
exceeds 2% must deduct an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the estimated
economic value of the institution's assets. That dollar amount is deducted from
an institution's total capital in calculating compliance with its risk-based
capital requirement. Under the rule, there is a two-quarter lag between the
reporting date of an institution's financial data and the effective date for the
new capital requirement based on that data. A savings institution with assets of
less than $300 million and risk-based capital ratios in excess of 12% is not
subject to the interest rate risk component, unless the OTS determines
otherwise. The Director of the OTS may waive or defer a savings institution's
interest rate risk component on a case-by-case basis. For the present time, the
OTS has deferred implementation of the interest rate risk component. At December
31, 2001, UmbrellaBank met each of its capital requirements.
Prompt Corrective Regulatory Action. Under the OTS prompt corrective
action regulations, the OTS is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution
that has a total risk-based capital of less than 8% or a leverage ratio or a
Tier 1 capital ratio that is less than 4% is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the banking regulator is required to appoint a receiver or
conservator for an institution that is "critically undercapitalized." The
regulation also provides that a capital restoration plan must be filed with the
OTS within 45 days of the date a savings institution receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to the institution depending upon its category,
including, but not limited to, increased monitoring by regulators and
restrictions on growth, capital distributions and expansion. The OTS could also
take any one of a number of discretionary supervisory actions, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.
Insurance of Deposit Accounts. Deposits of the Savings Bank are
presently insured by SAIF. The FDIC maintains a risk-based assessment system by
which institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon the
categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest. For periods after December 31, 2001, UmbrellaBank will pay an
assessment rate of 21.12 basis points.
In addition to the assessment for deposit insurance, institutions are
required to pay on bonds issued in the late 1980s by the Financing Corporation
("FICO") to recapitalize the predecessor to the SAIF. During 1999, FICO payments
for SAIF members approximated 6.10 basis points, while Bank Insurance Fund
("BIF" -- the deposit insurance fund that covers most commercial bank deposits)
members paid 1.22 basis points. Between January 1, 2000, and the final maturity
of the outstanding FICO obligations in 2019,
14
BIF members and SAIF members will share the cost of interest on the FICO bonds
on a pro rata basis. During the year ended December 31, 2001, the FICO
assessment rate for SAIF members ranged between approximately 21 basis points
and approximately 59 basis points, while the FICO assessment rate for BIF
members ranged between approximately 12 basis points and approximately 21 basis
points. UmbrellaBank's assessment rate for the year ended December 31, 2001 was
6.10 basis points and the premium paid for this period was $60,216 which was
applied toward the payment of FICO bonds. A significant increase in SAIF
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of the Savings Bank.
Insurance of deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of UmbrellaBank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.
APPLICABLE LEGISLATION
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. Generally, savings institutions may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. An additional amount may be lent, equal to 10% of unimpaired
capital and surplus, if such loan is secured by readily-marketable collateral,
which is defined to include certain financial instruments and bullion. At
December 31, 2001, UmbrellaBank's limit on loans to one borrower was $4.9
million. At December 31, 2001, UmbrellaBank had one loan to single borrower that
exceeded this limit. The violation of the Loan to One Borrower limitation was
noted by the OTS during its 2001 review. The Savings Bank anticipates that
excess amounts over the limitation will be eliminated during 2002, as unfunded
commitments related to a construction loan for the development of residential
real estate are repaid and terminated. Additionally, the limitations on savings
institutions with respect to the purchase of the securities of a single issuer
are set forth under the loans to one borrower regulations, and limit such
purchases to 10% of an institution's unimpaired capital and unimpaired surplus.
At December 31, 2001, UmbrellaBank's limit on the purchase of the securities of
a single issuer was $3.3 million and, as of that date, the Savings Bank was in
full compliance with the limitation.
QTL Test. The HOLA requires savings institutions to meet a QTL test.
Under the QTL test, a savings association is required to maintain at least 65%
of its "portfolio assets" (total assets less: (i) specified liquid assets up to
20% of total assets; (ii) intangibles, including goodwill; and (iii) the value
of property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities, as well as, recently, education loans,
credit card loans and small business loans) in at least 9 months out of each 12
month period. A savings institution that fails the QTL test must either convert
to a bank charter or operate under certain restrictions. As of December 31,
2001, UmbrellaBank maintained 68.0% of its portfolio assets in qualified thrift
investments for 12 of the last 12 months and, therefore, met the QTL test.
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions
15
charged against capital. The rule establishes three tiers of institutions, which
are based primarily on an institution's capital level. An institution that
exceeds all fully phased-in capital requirements before and after a proposed
capital distribution ("Tier 1 Bank") and has not been advised by the OTS that it
is in need of more than normal supervision, could, after prior notice but
without obtaining approval of the OTS, make capital distributions during a
calendar year equal to the greater of (i) 100% of its net earnings to date
during the calendar year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year or (ii) 75% of its net
earnings for the previous four quarters. Any additional capital distributions
would require prior regulatory approval. In the event the Savings Bank's capital
fell below its regulatory requirements or the OTS notified it that it was in
need of more than normal supervision, the Savings Bank's ability to make capital
distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice. At December 31, 2001, UmbrellaBank was
classified as a Tier 1 Bank.
Effective April 1, 1999, the OTS' capital distribution regulation
changed. Under the current regulation, an application to and the prior approval
of the OTS is required before any distribution if the institution does not meet
the criteria for "expedited treatment" of applications under OTS regulations
(generally, compliance with all capital requirements and examination ratings in
one of two top categories), the total capital distributions for the calendar
year exceed net income for that year plus the amount of retained net income for
the preceding two years, the institution would be undercapitalized following the
distribution or the distribution would otherwise be contrary to a statute,
regulation or agreement with OTS. If an application is not required, the
institution must still give advance notice to OTS of the capital distribution.
UmbrellaBank has been advised that it no longer qualifies for expedited
treatment for applications and notices filed with the OTS.
Liquidity. The Savings Bank is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage (currently 4%) of its net withdrawable deposit accounts
plus short-term borrowings. Monetary penalties may be imposed for failure to
meet these liquidity requirements. UmbrellaBank's average liquidity ratio for
the year ended December 31, 2001 was 15.17%, which exceeded the applicable
requirements. UmbrellaBank has never been subject to monetary penalties for
failure to meet its liquidity requirements.
Assessments. Savings institutions are required to pay assessments to
the OTS to fund the agency's operations. The general assessments, paid on a
semi-annual basis, are based upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Savings Bank's latest
quarterly thrift financial report. The assessments paid by UmbrellaBank for the
fiscal year ended December 31, 2001 totaled $97,272.
Branching. OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute. This
permits federal savings institutions to establish interstate networks and to
geographically diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.
Transactions with Related Parties. The Savings Bank's authority to
engage in transactions with related parties or "affiliates" (i.e., any company
that controls or is under common control with an
16
institution, including the Company and its nonsavings institution subsidiaries)
is limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section
23A restricts the aggregate amount of covered transactions with any individual
affiliate to 10% of the capital and surplus of the savings institution. The
aggregate amount of covered transactions with all affiliates is limited to 20%
of the savings institution's capital and surplus. Certain transactions with
affiliates are required to be secured by collateral in an amount and of a type
described in Section 23A and the purchase of low quality assets from affiliates
is generally prohibited. Section 23B generally requires that certain
transactions with affiliates, including loans and asset purchases, be on terms
and under circumstances, including credit standards, that are substantially the
same or at least as favorable to the institution as those prevailing at the time
for comparable transactions with nonaffiliated companies. As a result of the
review of the Savings Bank's operations as of September 30, 2001, the OTS
determined that UmbrellaBank was in violation of Sections 23A and 23B of the
FRA. The violations were primarily attributable to the failure of Savings Bank
employees to reconcile certain intercompany accounts on a timely basis. Upon
receipt of notice of the violations of Sections 23A and 23B, the Company repaid
all amounts outstanding to the Savings Bank, including attributable interest
charged at market rates. At December 31, 2001, the Company and the Savings Bank
were in compliance with limitations imposed by Sections 23A and 23B.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. Under the FDI Act, the FDIC has the authority to recommend to the
Director of the OTS enforcement action to be taken with respect to a particular
savings institution. If action is not taken by the Director, the FDIC has
authority to take such action under certain circumstances. Federal law also
establishes criminal penalties for certain violations.
As a result of the review of the Savings Bank's operations by the OTS
in September, 2001, violations of regulations as discussed herein, including
violation of investment limitations for TPS, the failure to perform
pre-acquisition analysis designed to measure sensitivity to interest rate shocks
on CMO securities, violations of the loan to one borrower limitation with
respect to both loans and investment securities, violation of FRA Sections 23A
and 23B with respect to transactions between the Company and UmbrellaBank, as
well as the possibility of future loan losses attributable to fraud discovered
in certain purchase/repurchase credit facilities, were the subject of
extensive criticism by the OTS. The Company and the Savings Bank have been
required to take action to correct past violations, ameliorate violations
existing as of December 31, 2001 and ensure future violations do not occur. The
Company and the Savings Bank are currently subject to supervisory imposed
limitations, including restrictions on growth and lending activities, and are
required to provide reports to the OTS detailing corrective actions taken and
on-going assurances of monitoring and compliance in areas of criticism. Changes
to operating policies, strengthening of existing procedures and adoption of more
effective administrative controls have been undertaken by UmbrellaBank and the
Company. Formal enforcement action has not been undertaken by the OTS against
either the Company or the Savings Bank, but remains a possibility.
17
Standards for Safety and Soundness. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final rule
establishes deadlines for the submission and review of such safety and soundness
compliance plans.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts. The
Federal Reserve Board regulations generally require that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$46.5 million or less (subject to adjustment by the Federal Reserve Board) the
reserve requirement is 3%; and for accounts aggregating greater than $46.5
million, the reserve requirement is $1.395 million plus 10% (subject to
adjustment by the Federal Reserve Board) against that portion of total
transaction accounts in excess of $46.5 million. The first $4.9 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. UmbrellaBank has maintained
compliance with the foregoing requirements. The balances maintained to meet the
reserve requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements imposed by the OTS.
ITEM 2. PROPERTIES
The principal executive offices of the Company and administrative
headquarters of the Savings Bank are located at 5818 South Archer Road, Summit,
Illinois. UmbrellaBank conducts its business from its home office in Chicago,
Illinois, located at 2154 West Madison Street, Chicago, Illinois and one
additional branch office located in Dolton, Illinois. Internet operations of the
Savings Bank are managed from a facility in Westmont, Illinois. Each of these
four facilities are leased from unaffiliated parties. In 2001, the Savings Bank
purchased an office building in the River North district of Chicago, with a view
toward expanding retail and administrative operations of UmbrellaBank in 2003.
The Company believes that UmbrellaBank's current facilities are
adequate to meet the present and immediate foreseeable needs of the Company. See
Note 5 to the notes to the consolidated financial statements for the net book
value of the property of the Company.
18
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor its subsidiaries are involved in any pending
legal proceedings, other than routine legal matters occurring in the ordinary
course of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 2001,
no matters were submitted to a vote of security holders through a solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information relating to the market for Registrant's common equity and
related stockholder matters appears under the caption "Shareholder Information"
in the Registrant's 2001 Annual Report to Stockholders on page 40 and is
incorporated herein by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data appears under the caption
"Selected Consolidated Financial Condition and other Data of the Corporation" in
the Registrant's 2001 Annual Report to Stockholders on pages 3 and 4 and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The above-captioned information appears under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Registrant's 2001 Annual Report to Stockholders on pages 5 through 37 and is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The above-captioned information appears under the caption "Quantitative
and Qualitative Disclosures about Market Risk" of the 2001 Annual Report to
Stockholders on pages 35 through 37 and is incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Umbrella Bancorp, Inc. and its
subsidiaries as of December 31, 2001, 2000, and 1999 together with the report
thereon by Crowe, Chizek and Company LLP, appears in the Registrant's 2001
Annual Report to Stockholders, on pages 42 through 80 and is incorporated
herein by reference.
19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 30, 2002
under "Information with respect to the Nominee, Continuing Directors and Certain
Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation is incorporated
herein by reference to the Registrant's Proxy Statement for the Annual Meeting
of Stockholders to be held on April 30, 2002 under "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on April 30,
2002 under "Security Ownership of Certain Beneficial Owners" and "Information
with respect to the Nominee, Continuing Directors and Certain Executive
Officers."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related
transactions is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 30, 2002
under "Indebtedness of Management and Transactions with Certain Related
Persons."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Registrant and
its subsidiaries, together with the Report of Independent Auditors,
appearing in the 2001 Annual Report to Stockholders are incorporated
herein by reference.
Report of Independent Auditors.
Consolidated Statements of Financial Condition as of December 31, 2001
and 2000.
20
Consolidated Statements of Operations for the years ended December 31,
2001, 2000, and 1999.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000, and 1999.
Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000, and 1999.
Notes to the Consolidated Financial Statements.
The remaining information appearing in the 2001 Annual Report to
Stockholders is not deemed to be filed as a part of this report, except
as expressly provided herein.
(a)(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required or are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
(a)(3) EXHIBITS
The following exhibits are either filed as part of this report or are
incorporated herein by reference:
Exhibit No. 3. Certificate of Incorporation and Bylaws.
3.1 Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
Exhibit No. 4.
4.1 Form of Indenture of Argo Bancorp, Inc. relating to the Junior
Subordinated Deferrable Interest Debentures (2)
4.2 Form of Certificate of Argo Bancorp, Inc. relating to the
Junior Subordinated Deferrable Interest Debentures (2)
4.3 Certificate of Trust of ARGO Capital Trust Company (1)
4.4 Declaration of Trust of ARGO Capital Trust Company (1)
4.5 Form of Capital Security Certificate of Argo Capital Trust
Company (2)
4.6 Guarantee of Argo Bancorp, Inc. relating to Capital Securities
(2)
4.7 Amended and Restated Declaration of Trust of Argo Capital
Trust Company (2)
4.8 Form of Goodwill Convertible Preferred Stock Certificate of
Argo Bancorp, Inc. (2)
Exhibit No. 10. Material Contracts.
10.0 Stock Purchase Agreement dated December 31, 1996, between Argo
Bancorp, Inc., and Deltec Banking Corporation Limited (1)
10.1 Stockholder Agreement dated as of December 31, 1996, between
Argo Bancorp, Inc., The Deltec Banking Corporation Limited,
and John G. Yedinak (1)
21
10.2 Amended and Restated Employment Agreements between Argo
Bancorp, Inc. and Argo Federal Savings Bank, FSB. and John G.
Yedinak, each dated as of November 1, 1999.
10.3 Amended and Restated Employment Agreement between Argo
Bancorp, Inc. and Argo Federal Savings Bank, FSB. and Frances
M. Pitts., each dated as of November 1, 1999.
10.4 1996 Argo Bancorp, Inc. Management Recognition and Retention
Plan (1)
10.5 Argo Bancorp, Inc. 1998 Incentive Stock Option Plan (1)
10.6 Employment Agreement between Argo Bancorp, Inc. and Colleen A.
Kitch (3)
10.7 Agreement of Purchase and Sale between Argo Federal Savings
Bank, F.S.B. and Stuart Whitman, Inc. and related Leases (3)
10.8 Stock Purchase Agreement between Argo Bancorp, Inc. and The
Synergy Plan, Ltd., dated September 17, 1999 (3)
10.9 Stock Purchase Agreement by and among Argo Bancorp, Inc. by
and through OLF Acquisition Corp., and On-Line Financial
Services, Inc., Superior Savings Bank, I.S.C. Incorporated,
Savings and Loan Service Bureau of Indiana, O&H Service Bureau
of Michigan and the stockholders thereof, dated as of
September 21, 1995 (3)
10.10 Branch Office Purchase Agreements by and between Archer Bank
of Chicago (and also Chicago Community Bank) and Argo Federal
Savings Bank, FSB, each dated as of August 18, 2000 (3)
Exhibit No. 11.
11.1 Computation of earnings per share (included in Note 16 to the
Company's audited financial statements).
Exhibit No. 13.
13.1 Portions of the 2001 Annual Report to Stockholders.
Exhibit No. 21.
21.1 Subsidiary information is incorporated herein by reference to
"Part I - Subsidiaries."
Exhibit No. 23.
23.1 Consent of Crowe, Chizek and Company LLP (filed herewith).
-----------------
(1) Incorporated by reference to the Company's Registration
Statement on Form S-1 (No. 333-59435) filed on July 20, 1998 and
any amendments thereto.
(2) Incorporated by reference to the Company's Form S-1/A (No.
33-59435-01) filed on October 13, 1998.
(3) Incorporated by reference to the Company's Form S-3 (No.
333-54644) filed on January 30, 2001.
(A)(4) REPORTS ON FORM 8-K
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UMBRELLA BANCORP, INC.
----------------------
(Registrant)
Date: April 1, 2002 By: /S/ John G. Yedinak
--------------------------------------------
John G. Yedinak, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed by the following persons in the capacities and
on the dates indicated.
Date: April 1, 2002 By: /S/ John G. Yedinak
--------------------------------------------
John G. Yedinak, Chief Executive
Officer and Director (Principle Executive
Officer)
Date: April 1, 2002 By: /S/ Sergio Martinucci
--------------------------------------------
Sergio Martinucci, Vice President and
Director
Date: April 1, 2002 By: /S/ Arthur Byrnes
--------------------------------------------
Arthur Byrnes, Director
Date: April 1, 2002 By: /S/ Donald G. Wittmer
--------------------------------------------
Donald G. Wittmer, Director
Date: April 1, 2002 By: /S/ Frances M. Pitts
--------------------------------------------
Frances M. Pitts, Secretary and Director
Date: April 1, 2002 By: /S/ Dennis G. Carroll
--------------------------------------------
Dennis G. Carroll, Director
Date: April 1, 2002 By: /S/ Colleen A. Kitch
--------------------------------------------
Colleen A. Kitch, Executive Vice President
(Interim Principal Accounting and Financial
Officer)
23