UMBRELLA BANCORP, INC.
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CORPORATE PROFILE
Umbrella Bancorp, Inc. ("Umbrella Bancorp" or "the Company") (formerly, Argo
Bancorp, Inc.) was incorporated in Delaware in August 1987 for the purpose of
acquiring UmbrellaBank, fsb ("UmbrellaBank" or "Savings Bank") (formerly Argo
Federal Savings Bank, 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").
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") 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.
The Company's subsidiary, Argo Capital Trust Co. ("Argo Capital Trust"), a
statutory business trust formed under the laws of the State of Delaware, has
issued $17,250,000 of 11% Capital Securities ("Capital Securities") with a
liquidation amount of $10.00 per security. 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.
The Company's wholly owned subsidiary, Argo Redemption Corporation ("ARC"), an
Illinois corporation, 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 and 2000, ARC had acquired 64,717 and 66,293 shares of Argo Capital
Trust preferred securities at an average price of $9.85 and $8.61 per share.
On July 9, 2000, the Savings Bank established an Internet banking platform,
which is accessible via the Internet at http://www.umbrellabank.com and allows
consumers to conduct online financial transactions with the Savings Bank,
including but not limited to opening account relationships; transferring funds;
accessing account information; processing bill payments; and applying for or
obtaining loan products, including but not limited to credit cards and
residential mortgage secured loans. At December 31, 2001 and 2000,
umbrellabank.com deposits totaled $296.3 and $149.3 million and represented
64.7% and 38.4% of consolidated total deposits of $458.1 and $388.5 million.
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 $1,530,077. The assets of Dolton-Service include
50,000 shares of the Class A
1.
UMBRELLA BANCORP, INC.
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common stock of The Synergy Plan, Ltd. ("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
$135,000, 2,500 shares of Commercial Loan Corporation, commercial loan
originator, valued at $125,000, and 454,545 shares of Guaranteed Rate, Inc., a
residential mortgage loan originator, valued at $250,000.
2.
UMBRELLA BANCORP, INC.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected consolidated historical financial data
for the Company during the periods ended and at the dates indicated. This
information should be read in conjunction with the Consolidated Financial
Statements of the Company and notes thereto in the 2001 Annual Report to
Stockholders, portions of which are incorporated herein by reference.
At or For the Year Ended December 31,
------------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
CONSOLIDATED FINANCIAL CONDITION DATA:
Loans receivable, net $ 315,409 $286,523 $ 277,460 $ 245,189 $184,358
Stock in Federal Home Loan Bank of Chicago 2,800 2,615 2,303 1,911 3,271
Securities 131,030 42,196 40,891 7,901 4,974
Cash and cash equivalents 37,649 94,017 37,672 10,096 8,579
Mortgage loan servicing rights 4,080 4,784 4,958 5,062 6,706
Foreclosed real estate 730 2,498 2,280 3,875 4,251
Net assets of discontinued operation -- -- -- 6,545 5,114
Investment in GFS preferred stock -- 4,000 4,600 -- --
Other assets 44,937 26,460 22,066 19,963 12,991
--------- -------- --------- --------- --------
Total assets $ 536,635 $463,093 $ 392,230 $ 300,542 $230,244
========= ======== ========= ========= ========
Deposits $ 458,147 $388,537 $ 301,673 $ 232,980 $172,469
Borrowed money 28,343 18,708 40,336 21,051 29,497
Custodial escrow balances for loans serviced 9,499 8,365 5,476 5,340 6,400
Other liabilities 6,466 7,122 7,907 5,507 3,774
Junior subordinated debt 16,603 16,587 17,250 17,250 --
Stockholders' equity 17,577 23,774 19,588 18,414 18,104
--------- -------- --------- --------- --------
Total liabilities and stockholders' equity $ 536,635 $463,093 $ 392,230 $ 300,542 $230,244
========= ======== ========= ========= ========
SELECTED OPERATING DATA:
Interest income $ 37,075 $ 30,071 $ 23,896 $ 17,625 $ 18,263
Interest expense 29,414 22,750 16,014 11,367 10,807
--------- -------- --------- --------- --------
Net interest income 7,661 7,321 7,882 6,258 7,456
Provision for loan losses 1,710 1,218 965 355 210
--------- -------- --------- --------- --------
Net interest income after provision for loan losses 5,951 6,103 6,917 5,903 7,246
Noninterest income 3,395 10,091 2,340 3,810 3,151
Noninterest expense 12,424 10,636 9,079 9,851 9,648
--------- -------- --------- --------- --------
Income (loss) from continuing operations
before income taxes (3,078) 5,558 178 (138) 749
Income tax expense (benefit) (2,441) 1,227 (336) (383) 51
--------- -------- --------- --------- --------
Income (loss) from continuing operations (637) 4,331 514 245 698
Discontinued operations:
Income from discontinued operation
(net of tax) -- -- 135 286 125
Gain on sale of discontinued operation
(net of tax) -- -- 1,928 -- --
--------- -------- --------- --------- --------
Net income (loss) $ (637) $ 4,331 $ 2,577 $ 531 $ 823
========= ======== ========= ========= ========
Basic earnings (loss) per share - continuing operations $ (.37) $ 2.16 $ .26 $ .12 $ .36
Diluted earnings (loss) per share _ continuing operations (.37) 2.00 .25 .12 .33
Basic earnings (loss) per share $ (.37) $ 2.16 $ 1.32 $ .27 $ .43
Diluted earnings (loss) per share (.37) 2.00 1.25 .26 .39
3.
UMBRELLA BANCORP, INC.
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SELECTED CONSOLIDATED FINANCIAL DATA (Continued)
At or For the Year Ended December 31,
---------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
SELECTED FINANCIAL RATIOS AND OTHER DATA (1) (Dollars in thousands, except per share data)
Return from continuing operations on average
assets (0.12)% 1.05% 0.15% 0.10% 0.31%
Return from continuing operations on average
equity (3.00) 20.93 2.68 1.34 3.92
Average equity to average assets 3.99 5.00 5.54 7.58 7.94
Cash dividends declared per share $ .20 $ .20 $ .20 $ .19 $ .18
Dividend payout ratio N/A 9.28% 15.56% 67.61% 42.77%
Stockholders' equity to total assets 3.28% 5.13 5.09 6.12 7.86
Interest rate spread 2.59 2.34 2.54 3.15 4.03
Net interest margin 2.04 2.00 2.53 2.95 3.78
Noninterest expense to average assets 2.33 2.57 3.77 3.80 4.28
Nonperforming loans to net loans receivable (2) 2.82 1.56 2.25 2.80 3.57
Nonperforming assets to total assets (3) 1.85 1.50 2.12 3.45 4.25
Allowance for loan losses to nonperforming
loans (2) 33.16 54.98 25.61 14.42 14.73
Allowance for loan losses to loans receivable (3) 1.18 0.98 0.61 0.46 0.57
Ratio of net charge-offs to average loans
outstanding,
excluding discounted loans 0.12 0.03 0.01 0.01
Average interest-earning assets to average
interest-bearing liabilities 0.91x .94x 1.01x .96x .95x
Book value per share $10.31 $11.75 $ 9.75 $ 9.18 $ 9.25
Full-service customer service facilities 2 2 5 5 5
- ----------
(1) Average balances are derived from daily average balances for 2001 and
month-end balances for all other years.
(2) The formula used to calculate the ratios excludes balances related to the
portfolio of discounted loans receivable from both the numerator and the
denominator.
(3) The formulas used to calculate the ratios exclude the portfolio of
discounted loans receivable and loans held for sale.
(4) Dividend payout ratio is not presented for 2001 due to net loss in 2001.
4.
UMBRELLA BANCORP, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRIVATE SECURITIES LITIGATION REFORM ACT 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. Further description of the
risks and uncertainties to the business are included in detail in Item 1,
"Business" of the Company's 2001 Form 10-K.
GENERAL
Umbrella Bancorp ("the Company") is a unitary savings and loan holding company
and is registered as such with the OTS. The Company is an active holding company
with assets consisting of investments in UmbrellaBank, fsb ("UmbrellaBank" or
the "Savings Bank"), marketable securities, and interest-earning deposits. The
Company is a Federal Housing Authority ("FHA") approved originator and servicer,
a licensed Illinois mortgage banker, and an approved Federal National Mortgage
Association ("Fannie Mae") servicer.
UmbrellaBank's primary business is the solicitation of 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, trust preferred securities, and municipal bonds.
The Savings Bank is a member of the Federal Home Loan Bank ("FHLB") System, and
its deposits are insured to the maximum allowable amount by the Federal Deposit
Insurance Corporation ("FDIC").
5.
UMBRELLA BANCORP, INC.
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The Savings Bank also offers "purchase/repurchase" mortgage loan facilities to a
number of third party mortgage banking firms. The Savings Bank
purchase/repurchase loans are one-to-four-family secured mortgage loans held for
sale by the Savings Bank, with mortgage loans acquired by the Savings Bank
generally delivered for sale to third party investors within 30-60 days of
closing.
During 2001 and 2000, the Savings Bank increased its commercial lending
activities. Through its investment in the Commercial Loan Corporation ("CLC"),
the Savings Bank invests in commercial loan and commercial real estate loan
participations in the Chicago metropolitan area. The Savings Bank has also
directly originated or participated in commercial real estate development loans,
primarily in the Chicagoland area. The Savings Bank has also acquired interests
in charter school lease and loan transactions, which are generally exempt from
federal taxation, and diversified its commercial loan portfolio by acquisition
of participations in commercial real estate and development loans in the greater
Denver, Colorado area.
In addition to its lending activities, the Savings Bank also generates interest
and fee income from an expanding network of regionally deployed ATMs. Deployment
activities have been concentrated primarily in the Midwest and Mid-Atlantic
regions of the country, with limited expansion in the southeastern United States
and west of the Mississippi. Revenues are derived from interchange and surcharge
fees, together with income from related leasing and interest on currency used in
operations. At December 31, 2001, the Savings Bank had deployed 2,019 ATMs in 17
states.
Since 1999, the Savings Bank has undertaken a number of steps designed to
restructure and change the way the Savings Bank conducts banking activities in
its marketplace. The most significant of these changes was the establishment, on
July 9, 2000, of an Internet banking platform which is accessible via the
Internet at http://www.umbrellabank.com and allows consumers to conduct online
financial transactions with the Savings Bank, including but not limited to
opening account relationships; transferring funds; accessing account
information; processing bill payments; and applying for or obtaining loan
products, including, but not limited to, credit cards and residential
mortgage-secured loans.
Prior to the establishment of the Internet platform, the Savings Bank operated
as a traditional savings and loan institution from five physical branch
locations located in Chicago and suburban Cook County, Illinois. On June 29,
1999, the Savings Bank sold its five operating properties to a nonaffiliated
third party for an aggregate contractual purchase price of $5,850,000 and
simultaneously entered into a 14-year, 2-month operating lease for each of the
properties with the new purchaser. Under the terms of the lease, the Savings
Bank paid an initial monthly rental of $48,000 per month, or $576,000 per year,
which increases at the rate of 1% each year commencing January 1, 2000. The sale
resulted in a profit of $2,400,000 to the Savings Bank. The profit, under
accounting principles generally accepted in the United States of America, was
deferred and included in income by the Savings Bank over the lease term. As a
result of this sale and leaseback transaction, the Savings Bank rents, rather
than to owns, the properties from which it transacts business.
6.
UMBRELLA BANCORP, INC.
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FINANCIAL CONDITION
Total assets increased $73.5 million to $536.6 million at December 31, 2001 from
$463.1 million at December 31, 2000.
Cash and interest-earning deposits decreased by $56.4 million to $37.6 million
at December 31, 2001 from $94.0 million at December 31, 2000. The decrease was
attributable to the Company maintaining liquidity at December 31, 2000 until
deposit inflows could be reinvested in loans and securities.
LENDING ACTIVITIES
As shown in the following table, loans receivable, net, which includes loans
held for sale and discounted loans receivable, increased $28.9 million, or
10.1%, in 2001 to $315.4 million after increasing by $9.0 million, or 3.1%, in
2000. The increase in 2001 was primarily due to purchases and origination of
commercial loans, which increased by $68.2 million, which was partially offset
by reductions in one-to-four family mortgage loans and commercial real estate.
The decrease in one-to-four family mortgage loans resulted from pay-offs due to
refinancing. The increase in loans receivable for 2000 was due to the
origination and purchase of seasoned fixed rate and adjustable rate loans
secured by single-family residences. New originations and purchases of loans
contributed $626.9 million, which was partially offset by $36.9 million from the
sale of similar assets. These purchases and originations were primarily funded
by principal repayments of $560.7 million on loans receivable and
mortgage-backed securities, and an increase in deposits of $69.6 million. At
December 31, 2001, $195.6 million of total loans outstanding, or 61.27% of its
total loan portfolio, consisted of loans secured by first mortgages on
one-to-four-family residential properties, $38.7 million, or 12.13% consisted of
loans secured by commercial real estate, $75.0 million, or 23.49% consisted of
commercial loans either unsecured or secured by non-residential real estate and
other assets, and $9.9 million, or 3.10% consisted of other loans.
The following table sets forth the composition of Company's loan portfolio,
including loans held for sale, in dollar amounts and in percentages of the
portfolio at the dates indicated.
7.
UMBRELLA BANCORP, INC.
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At December 31,
--------------------------------------------------------
2001 2000
-------------------------- --------------------------
Amount % of Total Amount % of Total
-------- ---------- -------- ----------
(Dollars in Thousands)
Mortgage loans:
One-to four-family (2) : ............. $195,603 61.28% $217,444 75.02%
Commercial multi-family secured
real estate ........................ 38,722 12.13 41,872 14.44
-------- ------ -------- ------
Total mortgage loans ............... 234,325 73.41 259,316 89.46
Other loans
Commercial ........................... 74,986 23.48 22,947 7.92
Home equity .......................... 4,304 1.35 4,436 1.53
Direct financing leases .............. 4,368 1.37 2,288 .79
Other ................................ 1,235 0.39 856 .30
-------- ------ -------- ------
Total other loans .................. 84,893 26.59 30,527 10.54
-------- ------ -------- ------
Total loans receivable (1) ......... 319,218 100.00% 289,843 100.00%
======= ====== ======= ======
Less:
Unearned discounts and
premiums and deferred loan
fees, net .......................... 825 880
Allowance for loan losses ............ 2,984 2,440
-------- --------
Loans receivable, net .............. $315,409 $286,523
======== ========
At December 31,
--------------------------------------------------------
1999 1998
-------------------------- --------------------------
Amount % of Total Amount % of Total
-------- ---------- -------- ----------
(Dollars in Thousands)
Mortgage loans:
One-to four-family (2) : ............. $249,542 88.99% $233,461 93.64%
Commercial multi-family secured
real estate ........................ 13,887 4.95 2,179 .87
-------- ------ -------- ------
Total mortgage loans ............... 263,429 93.94 235,640 94.51
Other loans
Commercial ........................... 9,521 3.39 6,577 2.65
Home equity .......................... 4,738 1.69 4,013 1.61
Direct financing leases .............. 1,566 .56 1,207 .48
Other ................................ 1,168 .42 1,864 .75
-------- ------ -------- ------
Total other loans .................. 16,993 6.06 13,661 5.49
-------- ------ -------- ------
Total loans receivable (1) ......... 280,422 100.00% 249,301 100.00%
======= ====== ======= ======
Less:
Unearned discounts and
premiums and deferred loan
fees, net .......................... 1,411 3,172
Allowance for loan losses ............ 1,551 940
-------- --------
Loans receivable, net .............. $277,460 $245,189
======== ========
At December 31,
--------------------------
1997
--------------------------
Amount % of Total
-------- ----------
(Dollars in Thousands)
Mortgage loans:
One-to four-family (2) : ............. $177,521 92.20%
Commercial multi-family secured
real estate ........................ 3,203 1.66
-------- ------
Total mortgage loans ............... 180,724 93.86
Other loans
Commercial ........................... 450 .23
Home equity .......................... 4,497 2.34
Direct financing leases .............. -- --
Other ................................ 6,862 3.57
-------- ------
Total other loans .................. 11,809 6.14
-------- ------
Total loans receivable (1) ......... 192,533 100.00%
======
Less:
Unearned discounts and
premiums and deferred loan
fees, net .......................... 7,361
Allowance for loan losses ............ 814
--------
Loans receivable, net .............. $184,358
========
- ----------
(1) Includes loans receivable and discounted loans receivable.
(2) Includes loans held for sale of $65.1 million, $38.9 million, $18.9
million, $31.0 million, and $6.5 million at December 31, 2001, 2000, 1999,
1998, and 1997.
8.
UMBRELLA BANCORP, INC.
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Set forth below is a table showing the Company's loan originations, purchases
and sales for the years indicated:
Year Ended December 31,
----------------------------------
2001 2000 1999
---- ---- ----
(In thousands)
Loans originated:
One-to-four-family (1)(2) $534,416 $342,109 $292,842
Commercial real estate (5 or more units) 10,128 5,236 6,615
Commercial 4,442 3,586 1,926
Home equity 3,513 2,729 1,653
Direct financing leases -- 1,465 --
Other 1,314 5,327 588
-------- -------- --------
Total mortgage loans originated 553,813 360,452 303,624
Loans purchased:
One-to-four-family 34,880 5,764 70,113
Commercial real estate (5 or more units) 22,082 26,290 7,152
Commercial 12,992 18,033 12,789
Direct financing leases 3,151 2,288 1,566
-------- -------- --------
Total loans purchased 73,105 52,375 91,620
-------- -------- --------
Total loans originated and purchased $626,918 $412,827 $395,244
======== ======== ========
Loans sold:
One-to-four-family (1) $ 33,388 $308,211 $282,026
Commercial loans 3,500 -- --
-------- -------- --------
Total loans sold $ 36,888 $308,211 $282,026
======== ======== ========
- ----------
(1) Originations and sales exclude $24.6 million, $15.8 million and $103.0
million for the years ended December 31, 2001, 2000, and 1999 of loans
originated and immediately sold directly to third party investors.
(2) One-to-four family loan originations include balances on
purchase/repurchase lines.
9.
UMBRELLA BANCORP, INC.
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The following table shows the remaining maturities or period to repricing of the
Company's loan portfolio at December 31, 2001. Loans that have adjustable rates
are shown as being due in the period during which the interest rates are next
subject to change. Prepayments and scheduled principal amortization on mortgage
loans totaled $549.4 million, $95.6 million and $75.9 million for the years
ended December 31, 2001, 2000, and 1999.
Loans
----------------------------------------------------------------------------------------------
(Dollars In Thousands)
Commercial Direct
One-to- Real Commercial Home Financing
Four-Family Estate Loans Equity Leases Other Total
----------- ------ ----- ------ ------ ----- -----
AMOUNTS DUE:
Within one year $126,262 $17,897 $69,385 $3,756 $2,261 $ 872 $220,433
After one year:
One to three years 14,292 -- -- -- 349 363 15,004
Three to five years 7,177 20,366 -- -- 1,693 -- 29,236
Five to ten years 3,713 -- 5,601 -- -- -- 9,314
Ten to twenty years 23,396 459 -- 548 -- -- 24,403
Over 20 years 20,763 -- -- -- 65 -- 20,828
-------- ------- ------- ------ ------ ------ --------
Total due after one year 69,341 20,825 5,601 548 2,107 363 98,785
-------- ------- ------- ------ ------ ------ --------
Total loans receivable $195,603 $38,722 $74,986 $4,304 $4,368 $1,235 $319,218
======== ======= ======= ====== ====== ====== ========
The following table sets forth at December 31, 2001, the dollar amount of all
loans due after December 31, 2002, and whether such loans have fixed or
adjustable interest rates.
Fixed Adjustable
Rates Rates Total
----- ----- -----
(In thousands)
Mortgage loans:
One-to-four-family $55,334 $14,007 $69,341
Commercial real estate 20,825 -- 20,825
Commercial loans 5,601 -- 5,601
Home equity loans 548 -- 548
Direct financing leases 2,107 -- 2,107
Other loans 363 -- 363
------- ------- -------
Total $84,778 $14,007 $98,785
======= ======= =======
10.
UMBRELLA BANCORP, INC.
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Problem Assets and Asset Classification. In accordance with Federal regulations,
loans and other assets are reviewed by the Company on a regular basis for a
determination of need to classify such assets. There are three classifications
for assets: Substandard, Doubtful and Loss. An asset is considered "Substandard"
if it is inadequately protected by the current net worth and paying capacity of
the obligor, or the current realizable value of the collateral pledged.
Substandard assets include those characterized by the "distinct possibility"
that the Company will sustain "some loss" if the deficiencies noted are not
corrected. Assets classified as "Doubtful" have all the weaknesses inherent in
those classified as Substandard, with the added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of
"currently existing facts, conditions and values," "highly questionable and
improbable." Assets classified as "Loss" are those with weaknesses and
characteristics considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss reserve is
not warranted. An allowance for losses is established in amounts deemed prudent
by management. When an asset is classified as Loss, the Company is required to
establish a specific allowance for such losses equal to 100% of the amount of
the asset so classified, or to charge-off such amount. The Company's policy is
to stop accruing interest for any loan in excess of 90 days delinquent separate
from management's analysis as to the future collectibility of interest.
At December 31, 2001, UmbrellaBank had $9 million of loans classified as
Substandard or Doubtful, with no Loss assets at December 31, 2001. The Company
recorded a provision for loan losses of $1,710,000 during 2001, consisting of
$1,183,000 recorded by the Savings Bank and $527,000 recorded by Umbrella
Bancorp. The Savings Bank's provision included a $1,000,000 provision recorded
in the fourth quarter primarily as a result of the Savings Bank's decision to
classify mortgage loans securing purchase/repurchase lines of credit facilities
with weaknesses attributable to a customer mortgage broker and origination fraud
discovered in the fourth quarter. UmbrellaBank provided $902,000 to cover
probable incurred losses resulting from certain fraudulent loans that are the
subject of litigation. Management has identified the expense credit loss from
this customer and these loans were subsequently charged off prior to December
31, 2001. In addition, the Bank provided for reserves of $98,000 in the fourth
quarter for growth in the commercial loans portfolio. Finally, Umbrella Bancorp
established a reserve of $500,000 for one problem loan.
In addition, at December 31, UmbrellaBank had $730,000 of real estate, net of
$280,000 of specific reserves, acquired through foreclosure or deed in lieu of
foreclosure ("REO"), which was comprised of 27 properties. REO or real estate in
judgment is carried at the lower of the fair market value less cost to dispose
or the related loan balance at the date of foreclosure. An allowance for loss
has been established by a charge to operations or a transfer from the allowance
for loan losses where the carrying value of REO exceeds its fair value less cost
to dispose.
NONACCRUAL AND PAST-DUE LOANS. The following table sets forth information
regarding nonaccrual loans and other real estate owned ("REO"). It is the policy
of the Savings Bank to cease accruing interest on loans 90 days or more past
due. For the years ended December 31 presented below, the amount of interest
income that would have been recognized on nonaccrual loans is immaterial to the
financial statements. As of the dates shown, UmbrellaBank had no restructured
loans.
11.
UMBRELLA BANCORP, INC.
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At December 31,
---------------------------------------------------------
(Dollars in Thousands)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Nonperforming loans (1)(2) $ 9,000 $ 4,438 $ 6,039 $ 6,518 $ 5,525
Foreclosed real estate, net (3) 730 2,498 2,280 3,875 4,251
--------- --------- --------- --------- --------
Total nonperforming assets $ 9,730 $ 6,936 $ 8,319 $ 10,393 $ 9,776
Allowance for loan losses as a
percentage of net loans receivable excluding
loans held for sale(1) 1.18% .98% .61% .46% .57%
Allowance for loan losses to nonperforming
loans (1) 33.16 54.98 25.68 14.42 14.73
Nonperforming loans as a percentage of
loans receivable (1) 2.82 1.59 2.25 2.80 3.57
Nonperforming assets as a percentage of
total assets 1.81 1.50 2.12 3.45 4.25
- ----------
(1) All nonperforming loan totals exclude discounted loans receivable ninety
days or more past due which at December 31, 2001, 2000, 1999, 1998, and
1997 amounted to $901,000, $1.0 million, $1.7 million, $3.0 million, and
$6.2 million. All net loan totals exclude discounted loans receivable,
which at December 31, 2001, 2000, 1999, 1998, and 1997 amounted to $4.9
million, $7.1 million, $9.1 million, $12.4 million, and $30.6 million.
(2) At December 31, 2001, $1.6 million or 17.8% of the $9 million in
nonperforming loans represent loans originated by the Savings Bank. The
remaining loans represent loans purchased by the Savings Bank, including
loans underlying purchase/repurchase lines of credit facilities.
(3) Includes $292,000 and $582,000 of REO related to the discounted loans
receivable portfolio at December 31, 2001 and 2000.
The Company also has investments in trust preferred securities with an amortized
cost of $11,064 and a carrying value of $10,835 where, in accordance with
regulatory guidelines, such securities have been rated below investment grade by
one or more nationally recognized rating agencies, management is monitoring
repayment capability. Other than these trust preferred securities, management
knows of no other asset that would be required to be presented in the table
above if such assets were loans.
12.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
The following table sets forth delinquencies in UmbrellaBank's loan portfolio as
of the dates indicated:
At December 31, 2001
--------------------------------------------------------------
30-89 Days 90 Days or More
---------------------------- ---------------------------
Loans Loans
Number Receivable, Number Receivable,
of Loans Net of Loans Net
-------- --- -------- ---
(Dollars in Thousands)
Mortgage loans:
One-to-four-family 54 $4,544 48 $7,161
Commercial multi-family
secured real estate -- 2 1,064
------ ------ ----- ------
Total mortgage loans 54 4,544 50 8,225
Commericial -- -- 2 601
Home equity -- -- 2 77
Direct financing leases -- -- -- --
Other 6 35 19 97
------ ------ ----- ------
Total 60 $4,579 73 $9,000
====== ====== ===== ======
Delinquent loans to total
loans receivable (1) 1.43% 2.82%
===== ======
- ----------
(1) Excludes balances related to portfolio of discounted loans receivable.
13.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
At December 31, 2000
-------------------------------------------------------
30-89 Days 90 Days or More
Loans Loans
Number Receivable, Number Receivable,
of Loans Net of Loans Net
-------- --- -------- ---
(Dollars in Thousands)
Mortgage loans:
One-to four-family 69 $3,551 66 $4,257
Commericial multi-family secured real estate -- -- -- --
------ ------ ------ ------
Total mortgage loans 69 3,551 66 4,257
Home equity 6 179 1 74
Commercial loans -- -- -- --
Direct financing leases -- -- -- --
Other loans -- -- 4 107
------ ------ ------ ------
Total 75 $3,730 71 $4,438
====== ====== ====== ======
Delinquent loans to total
loans receivable (1) 1.33% 1.59%
====== ======
At December 31, 1999
---------------------------------------------------
30-89 Days 90 Days or More
Loans Loans
Number Receivable, Number Receivable,
of Loans Net of Loans Net
(Dollars in Thousands)
Mortgage loans:
One-to four-family 78 $3,364 86 $6,039
Commericial multi-family secured real estate -- -- -- --
------ ------ ------ ------
Total mortgage loans 78 3,364 86 6,039
Home equity -- -- -- --
Commercial loans -- -- -- --
Direct financing leases -- -- -- --
Other loans -- -- -- --
------ ------ ------ ------
Total 78 $3,364 86 $6,039
====== ====== ====== ======
Delinquent loans to total
loans receivable (1) 1.25% 2.25%
====== ======
14.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses balance at
December 31, 2001 was $3.0 million or 1.18% of loans excluding loans held for
sale. The allowance for loan losses is maintained at a level determined to be
adequate by management to absorb probable incurred credit losses. Determination
of an appropriate level of allowance for loan losses necessarily involves a high
degree of judgment. Primary considerations in this evaluation are prior loan
loss experience, the character and mix of the loan portfolio, adverse situations
which may affect a borrower's ability to repay, size of the loan portfolio, peer
group information, business and economic conditions and management's estimate of
probable incurred losses. While management uses all available information,
including the monitoring of the economic conditions in the geographic regions in
which the loan portfolio is located, future additions to the allowance may be
necessary based on estimates that are susceptible to significant revision as a
result of changes in economic conditions and other factors. Additionally,
various regulatory agencies, as an integral part of their examination process,
periodically review UmbrellaBank's allowance for loan losses. Such agencies may
require UmbrellaBank to recognize additions to the allowance based on their
judgment of information available to them at the time of their examination.
At December 31, 2001, the Savings Bank experienced an increase in the percentage
of net loans 90 days or more delinquent from 1.59% of total loans receivable and
loans held for sale at December 31, 2000 to 2.82% of total loans receivable and
loans held for sale at December 31, 2001. The increase was primarily due to
classification activities relating to certain single-family residential mortgage
loans underlying purchase/repurchase lines of credit, which were discovered to
involve various irregularities including broker and originator fraud issues, as
well as payment and loan servicing defaults. Also, total purchase/repurchase
lines of credit facilities outstanding at December 31, 2001 were $65.1 million,
compared to $38.0 million at December 31, 2000 and the commercial multi-family
secured real estate and commercial loan balances totaled $113.7 million at
December 31, 2001 compared to $65.2 million at December 31, 2000.
Based upon these factors, management increased the allowance for loan losses
during the fourth quarter of 2001. Approximately $800,000 was established to
cover purchase/repurchase lines of credit facilities and $300,000 allocated to
cover commercial loan assets, including real estate secured construction loans.
In addition, Umbrella Bancorp recorded a $500,000 provision for loan losses in
the fourth quarter of 2001 related to loans acquired from the Savings Bank.
Based upon management's analysis, the allowance for loan losses at December 31,
2001 is adequate to cover probable incurred loan losses.
15.
Allowance for Loan and Lease Loss Allocation
2001 2000
-------------------------------------- --------------------------------------
Percent of Percent of
Loans Loans
Percent of in Each Percent of in Each
Allowance Category Allowance Category
to Total to Total to Total to Total
Amount Allowance Gross Loans Amount Allowance Gross Loans
------ --------- ----------- ------ --------- -----------
One-to-four-family mortgage loans $1,534 51.41% 61.28% $1,678 68.77% 74.28%
Commercial real estate loans 329 11.03 12.13 440 18.03 14.88
Commercial 915 30.66 23.48 71 2.91 2.41
Home equity 34 1.14 1.35 47 1.93 1.58
Direct lease financing 9 .30 1.37 194 7.95 6.56
Other 111 3.72 0.39 10 .41 0.30
Unallocated 52 1.74 -- -- -- --
------ ------ ------ ------ ------ ------
Total allowance for
loan losses $2,984 100.00% 100.00% $2,440 100.00% 100.00%
====== ====== ====== ====== ====== ======
1999 1998
-------------------------------------- -------------------------------------
Percent of Percent of
Loans Loans
Percent of in Each Percent of in Each
Allowance Category Allowance Category
to Total to Total to Total to Total
Amount Allowance Gross Loans Amount Allowance Gross Loans
------ --------- ----------- ------ --------- -----------
One-to-four-family mortgage loans $1,298 83.69% 88.54% $687 73.08% 93.64%
Commercial real estate loans 14 0.90 5.16 14 1.49 0.87
Commercial 216 13.93 0.89 216 22.98 0.04
Home equity -- -- 1.76 -- -- 1.61
Direct lease financing -- -- 3.22 -- -- 3.09
Other 23 1.48 0.43 23 2.45 0.75
Unallocated -- -- -- -- -- --
------ ------ ------ ---- ------ ------
Total allowance for
loan losses $1,551 100.00% 100.00% $940 100.00% 100.00%
====== ====== ====== ==== ====== ======
1997
-------------------------------------
Percent of
Loans
Percent of in Each
Allowance Category
to Total to Total
Amount Allowance Gross Loans
------ --------- -----------
One-to-four-family mortgage loans $561 68.92% 92.20%
Commercial real estate loans 14 1.72 1.66
Commercial 216 26.53 0.23
Home equity -- -- 2.34
Direct lease financing -- -- --
Other 23 2.83 3.57
Unallocated -- -- --
---- ------ ------
Total allowance for
loan losses $814 100.00% 100.00%
==== ====== ======
16.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
The following table sets forth information with respect to the Company's
allowance for loan losses by loan category for the years and at the dates
indicated.
2001 2000 1999 1998 1997
------- ------- ------- ----- -----
Balance at beginning of year: $ 2,440 $ 1,551 $ 940 $ 814 $ 665
Provision for loan losses: 1,710 1,218 965 355 210
Purchased allowance on one-to-four-family loans -- -- -- 30 --
Net charge-offs:
Mortgage loans:
One-to-four-family ......................... (1,014) (329) (354) (259) (61)
Commercial real estate ..................... -- -- -- -- --
Commercial ................................... -- -- -- -- --
Direct finance leases ........................ -- -- -- -- --
Home equity .................................. -- -- -- -- --
Other ........................................ (152) -- -- -- --
------- ------- ------- ----- -----
Total ...................................... (1,166) (329) (354) (259) (61)
------- ------- ------- ----- -----
Balance at end of year: $ 2,984 $ 2,440 $ 1,551 $ 940 $ 814
======= ======= ======= ===== =====
Ratio of net charge-offs during the period to net
loans receivable, excluding discounted loans . .38% .12% .03% .01% .01%
======= ======= ======= ===== =====
Ratio of allowance for loan losses to net loans
receivable, excluding discounted loans
and loans held for sale ...................... 1.18% .98% .61% .46% .57%
======= ======= ======= ===== =====
17.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
The Company has been actively trading the marketable equity securities of the
Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan
Mortgage Corporation ("Freddie Mac") and Annaly Mortgage common stock. These
securities are classified as trading and totaled $6,053,000 and $1,099,000 at
December 31, 2001 and 2000, with fair value approximately equal to cost.
Securities available-for-sale, which totaled $123.1 million at December 31,
2001, are carried at fair value and include $49.2 million of mortgage-backed
securities, $32.2 million of trust preferred securities, $15.2 million of
marketable equity securities and collateralized mortgage obligations, $3.0
million of U.S. Agency securities, $18.7 of municipal securities, and $3.3
million of corporate bonds. Securities classified as held-to-maturity were
carried at $1,859,000 at December 31, 2001, had a market value of $1,838,000,
and consisted of U.S. agency securities and corporate bonds.
During 2001, the Company purchased securities totaling $255.8 million. These
securities are made up primarily of $56.8 million of mortgage-backed securities
and collateralized mortgage obligations, $43.8 million in marketable equity
securities, $37.7 million of municipal securities, $80.4 million of trust
preferred securities and $37.1 in corporate and agency bonds.
Included in mortgage-backed securities and collateralized mortgage obligations
(CMOs), are Fannie Mae, Freddie Mac, and Government National Mortgage
Association ("GNMA") CMOs managed by Annaly Mortgage Management, Inc. with a
carrying value of $30.5 million and an amortized cost of $30.7 million at
December 31, 2001. There were no other concentrations by issuer at December 31,
2000.
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 Freddie Mac and 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.
In addition to investment activities at UmbrellaBank, Umbrella Bancorp maintains
a portfolio of marketable securities, generally comprised of TPSs and equity
securities consisting of non-control positions in financial institution equities
which management believes, 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
18.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
investments. At December 31, 2001, Umbrella Bancorp had $7.9 million in these
securities, which are included in the securities available-for-sale totals
above.
The following table sets forth the composition of the Company's
available-for-sale portfolio in dollar amounts and percentages at the dates
indicated.
At December 31,
------------------------------------------------------------------------
2001 2000 1999
------------------------------------------------------------------------
Fair % of Fair % of Fair % of
Value Total Value Total Value Total
-------- ------ ------- ------ ------- ------
DEBT SECURITIES:
U.S. government agency obligations $ 2,975 2.42% 5,419 37.18% $ 5,157 35.90%
Municipal bonds 18,745 15.23 375 2.57 378 2.63
Corporate bonds 4,684 3.80 1,623 11.14 393 2.74
Mortgage-backed securities and
collateralized mortgage obligations 49,240 39.99 1,593 10.94 1,682 11.71
-------- ------ ------- ------ ------- ------
Total debt securities 75,644 61.44 9,010 61.83 7,160 52.98
Equity securities 15,199 12.35 2,914 19.99 3,163 22.02
Trust preferred securities 32,275 26.21 2,650 18.18 3,591 25.00
Total securities available-for-sale $123,118 100.00% $14,574 100.00% $14,364 100.00%
======== ====== ======= ====== ======= ======
FHLB of Chicago stock $ 2,800 100.00% $ 2,615 100.00% $ 2,303 100.00%
======== ====== ======= ====== ======= ======
The following table sets forth the composition of the Company's held-to-maturity
securities portfolio in dollar amounts and percentages at December 31, 2001,
2000, and 1999.
2001 2000 1999
--------------------- -------------------- --------------------
Amortized % of Amortized % of Amortized % of
Cost Total Cost Total Cost Total
---- ----- ---- ----- ---- -----
Corporate bonds $ 685 36.85% $ 778 2.93% $ 726 2.81%
U.S. agency securities 1,174 63.15 24,451 92.19 24,157 93.42
Collateralized mortgage obligations -- -- 1,294 4.88 976 3.77
-------- ------ ------- ------ ------- ------
Total securities held-to-maturity $ 1,859 100.00% $26,523 100.00% $25,859 100.00%
======== ====== ======= ====== ======= ======
19.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
The table below sets forth certain information regarding the amortized cost,
weighted average yields and contractual maturities of securities as of December
31, 2001.
More than One Year More than Five Years
One Year or Less to Five Years to Ten Years
----------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
--------- ------- --------- ------- --------- -------
AVAILABLE-FOR-SALE:
U.S. government and
agency obligations $ -- --% $ -- --% $ 500 8.10%
Municipal bonds (2) 1,105 4.57 -- -- 370 9.50
Corporate bonds -- -- -- -- -- --
Trust preferred securities 870 8.18 -- -- -- --
Mortgage-backed
Securities and CMOs -- -- -- -- 548 5.23
Equity securities (1) 15,482 -- -- -- -- --
------- ------ ------ ------ ------ -------
Total available-
for-sale $17,457 6.16% $ -- --% $1,418 7.36%
======= ====== ======
HELD-TO-MATURITY:
Corporate bonds $ -- --% $ -- --% $ -- --%
U.S. agency securities -- -- -- -- -- --
------- ------ ------ ------ ------ -------
Total held-to-
maturity $ -- --% $ -- --% $ -- --%
======= ====== ======
More than Ten
Years Total
-------------------------- -------------------------
Weighted Weighted
Amortized Average Amortized Average
Cost Yield Cost Yield
--------- ------- --------- -------
AVAILABLE-FOR-SALE:
U.S. government and
agency obligations $ 2,495 6.53% $ 2,995 6.79%
Municipal bonds (2) 17,801 5.01 19,276 5.07
Corporate bonds 4,691 13.45 4,691 13.45
Trust preferred securities 31,861 8.42 32,731 8.42
Mortgage-backed
Securities and CMOs 49,220 4.57 49,768 4.58
Equity securities (1) -- -- 15,482 --
-------- ------- -------- -------
Total available-
for-sale $106,068 6.24% $124,943 6.25%
======== ========
HELD-TO-MATURITY:
Corporate bonds $ 685 7.61% $ 685 7.61%
U.S. agency securities 1,174 7.00 1,174 7.00
-------- ------- -------- -------
Total held-to-
maturity $ 1,859 7.22% $ 1,859 7.22%
======== ========
- ----------
(1) Weighted average yield does not include equity securities.
(2) Computed on tax equivalent basis for nontaxable securities (34% statutory
tax rate).
20.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
PURCHASED MORTGAGE SERVICING RIGHTS
The Company's principal investment in purchased mortgage servicing rights
("PMSRs") is through a $3.0 million equity interest in a limited partnership
whose business activities are to purchase mortgage servicing rights and a
$751,000 investment in subordinated debentures of the partnership. The PMSRs
were acquired in prior periods, for a purchase price based on the present value
of the expected future stream of cash flows, computed by using a discount rate
that management considered to approximately reflect the risk associated with the
investment, and using loan prepayment assumptions. Management did not purchase
PMSRs with recourse servicing, thus the Company is not subject to the risk of
and costs (including foreclosure costs) associated with borrower default on the
underlying loans.
There are several unaffiliated equity investors in the limited partnership. The
purchase of the PMSRs is leveraged, allowing the limited partnership to purchase
PMSRs equaling one to three times the equity investment by its partners. The
cost of the borrowings, as well as the servicing income and expense and related
amortization, is recorded at the limited partnership level. In November 2001,
the debt associated with the Company's largest investment in PMSRs was repaid.
As a result, in December the Company began to receive cash distributions on a
prorata basis from cash flows generated by the PMSRs. The Company anticipates
such payments will continue until the assets are sold or are all paid off.
Subject to approval by the limited partners, the task of finding and acquiring
the PMSRs controlled by the limited partnership, as well as all associated
administrative duties, is assigned to Dovenmuehle Mortgage, Inc. ("DMI"), the
general partner of the limited partnership. DMI also sub-services the PMSRs in
the partnership. Each quarter, financial statements are issued to the limited
partnership by DMI, and the pro rata share of the income for each investor is
calculated by DMI. The Company records its share of income or loss on the equity
method for the partnership investment. The limited partnership is audited
annually by an independent auditor and an independent third party valuation of
the partnership's PMSRs is performed quarterly. In addition, unaudited financial
statements of the limited partnership are distributed quarterly by DMI to each
investor. The audited financial statements, the unaudited quarterly financial
statements and the quarterly valuations are sent directly to each equity
investor. At the end of five years, or at such time as the investors may agree,
the PMSRs will be sold and the proceeds divided pro rata among the investors.
Due to the volatility of the interest rate environment in 2001 and the effect on
prepayment speeds of mortgages underlying the PMSRs held through the limited
partnership, the value of PMSR assets owned by the Savings Bank was subject to
substantial change. At September 30, 2001, the independent quarterly valuation
performed on the PMSRs held by the limited partnership showed an appraised value
lower than the current book value. The general partner recorded a valuation
allowance. UmbrellaBank's proportionate share of the writedown was $1.1 million,
which the Savings Bank recorded based upon information received from DMI. After
recording the adjustment, the remaining value of the PMSR assets was transferred
by the Savings Bank to Umbrella Bancorp, as part of a $751,000 capital infusion
transaction from Umbrella Bancorp to UmbrellaBank. The latest independent
appraisal dated December 31, 2001 supported Umbrella Bancorp's carrying value
for the PMSRs on that date. The Savings Bank
21.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
continues to carry interest free custodial accounts associated with Umbrella
Bancorp's and the Savings Bank's PMSRs, comprised of the borrowers' taxes and
insurance escrows and, for a short time period, the float on their principal and
interest payments. The custodial balances are maintained in non-interest-bearing
accounts and are not affected by changes in interest rates. The custodial
balances relating to the PMSRs in the limited partnership owned at December 31,
2001, were $5.0 million.
In addition to its investment in the limited partnerships, at December 31, 2001,
the Savings Bank had a $337,000 investment in a PMSR portfolio that it owns
directly. At December 31, 2001, this directly owned PMSR portfolio consisted of
1,622 mortgage loans having an outstanding principal balance of $21.1 million.
SOURCES OF FUNDS AND BORROWINGS
Deposits increased $69.6 million, or 17.9%, to $458.1 million at December 31,
2001 after increasing by $86.9 million in 2000. The increase in 2001 came
primarily in NOW accounts, which increased $37.1 million, and money market
accounts, which increased $74.9 million, and were partially offset by a $38.6
million reduction in certificates of deposit. During 2001, the Company attempted
to lower its cost of funds by allowing brokered certificates of deposit to run
off while increasing NOW and money market balances. The NOW and money market
balances increased primarily due to offering rates that were lower than brokered
certificate rates but still exceeded NOW and money market rates offered by
traditional "brick and mortar" competitors. The increase in 2000 came despite
the sale of three banking centers in November 2000, with aggregate deposits of
$113.6 million. The Savings Bank's Internet banking division had deposit
balances totaling $296.3 million at December 31, 2001, which was an increase of
$147.0 million from $149.3 million at December 31, 2000.
Borrowings increased $9.6 million to $28.3 million at December 31, 2001. The
increase was primarily to fund the loan and securities growth. At December 31,
2001, the Company had FHLB advances totaling $12.8 million, margin account
borrowings totaling $1.7 million, notes payable totaling $8.5 million, federal
funds purchased of $2.4 million, and subordinated debentures totaling $3.0
million.
Custodial escrow balances for loans serviced increased by $1.1 million to $9.5
million at December 31, 2001. The custodial accounts relate to escrow payments
of taxes and insurance and the float on principal and interest payments on loans
serviced either for the Savings Bank or on behalf of others by an independent
mortgage servicing operation. The custodial accounts related to loans serviced
by others are maintained at the Savings Bank in non-interest-bearing accounts.
The custodial accounts associated with loans or purchased mortgage servicing
rights serviced for the Savings Bank are also maintained in non-interest-bearing
accounts. At December 31, 2001 and 2000, $4.3 million and $5.0 million, of all
custodial escrow balances pertain to loans sub-serviced on behalf of the Savings
Bank for portfolio loans, servicing retained loans, and purchased mortgage
servicing rights. Due to the nature of custodial escrow deposits, balances may
fluctuate on a day-to-day basis.
22.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
During 1999, the Company's ESOP borrowed $498,000 from the Company and bought an
additional 49,136 shares at an average price of $10.13 per share. At December
31, 2001 the ESOP loan balance was $342,000 and 28,052 shares remained
unallocated.
23.
Deposit Flow. The following table sets forth the composition of and the change
in dollar amount of deposit accounts offered by UmbrellaBank between the dates
indicated.
December 31, 2001
--------------------------------------
Percent
of Total Increase
Amount Deposits (Decrease)
-------- -------- ----------
(Dollars in thousands)
Non-interest bearing accounts $ 3,879 0.8% $ (5,865)
Savings accounts 7,352 1.6 2,061
NOW accounts 42,061 9.2 37,143
Money market accounts 143,918 31.4 74,883
-------- ------ ---------
Total 197,210 43.0 108,222
-------- ------ ---------
Certificate accounts:
2.00% to 2.99% 13,881 3.0% 13,881
3.00% to 3.99% 59,309 13.0 59,309
4.00% to 4.99% 45,329 9.9 35,550
5.00% to 5.99% 26,479 5.8 (6,015)
6.00% to 6.99% 32,633 7.1 (75,236)
7.00% to 7.99% 83,306 18.2 (66,101)
8.00% to 8.99% -- -- --
-------- ------ ---------
Total 260,937 57.0 (38,612)
-------- ------ ---------
Total deposits $458,147 100.0% $ 69,610
======== ====== =========
Weighted average rate 4.46%
========
December 31, 2000
------------------------------------
Percent
of Total Increase
Amount Deposits (Decrease)
-------- -------- ----------
(Dollars in thousands)
Non-interest bearing accounts $ 9,744 2.5% $ 3,672
Savings accounts 5,291 1.4 (14,582)
NOW accounts 4,918 1.3 (5,694)
Money market accounts 69,035 17.7 64,609
-------- ------ ---------
Total 88,988 22.9 48,005
-------- ------ ---------
Certificate accounts:
2.00% to 2.99% -- -- --
3.00% to 4.99% -- -- --
4.00% to 4.99% 9,779 2.5 (38,113)
5.00% to 5.99% 32,494 8.4 (86,311)
6.00% to 6.99% 107,869 27.8 14,327
7.00% to 7.99% 149,407 38.4 148,964
8.00% to 8.99% -- -- (8)
-------- ------ ---------
Total 299,549 77.1 38,859
-------- ------ ---------
Total deposits $388,537 100.0% $ 86,864
======== ====== =========
Weighted average rate 6.48%
========
December 31, 1999
-----------------------------------
Percent
of Total Increase
Amount Deposits (Decrease)
-------- -------- --------
(Dollars in thousands)
Non-interest bearing accounts $ 6,072 2.0% $(12,172)
Savings accounts 19,873 6.6 (1,434)
NOW accounts 10,612 3.5 1,567
Money market accounts 4,426 1.5 (280)
-------- ------ --------
Total 40,983 13.6 (12,319)
-------- ------ --------
Certificate accounts:
2.00% to 2.99% -- -- --
3.00% to 4.99% -- -- --
4.00% to 4.99% 47,892 15.9 19,401
5.00% to 5.99% 118,805 39.4 (20,234)
6.00% to 6.99% 93,542 31.0 81,877
7.00% to 7.99% 443 .1 (32)
8.00% to 8.99% 8 -- --
-------- ------ --------
Total 260,690 86.4 81,012
-------- ------ --------
Total deposits $301,673 100.0% $ 68,693
======== ====== ========
Weighted average rate 5.16%
========
24.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
Certificate Accounts. The following table presents the amount of certificate
accounts outstanding at December 31, 2001, and the periods to maturity or
repricing.
Weighted
Amount Average Rate
------ ------------
(In thousands)
Within one year ............................ $176,591 5.30%
One to three years ......................... 56,223 5.67
Thereafter ................................. 28,123 7.05
--------
Total ...................................... $260,937 5.56%
========
At December 31, 2001, the Company had outstanding $80.8 million of certificate
of deposit accounts in amounts of $100,000 or more maturing or repricing as
follows:
Weighted
Amount Average Rate
------ ------------
(In thousands)
Three months or less ....................... $ 20,326 4.37%
Over three through six months .............. 9,013 4.77
Over six through 12 months ................. 24,111 5.40
Over 12 months ............................. 26,366 6.22
--------
Total ...................................... $ 80,816 5.34%
========
The Company had pledged securities with principal balances totaling
approximately $2.4 million and $345,000 at December 31, 2001 and 2000, as
collateral to secure certain public deposits. In addition to securities pledged
at December 31, 2001 and 2000, the Savings Bank also had letters of credit
totaling $14.2 million as collateral to secure several State of Illinois
certificates. The total State of Illinois certificates secured by letters of
credit and securities totaled approximately $14 million and $13.1 million at
December 31, 2001 and 2000.
Deposit Activity. The following table sets forth the deposit activities of the
Savings Bank for the years indicated.
Year Ended December 31,
-------------------------------------
2001 2000 1999
------- --------- -------
(In thousands)
Deposits in excess of withdrawals ....... $43,949 $ 181,360 $56,151
Sale of branch deposits ................. -- (113,585) --
Interest credited ....................... 25,661 19,089 12,542
------- --------- -------
Net increase in deposits .............. $69,610 $ 86,864 $68,693
======= ========= =======
25.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
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 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 of subordinated debentures in a pooled security offering which
included non-affiliated banks, savings institutions and their related holding
companies. The debentures have a maturity date of December 8, 2011, and the
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
debentures are subordinated to all other claims against the Savings Bank, are
not collateralized by the assets of UmbrellaBank, and can be purchased only by
"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 25, 2002. At December 31, 2001, $3.0 million of subordinated debentures
were outstanding, at a weighted rate of 6.01%.
The following table sets forth information regarding borrowings by the Company
on a consolidated basis at the end of and during the year indicated. The
borrowings at and during the year consisted of FHLB advances, junior
subordinated debt issued by the Company, subordinated debentures issued by the
Savings Bank, promissory notes and federal funds purchased. The weighted average
was computed on a monthly average basis.
26.
At December 31,
-------------------------------------------
2001 2000 1999
---------- ---------- ----------
(Dollars in thousands)
Weighted average interest rate at end of year on:
FHLB advances ........................................... 6.48% 6.49% 5.56%
Junior Subordinated debt ................................ 11.00 11.00 11.00
Notes payable ........................................... 7.50 -- --
Other borrowings ........................................ 4.04 8.92 7.79
Maximum amount of borrowings outstanding
at any month end:
FHLB advances ........................................... $ 26,760 $ 29,732 $ 34,934
Junior Subordinated debt ..................................... 16,603 17,250 17,250
Notes payable ................................................ 8,500 -- --
Other borrowings ............................................. 6,545 5,930 5,404
Average borrowings outstanding with respect to:
FHLB advances ........................................... $ 16,478 $ 19,611 $ 34,432
Junior subordinated debt ..................................... 16,795 17,180 17,250
Notes payable ................................................ 3,716 -- --
----------
Other borrowings ............................................. 2,709 6,162 3,388
---------- ---------- ----------
Total ................................................... $ 39,698 $ 42,953 $ 55,070
========== ========== ==========
Weighted average interest rate during the year paid on:
FHLB advances ........................................... 6.13% 6.55% 5.35%
Junior Subordinated debt ................................ 10.67 11.11 11.04
Notes payable ........................................... 6.13
Other borrowings ........................................ 4.39 7.59 8.67
Total weighted average .............................. 7.79 8.52 7.35
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR
ENDED DECEMBER 31, 2000
General: Net loss for the year ended December 31, 2001 was $(637,000) or $(.37)
per diluted share. Net income for the year ended December 31, 2000 was $4.3
million, or $2.00 per diluted share, including the after tax gain of $5.7
million, or $2.71 per diluted share, on the sale of the Savings Bank's branch
deposits.
Interest Income: Interest income increased by $7.0 million, or 23.3%, to $37.1
million for the year ended December 31, 2001 from $30.1 million for last year.
The improvement in interest income was primarily the result of a $94.5 million
increase in average interest-earning assets to $460.1 million and a 21 basis
point increase in the yield on interest-earning assets to 8.43% for the year
ended December 31, 2001 from 8.22% for 2000. As seen in the following table, and
as discussed previously, average balance growth was achieved in all categories
of interest earning assets.
27.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
In addition to interest earned on loans and commitments for making loans, the
Savings Bank earns fees in connection with originating loans. Contractual fees
are received from purchase/repurchase line of credit activity and interest is
charged on outstanding balances. Net deferred fees or costs are amortized as
yield adjustments over the life of the related loans using the interest method,
adjusted for estimated prepayment based on the Savings Bank's historical
prepayment experience.
Interest Expense: Interest expense increased by $6.6 million, or 29.3%, to $29.4
million in 2001 from $22.8 million in 2000, as a result of a $117.8 million
increase in average interest-bearing liabilities, which was partially offset by
a 5 basis point decrease in the average cost of interest-bearing liabilities to
5.83% for the year ended 2001 from 5.88% for 2000.
As seen in the next table, the majority of the interest-bearing liability growth
occurred in deposits, particularly NOW and money market accounts, which were
discussed previously.
Net Interest Income: Net interest income increased by $340,000 to $7.7 million
for the twelve months ended December 31, 2001 from $7.3 million for last year.
The increase in net interest income was the result of a 4 basis point increase
in the net interest margin to 2.04% for the year ended December 31, 2001 from
2.00% in 2000. The interest rate spread increased by 24 basis points to 2.59% in
2001 from 2.35% in 2000.
28.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
The following table sets forth certain information relating to Umbrella
Bancorp's consolidated average balance sheets and reflects the average yield on
assets and average cost of liabilities for the continuing operations for the
years indicated. Such yields and costs are derived by dividing income or expense
by the average of assets or liabilities, respectively, for the periods
presented. Average balances are derived from daily averages for 2001 and from
month-end balances for 2000 and 1999. Management believes that the use of
month-end balances for 2000 and 1999 instead of daily average balances has not
caused a material difference in the information presented.
2001
------------------------------------
Average
Average Yield/
Balance Interest Cost
------- -------- ----
Assets
Interest-earning assets
Loans receivable (1) (5) $301,117 $ 25,738 8.55%
Mortgage-backed securities 9,209 664 7.21
Interest-earning deposits 62,236 4,418 7.10
Securities (5) 87,618 7,968 9.09
-------- -------- --------
Total interest-earning assets 460,180 38,788 8.43%
Non-interest-earning assets (2) 72,520
--------
Total assets $532,700
========
Liabilities and stockholders' equity
Interest-bearing liabilities
Deposits $465,171 $ 25,661 5.52%
FHLB advances and other borrowings 22,903 1,975 8.62
Trust Preferred 16,795 1,778 10.59
-------- -------- --------
Total interest-bearing liabilities 504,869 29,414 5.83%
Non-interest-bearing liabilities 6,584
--------
Total liabilities 511,453
Equity 21,247
--------
Total liabilities and equity $532,700
======== --------
Net interest income/interest rate spread (3) $ 9,374 2.59%
========
Net interest-earning asset/(Liabilities)/net interest margin (4) $ 44,689 2.04%
========
Ratio of average interest-earning assets to average interest-
bearing liabilities 91.15x
========
2000
------------------------------------
Average
Average Yield/
Balance Interest Cost
------- -------- ----
Assets
Interest-earning assets
Loans receivable (1) (5) $280,777 $ 23,585 8.40%
Mortgage-backed securities 1,627 103 6.33
Interest-earning deposits 36,666 3,161 8.62
Securities (5) 46,590 3,222 6.92
-------- -------- --------
Total interest-earning assets 365,660 30,071 8.22%
Non-interest-earning assets (2) 48,605
--------
Total assets $414,265
========
Liabilities and stockholders' equity
Interest-bearing liabilities
Deposits $344,075 $ 19,089 5.55%
FHLB advances and other borrowings 25,773 1,753 6.80
Trust Preferred 17,180 1,908 11.11
-------- -------- --------
Total interest-bearing liabilities 387,028 22,750 5.88%
Non-interest-bearing liabilities 6,609
--------
Total liabilities 393,637
Equity 20,695
--------
Total liabilities and equity $414,332
========
Net interest income/interest rate spread (3) $ 7,321 2.35%
======== ========
Net interest-earning asset/(Liabilities)/net interest margin (4) $(21,368) 2.00%
======== ========
Ratio of average interest-earning assets to average interest-
bearing liabilities 94.00x
========
1999
-----------------------------------
Average
Average Yield/
Balance Interest Cost
------- -------- ----
Assets
Interest-earning assets
Loans receivable (1) (5) $245,739 $ 19,799 8.06%
Mortgage-backed securities 1,816 114 6.28
Interest-earning deposits 31,120 1,805 5.80
Securities (5) 32,707 2,178 6.66
-------- -------- -------
Total interest-earning assets 311,382 23,896 7.67%
Non-interest-earning assets (2) 33,877
--------
Total assets $345,259
========
Liabilities and stockholders' equity
Interest-bearing liabilities
Deposits $268,727 $ 12,542 4.67%
FHLB advances and other borrowings 26,016 1,567 6.02
Trust Preferred 17,250 1,905 11.04
-------- -------- -------
Total interest-bearing liabilities 311,993 16,014 5.13
Non-interest-bearing liabilities 14,175
--------
Total liabilities 326,168
Equity 19,091
--------
Total liabilities and equity $345,259
========
Net interest income/interest rate spread (3) $ 7,882 2.54%
======== =======
Net interest-earning asset/(Liabilities)/net interest margin (4) $ (611) 2.53%
======== =======
Ratio of average interest-earning assets to average interest-
bearing liabilities 1.00x
========
- ----------
(1) Loans receivable include loans held for sale, portfolio loans receivable ,
and discount loans receivable.
(2) Included in the balances are PMSRs of approximately $4.1 million, $4.6
million, and $5.0 million in 2001, 2000, and 1999, respectively.
(3) Interest rate spread represents the difference between the average yield
on total interest-earning assets and the average cost of total
interest-earning liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
(5) Tax exempt income is reflected on a fully tax equivalent basis utilizing a
34% rate.
29.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to: (1) changes in volume
(change in volume multiplied by prior rate); (2) changes in rates (change in
rate multiplied by prior volume); and (3) net changes in rate-volume. The change
attributable to the combined impact of volume and rate has been allocated
proportionately to the change due to volume and the change due to rate. Tax
exempt income is reflected on a fully tax equivalent basis utilizing a 34% rate.
2001 Compared to 2000 2000 Compared to 1999
----------------------------------- -------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
----------------------------------- -------------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(In thousands)
Interest-earning assets:
Loans receivable, net $ 1,733 $ (420) $ 2,153 $ 2,907 $ 879 $ 3,786
Interest-earning deposits 1,894 (637) 1,257 364 992 1,356
Mortgage-backed securities 545 16 561 (12) 1 (11)
Investment securities 3,496 1,250 4,746 957 87 1,044
--------- --------- --------- --------- --------- --------
Total 7,668 1,049 8,717 4,216 1,959 6,175
Interest-bearing liabilities:
Deposits 6,681 (109) 6,572 3,913 2,634 6,547
FHLB advances and other
borrowings (211) (433) 222 (14) 200 186
Junior subordinated debt (130) -- (130) 3 -- 3
--------- --------- --------- --------- --------- --------
Total 6,340 324 6,664 3,902 2,834 6,736
--------- --------- --------- --------- --------- --------
Net change in interest income $ 1,328 $ 725 $ 2,053 $ 314 $ (875) $ (561)
========= ========= ========= ========= ========= ========
Provision for Loan Losses: The Company recorded provision for loan losses of
$1.7 million for the year ended December 31, 2001 compared to $1.2 million for
2000, resulting in total allowances for loan losses of $3.0 million, or 1.18%,
of total loans receivables and 33.16% of total nonperforming loans at December
31, 2001. The allowance for loan losses balance at December 31, 2000 was $2.4
million, or .98% of loans receivable, excluding discounted loans receivable.
Factors considered by management in calculating a required allowance for loan
losses, and factors considered in providing for loan losses in 2001, are
discussed previously in the section titled "Analysis of Allowance for Loan
Losses."
Noninterest Income: Noninterest income decreased by $6.7 million to $3.4 million
for the year ended December 31, 2001 compared to $10.1 million in 2000. This
decrease was primarily the result of the $7.9 million pretax gain on the sale of
deposits from three of the Savings Bank's branches in 2000. The purchaser of the
branches also assumed the lease contracts on those buildings, which resulted in
an additional gain of $591,000 during 2000 from the previously deferred profit
on the 1999 sale of two of those branch buildings. 2001 was also negatively
impacted by a $(899,000) loss on an investment in a limited partnership due to
writing down the value of mortgage servicing rights within the partnership.
These decreases were partially
30.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
offset by gains on sales of securities, which increased from net losses of
$(111,000) in 2000 to net gains of $1.4 million in 2001 and trading account
gains, which increased to $1.2 million in 2001 from $214,000 in 2000.
There were no other components of noninterest income that changed substantially
between 2000 and 2001.
Noninterest Expense: Noninterest expense increased by $1.8 million to $12.4
million in 2001 from $10.6 million in 2000. The increase is primarily due to a
$453,000 increase in professional fees, which increased due to outsourcing of
internal audit and loan review services and legal fees associated with the
fraudulent loan activity previously discussed, a $328,000 increase in data
processing due to costs of converting to a new data processing system and an
increase in Internet banking customers, and a $945,000 increase in outsourced
servicing due to increased consumer loan and deposit volumes managed by
outsourced deposit operations, credit card operations, and call center servicing
facilities.
Income Tax Expense (Benefit): The Company recorded a tax benefit of $2.4 million
for 2001 compared to tax expense of $1.2 million for 2000. The 2001 tax benefit
resulted from increased investments in tax-exempt loans and securities, the
continued utilization of tax credits and due to a net operating loss in 2001.
The 2000 tax expense was attributable to taxes on the deposit sale, partially
offset by $360,000 of low-income housing tax credits.
31.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR
ENDED DECEMBER 31, 1999
General: Net income for the year ended December 31, 2000 was $4.3 million, or
$2.00 per diluted share, including the after-tax gain of $5.7 million, or $2.71
per diluted share, on the sale of three of the Savings Bank's branch deposits.
Net income for the year ended December 31, 1999 was $2.6 million, or $1.25 per
diluted share, including the after tax gain of $1.9 million, or $.94 per diluted
share, on the sale of On-Line Financial Services, Inc. Income from continuing
operations totaled $514,000, or $.25 per diluted share, for the twelve months
ended December 31, 1999.
Interest Income: Interest income increased by $6.2 million, or 25.9%, to $30.1
million for the year ended December 31, 2000 from $23.9 million for 1999. The
improvement in interest income was the result of a $54.3 million increase in
average interest-earning assets to $365.7 million and a 55 basis point increase
in the yield on interest-earning assets to 8.22% for the year ended December 31,
2000 from 7.67% for 1999.
Interest Expense: Interest expense increased by $6.8 million, or 42.1%, to $22.8
million in 2000 from $16.0 million in 1999 as a result of a $75.1 million
increase in average interest-bearing liabilities and a 75 basis point increase
in the average cost of interest-bearing liabilities to 5.88% for the year ended
2000 from 5.13% for 1999.
Net Interest Income: Net interest income declined by $561,000 to $7.3 million
for the year ended December 31, 2000 from $7.9 million for 1999. The decrease in
net interest income was the result of a 53 basis point decline in the net
interest margin to 2.00% for the year ended December 31, 2000 from 2.53% in
1999. The interest rate spread decreased by 19 basis points to 2.35% in 2000
from 2.54% in 1999.
Provision for Loan Losses: The Savings Bank recorded provision for loan losses
of $1.2 million for the year ended December 31, 2000 compared to $965,000 for
1999, resulting in total allowances for loan losses of $2.4 million, or .87% of
total loans receivables and 54.98% of total nonperforming loans at December 31,
2000. The allowance for loan losses balance at December 31, 1999 was $1.6
million, or .58% of loans receivable. The allowance was increased due to
purchases in the fourth quarter of commercial and commercial real estate loans
and direct financing leases, which are considered of higher risk than the Bank's
traditional loan products primarily secured by residential real estate. The
allowance was also increased to bring the ratio of the allowance to gross loans
closer to that of peer financial institutions, as recommended by the Savings
Bank's regulators. The commercial real estate and commercial loan balances
totaled $64.8 million at December 31, 2000 compared to $16.3 million at December
31, 1999.
Noninterest Income: Noninterest income increased by $7.8 million to $10.1
million for the year ended December 31, 2000 compared to $2.3 million in 1999.
This increase was primarily the result of the $7.9 million pretax gain on the
sale of deposits from three of the Savings Bank's branches. The purchaser of the
branches also assumed the lease contracts on those buildings, which resulted in
an additional gain of $591,000 recorded from the previously deferred profit
32.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
on the 1999 sale of two of those branch buildings. These gains were partially
offset by an addition of $300,000 to the Valuation allowance for PMSRs. The sale
of foreclosed real estate resulted in net losses of $18,000 for the year ended
December 31, 2000, an improvement of $515,000 from net losses of $533,000
recorded in 1999. Profits on the sale of trading account securities increased by
$95,000 to $214,000 in 2000 from $119,000 in 1999. Fee income and service
charges increased by $375,000 to $1.0 million for the year ended December 31,
2000 from $638,000 for 1999. The increase in fees and service charges was
primarily the result of the Savings Bank's deployment of 776 ATMs in a 17 state
area. In addition, loan servicing income declined to $109,000 for the year ended
December 31, 2000 from $1.4 million for 1999. The decline in loan servicing
income was a result of management's decision to restructure the mortgage-banking
operations of Margo Financial Services, LLC ("Margo") and a management services
agreement dated June 1, 1999 between the Savings Bank and E-Conduit, which
limited the Savings Bank's revenue to a six basis point per transaction license
fee.
Noninterest Expense: Noninterest expense increased by $1.5 million to $10.6
million in 2000 from $9.1 million in 1999. The increase is primarily the result
of the start-up expenses related to the Savings Bank's Internet banking
platform, which incurred operating expenses totaling $2.1 million. Partially
offsetting the increase were reduced expenses related to Margo totaling
$879,000. This decline was the result of the Margo restructuring and the
management services agreement with E-Conduit.
Income Tax Expense: The Company recorded a tax provision of $1.2 million for
2000 compared to a tax benefit of $336,000 for 1999. The 2000 tax expense was
primarily due to taxes on the deposit sale, partially offset by $360,000 of
low-income housing tax credits. The 1999 tax benefit resulted primarily from
lower pretax income and low-income housing tax credits totaling $300,000.
Discontinued Operation: On March 31, 1999 the Company sold its wholly owned
subsidiary, On-Line Financial Services, Inc. of Oak Brook, Illinois ("On-Line"),
to GFS Holdings, Co. of Palm Beach Gardens, Florida ("Purchaser"). The Company
recorded a gain, net of taxes, of $1,928,000 in 1999. Income from discontinued
operations, net of taxes, totaled $135,000 during 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits; proceeds from principal and
interest payments on the loan and mortgage-backed securities portfolios;
custodial deposit accounts related to loans serviced for others; maturing
investments; borrowed money; FHLB advances; and loan sales. The most liquid
assets are cash and short-term investments. The levels of these assets are
dependent on operating, financing, and investing activities during any given
period. Cash and interest-earning deposits totaled $37.6 million at December 31,
2001. The Company has adequate alternative funding sources if short-term
liquidity needs arise.
The primary investing activity at the Company is the origination and purchase of
mortgage loans. During the years ended December 31, 2001 and 2000, the Company
originated and
33.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
purchased $626.9 million and $397.0 million of loans receivable. Purchases of
securities available-for-sale and held-to-maturity totaled $255.8 million and
$2.2 million for 2001 and 2000. These investing activities were primarily funded
by principal repayments on loans and mortgage-backed securities of $564.4
million and $77.1 million for 2001 and 2000 and a net increase in deposits of
$69.6 million and $86.9 million for 2001 and 2000. The 2000 deposit increase is
net of $113.6 million of deposits sold in 2000. In addition to these sources of
funding, the Company also utilizes advances and overnight borrowings from the
FHLB and purchases federal funds from other financial institutions. During 2001,
the Company repaid a $72,600 FHLB advance at maturity. At December 31, 2001 and
2000, FHLB advances totaled $12.8 million. The borrowings from the FHLB include
a $10.0 million advance, which matures in November 2006, and a $2.8 million
advance, which matures in April 2003. The Savings Bank also issued $3 million of
subordinated debt during 2001. The Company used margin accounts to purchase
securities in both 2001 and 2000. At December 31, 2001, there was $1.7 million
in margin balances outstanding compared to $5.9 million at December 31, 2000.
The Savings Bank is required to maintain minimum levels of liquid assets as
defined by Office of Thrift Supervision ("OTS") regulation. At December 31,
2001, the Savings Bank's liquid assets represented 9.95% of its liquidity base
as compared to the required level of 4%. The level of liquidity maintained is
believed by management to be adequate to meet the requirements of normal
operations, potential deposit outflows, and current loan demand. Cash flow
projections are updated regularly to ensure necessary liquidity.
Liquidity management for the Savings Bank is both a daily and long-term function
of the Savings Bank's management. The Savings Bank's management meets on a daily
basis and monitors interest rates, current and projected commitments to purchase
loans and the likelihood of funding such commitments, and projected cash flows.
Excess funds are generally invested in short-term investments.
At December 31, 2001, the Savings Bank's capital exceeded all capital
requirements of the OTS. The Savings Bank's Tier I capital to adjusted assets,
Tier I capital to risk-weighted assets, and risk-based capital ratios were
5.82%, 9.95%, and 10.77%, respectively. The Savings Bank is considered "well
capitalized" under OTS prompt corrective action regulations. However,
UmbrellaBank is restricted from increasing assets during any quarter in excess
of an amount equal to net interest credited on deposit liabilities during the
quarter without prior written approval of the OTS.
At December 31, 2001 and 2000, the Savings Bank had outstanding loan commitments
and unused lines of credit of $36.0 million and $7.5 million, respectively. The
Savings Bank also had Community Reinvestment Act investment commitments
outstanding of $2.4 million. These commitments include $856,000 to be funded
over eight years for the investment in the Chicago Equity Fund, $289,000 to be
funded over six years for investment in the Community Investment Corporation,
$1.0 million to be funded for investment in the Greater West Side Loan Fund, and
$305,000 to be funded over fourteen years for investment in the Kedzie Limited
Partnership.
34.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141, "Business Combinations" in June 2001. SFAS
No. 141 requires all business combinations within its scope to be accounted for
using the purchase method, rather than the pooling-of-interest method. The
provisions of SFAS No. 141 apply to all business combinations initiated after
June 30, 2001. The adoption of SFAS No. 141 will only impact the Company's
financial statements if it enters into a business combination.
The FASB also issued SFAS No. 142, Goodwill and Other Intangible Assets," which
addresses the accounting for such assets arising from prior and future business
combinations, in June 2001. Upon the adoption of SFAS No. 142, goodwill arising
from business combinations will no longer be amortized, but rather will be
assessed regularly for impairment, with any such impairment recognized as a
reduction of earnings in the period identified. Other identified intangible
assets, such as core deposit intangible assets, will continue to be amortized
over their estimated useful lives. The Company is required to adopt SFAS No. 142
on January 1, 2002. The adoption of SFAS No. 142 will not have an impact on the
Company's financial statements at that date as the Company had no recorded
goodwill at December 31, 2001.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As part of its normal operations, the Savings Bank is subject to interest-rate
risk on the interest-sensitive assets it invests in and the interest-sensitive
liabilities it borrows. The Investment Committee, which includes members of
senior management and directors, monitors and determines the strategy of
managing the rate and sensitivity repricing characteristics of the individual
asset and liability portfolios the Savings Bank maintains. The overall goal is
to manage this interest rate risk to most efficiently utilize the Savings Bank's
capital, as well as to maintain an acceptable level of change to its net
portfolio value ("NPV") and net interest income. The Savings Bank's strategy is
to minimize the impact of sudden and sustained changes in interest rates on NPV
and its net interest margin.
Interest rate risk exposure is measured using interest rate sensitivity analysis
to determine the Savings Bank's change in NPV in the event of hypothetical
changes in interest rates, as well as interest rate sensitivity gap analysis,
which monitors the repricing characteristics of the Savings Bank's
interest-earning assets and interest-bearing liabilities. The Board of Directors
has
35.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
established limits to changes in NPV and net interest income across a range of
hypothetical interest rate changes. If estimated changes to NPV and net interest
income are not within these limits, the Board may direct management to adjust
its asset/liability mix to bring its interest rate risk within Board limits.
In an effort to reduce its interest rate risk, the Savings Bank has focused on
strategies limiting the average maturity of its assets by emphasizing the
origination of adjustable-rate mortgage loans. The Savings Bank, from time to
time, also invests in long-term, fixed-rate mortgages provided it is compensated
with an acceptable spread.
Interest rate sensitivity analysis is used to measure the Savings Bank's
interest rate risk by calculating the estimated change in the NPV of its cash
flows from interest sensitive assets and liabilities, as well as certain
off-balance-sheet items, in the event of a series of sudden and sustained
changes in interest rates ranging from 100 to 300 basis points. Management
assumes that a 200 basis point movement up or down is considered reasonable and
plausible for purposes of managing its interest-rate risk on a day-to-day basis.
NPV is the market value of portfolio equity and is computed as the difference
between the market value of assets and the market value of liabilities, adjusted
for the value of off-balance-sheet items. The following table presents the
Savings Bank's projected change in NPV for the various rate shocks as of
December 31, 2001 and 2000:
Estimated Increase
(Decrease) in NPV
Change in Estimated ----------------------
Interest Rate NPV Amount Percent
------------- --- ------ -------
(Dollars in thousands)
2001
300 basis point rise $ 28,017 $ (11,880) (30) %
200 basis point rise 31,686 (8,211) (21)
100 basis point rise 35,592 (4,305) (11)
Base scenario 39,897 -- --
100 basis point decline 43,411 3,514 9
2000
300 basis point rise $ 18,765 $ (7,605) (29)%
200 basis point rise 21,750 (4,620) (18)
100 basis point rise 24,260 (2,110) (8)
Base scenario 26,370 -- --
100 basis point decline 28,013 1,643 6
200 basis point decline 29,503 3,133 12
300 basis point decline 31,003 4,633 18
The Savings Bank is more sensitive to a sudden rise in interest rates at
December 31, 2001 as compared to December 31, 2000. A decline in interest rates
would have less of an impact in 2001 compared to 2000 as the Federal Reserve
decreased interest rates eleven times during 2001.
36.
UMBRELLA BANCORP, INC.
- --------------------------------------------------------------------------------
Due to the level of interest rates at December 31, 2001, the Company is not able
to model an additional 200 or 300 basis point decrease in rates.
The NPV is calculated by the Savings Bank using guidelines established by the
OTS related to interest rates, loan prepayment rates, deposit decay rates, and
market values of certain assets under the various interest rate scenarios. These
assumptions should not be relied upon as indicative of actual results due to the
inherent shortcomings of the NPV analysis. These shortcomings include: (i) the
possibility that actual market conditions could vary from the assumptions used
in the computation of NPV; (ii) certain assets, including adjustable-rate loans,
have features which affect the potential repricing of such instruments, which
may vary from the assumptions used; and (iii) the likelihood that as interest
rates are changing, the Investment Committee would likely be changing strategies
to limit the indicated changes in NPV as part of its management process.
The Savings Bank does not use derivative instruments to control interest rate
risk. In addition, interest rate risk is the most significant market risk
affecting the Savings Bank. Other types of market risk, such as foreign currency
exchange risk and commodity price risk, do not arise in the normal course of the
Company's business activities and operations.
37.
UMBRELLA BANCORP, INC.
Shareholder Information
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
UMBRELLA BANCORP, INC.
John G. Yedinak Sergio Martinucci
President and Chief Executive Officer Senior Vice President, Coldwell Banker
Chairman of the Board Residential Realtors
Vice President and Director
Frances M. Pitts Donald G. Wittmer
Executive Vice President, President and Owner, Wittmer Financial
Secretary and Director Services, Ltd.
Director
Colleen A. Kitch Arthur E. Byrnes
Executive Vice President Chairman, Deltec Asset Management
Corporation, LLC
Director
Dennis G. Carroll
Detective, City of Chicago
Police Department
UMBRELLABANK, FSB
John G. Yedinak Sergio Martinucci
President, Chief Executive Officer Senior Vice President, Coldwell Banker
and Director Residential Realtors
Chairman of the Board
Frances M. Pitts Donald G. Wittmer
Executive Vice President, President and Owner, Wittmer Financial
General Counsel and Secretary Services, Ltd.
Director Director
Colleen A. Kitch Arthur E. Byrnes
President Chairman, Deltec Asset Management
Corporation, LLC
Director
Rebecca L. Leon Dennis G. Carroll
Vice President, Retail Operations Detective, City of Chicago Police Dept.
Director Director
Marie C. Goudie George P. Yedinak
Assistant Vice President and Controller Vice President and Chief Information Officer
Teena D. Juergens
Vice President
78.
UMBRELLA BANCORP, INC.
STOCKHOLDER REFERENCE
- --------------------------------------------------------------------------------
Corporate Headquarters Independent Auditors
Umbrella Bancorp, Inc. Crowe, Chizek and Company LLP
5818 S. Archer Road One Mid America Plaza
Summit, Illinois 60501 Oak Brook, Illinois 60522
(708) 458-2002
Chicago Counsel Transfer Agent and Registrar
Kemp & Grzelakowski, Ltd. LaSalle Bank, N.A.
1900 Spring Road Trust and Asset Management Division
Suite 500 135 South LaSalle Street
Oak Brook, Illinois 60523-14495 Chicago, Illinois 60603
(312) 904-2584
Market Makers Annual Report on Form 10-K
RBC Dain Rauscher Copies of Umbrella Bancorp, Inc.'s 2001
1 South Wacker Drive Annual Report on Form 10-K
Suite 1900 filed without exhibits with the Securities
Chicago, Illinois 60606 and Exchange Commission are available
(888) 655-4135 without charge to stockholders, upon
written request to:
Keefe Bruyette and Woods, Inc. Frances M. Pitts, Corporate Secretary
787 7th Avenue, 4th Floor Umbrella Bancorp, Inc.
New York, New York 10019 5818 S. Archer Road
(800 221-3246 Summit, Illinois 60501
Ryan Beck and Company, LLC Annual Meeting
220 South Orange Avenue The annual meeting of stockholders will
Livingston, New Jersey 07039 be held at 2:00 p.m. on April 30, 2002 at
(800) 342-2325 5818 S. Archer Road
Summit, Illinois 60501
Investor Information
Stockholders, investors, and analysts Stockholders are encouraged to attend.
interested in additional information
may contact: Internet Banking Channel
John G. Yedinak, President and CEO, www.umbrellabank.com
at the Corporate Headquarters
OFFICE LOCATIONS
Home Office Branch Office
2154 W. Madison Street 14076 Lincoln Avenue
Chicago, Illinois 60612 Dolton, Illinois 60419
(312) 563-5500 (708) 849-3770
39.
UMBRELLA BANCORP, INC.
Shareholders Information
- --------------------------------------------------------------------------------
STOCK PRICE INFORMATION
Umbrella Bancorp Inc.'s common stock is traded on the NASDAQ Over the Counter
Market under the symbol UMBR. The table shows the reported high and low sale
prices of common stock and the dividends per share during the periods indicated.
High Low Dividends
---- --- ---------
Year ended December 31, 2001:
First quarter $ 14.81 $ 10.13 $ .050
Second quarter 14.13 9.00 .050
Third quarter 12.25 11.00 .050
Fourth quarter 11.00 9.98 .050
Year ended December 31, 2000:
First quarter $ 11.500 $ 10.500 $ .050
Second quarter 13.000 9.000 .050
Third quarter 10.125 9.000 .050
Fourth quarter 16.000 10.500 .050
Year ended December 31, 1999:
First quarter $ 9.375 $ 8.250 $ .050
Second quarter 9.500 8.500 .050
Third quarter 10.250 8.500 .050
Fourth quarter 11.500 9.750 .050
80.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Umbrella Bancorp, Inc.
Summit, Illinois
We have audited the accompanying consolidated statements of financial condition
of Umbrella Bancorp, Inc. (formerly Argo Bancorp, Inc.) and Subsidiaries (the
Company) as of December 31, 2001 and 2000 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Umbrella Bancorp,
Inc. and Subsidiaries as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.
Oak Brook, Illinois
March 26, 2002
1.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2001 and 2000
(Dollars in thousands)
- --------------------------------------------------------------------------------
2001 2000
---- ----
ASSETS
Cash $ 647 $ 19,885
Interest-earning deposits 37,002 74,132
--------- ---------
Total cash and cash equivalents 37,649 94,017
Trading securities 6,053 1,099
Securities available-for-sale 123,118 14,574
Securities held-to-maturity (fair value of $1,838 and $26,253) 1,859 26,523
Loans held for sale 65,056 38,899
Loans receivable, net 250,353 247,624
Mortgage loan servicing rights 337 397
Investment in limited partnership 3,743 4,387
Investment in GFS preferred stock -- 4,000
Stock in Federal Home Loan Bank of Chicago 2,800 2,615
Foreclosed real estate, net 730 2,498
Premises and equipment, net 20,609 9,823
Debt issuance costs, net 1,831 1,774
Accrued interest receivable 5,272 3,988
Receivable from loan servicers 4,479 3,162
Prepaid expenses and other assets 12,746 7,713
--------- ---------
Total assets $ 536,635 $ 463,093
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 458,147 $ 388,537
Borrowed money 28,343 18,708
Custodial escrow balances for loans serviced for others 9,499 8,365
Accrued interest payable 1,707 2,156
Other liabilities 4,759 4,966
Junior subordinated debt 16,603 16,587
Stockholders' equity
Preferred stock 3 3
Common stock 21 20
Additional paid-in capital 9,214 8,893
Retained earnings - substantially restricted 15,181 16,189
Treasury stock - common, at cost (5,121) --
Employee Stock Ownership Plan loan (341) (405)
Unearned stock awards (248) (248)
Accumulated other comprehensive loss (1,132) (678)
--------- ---------
Total stockholders' equity 17,577 23,774
--------- ---------
Total liabilities and stockholders' equity $ 536,635 $ 463,093
========= =========
See accompanying notes to consolidated financial statements.
39.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
INTEREST INCOME
Loans receivable $ 24,268 $ 23,585 $ 19,799
Mortgage-backed securities 664 103 114
Securities 7,725 3,222 2,178
Interest-earning deposits 4,418 3,161 1,805
-------- -------- --------
Total interest income 37,075 30,071 23,896
-------- -------- --------
INTEREST EXPENSE
Deposits 25,661 19,089 12,542
Borrowed money 1,975 1,753 1,567
Junior subordinated debt 1,778 1,908 1,905
-------- -------- --------
Total interest expense 29,414 22,750 16,014
-------- -------- --------
NET INTEREST INCOME 7,661 7,321 7,882
Provision for loan losses 1,710 1,218 965
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,951 6,103 6,917
NONINTEREST INCOME
Loan servicing income 300 109 1,372
Net gain (loss) on sale of
Loans held for sale 19 107 200
Discounted loans receivable -- -- 188
Foreclosed real estate 53 (18) (533)
Securities available-for-sale 1,411 (111) (2)
Profits on trading account activity 1,221 214 119
Branch deposits -- 7,974 --
Branch facilities 116 719 86
Fees and service charges 1,079 1,013 638
Net income (loss) on investment in limited partnership (899) (107) 166
Other 95 191 106
-------- -------- --------
Total noninterest income 3,395 10,091 2,340
-------- -------- --------
(Continued)
- --------------------------------------------------------------------------------
40.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
NONINTEREST EXPENSE
Compensation and benefits $ 3,651 $ 3,377 $ 3,741
Occupancy and equipment 2,287 2,154 1,637
Federal deposit insurance premiums 81 62 146
Loan servicing expense 582 722 797
Professional fees 1,103 650 572
Advertising and promotion 316 438 253
Goodwill amortization -- -- 47
Data processing 1,125 797 396
Outsourced servicing expense 1,351 406 --
Other 1,928 2,030 1,490
-------- ------- -------
Total noninterest expense 12,424 10,636 9,079
-------- ------- -------
Income (loss) from continuing operations before income taxes (3,078) 5,558 178
Income tax expense (benefit) (2,441) 1,227 (336)
-------- ------- -------
Income (loss) from continuing operations (637) 4,331 514
Income from discontinued operation (net of tax) -- -- 135
Gain on sale of discontinued operation (net of tax) -- -- 1,928
-------- ------- -------
Income from discontinued operations -- -- 2,063
-------- ------- -------
Net income (loss) $ (637) $ 4,331 $ 2,577
======== ======= =======
Per share amounts
Income (loss) from continuing operations
Basic $ (.37) $ 2.16 $ .26
Diluted (.37) 2.00 .25
Income (loss) from discontinued operations
Basic $ -- $ -- $ 1.06
Diluted -- -- 1.00
Net income (loss)
Basic $ (.37) $ 2.16 $ 1.32
Diluted (.37) 2.00 1.25
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
41.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Additional
Preferred Common Paid-in
Stock Stock Capital
----- ----- -------
Balance at January 1, 1999 $ 3 $ 20 $8,829
Comprehensive income:
Net income -- -- --
Other comprehensive loss -- -- --
Total comprehensive income
Purchase of ESOP shares -- -- --
Release of ESOP shares -- -- --
MRP stock awards earned -- -- --
Cash dividends ($.20 per share) -- -- --
------- ------- ------
Balance at December 31, 1999 3 20 8,829
Comprehensive income:
Net income -- -- --
Other comprehensive income -- -- --
Total comprehensive income
Release of ESOP shares -- -- --
Proceeds from exercise of stock options -- -- 64
Cash dividends ($.20 per share) -- -- --
------- ------- ------
Balance at December 31, 2000 3 20 8,893
Comprehensive loss:
Net loss -- -- --
Other comprehensive loss -- -- --
Total comprehensive loss
Release of ESOP shares -- -- --
Purchase of 365,796 shares of
treasury stock -- -- --
Proceeds from exercise of stock options -- 1 250
Tax benefit of stock options exercised -- -- 71
Cash dividends ($.20 per share) -- -- --
------- ------- ------
Balance at December 31, 2001 $ 3 $ 21 $9,214
======= ======= ======
Treasury
Retained Stock - ESOP
Earnings Common Loan
-------- ------ ----
Balance at January 1, 1999 $ 10,084 $ -- $ --
Comprehensive income:
Net income 2,577 -- --
Other comprehensive loss -- -- --
Total comprehensive income
Purchase of ESOP shares -- -- (498)
Release of ESOP shares -- -- 72
MRP stock awards earned -- -- --
Cash dividends ($.20 per share) (401) -- --
-------- ------- -----
Balance at December 31, 1999 12,260 -- (426)
Comprehensive income:
Net income 4,331 -- --
Other comprehensive income -- -- --
Total comprehensive income
Release of ESOP shares -- -- 21
Proceeds from exercise of stock options -- -- --
Cash dividends ($.20 per share) (402) -- --
-------- ------- -----
Balance at December 31, 2000 16,189 -- (405)
Comprehensive loss:
Net loss (637) -- --
Other comprehensive loss -- -- --
Total comprehensive loss
Release of ESOP shares -- -- 64
Purchase of 365,796 shares of
treasury stock -- (5,121) --
Proceeds from exercise of stock options -- -- --
Tax benefit of stock options exercised -- -- --
Cash dividends ($.20 per share) (371) -- --
-------- ------- -----
Balance at December 31, 2001 $ 15,181 $(5,121) $(341)
======== ======= =====
Accumulated Total
Unearned Other Com- Stock-
Stock prehensive holders'
Awards Income (Loss) Equity
------ ------------- ------
Balance at January 1, 1999 $(284) $ (238) $ 18,414
Comprehensive income:
Net income -- -- 2,577
Other comprehensive loss -- (612) (612)
--------
Total comprehensive income 1,965
Purchase of ESOP shares -- -- (498)
Release of ESOP shares -- -- 72
MRP stock awards earned 36 -- 36
Cash dividends ($.20 per share) -- -- (401)
----- ------- --------
Balance at December 31, 1999 (248) (850) 19,588
Comprehensive income:
Net income -- -- 4,331
Other comprehensive income -- 172 172
--------
Total comprehensive income 4,503
Release of ESOP shares -- -- 21
Proceeds from exercise of stock options -- -- 64
Cash dividends ($.20 per share) -- -- (402)
----- ------- --------
Balance at December 31, 2000 (248) (678) 23,774
Comprehensive loss:
Net loss -- -- (637)
Other comprehensive loss -- (454) (454)
--------
Total comprehensive loss (1,091)
Release of ESOP shares -- -- 64
Purchase of 365,796 shares of
treasury stock -- -- (5,121)
Proceeds from exercise of stock options -- -- 251
Tax benefit of stock options exercised -- -- 71
Cash dividends ($.20 per share) -- -- (371)
----- ------- --------
Balance at December 31, 2001 $(248) $(1,132) $ 17,577
===== ======= ========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
42.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands)
- --------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations $ (637) $ 4,331 $ 514
Adjustments to reconcile income (loss) from continuing
operations to net cash from operating activities
Depreciation and amortization 1,301 1,796 1,100
Accretion of discounts and deferred loan fees 55 (64) 1,761
Deferred income tax expense (benefit) (655) 981 (780)
Provision for losses on loans receivable 1,710 1,218 965
Loss (gain) on sale of
Loans held for sale (19) (107) (200)
Discounted loans receivable -- -- (188)
Securities available-for-sale (1,411) 111 2
Trading account securities (1,221) (214) (119)
Foreclosed real estate (53) 18 533
Branch facilities (116) (719) (86)
Branch deposits (31) (7,974) --
Federal Home Loan Bank of Chicago stock dividend (185) (134) --
Net change in trading account activity (3,733) (217) 279
Net change in investment in limited partnership 644 107 (25)
Loans originated and purchased for sale, net (26,138) (20,005) 10,305
Proceeds from sale of discounted loans receivable -- -- 2,162
Goodwill amortization -- -- 47
Amortization of purchased loan servicing rights 60 67 129
Net change in debt issuance costs (57) 64 64
MRP stock and ESOP shares earned 64 21 108
Change in accrued interest receivable and prepaid
expenses and other assets (1,796) (4,107) 2,855
Change in accrued interest payable and other liabilities (352) 1,039 62
--------- --------- --------
Net cash from operating activities (32,570) (23,788) 19,488
CASH FLOWS FROM INVESTING ACTIVITIES
Loans originated and purchased for portfolio, net (10,562) 7,237 (49,025)
Proceeds from maturities of and principal repayments on
Securities available-for-sale 21,117 180 3,402
Securities held-to-maturity 24,664 138 --
Proceeds from sale of
Securities available-for-sale 126,838 1,144 420
Foreclosed real estate 3,452 2,422 3,011
Purchased loan servicing rights -- -- 11,100
On-Line Financial Services, Inc., net -- -- 4,583
Branch deposits, including cash and cash equivalents -- (106,085) --
Banking facilities -- -- 5,850
- --------------------------------------------------------------------------------
(Continued)
43.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands)
- --------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
Purchase of
Loan servicing rights $ -- $ -- $(11,100)
Securities available-for-sale (255,817) (1,368) (12,099)
Securities held-to-maturity -- (802) (25,859)
Premises and equipment (12,087) (3,105) (8,267)
Stock in Federal Home Loan Bank of Chicago -- (178) (392)
Payment received on GFS preferred stock 3,600 600 --
Cash paid to former stockholders of On-Line (157) (203) (575)
--------- --------- --------
Net cash from investing activities (98,952) (100,020) (78,951)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 69,610 200,795 68,693
Proceeds from borrowed money 14,500 472 24,885
Repayment of borrowed money (4,865) (22,100) (5,600)
Proceeds from issuance of junior subordinated debentures,
net of debt issuance expenses -- -- (245)
Reissuance of junior subordinated debentures 654 -- --
Repurchase of junior subordinated debentures (638) (663) --
Purchase of treasury stock (5,121) -- --
Purchase of additional ESOP shares -- -- (498)
Proceeds from exercise of stock options 251 64 --
Dividends paid (371) (402) (401)
Net change in custodial balances for loans serviced 1,134 1,987 185
--------- --------- --------
Net cash from financing activities 75,154 180,153 87,019
Net cash provided by discontinued operations -- -- 20
--------- --------- --------
Net change in cash and cash equivalents (56,368) 56,345 27,576
Cash and cash equivalents at beginning of year 94,017 37,672 10,096
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 37,649 $ 94,017 $ 37,672
========= ========= ========
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 30,588 $ 21,560 $ 15,709
Income taxes 1,800 900 240
Supplemental disclosure of noncash investing and
financing activities
Assumption of liability related to sale of On-Line Financial
Services, Inc. $ -- $ -- $ 546
Preferred stock received related to sale of On-Line Financial
Services, Inc. -- -- 4,600
Sale of branch deposits
Assets sold $ 474
Cash paid 106,085
---------
Net liabilities sold 105,611
Transfer of loans to foreclosed real estate $ 1,631 $ 2,658 $ 2,219
Deferred gain on sale lease back -- -- 2,410
Amount receivable from loan servicer 4,437 3,162 1,850
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
44.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation: The consolidated financial
statements include Umbrella Bancorp, Inc. (formerly Argo Bancorp, Inc.) ("the
Company") and its wholly owned subsidiaries, UmbrellaBank, FSB (formerly Argo
Federal Savings Bank, FSB) (the "Savings Bank" or "UmbrellaBank") and Argo
Redemption Corporation ("Argo Redemption"); and the Savings Bank's wholly owned
subsidiary, Dolton-Riverdale Service Corporation ("Dolton Service").
Intercompany transactions and balances are eliminated in consolidation.
During 1999 the Company simplified its organizational structure by merging Argo
Mortgage Corporation, a wholly owned subsidiary of the Savings Bank, into the
Savings Bank and merging Empire/Argo Mortgage LLC, a consolidated joint venture
of Umbrella Bancorp, into Umbrella Bancorp. The mergers qualified as tax-free
reorganizations and were accounted for as internal reorganizations. Accordingly,
the notes to the consolidated financial statements have been restated to reflect
the internal reorganization as if they had occurred on January 1, 1999. Finally,
as discussed in a separate note, during 1999, the Company sold its wholly owned
subsidiary, On-Line Financial Services, Inc. ("On-Line").
The Company, through its subsidiaries, provides a full range of financial
services through its branch locations in Cook County, Illinois and its Internet
website. The Savings Bank's primary business is the solicitation of deposits
from the general public and the purchase or origination of loans secured by
one-to-four-family residential real estate. In addition, the Savings Bank sells
mortgage loans on a service-released basis into the secondary market, has an ATM
network, and has investments in a partnership which owns purchased mortgage
servicing rights.
During July 2000, the Savings Bank established an Internet banking platform,
which is accessible via the Internet at http://www.umbrellabank.com and allows
consumers to conduct online financial transactions, including but not limited to
opening account relationships, transferring funds, accessing account
information, processing bill payments, and applying for or obtaining loan
products, including but not limited to credit cards and residential mortgage
secured loans. The Savings Bank expensed $626,000 during the year ended December
31, 2000 related to organizational expenses of umbrellabank.com, which are
classified with other expense in the consolidated statements of operations.
Use of Estimates: To prepare financial statements in conformity with accounting
principles generally accepted in the United States of America, management makes
estimates and assumptions based on available information. These estimates and
assumptions affect the amounts reported in the financial statements and the
disclosures provided, and future results could differ. The allowance for loan
losses, fair values of financial instruments, amortization period of debt
issuance costs, and valuation of the limited partnership investment are
particularly subject to change.
- --------------------------------------------------------------------------------
(Continued)
45.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities: Securities are classified as held-to-maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available-for-sale when they might be
sold before maturity. Securities available-for-sale are carried at fair value,
with unrealized holding gains and losses, net of taxes, reported in other
comprehensive income. Trading securities are carried at fair value, with changes
in unrealized holding gains and losses included in income. Other securities such
as Federal Home Loan Bank stock and investment in GFS preferred stock are
carried at cost.
Interest income includes amortization of purchase premium or discount. Gains and
losses on sales are based on the amortized cost of the security sold. Securities
are written down to fair value when a decline in fair value is not temporary.
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by the issuers of the
securities.
Loans: Loans are reported at the principal balance outstanding, net of unearned
discounts, deferred loan fees and costs, and an allowance for loan losses. Loans
held for sale are reported at the lower of cost or market, on an aggregate
basis.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days. Payments received on such loans
are reported as principal reductions.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable credit losses, increased by the provision for loan losses
and decreased by charge-offs less recoveries. Management estimates the allowance
balance required using past loan loss experience, known and inherent risks in
the nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions, and other
factors. Allocations of the allowance may be made for specific loans, but the
entire allowance is available for any loan that, in management's judgment,
should be charged-off.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.
- --------------------------------------------------------------------------------
(Continued)
46.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
Mortgage Loans Held for Sale: Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated market value
in the aggregate.
- --------------------------------------------------------------------------------
(Continued)
47.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreclosed Real Estate: Foreclosed real estate acquired through or instead of
loan foreclosure is initially recorded at fair value when acquired, establishing
a new cost basis. If fair value declines, a valuation allowance is recorded
through expense. Costs after acquisition are expensed.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the assets' useful lives
on a straight-line basis.
Investment in Limited Partnership: The investment in limited partnership is
carried at the lower of fair value or the equity investment. The cost of
acquiring the rights to service mortgage loans is capitalized at the partnership
level as are other loan servicing costs. An independent valuation is performed
at least annually by the partnership.
Servicing Rights: The Company does not service loans sold. Purchased servicing
rights are recognized as assets and expensed in proportion to, and over the
period of, estimated net servicing revenues. Impairment is evaluated based on
the fair value of the rights, using groupings of the underlying loans as to
interest rates and then, secondarily, as to geographic and prepayment
characteristics. Any impairment of a grouping is reported as a valuation
allowance.
Income Taxes: Income tax expense is the total of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax amounts for the temporary
differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.
Cash and Cash Equivalents: Cash and interest-earning deposits with banks with
original maturities less than 90 days are considered to be cash and cash
equivalents. The Company reports net cash flows for customer loan and deposit
activity.
Earnings (Loss) Per Share: Basic earnings (loss) per share is calculated by
dividing net income (loss) by the weighted average number of common shares
outstanding. Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of shares, adjusted for the
dilutive effects of outstanding stock options and the management retention plan,
to the extent they are dilutive, options and other potentially dilutive
securities are excluded if they are anti-dilutive.
Comprehensive Income (loss): Comprehensive income (Loss) consists of net income
and other comprehensive income (loss). Other comprehensive income (loss)
includes unrealized gains and losses on securities available-for-sale, net of
tax, which are also recognized as a separate component of equity.
- --------------------------------------------------------------------------------
(Continued)
11.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Industry Segments: While the Company's chief decision-makers monitor the revenue
streams of various Company products and services, the identifiable segments are
not material and operations are managed and financial performance is evaluated
on a Company-wide basis. Accordingly, all of the Company's financial service
operations are considered by management to be aggregated in one reportable
operating segment. Prior to 2001, internal financial information was primarily
reported and aggregated into two lines of business: banking and discount loan
operations.
Fair Values of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate Note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
New Accounting Pronouncements: Beginning January 1, 2001, a new accounting
standard required all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values are recorded in the income
statement. Fair value changes involving hedges are generally recorded by
offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. This did not have a
material effect as the Company had no derivative holdings at December 31, 2001.
The Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and
Other Intangible Assets," in July 2001. The statement no longer allows for the
amortization of goodwill and requires that the carrying value of goodwill be
written down when it is deemed to be impaired. The Company had no recorded
goodwill at December 31, 2001.
On-Line Significant Accounting Policies: Significant accounting policies of
On-Line prior to its sale were:
- The cost of software licensing rights acquired and other product
conversion costs were capitalized and amortized to expense on a
straight-line basis over periods of 5 to 7 years.
- Certain equipment was leased under capital lease agreements. The
cost of these assets was amortized on the straight-line basis.
- --------------------------------------------------------------------------------
(Continued)
12.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
Reclassification: Certain reclassifications have been made to the 1999 and 2000
information to make it comparable with the 2001 presentation.
- --------------------------------------------------------------------------------
(Continued)
13.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 2 - SALE OF ON-LINE FINANCIAL SERVICES, INC.
On March 31, 1999, the Company sold On-Line for cash proceeds of $6,700,000 and
$4,600,000 in Series B preferred stock of GFS Holdings Co. After adjusting for
sale expenses of $298,000 and recording an accrual for contingent payments to
former On-Line shareholders of $546,000, the sale resulted in a pretax gain of
$2,922,000 which, net of $994,000 of income taxes, produced a gain on sale of
discontinued operations of $1,928,000.
Results from the data processing segment are shown as discontinued operations.
Components of amounts reflected in the December 31, 1999 (through the date of
sale) consolidated statement of operations are presented in the following table:
(In thousands)
Revenues $ 4,247
Costs and expenses 4,029
---------
Operating income 218
Income tax expense 83
---------
Income from discontinued operations $ 135
=========
As part of the acquisition of On-Line by Argo Bancorp in 1995, a
structured schedule of contingent payments was established based on a percentage
of future net revenues of On-Line over the next seven years ending October 31,
2002. As a condition of the acquisition, Umbrella Bancorp, Inc. retained this
liability to the former stockholders of On-Line.
At December 31, 2001, the Company estimated the liability for future contingent
payments to be $116,000. The actual amount to be paid will be impacted by future
revenue streams.
- --------------------------------------------------------------------------------
(Continued)
14.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES
Securities available-for-sale are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
December 31, 2001
Municipal securities $ 19,276 $ 22 $ (553) $ 18,745
U.S. agency securities 2,995 14 (34) 2,975
Corporate bonds 4,691 3 (10) 4,684
Mortgage-backed securities and
collateralized mortgage
obligations 49,768 19 (547) 49,240
Trust preferred securities 32,731 74 (530) 32,275
Marketable equity securities 15,482 170 (453) 15,199
-------- ------- --------- --------
$124,943 $ 302 $ (2,127) $123,118
======== ======= ========= ========
December 31, 2000
Municipal securities $ 370 $ 5 $ -- $ 375
U.S. agency securities 5,500 -- (81) 5,419
Corporate bonds 1,908 -- (285) 1,623
Mortgage-backed securities: 1,607 -- (14) 1,593
Trust preferred securities 3,033 5 (388) 2,650
Marketable equity securities 3,252 22 (360) 2,914
-------- ------- --------- --------
$ 15,670 $ 32 $ (1,128) $ 14,574
======== ======= ========= ========
Securities held-to-maturity are summarized as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
December 31, 2001
U.S. agency securities $ 1,174 $ 9 $ (28) $ 1,155
Corporate bonds 685 -- (2) 683
-------- ------- --------- --------
$ 1,859 $ 9 $ (30) $ 1,838
======== ======= ========= ========
- --------------------------------------------------------------------------------
(Continued)
15.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES (Continued)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
December 31, 2000
U.S. agency securities $24,451 $ 1 $ (272) $24,180
Collateralized mortgage obligations 1,294 7 (1) 1,300
Corporate bonds 778 -- (5) 773
------- --------- -------- -------
$26,523 $ 8 $ (278) $26,253
======= ========= ======== =======
Included in mortgage-backed securities and collateralized mortgage obligations
(CMOs), are Fannie Mae, Freddie Mac, Government National Mortgage Association
("GNMA") CMOs managed by Annaly Mortgage Management, Inc. with a carrying value
of $30.5 million and amortized cost of $30.7 million at December 31, 2001. There
were no concentrations by issuer at December 31, 2000.
Trust preferred securities include issues of a diverse group of banks, savings
institutions and their related holding companies located throughout the United
States. There are no investments with balances greater than $3.3 million by a
single issuer at December 31, 2001.
Marketable equity securities include investments in common stocks of various
financial institutions and mutual funds.
The amortized cost and fair value of securities, by contractual maturity, at
December 31, 2001 are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Available-for-Sale Held-to-Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(In thousands) (In thousands)
Less than one year $ 1,975 $ 1,969 $ -- $ --
Due after five years through ten years 870 877 -- --
Due after ten years 56,848 55,833 1,859 1,838
---------- ---------- -------- --------
59,693 58,679 1,859 1,838
Mortgage-backed securities and
collateralized mortgage obligations 49,768 49,240 -- --
Marketable equity securities 15,482 15,199 -- --
---------- ---------- -------- --------
$ 124,943 $ 123,118 $ 1,859 $ 1,838
========== ========== ======== ========
- --------------------------------------------------------------------------------
(Continued)
16.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 3 - SECURITIES (Continued)
Proceeds from sales of securities available-for-sale and the realized gross
gains and losses are as follows:
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(In thousands)
Proceeds for sales $ 126,838 $ 1,144 $ 420
Gross realized gains 1,728 151 27
Gross realized losses (317) (262) (29)
At December 31, 2001 and 2000, trading account securities primarily consist of
marketable equity securities which are carried at fair value. At December 31,
2001 and 2000, the market value of these securities is approximately equal to
cost.
At December 31, 2001 and 2000, securities with carrying values of $3.5 million
were pledged to secure short-term borrowings and Federal Home Loan Bank
advances.
NOTE 4 - LOANS RECEIVABLE
Loans receivable and loans held for sale, net, are summarized as follows. Other
commercial loans includes those secured by non-residential real estate and other
assets.
December 31,
------------
2001 2000
---- ----
(In thousands)
One-to-four-family mortgage loans $ 195,603 $ 217,444
Commercial multi-family secured real estate loans 38,722 41,872
Direct financing leases 4,368 2,288
Other commercial loans 74,986 22,947
Home equity loans 4,304 4,436
Other loans 1,235 856
--------- ---------
Total gross loans receivable 319,218 289,843
Add (deduct)
Allowance for loan losses (2,984) (2,440)
Deferred loan costs 1,050 1,373
Unearned discounts, net of premiums (1,875) (2,253)
--------- ---------
$ 315,409 $ 286,523
========= =========
Weighted-average interest rate 8.39% 9.25%
========= =========
- --------------------------------------------------------------------------------
(Continued)
17.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE (Continued)
Included in first mortgage loans are loans held for sale totaling approximately
$65.1 million and $38.9 million at December 31, 2001 and 2000, which represent
loans originated by the Savings Bank for unaffiliated entities. The loans are
originated with commitments to sell and are usually sold within 30-60 days of
funding, with a maximum holding period of 120 days.
Impaired loans totaled $529,000 at December 31, 2001, which were fully allocated
in the allowance for loan losses. Average impaired loans were $1,427,000 in
2001. There were no impaired loans at or for the years ended December 31, 2000
or 1999.
The following is a summary of the changes in the allowance for loan losses:
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(In thousands)
Balance at beginning of year $ 2,440 $ 1,551 $ 940
Provision for loan losses 1,710 1,218 965
Charge-offs (1,166) (329) (354)
------- ------- -------
Balance at end of year $ 2,984 $ 2,440 $ 1,551
======= ======= =======
At December 31, 2001, the Savings Bank experienced an increase in the percentage
of net loans 90 days or more delinquent. The increase was primarily due to
classification activities relating to certain single-family residential mortgage
loans underlying purchase/repurchase lines of credit facilities, which were
discovered to involve various irregularities including broker and originator
fraud issues, as well as payment and loan servicing defaults. The commercial
real estate and commercial loan balances totaled $113.7 million at December 31,
2001 compared to $65.2 million at December 31, 2000. Based upon these factors,
management increased the allowance for loan losses during the fourth quarter of
2001.
Loans receivable on nonaccrual are as follows:
Percentage
of Loans
Number Receivable,
of Net of
Loans Amount Discount
----- ------ --------
(Dollars in Thousands)
December 31, 2001 133 $9,000 2.82%
December 31, 2000 71 4,438 1.56
- --------------------------------------------------------------------------------
(Continued)
18.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE (Continued)
First mortgage loans at December 31, 2001 and 2000 include $130.1 million and
$138.6 million in out-of-area purchased participation and whole loans, which are
secured by single-family homes, with approximately 11.15% in Texas, 7.75% in
Arizona, 6.36% in Florida, 6.01% in California, 5.77% in Georgia, and 62.96%
spread throughout the remainder of the country at December 31, 2001. There is no
geographic concentration of nonperforming loans.
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment, net, are summarized as follows:
December 31,
------------
2001 2000
---- ----
(In thousands)
Land $ 1,668 $ 75
Office buildings and improvements 3,288 412
Leasehold improvements 768 785
Automated teller machines 13,714 5,646
Furniture, fixtures, and equipment 1,417 6,944
Software and capitalized conversion costs 2,436 1,326
-------- --------
23,291 15,188
Less accumulated depreciation and amortization (2,682) (5,365)
-------- --------
$ 20,609 $ 9,823
======== ========
Included in occupancy and equipment expense is depreciation expense of office
properties and equipment of approximately $1,301,000, $1,796,000, and $1,100,000
for the years ended December 31, 2001, 2000, and 1999. Depreciation expense for
ATMs is net of leasing reimbursements totaling $1.1 million, $592,000 and
387,000 for 2001, 2000, and 1999.
Included in software is approximately $1,002,000 of costs for software licensing
rights acquired and other system related conversion costs amortized to expense
on a straight-line basis over periods of 5 to 7 years. Also included is
approximately $858,000 of capitalized internal software development costs
primarily related to the Savings Bank's Internet platform, amortized over
periods of 1 to 3 years.
During April 2001, the Savings Bank purchased an office building in downtown
Chicago for $4.5 million, $1.5 million, and $3 million allocated to land and
office buildings, respectively, for which it receives rental income and is
considering opening a branch office location. Occupancy and equipment expense
was reduced by approximately $420,000 of related rental income from this
building.
During August 2001, the Savings Bank purchased approximately 850 ATMs for $7.75
million and another 12 ATMs during December 2001 for $114,000; such ATMs were
deployed in gas station/convenience stores throughout the Midwest.
During 1999, the Company sold five banking facilities to an unrelated third
party for $5,850,000. The gain of $2,400,000 was deferred as the Company leased
these facilities from the purchaser.
- --------------------------------------------------------------------------------
(Continued)
19.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
During 2000, deposits totaling $113,585,000 for two of these locations and a
third location which was leased by the Company were sold to a party unrelated to
the 1999 transaction, and all three
- --------------------------------------------------------------------------------
(Continued)
20.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT (Continued)
leases were assumed by that entity. The Company recognized a gain of $7,974,000
on the deposit sale, net of expenses of $1,216,000. In addition, during 2000,
the Company recognized a portion of the deferred gain for the two branch
facilities sold. Activity in the deferred gain account was as follows for the
years ended December 31, 2001, 2000 and 1999 (in thousands):
2001 2000 1999
---- ---- ----
(In thousands)
Balance at beginning of year $ 1,595 $ 2,314 $ --
Deferred gain -- -- 2,400
Amortization of deferred gain (116) (128) (86)
Recognized upon lease assumption -- (591) --
------- ------- -------
Balance at end of year $ 1,479 $ 1,595 $ 2,314
======= ======= =======
The three remaining facilities at December 31, 2001 are being leased back over a
period of 170 months. The leases contain renewal options for three additional
periods, the first for ten years and the final two for five years each.
The Company leases office space under its noncancelable operating leases. The
Company also leases space for a data processing center and to manage its
Internet operations. These leases renew on an annual basis. Rent expense for the
years ended December 31, 2001, 2000, and 1999 totaled $679,000, $668,000, and
$457,000. The lease expense for 2000 included $304,000 related to the three
branch facilities that were sold.
The estimated minimum rental payments under the terms of the leases at December
31, 2001 are as follows:
Year ended December 31 Amount
---------------------- ------
(In thousands)
2002 $ 387
2003 391
2004 395
2005 399
2006 403
Thereafter 2,754
------------
Total minimum lease payments $ 4,729
============
- --------------------------------------------------------------------------------
(Continued)
21.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 6 - LOAN SERVICING, PURCHASED MORTGAGE SERVICING RIGHTS, AND INVESTMENT IN
LIMITED PARTNERSHIP
The cost of acquiring servicing rights from third parties to service mortgage
loans is capitalized and amortized in proportion to and over the period of the
estimated net servicing income. On December 31, 2001 and 2000, the Savings Bank
held $337,000 and $397,000 in purchased mortgage servicing rights (PMSRs) with
underlying principal balances of approximately $21.1 million and $29.3 million.
During 1999, the Company bought $11.1 million of servicing rights with
underlying principal balances of approximately $823 million. At June 30, 1999,
these servicing rights were called at the Company's original purchase price.
There was no gain or loss recorded. Servicing income related to these loans
approximated $619,000.
The balance of investment in limited partnership of $3.7 million and $4.4
million at December 31, 2001 and 2000 represents the Savings Bank's investment
in various divisions of a single limited partnership. The investment at December
31, 2001 and 2000 includes a $3.0 million and a $3.1 million equity interest in
a limited partnership whose business activities are to purchase mortgage
servicing rights, and a $751,000 and a $1.3 million investment in subordinated
debentures of the partnership. The debentures have an interest rate of 30%.
During 2001 and 2000, the Company recorded $1.1 million and $300,000 as a
reserve against its interest in the limited partnership due to the impact of the
loan prepayment speeds on the value of PMSRs. In 1999, the Company reinvested
the equity in one division into another previously owned division. The single
business activity of this limited partnership is the purchase of current
mortgage servicing rights. There are several equity investors in each division
of the partnership. The purchase of the servicing rights is leveraged, allowing
the partnership to purchase additional servicing rights. At the end of five
years, or at such time as the investors agree, the servicing rights will be sold
and the proceeds divided pro rata among the investors. As with typical
investments in PMSRs, the collateral underlying the equity investment is the
servicing rights. All purchases of servicing rights must be approved by all
equity investors. The administration and servicing of the purchased portfolios
in each division is performed by the general partner.
- --------------------------------------------------------------------------------
(Continued)
22.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 7 - DEPOSITS
Deposits at December 31 are summarized as follows (dollars in thousands):
2001 2000
---- ----
Non-interest-bearing $ 3,879 $ 9,744
Savings accounts 7,352 5,291
NOW accounts 42,061 4,918
Money market accounts 143,918 69,035
Certificate accounts 260,937 299,549
-------- --------
$458,147 $388,537
======== ========
Contractual maturities of certificate accounts at December 31, 2001 are as
follows (in thousands):
Under 12 months $176,591
12 months to 36 months 56,223
Over 36 months 28,123
--------
$260,937
========
At December 31, 2001 and 2000, the Company had $104.6 million and $151.8 million
of brokered deposits. The Savings Bank has pledged investment securities of
approximately $2.4 million and $345,000 at December 31, 2001 and 2000 as
collateral to secure certain public deposits. In addition to securities at
December 31, 2001 and 2000, the Savings Bank also had letters of credit totaling
$14.2 million and $14.3 million as collateral to secure several State of
Illinois certificates. The total State of Illinois certificates secured by
letters of credit totaled approximately $14.0 and $13.1 million at December 31,
2001 and 2000. The aggregate amount of certificate of deposit accounts with a
balance greater than $100,000 was $80.8 million and $81.9 million at December
31, 2001 and 2000.
Interest expense on deposit accounts is summarized as follows:
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Savings $ 117 $ 490 $ 502
NOW accounts 1,111 149 143
Money market accounts 5,487 925 152
Certificate accounts 18,946 17,525 11,745
------- ------- -------
$25,661 $19,089 $12,542
======= ======= =======
- --------------------------------------------------------------------------------
(Continued)
23.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 8 - BORROWINGS
Borrowed money at December 31 is summarized as follows:
Weighted Interest Rate Balance
December 31, December 31,
------------ ------------
Maturity 2001 2000 2001 2000
-------- ---- ---- ---- ----
(In thousands)
Advances from the Federal
Home Loan Bank of Chicago
Fixed rate 06/03/01 --% 8.43% $ -- $ 72
Fixed rate 04/20/03 6.13 6.13 2,760 2,760
Fixed rate 11/25/06 6.58 6.58 10,000 10,000
------------ -----------
6.48 6.49 12,760 12,832
Notes payable
Variable rate 03/30/02 5.75 -- 5,000 --
Fixed rate 03/31/02 10.00 -- 3,500 --
Subordinated debentures 12/8/11 6.01 -- 3,000 --
Federal funds purchased 01/02/02 2.00 -- 2,400 --
Margin accounts Open line 3.92 8.92 1,683 5,876
------------ -----------
6.21 7.26 $ 28,343 $ 18,708
============ ===========
The Company has issued 11% junior subordinated debentures aggregating
$17,784,000 to Argo Capital Trust Company (Trust). The Trust issued 11% capital
securities with an aggregate liquidation amount of $17,250,000 ($10 per capital
security) to third-party investors. The capital securities and cash are the sole
assets of the Trust. The junior subordinated debentures are includable as Tier I
capital for regulatory capital purposes. The junior subordinated debentures and
the capital securities pay dividends and distributions, respectively, on a
quarterly basis, which are included in interest expense.
The Trust is a statutory business trust formed under the laws of the State of
Delaware and its common stock is wholly owned by the Company. The junior
subordinated debentures will mature on November 6, 2028, at which time the
capital securities must be redeemed. The junior subordinated debentures and
capital securities can be redeemed contemporaneously, in whole or in part,
beginning November 6, 2003 at a redemption price of $10 per capital security.
The Company has provided a full and unconditional guarantee of the obligations
of the Trust under the capital securities in the event of the occurrence of an
Event of Default, as defined. Debt issuance costs totaling $1,913,000 were
capitalized related to the debenture offering and are being amortized over the
30-year life of the junior subordinated debentures.
- --------------------------------------------------------------------------------
(Continued)
24.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 8 BORROWINGS (Continued)
In 2000, Argo Redemption was formed for the purpose of repurchasing a portion of
the 11% capital securities. Argo Redemption held 64,717 and 66,293 shares of the
11% capital securities at cost basis of $637,607 and $570,557 at December 31,
2001 and 2000. During 2001, Argo Redemption reissued 65,400 shares for $655,000
and repurchased an additional 63,824 at a cost basis of $639,000. Gains of
$103,000 and $92,000, are included with other income in the consolidated
statement of operations for the years ended December 31, 2001 and 2000. The 11%
capital securities can be resold.
The required aggregate principal balance of first mortgage loans securing
advances is determined by the Federal Home Loan Bank (FHLB). At December 31,
2001 and 2000, approximately $40 million and $65 million of specifically
identified loans were pledged and delivered to the FHLB. All stock in the
Federal Home Loan Bank of Chicago is also pledged as collateral for these
advances. Additionally, at December 31, 2000, there were also four securities
having a carrying value of $1,500,000 pledged to secure the advances. There were
no securities pledged against advances at December 31, 2001. The Savings Bank
has an open line of credit with the FHLB for up to $50 million that bears
interest at a rate that adjusts daily.
The margin account loans are from third-party securities brokers and were
secured at December 31, 2001 by securities which are held by the broker and have
a market value of $3.3 million.
In March of 2001, the Company borrowed $5.0 million to fund the repurchase of
shares of common stock. The note is secured by all common stock of the Savings
Bank. Interest on the note is payable quarterly.
In December of 2001, the Company borrowed an additional $3.5 million. The note
is secured by certain securities with carrying values of $3.5 million at
December 31, 2001. Interest on the note is payable monthly.
In November of 2001, the Savings Bank issued $3.0 million of subordinated debt
in a private placement transaction to increase working capital. As of December
31, 2001, the Savings Bank's application to classify the issuance in Tier II
capital was still pending. Debt issuance costs totaling $120,000 were
capitalized related to the debenture offering and are being amortized over the
10 year life of the issuance.
- --------------------------------------------------------------------------------
(Continued)
25.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES - CONTINUING OPERATIONS
Income tax expense (benefit) from continuing operations consists of the
following:
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(In thousands)
Federal
Current $(1,495) $ 75 $ 572
Deferred (587) 1,054 (908)
------- ------- -----
(2,082) 1,129 (336)
State
Current (291) 120 318
Deferred (68) (22) (318)
------- ------- -----
Total income tax expense (benefit) $(2,441) $ 1,227 $(336)
======= ======= =====
The tax effects of existing temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 2001 and
2000 are summarized as follows:
December 31,
------------
2001 2000
---- ----
(In thousands)
Deferred tax assets
Unused tax credits $ 465 $ 168
Allowance for loan losses 1,156 1,005
Deferred gain on sale of fixed assets 572 622
Unrealized losses on securities available-for-sale 693 418
------- -------
Gross deferred tax assets 2,886 2,213
------- -------
Deferred tax liabilities
Excess tax bad debt deduction (10) (15)
Limited partnership interest (581) (814)
Other (81) (100)
------- -------
Gross deferred tax liabilities (672) (929)
------- -------
Net deferred tax asset $ 2,214 $ 1,284
======= =======
- --------------------------------------------------------------------------------
(Continued)
26.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES - CONTINUING OPERATIONS (Continued)
The effective income tax rate differs from the statutory federal tax rate of
34%. The major reasons for this difference related to income (loss) from
continuing operations for the years ended December 31 follow:
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(In thousands)
Federal income tax at statutory rate $(1,046) $ 1,890 $ 61
Increase (decrease) in tax resulting from:
Amortization of discounts and goodwill, net -- -- 16
Municipal interest, net (905) (11) (11)
Tax credits (300) (300) (300)
Benefit of prior year net operating losses -- (258) --
Other (190) (94) (102)
------- ------- -----
Income tax expense (benefit) $(2,441) $ 1,227 $(336)
======= ======= =====
At December 31, 2001, Umbrella Bancorp has low income housing and alternative
minimum tax credit carryforwards in the amount of $465,000 expiring through
2020.
NOTE 10 - EMPLOYEE BENEFIT PLANS
401(k) PLAN AND TRUST
The Argo Federal Savings 401(k) plan is an ERISA-qualified plan covering all
employees of the Savings Bank who have completed at least 1,000 hours of service
within a 12 consecutive month period and are age 21 or older. Participants may
make contributions to the plan from 1% to 12% of their earnings, subject to
Internal Revenue Service (IRS) limitations. Discretionary matching contributions
of 50% of each participant's contribution up to 12% may be made by the Savings
Bank each plan year. The Savings Bank made contributions of $65,000, $60,000,
and $76,000 to the plan for the years ended December 31, 2001, 2000, and 1999.
The plan also provides benefits in the event of death, disability, or other
termination of employment.
EMPLOYEE STOCK OWNERSHIP PLAN
The Savings Bank maintains an ERISA qualified employee stock ownership plan
(ESOP) for eligible employees. During 1999, the ESOP borrowed funds from the
Company in the amount of $498,000 in order to purchase 49,136 shares at an
average price of $10.13 per share. In addition, during 2000 and 1999, the ESOP
used available cash in the plan to purchase an
- --------------------------------------------------------------------------------
(Continued)
27.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFIT PLANS (Continued)
additional 1,880 and 2,500 shares respectively. Consolidated stockholders'
equity was reduced by the unpaid balance of the ESOP loan at December 31, 2001
and 2000. Contributions of $81,000, $95,000, and $72,000 were accrued or made to
the ESOP to fund principal and interest payments for the years ended December
31, 2001, 2000, and 1999. Selected ESOP information at December 31, 2001, 2000,
and 1999 follows:
2001 2000 1999
---- ---- ----
Shares allocated 100,816 94,362 82,503
Unearned shares 28,052 34,506 44,485
-------- -------- --------
Total ESOP shares 128,868 128,868 126,988
======== ======== ========
Total value of unearned shares $283,325 $362,313 $511,578
======== ======== ========
Umbrella Bancorp considers outstanding only those shares of the ESOP that are
allocated and committed to be released when calculating both basic and diluted
earnings per share. The Savings Bank records the difference between the fair
value of the shares committed to be released and the cost of those shares to the
ESOP as a charge to additional paid-in capital with the corresponding increase
or decrease to compensation expense.
MANAGEMENT RECOGNITION PLAN
The Company's Management Recognition Plan ("MRP") provides for issue of shares
to officers and employees of the Company. Compensation expense is recognized
over the vesting period of the shares for the difference between exercise price
and the market value at issue date. Total shares issuable under the plan are
25,492 at December 31, 2001 and 2000. Unearned compensation is reported as a
reduction of stockholder's equity until earned.
STOCK OPTION PLANS
Umbrella Bancorp's Board of Directors adopted the 1991 Stock Option and
Incentive Plan (the 1991 Stock Option Plan), under which up to 429,800 shares of
Umbrella Bancorp's common stock were reserved for issuance by Umbrella Bancorp
upon exercise of incentive stock options to be granted to full-time employees of
Umbrella Bancorp and its subsidiaries from time to time. All 429,800 options
were awarded during 1993.
- --------------------------------------------------------------------------------
(Continued)
28.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFIT PLANS (Continued)
Umbrella Bancorp's Board of Directors adopted the Non-Qualified Stock Option
Plan for Non-Employee Directors (Non-Qualified Stock Option Plan) in 1991, under
which up to 429,800 shares of Umbrella Bancorp's common stock were reserved for
issuance by Umbrella Bancorp upon exercise of nonincentive stock options to be
granted to nonemployee directors of the Savings Bank from time to time. At
December 31, 1997, the Board of Directors approved a resolution to discontinue
any further grants under this plan.
Umbrella Bancorp's Board of Directors adopted the 1998 Incentive Stock Option
Plan for Employees, under which up to 400,000 shares of Umbrella Bancorp's
common stock were reserved for issuance by Umbrella Bancorp upon exercise of
stock options to be granted to employees from time to time.
The Company applies ABP Opinion No. 25 in accounting for the stock option plans
and, accordingly, compensation cost based on the fair value at grant date has
not been recognized for its stock options in the consolidated financial
statements. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income (loss) from continuing
operations would have been reduced to the pro forma amounts indicated below:
2001 2000 1999
---- ---- ----
Income (loss) from continuing operations
As reported $ (637) $ 4,331 $ 514
Pro forma (696) 4,251 490
Earnings (loss) per share
Basic earnings (loss) per share as reported $ (.37) $ 2.16 $ .26
Pro forma basic earnings (loss) per share (.40) 2.12 .25
Diluted earnings (loss) per share as reported $ (.37) $ 2.00 $ .25
Pro forma diluted earnings (loss) per share (.40) 1.96 .23
There were no options granted in 2001. For options granted during 2000 and 1999,
the weighted average fair values at grant date are as follows:
Weighted
Average
Number of Exercise Fair
Options Price Value
------- ----- -----
1999 23,000 $ 10.58 $ 2.70
2000 99,000 9.00 3.19
- --------------------------------------------------------------------------------
(Continued)
29.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFIT PLANS (Continued)
The fair value of options granted during 2000 and 1999 is estimated using the
following weighted average information:
2000 1999
---- ----
Risk-free interest rate 5.75% 5.50%
Expected life 8.6 years 10 years
Expected volatility of stock price 20.60% 18.06%
Expected dividend 1.79% 2.08%
The activity in the stock option plans for 2001, 2000, and 1999 is summarized as
follows:
Weighted
Number Average
of Exercise
Options Price
------- -----
Outstanding at January 1, 1999 383,068 $ 6.05
Granted 23,000 10.58
Exercised -- --
Forfeited (12,000) (11.78)
-------
Outstanding at December 31, 1999 394,068 $ 6.14
Granted 99,000 9.00
Exercised (18,213) (3.52)
Forfeited (31,196) (5.98)
-------
Outstanding at December 31, 2000 443,659 $ 7.11
Granted -- --
Exercised (48,125) (5.01)
Forfeited -- --
-------
Outstanding at December 31, 2001 395,534 $ 7.37
=======
- --------------------------------------------------------------------------------
(Continued)
30.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFIT PLANS (Continued)
Options exercisable at year end are as follows:
Weighted
Number Average
of Exercise
Options Price
------- -----
December 31, 2001 321,334 $ 5.46
December 31, 2000 307,344 5.33
December 31, 1999 375,668 6.00
At year-end 2001, options outstanding were as follows:
Outstanding Exercisable
----------- -----------
Weighted Average Weighted
Range of Remaining Average
Exercise Contractual Exercise
Prices Number Life Number Price
------ ------ ---- ------ -----
$ 2.88 - 3.85 167,734 1.3 years 167,734 $ 3.58
5.00 - 6.88 67,800 2.4 years 67,800 5.89
7.22 - 8.66 48,000 3.6 years 48,000 8.05
9.00 - 11.00 107,000 7.1 years 37,800 9.81
16.00 5,000 3.5 years -- --
------- --------- ------- --------
Outstanding at year end 395,534 3.5 years 321,334 $ 5.46
======= ========= ======= ========
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of its business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations of interest rates. These
financial instruments represent commitments to originate and sell first mortgage
loans and letters of credit and involve credit and interest rate risk in excess
of the amount recognized in the consolidated statements of financial condition.
There were no commitments to originate mortgage loans at December 31, 2001 and
such commitments were $1.0 million at December 31, 2000. These commitments
represent amounts which the Savings Bank plans to fund in its normal commitment
period. the Company evaluates each customer's creditworthiness on a case-by-case
basis.
- --------------------------------------------------------------------------------
(Continued)
31.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
Unused lines and letters of credit amounted to approximately $36 million and
$7.5 million as of December 31, 2001 and 2000.
- --------------------------------------------------------------------------------
(Continued)
32.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
The Savings Bank has Community Reinvestment Act (CRA) investment commitments
outstanding of $2.4 million. These commitments include $1.0 million to be funded
for investment in the Greater West Side Loan Fund, $856,000 to be funded over
eight years for investment in the Chicago Equity Fund, $289,000 to be funded
over six years for investment in the Community Investment Corporation, and
$305,000 to be funded over fourteen years for investment in the Kedzie Limited
Partnership.
NOTE 12 - CAPITAL MATTERS
The Company has issued 592,681 shares of goodwill preferred stock. The goodwill
preferred stock entitles the holders thereof to 75% of any settlement damages
awarded upon a final judgment to the Savings Bank, net of expenses and certain
other items, as a result of the Savings Bank's lawsuit against the United States
seeking damages for breach of contract related to the elimination and exclusion
of supervisory goodwill in the computation of the Savings Bank's regulatory
capital in connection with the Company's acquisition of the Savings Bank
("Goodwill Litigation"). At the time of the final judgment and award of damages,
if any, the goodwill preferred stock will either be (1) redeemed by the Company
for cash or (2) become convertible into common stock. The Company will be
entitled to retain the remaining 25% of any damages awarded to the Savings Bank,
net of expenses and certain other items, in the Goodwill Litigation.
Information regarding Class A common stock at December 31, 2001 and 2000
follows:
2001 2000
---- ----
Par value per share $ .01 $ .01
Authorized shares 9,000,000 9,000,000
Shares issued 1,705,438 2,023,109
Information regarding preferred stock at December 31, 2001 and 2000 follows:
Par value per share $ .01
Authorized shares 1,000,000
Shares issued 592,681
The Savings Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Savings Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Savings
- --------------------------------------------------------------------------------
(Continued)
33.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 12 - CAPITAL MATTERS (Continued)
Bank must meet specific capital guidelines that involve quantitative measures of
Savings Bank assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Savings Bank capital
amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Savings Bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined) to risk-weighted
assets (as defined) and Tier I capital (as defined) to assets (as defined).
Management believes, as of December 31, 2001 and 2000, that the Savings Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 2001, the most recent notification from the Office of the
Thrift Supervision ("OTS") categorized the Savings Bank as well-capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well-capitalized, the Savings Bank must maintain minimum total risk-based,
Tier I risk-based, Tier I leverage, and tangible capital ratios as set forth in
the following table. There are no conditions or events since that notification
that management believes have changed the institution's category. However,
UmbrellaBank is restricted from increasing assets during any quarter in excess
of an amount equal to net interest credited on deposit liabilities during the
quarter without prior written approval of the OTS and is required to divest of
$27 million of trust preferred securities, which was accomplished by March 21,
2002. The sale of these securities did not result in significant gain or loss.
The Company's and Savings Bank's actual capital amounts (in thousands) and
ratios are as follows as of December 31, 2001 and 2000:
To Be Well-
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action
------ -------- ------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 2001
Total capital
(to risk-weighted assets)
Company $38,296 11.94%
Bank 32,745 10.77 $24,329 8.00 $30,411 10.00%
Tier I capital
(to risk-weighted assets)
Company 35,312 11.01
Bank 30,261 9.95 12,164 4.00 18,247 6.00
Tier I capital
(to adjusted assets)
Company 35,312 6.58
Bank 30,261 5.82 20,785 4.00 25,981 5.00
- --------------------------------------------------------------------------------
(Continued)
34.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 12 - CAPITAL MATTERS (Continued)
To Be Well-
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action
------ -------- ------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 2000
Total capital
(to risk-weighted assets)
Company $43,503 17.35%
Bank 28,912 12.29 $18,617 8.00% $23,522 10.00%
Tier I capital
(to risk-weighted assets)
Company 41,039 16.37
Bank 26,448 11.24 9,409 4.00 14,113 6.00
Tier I capital
(to adjusted assets)
Company 41,039 8.85
Bank 26,448 5.95 17,783 4.00 22,229 5.00
NOTE 13 - SEGMENT FINANCIAL INFORMATION
During 2001, the Company discontinued monitoring discounted loans as a reporting
segment as no discounted loans have been acquired since 1998. Prior to 2001, the
operating segments were determined by the products and services offered,
primarily distinguished between banking and discount loan operations. As
discussed in Note 1, the Company simplified its organizational structure in
1999. As a result, mortgage banking operations were discontinued and therefore
are not disclosed as a separate operating segment in 2001 and 2000. Loans,
investments, and deposits provide the revenues in the banking operation; fee
income provided the primary revenue for mortgage banking interest income; and
discount accretion provides the primary revenue for discount loan workout. All
operations are domestic.
The accounting policies used for the operating segments are the same as those
described in the summary of significant accounting policies. Income taxes are
allocated to the banking segment. No indirect expenses are allocated.
- --------------------------------------------------------------------------------
(Continued)
35.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 13 - SEGMENT FINANCIAL INFORMATION (Continued)
Information reported internally for performance assessment follows. The column
for other information primarily includes activity between segments which is
being eliminated.
Discount Total
(In thousands) Banking Loans Other Segments
------- ----- ----- --------
2000
Net interest income $ 6,435 $ 886 $ -- $ 7,321
Provision for loan losses 1,178 40 -- 1,218
Other revenue 10,593 (129) (373) 10,091
Other expenses 10,292 344 -- 10,636
Income tax expense (benefit) 1,227 -- -- 1,227
Segment profit (loss) 4,331 373 (373) 4,331
Segment assets 462,896 12,285 (12,088) 463,093
Discount Mortgage Total
(In thousands) Banking Loans Banking Other Segments
------- ----- ------- ----- --------
1999
Net interest income $ 7,346 $ 536 $ -- $ -- $ 7,882
Provision for loan losses 695 270 -- -- 965
Other revenue 3,095 (313) 754 (1,196) 2,340
Other expenses 7,848 352 879 -- 9,079
Income tax expense (benefit) 433 -- -- (769) (336)
Segment profit (loss) 1,465 (399) (125) (427) 514
Segment assets 419,763 11,879 34 (38,912) 392,764
- --------------------------------------------------------------------------------
(Continued)
36.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY FINANCIAL INFORMATION
Condensed statements of financial condition, operations, and cash flows of
Umbrella Bancorp, Inc. follow:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
December 31,
------------
2001 2000
---- ----
(In thousands)
Assets
Cash $ 558 $ 2,875
Interest-bearing deposits 89 125
------- -------
Total cash and cash equivalents 647 3,000
Trading securities -- 162
Securities available-for-sale 7,884 10,276
Investment in GFS preferred stock -- 4,000
Loans receivable, net 2,678 2,085
Investment in limited partnership 751 --
Due from subsidiary 144 --
Investment in banking subsidiary 29,163 26,431
Investment in nonbank subsidiary 639 663
------- -------
Total investments in subsidiaries 29,802 27,094
Other assets 3,638 4,637
------- -------
Total assets $45,544 $51,254
======= =======
Liabilities and stockholders' equity
Borrowed money $10,160 $ 5,876
Due to subsidiary -- 2,998
Other liabilities 557 1,356
Junior subordinated debt 17,250 17,250
Stockholders' equity 17,577 23,774
------- -------
Total liabilities and stockholders' equity $45,544 $51,254
======= =======
- --------------------------------------------------------------------------------
(Continued)
37.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF OPERATIONS
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(In thousands)
Interest income $ 1,439 $ 1,236 $ 971
Interest expense 3,213 (2,375) (2,093)
------- ------- -------
Net interest expense (1,774) (1,139) (1,122)
Provision for loan losses (527) -- --
Dividends from bank subsidiary -- 2,200 --
Equity in undistributed earnings of subsidiaries 999 3,402 1,721
Gain (loss) on sales of securities available-for-sale 163 139 (2)
Profits (losses) on trading account activity 608 (35) 29
Other noninterest income 167 -- --
Noninterest expense (1,105) (948) (881)
------- ------- -------
Income (loss) from continuing operations
before income taxes (1,469) 3,619 (255)
Income tax benefit (832) (712) (769)
------- ------- -------
Income (loss) from continuing operations (637) 4,331 514
Income from discontinued operation (net of tax) -- -- 135
Gain on sale of discontinued operation (net of tax) -- -- 1,928
------- ------- -------
Net income $ (637) $ 4,331 $ 2,577
======= ======= =======
- --------------------------------------------------------------------------------
(Continued)
38.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations $ (637) $ 4,331 $ 514
Adjustments to reconcile income (loss) from
continuing operations to net cash provided by
operating activities
Net change in trading account activity 770 -- (33)
Provision for loan losses 527 -- --
Loss (gain) on the sales of securities
available-for-sale (163) (139) 2
(Gain) loss on trading account securities (608) 35 (29)
Equity in undistributed earnings of
subsidiaries (872) (3,402) (1,721)
Amortization of purchase price of
ESOP and MRP 64 21 108
Change in other assets 1,007 (463) 655
Change in inter-company balance (3,142) 2,998 --
Change in other liabilities (728) (561) (206)
-------- ------- --------
Net cash from operating activities (3,782) 2,820 (710)
CASH FLOWS FROM INVESTING ACTIVITIES
Loans purchased, net (4,799) (1,006) (692)
Proceeds from the sales of securities 20,947 1,144 420
Purchases of securities (17,362) (876) (13,361)
Redemption of GFS preferred stock investment 3,600 600 --
Proceeds from sale of On-Line Financial
Services, Inc., net -- -- 4,583
Net cash (paid) received in purchase of subsidiary -- -- (575)
Contribution to MRP and ESOP -- -- 73
-------- ------- --------
Net cash from investing activities 2,386 (138) (9,552)
- --------------------------------------------------------------------------------
(Continued)
39.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 14 - PARENT COMPANY FINANCIAL INFORMATION (Continued)
STATEMENTS OF CASH FLOWS
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of subordinated
debentures, net of debt issuance expenses $ -- $ -- $ (181)
Increase in borrowed money, net 4,284 472 5,085
Proceeds from exercise of stock options 251 64 --
Purchase of treasury shares (5,121) -- --
Dividends paid (371) (402) (401)
------- ------- -------
Net cash from financing activities (957) 134 4,503
Net cash provided by discontinued operations -- -- 20
------- ------- -------
Change in cash and cash equivalents (2,353) 2,816 (5,739)
Cash and cash equivalents at beginning of year 3,000 184 5,923
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 647 $ 3,000 $ 184
======= ======= =======
Supplemental disclosure of noncash
investing activities
Investment in non-banking subsidiary $ -- $ 570 $ --
Preferred stock received related to sale
of On-Line Financial Services, Inc. -- -- 4,600
Transfer of securities available-for-sale
to trading account -- -- 135
Capital contribution to banking subsidiary
in the form of securities available-for-sale
and loans 2,928 1,250 3,000
Data processing credit received in lieu of
Cash on sale of GFS preferred stock 400 -- --
- --------------------------------------------------------------------------------
(Continued)
40.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of Umbrella Bancorp's financial instruments as of
December 31, 2001 and 2000 are set forth in the following table, followed by the
methods and assumptions used.
2001 2000
---- ----
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In thousands)
Financial assets
Cash $ 647 $ 647 $ 19,885 $ 19,885
Interest-earning deposits 37,002 37,002 74,132 74,132
Trading account securities 6,053 6,053 1,099 1,099
Securities available-for-sale 123,118 123,118 14,574 14,574
Securities held-to-maturity 1,859 1,838 26,523 26,253
Loans, including loans held-for-
sale 315,409 317,209 286,523 287,623
Investment in GFS preferred stock -- -- 4,000 4,000
FHLB of Chicago stock 2,800 2,800 2,615 2,615
Accrued interest receivable 5,272 5,272 3,988 3,988
Financial liabilities
Deposits without stated maturities 197,210 197,210 88,988 88,988
Deposits with stated maturities 260,937 270,152 299,549 304,004
Borrowed money 28,343 29,113 18,708 18,953
Junior subordinated debt 16,603 16,630 16,587 14,618
Custodial escrow balances 9,499 9,499 8,365 8,365
Accrued interest payable 1,707 1,707 2,156 2,156
The following methods and assumptions are used by Umbrella Bancorp in estimating
the fair value amounts for its financial instruments.
(a) CASH AND INTEREST-BEARING DEPOSITS
The carrying value of cash and interest-bearing deposits approximates fair value
due to the short period of time between origination of the instruments and their
expected realization.
- --------------------------------------------------------------------------------
(Continued)
41.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
(b) SECURITIES AVAILABLE-FOR-SALE, SECURITIES HELD-TO-MATURITY, TRADING
SECURITIES, FHLB OF CHICAGO STOCK, AND INVESTMENT IN GFS PREFERRED STOCK.
The fair value of securities available-for-sale and held-to-maturity and trading
securities was estimated using quoted market prices. The fair value of FHLB
stock is based on its redemption value. The fair value of the GFS preferred
stock is its carrying value based upon the market interest rate.
(c) LOANS RECEIVABLE AND ACCRUED INTEREST RECEIVABLE
The fair value of loans receivable is based on values obtained in the secondary
market. The loan portfolio is segmented into fixed and adjustable interest rate
categories. For fixed rate loans, fair value is estimated based on quoted market
prices of similar loans sold in conjunction with securitization transactions,
adjusted for differences in loan characteristics. For adjustable rate loans that
reprice frequently and with no significant change in credit risk, fair values
are based on carrying values. The carrying amount of accrued interest receivable
approximates its fair value due to the relatively short period of time between
accrual and expected realization.
(d) DEPOSITS, ESCROWS, AND INTEREST PAYABLE
The fair value of deposits with no stated maturity, such as statement savings,
NOW, and money market accounts, and escrows is disclosed as the amount payable
on demand.
The fair value of fixed-maturity deposits is the present value of the
contractual cash flows discounted using interest rates currently being offered
for deposits with similar remaining terms to maturity.
The carrying amount of interest payable approximates its fair value due to the
relatively short period of time between accrual and expected realization.
(e) BORROWED FUNDS AND JUNIOR SUBORDINATED DEBT
The fair value of junior subordinated debt was estimated using quoted market
prices. The fair value of borrowed funds is the present value of the contractual
cash flows, discounted by the current rate offered for similar remaining
maturities.
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(Continued)
42.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 16 - EARNINGS PER SHARE
The following table sets forth the components of basic and diluted earnings
(loss) per share from continuing operations. Basic and dilutive loss per share
are the same for 2001 as diluted loss per share would be anti-dilutive.
Year ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(Dollars in thousands, except per share data)
Numerator $ (637) $ 4,331 $ 514
=========== ========== ==========
Denominator
Basic earnings (loss) per share -
weighted average shares outstanding 1,723,952 2,008,056 1,946,744
Effect of dilutive stock options
outstanding -- 157,070 114,581
----------- ---------- ----------
Diluted earnings (loss) per share -
weighted average shares outstanding 1,723,952 2,165,126 2,061,325
=========== ========== ==========
Basic earnings (loss) per share $ (.37) $ 2.16 $ .26
Diluted earnings (loss) per share (.37) 2.00 .25
NOTE 17 - OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income components and related taxes were as follows:
2001 2000 1999
---- ---- ----
Unrealized holding gains (losses) on
securities available-for-sale $ 682 $ 166 $ (990)
Less reclassification adjustments for gains
(losses) recognized in income 1,411 (111) (2)
----------- ---------- ----------
Net unrealized losses (729) 277 (988)
Tax effect 275 (105) 376
----------- ---------- ----------
Other comprehensive income (loss) $ (454) $ 172 $ (612)
=========== ========== ==========
- --------------------------------------------------------------------------------
(Continued)
43.
UMBRELLA BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
- --------------------------------------------------------------------------------
NOTE 18 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth
----- ------ ----- ------
2001
Total interest income $ 8,755 $ 9,674 $ 9,865 $ 9,913
Net interest income 1,444 1,888 2,392 2,344
Net income (a) 380 207 (301) (923)
Basic earnings per share .19 .12 (.18) (.50)
Diluted earnings per share .17 .11 (.18) (.50)
2000
Total interest income $ 7,189 $ 7,095 $ 7,309 $ 8,478
Net interest income 2,157 1,888 1,676 1,600
Net income (b) 445 436 89 3,361
Basic earnings per share 0.22 0.22 0.04 1.68
Diluted earnings per share 0.20 0.20 0.04 1.56
(a) During the fourth quarter of 2001, the allowance for loan losses was
increased as a result of the Savings Bank's decision to classify mortgage
loans securing purchase/repurchase lines of credit facilities with
weaknesses attributable to mortgage broker and origination deficiencies,
as well as purchases and originations of commercial and commercial real
estate loans and direct financing leases, which are considered of higher
risk than the Savings Bank's traditional loan products primarily secured
by residential real estate.
(b) During the fourth quarter of 2000, the Company recognized significant
gains due to the sale of deposits and the acquiror assumed selected leased
facilities. The allowance was increased due to purchases in the fourth
quarter of commercial and commercial real estate loans and direct
financing leases, which are considered of higher risk than the Savings
Bank's traditional loan products primarily secured by residential real
estate. The allowance was also increased to be comparable to peer
financial institutions, as recommended by the Savings Bank's regulators.
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77.