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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2002
Commission File No.: 0-19829
UMBRELLA BANCORP, INC.
(Exact name of registrant as specified in its charter)
Maryland 36-3620612
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5818 South Archer Road, Summit, Illinois, 60501
(Address of principal executive offices)
(708) 458-2002
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by the Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the Registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K and is not contained herein and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. X
---
Indicate by checkmark whether the Registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act). Yes No X
--- ---
The aggregate market value of the voting and nonvoting common equity held by
nonaffiliates of the Registrant, i.e., persons other than directors and
executive officers of the Registrant, on June 28, 2002, the last business day of
the Registrant's most recently completed second fiscal quarter was approximately
$3.0 million*. The Registrant had 1,841,720 shares outstanding as of March 31,
2003.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December 31,
2002 are incorporated by reference into Parts I, II and IV of this Form 10-K.
Portions of the Proxy Statement for the 2003 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
* Based on the last reported sales price as quoted on NASDAQ June 28, 2002 and
reports of beneficial ownership filed by the directors and executive officers of
the Registrant and by beneficial owners of more than 5% of the outstanding
shares of common stock of the Registrant; however, such determination of shares
owned by affiliates does not constitute an admission of affiliate status or
beneficial interest in shares of the Registrant's common stock.
INDEX
PART I PAGE NO.
- ------ --------
Item 1. Business....................................................................... 3
Item 2. Properties..................................................................... 16
Item 3. Legal Proceedings.............................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............................ 16
PART II
- -------
Item 5. Market for Registrant's Common Equity and Related
Security Holder Matters...................................................... 17
Item 6. Selected Consolidated Financial Data........................................... 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................ 17
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.................................................................. 18
Item 8. Consolidated Financial Statements and Supplementary
Data......................................................................... 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................................... 18
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant............................. 18
Item 11. Executive Compensation......................................................... 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................................... 19
Item 13. Certain Relationships and Related Transactions................................. 19
Item 14. Controls and Procedures........................................................ 19
PART IV
- -------
Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................................. 20
SIGNATURES ............................................................................. 23
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002........................... 24
2
PART 1
SAFE HARBOR STATEMENT
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995 and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors that 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, accounting principles, policies and guidelines, and limitations imposed
on the Savings Bank's operations as a result of the agreed upon enforcement
action described in the "Regulatory Compliance" section of "Management's
Discussion and Analysis of Financial Condition and Results of Operations." These
risks and uncertainties should be considered in evaluating forward-looking
statements, and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
BUSINESS OF UMBRELLA BANCORP, INC.
ITEM 1. BUSINESS
Umbrella Bancorp, Inc. ("Umbrella Bancorp" or "the Company") was incorporated in
Delaware in August 1987, for the purpose of acquiring UmbrellaBank, fsb,
("UmbrellaBank" or "the Savings Bank"). On May 28, 2002, the Company completed
the change in the state of its incorporation from Delaware to Maryland, as
approved by the Registrant's Stockholders on April 30, 2002. The Company is a
unitary savings and loan holding company and is registered as such with the
Office of Thrift Supervision ("OTS"), Federal Deposit Insurance Corporation
("FDIC") and the Securities and Exchange Commission ("SEC"). The Company's
business activities currently consist of ownership of the Savings Bank and
investments in other equity and debt securities. The Savings Bank's principal
business consists of attracting deposits from the public primarily through its
Internet banking platform and, to a lesser extent, through its two traditional
branch locations and investing these deposits, together with funds generated
from operations, primarily in commercial real estate and residential real estate
secured loans and investment securities. Additionally, UmbrellaBank operates a
network of approximately 1,900 ATM machines in 19 states. The Savings Bank's
deposit accounts are insured to the maximum allowable by the FDIC.
3
BUSINESS OF UMBRELLABANK, FSB
UmbrellaBank is a federally chartered savings institution and was acquired by
the Company on November 17, 1987. The Savings Bank operates under the authority
of the OTS, its deposits are insured by the FDIC, and it is a member of the
Federal Home Loan Bank ("FHLB") System. UmbrellaBank's primary business is the
solicitation of savings deposits from the general public and the purchase or
origination of loans secured by one-to-four-family residential and commercial
real estate, together with investments in a portfolio of mortgage mutual funds,
mortgage-backed securities, municipal bonds, and other agency securities.
UmbrellaBank's retail banking operations have been conducted from two
traditional branch facilities, as well through an Internet banking channel
operating under the name umbrellabank.com. At December 31, 2002,
umbrellabank.com deposits totaled $248.6 million and represented 88.16% of total
consolidated deposits of $282.0 million.
As described more fully in the "Business Plan" section of "Management Discussion
and Analysis of Financial Condition and Results of Operations" included in the
2002 Annual Report of Stockholders, during November 2002, the Board of Directors
of the Company and Savings Bank approved plans for increasing capital levels at
both the Company and Savings Bank as well as a business plan at the Savings Bank
level which outlined the future operating strategies of the Savings Bank to
achieve the targeted capital levels along with providing the framework for
achieving profitability. The plans were delivered to the OTS for their review
and approval. To achieve the targeted capital levels and profitability levels
the business plan of the Savings Bank highlighted the following actions; (1)
reduction of total assets to $250 million by March 31, 2003, to be achieved
through the reduction of deposits by the selling of the Savings Bank's branch
deposits and operations, rate reductions and the early redemption of brokered
deposits with corresponding decreases in loans and investments; (2) the
elimination of certain lending programs; (3) a restructuring of the Savings
Bank's statement of financial condition to achieve the desired mix of
interest-earning assets and interest-bearing liabilities; (4) staff and
management reductions; (5) consolidation of personnel into one facility to
achieve overhead reductions and economies of scale; (6) reductions in general
and administrative expenses; and (7) capital infusions from the Company. The
increase in capital levels at the Company is to be achieved through capital
infusions from current principal stockholders and potential third party
investors.
On February 28, 2003, the Savings Bank withdrew its business plan previously
submitted to the OTS. On March 24, 2003 the Board of Directors submitted a
revised Savings Bank business plan to the OTS for their review and nonobjection.
The revised business plan includes significant further reductions of total
assets by December 31, 2003. To achieve the revised business plan balance sheet
reductions, the Savings Bank and the Company will continue to identify
additional assets to be held for sale. Based on the Savings Bank's initial
analysis, the fair value of assets to be held for sale exceeds the book value.
During 2002, the implementation of certain initiatives under the business plan
had a significant effect on the total assets and lending, investing, and retail
operations of the Savings Bank and the Company. During 2002, total assets of the
Savings Bank decreased $186.6 million from $521.8 million to $335.2 at December
31, 2001 and 2002, respectively. Consolidated assets of the Company decreased
$192.7 million from $536.6 million to $343.9 million at December 31, 2001 and
2002, respectively.
4
MARKET AREA
UmbrellaBank considers its current primary market area to be the greater Chicago
metropolitan area (hereinafter referred to as its "primary market area"). Due to
a higher concentration of Internet deposits, the Savings Bank's primary market
area also includes more regional delineations or encompasses a number of
individual cities or areas. During 2002, the average balances of Internet
deposits were concentrated in the following states: California 16.7%, Illinois
11.0%, Florida 9.5%, New York 8.9%, and Texas 8.2%, with the remaining deposits
spread throughout the other forty-five United States. Prior to 2002,
UmbrellaBank had extended its lending activities outside of its primary market
area through its purchase repurchase program and its expanding commercial loan
and participation activities. During 2002, in conjunction with its business
plan, the Savings Bank decided to terminate its purchase repurchase program and
significantly curtailed its commercial lending operations. The future primary
market area or areas are dependent on the growth of the umbrellabank.com
delivery channel and the location of consumers utilizing its retail deposit and
lending services. UmbrellaBank will continue to analyze the geographic spread of
deposits and loans generated from umbrellabank.com operations and adjust the
definition of the Savings Bank's primary market area as concentrations of
customers are determined.
As of December 31, 2002, the principal executive offices of the Company and
administrative headquarters of the Savings Bank are located at 5818 South Archer
Road, Summit, Illinois. At December 31, 2002, UmbrellaBank operated two retail
banking facilities in Cook County, Illinois and managed its Internet operations
from a leased facility located in Westmont, Illinois. See "Item 2. Properties"
for further discussion of anticipated changes in the facilities utilized by the
Company and the Savings Bank during 2003 as the Company executes its business
plan.
LENDING ACTIVITIES
Prior to 2002, the Savings Bank had focused lending activities on the generation
of profits from the sale of mortgage loans. The Savings Bank's purchase
repurchase program generated origination of long-term, fixed-rate mortgage loans
with 15- and 30-year maturities for immediate sale in the secondary mortgage
market. Prior to 2002, UmbrellaBank's lending activity also included the
origination of primarily adjustable rate mortgage ("ARM") loans through the
offering of portfolio ARM products in conduit activities and the purchase of ARM
loans in the secondary market. Additionally, a significant portion of the growth
in UmbrellaBank's loan balances prior to 2002 was due to origination and
participation activities relating to secured commercial real estate loans
located both in and outside UmbrellaBank's primary market area and other forms
of commercial lending. Other forms of commercial lending have included financing
the acquisition of equipment and receivables and providing working capital
loans.
During 2002, the Company's one-to-four-family loan portfolio decreased $142.0
million from $195.6 million to $53.6 million at December 31, 2001 and 2002,
respectively. The Company's commercial loan portfolio decreased $55.5 million
from $113.7 million to $58.2 million at December 31, 2001 and 2002,
respectively. As discussed more fully in "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the decrease in the Company's
outstanding loans was due to the termination of the purchase repurchase program,
significant curtailment of commercial loan lending due to regulatory criticism,
and the sale of loans to fund actual and anticipated deposit liability
reductions in accordance with the business plan.
5
During 2003 and in conjunction with its business plan, the Company intends to
originate, purchase, and sell fixed-rate and adjustable-rate mortgage loans
secured by one-to-four-family residences. To a lesser extent, the Company plans
to originate real estate secured commercial loans (subject to regulatory
approval), home equity loans, and other consumer loans, including consumer
credit card facilities through the umbrellabank.com Internet channel.
Due to several internal and external factors, described more fully in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 5 - Loans Receivable in the 2002 Annual Report, the Company
incurred provisions for loan losses and net charge-offs of $9.8 million and $8.6
million, respectively, during 2002.
Commercial real estate lending and commercial loans often entail significant
additional risks as compared with one-to-four-family residential property
lending. Commercial real estate loans typically involve larger loan balances to
a single borrower or groups of affiliated borrowers. The payment experience on
such loans is typically dependent on the successful sale or operation of the
real estate project. These risks can be significantly impacted by supply and
demand conditions in the market for housing, office, and retail space, and as
such may be subject to a greater extent to adverse conditions in the economy
generally.
INVESTMENT ACTIVITIES
Legislation repealed the OTS minimum liquidity ratio requirements. OTS
regulations require the Savings Bank to maintain sufficient liquidity to ensure
the Savings Bank's safe and sound operation. Cash flow projections are regularly
reviewed and updated to ensure that adequate liquidity is maintained.
Federally chartered savings institutions have the authority to invest in various
types of liquid assets, including United States Treasury obligations, securities
of various federal agencies, certain certificates of deposit of insured banks
and savings institutions, certain bankers' acceptances, repurchase agreements,
and federal funds. Subject to various restrictions, Federally chartered savings
institutions may also invest their assets in commercial paper, investment grade
corporate debt securities, and mutual funds whose assets conform to the
investments that a Federally chartered savings institution is otherwise
authorized to make directly.
Investment activities by the Savings Bank are governed by the OTS, with
limitations on both quantity (as either a percent of capital or assets) and
quality (as determined by various national rating services) prescribed under
various laws, regulations, and bulletins giving effect to the regulatory
framework underlying UmbrellaBank's activities in this area. As of December 31,
2002 and 2001, the Savings Bank's securities available-for-sale totaled $102.2
million and $115.2 million, respectively. In addition, as of December 31, 2001,
the Savings Bank held trading securities of $6.1 million and securities
held-to-maturity of $1.9 million. The overall decrease in investment securities
between December 31, 2002 and 2001 can be principally attributable to utilizing
the proceeds from sales to fund a portion of the deposit shrinkage that occurred
during 2002 related to the Saving Bank's business plan objectives as discussed
previously. In addition, as discussed more fully in the "Regulatory Compliance"
section of "Management's Discussion and Analysis of Financial Condition and
Results of Operation," due to regulatory requests the Savings Bank ceased its
trading activity and sold certain other types of securities available-for-sale
as the Savings Bank had exceeded the regulatory limitations for holding these
types of securities.
6
ATM ACTIVITIES
In addition to its lending activities, UmbrellaBank also generates 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. Revenues are derived from interchange and surcharge fees, together with
income from related equipment leasing and interest on currency used in
operations. At December 31, 2002, the Savings Bank had approximately 1,900 ATMs
deployed in 19 states.
SOURCES OF FUNDS AND BORROWINGS
Deposits are the major source of UmbrellaBank's funds for lending and other
investment purposes. In addition to deposits, the Savings Bank derives funds
from loan principal repayments, fees generated from lending and ATM activities,
borrowings (which includes advances from the FHLB and $3.0 million of
subordinated debentures) and the custodial balances associated with purchased
mortgage servicing rights ("PMSRs"). Loan repayments, loan originations, and
deposit inflows and outflows are significantly influenced by general interest
rates and market conditions. Additionally, the Company's sources of funds have
included borrowed money, a margin account and federal funds purchased. The
Company has also issued junior subordinated debentures. Borrowings may be used
to compensate for reductions in the availability of other sources of funds. They
may also be used on a longer-term basis for general business purposes.
Although savings deposits are the primary source of funds for UmbrellaBank's
lending and investment activities and for its general business purposes, the
Savings Bank can also borrow funds from the FHLB. As an FHLB member,
UmbrellaBank is required to own capital stock in the FHLB and is authorized to
apply for advances on the security of such stock and certain of its home
mortgages and other assets (principally, securities that are obligations of, or
guaranteed by, the United States Government or its agencies) provided certain
standards related to creditworthiness have been met. At December 31, 2002,
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%. On
February 28, 2002, the Savings Bank paid-off $2.8 million of the FHLB advances
incurring a prepayment penalty of $17,600 related to this transaction.
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 nonaffiliated banks, savings institutions, and their related
holding companies. The debentures have a maturity date of December 8, 2011, and
their coupon interest rate are 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
by only "qualified institutional buyers" as defined by Rule 144A of the
Securities Act of 1934. On December 5, 2001, UmbrellaBank filed an application
with the OTS seeking inclusion of the proceeds of the sale of the debentures in
regulatory "Tier II" (risk weighted) capital. As of June 28, 2002, the OTS
approved the application. At December 31, 2002, $3.0 million of subordinated
debentures were outstanding, at a weighted rate of 5.78%.
7
SUBSIDIARIES
In October 1998, the Company formed Argo Capital Trust Co. ("Argo Capital
Trust"), a statutory business trust formed under the laws of the State of
Delaware. In November 1998, the Company and Argo Capital Trust offered 11%
Capital Securities with a liquidation amount of $10.00 per security. The
proceeds from the offering were $17,250,000. Argo Capital Trust used the gross
proceeds from the sale of the Capital Securities to purchase Junior Subordinated
Debentures of the Company. The Junior Subordinated Debentures carry an interest
rate of 11% paid quarterly in arrears and are scheduled to mature, subject to
the Company's right to prepay the debentures under certain circumstances, on
November 6, 2028.
On June 24, 2000, the Company incorporated a wholly owned subsidiary, Argo
Redemption Corporation, an Illinois corporation ("ARC"). ARC was chartered to
effectuate, from time to time, purchases of the Company's outstanding Capital
Securities by tender, in the open market, or by private agreement. Acquisitions
through the over-the-counter dealer market are anticipated to comprise the
majority of purchase activity. As of December 31, 2002, ARC held 12,700 shares
of Argo Capital Trust Preferred securities with a cost basis of $127,000.
On February 27, 2003, the Company announced its intention to repurchase from
time to time in open market as well as privately negotiated transactions shares
of the Trust's 11% securities, which trade under the symbol "ATP_P" on the
American Stock Exchange. The present authorization does not impose any specific
limit on the number of Trust securities that may be purchased and is being
undertaken in order to reduce debt and debt-like obligations as required by the
capital plan as discussed in Note 2 - Regulatory Compliance and Business Plan.
The continuing payment on the Trust securities is dependent on the Company's
continuing ability to make payments on the subordinated debenture it issued to
the Trust in connection with the 1998 public offering. In the absence of prior
written approval, the Savings Bank is currently precluded from making dividend
payments to the Company under mutual agreement with the OTS. Consequently, no
assurance can be made that the Company will continue to make dividend payments
on the Trust securities.
UmbrellaBank has a wholly owned subsidiary, Dolton-Riverdale Savings Service
Corp. ("Dolton-Service"). At December 31, 2002, UmbrellaBank had an equity
investment in Dolton-Service of $1,567,000.
COMPETITION
UmbrellaBank faces strong competition in attracting deposits and in originating
loans. Its most direct competition for deposits has historically come from other
savings institutions, credit unions, and community banks, as well as from
commercial banks located in its primary market area. In addition, the Savings
Bank also faces significant competition for investor funds from short-term money
market securities and other corporate and government securities. UmbrellaBank's
competition for loans comes principally from other thrift institutions,
commercial banks, and mortgage banking companies. Competition may also increase
as a result of the lifting of restrictions on the interstate operations of
financial institutions, as well as the expansion of retail banking services into
the Internet.
8
The Savings Bank competes for loans principally through the interest rates and
loan fees it charges; extensive mortgage product offerings; and the efficiency
and quality of the services it provides borrowers, real estate brokers, and home
builders. It competes for deposits by offering consumers a wide variety of
savings, checking, money market, and certificate of deposit accounts, and
expanded convenience of branch office facilities, a network of ATM machines, and
the 24/7 availability of its umbrellabank.com Internet retail delivery channel.
UmbrellaBank competes with many financial institutions in its current primary
market area, most of which have assets that are significantly larger than the
assets of the Savings Bank. Management considers the Savings Bank's reputation
for customer service as a major competitive advantage in attracting and
retaining customers in its market area. The Savings Bank also believes it
benefits from its use of available technologies to provide low cost, accessible
banking services, reflected by its core deposit base in its umbrellabank.com
Internet division.
PERSONNEL
Effective October 1, 1999 the Savings Bank entered into a Client Services
Agreement with Synergy, a professional employer organization. Under the Client
Services Agreement, all employees of the Savings Bank were transferred to
Synergy with Synergy assigning employees to the Savings Bank as the workplace
employer. At December 31, 2002, 49 employees of Synergy were assigned to the
Company and subsidiaries.
REGULATION AND SUPERVISION
GENERAL
The Company, as a savings and loan holding company, is required to file certain
reports with and otherwise comply with the rules and regulations of the OTS
under the Home Owners' Loan Act, as amended ("the HOLA"). In addition, the
activities of savings institutions, such as the Savings Bank, are governed by
the HOLA and the Federal Deposit Insurance Act ("FDI Act").
UmbrellaBank is subject to extensive regulation, examination and supervision by
the OTS, as its primary federal regulator, and the FDIC, as the deposit insurer.
The Savings Bank is a member of the FHLB System and its deposit accounts are
insured up to applicable limits by the Savings Association Insurance Fund
("SAIF") managed by the FDIC. The Savings Bank must file reports with the OTS
and the FDIC concerning its activities and financial condition in addition to
obtaining regulatory approvals prior to entering into certain transactions such
as mergers with or acquisitions of other savings institutions. The OTS and/or
the FDIC conduct periodic examinations to test the Savings Bank's safety and
soundness and compliance with various regulatory requirements. The Company and
the Savings Bank were examined as of September 30, 2001 and July 1, 2002, and
matters of note are discussed in the "Regulatory Compliance" section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the 2002 Annual Report to Stockholders. This regulation
and supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance funds and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulatory requirements and policies, whether by
the OTS, the FDIC, or the Congress, could have a material adverse impact on the
Company and the Savings Bank and their operations.
9
Certain of the regulatory requirements applicable to the Savings Bank and to the
Company are referred to below or elsewhere herein.
HOLDING COMPANY REGULATION
The Company is a non-diversified unitary savings and loan holding company within
the meaning of the HOLA. As a unitary savings and loan holding company, the
Company generally is not restricted under existing laws as to the types of
business activities in which it may engage, provided that the Savings Bank
continues to be a qualified thrift lender ("QTL"). Upon any non-supervisory
acquisition by the Company of another savings institution or savings bank that
meets the QTL test and is deemed to be a savings institution by the OTS, the
Company would become a multiple savings and loan holding company (if the
acquired institution is held as a separate subsidiary) and would be subject to
extensive limitations on the types of business activities in which it could
engage. The HOLA limits the activities of a multiple savings and loan holding
company and its noninsured institution subsidiaries primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company Act ("BHC Act"), subject to the prior approval of the OTS, and certain
activities authorized by OTS regulation, and no multiple savings and loan
holding company may acquire more than 5% the voting stock of a company engaged
in impermissible activities.
The HOLA prohibits a savings and loan holding company, directly or indirectly,
or through one or more subsidiaries, from acquiring more than 5% of the voting
stock of another savings institution or holding company thereof, without prior
written approval of the OTS or acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating applications by
holding companies to acquire savings institutions, the OTS must consider the
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the insurance
funds, the convenience and needs of the community, and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific capital
requirements or specific restrictions on the payment of dividends or other
capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions. UmbrellaBank must notify the OTS 30 days before declaring
any dividend to the Company. Umbrella Bancorp is a legal entity separate and
distinct from its subsidiary bank and other subsidiaries. Its principal source
of funds to pay dividends on its common and preferred stock and debt service on
its debt is dividends from its subsidiaries, primarily UmbrellaBank. See the
"Regulatory Compliance" section of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the 2002 Annual
Report to Stockholders for a discussion of the currently imposed dividend
restrictions on UmbrellaBank. The ability of UmbrellaBank to pay dividends in
the future is currently influenced and could be further influenced by bank
regulatory policies and capital guidelines. In addition, the financial impact of
a holding company on its subsidiary institution is a matter that is evaluated by
the OTS and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.
10
PROVISIONS OF GRAMM-LEACH BLILEY ACT
The Gramm Leach-Bliley Act ("the Act"), which was enacted in November 1999,
allows eligible bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. Under the Act, an eligible bank holding company that elects to
become a financial holding company may engage in any activity that the Federal
Reserve, in consultation with the Secretary of the Treasury, determines by
regulation or order is financial in nature, incidental to any such financial
activity, or complementary to any such financial activity and does not pose a
substantial risk to the safety or soundness of depository institutions or the
financial system generally. National banks are also authorized by the Act to
engage, through "financial subsidiaries", in certain activity that is
permissible for financial holding companies (as described above) and certain
activity that the Secretary of the Treasury, in consultation with the Federal
Reserve, determines is financial in nature or incidental to any such financial
activity.
The Act limits the nonbanking activities of unitary savings and loan holding
companies by generally prohibiting any savings and loan holding company from
engaging in any activity other than activities that are currently permitted for
multiple savings and loan holding companies or are permissible for financial
holding companies (as described above) (collectively, "permissible activities").
The Act also generally prohibits any company from acquiring control of a savings
association or savings and loan holding company unless the acquiring company
engages solely in permissible activities. The Act creates an exemption from the
general prohibitions for unitary savings and loan holding companies in existence
or formed pursuant to an application pending before the OTS on or before May 4,
1999.
Under the Act the federal banking regulators adopted rules that limit the
ability of banks and other financial institutions to disclose non-public
information about consumers to nonaffiliated third parties. These limitations
require disclosure of privacy policies to consumers and, in some circumstances,
allow consumers to prevent disclosure of certain personal information to
nonaffiliated third parties. The privacy provisions of the Act affect how
consumer information is transmitted through diversified financial companies and
conveyed to outside vendors.
Although various bank regulatory agencies have issued regulations as mandated by
the Act, except for the jointly issued privacy regulations, the Act and its
implementing regulations have had little impact on the daily operations of the
Company and the Savings Bank and, at this time, it is not possible to predict
the impact the Act and its implementing regulations may have on the Company or
the Savings Bank.
FEDERAL SAVINGS INSTITUTION REGULATION
Capital Requirements. The OTS capital regulations require savings institutions
to meet three minimum capital standards: a 1.5% tangible capital ratio, a 3%
leverage (core) capital ratio, and an 8% risk-based capital ratio. Core capital
is defined as common stockholders' equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, and minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights and credit card relationships. The OTS
regulations require that, in meeting the tangible, leverage (core) and
risk-based capital standards, institutions must generally deduct investments in
and loans to subsidiaries engaged in activities that are not permissible for a
national bank.
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of
risk-weighted assets, all assets, including certain off-balance-sheet assets,
are multiplied by a risk-weight factor of 0% to 100%, as assigned by the OTS
capital regulation based on the risks the OTS
11
believes are inherent in the type of asset. The components of core capital are
equivalent to those discussed earlier under the 3% leverage standard. The
components of supplementary capital currently include cumulative preferred
stock; long-term perpetual preferred stock; mandatory convertible securities;
subordinated debt and intermediate preferred stock; and, within specified
limits, the allowance for loan and lease losses. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital.
The OTS regulatory capital requirements also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings institution's interest rate risk is
measured by the decline in the net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities, and off-balance-sheet contracts) that would result from a
hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets, as
calculated in accordance with guidelines set forth by the OTS. A savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
institution's assets. That dollar amount is deducted from an institution's total
capital in calculating compliance with its risk-based capital requirement. Under
the rule, there is a two-quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings institution with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not subject to
the interest rate risk component, unless the OTS determines otherwise. The
Director of the OTS may waive or defer a savings institution's interest rate
risk component on a case-by-case basis. For the present time, the OTS has
deferred implementation of the interest rate risk component. At December 31,
2002, UmbrellaBank met each of its capital requirements.
Prompt Corrective Regulatory Action. Under the OTS prompt corrective action
regulations, the OTS is required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution
that has a total risk-based capital of less than 8% or a leverage ratio or a
Tier 1 capital ratio that is less than 4% is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3%, or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized," and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the banking regulator is required to appoint a receiver or
conservator for an institution that is "critically undercapitalized." The
regulation also provides that a capital restoration plan must be filed with the
OTS within 45 days of the date a savings institution receives notice that it is
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to the institution depending upon its category,
including, but not limited to, increased monitoring by regulators and
restrictions on growth, capital distributions, and expansion. The OTS could also
take any one of a number of discretionary supervisory actions, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.
Insurance of Deposit Accounts. The FDIC insures the deposits of the Savings Bank
up to the prescribed limits for each depositor. The amount of FDIC assessments
paid by each Bank Insurance Fund (BIF) member institution is based on its
relative risk of default as measured by regulatory capital ratios and other
factors. Specifically, the assessment rate is based on the institution's
capitalization risk category and supervisory subgroup category. An institution's
capitalization risk category is based on the regulatory determination of whether
the institution is well capitalized, adequately capitalized, or less than
12
adequately capitalized. An institution's subgroup category is based on the
regulatory assessment of the financial condition of the institution and the
probability that the FDIC intervention or other corrective action will be
required.
The FDIC may increase or decrease the assessment rate schedule on a semi-annual
basis. An increase in the assessment rate could have a material adverse effect
on the Savings Bank's earnings, depending on the amount of the increase. The
FDIC is authorized to terminate a depository institution's deposit insurance
upon a finding by the FDIC that the institution's financial condition is unsafe
or unsound or that the institution has engaged in unsafe or unsound practices or
has violated any applicable rule, regulation, order or condition enacted or
imposed by the institution's regulatory agency. Management does not know of any
practice, condition, or violation that might lead to termination of deposit
insurance.
Depositor Preference. The Federal Deposit Insurance Act provides that, in the
event of the "liquidation or other resolution" of an insured depository
institution, the claims of depositors of the institution, including the claims
of the FDIC as subrogee of the insured depositors, and certain claims for
administrative expenses of the FDIC as a receiver, will have priority over other
general unsecured claims against the institution.
QTL Test. The HOLA requires savings institutions to meet a QTL test. Under the
QTL test, a savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid assets up to 20% of
total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities, as well as, recently, education loans,
credit card loans and small business loans) in at least 9 months out of each
12-month period. A savings institution that fails the QTL test must either
convert to a bank charter or operate under certain restrictions. The Savings
Bank has met the QTL test for each month during 2002.
Limitation on Capital Distributions. OTS regulations impose limitations upon all
capital distributions by savings institutions, such as cash dividends, payments
to repurchase or otherwise acquire its shares, payments to shareholders of
another institution in a cash-out merger, and other distributions charged
against capital. Effective April 1, 1999, the OTS' capital distribution
regulation changed. Under the current regulation, an application to and the
prior approval of the OTS is required before any distribution if the institution
does not meet the criteria for "expedited treatment" of applications under OTS
regulations (generally, compliance with all capital requirements and examination
ratings in one of two top categories); the total capital distributions for the
calendar year exceed net income for that year plus the amount of retained net
income for the preceding two years; the institution would be undercapitalized
following the distribution; or the distribution would otherwise be contrary to a
statute, regulation or agreement with OTS. If an application is not required,
the institution must still give advance notice to OTS of the capital
distribution. UmbrellaBank has been advised that it no longer qualifies for
expedited treatment for applications and notices filed with the OTS.
Liquidity. Legislation repealed the OTS minimum liquidity ratio requirements.
OTS regulations require the Savings Bank to maintain sufficient liquidity to
ensure the Savings Bank's safe and sound operation.
Assessments. Savings institutions are required to pay assessments to the OTS to
fund the agency's operations. The general assessments, paid on a semi-annual
basis, are based upon the savings institution's total assets, including
consolidated subsidiaries, as reported in the Savings Bank's latest quarterly
thrift financial report.
13
Branching. OTS regulations permit nationwide branching by federally chartered
savings institutions to the extent allowed by federal statute. This permits
federal savings institutions to establish interstate networks and to
geographically diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.
Enforcement. Under the FDI Act, the OTS has primary enforcement responsibility
over savings institutions and has the authority to bring actions against the
institution and all institution-affiliated parties, including stockholders, and
any attorneys, appraisers, and accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on an insured
institution. Formal enforcement action may range from the issuance of a capital
directive or cease and desist order to removal of officers and/or directors to
institution of receivership, conservatorship, or termination of deposit
insurance. Civil penalties cover a wide range of violations and can amount to
$25,000 per day, or even $1 million per day in especially egregious cases. Under
the FDI Act, the FDIC has the authority to recommend to the Director of the OTS
enforcement action to be taken with respect to a particular savings institution.
If action is not taken by the Director, the FDIC has authority to take such
action under certain circumstances. Federal law also establishes criminal
penalties for certain violations.
As described in the "Regulatory Compliance" section of "Management's Discussion
and Analysis of Financial Condition and Results of Operations," management
officials and the Boards of Directors of both the Bancorp and the Savings Bank
have engaged in active discussions with the OTS to develop a mutually agreeable
business framework that will strengthen the regulatory foundation of the Bancorp
and the Saving Bank. As a result, in the spirit of regulatory cooperation, the
Board of Directors of both the Bancorp and the Savings Bank, without admitting
or denying that such grounds exist, or the accuracy of the OTS findings,
opinions and/or conclusions, separately agreed to enforcement actions that
became effective on August 16, 2002.
Standards for Safety and Soundness. The FDI Act requires each federal banking
agency to prescribe for all insured depository institutions standards relating
to, among other things, internal controls; information systems and audit
systems; loan documentation; credit underwriting; interest rate risk exposure;
asset growth; compensation, fees, and benefits; and such other operational and
managerial standards as the agency deems appropriate. The federal banking
agencies have adopted final regulations and Interagency Guidelines Prescribing
Standards for Safety and Soundness ("Guidelines") to implement these safety and
soundness standards. The Guidelines set forth the safety and soundness standards
that the federal banking agencies use to identify and address problems at
insured depository institutions before capital becomes impaired. If the
appropriate federal banking agency determines that an institution fails to meet
any standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by the FDI Act. The final rule establishes
deadlines for the submission and review of such safety and soundness compliance
plans.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to maintain
non-interest-earning reserves against their transaction accounts. The Federal
Reserve Board regulations generally require that reserves be maintained against
aggregate transaction accounts as follows: for accounts aggregating $41.3
million or less (subject to adjustment by the Federal Reserve Board) the reserve
requirement is 3% and for accounts aggregating greater than $41.3 million, the
reserve requirement is 10% (subject to adjustment by the Federal Reserve Board)
against that portion of total transaction accounts in excess of $41.3 million.
The first $5.7 million of otherwise reservable balances (subject to adjustments
by the Federal Reserve Board) are exempted from the reserve requirements.
UmbrellaBank has maintained compliance with the foregoing requirements.
14
The Company's business and earnings are affected significantly by the fiscal and
monetary policies of the Federal Reserve Board. The Federal Reserve Board
regulates the supply of money and credit in the United States. Among the
instruments of monetary policy available to the Federal Reserve Board are (a)
conducting open market operations in United States government securities, (b)
changing the discount rate of borrowings of depository institutions, (c)
imposing or changing reserve requirements against depository institutions'
deposits, and (d) imposing or changing reserve requirements against certain
borrowings by banks and their affiliates. These methods are used in varying
degrees and combinations to affect directly the availability of bank loans and
deposits, as well as the interest rates charged on loans and paid on deposits.
For that reason alone, the policies of the Federal Reserve Board have a material
effect on the earnings of the Company.
SEC, NASDAQ, AND THE AMERICAN STOCK EXCHANGE
The Company is also under the jurisdiction of the SEC and certain state
securities commissions for matters relating to offering and sale of securities.
The Company is subject to the disclosure and regulatory requirements of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, as administered by the SEC. The Company is listed on the NASDAQ Stock
Market under the trading symbol "UMBR," and is subject to the rules of NASDAQ
for listed companies. ARGO Capital Trust is a statutory business trust formed by
the Company in 1998. The Trust's 11% securities trade under the symbol "ATP_P"
on the American Stock Exchange and are therefore subject to the rules of the
American Stock Exchange for listed companies.
SARBANES-OXLEY ACT 2002
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002,
which contains important new requirements for public companies in the area of
financial disclosure and corporate governance. In accordance with Section 302(a)
of the Sarbanes-Oxley Act, written certifications from the Company's Chief
Executive Officer and Principal Accounting and Financial Officer are required.
These certifications attest that the Company's quarterly and annual reports
filed with the SEC do no contain any untrue statement of material fact. See
"Item 14. Controls and Procedures" for the Company's evaluation of its
disclosure controls and procedures.
FUTURE LEGISLATION
Various legislation, including proposals to change substantially the financial
institution regulatory system and to expand or contract the powers of banking
institutions and their holding companies, is from time to time introduced in
Congress. This legislation may change banking statutes and the operating
environment of the Company and its subsidiaries in substantial and unpredictable
ways. If enacted, such legislation could increase or decrease the cost of doing
business; limit or expand permissible activities; or affect the competitive
balance among banks, savings associations, credit unions and other financial
institutions. The Company cannot predict whether any of this potential
legislation will be enacted and, if enacted, the effect that it or any
implementing regulations would have on the financial condition or results of
operations of the Company or any of its subsidiaries.
OTHER
To the extent that the previous information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to the full text of
those provisions. Also, such statutes, regulations, and policies are continually
under review by Congress and state legislatures and federal and state regulatory
agencies.
15
A change in statutes, regulations, or regulatory policies applicable to the
Company could have a material effect on the business of the Company.
In addition, the information contained in the "Regulatory Compliance" section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Company's 2002 Annual Report to Stockholders is incorporated
by reference in response to this item.
ITEM 2. PROPERTIES
The principal executive offices of the Company and administrative headquarters
of the Savings Bank are located at 5818 South Archer Road, Summit, Illinois.
UmbrellaBank conducted its business from its home office in Chicago, Illinois,
located at 2154 West Madison Street, Chicago, Illinois and one additional branch
office located in Dolton, Illinois. During January 2003, the Savings Bank
entered into contracts for the sale of its two branch locations including the
leasehold improvements and deposits. The purchasers will also assume the lease
obligations as of the closing of the sale. In connection with the sale of such
branch offices, UmbrellaBank has filed an application with the OTS for the
redesignation of its home and branch office in the River North area of Chicago,
Illinois. Such application was approved by the OTS on February 24, 2003. In
2001, the Savings Bank purchased an office building in the River North district
of Chicago, with a view toward expanding retail and administrative operations of
UmbrellaBank. Internet operations of the Savings Bank are managed from a
facility in Westmont, Illinois. Each of these four facilities are leased from
unaffiliated parties.
The Company is exploring the consolidation of its corporate locations, which
would result in the sale of certain land; leasehold improvements; and furniture,
fixtures, and equipment at these locations. Management anticipates that new
tenants for its corporate locations would also acquire the leasehold
improvements and furniture and fixtures at these locations.
On March 31, 2003, the two principal shareholders of the Company entered into an
agreement with the Company and third party owner of one of the Company's
corporate locations to assume the obligation under this lease. The transfer of
the lease obligation from the Company to its principal shareholders allowed the
Company to reverse the deferred gain and record additional paid-in capital of
$987,000.
The Company believes that its current facilities are adequate to meet the
present and immediate foreseeable needs of the Company. See Note 6 to the
consolidated financial statements for the net book value of the property of the
Company.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor its subsidiaries are involved in any pending legal
proceedings, other than routine legal matters occurring in the ordinary course
of business, which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 2002, no matters
were submitted to a vote of security holders through a solicitation of proxies
or otherwise.
16
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information relating to the market for Registrant's common equity and related
stockholder matters appears under the caption "Shareholder Information" in the
Registrant's 2002 Annual Report to Stockholders on page 96 and is incorporated
herein by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data appears under the caption "Selected
Consolidated Financial Data" in the Registrant's 2002 Annual Report to
Stockholders on pages 3 and 4 and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The above-captioned information appears under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Registrant's 2002 Annual Report to Stockholders on pages 5 through 43 and is
incorporated herein by reference.
Contractual Obligations, Commitments, Contingent Liabilities, and Off-Balance
Arrangements
The following table presents, as of December 31, 2002, the Company's significant
fixed and determinable contractual obligations by payment date. The payment
amounts represent those amounts contractually due to the recipient and do not
include any unamortized premiums or discounts or other similar carrying amount
adjustments. Further discussion of the nature of each obligation is included in
the referenced note to the consolidated financial statements.
In thousands
--------------------------------------------------------
One One to Over
Note Year or Three Three
Reference Less Years Years Total
--------- -------- -------- -------- --------
Deposits without a stated maturity 8 $156,966 $ -- $ -- $156,966
Certificates of deposit 8 61,525 46,694 16,862 125,081
FHLB borrowings 9 2,760 -- 10,000 12,760
Notes payable 9 6,545 -- -- 6,545
Subordinated debentures 9 -- -- 3,000 3,000
Junior subordinated debentures 9 -- -- 17,123 17,123
-------- -------- -------- --------
Total $227,796 $ 46,694 $ 46,985 $321,475
======== ======== ======== ========
17
A schedule of significant commitments at December 31, 2002 follows:
Commitments to fund loans, lines and letters of credit $ 11.9 million
Commitments to purchase available for sale securities 22.4 million
Community Reinvestment Act investment commitments 1.5 million
Further discussion of these commitments is included in Note 12 of the
consolidated financial statements.
The Company does not utilize derivative instruments to control interest rate
risk.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The above-captioned information appears under the caption "Quantitative and
Qualitative Disclosures About Market Risk" in the 2002 Annual Report to
Stockholders on pages 42 and 43 and is incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and its subsidiaries as of
December 31, 2002, 2001, and 2000 together with the report thereon by Crowe
Chizek and Company LLC, appears in the Registrant's 2002 Annual Report to
Stockholders, on pages 44 through 93 and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to Directors and Executive Officers of the Registrant
is incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on May 28, 2003 under "Information
with respect to the Nominee, Continuing Directors and Certain Executive
Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation is incorporated herein by
reference to the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 28, 2003 under "Executive Compensation."
18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership of certain beneficial owners and
management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 28, 2003
under "Security Ownership of Certain Beneficial Owners" and "Information With
Respect to the Nominee, Continuing Directors and Certain Executive Officers."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on May 28, 2003 under "Indebtedness of
Management and Transactions with Certain Related Persons."
ITEM 14. CONTROLS AND PROCEDURES
The management of the Company is responsible for establishing and maintaining
effective disclosure controls and procedures, as defined under Rules 13a-14 and
15d-14 of the Securities Exchange Act of 1934. As of December 31, 2002, an
evaluation was performed under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure and
control procedures. Based on that evaluation, management concluded that the
Company's disclosure controls and procedures as of December 31, 2002 were
effective in ensuring that the information required to be disclosed in this
Annual Report on Form 10-K was recorded, processed, summarized, and reported
within the time period required by the United States Securities and Exchange
Commission's rules and forms.
Management's responsibility related to establishing and maintaining effective
disclosure controls and procedures include maintaining effective internal
controls over financial reporting that are designed to produce reliable
financial statements in accordance with accounting policies generally accepted
in the United States of America. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Management has assessed the Company's system
of internal control over financial reporting as described in "Internal Control -
Integrated Framework, Issued by the Committee of Sponsoring Organizations of the
Treadway Commission". Based on this assessment, management believes that, as of
December 31, 2002, its system of internal control over financial reporting met
those criteria.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
December 31, 2002.
19
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Registrant and
its subsidiaries, together with the Report of Independent Auditors,
appearing in the 2002 Annual Report to Stockholders are incorporated
herein by reference.
Report of Independent Auditors.
Consolidated Statements of Financial Condition as of December 31, 2002
and 2001.
Consolidated Statements of Operations for the years ended December 31,
2002, 2001, and 2000.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2002, 2001, and 2000.
Consolidated Statements of Cash Flows for the years ended December 31,
2002, 2001, and 2000.
Notes to Consolidated Financial Statements.
The remaining information appearing in the 2002 Annual Report to
Stockholders is not deemed to be filed as a part of this report, except
as expressly provided herein.
(a)(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required or are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
(a)(3) EXHIBITS
The following exhibits are either filed as part of this report or are
incorporated herein by reference:
Exhibit No. 3. Certificate of Incorporation and Bylaws.
3.1 Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
Exhibit No. 4.
4.1 Form of Indenture of Argo Bancorp, Inc. relating to the
Junior Subordinated Deferrable Interest Debentures (2)
4.2 Form of Certificate of Argo Bancorp, Inc. relating to the
Junior Subordinated Deferrable Interest Debentures (2)
4.3 Certificate of Trust of ARGO Capital Trust Company (1)
4.4 Declaration of Trust of ARGO Capital Trust Company (1)
4.5 Form of Capital Security Certificate of Argo Capital Trust
Company (2)
4.6 Guarantee of Argo Bancorp, Inc. relating to Capital
Securities (2)
20
4.7 Amended and Restated Declaration of Trust of Argo Capital
Trust Company (2)
4.8 Form of Goodwill Convertible Preferred Stock Certificate of
Argo Bancorp, Inc. (2)
Exhibit No. 10. Material Contracts.
10.0 Stock Purchase Agreement dated December 31, 1996, between Argo
Bancorp, Inc., and Deltec Banking Corporation Limited (1)
10.1 Stockholder Agreement dated as of December 31, 1996, between
Argo Bancorp, Inc., The Deltec Banking Corporation Limited,
and John G. Yedinak (1)
10.2 Amended and Restated Employment Agreements between Argo
Bancorp, Inc. and Argo Federal Savings Bank, FSB. and John G.
Yedinak, each dated as of November 1, 1999.
10.3 Amended and Restated Employment Agreements between Argo
Bancorp, Inc. and Argo Federal Savings Bank, FSB. and Frances
M. Pitts., each dated as of November 1, 1999.
10.4 1996 Argo Bancorp, Inc. Management Recognition and Retention
Plan (1)
10.5 Argo Bancorp, Inc. 1998 Incentive Stock Option Plan (1)
10.6 Employment Agreement between Argo Bancorp, Inc. and Colleen A.
Kitch (3)
10.7 Agreement of Purchase and Sale between Argo Federal Savings
Bank, F.S.B. and Stuart Whitman, Inc. and related Leases (3)
10.8 Stock Purchase Agreement between Argo Bancorp, Inc. and The
Synergy Plan, Ltd., dated September 17, 1999 (3)
10.9 Stock Purchase Agreement by and among Argo Bancorp, Inc. by
and through OLF Acquisition Corp., and On-Line Financial
Services, Inc., Superior Savings Bank, I.S.C. Incorporated,
Savings and Loan Service Bureau of Indiana, O&H Service Bureau
of Michigan and the stockholders thereof, dated as of
September 21, 1995 (3)
10.10 Branch Office Purchase Agreements by and between Archer Bank
of Chicago (and also Chicago Community Bank) and Argo Federal
Savings Bank, FSB, each dated as of August 18, 2000 (3)
Exhibit No. 11.
11.1 Computation of earnings per share (included in Note 17 to the
Company's audited financial statements).
Exhibit No. 13.
13.1 Portions of the 2002 Annual Report to Stockholders.
Exhibit No. 21.
21.1 Subsidiary information is incorporated herein by reference to
"Part I - Subsidiaries."
Exhibit No. 23.
23.1 Consent of Crowe Chizek and Company LLC (filed herewith).
21
Exhibit No. 99.
99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
99.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
-----------------
(1) Incorporated by reference to the Company's Registration Statement
on Form S-1 (No. 333-59435) filed on July 20, 1998 and any
amendments thereto.
(2) Incorporated by reference to the Company's Form S-1/A (No.
33-59435-01) filed on October 13, 1998.
(3) Incorporated by reference to the Company's Form S-3 (No.
333-54644) filed on January 30, 2001.
(a)(4) REPORTS ON FORM 8-K
None
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UMBRELLA BANCORP, INC.
----------------------
(Registrant)
Date: April 14, 2003 By: /S/ John G. Yedinak
-----------------------------------
John G. Yedinak, Chairman,
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed by the following persons in the capacities and
on the dates indicated.
Date: April 14, 2003 By: /S/ John G. Yedinak
-----------------------------------
John G. Yedinak, Chairman,
President, Chief Executive Officer
and Director
Date: April 14, 2003 By: /S/ Sergio Martinucci
-----------------------------------
Sergio Martinucci, Vice President
and Director
Date: April 14, 2003 By: /S/ Arthur Byrnes
-----------------------------------
Arthur Byrnes, Director
Date: April 14, 2003 By: /S/ Donald G. Wittmer
-----------------------------------
Donald G. Wittmer, Director
Date: April 14, 2003 By: /S/ Frances M. Pitts
-----------------------------------
Frances M. Pitts, Secretary and
Director
Date: April 14, 2003 By: /S/ Dennis G. Carroll
-----------------------------------
Dennis G. Carroll, Director
Date: April 14, 2003 By: /S/ Frank J. Shinnick
-----------------------------------
Frank J. Shinnick, Chief Financial
Officer
23
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John G. Yedinak, certify that:
1. I have reviewed this annual report on Form 10-K of Umbrella Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report fairly present in all material
respects the financial condition, results of operations, and cash flows of
the registrant as of and for the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls that could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
24
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 14, 2003 /S/ John G. Yedinak
---------------- -----------------------------------
John G. Yedinak, Chairman, President
and Chief Executive Officer
25
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Frank J. Shinnick, certify that:
1. I have reviewed this annual report on Form 10-K of Umbrella Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report fairly present in all material
respects the financial condition, results of operations, and cash flow of
the registrant as of and for the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls that could adversely affect the registrant's ability to
record, process, summarize, and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
26
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 14, 2003 /S/ Frank J. Shinnick
--------------------- -------------------------------------
Frank J. Shinnick, Chief Financial
Officer
27