<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1996
REGISTRATION NO. 333-14713
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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TAYLOR CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware
(State or other jurisdiction 671-6712 36-4108550
of incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification No.)
</TABLE>
350 East Dundee Road
Wheeling, Illinois 60090
(847) 459-1111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------
Jeffrey W. Taylor
Chairman of the Board and Chief Executive Officer
Taylor Capital Group, Inc.
350 East Dundee Road
Wheeling, Illinois 60090
(847) 459-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Mark L. Yeager, Esq. David B. Miller, Esq.
Stephen A. Tsoris, Esq. Faegre & Benson LLP
McDermott, Will & Emery Norwest Center
227 West Monroe Street 90 South Seventh Street
Chicago, Illinois 60606-5096 Minneapolis, Minnesota 55402-3901
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission acting pursuant
to said Section 8(a), may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY , 1997
dated , 1997
1,530,000 SHARES
TAYLOR CAPITAL GROUP, INC.
% NONCUMULATIVE PERPETUAL PREFERRED STOCK, SERIES A
All of the shares of % Noncumulative Perpetual Preferred Stock, Series A
offered hereby (the "Preferred Stock") are being sold by Taylor Capital Group,
Inc., a Delaware corporation (the "Company"). The Preferred Stock has a
liquidation preference of $25.00 per share, plus declared and unpaid dividends
for the current Dividend Period (as defined) up to the date fixed for
liquidation. See "Description of Capital Stock--Preferred Stock--Liquidation
Rights." Dividends on the Preferred Stock are noncumulative and, when, as and if
declared, will be payable quarterly on the first day of each April, July,
October and January commencing on April 1, 1997, at the fixed annual rate of
$ . See "Description of Capital Stock--Preferred Stock--Dividend
Rights."
The Preferred Stock will be redeemable, in whole or in part, at the option of
the Company on and after December 15, 2001 at $25.00 per share, plus the amount
of declared and unpaid dividends for the then-current Dividend Period to the
date fixed for redemption. See "Description of Capital Stock--Preferred
Stock--Redemption."
The Company does not intend to list the shares of Preferred Stock on any
securities exchange or include the Preferred Stock on any quotation system and
no active trading market is expected to develop. Although each Underwriter has
indicated an intention to make a market in the Preferred Stock, neither
Underwriter is obligated to make a market in the Preferred Stock and any market
making may be discontinued at any time at the sole discretion of such
Underwriter. There can be no assurance that an active trading market for the
Preferred Stock will develop. See "Risk Factors--No Prior Public Market for
Preferred Stock" and "Description of Capital Stock--Preferred Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF PREFERRED STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, ANY OTHER GOVERNMENTAL
AGENCY OR OTHERWISE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................ $ $ $
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Total............................ $ $ $
============================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at .
The shares of Preferred Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by them and subject to their right to
reject orders in whole or in part. It is expected that delivery of the
certificates for the Preferred Stock will be made at the offices of Piper
Jaffray Inc. in Minneapolis, Minnesota on or about , 1997.
PIPER JAFFRAY INC. ROBERT W. BAIRD & CO.
INCORPORATED
<PAGE> 3
[MAP]
The Company intends to furnish its stockholders with annual reports containing
audited consolidated financial statements certified by its independent auditors
and quarterly reports containing unaudited consolidated financial information
for the first three quarters of each fiscal year.
------------------
CERTAIN STATEMENTS CONTAINED UNDER "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS," UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF PRO FORMA FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND UNDER
"BUSINESS," SUCH AS STATEMENTS CONCERNING OPERATIONS OF THE COMPANY AFTER THE
SPLIT-OFF TRANSACTIONS (AS DEFINED), AND OTHER STATEMENTS CONTAINED IN THIS
PROSPECTUS REGARDING MATTERS THAT ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING
STATEMENTS (AS SUCH TERM IS DEFINED IN THE RULES PROMULGATED PURSUANT TO THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")). BECAUSE SUCH
FORWARD-LOOKING STATEMENTS INCLUDE RISKS AND UNCERTAINTIES, ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN UNDER "RISK FACTORS."
THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULT OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS
OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED STOCK OF THE COMPANY AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, including "Risk Factors" and
the consolidated financial statements and notes thereto, appearing elsewhere in
this Prospectus. Unless the context otherwise indicates, as used herein, the
defined terms "Company" or "Taylor Capital" shall mean Taylor Capital Group,
Inc. together with its two wholly-owned subsidiaries, Cole Taylor Bank (the
"Bank") and CT Mortgage Company, Inc. (the "Mortgage Company"). Unless the
context otherwise indicates, this Prospectus assumes that the Company has
acquired the Bank and the Mortgage Company, which acquisition will become
effective upon the consummation of the Split-Off Transactions (as defined) (the
"Split-Off Closing") and the consummation of this offering (the "Preferred
Closing").
THE COMPANY
Taylor Capital Group, Inc. (the "Company"), a newly incorporated bank
holding company, wholly owns Cole Taylor Bank, an Illinois state chartered bank
(the "Bank"), which commenced operations over 60 years ago as Main State Bank.
The Bank provides a full range of commercial and consumer banking services both
to small and mid-size businesses and to individuals through its ten branch
offices in Chicago neighborhoods and suburban Cook County, Illinois and DuPage
County, Illinois. The Bank's historical market niche has been providing
commercial loans to small and mid-size companies located in the Chicago
metropolitan area. The Company also wholly owns CT Mortgage Company, Inc. (the
"Mortgage Company"), which began operations in the first quarter of 1996 and
competes in the subprime mortgage market for residential loans on a brokered
basis. The Mortgage Company's principal office is located in Altamonte Springs,
Florida. Through its subsidiaries, the Mortgage Company currently provides
mortgage services primarily to borrowers in the southeastern United States.
As a result of a series of transactions (the "Split-Off Transactions")
described in an Amended and Restated Share Exchange Agreement dated as of June
12, 1996 (the "Share Exchange Agreement") among Cole Taylor Financial Group,
Inc. ("CTFG") and Jeffrey W. Taylor, Bruce W. Taylor, Iris A. Taylor, Sidney J.
Taylor, Cindy Taylor Bleil and related trusts and partnerships (collectively,
the "Taylor Family"), CTFG is transferring all of the capital stock of the
Company to the Taylor Family and certain other stockholders of CTFG
(collectively, the Taylor Family and such stockholders shall be referred to as
the "Taylor Group") in exchange for their shares of common stock of CTFG. For a
description of the composition of the Taylor Group, see "Security Ownership of
Management and Certain Beneficial Owners." As of the date of this Prospectus,
all conditions precedent to the consummation of the Split-Off Transactions have
been satisfied or waived, with the only remaining condition being the
consummation of the sale of the Preferred Stock described herein. See "The
Split-Off Transactions." At September 30, 1996, adjusting for the Split-Off
Transactions, the Company had pro forma consolidated total assets of $1.9
billion and pro forma total equity of $135.5 million. For the first nine months
of 1996, applying similar adjustments, the Company had pro forma consolidated
net income of $8.5 million. See "Unaudited Pro Forma Condensed Consolidated
Financial Statements".
The Company's strategy for the future is to (i) improve the Bank's results
of operations by continuing to grow and improve its core commercial bank
business, (ii) increase the Bank's fee income by more intensively marketing its
fee producing financial services products, (iii) expand the Bank's deposit
gathering capabilities and (iv) selectively expand the subprime mortgage
financing activities of the Mortgage Company.
The Company's principal executive offices are located at 350 E. Dundee
Road, Wheeling, Illinois 60090, and its telephone number is (847) 459-1111. The
Company was incorporated in Delaware on October 9, 1996.
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3
<PAGE> 5
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THE OFFERING
Securities offered......... 1,530,000 shares of % Noncumulative Perpetual
Preferred Stock, Series A, par value $.01 per
share (the "Preferred Stock"). See "Description of
Capital Stock--Preferred Stock."
Stated value............... $25.00 per share.
Dividends.................. Dividends are noncumulative, payable quarterly in
arrears for each quarter on the first day of each
April, July, October and January commencing on
April 1, 1997 (each a "Dividend Payment Date"),
when, as and if declared by the Board. Dividends
payable for any period of less than a quarter will
be paid on a pro rata basis. When a Dividend
Payment Date falls on a non-business day, the
dividend will be paid on the next business day.
Dividends are payable at an annual rate of
$ per share. Because dividends are
noncumulative, if no dividend is declared by the
Board of Directors on the Preferred Stock for a
quarterly dividend period (a "Dividend Period"),
holders of the Preferred Stock will have no right
to receive a dividend for that Dividend Period and
the Company will have no obligation to pay a
dividend for that Dividend Period, whether or not
dividends are declared for any subsequent period.
Full dividends must be declared, paid or set aside
on the Preferred Stock before dividends (other
than dividends payable in certain securities) may
be declared, paid or set aside on the Company's
common stock (the "Common Stock"). Holders of
Preferred Stock will not participate in dividends,
if any, declared and paid on the Common Stock. The
Company intends to declare and pay dividends on
the Preferred Stock as well as the Common Stock
each quarter. However, no assurances can be made
that the Company will be able to or will decide to
declare such dividends. In the event holders of
the Common Stock will not receive dividends in any
given Dividend Period, there may be an incentive
to neither declare nor pay dividends to holders of
Preferred Stock in such Dividend Period. See "Risk
Factors--Ability to Pay Dividends" and
"Description of Capital Stock--Preferred Stock--
Dividend Rights."
Maturity................... The Preferred Stock is perpetual.
Redemption at the option of
the Company................ The Preferred Stock shall be redeemable at the
option of the Company, upon no less than 30, nor
more than 60, days written notice, at any time on
or after December 15, 2001 in whole or in part, at
a redemption price of $25.00 per share, plus
declared and unpaid dividends for the then-current
Dividend Period up to the date fixed for
redemption, without interest. Redemption by the
Company is subject to prior regulatory approval.
See "Description of Capital Stock--Preferred
Stock--Redemption" and "Supervision and
Regulation".
Voting rights.............. The Preferred Stock is non-voting, except that
holders of Preferred Stock shall be entitled to
vote as a class, with the holders of any one or
more other series of preferred stock then entitled
to vote thereon, for the election of one of the
Company's directors and on certain matters
affecting the powers, preferences and special
rights of Preferred Stock. In certain
circumstances, such holders will also have the
right to elect
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4
<PAGE> 6
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one additional director. See "Description of
Capital Stock--Preferred Stock--Voting Rights."
Liquidation rights......... Holders of the Preferred Stock will be paid $25.00
per share, plus dividends declared and unpaid for
the then-current Dividend Period up to the date of
liquidation, in the event of any voluntary or
involuntary liquidation of the Company, to the
extent available after payment to creditors of the
Bank, including depositors, but before any
distribution to holders of the Common Stock or any
other junior stock. See "Risk Factors--Ability to
Pay Dividends" and "Description of Capital Stock
--Preferred Stock--Liquidation Rights."
Rating..................... The Preferred Stock will be rated below investment
grade by Duff & Phelps Credit Rating Co. ("Duff &
Phelps") and Fitch Investors Service, LP
("Fitch"). Ratings are not a recommendation to
purchase, hold or sell shares of Preferred Stock,
as ratings do not comment as to market price or
suitability for a particular investor. The ratings
are based on current information furnished to Duff
& Phelps and Fitch by the Company and obtained
from other sources. The ratings may be changed,
suspended or withdrawn at any time as a result of
changes in, or unavailability of, such
information.
Use of proceeds............ The Company intends to contribute the net proceeds
of the Preferred Stock offered hereby to the
capital of the Bank in fulfillment of a condition
for regulatory approval of the Split-Off
Transactions. The Bank will initially invest the
net proceeds in investment securities and
thereafter they will be used for general corporate
purposes. See "Use of Proceeds".
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5
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SUMMARY SELECTED FINANCIAL DATA
COLE TAYLOR BANK -- HISTORICAL
The summary selected financial data presented below as of and for the years
ended December 31, 1995, 1994 and 1993 are derived from the audited historical
financial statements of the Bank on a stand alone basis. This data includes the
Bank's automobile receivables business, which will be discontinued in connection
with the Split-Off Transactions. The financial statements of the Bank for 1995,
1994 and 1993 were audited by KPMG Peat Marwick LLP, independent accountants.
The financial data as of and for the periods ended September 30, 1996 and 1995
and December 31, 1992 and 1991 are derived from unaudited financial statements.
This data should be read in conjunction with the financial statements, the notes
thereto and other financial information included elsewhere in this Prospectus.
The financial data for the nine months ended September 30, 1996 are not
necessarily indicative of the Bank's expected results for the full year.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income............ $ 53,696 $ 51,797 $ 69,318 $ 72,149 $ 66,681 $ 58,040 $ 52,055
Provision for loan losses...... 3,005 3,297 4,056 7,374 10,521 8,922 8,816
Noninterest income............. 11,748 10,247 14,227 12,887 15,425 14,502 12,870
Noninterest expense............ 40,799 39,499 53,549 55,248 53,926 49,107 44,690
Provision for income taxes..... 7,288 5,732 7,774 6,512 4,937 4,551 3,515
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................. $ 14,352 $ 13,516 $ 18,166 $ 15,902 $ 12,722 $ 9,962 $ 7,904
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (at end of
period):
Total assets................... $1,846,054 $1,741,262 $1,774,032 $1,719,653 $1,544,095 $1,395,234 $1,247,628
Investments and federal funds
sold......................... 460,182 469,308 443,348 488,019 459,349 394,050 301,702
Loans.......................... 1,256,214 1,185,291 1,211,622 1,130,177 986,384 904,788 821,300
Allowance for loan losses...... 24,630 23,720 23,869 22,833 19,740 14,661 12,646
Total deposits................. 1,455,807 1,334,541 1,364,075 1,293,411 1,180,845 1,130,850 1,017,571
Short-term borrowings.......... 153,410 201,678 202,033 243,997 209,227 152,259 124,511
Long-term borrowings........... 85,836 60,753 61,003 47,864 37,690 5,490 623
Stockholder's equity........... 134,748 130,014 132,741 118,997 101,763 94,979 93,440
EARNINGS PERFORMANCE DATA:
Net interest margin (tax
equivalent).................. 4.33% 4.40% 4.38% 4.88% 5.11% 4.83% 4.71%
Return on average total
assets....................... 1.06 1.05 1.05 0.98 0.87 0.74 0.64
Return on average stockholder's
equity....................... 14.52 14.41 14.29 14.50 13.00 10.52 8.69
Ratio of earnings to fixed
charges:
Including interest on
deposits................... 1.43x 1.40x 1.40x 1.50x 1.49x 1.32x 1.20x
Excluding interest on
deposits................... 3.12 2.36 2.42 2.84 3.04 2.73 2.09
BALANCE SHEET AND OTHER KEY
RATIOS:
Nonperforming assets to total
assets....................... 0.98% 0.82% 1.08% 1.03% 1.15% 1.72% 2.69%
Nonperforming assets to total
loans plus repossessed
property..................... 1.44 1.20 1.57 1.56 1.78 2.64 4.01
Net loan charge-offs to average
loans........................ 0.24 0.28 0.26 0.41 0.57 0.79 0.82
Allowance for loan losses to
loans........................ 1.96 2.00 1.97 2.02 2.00 1.62 1.54
Allowance for loan losses to
nonperforming loans.......... 152.30 248.40 174.76 157.61 156.67 84.61 66.32
</TABLE>
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6
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PRO FORMA (UNAUDITED)
The following summary selected financial data of the Bank and the
consolidated Company gives pro forma effect to the Split-Off Transactions
including the acquisition of the Bank and the Mortgage Company by the Company,
the sale or transfer of the Bank's Automobile Finance Business (as defined) as
well as the consummation by the Company of the Credit Facilities and the
Preferred Stock offering described elsewhere in this Prospectus. For a
description of the pro forma effects of the Split-Off Transactions, see
"Unaudited Pro Forma Condensed Consolidated Financial Statements" and
"Management's Discussion and Analysis of Pro Forma Financial Condition and
Results of Operations".
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY BANK ONLY
--------------------------------- ---------------------------------
FOR THE FOR THE FOR THE FOR THE
NINE MONTHS ENDED YEAR ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1995 1996 1995
----------------- ------------ ----------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income................. $ 49,919 $ 64,133 $ 51,076 $ 66,038
Provision for loan losses........... 2,455 3,596 2,455 3,596
Noninterest income.................. 12,205 14,227 11,748 14,227
Noninterest expense................. 45,806 58,752 42,739 55,914
Provision for income taxes.......... 5,318 5,607 6,598 7,034
---------- ---------- ---------- ----------
Net income..................... $ 8,545 $ 10,405 $ 11,032 $ 13,721
========== ========== ========== ==========
BALANCE SHEET DATA (at end of period):
Total assets........................ $ 1,878,990 $1,804,680 $ 1,874,049 $1,803,765
Investments and federal funds
sold............................. 546,482 530,448 546,482 530,448
Loans............................... 1,152,077 1,103,622 1,148,214 1,103,622
Allowance for loan losses........... 23,630 22,869 23,630 22,869
Total deposits...................... 1,455,807 1,364,075 1,455,807 1,364,075
Short-term borrowings............... 153,410 202,033 153,410 202,033
Long-term borrowings................ 113,578 84,835 85,836 61,003
Stockholders' equity................ 135,493 134,924 158,493 157,924
EARNINGS PERFORMANCE DATA:
Net interest margin
(tax-equivalent)................. 4.08% 4.11% 4.18% 4.23%
Return on average total assets...... 0.62 0.59 0.80 0.78
Return on average stockholders'
equity........................... 8.60 8.05 9.46 9.01
Ratio of earnings to fixed charges:
Including interest on deposits... 1.25x 1.22x
Excluding interest on deposits... 1.88 1.63
BALANCE SHEET AND OTHER KEY RATIOS:
Nonperforming assets to total
assets........................... 0.96% 1.06% 0.97% 1.06%
Nonperforming assets to total loans
plus repossessed property........ 1.57 1.72 1.57 1.72
Net loan charge-offs to average
loans............................ 0.26 0.29 0.26 0.29
Allowance for loan losses to
loans............................ 2.05 2.07 2.06 2.07
Allowance for loan losses to
nonperforming loans.............. 146.11 167.44 146.11 167.44
</TABLE>
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7
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing any shares of the Preferred Stock offered hereby.
ABILITY TO PAY DIVIDENDS
The Company is a holding company without significant assets other than its
equity interest in the Bank, and accordingly, dividends on the Preferred Stock
will be paid solely from (i) dividends, loan repayments, if any, and other
payments to the Company by the Bank and (ii) proceeds of any subsequent
securities offering or bank financing. Management does not anticipate the
Mortgage Company will make dividend payments to the Company for the near term.
Dividend payments from the Bank are subject to regulatory limitations, generally
based on current and retained earnings, imposed by the various regulatory
agencies with authority over the Bank. Payment of dividends is also subject to
regulatory restrictions if such dividends would impair the capital of the Bank.
Dividends on the Preferred Stock are payable when, as and if declared by
the Board of Directors of the Company. Management intends to pay quarterly
dividends at the stated annual rate if allowable under legal and regulatory
guidelines. However, no assurances can be made that the Company will be able to
or will decide to declare and pay such dividends. The Preferred Stock may be
redeemed by the Company without a dividend on such Preferred Stock ever having
been declared or paid. The final determination of the timing, amount and payment
of dividends on the Preferred Stock will depend on conditions then existing,
including dividends received from the Bank, the Company's profitability,
financial condition and capital requirements and other restrictions described
below. Holders of Common Stock will not receive dividends for any given Dividend
Period unless holders of Preferred Stock receive their dividends in full for
such period. However, because dividends must be paid on the Preferred Stock
before dividends may be paid to holders of Common Stock and because the
Preferred Stock is not cumulative, there may be an incentive for the Company's
Board of Directors not to declare dividends on Preferred Stock for any Dividend
Period for which the Company's Board of Directors determines not to declare or
pay dividends on the Common Stock. Under Delaware corporate law, the Company may
declare and pay dividends out of surplus, or if there is no surplus, out of net
profits for the fiscal year in which the dividend is declared and/or the
preceding year.
The Federal Reserve Board ("FRB") has issued a policy statement on the
payment of cash dividends by bank holding companies. In the policy statement,
the FRB expressed its view that a bank holding company experiencing earnings
weaknesses should not pay cash dividends which exceed its net income or which
could only be funded in ways that would weaken its financial health, such as by
borrowing. The FRB also may impose limitations on the payment of dividends as a
condition to its approval of certain applications, including applications for
approval of mergers and acquisitions. There can be no assurance that the FRB
will not impose such limitations on the payment of dividends to Company
stockholders, including holders of shares of Preferred Stock. As a result of the
Split-Off Transactions, the Company expects a substantial decline in tangible
book value of the Bank and the Company from historical levels at the Bank, which
capital levels may inhibit the Company's ability to declare and pay dividends.
See "--Risks Arising from the Split-Off Transactions--Decrease in Tangible
Capital"; "Unaudited Pro Forma Condensed Consolidated Financial Statements" and
"Supervision and Regulation".
The financial condition and results of operations of the Company impact the
Company's ability to pay dividends. The Split-Off Transactions are expected to
negatively impact the financial condition and results of operations of the Bank
in comparison to historical results. The Bank's pro forma return on average
assets and return on average equity are expected to decline to .80% and 9.46%,
respectively, for the nine months ended September 30, 1996 as compared to 1.06%
and 14.52%, respectively, on an historical basis. The decline is primarily due
to (1) the decline in net interest income resulting from the sale and transfer
of approximately $108 million of automobile receivables, (2) the reinvestment
into investment securities of a portion of the proceeds from the automobile
receivables sale as well as the proceeds from the capital contribution received
from the Company, and (3) the recording and amortization of the fair value
adjustments recorded on the
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Bank's balance sheet, including substantial goodwill, as a result of the excess
of the cost of the acquisition of the Bank over the fair value of the Bank's net
assets. The consolidated Company's pro forma financial condition and results of
operations are further impacted by the interest expense on the Credit Facilities
(as defined) as well as estimated salary and overhead expenses at the Company.
See "Unaudited Pro Forma Condensed Consolidated Financial Statements" and
"Management's Discussion and Analysis of Pro Forma Financial Condition and
Results of Operations."
Substantially all of the consolidated assets of the Company are held by the
Bank, and, in the event of liquidation of both the Company and the Bank,
creditors of the Bank, including depositors, would have first claim to such
assets before holders of the Preferred Stock. At September 30, 1996, the Bank
had outstanding indebtedness and other liabilities, including deposits, of $1.7
billion. See "Description of Capital Stock--Preferred Stock--Liquidation
Rights."
In addition to the foregoing restrictions, the Company expects to obtain a
$25 million unsecured five year term loan and a $5 million unsecured one year
line of credit which contain certain restrictive covenants, including a covenant
not to pay dividends on capital stock, including the Preferred Stock, if an
Event of Default (as defined) exists or would result therefrom, and certain
other covenants which require maintenance of minimum levels of Tier I capital,
which may affect the Company's ability to pay dividends. The terms of any future
financing arrangements could also limit the Company's ability to pay dividends
on the Preferred Stock. See "The Split-Off Transactions--Related Financing" and
"Description of Capital Stock--Preferred Stock--Dividend Rights."
RISKS ARISING FROM THE SPLIT-OFF TRANSACTIONS
Discontinuance of Automobile Finance Contract Business
All of the automobile finance contract business of the Bank (the
"Automobile Finance Business") is being sold or transferred by the Bank. The
used automobile finance contract business, which consists of the Bank's rights
and obligations pursuant to automobile loans or notes which are collateralized
primarily with used automobiles (the "Used Automobile Receivables") and related
assets, is being transferred from the Bank to a wholly-owned subsidiary of CTFG
("New Reliance"). The new automobile finance contract business is being sold by
the Bank to an unaffiliated third party, with the majority of the proceeds of
such sale to be transferred to CTFG as a part of the Split-Off Transactions and
the remainder, if any, to be retained by the Bank to be used for general
corporate purposes. The Company currently does not plan to re-enter the
automobile financing business. As of October 31, 1996, the Bank held
approximately $115 million in aggregate face amount of automobile receivables,
of which approximately 31% was collateralized by used automobiles. There can be
no assurance the Bank will be able to replace the income contribution of the
assets being transferred or sold or that any retained proceeds will be
reinvested in assets that will provide the same historical rate of return as the
Automobile Finance Business. For the 9 month period ended September 30, 1996,
the interest income earned on the automobile receivables being sold or
transferred comprised approximately 6.7% of the Bank's total interest income.
See "Unaudited Pro Forma Condensed Consolidated Financial Statements."
Increased Leverage
The Company will incur substantial indebtedness in connection with the
Split-Off Transactions. The Company will obtain a $25 million unsecured five
year term term loan and a $5 million unsecured one year line of credit from
LaSalle National Bank (collectively, the "Credit Facilities"). This indebtedness
will require the dedication of an increased portion of the Company's cash flow
to the payment of principal and interest, thereby reducing funds available for
Preferred Stock dividends, capital expenditures and future business
opportunities. The Credit Facilities contain customary covenants,
representations, warranties, conditions and default provisions. The covenants
may affect the operating flexibility of the Company, including the Company's
ability to pay dividends on the Preferred Stock. See "The Split-Off
Transactions-- Related Financing."
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The Split-Off Transactions are expected to reduce the consolidated
Company's ratio of earnings to fixed charges, in comparison to historical
results of the Bank on a stand alone basis. The pro forma ratio of earnings to
fixed charges for the nine month period ended September 30, 1996, including
interest on deposits, declined from 1.43% to 1.25% primarily because of the pro
forma decline in income before income taxes. See "Management's Discussion and
Analysis of Pro Forma Financial Condition and Results of Operations."
Decrease in Tangible Capital
The transfer of the Used Automobile Receivables and payment of the First
Cash Component (as defined) in connection with the Split-Off Transactions will
have the effect of lowering tangible capital levels at the Bank from historical
levels. The Bank's regulatory capital levels are anticipated to be, immediately
following the Split-Off Transactions, above the "well capitalized" level
established by banking regulators. Under applicable federal banking regulations,
the Bank could become subject to increasingly restrictive regulatory oversight
and limitations on operations and capital if regulatory capital levels fall
below "well capitalized." For example, should the Bank's capital ratios fall
below such levels, the Bank would be restricted from accepting, renewing or
rolling over funds obtained, directly or indirectly, by or through any deposit
broker for deposit into one or more deposit accounts. The Bank relies upon
funds, such as those derived from brokered certificates of deposit, as one
element of its overall asset/liability management. The Federal Deposit Insurance
Corporation ("FDIC") may waive such restriction upon application by the Bank, so
long as, in accordance with the Bank's current policies, the rate paid on such
deposits is not in excess of normal market rate or such deposits are not
accepted in any other unsafe or unsound manner. See "Supervision and
Regulation--Regulation of Banks--Capital Requirements" and "--Brokered
Deposits." Inability of the Bank to issue such instruments could jeopardize its
liquidity and result in the Bank's inability to maintain sufficient funds to
respond to the needs of borrowers or take advantage of earnings enhancement
opportunities. In addition, beginning on January 1, 1997, the premium rate for
FDIC insurance will be .0129% per $100 of deposits for "well capitalized" banks
as compared to .0429% per $100 of deposits for "adequately capitalized" banks.
Based on the Bank's deposits at September 30, 1996, should the Bank be deemed
"adequately capitalized," this insurance premium differential could increase the
annual cost of FDIC insurance to the Bank by approximately $420,000.
The Company anticipates that its leverage capital and Tier 1 risk-based
capital ratios will exceed regulatory capital guideline minimums for a "well
capitalized" institution at the time of the Split-Off Closing. However, the
Company's total risk based capital ratio at such time is expected to only exceed
the regulatory capital guideline minimum for an "adequately capitalized"
institution. As a result, the Company will be deemed "adequately capitalized"
for purposes of various banking regulations. Should the Company be deemed less
than "adequately capitalized", under applicable federal guidelines, the Company
may become subject to certain limitations affecting the payment of dividends,
limitation on the consummation of certain acquisitions or other operating or
financial restrictions.
Following the offering, it is not expected that an active public market
will develop for the Preferred Stock or that a public market will exist for the
Common Stock. The absence of an active public market for the Company's capital
stock could adversely affect the Company's ability to raise additional capital
to meet desired regulatory capital minimums of the Company or the Bank should
the need arise in the future. There can be no assurance that either the Bank or
the Company will be able to maintain its capital at levels which will not result
in adverse operating or financial restrictions or that access to adequate
capital or capital on terms satisfactory to the Company or the Bank will exist
in the event capital restoration is necessary or desirable. See "Pro Forma
Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial
Statements," "Management's Discussion and Analysis of Pro Forma Financial
Condition and Results of Operations" and "Supervision and Regulation."
Liabilities Arising in the Event of Loss of Tax-Free Status of Split-Off
Transactions; Other Potential Tax Liabilities
Although a tax ruling was issued on September 3, 1996 (the "Tax Ruling") to
the effect that the Split-Off Transactions will be treated as a tax-free
transaction under Section 355 of the Internal Revenue Code (the "Code"), the Tax
Ruling was based upon certain factual representations and assumptions. If any
such factual
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representations or assumptions are incorrect or untrue in any material respect,
the Tax Ruling may be invalidated. The Company is unaware of any present facts
or circumstances that would cause such representations and assumptions to be
inaccurate. However, if the Internal Revenue Service (the "IRS") were to take
the position that such representations were violated or that such assumptions
were inaccurate and that the exchange of the Common Stock for common stock of
CTFG did not qualify as a tax-free transaction, then CTFG would be required to
recognize capital gain equal to the difference between the fair market value of
the Common Stock at the date of the Split-Off Closing and CTFG's tax basis in
the Common Stock. As members of the CTFG consolidated group during the taxable
period in which this gain would have been realized, the Company, the Bank and
the Mortgage Company could be held jointly and severally liable for the
resulting federal income tax that would be payable by CTFG. Such liability could
have a material adverse impact on the Company, could prevent the Company from
declaring and paying dividends and may affect the continuing viability of the
Company. See "Split-Off Transactions--Compliance with Tax and Regulatory
Representations." The Company and the Bank may also have liabilities for adverse
tax consequences pursuant to agreements to be entered into with CTFG and the
Taylor Family. See "--Liabilities Under Share Exchange Agreement."
Liabilities Under Share Exchange Agreement
The Company and the Bank will assume a number of obligations to CTFG
related to the Share Exchange Agreement, including (i) obligations to comply
with certain agreements which affect the tax free status of the Split-Off
Transactions and (ii) obligations to indemnify and hold harmless CTFG for any
and all losses, damages, claims, liabilities or obligations (including
attorneys' fees and interest) ("Losses") (x) relating to the operations of the
Bank and the Mortgage Company or CTFG's ownership of securities in the Bank, the
Mortgage Company or Alpha Capital Fund II, L.P., an investment partnership in
which the Company will be a limited partner (the "Alpha Capital Fund") or (y)
incurred, arising or accrued prior to the Split-Off Closing and relating to New
Reliance. In addition, it is expected that the Company will enter into an
indemnification agreement which will obligate the Company to indemnify the
Taylor Family against these obligations as well as various other obligations of
the Taylor Family contained in the Share Exchange Agreement, including the
Taylor Family's agreement to indemnify CTFG against 25% of any Losses relating
to the transactions contemplated by the Share Exchange Agreement. See "The
Split-Off Transactions--Liabilities Under the Share Exchange Agreement." Many of
these obligations or liabilities are contingent in nature and the existence,
probability and magnitude thereof are impossible to predict, expose the Company
and the Bank to varying degrees of risk based on potentially conflicting
interpretations of applicable contract language, are not within the control of
the Company, its subsidiaries or the Taylor Family, may bear no relationship to
the business and operations of the Company and its subsidiaries, and are not
subject to any contractual upper limit on liability to the Company or the Bank.
By way of example, but not limitation, liabilities relating to CTFG's ownership
of the Bank or Mortgage Company could (but do not necessarily) arise from claims
based on CTFG's status as sole stockholder or controlling person of these
entities such as the pending litigation described in "Business--Legal
Proceedings" to which CTFG is a party defendant, and liabilities arising from
the Share Exchange Agreement could (but do not necessarily) arise from such
matters as failure of the transaction to be tax free to CTFG and its public
stockholders, claims of breach of fiduciary duties by directors or stockholders
of CTFG and claims of material misstatements or omissions by CTFG in connection
with disclosures relating to the Share Exchange Agreement. Some of these
liabilities, such as liability resulting from an action causing the Split-Off
Transactions to be taxable, could have a material adverse impact on the Company
or the Bank, could prevent the Company and the Bank from paying dividends, and
may affect the continuing viability of the Company or the Bank.
Interest of Taylor Family and CTFG; Possible Conflicts of Interest
The Company was formed solely for the purpose of facilitating the Split-Off
Transactions and has no prior operating history. Accordingly, the Share Exchange
Agreement and related agreements and arrangements affecting the Company were
negotiated with CTFG and executed by representatives of the Taylor Family. The
Share Exchange Agreement includes no representations and warranties of CTFG
relating to the business and operations of the Bank and the Mortgage Company
due, in part, to the Taylor Family's
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knowledge of these businesses. The Share Exchange Agreement includes
representations, warranties, covenants and indemnification obligations of the
Taylor Family to CTFG. The Taylor Family has placed in escrow shares of CTFG
common stock to secure its obligation to pay $15 million to CTFG if the Share
Exchange Agreement is terminated in certain events, including a termination by
CTFG if by June 30, 1997 adequate financing to complete the Split-Off
Transactions has not been obtained by the Taylor Family. See "The Split-Off
Transactions--Termination of the Share Exchange Agreement" and "--Escrow
Agreement."
In many cases, obligations of the Taylor Family under the Share Exchange
Agreement will be assumed by the Company and/or the Bank and/or indemnification
will be extended by the Company to the Taylor Family with the effect that the
Taylor Family will be relieved of responsibility for such obligations and,
correspondingly, the Company or the Bank will be responsible to pay or perform
such obligations. Many of these obligations benefit, directly or indirectly,
CTFG, the sole stockholder of the Company prior to the Split-Off Closing.
Included among such obligations are approximately $2.0 million in transaction
expenses to be paid by the Company. Further, the Company and the Bank may be
liable for indemnity or damages to CTFG in connection with the operations of the
Bank and the Mortgage Company or CTFG's ownership of securities thereof prior to
the Split-Off Closing or for indemnity to the Taylor Family in connection with
the portion of the Losses suffered by CTFG arising out of the Split-Off
Transactions for which the Taylor Family has agreed to indemnify CTFG. See "Risk
Factors--Risks Arising From the Split-Off Transaction--Liabilities under Share
Exchange Agreement" and "The Split-Off Transactions--Liabilities Under Share
Exchange Agreement." Additionally, counsel to the Taylor Family in connection
with the Split-Off Transactions is also counsel to the Company. Neither the
Company nor any of its prospective non-Taylor Family stockholders have been
separately represented. The Taylor Family's financial advisor in connection with
the Split-Off Transactions is one of the Underwriters of the Preferred Stock
offered hereby and, in addition to a portion of the underwriting discount set
forth on the cover page of this Prospectus, received as compensation for such
investment banking services an initial payment of $100,000 and will receive a
final payment of $500,000 upon the Split-Off Closing. See "Underwriting." The
Taylor Family and its various representatives may experience conflicts of
interest in connection with the formation of the Company, the negotiation and
execution of the various assumption and indemnification agreements and
implementation of the Split-Off Transactions. There can be no assurance that
these conflicts will be (and, to the extent described below, should be
understood not to have been) resolved in a manner favorable to the non-Taylor
Family stockholders of the Company or CTFG or that the terms of such agreements
are (and, to the extent described below, should be understood not to be)
comparable to those that would be available were these agreements negotiated at
arms length between unaffiliated parties.
Consideration was given to formation of a committee of Company directors
who have no relationship with the Taylor Family which might affect such
directors' independent judgment concerning consideration of these various
arrangements involving the Taylor Family. Upon advice of counsel, the Company's
directors were informed that, prior to the consummation of the Split-Off
Transactions, directors owed their fiduciary responsibilities solely to the
Company's then existing stockholder, CTFG. As a result, such arrangements were
negotiated and approved by the Company's directors with a view to what was in
the best interests of CTFG, its sole stockholder, not what was in the best
interests of the persons, such as the holders of Preferred Stock, who may become
stockholders concurrently with the Split-Off Closing. Generally with respect to
the agreements, the interests of the Taylor Family were not adverse to those of
CTFG.
INTEREST RATE RISK EXPOSURE
The Bank's cash flows depend to a great extent upon the level of net
interest income, which is the difference between total interest income earned on
earning assets, such as loans and investments, and total interest expense paid
on interest-bearing liabilities, such as deposits and borrowings. The amount of
net interest income is affected by changes in the volume and mix of earning
assets, the level of rates earned on those assets, the volume of
interest-bearing liabilities and the level of rates paid on those
interest-bearing liabilities. Balancing the maturities of the Bank's assets in
relation to maturities of liabilities involves estimates as to how changes in
the general level of interest rates will impact the yields earned on assets and
the rates paid on liabilities. Currently, the Bank's liabilities reprice or
mature more quickly than its assets, a condition referred to as a "negative gap"
position. Accordingly, when interest rates rise, the Bank's net interest income
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tends to be adversely impacted. Conversely, in a declining rate environment the
Bank's net interest income is generally positively impacted. At September 30,
1996, the Bank's interest rate risk model showed a decline of approximately
3.13% of the Bank's twelve month net interest income, assuming a gradual 200
basis point increase in market interest rates. Changes in the level of interest
rates also affect the amount of loans originated by the Bank and, thus, the
amount of loan and commitment fees, as well as the market value of the Bank's
interest-earning assets. Moreover, increases in interest rates also can result
in disintermediation, which is the flow of funds away from banks into direct
investments, such as corporate securities and other investment vehicles, which
generally pay higher rates of return than financial institutions. In addition, a
flattening of the "yield curve" (i.e., a decline in the difference between long
and short term interest rates), could adversely impact net interest income to
the extent that the Bank's assets have a longer average term than its
liabilities. The Company will be subject to a degree of interest rate risk under
the Credit Facilities due to the variable nature of interest payable. Finally,
the Bank's portfolio of loans held for sale, which is composed predominantly of
residential mortgage loans and the Bank's outstanding commitments to finance
residential properties, incur interest rate risk because loan rates are
committed to borrowers before the loan is either sold or committed to a
secondary mortgage market investor. The Bank will continue to be vulnerable to
changes in interest rates and to decreases in the difference between long and
short term interest rates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Asset/Liability Management."
LIQUIDITY MANAGEMENT
The Bank's success depends in part on its ability to maintain sufficient
funds to respond to the needs of depositors and borrowers, as well as to take
advantage of earnings enhancement opportunities. As a part of its
asset/liability management, the Bank uses a number of funding sources in
addition to liquidity from core deposit growth and repayments and maturities of
loans and investments. These alternatives include Federal Home Loan Bank
advances, repurchase agreements, municipal deposits, brokered deposits, and
federal funds purchased. Generally, the Company has paid a premium for brokered
and other out of market area deposits which is included in interest expense.
Adverse operating results at the Bank or changes in industry conditions could
lead to an inability to replace such brokered deposits at maturity, which could
result in higher costs to or reduced asset levels of the Bank. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity" and "--Deposits" and "Risk Factors--Risks Arising from
the Split-Off Transactions--Decrease in Tangible Capital."
DEPENDENCE ON CHICAGO MARKET AREA
The success of the Bank is dependent upon the general economic conditions
in the Chicago metropolitan area, where virtually all of its loans are
generated. Adverse changes in the economy of the Chicago metropolitan area would
likely impair the Bank's ability to gather deposits and could otherwise have a
negative effect on its business, including the demand for new loans, the ability
of customers to repay loans and the value of the collateral pledged to the Bank.
A substantial portion of the Bank's loan portfolio involves loans which are to
some degree secured by real estate properties located primarily within the
Chicago metropolitan area. In the event that real estate values in such area
decline, the value of such collateral would be impaired.
MANAGEMENT OF CREDIT RISK
The Bank's allowance for loan losses is maintained at a level considered
adequate by management to absorb anticipated losses. The amount of future losses
is susceptible to changes in economic, operating and other conditions, including
changes in interest rates, that may be beyond the Company's control, and such
losses may exceed current estimates. In addition, the Bank's historical strategy
of providing commercial loans to small and mid-sized businesses has resulted in
a loan portfolio which has relatively larger loans concentrated with fewer
customers than a similarly sized bank focused on consumer lending. There can be
no assurance that the allowance for loan losses will prove sufficient to cover
actual loan losses in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Allowance for Loan Losses."
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GOVERNMENT REGULATION AND RECENT LEGISLATION
The Company, the Bank and the Mortgage Company are subject to extensive
federal and state legislation, regulation and supervision. Recently enacted,
proposed and future legislation and regulations have had and will continue to
have a significant impact on the banking industry. Some of the legislative and
regulatory changes, such as the recently enacted assessment on federally insured
depository institutions to contribute towards the cost of interest due on bonds
issued between 1987 and 1989 to resolve failed savings and loan associations,
may increase the costs of doing business and assist competitors of the Company
and its subsidiaries. The effects of any such changes or potential changes
cannot be accurately predicted but could adversely affect the operating results
of the Company and the Bank. See "Supervision and Regulation."
COMPETITION
The banking business is highly competitive. The Bank encounters competition
primarily in seeking deposits and in obtaining loan customers. The Bank's
principal competitors include other commercial banks, savings and loan
associations, mutual funds, money market funds, finance companies, credit
unions, mortgage companies, the United States Government, private issuers of
debt obligations and suppliers of other investment alternatives, such as
securities firms. In recent years, several major multi-bank holding companies
have entered the Chicago metropolitan market. Generally, these financial
institutions are significantly larger than the Bank and have access to greater
capital and other resources. As a result of these and other factors, future
growth opportunity for the Bank may be limited. In addition, many of the Bank's
non-bank competitors are not subject to the same extensive federal regulations
that govern bank holding companies and federally insured banks and state
regulations governing state chartered banks. As a result, such non-bank
competitors may have advantages over the Bank in providing certain services.
CONTROL BY TAYLOR FAMILY
Based on commitments received as of the date of this Prospectus, the Taylor
Family in the aggregate will beneficially own or control in excess of % of
the Company's outstanding common stock. As a result, these stockholders, acting
together, are able effectively to control virtually all matters requiring
approval by the stockholders of the Company, including amendment of the
Company's Certificate of Incorporation (the "Certificate") and the Company's
By-Laws (the "By-Laws"), the approval of mergers or similar transactions, and,
with the exception of the right of Preferred Stockholders (together with the
holders of any one or more other series of preferred stock entitled to vote
thereon) to vote for the election of one director (and, in the event the Company
fails to declare and pay dividends for any six consecutive or nonconsecutive
quarters, the election of an additional director) the election of all directors.
See "Security Ownership of Management and Certain Beneficial Owners." Certain
provisions of the Certificate and By-Laws could have the effect of delaying or
preventing any change in control of the Company. Conversely, the death of a
substantial stockholder in the Company or the decision by the Taylor Family to
sell or liquidate its position in the Company for whatever reason would have the
effect of altering the balance of effective stockholder control of the Company
and, among other things, could have the effect of altering the composition of
the Board of Directors. Preferred Stockholders will have no rights of redemption
upon the occurrence of a change of control and, except in certain limited
circumstances, will have no right to vote upon a change of control which
requires a stockholder vote. See "Description of Capital Stock--Preferred
Stock--Voting Rights." In addition, as of the Split-Off Closing, Jeffrey Taylor,
Bruce Taylor and Sidney Taylor will constitute three of the seven members of the
Board of Directors of each of the Company and the Bank and Jeffrey Taylor and
Bruce Taylor will serve as the Company's and the Bank's highest ranking
officers. In addition, Melvin Pearl, who as trustee of certain Taylor Family
trusts is included within the definition of the "Taylor Family" set forth in the
Share Exchange Agreement, will serve as a member of the Board of Directors.
These persons may experience conflicts of interest in the execution of their
duties on behalf of the Company and the Bank. There can be no assurance any such
conflicts would be resolved in a manner favorable to the Company or the Bank.
See "Management."
MORTGAGE COMPANY RISKS
Through its subsidiaries the Mortgage Company originates, warehouses and
resells residential first and second mortgages primarily of subprime borrowers
who generally do not qualify for conventional loans or whose borrowing needs are
not met by traditional residential mortgage lenders. These borrowers generally
do not satisfy the more rigid underwriting standards of the traditional mortgage
lending market for a number of reasons, such as blemished credit histories (from
past loan delinquencies or bankruptcy), inability to provide
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income verification data or lack of established credit history. Generally, these
borrowers pose a greater risk of default than do borrowers under conventional
loans.
Since the subsidiaries of the Mortgage Company typically hold loans for
sixty to ninety days or longer prior to sale, and do not receive a commitment to
purchase the loan from an investor at the time of origination, the Mortgage
Company faces the risk that fluctuations in market interest rates will render
the loans held by its subsidiaries less valuable than the Mortgage Company's
basis in such loans. In addition, the Mortgage Company could experience a loss
on any loan that went into default while held by a subsidiary of the Mortgage
Company.
The Mortgage Company commenced business in the first quarter of 1996. It is
a start-up business with a limited history of operations. It has been
substantially dependent upon CTFG, which has advanced funds to the Mortgage
Company and guaranteed the performance of the obligations of the Mortgage
Company under certain agreements for the sale of loans to various purchasers.
The Company will assume the existing arrangements between CTFG and the
purchasers of Mortgage Company loans and will provide financing to the Mortgage
Company. For the foreseeable future, the Mortgage Company will continue to be
dependent upon guarantees and financing from its parent, which after the
Split-Off Closing will be the Company. The Mortgage Company historically has
required and is expected to continue to require ongoing financing of $8 to $12
million to conduct its business. The Mortgage Company, therefore, is not
currently able to operate without assistance from its parent company. In
addition, as a result of these guarantees, the Company is subject to the same
risks that may impact the Mortgage Company and such risks could result in losses
which may exceed the Company's investment in the Mortgage Company. See
"Business--The Mortgage Company."
POSSIBLE LACK OF AVAILABLE INFORMATION
The Company anticipates that it will not be required to register the
Preferred Stock pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and does not presently intend voluntarily to effect such a
registration. Following the offering, the Company will be subject to the
periodic and other reporting requirements of the Exchange Act for the 1997
calendar year pursuant to Section 15(d) thereof. Thereafter, provided the
Preferred Stock is then held by less than 300 holders of record at the beginning
of any subsequent fiscal year the Company could cease to be subject to the
obligation to file such reports with respect to such fiscal year. The Company
anticipates that the Preferred Stock will be held by less than 300 holders of
record at the end of 1997, and therefore that it will then cease to be subject
to the reporting requirements of the Exchange Act at that time. The Company
intends to provide quarterly and annual financial information to its
shareholders even if not required to do so pursuant to the Exchange Act. See
"Additional Information."
NO PRIOR PUBLIC MARKET FOR PREFERRED STOCK
The Company does not intend to list the shares of Preferred Stock on any
securities exchange or include the Preferred Stock on any quotation system, and
no active trading market for the Preferred Stock is expected to develop.
Although each Underwriter has indicated an intention to make a market in the
Preferred Stock, neither Underwriter is obligated to make a market in the
Preferred Stock and any market making may be discontinued at any time at the
sole discretion of such Underwriter. If shares of Preferred Stock are traded
after their initial issuance, they may trade at a discount to their offering
price. Without an active market, it may be difficult for investors to resell
shares of Preferred Stock. See "Underwriting."
RATING BELOW INVESTMENT GRADE
The Preferred Stock will be rated below "investment grade" by Duff & Phelps
and Fitch. Typically, preferred stock with such ratings may experience less
liquidity in the secondary market compared to investment grade preferred stock.
The Preferred Stock should not be purchased by any investor who, because of
financial condition, investment policies or otherwise, does not desire to
assume, or have the ability to bear, the risks inherent in an investment in the
Preferred Stock.
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THE SPLIT-OFF TRANSACTIONS
GENERAL
As a result of the Split-Off Transactions described in the Share Exchange
Agreement, CTFG is transferring all of the capital stock of the Company to the
Taylor Group in exchange for 4.5 million shares of CTFG common stock (the "Stock
Amount"). Prior to the Split-Off Closing, CTFG will have transferred to the
Company all of the outstanding shares of the Bank and the Mortgage Company and
the Bank will have transferred $51 million in cash (the "First Cash Component")
and between $30 million and $31 million in aggregate fair market value of the
Used Automobile Receivables to a wholly owned subsidiary of CTFG. The First Cash
Component is being funded with the proceeds of the sale by the Bank of
approximately $77 million in aggregate face amount of new automobile receivables
business of the Bank. The proceeds of such sale in excess of the First Cash
Component will be invested initially by the Bank in investment securities. As a
result of the sale and transfer of the Automobile Finance Business and payment
of the First Cash Component, the Bank will require additional capital to
continue operating as a well-capitalized institution in accordance with
regulatory requirements. Accordingly, as a part of the Split-Off Transactions,
the Company will provide a direct capital contribution of approximately $59.3
million to the Bank, which will be funded by (i) net proceeds of approximately
$36.3 million from the sale of the Preferred Stock offered hereby and (ii)
senior debt in the amount of approximately $23 million, the terms of which are
described herein under "-- Related Financing".
All conditions precedent to the Split-Off Closing have been satisfied or
waived, with the only remaining condition being the recapitalization of Bank
with the proceeds of the sale of the Preferred Stock offered hereby.
Accordingly, the Split-Off Transactions will have been completed and the
transfer of the ownership interest in the Bank and Mortgage Company will occur
simultaneously with the Preferred Closing.
CTFG was formed in 1981 and in 1984 became the holding company for what was
then the Main State Bank (which had been acquired by CTFG's founders, Irwin H.
Cole and Sidney J Taylor, in 1969) and Drovers National Bank (which had been
acquired by Messrs. Cole and Taylor in 1978). CTFG has a third wholly-owned
subsidiary, Reliance Acceptance Corporation (f/k/a Cole Taylor Finance Co.) (the
"Finance Company"). CTFG was a private company until 1994, when CTFG made an
initial public offering of its Common Stock. As of September 30, 1996, the
family of Irwin H. Cole (the "Cole Family") and the Taylor Family each owned
approximately 25% of the Common Stock of CTFG.
To resolve differences among the Cole Family, the Taylor Family and certain
other directors of CTFG regarding the strategic direction of CTFG, CTFG and the
Taylor Family entered into the Share Exchange Agreement. The Share Exchange
Agreement is included as an exhibit to the Registration Statement on Form S-1,
of which this Prospectus forms a part.
After the Split-Off Closing, Jeffrey Taylor, Bruce Taylor, and John
Christopher Alstrin, previously the Chairman of the Board and a director, Chief
Executive Officer and a director and Chief Financial Officer, respectively, of
the Bank, will continue to be executive officers and directors of the Company
and the Bank. See "Management." It is also expected that substantially all of
the employees of the Bank and the Mortgage Company will continue to be employees
of the Bank and the Mortgage Company, respectively, after the Split-Off Closing.
Except for the adjustments contemplated by virtue of the Split-Off Transactions,
the Bank, as a whole, is expected to continue its core operations in the same
manner as prior to the Split-Off Transactions. See "Unaudited Pro Forma
Condensed Consolidated Financial Statement."
TERMS OF THE SHARE EXCHANGE AGREEMENT
GENERAL
The Share Exchange Agreement outlines in detail the transaction steps which
ultimately will provide the Taylor Family with ownership of approximately %
of the common stock of the Company and will allow the Taylor Family to control
the operations of the Bank and members of the Cole Family to control the
Automobile Finance Business previously operated through CTFG. Under the terms
and conditions contemplated by the Share Exchange Agreement, CTFG will
contribute all of the stock of the Bank and the
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Mortgage Company to the Company and then, in exchange for the Stock Amount owned
by the Taylor Group, cause the Company to deliver to the Taylor Group all of the
Common Stock. For a description of the composition of the Taylor Group, see
"Security Ownership of Management and Certain Beneficial Owners." The Split-Off
Transactions are intended to be a tax-free transaction for all parties. The
Taylor Family will retain no ownership in CTFG, and CTFG will retain no
ownership in the Company, after the proposed Split-Off Transactions are
consummated.
Prior to the Split-Off Transactions, the Bank formed New Reliance, to which
the Bank will transfer (i) its used automobile receivables business, primarily
consisting of the Bank's rights and obligations pursuant to automobile loans or
notes (the "Used Automobile Receivables") and related assets, including
agreements with automobile dealers to purchase sales finance contracts; (ii) an
amount in cash estimated to be $51 million (the "First Cash Component")
dependent on the Stock Amount and the fair market value of the Used Automobile
Receivables, which must be between $30 million and $31 million; and (iii) an
amount in cash estimated to be $1.2 million (the "Second Cash Component") based
on the value of CTFG's investments in the Mortgage Company and the Alpha Capital
Fund, to which the Company has a total financial commitment of $500,000.
After the formation of New Reliance and transfer of the First and Second
Cash Components and the Used Automobile Receivables, the Bank will distribute
the capital stock of New Reliance to CTFG, and Reliance, a wholly-owned
subsidiary of CTFG, will merge with and into New Reliance. Thereafter, New
Reliance will conduct directly the used automobile finance contract business,
which has been conducted from the Bank's branch office in Burbank, Illinois and
separately from the business of the Bank. CTFG then will transfer to the Company
all of the stock of both the Bank and the Mortgage Company, as well as all of
CTFG's rights, obligations and interests in the Alpha Capital Fund.
As a result of the Split-Off Transactions, the Company will assume certain
severance payments to employees of the Bank whose employment with the Bank will
be terminated. The amount of the severance payments approximates $550,000 and
will be accounted for as a direct acquisition cost in accordance with the
application of purchase accounting. These employees will be offered employment
with New Reliance.
REPRESENTATIONS AND COVENANTS
Under the Share Exchange Agreement, each member of the Taylor Family,
jointly and severally, made certain representations and warranties to CTFG,
including the following: (a) that the Share Exchange Agreement and the
consummation of the Split-Off Transactions have been duly authorized and that
the Share Exchange Agreement constitutes a legal, valid and binding obligation
of each member of the Taylor Family; (b) representations and warranties
regarding the number of shares of CTFG common stock and options to purchase CTFG
common stock owned and that such shares and options will be free and clear of
any security interests, liens or other encumbrances ("Liens"); (c) that they
will cooperate with CTFG in taking all necessary action to form the Company and
cause the Company to enter into, ratify and approve the Share Exchange
Agreement; (d) that the assets of the Bank's used automobile receivables
business to be transferred to New Reliance are substantially all of the assets
used exclusively in or necessary for the conduct of such business; and (e) that
the transfer of the Stock Amount will transfer to CTFG good and valid title to
the shares of CTFG common stock constituting the Stock Amount, free and clear of
any Liens, except for Liens CTFG has permitted to attach.
CTFG made certain representations and warranties to the Taylor Family,
including the following: (a) that the consummation of the Split-Off Transactions
has been duly authorized and that the Share Exchange Agreement constitutes the
legal, valid and binding obligation of CTFG; (b) representations regarding the
capital structure of the Bank and the Mortgage Company; (c) representations
regarding the amounts and dates of its investments in the Mortgage Company and
Alpha Capital Fund; (d) that CTFG will, at the closing of the Split-Off
Transactions, have good and valid title to all of the capital stock of the Bank
(the "Bank Stock"), the capital stock of the Mortgage Company (the "Mortgage
Company Stock") and the interest in the Alpha Capital Fund, free and clear of
any Liens; (e) that the transfer of the Bank Stock, the Mortgage Company Stock
and the interest in the Alpha Capital Fund to the Company will transfer good and
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valid title to the Bank Stock, the Mortgage Company Stock and the interest in
the Alpha Capital Fund, free and clear of any Liens, except for Liens the Taylor
Family has permitted to attach; and (f) that CTFG has not received since
September 1, 1995 any acquisition proposal, except as previously disclosed.
The covenants of the parties include, without limitation, the following:
(a) the members of the Taylor Family who are directors of CTFG (the "Taylor
Directors") will submit, no later than August 31, 1996, any necessary
applications to the applicable governmental authorities for approval of the
Split-Off Transactions (including but not limited to the Federal Reserve Board)
and the Bank and CTFG will assist in such filings; (b) at the annual meeting of
stockholders of CTFG (the "Annual Meeting"), the members of the Taylor Family
will vote all shares of CTFG common stock owned or controlled by them in favor
of the Share Exchange Agreement and the Split-Off Transactions; (c) CTFG and the
Taylor Family will comply with any covenants made in connection with the Tax
Ruling or with any applicable governmental authority to ensure the tax-free
nature of the Split-Off Transactions; and (d) for the two-year period following
the actual date of the Split-Off Closing, the parties agree to take, or refrain
from taking, certain actions which may affect the qualification of the Split-Off
Transactions under Section 355 of the Code or the validity of the Tax Ruling
(unless the party wishing to take such action provides the other party with a
written opinion from nationally recognized tax counsel that the desired
transaction will not affect the qualification of the Split-Off Transactions
under Section 355 of the Code or the validity of the Tax Ruling).
TERMINATION PROVISIONS
The Share Exchange Agreement may be terminated at any time prior to the
Split-Off Closing: (i) by mutual written consent of the Taylor Family and CTFG;
(ii) by the Taylor Family or CTFG if any court of competent jurisdiction within
the United States issues any order, decree or ruling or action restraining,
enjoining or prohibiting the consummation of the Split-Off Transactions; (iii)
by the Taylor Family or CTFG in the event any approval of any applicable
governmental authority has been denied or contains or is subject to terms or
conditions which either party reasonably deems to be materially burdensome; (iv)
provided the party seeking termination has satisfied in all material respects
all covenants and agreements to be performed and satisfied by it on or prior to
the date of termination under the Share Exchange Agreement, by the Taylor Family
or CTFG upon material breach by the other party of any of its covenants or
agreements, subject to a 30-day right to cure following the receipt of written
notice of such breach; (v) provided the terminating party has not caused the
Split-Off Closing not to occur in breach of the Share Exchange Agreement, by the
Taylor Family or CTFG if the Split-Off Closing has not occurred prior to June
30, 1997; (vi) by CTFG, prior to the Annual Meeting, after CTFG's receipt of an
acquisition proposal if the Board of Directors of CTFG (the "CTFG Board")
determines, based on the advice of independent counsel, that such action is
required for the discharge of the CTFG Board's fiduciary duties; (vii) by the
Taylor Family if the CTFG Board withdraws or modifies, in a manner adverse to
the Taylor Family, its approval of the Share Exchange Agreement, the Split-Off
Transactions or its recommendation to CTFG's stockholders, if CTFG enters into
an agreement providing for an acquisition proposal or if the CTFG Board resolves
to do any of the foregoing; (viii) by the Taylor Family, if the Annual Meeting
has not occurred prior to November 28, 1996 (unless the Taylor Family has caused
the Annual Meeting not to occur prior to such date), or (ix) by either CTFG or
the Taylor Family if the stockholders of CTFG do not approve the Split-Off
Transactions at the Annual Meeting.
If the Share Exchange Agreement is terminated due to a Triggering
Termination (as defined), CTFG will be entitled to receive as an exclusive
remedy liquidated damages equal to $15 million from the Taylor Family, which
amount is subject to reduction depending on the result of the Bank Sale Process
(as defined). A "Triggering Termination" means termination of the Share Exchange
Agreement due to the following reasons: (i) failure to obtain the approval of
any applicable governmental authority (other than because of a failure to comply
with the Community Reinvestment Act (the "CRA") or fair lending statutes); or
(ii) if the Split-Off Closing has not occurred prior to June 30, 1997 due to (A)
the failure to obtain sufficient additional capital in order to comply with the
minimum capital requirements of any applicable banking laws, regulations or any
requirements of any regulatory agencies, or (B) the failure to obtain the
approval of any applicable governmental authority (other than because of a
failure to comply with the CRA or fair lending statutes).
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If the Share Exchange Agreement is terminated as a result of a Triggering
Termination, CTFG will use its reasonable best efforts to solicit bids from
third parties for the sale of all of the equity interest in the Bank (the "Bank
Sale Process"). The Taylor Family has agreed to use its best efforts to support
the Bank Sale Process, and the Taylor Directors will direct such process. If,
during the nine-month period after a Triggering Termination, CTFG receives a
Sufficient Bona Fide Offer (as defined) to acquire all of the equity interest in
the Bank that the Taylor Family wishes the CTFG Board to consider, the
obligations of the Taylor Family to pay CTFG $15 million will be reduced
(provided the obligation will never be less than zero) by the amount by which
the Sufficient Bona Fide Offer would provide CTFG with gross proceeds with a
fair market value in excess of $235 million. A "Sufficient Bona Fide Offer"
means an offer for all of the equity interest in the Bank from a financially
reliable third party that, if accepted, would be likely to be consummated and
that, if consummated, would provide CTFG with gross proceeds with a fair market
value in excess of $235 million. The CTFG Board is under no obligation to accept
a Sufficient Bona Fide Offer that the Taylor Family wishes the CTFG Board to
consider; provided, however, that in the event the CTFG Board rejects a
Sufficient Bona Fide Offer, the obligation of the Taylor Family to pay CTFG $15
million will be reduced in the same manner as set forth in the preceding
sentence. If no Sufficient Bona Fide offer is received during the nine months
after a Triggering Termination, the Taylor Family will pay the full $15 million
to CTFG. CTFG may, without the participation of any member of the Taylor Family,
resolve not to pursue the Bank Sale Process or to enter into an agreement
providing for the merger or disposition of the stock or assets of CTFG prior to
the expiration of the nine-month period following a Triggering Termination, in
which case the obligation of the Taylor Family to pay the $15 million to CTFG
will be extinguished. The Taylor Family deposited 750,000 shares of CTFG Common
into escrow to ensure payment of any liquidated damages required to be paid by
the Taylor Family under the Share Exchange Agreement. See "-- The Escrow
Agreement."
If the Share Exchange Agreement is terminated (i) by CTFG after the receipt
of an acquisition proposal, if such action was necessary to discharge the CTFG
Board's fiduciary duties or (ii) by the Taylor Family, if the CTFG Board
withdraws or modifies its approval of the Share Exchange Agreement or the
Split-Off Transactions, if CTFG has entered into an agreement providing for an
acquisition proposal or the CTFG Board resolves to do any of the foregoing, CTFG
is obligated to pay the Taylor family, as an exclusive remedy, liquidated
damages in an amount equal to (a) the Taylor Family's out of pocket expenses
paid to lawyers, accountants, investment bankers or other experts plus (b) three
percent of the fair market value as of the date of the Share Exchange Agreement
of the acquisition proposal that gave rise to such termination. If the Share
Exchange Agreement is terminated by the Taylor Family upon material breach of
any of CTFG's covenants or agreements contained in the Share Exchange Agreement
which has not been cured within 30 days of written notice thereof by CTFG, CTFG
is obligated to pay the Taylor Family, as an exclusive remedy, liquidated
damages equal to $15 million.
THE ESCROW AGREEMENT
Pursuant to an escrow agreement among the Taylor Family, CTFG and The
Northern Trust Company dated June 19, 1996 (the "Escrow Agreement"), the Taylor
Family deposited 750,000 shares of CTFG common stock (the "Escrow Amount") into
escrow to ensure payment of any liquidated damages required to be paid by the
Taylor Family under the Share Exchange Agreement. The Northern Trust Company, as
escrow agent, will hold the Escrow Amount in escrow until it receives (i) a
final order or judgment of a court of competent jurisdiction directing the
disposition of the Escrow Amount or any part thereof, together with an opinion
of counsel to CTFG or the Taylor Family that such order or judgment is final, or
(ii) joint written notice from CTFG and the Taylor Family, in which case the
Escrow Amount will be distributed in accordance with such order or judgment or
the joint written notice, as the case may be. A copy of the Escrow Agreement has
been filed as an exhibit to the Registration Statement on Form S-1, of which
this Prospectus forms a part.
VESTING OF CTFG OPTIONS
Pursuant to the Share Exchange Agreement, all outstanding options to
purchase CTFG common stock held by members of the Taylor Family will become
vested and exercisable in full prior to the Split-Off Closing. Each Taylor
Family member holding any such options is obligated to exercise them at or prior
to the
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Split-Off Closing. Additionally, as a result of the Split-Off Transactions, all
outstanding options ("Employee Stock Options") to purchase CTFG common stock
under CTFG's 1991 Stock Option Plan (the "1991 Plan") became vested as of
October 18, 1996, subject to the restrictions of applicable securities laws.
Employee Stock Options held by persons who will no longer be employees of CTFG
as a result of the Split-Off Transactions (i.e., employees of the Bank) will
expire unless exercised within 60 days subsequent to the Split-Off Closing.
In that the options exercised are attributable to Bank employees, the Bank
is entitled to receive a tax benefit equivalent to the excess of the fair value
of the CTFG stock over the exercise price at the date of exercise. Pursuant to
the Share Exchange Agreement, CTFG and the Bank have amended their existing tax
allocation agreement so that (A) the allocation of federal, state and local tax
liabilities incurred through the closing between CTFG and its subsidiaries on
the one hand and Bank on the other will continue in a manner consistent with
past practice, except that beginning June 12, 1996, all tax benefits associated
with the exercise or buyout of all compensatory options on CTFG Common Stock,
whether held by employees or former employees of Bank or otherwise, will inure
solely to the benefit of CTFG; and (B) any claims or liabilities arising from
audits (including audits commenced or completed after the Split-Off Closing) of
pre-closing periods will be borne by the party to whom the adjustment is
attributable.
ESTABLISHMENT OF PROFIT SHARING/ESOP
Pursuant to the Share Exchange Agreement, the Company has established a
defined contribution plan that is designed to qualify under Sections 401(a),
401(k) and 4975(e)(7) of the Code (the "Profit Sharing/ESOP"). Prior to the
Split-Off Closing, CTFG will transfer to the Profit Sharing/ESOP the account
balances held in the Cole Taylor Financial Group, Inc. Employee Stock Ownership
Plan (the "CTFG ESOP") and the Cole Taylor Financial Group, Inc. 401(k)/Profit
Sharing Plan (the "CTFG Profit Sharing") on behalf of the active and former Bank
employees and any employee of CTFG who will be a Bank employee as of the
Split-Off Closing. The Profit Sharing/ESOP is intended to provide substantially
the same benefits on substantially the same terms as the CTFG ESOP and the CTFG
Profit Sharing. The Profit Sharing/ESOP will permit each eligible employee of
the Company to elect to contribute, through payroll deductions, a specified
percentage of his or her compensation up to the statutory limitation. The
Company will make a matching contribution and a profit sharing contribution to
the Profit Sharing/ESOP. The profit sharing contribution will be in an amount
determined at the discretion of the Board of Directors. The Company's
contribution may be made in the form of shares of Common Stock, cash to be
invested in shares of Common Stock or cash to be invested as directed by the
Profit Sharing/ESOP participants. Participants with ESOP stock account balances
under the Profit Sharing/ESOP will have the right to exercise certain limited
"put" rights requiring the Company to purchase their shares of Common Stock
following their termination of employment with the Company and the Bank. See
"Description of Capital Stock--Preferred Stock-- Dividend Rights."
RELATED FINANCING
In order to provide the capital infusion necessary to obtain requisite
regulatory approval to consummate the Split-Off Transactions, the Company has
negotiated a loan agreement (the "Loan Agreement") with LaSalle National Bank
("LaSalle") to obtain a $25 million unsecured five year term bank loan (the
"Term Loan"), to be used solely to infuse additional capital into the Company to
comply with the minimum capital requirements of applicable banking laws or
regulations or any regulatory agency, and a $5 million unsecured one year line
of credit (the "Line of Credit" and together with the Term Loan, the "Credit
Facilities") to support the Company's ongoing working capital needs. The funds
from the Term Loan will be used to make a capital contribution to the Bank of
approximately $23 million. Each of the Term Loan and the Line of Credit shall
bear interest at LaSalle's prime rate of interest (the "Base Rate" and any loan
bearing interest at the Base Rate shall be referred to as a "Base Rate Loan"),
which is not necessarily the lowest or most favorable rate of interest charged
by LaSalle on commercial loans at any one time, payable on a quarterly basis or
upon conversion of the Base Rate Loan into a LIBOR Loan (as hereinafter
defined). The interest rate applicable to each Base Rate Loan shall change
simultaneously with each change in prime rate. Provided that no event of default
under the Loan Agreement has occurred and is continuing, the Company has the
option to convert a
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Base Rate Loan at any time to a loan bearing interest at 1.25% plus the quotient
obtained by dividing the LIBOR Rate by the difference of 100% less the reserve
requirement imposed by the Board of Governors of the Federal Reserve System
under Regulation D for an applicable interest period (the "Adjusted LIBOR Rate")
payable on the last day of the one, two or three month interest period elected
by the Company (each, a "LIBOR Loan"). Upon expiration of the interest period
elected by the Company, a LIBOR Loan will be reborrowed as a Base Rate Loan
unless the Company gives LaSalle notice of its intention two business days in
advance of the expiration of the interest period applicable to the LIBOR Loan to
reborrow through a new LIBOR Loan, in whole or in part, the existing LIBOR Loan.
Loans made pursuant to the terms of the Loan Agreement, at the discretion of
LaSalle, may not be evidenced by notes or other instruments issued or made by
the Company and will be evidenced solely by entries upon the ledgers, books or
records of LaSalle. The Company may not have outstanding at any one time more
than three LIBOR Loans in respect of the Line of Credit and five LIBOR Loans in
respect of the Term Loan, and each such loan shall be in a minimum amount of $1
million or such greater amount in increments of $100,000. As an alternative to
being able to have outstanding LIBOR Loans and Base Rate Loans, prior to the
occurrence of a default or event of default under the Loan Agreement and so long
as (i) the relevant LIBOR Loans in respect of the Term Loan shall have been
converted into a Base Rate Loan and (ii) all unpaid interest on the outstanding
principal amount of the Term Loan (or a lesser portion thereof) is paid in full
at a rate per annum equal to the Remaining Maturity Average Yield (hereinafter
defined), the Company may make an irrevocable election to convert the rate of
interest on the entire principal amount (or such lesser portion thereof) of the
Term Loan to a fixed rate of interest equal to the average yield to maturity for
actively traded marketable U.S. Treasury securities (adjusted to constant
maturities approximating the remaining period until final maturity of the Term
Loan) ("Remaining Maturity Average Yield") plus 1.60%. Interest is computed on
each loan for the actual number of days elapsed on the basis of a 360-day year.
The Company shall also pay annual principal reductions of $1.0 million beginning
in 1998 and a balloon payment of $22 million on December 31, 2001.
Each loan made pursuant to the Loan Agreement will be subject to conditions
precedent including the following: (a) no occurrence of an Event of Default (as
hereinafter defined) or an event which but for the giving of notice or lapse of
time or both would be an Event of Default (such event, a "Default"); (b)
compliance with the representations, warranties and covenants contained in the
Loan Agreement as of the Split-Off Closing and on an ongoing basis and (c) no
occurrence of a material adverse change in the financial condition, results of
operation or business of the Company.
The obligations of LaSalle to make any loan pursuant to the terms of the
Loan Agreement is subject to the consummation of the Split-off Transactions. In
addition, the Company must also satisfy the following requirements at all times
that the Credit Facilities are outstanding: (i) all of the capital stock of the
Bank must be owned by the Company; (ii) standard representations, warranties and
covenants regarding the corporate organization of the Company and the Bank, the
financial viability of the Company and the Bank and compliance by the Company
and the Bank with federal and state banking, tax and other laws and regulations;
and (iii) the Bank must maintain certain reporting and financial covenants at
the end of each quarter including (a) applicable regulatory ratios at or above
the "well capitalized" level, (b) Tier 1 capital of not less than $110 million,
(c) a return on average assets of at least 0.50%, until December 31, 1997, .60%
thereafter until December 31, 1998 and .70%, thereafter, (d) a ratio of
non-performing assets to Tier 1 Capital (plus certain permitted allowances for
loan losses) of the Bank not exceeding 25% and (e) a ratio of the valuation
reserve established and maintained to absorb credit losses related to loans and
leases to non-performing loans of not less than 1:1, and (f) a ratio of debt to
shareholders' equity (determined in accordance with GAAP) not exceeding 30%.
The Loan Agreement provides that the Company is prohibited from engaging in
any transaction out of the ordinary course of business without the consent of
LaSalle including, but not limited to (a) creating or suffering to exist any
lien, pledge or encumbrance upon or with respect to any of the assets, or
properties of the Bank; (b) dissolving, merging or conveying substantially all
of the assets of the Company or an affiliate or subsidiary of the Company; (c)
modifying the Articles or Certificate of Incorporation, as applicable, or the
Charter of the Company or an affiliate or subsidiary of the Company; (d)
purchasing all or substantially all of the assets or acquiring equity or debt
interests in any other entity or entering into any joint venture or partnership;
(e) selling, pledging, transferring or otherwise disposing of any of the
outstanding equity interests
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in the Company or any subsidiary or affiliate of the Company; (f) becoming
liable in any manner for any indebtedness or obligations, except for any
indebtedness pursuant to the Loan Agreement, indebtedness for any lease in
excess of $500,000, which, in conformity with GAAP, is accounted for as a
capital lease, trade payables arising in the ordinary course, guarantees of
obligations of the Mortgage Company under sales of loan pools, up to $100,000 of
other debt arising in the ordinary course and other unsecured ordinary course
debt; (g) guaranteeing or otherwise directly, indirectly or contingently
becoming liable for the obligation or liabilities of any other person; and (h)
issuing any of the Company's capital stock or redeeming, retiring or otherwise
acquiring directly or indirectly any of the Company's capital stock or other
evidence of ownership interest, or declaring or paying dividends upon any stock
of the Company or making any distribution of its property or assets, except for
dividend payments made if no Event of Default exists or would result therefrom
with respect to common and preferred stock issued prior to the date of the Loan
Agreement or concurrent with consummation of the Split-Off Transactions and
except for redemptions of capital stock from retiring employees and from former
employees or their estates in connection with the Company's employee benefit
plans. Such covenants may affect the operating flexibility of the Company,
including the Company's ability to pay dividends on its capital stock.
An event of default will exist under the Loan Agreement ("Event of
Default") in the event that (a) the Company breaches any representation,
warranty, covenant or agreement in the Loan Agreement or if any representation,
warranty or exhibit is false or misleading in any material respect; (b) the
Company fails to satisfy any of its liabilities or obligations to LaSalle, and
such failure continues for 30 days; (c) the occurrence of a material breach or
default by the Company under any other agreement with LaSalle after any cure
period applicable to any such breach or default has expired; (d) the Company is
in default in the payment of any liability, obligation or indebtedness to any
person in an amount in excess of $100,000; and (e) other specific events,
typical in similar loan agreements, indicating that the Company is experiencing
financial difficulty, is insolvent or subject to a petition for bankruptcy. If
an Event of Default has occurred and is continuing, in addition to other rights
and remedies under the Loan Agreement, including the acceleration and
termination of any outstanding loans, the outstanding loans shall bear interest
from the date of such Event of Default equal to the sum of 2% plus the
applicable interest rate then in effect.
Although the Loan Agreement is unsecured, the Company is required under the
Loan Agreement to execute a Safekeeping Agreement with LaSalle (the "Safekeeping
Agreement") pursuant to which the company shall deliver to LaSalle all of the
issued and outstanding shares of capital stock of the Bank (the "Bank Shares")
for safekeeping, and not as a pledge. The Bank Shares delivered by the Company
to LaSalle pursuant to the Safekeeping Agreement shall be retained by LaSalle
until all of the Company's liabilities to LaSalle have been paid in full and all
commitments of LaSalle to the Company with respect to the Term Loan and the Line
of Credit have been terminated. Under the Safekeeping Agreement, the Company
agrees that at any time upon the occurrence and during the continuance of an
Event of Default, it shall grant to LaSalle a first priority lien on and
security interest in the Bank Shares to secure the payment and performance of
the Company's liabilities to LaSalle and the Company shall enter into a pledge
agreement with LaSalle to further evidence the same. The Safekeeping Agreement
provides that upon the occurrence of an Event of Default, the possession of the
Bank Shares pursuant to the Safekeeping Agreement shall constitute possession
for purposes of perfecting the pledge and security interest therein to be
granted by the Company. The pledge continues under the Safekeeping Agreement
until the earlier of (i) no Event of Default or Default is continuing and (ii)
payment in full and satisfaction of all of the Company's liabilities to LaSalle.
The Safekeeping Agreement further provides that on delivery of the Bank
Shares, the Bank shall register in its corporate stock records that the Bank
Shares are subject to the Safekeeping Agreement and the pledge requirement
therein.
The form of pledge agreement which, under the Safekeeping Agreement, the
Company agrees to execute during the occurrence and continuation of an Event of
Default, provides that LaSalle shall have all of the rights and remedies of a
secured party under the Illinois Uniform Commercial Code in respect of the Bank
Shares for so long as the pledge remains in effect. The form of pledge agreement
precludes the Company during the continuation of certain Events of Default and
certain financial covenant breaches from (i) keeping
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the proceeds of, including dividends on and distributions with respect to, the
Bank Shares and (ii) voting on matters subject to the vote of shareholders of
the Bank.
RELATED COMMON STOCK OFFERING
The Company has filed a registration statement with the Securities and
Exchange Commission (the "Commission") and the applicable state securities
authorities registering a minimum of 4.0 million and a maximum of 4.5 million
shares of Common Stock which will be issued to the Taylor Family and the other
members of the Taylor Group in the Split-Off Transactions (the "Common Stock
Offering") for outstanding shares of Common Stock of CTFG owned by such persons.
Such shares, which constitute the Stock Amount, will be transferred to CTFG. The
Common Stock Offering was made to Bank employee participants in the Profit
Sharing/ESOP, the ESOP portion of the Profit Sharing/ESOP, the Taylor Family,
certain officers, directors and employees of the Bank and CTFG who will continue
with the Bank or be employed by the Company and certain other selected CTFG
stockholders. As of the date of this Prospectus, subscriptions for all 4.5
million shares offered in the Common Stock Offering have been received. See
"Security Ownership of Management and Certain Beneficial Owners."
COMPLIANCE WITH TAX AND REGULATORY REPRESENTATIONS
According to the Tax Ruling, the Split-Off Transactions will be treated as
a tax-free transaction under Section 355 of the Code. Pursuant to the Tax
Ruling, for U.S. federal income tax purposes: (i) no gain or loss will be
recognized by CTFG upon the exchange of the capital stock of the Company for
common stock of CTFG held by the Taylor Group, and (ii) no gain or loss will be
recognized by (and no amount will be included in the income of) the Taylor Group
upon their receipt of the capital stock of the Company in exchange for the
Common Stock of CTFG owned by them. Although the Tax Ruling will generally be
binding upon the IRS, the Tax Ruling was issued based upon certain factual
representations and assumptions. If any such factual representations or
assumptions are incorrect or untrue in any material respect, the Tax Ruling may
be invalidated.
LIABILITIES UNDER SHARE EXCHANGE AGREEMENT
The Taylor Family has indicated that the Share Exchange Agreement was
executed by representatives of the Taylor Family and CTFG with a view to various
obligations of the Taylor Family also becoming obligations of the Company or the
Bank once the Company was organized and had acquired the Bank and the Mortgage
Company. Among other covenants of the Taylor Family made in the Share Exchange
Agreement are covenants providing for indemnification of CTFG by the Taylor
Family for any breach of any representation, warranty or agreement of the Taylor
Family contained in the Share Exchange Agreement, for brokerage fees and
commissions payable on the basis of action taken by the Taylor Family, and for
25% of Losses of CTFG arising out of the Share Exchange Agreement and
termination of outstanding CTFG stock options. The Taylor Family also agreed to,
after the Closing, cause the Bank to indemnify CTFG against Losses relating to
the Bank or the Mortgage Company or CTFG's ownership of these entities.
As a means of allocating to the Company and the Bank the responsibility to
perform certain covenants of the Taylor Family, including certain covenants
relating to the indemnification of CTFG, the Company, the Taylor Family and CTFG
have entered into various agreements. Unless otherwise noted, the Taylor Family
has retained exclusive responsibility for any knowing or reckless breach of
representations and covenants of the Taylor Family made in the Share Exchange
Agreement and has agreed to indemnify the Company against losses associated with
any such inaccuracy or breach. CTFG has also agreed to provide indemnification
to the Taylor Family, the Company and the Bank in respect of certain matters
relating to CTFG and New Reliance. These arrangements are summarized more fully
below.
These agreements were approved by the Company's Board of Directors after
the Board of Directors had been advised by counsel that its fiduciary duties to
stockholders were owed solely to the Company's sole existing stockholder, CTFG.
Accordingly, the terms of these agreements were not negotiated and approved with
a view to the best interests of prospective stockholders, such as the holders of
the Preferred Stock offered
23
<PAGE> 25
hereby. These agreements should not be considered to be on terms comparable to
those which might be available in agreements negotiated at arms length between
unaffiliated parties. See "Risk Factors--Interest of Taylor Family and CTFG,
Possible Conflicts of Interest."
COMPANY OBLIGATIONS
Pursuant to the Share Exchange Agreement, the Taylor Family and CTFG agreed
to cause the Company to enter into, ratify and approve the Share Exchange
Agreement and all of the related transactions prior to the Split-Off Closing.
The Company, the Taylor Family and CTFG are expected to enter into an agreement
(the "CTFG Agreement") which implements the provisions of the Share Exchange
Agreement. The Company's obligations pursuant to the CTFG Agreement will be as
follows:
Securities Offerings. The Company will indemnify and hold harmless CTFG
against all costs and liabilities related to the offering of the Preferred Stock
offered hereby and the Common Stock issued in connection with the Split-Off
Transactions, including printing, filing fees and other expenses, and any
liabilities for misstatements or omissions in the registration statements with
respect thereto.
Tax Ruling. For a two year period after the Split-Off Closing, the Company
will agree to refrain from taking certain actions unless it has received an
opinion from a nationally recognized tax counsel, which opinion shall be
reasonably satisfactory to tax counsel for CTFG (a "Tax Opinion") that the
desired transactions and any transactions related thereto will neither affect
the tax-free nature of the exchange of stock contemplated by the Share Exchange
Agreement nor affect the Tax Ruling. To this end, the Company will agree, for
the two year period following the Split-Off Closing (a) to cause the Bank to
continue the active conduct of its banking business, (b) not to merge or
consolidate with or into any other corporation, or cause the Bank to merge or
consolidate with any other corporation, (c) not to liquidate or partially
liquidate, or cause the Bank to liquidate or partially liquidate, (d) not to
sell or transfer any significant part of its assets or permit the Bank to sell
or transfer any significant part of its assets, (e) not to redeem or otherwise
purchase any of its capital stock or permit the Bank to redeem or otherwise
purchase any of its capital stock, or (f) not to issue, or permit the Bank to
issue, additional shares of its capital stock, except as contemplated by the Tax
Ruling. The Company also may not enter into any agreement, arrangement or
understanding for transfer of control of the Bank for one year following the
Split-Off Closing (a "Transfer Arrangement"), and if the Company enters into a
Transfer Arrangement more than one year but less than two years following the
Split-Off Closing, the Company shall remain responsible for ensuring that, and
will obtain a written contractual commitment from other parties to the Transfer
Arrangement that they will ensure that, the Bank complies with the obligations
contained in this paragraph, except as otherwise set forth in the Tax Opinion.
The Company and the Bank must deliver a certificate quarterly for two years
after Split-Off Closing to the effect that they are in compliance with the
foregoing. Failure to comply with these agreements may result in the
invalidation of the tax free nature of the Split-Off Transactions, causing
substantial damages to CTFG and CTFG stockholders exchanging pursuant to the
Share Exchange Agreement. To the extent the transaction is not tax free, the
Company, the Bank and Mortgage Company could have joint and several liability
for the resulting gain to CTFG. See "Risk Factors--Liabilities Arising in the
Event of Loss of Tax-Free Status of Split-Off Transactions." and "--Liabilities
Under Share Exchange Agreement."
Deconsolidation. The Company will agree that after the Split-Off Closing it
will take such steps with CTFG and the Taylor Family in accordance with
generally accepted accounting principles as are necessary to deconsolidate the
Bank from CTFG for accounting purposes.
Employees. The Company will agree to cause the Bank to assume all liability
(and to indemnify CTFG and its subsidiaries against such liability) for any
severance or change in control payments which, as a result of the Split-Off
Closing, are owed to any employee of CTFG, the Bank or any of their affiliates
(with certain exceptions).
Benefit Plans. The Company will agree to adopt the Profit Sharing/ESOP and
will accept the transfer of participants' account balances in accordance with
the procedures outlined in the Share Exchange Agreement.
24
<PAGE> 26
Bank Indemnities. The Company will agree to cause the Bank to indemnify and
hold CTFG harmless from certain liabilities as set forth in the Share Exchange
Agreement. See "--Bank Obligations" below.
TAYLOR FAMILY INDEMNITY
The Taylor Family and the Company have entered into an agreement dated
December , 1996 (the "Indemnity Agreement") to be effective upon the Split-Off
Closing, pursuant to which the Company will agree to indemnify and hold harmless
the Taylor Family in the event the Company breaches any of the foregoing
agreements. The agreement also covers certain liabilities of the Taylor Family
pursuant to the Share Exchange Agreement.
Under the Indemnity Agreement, the Company would be obligated to indemnify
the Taylor Family against the Taylor Family's liabilities under the following
provisions of the Share Exchange Agreement, but only to the extent that any
particular liability does not arise as a result of a knowing or reckless breach
of the Share Exchange Agreement by the Taylor Family member seeking
indemnification:
Pre-Closing Transactions. The obligations of the Taylor Family and the Bank
to effect the pre-closing transactions, including, without limitation, the (i)
spin-off of the Used Automobile Receivables, (ii) the payment of the First Cash
Component, (iii) the indemnification of CTFG for severance costs arising out of
the severance of the automobile finance employees of the Bank, and (iv) the
transfer by the Bank of the Second Cash Component.
Tax Covenants. The obligations of the Taylor Family to comply with the
covenants to ensure the tax-free nature of the Split-Off Transactions set forth
in the Tax Ruling and other filings with governmental authorities other than a
breach related to the sale or transfer of their stock of the Company and other
covenants personal to the Taylor Family and within their control. In addition,
the provisions obligating the Taylor Family to cause the Company (or to cause
the Bank) to comply with the provisions described above under "--Company
Obligations--Tax Ruling."
Indemnification for Certain CTFG Liabilities. Subject to certain
exceptions, the Taylor Family would be indemnified and held harmless against its
obligation to indemnify and hold harmless CTFG from and against 25% of (i) any
Losses, including, without limitation, any costs or expenses of defense or
settlement of any suits, actions or proceedings initiated by third parties and
any judgments in such suits, actions or proceedings relating to the transactions
contemplated by the Share Exchange Agreement and (ii) any Losses relating to
disputes regarding CTFG option terminations or limitations imposed on holders of
outstanding stock options of CTFG, in each case, net of any applicable insurance
proceeds.
Further Assurance; Expenses. The Taylor Family's obligations to make
effective the transactions contemplated by the Share Exchange Agreement at the
time of the Split-Off Closing. In addition, the indemnification would cover the
Taylor Family's obligations to indemnify and hold harmless CTFG for any
brokerage fees, commissions or finder's fees payable on the basis of any action
taken or caused to be taken by the Taylor Family and the obligation of the
Taylor Family to pay its own expenses in connection with the transactions
contemplated by the Share Exchange Agreement. The Company has agreed to
reimburse the Taylor Family for these fees, commissions and expenses, which are
estimated to be $2 million. See "Certain Transactions."
The Company has agreed to advance to members of the Taylor Family, prior to
an ultimate determination of their entitlement to indemnification, the expenses
incurred by such Taylor Family member in connection with prosecuting, defending,
preparing to prosecute or defend, investigating or being or preparing to be a
witness in any proceeding to which the Indemnity Agreement relates. Any member
of the Taylor Family must repay such advances, without interest, once it is
determined that said Taylor Family member is not entitled to indemnification.
Additionally, the Taylor Family members have agreed to indemnify and hold
harmless the Company against liabilities and expenses incurred by the Company as
a result of any knowing or reckless breach of a representation or warranty by a
Taylor Family member in the Share Exchange Agreement and any knowing or reckless
breach of a covenant of the Taylor Family under the Share Exchange Agreement.
25
<PAGE> 27
BANK OBLIGATIONS
Under the Share Exchange Agreement, the Taylor Family has agreed to cause
the Bank to indemnify and hold CTFG harmless from and against (i) the severance
costs related to the termination of the Bank employees involved in the
automobile finance business, (ii) the liability set forth above under "--Company
Obligations--Securities Offerings" above, and (iii) any liability of CTFG with
respect to representations, indemnifications and guarantees customarily required
by mortgage investors to assure the validity of mortgages sold and with respect
to other assurances to purchasers of mortgages and mortgage-backed securities
from the Mortgage Company and the Bank. In addition, the Taylor Family must
cause the Bank to indemnify and hold harmless CTFG from and against any and all
Losses (as defined) (x) whenever incurred, arising or accrued, relating to the
Bank, the Mortgage Company or Alpha Capital Fund or CTFG's ownership of
securities in the Bank, the Mortgage Company or Alpha Capital Fund, or (y)
incurred, arising or accrued prior to the Closing in connection with the
transfer of the Used Automobile Receivables to a subsidiary of CTFG. See "Risk
Factors--Liabilities Under Share Exchange Agreement." Pursuant to the CTFG
Agreement, the Company has agreed to assume responsibility to CTFG for causing
the Bank to assume these obligations. See "--Company Obligations."
CTFG OBLIGATIONS
CTFG is obligated to indemnify and hold harmless the Taylor Family, its
affiliates and the Bank from and against any and all Losses with respect to (i)
any breach of any representation, warranty or agreement of CTFG contained in the
Share Exchange Agreement and (ii) any brokerage fees, commissions or finders'
fees payable on the basis of any action taken or caused to be taken by CTFG. In
addition, after the Split-Off Closing, CTFG is obligated to indemnify and hold
harmless the Taylor Family from and against any and all Losses (x) whenever
incurred, arising or accrued, relating to CTFG (except for matters for which the
Taylor Family is indemnifying CTFG pursuant to the Share Exchange Agreement) or
Cole Taylor Finance Co. or (y) incurred, arising or accrued after the Split-Off
Closing and relating to New Reliance. Pursuant to the CTFG Agreement, CTFG has
acknowledged that the Company and the Bank are entitled to the indemnification
by CTFG described above to the same extent as the Taylor Family.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of the
Preferred Stock offered hereby, after deducting underwriting discounts and
offering expenses, are approximately $ million. The Company intends to
contribute the net proceeds to the capital of the Bank in fulfillment of a
condition for regulatory approval of the Split-Off Transactions. See "The
Split-Off Transactions." The Bank will initially invest the proceeds in
investment securities and thereafter they will be used for general corporate
purposes.
In order to provide the capital contribution necessary to obtain requisite
regulatory approval to consummate the Split-Off Transactions, prior to the
Split-Off Closing the Company will have obtained the Credit Facilities,
consisting of a $25 million unsecured five year term term loan and a $5 million
unsecured one year line of credit from LaSalle National Bank. See "The Split-Off
Transactions -- Related Financing".
26
<PAGE> 28
PRO FORMA CAPITALIZATION
The following table sets forth the consolidated long-term debt and
stockholders' equity of the Company at September 30, 1996, after giving effect
to the Split-Off Transactions, the related Credit Facilities and the net
proceeds of the sale of the Preferred Stock offered hereby.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------
(IN THOUSANDS)
<S> <C>
LONG-TERM DEBT:
Federal Home Loan Bank advances(1).................................. $ 85,000
Term Loan........................................................... 25,000
Line of Credit...................................................... 2,742
Other debt.......................................................... 836
-----------
Total long-term debt........................................... 113,578
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par, 3,000,000 shares authorized,
Series A, 1,530,000 shares issued and outstanding, $25 stated
value............................................................ 38,250
Common stock, $.01 par, 7,000,000 shares authorized, 4,500,000
shares issued and outstanding.................................... 45
Surplus............................................................. 97,198
Retained earnings................................................... 0
-----------
Total stockholders' equity..................................... 135,493
-----------
Total Capitalization.................................................. $249,071
===========
REGULATORY CAPITAL RATIOS:
Consolidated Company
Tier 1 risk-based capital........................................ 6.94%
Total risk-based capital......................................... 8.20%
Leverage ratio................................................... 5.08%
Pro forma Bank only
Tier 1 risk-based capital........................................ 8.73%
Total risk-based capital(2)...................................... 9.99%
Leverage ratio................................................... 6.38%
</TABLE>
- ---------------
(1) See Note 11 of the Notes to Financial Statements of the Bank.
(2) The regulatory minimum total risk-based capital ratio as established by the
Board of Governors of the Federal Reserve System for an adequately
capitalized bank is set at 8% and for a "well-capitalized" bank is set at
10% or above. Management intends to maintain the Bank's capitalization so
that these regulatory ratios are above the "well-capitalized"
classification. The pro forma capitalization of the Bank as shown above, is
currently below the "well-capitalized" capital level. However, due to the
Bank's anticipated earnings growth subsequent to September 30, 1996 the
Bank's ratios are expected to be in excess of the "well-capitalized" capital
level by the Split-Off Closing.
27
<PAGE> 29
SELECTED BANK FINANCIAL DATA
The selected data presented below under the caption "Income Statement Data"
and "Balance Sheet Data" for and as of the years ended December 31, 1995, 1994
and 1993 are derived from the historical audited financial statements of the
Bank on a stand alone basis. The financial statements of the Bank for 1995, 1994
and 1993 were audited by KPMG Peat Marwick LLP, independent accountants. The
financial data for and as of the periods ended September 30, 1996 and 1995 and
December 31, 1992 and 1991 are derived from unaudited financial statements. This
data should be read in conjunction with the financial statements, the notes
thereto and other financial information included elsewhere in this Prospectus.
The financial data for the nine month period ended September 30, 1996 are not
necessarily indicative of the Bank's results to be expected for the full year.
The selected financial data presented below is based on the historical
results of the Bank, including the Bank's automobile receivables business, which
will be discontinued in connection with the Split-Off Transactions. This data
does not include the historical results of the Mortgage Company or Alpha Capital
Fund which will also be acquired in conjunction with the Split-Off Transactions.
The Split-Off Transactions are expected to impact the financial condition and
results of operations of the Bank on a stand alone basis. The estimated impact
of the transaction is reflected in the pro forma financial statements included
in this Prospectus and discussed in the notes and management's discussion
accompanying those pro forma financial statements. As a result of the Split-Off
Transactions, the Bank's financial position and results of operations will be
impacted by: (1) the sale and transfer of approximately $108 million of
automobile receivables, (2) the reinvestment into investment securities of a
portion of the proceeds from the automobile receivables sale as well as the
proceeds from the capital contribution received from the Company, and (3) the
recording and amortization of the fair value adjustments recorded on the Bank's
balance sheet, including substantial goodwill, as a result of the excess of the
cost of the acquisition of the Bank over the fair value of the Bank's net
assets. For a description of the pro forma effects of the Split-Off
Transactions, which will be accounted for using the purchase method of
accounting, on the Bank and the Company, see "Unaudited Pro Forma Condensed
Consolidated Financial Statements" and "Management's Discussion and Analysis of
Pro Forma Financial Condition and Results of Operations" of the Bank and the
Company.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross interest income............ $ 103,189 $ 99,513 $ 133,684 $ 116,267 $ 101,828 $ 98,967 $ 105,881
Gross interest expense........... 49,493 47,716 64,366 44,118 35,147 40,927 53,826
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.............. 53,696 51,797 69,318 72,149 66,681 58,040 52,055
Provision for loan losses........ 3,005 3,297 4,056 7,374 10,521 8,922 8,816
Noninterest income............... 11,748 10,247 14,227 12,887 15,425 14,502 12,870
Noninterest expense.............. 40,799 39,499 53,549 55,248 53,926 49,107 44,690
Provision for income taxes....... 7,288 5,732 7,774 6,512 4,937 4,551 3,515
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income....................... $ 14,352 $ 13,516 $ 18,166 $ 15,902 $ 12,722 $ 9,962 $ 7,904
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets..................... $1,846,054 $1,741,262 $1,774,032 $1,719,653 $1,544,095 $1,395,234 $1,247,628
Investments and federal funds
sold........................... 460,182 469,308 443,348 488,019 459,349 394,050 301,702
Loans............................ 1,256,214 1,185,291 1,211,622 1,130,177 986,384 904,788 821,300
Allowance for loan losses........ 24,630 23,720 23,869 22,833 19,740 14,661 12,646
Total deposits................... 1,455,807 1,334,541 1,364,075 1,293,411 1,180,845 1,130,850 1,017,571
Short-term borrowings............ 153,410 201,678 202,033 243,997 209,227 152,259 124,511
Long-term borrowings............. 85,836 60,753 61,003 47,864 37,690 5,490 623
Stockholder's equity............. 134,748 130,014 132,741 118,997 101,763 94,979 93,440
EARNINGS PERFORMANCE DATA:(1)
Return on average total assets... 1.06% 1.05% 1.05% 0.98% 0.87% 0.74% 0.64%
Return on average stockholder's
equity......................... 14.52 14.41 14.29 14.50 13.00 10.52 8.69
Net interest margin
(tax-equivalent)............... 4.33 4.40 4.38 4.88 5.11 4.83 4.71
Ratio of earnings to fixed
charges:
Including interest on
deposits..................... 1.43x 1.40x 1.40x 1.50x 1.49x 1.32x 1.20x
Excluding interest on
deposits..................... 3.12 2.36 2.42 2.84 3.04 2.73 2.09
BALANCE SHEET AND OTHER KEY RATIOS:
Nonperforming assets to total
assets......................... 0.98% 0.82% 1.08% 1.03% 1.15% 1.72% 2.69%
Nonperforming assets to total
loans plus repossessed
property....................... 1.44 1.20 1.57 1.56 1.78 2.64 4.01
Net loan charge-offs to average
loans.......................... 0.24 0.28 0.26 0.41 0.57 0.79 0.82
Allowance for loan losses to
loans.......................... 1.96 2.00 1.97 2.02 2.00 1.62 1.54
Allowance for loan losses to
nonperforming loans............ 152.30 248.40 174.76 157.61 156.67 84.61 66.32
Average stockholder's equity to
average total assets........... 7.32 7.29 7.34 6.75 6.73 7.02 7.36
</TABLE>
- ---------------
(1) The Bank was wholly owned by Cole Taylor Financial Group, Inc.; therefore,
the per share disclosure for earnings and dividends has been omitted.
28
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF
OPERATIONS
BASIS OF PRESENTATION
The following presents management's discussion and analysis of the
financial condition and results of operations of the Bank on a stand alone basis
for the first nine months of 1996 as well as 1995, 1994 and 1993. This
discussion covers the historical performance of the Bank without giving effect
to the Split-Off Transactions and should be read in conjunction with the Bank's
historical financial statements and the notes thereto appearing elsewhere in
this Prospectus. This discussion does not include the results of operations and
financial position of the Company, which was only recently formed for purposes
of the Split-Off Transactions.
The Split-Off Transactions are expected to impact the financial condition
and results of operations of the Bank on a stand alone basis. The estimated
impact of the transaction is reflected in the pro forma financial statements
included in this Prospectus and discussed in the notes and management's
discussion accompanying those pro forma financial statements. As a result of the
Split-Off Transactions, the Bank's financial position and results of operations
will be impacted by: (1) the sale and transfer of approximately $108 million of
automobile receivables, (2) the reinvestment into investment securities of a
portion of the proceeds from the automobile receivables sale as well as the
proceeds from the capital contribution received from the Company, and (3) the
recording and amortization of the fair value adjustments recorded on the Bank's
balance sheet, including substantial goodwill, as a result of the excess of the
cost of the acquisition of the Bank over the fair value of the Bank's net
assets.
OVERVIEW
For the first nine months of 1996, net income was $14.4 million, compared
with $13.5 million for the same period last year. Annualized return on average
assets increased slightly to 1.06% from 1.05% in the first nine months of 1995,
while annualized return on average equity increased to 14.52% in the first nine
months of 1996 from 14.41% in the first nine months of 1995.
Total assets grew $72.0 million, or 4.1% to $1.85 billion as of September
30, 1996 compared to December 31, 1995. During the first nine months of 1996,
loans grew $44.6 million, up 3.7% from December 31, 1995. Deposits increased
$91.7 million during the first nine months of 1996, up 6.7% from December 31,
1995. Stockholder's equity increased $2.0 million, up 1.5% from December 31,
1995. The increase in stockholder's equity was impacted by a $3.4 million
increase in the unrealized holding loss, net of tax, on securities designated
available-for-sale as a result of changes in market interest rates.
The Bank's net income of $18.2 million in 1995 represented a 14.2% increase
over net income of $15.9 million in 1994. Net income in 1994 surpassed 1993's
net income of $12.7 million by 25.0%. Total assets of the Bank were $1.77
billion, $1.72 billion and $1.54 billion at December 31, 1995, 1994, and 1993,
respectively. Loans grew to $1.21 billion in 1995, compared to $1.13 billion in
1994 and $986.4 million in 1993. Total deposits were $1.36 billion, $1.29
billion and $1.18 billion at December 31, 1995, 1994 and 1993, respectively.
Stockholders' equity increased to $132.7 million at December 31, 1995 compared
to $119.0 million and $101.8 million at December 31, 1994 and 1993,
respectively. The significant increase in stockholder's equity during 1994
included $10.0 million of capital contributions as a result of Cole Taylor
Financial Group, Inc.'s successful completion of its initial public offering.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, the difference between total interest income earned on
earning assets and total interest expense paid on interest-bearing liabilities,
is the Bank's principal source of earnings. The amount of net interest income is
affected by changes in the volume and mix of earning assets, the level of rates
earned on those assets, the volume and mix of interest-bearing liabilities, and
the level of rates paid on those interest-bearing liabilities.
29
<PAGE> 31
Net interest income (with an adjustment for tax-exempt income) for the
first nine months of 1996 was $55.6 million, an increase of 3.4% from the same
period in 1995. Growth in net interest income during the first nine months of
1996 over the comparable period last year was due to a 5.0% increase in average
earning assets partially offset by a 7 basis point decline in net interest
margin. Net interest margin, which is determined by dividing taxable-equivalent
net interest income by average interest-earning assets, decreased during the
first nine months of 1996 to 4.33%, as compared to 4.40% in the first nine
months of 1995. The net interest margin was affected by a decline in the
commercial loan yield of 42 basis points, partially offset by a shift of assets
from the lower yielding investment securities into the higher yielding loan
portfolio. The 12 basis point increase in the average rate paid on total
deposits was mostly offset by a 40 basis point and 68 basis point decline in
short-term and long-term borrowing rates, respectively.
Net interest income for 1995 (with an adjustment for tax-exempt income) was
$71.8 million, a decrease of 3.7% from 1994. Net interest income for 1994 (with
an adjustment for tax-exempt income) was $74.6 million, an increase of 8.1% from
$69.0 million in 1993. The decrease in net interest income during 1995 is
comprised of a 50 basis point decrease in net interest margin partially offset
by an increase of 7.4% in average earning assets. Net interest margin decreased
during 1995 to 4.38% as compared to 4.88% in 1994. During 1995 the cost of
interest bearing liabilities increased by 130 basis points as a result of
increased cost of deposits and short-term and long-term borrowings and a shift
from lower cost interest-bearing demand and savings accounts to higher cost time
deposits and increased use of brokered and out of market certificates of
deposit. The yield on earning assets increased by 53 basis points. Increased
volume and yield on commercial and installment loans was partially offset by an
increase in real estate mortgages in which narrower margins are earned. In 1994,
net interest income increased as a result of a 13.0% increase in average earning
assets partially offset by a 23 basis point decline in the net interest margin.
Net interest margin decreased during 1994 to 4.88% as compared to 5.11% in 1993.
The cost of interest-bearing liabilities increased by 37 basis points while the
yield on earning assets increased by 7 basis points. The Bank's net interest
margin decrease during 1994 reflects the increased cost of interest-bearing
demand deposits, time deposits and short-term borrowings, an increase in
investment securities and real estate mortgages in which narrower margins are
earned, partially offset by increased yields on commercial loans as a result of
the increases in the prime lending rate which occurred throughout the year and a
decline in the cost of savings deposits reflective of a decrease in interest
rates which had occurred in the second half of 1993.
30
<PAGE> 32
The following tables set forth certain information relating to the Bank's
average balance sheets and reflects the yield on average earning assets and cost
of average liabilities for the years indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities. Interest income is measured on a tax-equivalent basis using a 35%
rate.
ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT INTEREST AND YIELD/RATES
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
1996 1995
----------------------------------- -----------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE (%)(3) BALANCE INTEREST RATE(%)(3)
---------- -------- ----------- ---------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities(1):
Taxable......................... $ 365,617 $ 17,146 6.26% $ 404,868 $ 19,186 6.34%
Non-taxable (tax equivalent).... 65,098 4,450 9.13 66,805 4,583 9.17
---------- -------- ---------- --------
Total investment
securities............... 430,715 21,596 6.70 471,673 23,769 6.74
---------- -------- ---------- --------
Cash Equivalents.................. 26,671 1,052 5.27 9,115 402 5.90
---------- -------- ---------- --------
Loans(2):
Commercial and industrial....... 799,016 54,247 9.07 708,506 50,305 9.49
Real estate mortgages........... 221,140 12,096 7.31 215,852 12,039 7.46
Consumer and other.............. 234,253 14,673 8.37 225,806 13,879 8.22
Fees on loans................... 1,347 1,003
Less: Allowance for loan
losses........................ (24,723) (23,405)
---------- -------- ---------- --------
Net loans (tax equivalent).... 1,229,686 82,363 8.95 1,126,759 77,226 9.16
---------- -------- ---------- --------
Total earning assets....... 1,687,072 105,011 8.31 1,607,547 101,397 8.43
---------- -------- ---------- --------
NONEARNING ASSETS:
Cash and due from banks......... 68,201 64,890
Premises and equipment, net..... 16,997 14,790
Accrued interest and other
assets........................ 32,435 32,539
---------- ----------
Total nonearning assets.... 117,633 112,219
---------- ----------
TOTAL ASSETS...................... $1,804,705 105,011 7.77 $1,719,766 101,397 7.88
========== ==========
-------- --------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand
deposits................... $ 340,348 9,096 3.57 $ 344,084 9,333 3.63
Savings deposits.............. 122,468 2,349 2.56 129,270 2,507 2.59
Time deposits................. 685,664 28,657 5.58 538,564 22,501 5.59
---------- -------- ---------- --------
Total deposits............. 1,148,480 40,102 4.66 1,011,918 34,341 4.54
---------- -------- ---------- --------
Short-term borrowings............. 160,046 6,537 5.46 239,817 10,517 5.86
Long-term borrowings.............. 64,918 2,854 5.87 58,351 2,858 6.55
---------- -------- ---------- --------
Total interest bearing
liabilities.............. 1,373,444 49,493 4.81 1,310,086 47,716 4.87
---------- -------- ---------- --------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits.... 283,840 269,362
Accrued interest and other
liabilities................... 15,382 14,918
---------- ----------
Total noninterest-bearing
liabilities.............. 299,222 284,280
---------- ----------
STOCKHOLDER'S EQUITY.............. 132,039 125,400
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY............ $1,804,705 $1,719,766
========== ==========
Net interest income (tax
equivalent)..................... $ 55,518 $ 53,681
======== ========
Net interest spread............... 3.50% 3.56%
Net interest margin............... 4.33% 4.40%
==== ====
</TABLE>
- ---------------
(1) Investment securities average balances are based on amortized cost.
(2) Nonaccrual loans are included in the above stated average balances.
(3) Yields/rates are annualized.
31
<PAGE> 33
ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT INTEREST AND YIELD/RATES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------ ------------------------------ ------------------------------
YIELD/ YIELD/ YIELD/
AVERAGE RATE AVERAGE RATE AVERAGE RATE
BALANCE INTEREST (%) BALANCE INTEREST (%) BALANCE INTEREST (%)
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities(1):
Taxable...................... $ 400,868 $ 25,382 6.33% $ 402,447 $ 25,045 6.22% $ 340,177 $ 21,928 6.45%
Non-taxable (tax
equivalent)................ 66,904 6,117 9.14 65,028 5,986 9.21 59,180 5,597 9.46
----------- --------- ----------- --------- ----------- ---------
Total investment
securities............. 467,772 31,499 6.73 467,475 31,031 6.64 399,357 27,525 6.89
----------- --------- ----------- --------- ----------- ---------
Cash Equivalents............... 11,519 672 5.83 6,294 274 4.35 3,488 102 2.92
----------- --------- ----------- --------- ----------- ---------
Loans(2):
Commercial and industrial.... 719,113 68,003 9.46 681,033 57,546 8.45 630,882 49,589 7.86
Real estate mortgages........ 215,601 16,007 7.42 168,855 12,518 7.41 123,422 9,879 8.00
Consumer and other........... 226,799 18,721 8.25 204,040 15,702 7.70 194,035 15,619 8.05
Fees on loans................ 1,294 1,664 1,434
Less: Allowance for loan
losses..................... (23,506) (21,878) (18,711)
----------- --------- ----------- --------- ----------- ---------
Net loans (tax equivalent)... 1,138,007 104,025 9.14 1,032,050 87,430 8.47 929,628 76,521 8.23
----------- --------- ----------- --------- ----------- ---------
Total earning assets..... 1,617,298 136,196 8.42 1,505,819 118,735 7.89 1,332,473 104,148 7.82
----------- --------- ----------- --------- ----------- ---------
NONEARNING ASSETS:
Cash and due from banks...... 65,453 72,697 77,572
Premises and equipment,
net........................ 15,133 11,991 11,856
Accrued interest and
other assets............... 33,391 35,319 33,100
----------- ----------- -----------
Total nonearning
assets................. 113,977 120,007 122,528
----------- ----------- -----------
TOTAL ASSETS................... $1,731,275 136,196 7.87 $1,625,826 118,735 7.30 $1,455,001 104,148 7.16
=========== =========== ===========
--------- --------- ---------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing demand
deposits................. $ 344,466 12,494 3.63 $ 385,028 10,641 2.76 $ 332,948 8,267 2.48
Savings deposits........... 127,987 3,311 2.59 141,848 3,683 2.60 140,614 3,976 2.83
Time deposits.............. 552,956 31,229 5.65 436,947 18,674 4.27 380,021 15,229 4.01
----------- --------- ----------- --------- ----------- ---------
Total deposits........... 1,025,409 47,034 4.59 963,823 32,998 3.42 853,583 27,472 3.22
----------- --------- ----------- --------- ----------- ---------
Short-term borrowings.......... 233,003 13,584 5.83 227,304 9,483 4.17 210,487 6,639 3.15
Long-term borrowings........... 57,176 3,748 6.56 36,364 1,637 4.50 26,382 1,036 3.93
----------- --------- ----------- --------- ----------- ---------
Total interest bearing
liabilities............ 1,315,588 64,366 4.89 1,227,491 44,118 3.59 1,090,452 35,147 3.22
----------- --------- ----------- --------- ----------- ---------
NONINTEREST-BEARING
LIABILITIES:
Noninterest-bearing
deposits................... 273,667 273,065 254,424
Accrued interest and other
liabilities................ 14,903 15,602 12,247
----------- ----------- -----------
Total noninterest-bearing
liabilities.................. 288,570 288,667 266,671
----------- ----------- -----------
STOCKHOLDER'S EQUITY........... 127,117 109,668 97,878
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY......... $1,731,275 $1,625,826 $1,455,001
=========== =========== ===========
Net interest income (tax
equivalent).................. $ 71,830 $ 74,617 $ 69,001
========= ========= =========
Net interest spread............ 3.53% 4.30% 4.60%
Net interest margin............ 4.38% 4.88% 5.11%
==== ==== ====
</TABLE>
- ---------------
(1) Investment securities average balances are based on amortized cost.
(2) Nonaccrual loans are included in the above stated average balances.
32
<PAGE> 34
The following table allocates the changes in net interest income to changes
in either average balances or average rates for earning assets and
interest-bearing liabilities. The change in net interest income due to both
volume and rates has been allocated proportionately. Interest income is measured
on a tax-equivalent basis using a 35% rate.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
----------------------------- --------------------------------------------------------------
1996 COMPARED TO 1995 1995 COMPARED TO 1994 1994 COMPARED TO 1993
----------------------------- ----------------------------- -----------------------------
CHANGE DUE TO CHANGE DUE TO CHANGE DUE TO
------------------ ------------------ ------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Investment securities:
Taxable............... $(1,843) $ (197) $(2,040) $ (99) $ 436 $ 337 $ 3,897 $ (780) $ 3,117
Tax-exempt............ (117) (16) (133) 172 (41) 131 541 (152) 389
Cash equivalents........ 697 (47) 650 282 116 398 107 65 172
------- ------- ------- ------- -------- -------- -------- ------- --------
Loans................... 6,875 (1,738) 5,137 9,324 7,271 16,595 8,711 2,198 10,909
------- ------- ------- ------- -------- -------- -------- ------- --------
Total interest earned..... 5,612 (1,998) 3,614 9,679 7,782 17,461 13,256 1,331 14,587
------- ------- ------- ------- -------- -------- -------- ------- --------
INTEREST PAID ON:
Interest-bearing demand
deposits.............. (101) (136) (237) (1,209) 3,062 1,853 1,378 996 2,374
Savings deposits........ (131) (27) (158) (359) (13) (372) 35 (328) (293)
Time deposits........... 6,148 8 6,156 5,679 6,876 12,555 2,386 1,059 3,445
Short-term borrowings... (3,299) (681) (3,980) 243 3,858 4,101 564 2,280 2,844
Long-term borrowings.... 304 (308) (4) 1,175 936 2,111 433 168 601
------- ------- ------- ------- -------- -------- -------- ------- --------
Total interest paid....... 2,921 (1,144) 1,777 5,529 14,719 20,248 4,796 4,175 8,971
------- ------- ------- ------- -------- -------- -------- ------- --------
Net interest income....... $ 2,691 $ (854) $ 1,837 $ 4,150 $(6,937) $(2,787) $ 8,460 $(2,844) $ 5,616
======= ======= ======= ======= ======== ======== ======== ======= ========
</TABLE>
PROVISION FOR LOAN LOSSES
Management determines a provision for loan losses which it considers
sufficient to maintain an adequate level of allowance for loan losses. In
evaluating the adequacy of the allowance for loan losses, consideration is given
to historical charge-off experience, growth of the loan portfolio, changes in
the composition of the loan portfolio, general economic conditions, information
about specific borrower situations including their financial position and
collateral values, and other factors and estimates which are subject to change
over time. Estimating the risk of loss and amount of loss on any loan is
subjective. Ultimate losses may vary from current estimates. These estimates are
reviewed periodically and, as adjustments become necessary, the adjustments are
reported in income through the provision for loan losses in the appropriate
period. The provision for loan losses for the first nine months of 1996 was $3.0
million compared to $3.3 million for the first nine months of 1995. The
provision for loan losses was $4.1 million in 1995, a decrease of $3.3 million,
or 45.0%, below 1994's provision for loan losses of $7.4 million. The provision
for loan losses for 1994 decreased $3.1 million or 29.9%, compared to $10.5
million for 1993. The decrease in the provision for loan losses in 1995 and 1994
was a result of management's assessment of improved credit quality as evidenced
by the decrease in net charge-offs and the increased ratio of the allowance for
loan losses to non-performing loans. Net charge-offs through the allowance for
loan losses were $2.2 million and $2.4 million for the nine month periods ended
September 30, 1996 and 1995, respectively. Net charge-offs through the allowance
for loan losses, during 1995, 1994 and 1993 were $3.0 million, $4.3 million and
$5.4 million respectively. See "Financial Condition--Allowance for Loan Losses."
33
<PAGE> 35
NONINTEREST INCOME
The following table shows the Bank's noninterest income for the periods
indicated:
NONINTEREST INCOME
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
ENDED SEPTEMBER FOR THE YEARS ENDED DECEMBER
30, 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service charges.............. $ 6,499 $ 5,381 $ 7,452 $ 7,199 $ 6,947
Trust fees................... 2,697 2,500 3,539 3,095 2,944
Financial services income.... 147 259 307 560 882
Mortgage banking income...... 1,435 1,161 1,688 694 325
Other noninterest income..... 970 946 1,241 1,331 1,324
Nonrecurring items........... -- -- -- -- 2,438
Net investment securities
gains...................... -- -- -- 8 565
------- ------- ------- ------- -------
Total noninterest income... $11,748 $10,247 $14,227 $12,887 $15,425
======= ======= ======= ======= =======
</TABLE>
Total noninterest income increased $1.5 million, or 14.6% to $11.7 million,
for the first nine months of 1996, as compared to the first nine months of 1995.
Total noninterest income for the full year 1995 was $14.2 million, an increase
of $1.3 million, or 10.4%, over 1994's noninterest income of $12.9 million.
Total noninterest income for 1994 decreased $2.5 million, or 16.5%, compared to
$15.4 million for 1993. Total noninterest income, excluding the impact of net
investment securities gains and nonrecurring items, increased $1.3 million, or
10.5%, from 1994 to 1995, and $457,000, or 3.7%, from 1993 to 1994.
Service charges totaled $6.5 million for the first nine months of 1996, a
$1.1 million, or 20.8% increase over the first nine months of 1995 service
charges of $5.4 million. The increase is the result of increases in the business
deposit account and credit card service charges. Service charges for the full
year 1995, increased $253,000, or 3.5%, to $7.5 million from 1994 and $252,000,
or 3.6%, to $7.2 million in 1994 from 1993. The 1995 increase relates primarily
to increases in retail and merchant credit card service charges. The 1994
increase is the result of increases in overdraft charges, partially offset by
the reduction of transaction oriented deposit account services charges on
business accounts.
Trust fees increased $197,000, or 7.9%, to $2.7 million during the first
nine months of 1996, from $2.5 million during the first nine months of 1995.
This increase is related to increases in the personal and employee benefit
trusts business. Trust fees grew to $3.5 million in 1995, an increase of
$444,000, or 14.3%, over 1994's trust fees of $3.1 million. The 1995 increase is
attributable to increased employee benefit, land and exchange trust revenues. In
February 1995, the Bank completed an acquisition of approximately 1,000 land
trust accounts from a financial institution located in a suburb of Chicago. The
1994 increase is generally the result of increased land and exchange trust
revenues.
Total fees received from financial services (i.e., the sale of certain
insurance and financial services products through third party vendors) decreased
$112,000 to $147,000 for the first nine months of 1996, from $259,000 for the
first nine months of 1995. This decrease is primarily attributable to a revision
of the Bank's agreement with the third party vendor in mid-1995 which reduced
commission income earned on retail sales. This also accounts for the 1995
decrease of $253,000, or 45.2%. In 1994, total fees decreased 36.5% to $560,000
in 1994 from $882,000 in 1993. The 1994 decrease is a result of personnel
losses.
Mortgage banking income is generally comprised of gains and losses on loans
originated for sale, which includes lower of cost or market adjustments on such
loans and commitments and loan servicing income. Servicing of loans sold is
retained or released based on the best economic outcome. Since 1995 the Bank has
retained the servicing rights on approximately 75% of the loans sold into the
secondary market. The Bank has not purchased any mortgage servicing rights.
Mortgage banking income increased $274,000, or 23.6% for the first nine months
of 1996 as compared to the same period in 1995. The 1996 increase is due to
improved profit
34
<PAGE> 36
margins on loans sold, and the $92 million increase in loans sold. Loan
servicing income declined during 1996 because of increased amortization of
mortgage servicing rights and declining loan servicing rates, partially offset
by the $49 million increase in the average loan servicing portfolio. Both 1996
and 1995 periods have gains from bulk sales of mortgage servicing rights,
$451,000 in 1996 and $487,000 in 1995. During the first nine months of 1995, the
mortgage income was partially offset by a $130,000 loss on the sale of
approximately $30 million in mortgage loans previously held in the loan
portfolio which were not originated for sale. For the full year 1995, mortgage
banking income grew to $1.7 million, an increase of $994,000 over 1994's income
of $694,000, which increased $369,000, or 113.5% over 1993's mortgage banking
income of $325,000. The increase in 1995's income reflected the adoption of SFAS
No. 122 "Accounting for Mortgage Servicing Rights" which resulted in $895,000 of
additional income and an increased volume of loans sold with servicing retained.
The 1994 and 1993 reported income amounts are primarily comprised of loan
servicing income. As of September 30, 1996, and December 31, 1995, 1994 and
1993, the Bank's portfolio of mortgage loans serviced for others was
approximately $253 million, $195 million, $166 million and $135 million,
respectively.
Other noninterest income, which principally includes standby letters of
credit, ATM and vault rental fees, remained fairly flat during the nine month
periods ended September 30, 1996 and 1995, and decreased $90,000, or 6.8%, to
$1.2 million in 1995 from 1994 and was flat during 1994 compared to 1993.
Nonrecurring income in 1993 totaled $2.4 million and is attributable to a
legal settlement related to certain equipment leases purchased in December 1986.
The settlement arose as a result of a lawsuit filed against the seller claiming
breach of contract and fraud.
There were no net investment securities gains recorded during the first
nine months of 1996 or in 1995. Net investment securities gains were $8,000 and
$565,000 during 1994 and 1993, respectively. In 1994, the proceeds from
securities sales were $525,000 with a resultant gross gain of $8,000. In 1993,
the proceeds from securities sales were $42 million with resultant gross gains
and losses recorded of $717,000 and $152,000, respectively.
Noninterest Expense
The following table shows the Bank's noninterest expense for the years
indicated:
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
ENDED SEPTEMBER FOR THE YEARS ENDED DECEMBER
30, 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits................ $22,634 $21,766 $28,973 $28,691 $28,069
Occupancy of premises, net.................... 3,801 3,747 4,880 4,885 5,114
Furniture and equipment....................... 2,261 1,961 2,651 2,385 2,458
Computer processing........................... 1,484 1,212 1,676 1,444 1,403
Legal fees.................................... 1,146 1,159 1,655 1,106 1,116
Advertising and public relations.............. 1,325 1,109 1,582 2,298 2,183
FDIC deposit insurance........................ 2 1,329 1,451 2,646 2,400
Other real estate and repossessed asset
expense..................................... 897 74 1,169 999 1,292
Other noninterest expense..................... 7,249 7,142 9,512 10,794 9,891
------- ------- ------- ------- -------
Total noninterest expense................ $40,799 $39,499 $53,549 $55,248 $53,926
======= ======= ======= ======= =======
Efficiency ratio(1)........................... 62.34% 63.66% 64.38% 64.98% 68.17%
</TABLE>
- ---------------
(1) Noninterest expense divided by an amount equal to net interest income plus
noninterest income, less security gains and significant nonrecurring items.
Total noninterest expense for the first nine months of 1996, increased $1.3
million, or 3.3% over the same 1995 period. For the full year 1995, noninterest
expense decreased $1.7 million, or 3.1% as compared to 1994. The decrease in
1995 is primarily attributable to CTFG assuming approximately $2.8 million in
salary and
35
<PAGE> 37
overhead expenses that had been paid by the Bank in 1994. For 1994, noninterest
expense increased $1.3 million, or 2.5%, over the 1993 levels.
Salaries and employee benefits represent the largest category of
noninterest expense, accounting for 55.5% of the total expenses during the first
nine months of 1996, and 55.1% for the same period in 1995. For the first nine
months of 1996, salaries and benefits increased $868,000, or 4.0% over the same
1995 period. The 1996 increase includes $716,000 increase in expenses relating
to the Bank's incentive, employee stock ownership, and profit sharing plans. For
the full year 1995, salaries and benefits totaled 54.1% of the total expenses
versus 51.9% in 1994 and 52.1% in 1993. Salaries and employee benefits increased
$282,000, or 1.0%, to $29.0 million in 1995 from $28.7 million in 1994. In 1995,
certain Bank employees were transferred to CTFG. Giving effect to the transfer
of employees to CTFG, 1995 salaries and benefits increased $1.2 million or 4.4%
over 1994. During 1994, salaries and employee benefits increased $622,000, or
2.2%. Salary and employee benefits expense includes contributions to the Bank's
management incentive, employee stock ownership, and profit sharing plans of $2.2
million in 1995 and $2.9 million in both 1994 and 1993, respectively. The Bank's
group health insurance costs decreased in 1995 and 1994 to $1.7 million and $2.0
million, respectively, compared with $2.5 million in 1993. In 1995, 1994 and
1993, the average number of full-time equivalent employees at the Bank was 676,
686 and 679, respectively.
Occupancy expenses for the first nine months of 1996, increased $54,000
from the same 1995 period as a result of additional expenses relating to the
Bank's new Broadview, IL branch. Occupancy expenses remained relatively flat
during 1995. Occupancy expense decreases during 1994 relate to real estate tax
and repairs and maintenance expenses.
Furniture and equipment expenses increased $300,000 for the first nine
months of 1996 over the same 1995 period due to additional expenses relating to
technology enhancement and the Bank's new Broadview, IL branch. For the full
year 1995, furniture and equipment expenses increased $266,000, or 11.2%, after
remaining relatively flat during 1994. The 1995 increase relates to increased
depreciation charges.
Computer processing expenses for the first nine months of 1996 increased
$272,000 over the same 1995 period. This 1996 increase is due to increased
charges from the Bank's data processor and volume increases on credit card
processing charges. Computer processing expenses increased $232,000, or 16.1%,
in 1995 after remaining relatively flat during 1994. The increase is
attributable to phone line charges associated with the Bank's wide area computer
network, credit card processing charges related to the credit card program
introduced in 1995, and enhancements in certain data processing systems made in
1995.
Legal fees for the first nine months of 1996 were flat when compared to the
same 1995 period. Legal fees for the full year 1995, increased $549,000, or
49.6%, after decreasing $10,000 in 1994. The increase in 1995 is generally
attributable to increased litigation costs associated with various legal actions
concluded in 1995.
Advertising and public relations expenses for the first nine months of 1996
increased $216,000 over the same 1995 period because of an increased emphasis on
direct marketing. Advertising and public relations expense decreased $716,000,
or 31.2%, in 1995 after increasing $115,000 in 1994. The decrease in 1995 is
primarily attributable to reduced television and radio advertisements compared
to the previous two years when the Bank was attempting to raise customer
awareness levels.
For the first nine months of 1996 compared to the first nine months of
1995, FDIC deposit insurance decreased $1.3 million. For 1995 compared to 1994,
FDIC deposit insurance decreased $1.2 million. The decreases were a result of
the reductions in the premium rate assessed. FDIC deposit insurance was up
$246,000, or 10.3%, during 1994 as a result of the increased level of deposits.
For all of the periods presented, the Bank was categorized as "well-capitalized"
and, therefore, was being assessed at the lowest premium rate.
Other real estate and repossessed asset expense for the first nine months
of 1996 increased $823,000 over the same 1995 period, primarily due to costs
associated with the operation and disposition of a repossessed business
property. Provision for losses on other real estate included in these amounts
were $44,000 and $96,000 for the nine month periods ending September 30, 1996
and 1995, respectively. Other real estate and repossessed asset expense was $1.2
million, $999,000 and $1.3 million in 1995, 1994 and 1993, respectively.
Provision for losses on other real estate included in these amounts were
$243,000, $587,000 and $266,000
36
<PAGE> 38
during the years ended December 31, 1995, 1994 and 1993, respectively. The
principal balance of other real estate and repossessed assets outstanding as of
December 31, 1995, 1994 and 1993 was $5.4 million, $3.2 million and $5.1
million, respectively. See "Financial Condition--Nonperforming Loans and
Assets."
Other noninterest expense (which principally includes certain professional
fees, consulting, outside services and other operating expenses such as
telephone, postage, office supplies and printing, etc.) was relatively flat,
increasing $107,000 in the first nine months of 1996 compared to the same 1995
period. For the full year 1995, these expenses decreased $1.3 million, or 11.9%,
from 1994. The decrease in 1995 is attributable to CTFG assuming approximately
$1.6 million in certain overhead expenses that had been paid by the Bank in
1994. During 1994, other noninterest expense increased $1.1 million, or 11.6%,
from $9.7 million in 1993.
INCOME TAXES
The effective income tax rate for the first nine months of 1996 was 33.7%,
as compared to 29.8% for the first nine months of 1995. The income tax provision
for the full years of 1995, 1994 and 1993 was $7.8 million, $6.5 million and
$4.9 million, respectively. As a percentage of pretax income, income tax expense
for 1995 was 30.0%, as compared to 29.1% in 1994, and 28.0% in 1993. The Bank
filed a consolidated federal income tax return with CTFG for each of the periods
presented.
FINANCIAL CONDITION
LOAN PORTFOLIO
The Banks primary source of income is interest on loans. The following
table presents the composition of the Bank's loan portfolio at the end of the
periods indicated:
LOAN PORTFOLIO
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ---------- ---------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial...... $ 646,903 $ 638,497 $ 611,670 $580,587 $556,578 $535,807
Real estate--residential
construction................. 165,056 121,547 94,223 71,030 55,031 44,965
Real estate--mortgage.......... 177,486 207,377 202,455 135,322 106,105 84,044
Mortgage loans held-for-sale... 19,208 15,748 1,554 -- -- --
Consumer....................... 168,138 231,717 224,927 202,102 190,588 163,020
Consumer loans held-for-sale... 82,110 -- -- -- -- --
Other loans.................... 1,262 2,061 1,136 1,559 1,570 1,015
---------- ---------- ---------- -------- -------- --------
Gross loans............. 1,260,163 1,216,947 1,135,965 990,600 909,872 828,851
Less: Unearned discount........ (3,949) (5,325) (5,788) (4,216) (5,084) (7,551)
---------- ---------- ---------- -------- -------- --------
Total loans............. 1,256,214 1,211,622 1,130,177 986,384 904,788 821,300
Less: Allowance for loan
losses....................... (24,630) (23,869) (22,833) (19,740) (14,661) (12,646)
---------- ---------- ---------- -------- -------- --------
Loans, net.............. $ 1,231,584 $1,187,753 $1,107,344 $966,644 $890,127 $808,654
========== ========== ========== ======== ======== ========
</TABLE>
The loan portfolio has grown consistently each of the past five years. This
is consistent with the Bank's asset/liability strategy of increasing loans
outstanding to increase net interest income. At September 30, 1996, gross loans
increased $43.2 million, or 3.6%, over the previous year end. Gross loans
increased $81.0 million, or 7.1% at December 31, 1995, as compared to December
31, 1994. In 1994, gross loans increased $145.4 million, or 14.7%, as compared
to December 31, 1993.
Commercial and industrial loans, the largest component of the Company's
loan portfolio, increased to $646.9 million at September 30, 1996, an increase
of $8.4 million, or 1.3% from December 31, 1995.
37
<PAGE> 39
Commercial and industrial loans represented 51.3% of the loan portfolio at
September 30, 1996 and 52.5%, 53.8% and 58.6% at December 31, 1995, 1994 and
1993, respectively.
Real estate--residential construction loans increased $43.5 million, or
35.8%, to $165.1 million at September 30, 1996 as compared to December 31, 1995.
Real estate--residential construction loans represented 13.1% of the loan
portfolio at September 30, 1996 and 10.0%, 8.3% and 7.2% at December 31, 1995,
1994 and 1993, respectively.
Real estate--mortgage loans decreased $29.9 million, or 14.4%, to $177.5
million at September 30, 1996, as compared to December 31, 1995. This decline in
mortgage loans is due to normal loan amortization and prepayments and
management's asset/liability strategy to limit the growth of long-term maturity
mortgage loans. During 1993 the Bank retained all of the mortgages it
originated. The conforming originations were securitized and transferred to the
Bank's investment securities portfolio to be held to maturity. Securitization
provided the Bank with additional liquidity and risk-based capital adequacy and
therefore was a more desirable means for meeting the Bank's capacity for
long-term investments. By mid-1994, the Bank had reached its asset/liability
strategy limit for long-term fixed rate lending and began selling all conforming
loan originations with maturities over 5 years. The Bank continued to hold in
its portfolio adjustable rate mortgages and 3 to 5 year balloon loans. Beginning
in 1995, and throughout 1996, the Bank began selling all conforming mortgages
into the secondary market. Real estate--mortgage loans represented 14.1% of
gross loans as of September 30, 1996 and 17.0%, 17.8% and 13.7% at December 31,
1995, 1994 and 1993, respectively.
Mortgage loans held-for-sale increased $3.5 million, or 22.0%, to $19.2
million as of September 30, 1996, as compared to December 31, 1995. This
significant increase is due to the Bank's growing emphasis on mortgage banking
activities.
Consumer loans decreased $63.6 million, or 27.4%, to $168.1 million at
September 30, 1996, as compared to December 31, 1995. The decrease is a result
of $79.7 million of new car indirect loans, net of unearned discounts, which
were reclassified from consumer loans to consumer loans held-for-sale. Such
loans will be sold to provide cash for payments due pursuant to the Split-Off
Transactions. Consumer loans represented 13.3% of gross loans as of September
30, 1996 and 19.0%, 19.8% and 20.4% at December 31, 1995, 1994 and 1993,
respectively.
The following table sets forth the remaining maturities, net of unearned
discounts for certain consumer loans, at September 30, 1996:
MATURITIES AND RATE SENSITIVITY OF LOANS (1)
<TABLE>
<CAPTION>
OVER 1 YEAR
THROUGH 5 YEARS OVER 5 YEARS
---------------------- ----------------------
ONE YEAR FLOATING FLOATING
OR LESS FIXED RATE RATE FIXED RATE RATE TOTAL
-------- ---------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial....... $319,785 $176,269 $ 85,799 $ 52,009 $ 12,386 $ 646,248
Real estate--residential
construction.................. 69,043 31,969 51,261 12,783 -- 165,056
Real estate--mortgage........... 11,693 55,831 -- 109,962 -- 177,486
Mortgage loans held-for-sale.... 19,208 -- -- -- -- 19,208
Consumer........................ 29,611 45,697 19,488 4,627 67,864 167,287
Consumer loans held-for-sale.... 79,667 -- -- -- -- 79,667
Other loans..................... 1,262 -- -- -- -- 1,262
-------- -------- -------- -------- ------- ----------
Total...................... $530,269 $309,766 $156,548 $179,381 $ 80,250 $1,256,214
======== ======== ======== ======== ======= ==========
</TABLE>
- ---------------
(1) Maturities based upon contractual dates except for loans held for sale which
are expected to be sold within one year. Demand loans are included in the
one year or less category and totaled $11.0 million as of September 30,
1996.
38
<PAGE> 40
NONPERFORMING LOANS AND ASSETS
Management reviews the loan portfolio for problem loans through a loan
review function and various credit committees. During the ordinary course of
business, management becomes aware of borrowers that may not be able to meet the
contractual requirements of loan agreements. Such loans are placed under close
supervision with consideration given to placing the loan on a nonaccrual status,
the need for an additional allowance for loan loss, and (if appropriate) a
partial or full charge-off. Those loans on which management does not expect to
collect interest in the normal course of business are placed on a nonaccrual
status. After a loan is placed on nonaccrual status, any current year interest
previously accrued but not yet collected is reversed against current income.
Interest is included in income subsequent to the date the loan is placed on
nonaccrual status only as interest is received and so long as management is
satisfied that there is no impairment of collateral values. The loan is returned
to accrual status only when the borrower has demonstrated the ability to make
future payments of principal and interest as scheduled.
The following table sets forth the amounts of nonperforming loans and other
assets at the ends of the periods indicated:
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Loans contractually past due 90
days or more but still
accruing......................... $ 5,462 $ 3,737 $ 4,012 $ 2,151 $ 5,584 $ 8,543
Nonaccrual loans................... 10,710 9,921 10,475 10,449 11,744 10,524
------- ------- ------- ------- ------- -------
Total nonperforming loans..... 16,172 13,658 14,487 12,600 17,328 19,067
Other real estate.................. 1,583 2,928 2,843 4,628 5,373 13,588
Other repossessed assets........... 334 2,488 356 456 1,351 853
------- ------- ------- ------- ------- -------
Total nonperforming assets.... $18,089 $19,074 $17,686 $17,684 $24,052 $33,508
======= ======= ======= ======= ======= =======
Nonperforming loans to total
loans............................ 1.29% 1.13% 1.28% 1.28% 1.92% 2.32%
Nonperforming assets to total loans
plus repossessed property........ 1.44 1.57 1.56 1.78 2.64 4.01
Nonperforming assets to total
assets........................... 0.98 1.08 1.03 1.15 1.72 2.69
</TABLE>
In addition to the loans presented above, management has identified,
through its internal loan monitoring, approximately $1.4 million of loans at
September 30, 1996 which exhibit a higher than normal credit risk. These loans
are not in default but have characteristics such as recent adverse operating
cash flows or general risk characteristics that the loan officer feels might
jeopardize the future timely collection of principal or interest payments. The
ultimate resolution of these credits is subject to changes in economic
conditions and other factors.
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses has been established to provide for those
loans which may not be repaid in their entirety. Loan losses are primarily
created from the loan portfolio, but may also be generated from other sources,
such as commitments to extend credit, guarantees, and standby letters of credit.
The allowance for loan losses is increased by provisions charged to expense and
decreased by charge-offs, net of recoveries. Although a loan is charged-off by
management when deemed uncollectible, collection efforts continue and future
recoveries may occur.
The allowance is maintained by management at a level considered adequate to
cover losses that are currently anticipated based on past loss experience,
general economic conditions, information about specific borrower situations
including their financial position, collateral values, and other factors and
estimates which are subject to change over time. Estimating the risk of loss and
amount of loss on any loan is necessarily subjective and ultimate losses may
vary from current estimates. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in income through the provision
for loan losses in the
39
<PAGE> 41
periods in which they become known. The adequacy of the allowance for loan
losses is monitored by the internal loan review staff and reported to management
and the Company's Board of Directors. Although management believes that the
allowance for loan losses is adequate to absorb any losses on existing loans
that may become uncollectible, there can be no assurance that the allowance will
prove sufficient to cover actual loan losses in the future. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the adequacy of the Bank's allowance for loan losses. Such
agencies may require the Bank to make additional provisions to the allowance
based upon their judgments about information available to them at the time of
their examinations. See "Results of Operations--Provision for Loan Losses".
The following table summarizes, for the periods indicated, activity in the
allowance for loan losses, including amounts of loans charged-off, amounts of
recoveries, additions to the allowance charged to operating expense, the ratio
of net charge-offs to average total loans, the ratio of the allowance to total
loans at end of period, and the ratio of the allowance to nonperforming loans:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Average total loans......... $ 1,254,409 $1,161,513 $1,053,928 $948,339 $876,957 $779,442
========== ========== ========== ======== ======== ========
Total loans at end of
period.................... $ 1,256,214 $1,211,622 $1,130,177 $986,384 $904,788 $822,443
========== ========== ========== ======== ======== ========
ALLOWANCE FOR LOAN LOSSES:
Allowance at beginning of
period.................... $ 23,869 $22,833 $19,740 $14,661 $12,646 $10,256
---------- ---------- ---------- -------- -------- --------
Charge-offs:
Commercial and
industrial............. (1,465) (3,728) (4,280) (6,968) (7,477) (6,066)
Real estate--residential
construction........... -- -- -- -- -- --
Real estate--mortgage..... (142) (242) (290) (420) (55) (2)
Consumer and other........ (1,192) (931) (588) (583) (523) (794)
---------- ---------- ---------- -------- -------- --------
Total charge-offs...... (2,799) (4,901) (5,158) (7,971) (8,055) (6,862)
---------- ---------- ---------- -------- -------- --------
Recoveries:
Commercial and
industrial............. 323 1,581 666 2,344 969 364
Real estate--residential
construction........... -- -- -- -- -- --
Real estate--mortgage..... 9 40 -- -- -- --
Consumer and other........ 223 260 211 185 179 72
---------- ---------- ---------- -------- -------- --------
Total recoveries....... 555 1,881 877 2,529 1,148 436
---------- ---------- ---------- -------- -------- --------
Net charge-offs............. (2,244) (3,020) (4,281) (5,442) (6,907) (6,426)
---------- ---------- ---------- -------- -------- --------
Provision for loan losses... 3,005 4,056 7,374 10,521 8,922 8,816
---------- ---------- ---------- -------- -------- --------
Allowance at end of
period.................... $ 24,630 $23,869 $22,833 $19,740 $14,661 $12,646
========== ========== ========== ======== ======== ========
Net charge-offs to average
total loans(1)............ 0.24% 0.26% 0.41% 0.57% 0.79% 0.82%
Allowance to total loans at
end of period............. 1.96 1.97 2.02 2.00 1.62 1.54
Allowance to nonperforming
loans..................... 152.30 174.76 157.61 156.67 84.61 66.32
</TABLE>
- ---------------
(1) September 30, 1996 ratio is annualized.
40
<PAGE> 42
The Bank regards the allowance for loan losses as a general reserve which
is available to absorb losses from all loans. However, for purposes of complying
with disclosure requirements of the Securities and Exchange Commission, the
table below presents an allocation of the allowance for loan losses among the
various loan categories and sets forth the percentage of loans in each category
to gross loans. The allocation of the allowance for loan losses as shown in the
table should neither be interpreted as an indication of future charge-offs, nor
as an indication that charge-offs in future periods will necessarily occur in
these amounts or in the indicated proportions.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------- ---------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
LOAN LOAN LOAN LOAN LOAN LOAN
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO GROSS TO GROSS TO GROSS TO GROSS TO GROSS TO GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------- -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALLOCATED:
Commercial and
industrial.... $11,309 51.3% $11,163 52.5% $10,693 53.8% $ 2,658 58.6% $3,169 61.2% $7,070 64.6%
Real estate--
residential
construction... 2,888 13.1 2,127 10.0 1,648 8.3 -- 7.2 -- 6.0 -- 5.4
Real estate--
mortgage...... 1,967 15.6 2,231 18.3 2,040 18.0 37 13.7 12 11.7 92 10.2
Consumer and
other......... 3,184 20.0 2,972 19.2 2,891 19.9 614 20.5 715 21.1 265 19.8
UNALLOCATED..... 5,282 -- 5,376 -- 5,561 -- 16,431 -- 10,765 -- 5,219 --
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total allowance
for loan
losses........ $24,630 100.0% $23,869 100.0% $22,833 100.0% $19,740 100.0% $14,661 100.0% $12,646 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
During 1994, the Bank revised the manner in which the allowance for loan
losses is allocated to specific loan types for the purpose of complying with
disclosure requirements of the Securities and Exchange Commission. Prior periods
have not been restated.
INVESTMENT SECURITIES
The purpose of the investment portfolio is to primarily provide a source of
earnings and secondarily for liquidity management purposes. In managing the
portfolio and the composition of the entire balance sheet, the Bank seeks a
balance among earnings, credit and liquidity considerations, with a goal of
maximizing the longer-term overall profitability.
On November 15, 1995, the Financial Accounting Standards Board issued its
Special Report on the implementation of SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Guidance in the Special Report
allows entities to reclassify securities, including held-to-maturity debt
securities, without calling into question the intent of the entity to hold debt
securities to maturity in the future. The Special Report indicates that the
one-time reclassification permitted should occur as of a single date between
November 15, 1995 and December 31, 1995. In compliance with the provisions
contained in the Special Report, the Bank reclassified approximately $299.8
million of held-to-maturity securities, at amortized cost, into the
available-for-sale classification. Unrealized gains of approximately $400,000
were recorded in stockholder's equity as a result of this reclassification.
41
<PAGE> 43
The following tables present the composition and maturities of the
investment portfolio by major category as of the periods indicated:
INVESTMENT PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY TOTAL
--------------------- --------------------- ---------------------
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1996:
U.S. Treasury securities............ $ 137,813 $ 137,722 -- -- $ 137,813 $ 137,722
U.S. government agencies
securities........................ 44,848 44,910 -- -- 44,848 44,910
U.S. government agency mortgage-
backed securities................. 170,527 164,784 -- -- 170,527 164,784
States and political subdivisions... -- -- 64,748 67,301 64,748 67,301
Collateralized mortgage
obligations....................... 239 233 -- -- 239 233
Commercial paper.................... 24,934 24,811 -- -- 24,934 24,811
Other securities.................... -- -- 12,024 12,028 12,024 12,028
-------- -------- ------- ------- -------- --------
Total........................ $ 378,361 $ 372,460 $ 76,772 $ 79,329 $ 455,133 $ 451,789
======== ======== ======= ======= ======== ========
DECEMBER 31, 1995:
U.S. Treasury securities............ $ 110,897 $ 111,688 -- -- $ 110,897 $ 111,688
U.S. government agencies
securities........................ 55,131 55,738 -- -- 55,131 55,738
U.S. government agency mortgage-
backed securities................. 195,463 193,953 -- -- 195,463 193,953
States and political subdivisions... -- -- 67,110 70,733 67,110 70,733
Collateralized mortgage
obligations....................... 364 356 -- -- 364 356
Other securities.................... -- -- 9,503 9,506 9,503 9,506
-------- -------- ------- ------- -------- --------
Total........................ $ 361,855 $ 361,735 $ 76,613 $ 80,239 $ 438,468 $ 441,974
======== ======== ======= ======= ======== ========
DECEMBER 31, 1994:
U.S. Treasury securities............ $ 11,051 $ 11,087 $ 110,207 $ 106,265 $ 121,258 $ 117,352
U.S. government agencies
securities........................ -- -- 51,240 48,165 51,240 48,165
U.S. government agency mortgage-
backed securities................. 51,854 46,277 170,266 157,761 222,120 204,038
States and political subdivisions... -- -- 66,639 66,643 66,639 66,643
Collateralized mortgage
obligations....................... 1,073 1,067 -- -- 1,073 1,067
Other securities.................... -- -- 7,636 7,640 7,636 7,640
-------- -------- ------- ------- -------- --------
Total.......................... $ 63,978 $ 58,431 $ 405,988 $ 386,474 $ 469,966 $ 444,905
======== ======== ======= ======= ======== ========
DECEMBER 31, 1993:
U.S. Treasury securities............ $ 30,716 $ 31,823 $ 70,981 $ 74,319 $ 101,697 $ 106,142
U.S. government agencies
securities........................ -- -- 32,497 32,938 32,497 32,938
U.S. government agency mortgage-
backed securities................. 60,067 59,719 158,231 160,189 218,298 219,908
States and political subdivisions... -- -- 64,324 69,013 64,324 69,013
Collateralized mortgage
obligations....................... 3,327 3,279 -- -- 3,327 3,279
Other securities.................... -- -- 6,945 6,948 6,945 6,948
-------- -------- ------- ------- -------- --------
Total.......................... $ 94,110 $ 94,821 $ 332,978 $ 343,407 $ 427,088 $ 438,228
======== ======== ======= ======= ======== ========
</TABLE>
42
<PAGE> 44
INVESTMENT PORTFOLIO--MATURITY AND YIELDS
(AS OF SEPTEMBER 30, 1996)
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN WITHIN WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
---------------- ---------------- --------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ----- -------- ----- ------- ----- ------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
SECURITIES(1):
U.S. Treasury securities.... $ 89,413 6.51 % $ 48,309 5.68 % $ -- -- % $ -- -- % $137,722 6.22 %
U.S. government agencies
securities................ 29,117 6.14 15,793 6.49 -- -- -- -- 44,910 6.27
U.S. government agency
mortgage-backed
securities(3)............. 33,717 5.86 74,315 5.76 46,920 5.68 9,832 6.88 164,784 5.82
Collateralized mortgage
obligations(3)............ 233 6.15 -- -- -- -- -- -- 233 6.15
Commercial paper............ 24,811 5.32 -- -- -- -- -- -- 24,811 5.32
-------- -------- ------- ------- --------
Total
available-for-sale.... 177,291 138,417 46,920 9,832 372,460
-------- -------- ------- ------- --------
HELD-TO-MATURITY
SECURITIES(2):
States and political
subdivisions(4)........... 2,634 8.00 19,240 9.04 37,517 9.20 5,357 8.65 64,748 9.06
Other securities............ -- -- -- -- 575 8.22 11,449 6.17 12,024 6.26
-------- -------- ------- ------- --------
Total
held-to-maturity...... 2,634 19,240 38,092 16,806 76,772
-------- -------- ------- ------- --------
Total securities... $179,925 $157,657 $85,012 $26,638 $449,232
======== ======== ======= ======= ========
</TABLE>
- ---------------
(1) Based on estimated fair value.
(2) Based on amortized cost.
(3) Maturities of mortgage-backed securities and collateralized mortgage
obligations are based on anticipated lives of the underlying mortgages, not
contractual maturities.
(4) Rates on obligations of states and political subdivisions have been adjusted
to tax equivalent yields using a 35% income tax rate.
Investments in U.S. Treasury securities are generally considered to have
very low credit risk and high liquidity. U.S. government agencies securities
principally consist of Federal Home Loan Bank ("FHLB"), Federal Farm Credit Bank
and Federal National Mortgage Association ("FNMA") notes. These securities are
considered to possess a relatively low credit risk and moderate interest rate
risk. U.S. government agency mortgage-backed securities consist principally of
FNMA and Federal Home Loan Mortgage Corporation ("FHLMC") certificates. These
securities possess a higher risk level than U.S. Treasuries and agencies due, in
part, to certain prepayment risks. The Bank generally only invests in state and
municipal investment securities which are rated investment grade by nationally
recognized rating organizations. Certain municipal issues, which are restricted
to the Bank's local market area, are not rated. The Bank also invests in
commercial paper all of which is short term and investment grade. Other
securities are primarily composed of equity securities. These include Federal
Reserve Bank stock and FHLB stock that are required to be maintained for various
purposes. At September 30, 1996, the Bank held no securities of any single
issuer, other than the U.S. Treasury and U.S. government agencies securities,
including FNMA, that exceeded 10% of stockholder's equity. Although the Bank
holds securities issued by municipalities within the state of Illinois which in
the aggregate exceed 10% of stockholder's equity, none of the holdings from
individual municipal issues exceed this threshold.
43
<PAGE> 45
A significant portion of the Bank's investment securities portfolio
(approximately 76% at September 30, 1996) is used as collateral for public funds
time deposits, securities sold under agreement to repurchase and other Bank
borrowings.
DEPOSITS AND BORROWED FUNDS
The Bank's core deposits consist of noninterest- and interest-bearing
demand deposits, savings deposits, certificates of deposit under $100,000,
certain certificates of deposit over $100,000 and public funds. These deposits,
along with other borrowed funds are used by the Bank to support its asset base.
The following tables set forth the distribution of the Bank's average
deposit account balances and average cost of funds rates on each category of
deposits for the periods indicated:
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------------
1996
------------------------------
PERCENT
AVERAGE OF
BALANCE DEPOSITS RATE
---------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Noninterest-bearing demand deposits................................ $ 283,840 19.82% --%
Interest-bearing demand deposits................................... 340,348 23.76 3.57
Savings deposits................................................... 122,468 8.55 2.56
Time deposits:
Customer certificates of deposit................................. 323,834 22.61 5.49
Customer certificates of deposit over $100,000................... 72,254 5.04 5.82
Brokered certificates of deposit................................. 117,173 8.18 5.74
Public funds..................................................... 172,403 12.04 5.55
---------- ------
Total time deposits........................................... 685,664 47.87 5.58
---------- ------
Total deposits.............................................. $1,432,320 100.00%
========== ======
</TABLE>
Average deposits increased $134.2 million or 10.3% to $1.4 billion through
September 30, 1996 from the average of $1.3 billion in 1995. Average public
funds time deposits increased $57.9 million, or 50.6%. This was a result of the
Bank encouraging its municipal customers to move from repurchase agreements to
time deposits, since the reduction in the FDIC insurance premiums made
repurchase agreements less attractive to the Bank. Customer certificates of
deposit increased $48.1 million, or 13.8%. Brokered certificates of deposit
increased $26.6 million to average $117.2 million as the Bank's asset growth
continued to exceed customer deposit growth.
44
<PAGE> 46
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------- ------------------------------- -------------------------------
PERCENT PERCENT PERCENT
AVERAGE OF AVERAGE OF AVERAGE OF
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits....... $ 272,732 21.01% -- % $ 272,546 22.05% -- % $ 254,285 22.95% -- %
Interest-bearing demand
deposits.............. 344,466 26.54 3.63 385,028 31.14 2.76 332,948 30.06 2.48
Savings deposits........ 127,987 9.86 2.59 141,848 11.47 2.60 140,614 12.69 2.83
Time deposits:
Certificates of
deposit, under
$100,000............ 288,736 22.24 5.60 198,504 16.06 4.01 223,288 20.15 4.15
Certificates of
deposit, over
$100,000............ 59,210 4.56 5.73 30,024 2.43 4.02 30,632 2.76 3.45
Brokered certificates
of deposit.......... 90,528 6.97 5.30 95,976 7.76 4.81 49,438 4.47 4.65
Public funds.......... 114,482 8.82 5.99 112,443 9.09 4.35 76,663 6.92 3.39
---------- ------ ---------- ------ ---------- ------
Total time
deposits.......... 552,956 42.59 5.65 436,947 35.34 4.27 380,021 34.30 4.01
---------- ------ ---------- ------ ---------- ------
Total deposits...... $1,298,141 100.00% $1,236,369 100.00% $1,107,868 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
Average deposits increased 5.0% in 1995 as compared to an increase of 11.6%
in 1994. During 1995, average noninterest-bearing deposits were flat, average
interest-bearing demand deposits decreased 10.5%, average savings deposits
decreased 9.8% and average time deposits increased 26.5%. In 1994, average
noninterest-bearing demand deposits increased 7.2%, average interest-bearing
demand deposits increased 15.6%, average savings deposits increased .9% and
average time deposits increased 15.0%.
Since 1992, earning asset growth has exceeded core deposit growth, which
has resulted in the use of brokered and out of market certificates of deposit
and other borrowed funds. In 1995, the Bank began offering certificates of
deposit over the National CD Network. The National CD Network is a private
database that collects certificate of deposit rates from participating
institutions across the country and provides such information to its
subscribers. The balance of certificates of deposit obtained through the
National CD Network was $53.6 million at September 30, 1996. In 1992, the Bank
began issuing brokered certificates of deposit. The balance of brokered
certificates of deposit balances was $106.9 million at September 30, 1996. The
brokered and out of market certificates of deposit generally have original terms
of one to two years. Under FDIC regulations, only "well-capitalized"
institutions may fund themselves with brokered certificates of deposit without
the prior approval of regulators. The Bank was categorized as "well-capitalized"
at September 30, 1996. See "Risks Arising from the Split-Off Transactions." In
addition, municipal deposits, consisting of public funds time deposits and
repurchase agreements with municipalities have become an important funding
source for the Bank. Total municipal time deposits and repurchase agreements
approximated $238 million at September 30, 1996. Most of these deposits and
short-term borrowings are collateralized by securities which are part of the
Bank's investment portfolio.
Time deposits in denominations of $100,000 or more totaled $302.3 million
at September 30, 1996, up $86.1 million, or 39.8% from 1995. The majority of the
increase was due to increased public fund deposits. The following table sets
forth the amount and maturities of time deposits of $100,000 or more at
September 30, 1996:
TIME DEPOSITS $100,000 AND OVER
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
<S> <C>
3 months or less.................................................... $183,898
Over 3 months through 6 months...................................... 65,915
Over 6 months through 12 months..................................... 46,252
Over 12 months...................................................... 6,249
--------
Total............................................................. $302,314
========
</TABLE>
45
<PAGE> 47
The Bank also uses short-term borrowings to support its asset base. These
borrowings include federal funds purchased, securities sold under agreements to
repurchase and U.S. Treasury tax and loan note option accounts. At September 30,
1996, short-term borrowings were $153.4 million or 9.0% of total liabilities
compared with $202.0 or 12.3% of total liabilities at December 31, 1995 and
$244.0 million or 15.2% of total liabilities at December 31, 1994. In 1996,
short-term borrowings averaged $160.0 million compared with $233.0 million,
$227.3 million and $210.5 million during 1995, 1994 and 1993 respectively. The
decrease in short-term borrowings was a result of the Bank encouraging its
municipal deposit customers to move from repurchase agreements to time deposits.
The following table reflects categories of short-term borrowings having
average balances during the period greater than 30% of stockholder's equity at
the end of each year. During each reported year, federal funds purchased and
securities sold under repurchase agreements are the only categories meeting this
criteria.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------- ------------------------------------
1996 1995 1994 1993
------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FEDERAL FUNDS PURCHASED:
Balance at end of period........................... $ 23,440 $ 43,500 $ 48,450 $ 24,720
Weighted average interest rate at end of period.... 5.50% 5.94% 6.26% 3.24%
Maximum amount outstanding(1)...................... $ 42,045 $ 54,900 $ 53,750 $ 53,175
Average amount outstanding......................... $ 27,663 $ 28,227 $ 36,343 $ 46,942
Weighted average interest rate during period....... 5.27% 5.82% 4.48% 3.12%
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS:
Balance at end of period........................... $ 119,985 $148,546 $181,624 $154,007
Weighted average interest rate at end of period.... 5.17% 5.43% 5.29% 3.19%
Maximum amount outstanding(1)...................... $ 144,825 $224,907 $190,142 $166,523
Average amount outstanding......................... $ 126,624 $196,728 $179,027 $143,057
Weighted average interest rate during period....... 5.40% 5.81% 4.13% 3.22%
</TABLE>
- ---------------
(1) Based on amount outstanding at month end during each year.
The Bank's long-term borrowings consists principally of FHLB advances. The
Bank, as of September 30, 1996 had $85 million of borrowings outstanding from
the Federal Home Loan Bank of Chicago. FHLB advances totaled $60 million and
$47.0 million at December 31, 1995 and 1994, respectively. During 1995, $50
million of new advances were offset by $37 million of maturities. The Bank also
had $836,000 of non-interest bearing notes outstanding as of September 30, 1996
related to certain community reinvestment activities.
CAPITAL RESOURCES
The Bank actively monitors compliance with bank regulatory capital
requirements, focusing primarily on the risk-based capital guidelines. Under the
risk-based capital method of capital measurement, the ratio computed is
dependent on the amount and composition of assets recorded on the balance sheet,
and the amount and composition of off-balance sheet items, in addition to the
level of capital.
46
<PAGE> 48
The Bank's capital ratios were as follows for the dates indicated:
RISK-BASED CAPITAL RATIOS(1)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
SEPTEMBER 30,
1996 1995 1994 1993
------------------- ------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital............. $ 134,933 9.63% $ 130,642 10.19% $ 120,587 10.18% $ 98,826 9.29%
Tier 1 capital "well
capitalized"
requirement.............. 84,134 6.00 76,948 6.00 71,069 6.00 63,823 6.00
---------- ----- ---------- ----- ---------- ----- ---------- -----
Excess..................... $ 50,799 3.63% $ 53,694 4.19% $ 49,518 4.18% $ 35,003 3.29%
========== ===== ========== ===== ========== ===== ========== =====
Total capital.............. $ 152,549 10.88% $ 146,770 11.44% $ 135,492 11.44% $ 112,122 10.54%
Total capital "well
capitalized"
requirement.............. 140,224 10.00 128,246 10.00 118,448 10.00 106,371 10.00
---------- ----- ---------- ----- ---------- ----- ---------- -----
Excess..................... $ 12,325 0.88% $ 18,524 1.44% $ 17,044 1.44% $ 5,751 0.54%
========== ===== ========== ===== ========== ===== ========== =====
Total risk adjusted
assets................... $1,402,242 $1,282,460 $1,184,476 $1,063,714
========== ========== ========== ==========
</TABLE>
- ---------------
(1) Based on risk-based capital guidelines of the Federal Reserve Bank, a bank
is required to maintain a Tier 1 capital to risk-adjusted asset ratio of 6%
and total capital to risk-adjusted assets ratio of 10% to be considered well
capitalized.
LEVERAGE RATIO(1)(2)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
SEPTEMBER 30,
1996 1995 1994 1993
------------------- ------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital.............. $ 134,933 7.31 % $ 130,642 7.41 % $ 120,587 7.15 % $ 98,826 6.51 %
Requirement................. 110,814 6.00 105,800 6.00 101,135 6.00 91,065 6.00
---------- ----- ---------- ---- - ---------- ---- - ---------- ---- -
Excess...................... $ 24,119 1.31 % $ 24,842 1.41 % $ 19,452 1.15 % $ 7,761 0.51 %
========== ===== ========== ===== ========== ===== ========== =====
Quarterly average tangible
assets.................... $1,846,903 $1,763,327 $1,685,587 $1,517,755
========== ========== ========== ==========
</TABLE>
- ---------------
(1) The leverage ratio is defined as the ratio of Tier 1 capital to quarterly
average tangible assets.
(2) Based on Federal Reserve Bank guidelines, a bank generally is required to
maintain a leverage ratio of 4% plus an additional cushion of at least 100
to 200 basis points.
The Bank plans to open a new branch facility in late 1997 in north suburban
Chicago. While no contractor has yet been selected to construct the branch, the
anticipated cost of construction approximates $3.3 million. The cost of
construction will be funded from current operations.
LIQUIDITY
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses the Bank's
ability to meet withdrawals either on demand or at contractual maturity, to
repay borrowings as they mature and to make new loans and investments as
opportunities arise. The Bank actively manages its liquidity position to
maintain sufficient funds to respond to the needs of depositors and borrowers,
as well as to take advantage of earnings enhancement opportunities. In addition
to liquidity from core deposit growth, together with repayments and maturities
of loans and investments, the Bank utilizes the brokered and national
certificate of deposit markets, sells securities under agreement to repurchase,
and borrows overnight federal funds. The Bank is a member of the FHLB, which
affords the Bank the opportunity to borrow funds (from overnight to 10 years and
beyond) collateralized by the Bank's first mortgage residential loans and FHLB
stock.
The Bank's management uses two primary measures of liquidity to monitor its
position. The first measure is a static analysis of basic surplus, which
represents the relationship between liquid assets and short-term liabilities
which are vulnerable to non-replacement under abnormally stringent conditions.
The second measure is a 90-day cash flow forecast of the relationship between
identified funding sources and uses and the total funds required to support that
asset position. Management has targeted ranges specified for each of the
47
<PAGE> 49
measures and maintains a liquidity plan with specific action steps to provide
required liquidity under stringent conditions.
For the first nine months of 1996 and 1995, cash inflows from operating
activities exceeded operating outflows by $14.8 million and $5.7 million,
respectively. Interest received net of interest paid was the principal source of
operating cash inflows for these periods. Net cash outflows from investing
activities were $59.0 million in the first nine months of 1996 as compared to
$46.4 million in the same 1995 period. The primary usage of cash flow from
investing activities in each of these periods was net loan growth; however, in
1996 this outflow was also affected by purchases of investment securities which
exceeded investment maturities. Net cash inflows from financing activities were
$57.8 million in the first nine months of 1996 as compared to $6.6 million in
1995. For both periods, net cash inflows were attributable to deposit inflow of
$91.7 million in 1996 and $41.1 million in 1995, offset by repayments of
short-term borrowings.
Cash inflows from operating activities exceeded operating outflows by $10.2
million in 1995, $20.9 million in 1994 and $25.8 million in 1993. Interest
received net of interest paid is the principal source of operating cash inflows
in each of the above periods. Management of investing and financing activities,
and market conditions, determine the level and the stability of net interest
cash flows. The decrease in net cash provided by operating activities is a
result of increases in loans originated and held for sale due to the Bank's
increased emphasis on mortgage banking activities.
Net cash outflows from investing activities were $44.9 million in 1995 as
compared to $192.6 million in 1994 and $132.7 million in 1993. In each of the
aforementioned years, the majority of the net cash outflows from investing
activities were the result of loan growth.
Net cash inflows from financing activities were $33.9 million in 1995 as
compared to $162.9 million in 1994 and $132.8 million in 1993. In 1995, net cash
inflows were attributable to deposits of $70.7 million and long-term borrowings
of $50.3 million. During 1994, the major contributors to net cash inflows from
financing activities were deposits of $112.6 million, short-term borrowings of
$34.8 million, long-term borrowings of $25.3 million and proceeds from a capital
contribution of $10.0 million. In 1993, net cash inflows were attributable to
deposits of $50.0 million, short-term borrowings of $57.0 million and long-term
borrowings of $32.3 million.
ASSET/LIABILITY MANAGEMENT
The Bank's asset/liability management objectives are to manage, to the
degree prudently possible, its exposure to interest rate risk over both a one
year planning horizon and a longer-term strategic horizon and, at the same time,
provide a stable and steadily increasing flow of net interest income. The Bank's
primary measurement of interest rate risk is earnings at risk, which is
determined through computerized simulation modeling. The modeling estimates
changes in net interest income in response to increases or decreases in market
interest rates. The model uses the rates and maturities of the Bank's existing
interest-earning assets and interest-bearing liabilities and revises each based
on how the market interest rates move and how the specific Bank products would
respond to changes in rates. The structuring of the Bank's balance sheet is
determined by ensuring that the earnings at risk do not exceed predetermined
maximum limits. The Bank's policy requires that earnings at risk, under a 200
basis point increase or decrease in interest rates, does not exceed 10%. Given
the Bank's current interest rate risk profile, management's response to
increases in interest rates is to extend funding to lengthen liabilities and to
modify product offerings to shorten asset maturities. For example, in
expectation of rising rates the Bank's marketing and sales force would emphasize
floating rate loans, such as home equity lines and adjustable rate mortgages,
and longer term certificates of deposit and demand deposit accounts. In
addition, wholesale funding through FHLB advances or brokered certificates of
deposit would be extended in term. The Bank also uses static gap analysis to
monitor interest rate risk. A static gap matrix is prepared reflecting the
difference between interest-earning assets and interest-bearing liabilities
within specific time periods. The Bank's gap position is defined as liability
sensitive, which means its net interest margin is impacted negatively during
periods of rising interest rates. The negative impact of the rising rates must
then be minimized through growth and restructuring of the balance sheet.
48
<PAGE> 50
Interest rate swaps have been entered into by the Bank to reduce then
existing balance sheet interest rate risk. The present notional amount of all of
the interest rate swaps as of September 30, 1996 is $75 million. Under the swap
contract designated to hedge certain floating-rate commercial loans, the Bank
pays a variable rate (LIBOR based) in exchange for receiving a fixed rate. In
periods of rising interest rates, the value of the swap contract decreases and
the Bank either receives less or pays more under the terms of the contract.
Conversely, the related loans against which the hedge is designated, would earn
at the now higher rate, thereby substantially offsetting the negative impact of
the swap contract. The effect of the contract is to fix the interest received on
the hedged loans. Under the swap contract designated to hedge certain short-term
borrowings, the Bank pays a fixed rate in exchange for receiving a variable rate
(fed funds). In periods of rising interest rates, the value of the swap contract
increases and the Bank either receives more or pays less under the terms of the
contract. Conversely, the Bank would then pay the higher rate for the short-term
borrowings, substantially offsetting the positive impact of the swap contract.
The effect of the contract is to fix the rate paid on the hedged short-term
borrowings. In each case if economic conditions reduce the value of a specific
swap, that reduction in value is offset by the improved profitability of the
hedged financial instruments.
The financial impact of these swaps was to decrease net interest income by
approximately $305,000 for the nine month period ended September 30, 1996 as
compared to a decrease of approximately $270,000 for the full year 1995. During
1994 net interest income was increased by approximately $678,000 as a result of
the swap contracts. As of September 30, 1996, the estimated fair value of these
swaps was approximately $(208,000) as compared to $(796,000) at December 31,
1995 and $(2,400,000) at December 31, 1994. The financial impact of these swaps
is dependent upon market interest rates, which cannot be predicted with any
certainty.
The following table sets forth information concerning interest rate
sensitivity of the Bank's consolidated assets and liabilities as of September
30, 1996. Assets and liabilities are classified by the earliest possible
repricing date or maturity, whichever comes first.
INTEREST SENSITIVITY GAP ANALYSIS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------------------------------
NON-RATE
0-3 4-12 1-5 SENSITIVE AND
MONTHS MONTHS YEARS OVER 5 YEARS TOTAL
--------- --------- -------- -------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Cash equivalents............................ $ 11,011 $ -- $ -- $ -- $ 11,011
Investment securities(1).................... 92,906 123,571 121,104 111,651 449,232
Total loans(1).............................. 685,112 97,193 383,986 89,924 1,256,215
--------- --------- -------- -------- --------
TOTAL EARNING ASSETS........................ $ 789,029 $ 220,764 $505,090 $201,575 $1,716,458
========= ========= ======== ======== ========
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest-bearing demand deposits.......... $ 331,400 $ -- $ -- $ -- $ 331,400
Savings deposits.......................... 120,055 -- -- -- 120,055
Time deposits............................. 262,745 334,926 109,193 40 706,904
--------- --------- -------- -------- --------
Total interest-bearing deposits....... 714,200 334,926 109,193 40 1,158,359
--------- --------- -------- -------- --------
Short-term borrowings....................... 153,410 -- -- -- 153,410
Long-term debt.............................. 25,000 35,160 25,640 36 85,836
--------- --------- -------- -------- --------
Total borrowings...................... 178,410 35,160 25,640 36 239,246
--------- --------- -------- -------- --------
TOTAL INTEREST-BEARING LIABILITIES.......... $ 892,610 $ 370,086 $134,833 $ 76 $1,397,605
========= ========= ======== ======== ========
Interest sensitivity gap.................... $(103,581) $(149,322) $370,257 $201,499 $ 318,853
Derivatives affecting interest rate
sensitivity:
Pay floating interest rate swaps.......... (25,000)
Receive fixed interest rate swaps......... 25,000
Pay fixed interest rate swaps............. (50,000)
Receive floating interest rate swaps...... 50,000
Interest sensitivity gap.................... $ (78,581) $(199,322) $395,257 $201,499 $ 318,853
Cumulative gap.............................. $ (78,581) $(277,903) $117,354 $318,853 $ 318,853
Interest sensitivity gap to total assets.... (4.26)% (10.80)% 21.41% 10.92% 17.27%
Cumulative sensitivity gap to total
assets.................................... (4.26)% (15.05)% 6.36% 17.27% 17.27%
</TABLE>
- ---------------
(1) Callable investment securities are generally reported at the earlier of
maturity or call date. Loans are placed in the earliest time frame in which
maturity or repricing may occur, except for mortgage-backed
49
<PAGE> 51
securities and real estate loan maturities which are based on published
industry prepayment estimates. Those estimates are for loans and
mortgage-backed securities with comparable weighted average interest rates
and contractual maturities. Loans are stated gross of the allowance for
loan losses.
The table assumes that all savings deposits reprice in the earliest period
presented; however, the Bank believes a significant portion of these accounts
constitute a core component and are generally not rate sensitive. The Bank
believes that its aggressive lowering of interest rates paid on savings accounts
has significantly reduced the volatility of the balances in these accounts.
The table does not necessarily indicate the future impact of general
interest rate movements on the Bank's net interest income because the repricing
of certain assets and liabilities is discretionary and is subject to competitive
and other pressures. As a result, assets and liabilities indicated as repricing
within the same period may in fact reprice at different times and at different
rate levels.
EFFECTS OF INFLATION
A banking organization's assets and liabilities are primarily monetary.
Therefore, a banking organization does not necessarily gain or lose due to the
effects of inflation. Moreover, changes in interest rates, which are a major
determinant of a financial service organization's profitability, do not
necessarily correspond to changes in the prices of goods and services. An
analysis of a banking organization's asset and liability structure provides the
best indication of how a banking organization is positioned to respond to
changing interest rates and maintain profitability.
The financial statements and supplementary financial data have been
prepared, primarily, on an historical basis which is mandated by generally
accepted accounting principles. Fluctuations in the relative value of money due
to inflation or recession generally are not considered.
ADDITIONAL ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
("SFAS No. 121"), is effective for fiscal years beginning after December 31,
1995. SFAS No. 121 requires entities to review assets to be held and used in the
business for impairment and an impairment loss, if any, to be recognized if the
carrying amount of the asset exceeds the fair value of the asset as defined in
the standard. The Bank has determined that SFAS No. 121 will not have a material
impact on its financial condition or results of operations.
Statement of Financial Accounting Standards No. 123, Accounting and
Disclosure of Stock-Based Compensation ("SFAS No. 123"), is effective for fiscal
years beginning after December 15, 1995. SFAS No. 123 encourages, but does not
require, entities to recognize expense for stock-based awards based on their
fair value on the date of grant. Under SFAS No. 123, entities may continue
following the existing accounting rules (the intrinsic value method which often
results in no compensation expense), provided that pro forma disclosures are
made of what net income and earnings per share would have been had the new fair
value method been used. To do so, the fair value of options and similar awards
will have to be calculated using complex valuation techniques. Additionally,
this new standard requires entities to make significantly more disclosures
regarding employee stock options than are now required. The Bank has determined
that SFAS No. 123 will not have a material impact on its financial condition or
results of operations.
Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
("SFAS No. 125") was issued in June 1996, and is effective for fiscal years
beginning after December 31, 1996. SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on a consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Under the financial-components approach, after a transfer of
financial assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial assets it no
longer controls and liabilities that have been extinguished. If a transfer does
not meet the criteria for a sale, then the transfer is accounted for as a
secured
50
<PAGE> 52
borrowing with pledge of collateral. The Bank has determined that SFAS No. 125
will not have an impact on its financial condition or results of operations.
QUARTERLY FINANCIAL INFORMATION
The following table sets forth unaudited financial data regarding the
Bank's operations for the first three quarters of 1996 and each of the four
quarters of 1995 and 1994. This information, in the opinion of management,
includes all adjustments necessary to present fairly the Bank's results of
operations for such periods, consisting only of normal recurring adjustments for
the periods indicated. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------------------------
SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUN. 30, MAR. 31,
1996 1996 1996 1995 1995 1995 1995 1994 1994 1994 1994
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest
income... $ 35,104 $ 34,362 $33,723 $ 34,171 $ 33,932 $ 33,343 $32,238 $ 31,436 $ 29,764 $ 28,702 $26,365
Interest
expense... 17,001 16,396 16,096 16,650 16,498 16,276 14,942 12,992 11,343 10,590 9,193
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net
interest
income... 18,103 17,966 17,627 17,521 17,434 17,067 17,296 18,444 18,421 18,112 17,172
Provision
for loan
losses... 953 1,053 999 759 965 1,055 1,277 1,817 1,740 1,901 1,916
Noninterest
income... 4,084 3,963 3,701 3,980 3,401 3,596 3,250 3,296 3,161 3,199 3,223
Securities
gains,
net..... -- -- -- -- -- -- -- -- -- -- 8
Noninterest
expense... 13,574 13,288 13,937 14,050 12,719 13,280 13,500 13,919 13,902 13,752 13,675
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income
before
income
taxes... 7,660 7,588 6,392 6,692 7,151 6,328 5,769 6,004 5,940 5,658 4,812
Income
taxes... 2,623 2,603 2,062 2,042 2,166 1,888 1,678 1,712 1,742 1,716 1,342
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net
income... $ 5,037 $ 4,985 $ 4,330 $ 4,650 $ 4,985 $ 4,440 $ 4,091 $ 4,292 $ 4,198 $ 3,942 $ 3,470
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
51
<PAGE> 53
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Financial Statements include
the Company and its subsidiaries, the Bank and the Mortgage Company. The pro
forma financial statements begin with the historical financial statements of the
Bank as of September 30, 1996 (unaudited) and December 31, 1995 (audited) and
for the periods then ended. The pro forma financial statements reflect the
results of the Split-Off Transactions including the acquisition of the Bank and
the Mortgage Company by the Company, the sale or transfer of the Bank's
Automobile Finance Business as well as the consummation of the Credit Facilities
and the Preferred Stock offering described elsewhere in this Prospectus.
The pro forma balance sheets assume that the Split-Off Transactions and
Preferred Stock offering occurred on the balance sheet date and include an
estimated accrual for nonrecurring expenses attributable to the transaction. The
pro forma income statements assume that the transactions occurred on the first
date of the reporting period and include only those adjustments expected to have
a continuing impact on the Company. The pro forma financial statements are based
on the assumptions set forth in the accompanying notes and are not necessarily
indicative of the Bank's or Company's future results of operations or financial
position.
Following the pro forma financial statements is management's discussion and
analysis of financial condition and results of operations on a pro forma basis
of the Bank and the Company, highlighting the effects of the Split-Off
Transactions on the Bank and the Company. See "The Split-Off Transactions."
52
<PAGE> 54
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
HISTORICAL SPLIT-OFF PRO FORMA MORTGAGE PRO FORMA
BANK ADJUSTMENTS BANK COMPANY COMPANY(D) ELIMINATIONS(E) CONSOLIDATED
---------- ----------- ---------- -------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks................. $ 95,193 $ $ 95,193 $ 286 $ $ $ 95,479
Federal funds sold...... 10,950 10,950 10,950
Investment securities... 449,232 59,250(c) 535,532 535,532
25,250(a)
1,800(b)
Investment in
subsidiaries.......... 159,569 (159,569)
Loans held for sale..... 98,875 (77,000)(a) 21,875 8,495 30,370
Loans, less allowance
for loan losses....... 1,132,709 (30,000)(a) 1,102,709 3,400 (8,032) 1,098,077
Premises, leasehold
improvements and
equipment, net........ 15,655 8,000(b) 23,655 63 23,718
Goodwill and other
intangibles........... 4,614 40,695(b) 45,309 337 45,646
Other assets............ 38,826 38,826 126 266 39,218
---------- -------- ---------- ------ ------- -------- ----------
Total assets...... $1,846,054 $ 27,995 $1,874,049 $8,970 $163,235 $(167,264) $1,878,990
========== ======== ========== ====== ======= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits.......... $1,455,807 $ $1,455,807 $ $ $ $1,455,807
Short-term borrowings... 153,410 153,410 153,410
Accrued interest, taxes
and other
liabilities........... 16,253 4,250(b) 20,503 199 20,702
Long-term borrowings.... 85,836 85,836 8,032 27,742 (8,032) 113,578
---------- -------- ---------- ------ ------- -------- ----------
Total
liabilities..... 1,711,306 4,250 1,715,556 8,231 27,742 (8,032) 1,743,497
---------- -------- ---------- ------ ------- -------- ----------
Stockholders' equity:
Preferred stock....... -- 38,250 38,250
Common stock.......... 15,000 15,000 45 (15,000) 45
Surplus............... 52,028 (10,505)(a) 143,493 739 97,198 (143,493) 97,198
42,720(b) (739)
59,250(c)
Retained earnings..... 71,245 (71,245)(a)
Unrealized loss on
securities available
for sale, net of
tax................. (3,525) 3,525(b)
---------- -------- ---------- ------ ------- -------- ----------
Total
stockholders'
equity.......... 134,748 23,745 158,493 739 135,493 (159,232) 135,493
---------- -------- ---------- ------ ------- -------- ----------
Total liabilities
and
stockholders'
equity.......... $1,846,054 $ 27,995 $1,874,049 $8,970 $163,235 $(167,264) $1,878,990
========== ======== ========== ====== ======= ======== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
53
<PAGE> 55
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO HISTORICAL PRO
HISTORICAL SPLIT-OFF FORMA MORTGAGE FORMA
BANK ADJUSTMENTS BANK COMPANY COMPANY(J) ELIMINATIONS(K) CONSOLIDATED
---------- ----------- -------- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest & fees on loans..... $ 82,099 $(6,900)(f) $ 75,199 $ 642 $ $(332) $ 75,509
Interest on investment
securities................. 20,038 1,160(f) 24,318 8 (8) 24,318
400(g)
2,720(h)
Interest on cash
equivalents................ 1,052 1,052 1,052
------- ------- ------- ------ ------- ----- -------
Total interest
income............ 103,189 (2,620) 100,569 650 (340) 100,879
Interest expense:
Deposits................. 40,102 40,102 (8) 40,094
Short-term borrowings.... 6,537 6,537 6,537
Long-term borrowings..... 2,854 2,854 332 1,475 (332) 4,329
------- ------- ------- ------ ------- ----- -------
Total interest
expense........... 49,493 49,493 332 1,475 (340) 50,960
Net interest income.......... 53,696 (2,620) 51,076 318 (1,475) 49,919
Provision for loan losses.... 3,005 (550)(f) 2,455 2,455
------- ------- ------- ------ ------- ----- -------
Net interest income
after provision... 50,691 (2,070) 48,621 318 (1,475) 47,464
Noninterest income:
Service charges.......... 6,499 6,499 6,499
Trust fees............... 2,697 2,697 2,697
Other noninterest
income................. 2,552 2,552 457 3,009
------- ------- ------- ------ ------- ----- -------
Total noninterest
income............ 11,748 11,748 457 12,205
Noninterest expense:
Salaries & benefits...... 22,634 (320)(f) 22,314 645 1,275 24,234
Occupancy expenses....... 3,801 435(g) 4,236 78 4,314
Furniture & equipment.... 2,261 2,261 2,261
Computer processing...... 1,484 1,484 1,484
Legal fees............... 1,146 1,146 1,146
Other real estate &
repos.................. 897 897 897
Other noninterest
expense................ 8,427 (210)(f) 8,217 319 750 9,286
Goodwill amortization.... 149 2,035(g) 2,184 2,184
------- ------- ------- ------ ------- ----- -------
Total noninterest
expense........... 40,799 1,940 42,739 1,042 2,025 45,806
Income (loss) before taxes... 21,640 (4,010) 17,630 (267) (3,500) 13,863
Income taxes (benefit)....... 7,288 (690)(i) 6,598 (90) (1,190) 5,318
------- ------- ------- ------ ------- ----- -------
Net income (loss)... $ 14,352 $(3,320) $ 11,032 $ (177) $ (2,310) $ $ 8,545
======= ======= ======= ====== ======= ===== =======
Net income
applicable to
common
stockholders(l)... $ 5,927
=======
Earnings per common
share(m).......... $ 1.32
=======
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
54
<PAGE> 56
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
HISTORICAL SPLIT-OFF PRO FORMA MORTGAGE PRO FORMA
BANK ADJUSTMENTS BANK COMPANY COMPANY(D) ELIMINATIONS(E) CONSOLIDATED
---------- ---------- ---------- --------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks................. $ 87,547 $ $ 87,547 $ 565 $ $ $ 88,112
Federal funds sold...... 5,000 5,000 5,000
Investment securities... 438,348 59,250(c) 525,448 525,448
25,250(a)
2,600(b)
Investment in
subsidiaries.......... 158,564 (158,564)
Loans held for sale..... 15,748 15,748 15,748
Loans, less allowance
for loan losses....... 1,172,005 (107,000)(a) 1,065,005 1,065,005
Premises, leasehold
improvements and
equipment, net........ 16,844 8,000(b) 24,844 62 24,906
Goodwill and other
intangibles........... 3,640 41,633(b) 45,273 96 45,369
Other assets............ 34,900 34,900 192 35,092
----------- -------- ----------- ---- -------- ---------- ----------
Total assets.... $1,774,032 $ 29,733 $1,803,765 $ 627 $158,756 $(158,468) $1,804,680
=========== ======== =========== ==== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits.......... $1,364,075 $ $1,364,075 $ $ $ $1,364,075
Short-term borrowings... 202,033 202,033 202,033
Accrued interest, taxes
and other
liabilities........... 14,180 4,550(b) 18,730 83 18,813
Long-term borrowings.... 61,003 61,003 23,832 84,835
----------- -------- ----------- ---- -------- ---------- ----------
Total
liabilities... 1,641,291 4,550 1,645,841 83 23,832 1,669,756
----------- -------- ----------- ---- -------- ---------- ----------
Stockholders' equity:
Preferred stock....... 38,250 38,250
Common stock.......... 15,000 15,000 45 (15,000) 45
Surplus............... 50,826 (14,757)(a) 142,924 544 96,629 (142,924) 96,629
47,605(b) (544)
59,250(c)
Retained earnings..... 66,993 (66,993)(a)
Unrealized loss on
securities available
for sale, net of
tax................. (78) 78(b)
----------- -------- ----------- ---- -------- ---------- ----------
Total
stockholders'
equity........ 132,741 25,183 157,924 544 134,924 (158,468) 134,924
----------- -------- ----------- ---- -------- ---------- ----------
Total
liabilities
and
stockholders'
equity........ $1,774,032 $ 29,733 $1,803,765 $ 627 $158,756 $(158,468) $1,804,680
=========== ======== =========== ==== ======== ========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
55
<PAGE> 57
TAYLOR CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
HISTORICAL SPLIT-OFF PRO FORMA MORTGAGE PRO FORMA
BANK ADJUSTMENTS BANK COMPANY COMPANY(J) ELIMINATIONS(K) CONSOLIDATED
---------- ----------- --------- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest & fees on loans... $103,654 $(9,000)(f) $ 94,654 $ $ $ 94,654
Interest on investment
securities............... 29,358 1,550(f) 35,078 35,078
540(g)
3,630(h)
Interest on cash
equivalents.............. 672 672 672
-------- ------- -------- ----- ------- --------
Total interest
income............ 133,684 (3,280) 130,404 130,404
Interest expense:
Deposits................. 47,034 47,034 47,034
Short-term borrowings.... 13,584 13,584 13,584
Long-term borrowings..... 3,748 3,748 1,905 5,653
-------- ------- -------- ----- ------- --------
Total interest
expense........... 64,366 64,366 1,905 66,271
Net interest income........ 69,318 (3,280) 66,038 (1,905) 64,133
Provision for loan
losses................... 4,056 (460)(f) 3,596 3,596
-------- ------- -------- ----- ------- --------
Net interest income
after provision... 65,262 (2,820) 62,442 (1,905) 60,537
Noninterest income:
Service charges.......... 7,452 7,452 7,452
Trust fees............... 3,539 3,539 3,539
Other noninterest
income................. 3,236 3,236 3,236
-------- ------- -------- ----- ------- --------
Total noninterest
income............ 14,227 14,227 14,227
Noninterest expense:
Salaries & benefits...... 28,973 (710)(f) 28,263 92 1,700 30,055
Occupancy expenses....... 4,880 580(g) 5,460 7 5,467
Furniture & equipment.... 2,651 2,651 2,651
Computer processing...... 1,676 1,676 1,676
Legal fees............... 1,655 1,655 6 1,661
Other real estate &
repos.................. 1,169 1,169 1,169
Other noninterest
expense................ 12,349 (220)(f) 12,129 33 1,000 13,162
Goodwill amortization.... 196 2,715(g) 2,911 2,911
-------- ------- -------- ----- ------- --------
Total noninterest
expense........... 53,549 2,365 55,914 138 2,700 58,752
Income (loss) before
taxes.................... 25,940 (5,185) 20,755 (138) (4,605) 16,012
Income taxes (benefit)..... 7,774 (740)(i) 7,034 (47) (1,380) 5,607
-------- ------- -------- ----- ------- --------
Net income (loss).... $ 18,166 $(4,445) $ 13,721 $ (91) $ (3,225) $ 10,405
======== ======= ======== ===== ======= == ========
Net income applicable
to common
stockholders(l)... $ 6,915
========
Earnings per common
share(m).......... $ 1.54
========
</TABLE>
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements.
56
<PAGE> 58
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) Reflects transfer and sale of $107 million net automobile receivables
(net of $1 million in allowance for loan losses). This includes the transfer of
the estimated $31 million fair market value of Used Automobile Receivables from
the Bank to New Reliance. Loans sold totaling $77 million provide cash for
payment of the First Cash Component of $51 million required to be contributed to
New Reliance as part of the Split-Off Transactions. The proceeds from the sale
of the loans in excess of the required First Cash Component, estimated to
approximate $25 million, are assumed to be reinvested in investment securities.
It is assumed that the loans would be sold at an estimated loss of $1 million
and the allowance for loan losses would be reduced $1 million. The estimated $51
million First Cash Component assumes the tender of 4.5 million shares by the
Taylor Group in exchange for the Company.
(b) Reflects the application of purchase accounting to the assets and
liabilities of the Bank (net of deferred income taxes) and the resulting
recognition of goodwill for the excess of the cost (the "Total Purchase Price")
over the fair value of the net assets acquired. The Company's cost of the
acquired Bank is comprised of three components: (1) the Taylor Group's
proportionate interest in the Bank's book value at the balance sheet date (the
"Historical Ownership Interest") plus (2) the proportionate fair value, at the
date of the Share Exchange Agreement, of the 4.5 million shares exchanged (the
"Purchased Ownership Interest") and (3) estimated direct acquisition costs of $2
million.
The proportionate interest of the Taylor Group in the Bank is represented
by their percentage ownership in CTFG, which, assuming the exercise of all
options held by the Taylor Group and all Bank employees, approximates 28.35% of
the then outstanding shares of CTFG. This represents the Taylor Group's
Historical Ownership Interest in the Bank. Therefore, the first component of the
Total Purchase Price of the Bank represents 28.35% of the Bank's book value at
the balance sheet date (after the distribution of the $51 million First Cash
Component and $31 million Used Automobile Receivables). The Purchased Ownership
Interest is the proportionate fair value of the 4.5 million shares exchanged for
the remaining 71.65% of the book value of the Bank. It is calculated using the
average market value of the shares on the date of and two days before and two
days after the Share Exchange Agreement, dated June 12, 1996.
The excess of the cost, or total purchase price, over the fair value of the
net assets acquired is recorded as goodwill. The calculation of the goodwill is
as follows:
<TABLE>
<CAPTION>
CALCULATION OF GOODWILL
SEPTEMBER 30, 1996 DECEMBER 31, 1995
---------------------- ----------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Number of shares exchanged......................... 4.5 million 4.5 million
Market price of CTFG stock @ date of Share Exchange
Agreement........................................ $ 25.50 $ 25.50
Implied percentage of Bank stock deemed
purchased........................................ 71.65% 71.65%
----------- -----------
Purchased Ownership Interest....................... $82,218 $82,218
Historical Ownership Interest -- book value of Bank
@ 28.35%......................................... 15,025 14,456
Direct acquisition costs........................... 2,000 2,000
------- -------
Total Purchase Price of the Bank................... $99,243 $98,674
Total book value of the Bank....................... $ 134,748 $ 132,741
Transfer of cash and automobile receivables........ (81,750) (81,750)
Fair value adjustments to balance sheet, net of
deferred income taxes............................ 5,550 6,050
----------- -----------
Less: Adjusted book value of the Bank.............. 58,548 57,041
------- -------
Goodwill........................................... $40,695 $41,633
======= =======
</TABLE>
As illustrated by the calculation presented above, the actual goodwill
recorded at the Split-Off Closing depends on the Taylor Group's Historical
Ownership Interest percentage, the fair market value of the Bank's assets and
the liabilities and the Bank's total equity at the date of the Split-Off
Closing. These factors are volatile and are expected to change by the date of
the Split-Off Closing.
57
<PAGE> 59
The estimated fair value adjustments to the Bank's balance sheet relate
primarily to investment securities and premises and equipment. The adjustments
to estimated fair value are proportionate to the share of the Bank deemed to
have been purchased. Therefore, the purchase accounting adjustments reflect
71.65% of the total fair market value increases and decreases identified and no
fair value adjustments are applied to the Taylor Group's Historical Ownership
Interest in the Bank.
(c) Reflects the capital contribution from the Company's preferred stock
and long term debt proceeds into the Bank. The proceeds are assumed to be
invested in investment securities. The capital contribution is funded through
the issuance by the Company of $38 million (expected to net $36 million after
issuance costs) of noncumulative perpetual preferred stock and approximately $23
million of long term debt.
(d) Reflects the pro forma Company. Other assets include capitalized
estimated organization costs of $100,000 and the investment in Alpha Capital
Fund. Loans reflect the intercompany loan to the Mortgage Company of $3.4
million assumed as part of the Split-Off Transactions. Long term debt at
September 30, 1996 totals $28 million and is composed of the $23 million drawn
to contribute to the Bank, the approximate $1.2 million in cash paid to acquire
the Mortgage Company and Alpha Capital Fund and the $3.4 million used to assume
the intercompany loan to the Mortgage Company formerly provided by CTFG. Equity
includes the estimated net proceeds from the Preferred Stock offering and 4.5
million shares of Company common stock for the CTFG stock exchanged.
(e) Reflects the eliminations necessary to report consolidated financial
statements. The Company's investment in the Bank and Mortgage Company are
eliminated. In addition, the intercompany loans from the Bank and the Company to
the Mortgage Company are eliminated. These consolidation entries cause the
excess of the purchase price over the fair value of the net assets of the
Mortgage Company totaling $337,000 at September 30, 1996 to be reclassified from
investment in subsidiaries to goodwill and other intangibles.
(f) Reflects the estimated impact to the Bank's income statement of the
sale and transfer of the estimated $108 million in automobile receivables.
Interest and fees on loans is reduced as well as the direct costs to originate
and service these automobile receivables and the related estimated provisions
for loan losses for the period. This adjustment also reflects the interest
income earned on the reinvestment of the excess proceeds from the loan sale of
approximately $25 million at a 6.125% yield. The reinvestment yield is the three
year U.S. Treasury security market yield at September 30, 1996.
(g) Reflects the amortization of the purchase accounting adjustments.
Premises and equipment is amortized over 20 and 7 years, respectively,
investment securities over approximately 7 years and goodwill over 15 years. The
amortization is based on the fair market value adjustments and goodwill computed
as of September 30, 1996.
(h) Reflects the interest income on the investment of the estimated $59
million capital contribution at the Bank in investment securities at a 6.125%
yield. The reinvestment yield is the three year U.S. Treasury security market
yield at September 30, 1996.
(i) Reflects the tax effect of the pro forma adjustments, excluding
goodwill amortization, at a 35% tax rate in 1996 and 30% in 1995.
(j) Reflects the pro forma Company income statement including the estimated
interest expense on the cost of the long term debt and the estimated salary and
other operating expenses of the Company. Both periods assume a cost on the debt
of 8.25% which is the prime rate at September 30, 1996. The interest expense for
the nine months ended September 30, 1996 is based on debt outstanding at January
1, 1996 of $23.8 million. The 1995 interest expense is based on debt outstanding
of $23.1 million.
(k) Reflects the eliminations necessary to report condensed consolidated
financial statements. Interest income and expenses on intercompany loans is
eliminated as well as interest earned on deposits maintained by the Mortgage
Company at the Bank.
58
<PAGE> 60
(l) Assumes the issuance of $38.25 million of Preferred Stock at an annual
dividend rate of 9.125%. The dividend rate is based on the market yield of the
thirty year U.S. Treasury security plus 2.25%, which approximates the pricing of
other perpetual preferred stock offerings for comparably rated financial
institutions.
(m) The Company intends to establish a stock option plan in the future.
Issuance of stock options could have a dilutive effect on earnings per common
share.
59
<PAGE> 61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PRO FORMA FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The following presents management's discussion and analysis of the
financial condition and results of operations of the Bank and the consolidated
Company on an unaudited pro forma basis as of September 30, 1996 and December
31, 1995 and for the nine month period and year then ended. The discussion
compares the effects of the Split-Off Transactions and formation of the Company
on the Bank and the consolidated Company, with the Bank on a historical basis.
This discussion should be read in conjunction with the Unaudited Pro Forma
Condensed Consolidated Financial Statements and the accompanying notes which
describe the assumptions used in the preparation of the Unaudited Pro Forma
Condensed Consolidated Financial Statements. See "Unaudited Pro Forma Condensed
Consolidated Financial Statements" and "The Split-Off Transactions".
RESULTS OF OPERATIONS
OVERVIEW
For the first nine months of 1996, pro forma Bank only net income was $11.0
million as compared to $14.4 million on an historical basis. Annualized return
on average assets was .80% on a pro forma basis as compared to 1.06% on an
historical basis. Annualized return on average equity was 9.46% on a pro forma
basis as compared to 14.52% on an historical basis. For the first nine months of
1996, pro forma consolidated Company net income was $8.5 million and annualized
return on average assets and equity was .62% and 8.60% respectively.
Pro forma Bank only net income for 1995 was $13.7 million as compared to
$18.2 million on an historical basis. Return on average assets was .78% on a pro
forma basis as compared to 1.05% on an historical basis. Return on average
equity was 9.01% on a pro forma basis as compared to 14.29% on an historical
basis. Pro forma consolidated Company net income for 1995 was $10.4 million and
annualized return on average assets and equity was .59% and 8.05% respectively.
NET INTEREST INCOME
Net interest income for the Bank decreased $2.6 million, or 4.9%, for the
nine months ended September 30, 1996 and $3.3 million, or 4.7%, for 1995 on a
pro forma basis as compared to historical results. The net interest margin
declined to 4.18% in 1996 and 4.23% in 1995 on a pro forma basis as compared to
the historical net interest margins of 4.33% and 4.38%, respectively. The
decline in net interest margin resulted from the change in the mix of assets on
a pro forma basis as certain earning assets are replaced by a combination of
lower earning and nonearning assets. In connection with the Split-Off
Transactions, $107 million of net automobile receivables are expected to be
transferred and sold. The average yield of these loans approximated 8.40% over
the periods shown. A portion of the proceeds from the sale, estimated at $25
million, as well as funds received from the capital contribution to be received
from the Company, estimated at $59 million, are assumed to be reinvested in
investment securities yielding 6.125%. It is management's intention to
ultimately reinvest these proceeds in higher yielding loans. Average earning
assets on a pro forma basis declines $21 million, or 1.2% for 1996 and $20
million, or 1.2% for 1995 in comparison to historical average earning assets of
$1.7 billion and $1.6 billion for 1996 and 1995 respectively.
The negative impact of the change in the mix of assets is partially offset
by the write down of the existing investment securities to fair market value at
the balance sheet date in accordance with purchase accounting requirements. The
resulting discount is accreted into interest income over the life of the
respective securities, which approximates 7 years.
Net interest income on a consolidated pro forma basis is further reduced,
by $1.5 million to $49.9 million for the nine months ended September 30, 1996
and reduced $1.9 million to $64.1 million for the 1995 year, for the estimated
interest expense for Company debt. The consolidated pro forma net interest
margin is 4.08% for
60
<PAGE> 62
the nine months ended September 30, 1996 and is 4.11% for the year ended
December 31, 1995. The interest expense is based on the pro forma debt
outstanding of approximately $24 million and $23 million at January 1, 1996 and
1995 respectively.
PROVISION FOR LOAN LOSSES
The pro forma provision for loan losses decreases $550,000, or 18.3% for
the nine months ended September 30, 1996 and $460,000, or 11.3% for 1995 as
compared to the historical provision of $3.0 million and $4.1 million for 1996
and 1995 respectively. The decrease in the provision is a result of the
disposition of the $107 million of net automobile receivables. The reductions in
the provision represent the estimated provisions relating to the automobile
receivables identified to be sold or transferred as a result of the Split-Off
Transactions.
NONINTEREST EXPENSE
The Bank's pro forma noninterest expense for the first nine months of 1996
increased $1.9 million, or 4.8%, to $42.7 million as compared to $40.8 million
on an historical basis. Noninterest expense for 1995 increased $2.4 million, or
4.4%, to $55.9 million on a pro forma basis as compared to $53.5 million on an
historical basis. The increase is primarily attributable to the amortization of
the goodwill created as a result of the Split-Off Transactions. The write-up of
the Bank's premises and equipment to estimated fair value also results in
increased depreciation expenses. The negative impact of these charges is
partially offset by the estimated cost reductions as a result of the Bank's
departure from the automobile receivables business. Estimated savings from the
salaries and other direct expenses of the origination and servicing of these
loans totaled $530,000 for the nine month period ended September 30, 1996 and
$930,000 for the 1995 year.
In addition, the expenses of the Mortgage Company increase total
noninterest expenses by $1.0 million for the nine months ended September 30,
1996. Total noninterest expense on a consolidated pro forma basis is further
increased, by $2.0 million to $45.8 million for the nine month period ended
September 30, 1996 and by $2.7 million to $58.8 million for the year ended 1995,
as a result of estimated Company expenses for salaries and overhead.
FINANCIAL CONDITION
LOAN PORTFOLIO
As a result of the sale and transfer of the $107 million of net automobile
receivables, the Bank's pro forma loan portfolio, including loans held for sale,
declines 8.7% to $1.125 billion and 9.0% to $1.081 billion at September 30, 1996
and December 31, 1995, respectively. The mix of the loan portfolio changes as a
result of the sale and transfer. Consumer loans as a percentage of the total
loan portfolio decreases to 12% at September 30, 1996 on a pro forma basis from
20% on an historical basis.
ALLOWANCE FOR LOAN LOSSES
In connection with the sale and transfer of the $108 million of automobile
receivables, the allowance for loan losses is assumed to be reduced by $1
million. The Bank's pro forma allowance as a percentage of total loans at
September 30, 1996 is 2.06% as compared to 1.96% on an historical basis. The
consolidated Company's pro forma allowance as a percentage of total loans at
September 30, 1996 is 2.05%.
INVESTMENT SECURITIES
Investment securities increase $84.5 million as a result of the
reinvestment of the remaining proceeds received from the sale of certain
automobile receivables, estimated to be $25.25 million and the capital
contribution, estimated to be $59.25 million from the Company to the Bank. In
addition, securities designated as held to maturity are assumed to be written up
to the fair market value of the securities at the balance sheet date.
61
<PAGE> 63
CAPITAL RESOURCES
Total pro forma Bank equity at September 30, 1996 increases by $24 million
to $158 million as compared to historical equity of $135 million. Pro forma
equity is first decreased by approximately $82 million due to the distribution
of cash and the Used Automobile Receivables to New Reliance. The application of
purchase accounting at the Bank then results in a pro forma increase in total
equity of $46 million at September 30, 1996. Finally, Bank equity is increased
with a capital contribution of $59 million.
Although total pro forma Bank equity increases from historical equity, the
Bank's pro forma tangible capital at September 30, 1996 decreases by $20
million. Tier 1 risk-based capital at September 30, 1996 is 8.73% on a pro forma
basis as compared to 9.63% on an historical basis. Pro forma total risk-based
capital is 9.99% at September 30, 1996 as compared to 10.88% on an historical
basis. It is management's intention that the Bank remain "well capitalized"
after the consummation of the Split-Off Transactions. Management expects the
Bank's earnings subsequent to September 30, 1996 to raise the Bank's historical
total equity such that the assumed capital contribution of $59 million results
in a total risk-based capital ratio of at least 10.0% at the time of the
Split-Off Closing. A failure to meet the regulatory risk-based capital
guidelines for a "well capitalized" institution potentially impacts the Bank's
use of brokered certificates of deposit as a funding source and may increase
FDIC deposit insurance premiums. In addition, beginning on January 1, 1997, the
premium rate for FDIC insurance will be .0129% per $100 of deposits for "well
capitalized" banks as compared to .0429% per $100 of deposits for "adequately
capitalized" banks. Based on the Bank's deposits at September 30, 1996, should
the Bank be deemed "adequately capitalized," this insurance premium differential
could increase the annual cost of FDIC insurance to the Bank by approximately
$420,000.
The consolidated Company's pro forma tangible capital totals $108.3
million. Pro forma Tier 1 risk-based capital and total risk-based capital is
6.94% and 8.20% respectively. The consolidated pro forma leverage capital ratio
is 5.08%. As a result, the Company will be deemed "adequately capitalized" for
purposes of various banking regulations.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
As a result of the sale of the automobile receivables and the proceeds from
the capital contribution, the Bank's liquidity on a pro forma basis would
improve. The immediate impact to the Bank's interest rate risk profile and gap
position as a result of the Split-Off Transactions is dependent on the term and
structure of the investment securities acquired with the cash received. After
re-deployment of the net sale proceeds and the capital contribution consistent
with the Bank's existing asset/liability management strategy, no significant
impact to the Bank's position and profile is expected.
62
<PAGE> 64
BUSINESS
GENERAL
The Company, a newly incorporated bank holding company, wholly owns the
Bank, which commenced operations over 60 years ago as Main State Bank. The Bank
provides a full range of commercial and consumer banking services both to small
and mid-size businesses and to individuals through its ten branch offices in
Chicago neighborhoods and suburban Cook County, Illinois and DuPage County,
Illinois. The Bank's historical market niche has been providing commercial loans
to small and mid-size companies located in the Chicago metropolitan area. The
Company also wholly owns the Mortgage Company, a Delaware corporation, which
began operations in the first quarter of 1996 and competes in the subprime
mortgage market for residential loans on a brokered basis. The Mortgage
Company's principal office is located in Altamonte Springs, Florida. Through its
subsidiaries, the Mortgage Company currently provides mortgage services
primarily to borrowers in the southeastern United States.
Main State Bank was acquired by Irwin Cole and Sidney J Taylor in 1969. In
1978, Drovers National Bank was purchased and several years later CTFG was
created as a holding company to own and operate these two banks. The Bank of
Yorktown was acquired in 1982 and Wheeling Trust & Savings Bank, Ford City Bank
& Trust Co. and Skokie Trust & Savings Bank were acquired in 1984. At the end of
1988, the banks (other than the Bank of Yorktown), were merged into Cole Taylor
Bank, which became the first Illinois bank to deliver services through a branch
bank system. The Bank of Yorktown was merged into Cole Taylor Bank in 1992.
OPERATIONS OF THE COMPANY AFTER THE SPLIT-OFF TRANSACTIONS; GROWTH STRATEGY
The Company's strategy for the Bank and Mortgage Company is to continue to
improve their earnings and financial condition by following the key initiatives
outlined below.
Grow and Improve Core Commercial Bank Business. The Company intends to
continue to grow and improve the Bank's core commercial bank business and to
further improve its management of credit and interest rate risk. The Bank's
strategy will be to continue to emphasize relationship banking for small to mid-
sized business customers in the Chicago metropolitan market. The Bank also
intends to improve its core business by selling additional banking services to
its existing customer base.
Increase Fee Income. The Company plans to continue to increase the Bank's
fee income by more intensively marketing an integrated array of lending, cash
management, investment and trust services and other fee producing products. The
Bank's marketing efforts have focused on offering its core fee income services
to new and existing customers, through initiatives in its professional and
executive banking area, as well as marketing new financial services through its
retail operations.
Expand Deposit Gathering Capabilities. The Company intends to expand
deposit gathering capabilities by considering strategic opportunities to open de
novo bank branches, such as its planned branch site expected to open in late
1997 across from the Old Orchard shopping mall in north suburban Chicago, to
complement the Bank's existing branch network. The Company will continue to
market products and services which expand its customer base and enhance its
relationships with existing customers. Finally, the Company intends to increase
its cross-selling of deposit products to customers of other Bank products.
Selectively Expand Subprime Mortgage Financing Activities. The Company
plans to continue to expand the Mortgage Company's subprime mortgage financing
activities by purchasing additional loans, by increasing its warehouse funding
capability and by opening retail offices in the Chicago area or in other
regions.
THE BANK
The Bank offers various loan products such as commercial and industrial
loans, residential construction and mortgage loans, consumer loans and a full
range of deposit services including checking, savings and money market accounts
and certificates of deposit. The Bank's trust and investment department provides
a wide array of trust services for corporations and individuals.
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The Bank's primary market is the Chicago metropolitan area. According to
recent census data, the Chicago metropolitan area is the third largest
metropolitan area in the United States with a population of approximately 7.0
million. With approximately 600,000 manufacturing jobs, 1.1 million jobs in
retail/wholesale trade, transportation and public utilities, and 300,000 jobs in
finance, insurance and real estate, the Chicago metropolitan area follows only
the New York and Los Angeles metropolitan areas in total non-agricultural wage
and salary employment. The Chicago metropolitan area is not dependent on any
particular industry, and population and employment in the area remained
relatively constant from 1980 to 1990. Five of the Bank's branch offices are
located in Chicago neighborhoods and the remainder are located in suburban Cook
and DuPage counties. A substantial majority of the Bank's total consolidated net
loans are attributable to customers located in the Chicago metropolitan area.
Generally, each branch draws most of its deposits from and makes most of its
consumer and small business loans within a three mile radius of the respective
branch; however, the Bank's branches provide commercial banking services and
make industrial loans to companies located throughout the Chicago metropolitan
area.
The following table presents certain information about each of the Bank's
branches:
<TABLE>
<CAPTION>
TOTAL DEPOSITS AT SEPTEMBER 30, 1996
BANK BRANCH YEAR OPENED OR ACQUIRED ------------------------------------
- ---------------------------------------- ----------------------- (IN THOUSANDS)
<S> <C> <C>
Chicago Branches:
824 East 63rd Street (Woodlawn) Opened 1993 $ 11,496
1965 North Milwaukee Avenue (Chicago) Acquired 1969 91,187
850 West Jackson Boulevard (Jackson) Opened 1987 30,995
1542 West 47th Street (Ashland) Acquired 1978 171,246
7601 South Cicero Avenue (Cicero) Acquired 1984 192,335
Suburban Branches:
Lombard (Yorktown) Acquired 1982 156,023
Skokie Acquired 1984 377,495
Burbank Acquired 1984 176,971
Broadview Opened 1995 31,118
Wheeling Acquired 1984 216,940
</TABLE>
The Bank's staff focuses on establishing and maintaining long-term
relationships with customers. The Bank encourages its officers to actively
participate in community organizations and, within credit and rate of return
parameters, the Bank attempts to ensure that it meets the credit needs of its
communities and that it invests in local municipal securities. The Bank has
focused its efforts on its "Relationship Builders" advertising campaign and
promoting programs such as the Bank's "Sweat Equity" program, in which
commercial lenders, branch managers and trust officers from the Bank spend a day
working at a customer's business.
LOANS AND INVESTMENTS
General. In allocating its assets among locally generated loans, investment
assets and other earning assets, the Bank attempts to maximize return while
managing risk at an acceptable level. The Bank has identified and implemented
strategies to reach these goals, including an emphasis on quality local loan
growth, diversification and long-term performance of its earning asset
portfolios. The following is a brief description of the types of lending and
investment activities engaged in by the Bank. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial
Condition--Loan Portfolio" and "Management's Discussion and Analysis of Pro
Forma Financial Condition and Results of Operations-- Financial Condition--Loan
Portfolio."
Commercial and Industrial Loans. Commercial and industrial loans represent
the largest portion of the Bank's loan portfolio. On a pro forma basis after
giving effect to the Split-Off Transactions, at September 30, 1996 approximately
56% of loans outstanding were in this category. The Bank makes both
collateralized and unsecured loans. Collateral for loans generally includes
accounts receivable, inventory, equipment and real
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estate. Included in this category are commercial real estate loans which are
generally collateralized by owner-occupied properties used for business
purposes.
Real Estate--Residential Construction Loans. The real estate-residential
construction loan portfolio consists primarily of loans to professional
homebuilders and developers. These loans have increased in recent years
primarily because of an increase in homebuilding in the Chicago metropolitan
area. Generally, these loans are structured with three components: a
non-revolving lot loan which is used to fund costs other than construction, such
as marketing and architectural costs and financing fees; a construction revolver
primarily relating to pre-sold homes; and a letter of credit which the bank
issues to guarantee the performance of a customer to a third party. These loans
generally mature and are completely repaid within two years and bear interest at
an annual rate based upon prime. On a pro forma basis after giving effect to the
Split-Off Transactions, at September 30, 1996 approximately 14% of the Bank's
loans were residential construction loans.
Real Estate Mortgage Loans. The real estate mortgage loan portfolio
primarily consists of first mortgage loans for single-family properties. On a
pro forma basis after giving effect to the Split-Off Transactions, at September
30, 1996, 17% of the Bank's loan portfolio was real estate mortgage loans.
Approximately 65% of the portfolio consisted of fixed rate loans at September
30, 1996, with approximately 50% of the fixed rate loans comprised of balloon
loans with 3 to 5 year original maturities. The remaining 35% of the portfolio
consists of adjustable rate mortgage loans. Beginning in 1995 and throughout
1996, the Bank began selling all conforming mortgages into the secondary market.
In late 1995, the Bank began purchasing loans on a wholesale basis from approved
mortgage bankers and other financial intermediaries. Currently, approximately
60% of originations are originated through the Bank's retail network and 40% are
originated through its wholesale sources. Both retail and wholesale loans are
underwritten by the Bank and processed for pooling and sale into the secondary
market.
From the time a formal commitment is extended to the borrower until the
sale of the resulting mortgage loan to the secondary mortgage market investor,
the Bank is exposed to changes in interest rates which impact the market values
of these loans. The primary method used to manage interest rate risk is forward
sale of the mortgages or mortgage securities. Management of this risk is
monitored daily by the Mortgage Risk Management Committee of the Bank. Mortgage
loans held for sale are valued at the lower of cost or fair value. Fair value is
the commitment price for loans sold forward and market prices for loans not
hedged.
Servicing of loans sold is retained or released based upon which method
provides a more economic outcome. Beginning in 1995, the Bank adopted SFAS No.
122, "Accounting for Mortgage Servicing Rights" which allows the Bank to
capitalize the fair value of the loan servicing rights at the time the loans are
sold into the secondary market. The servicing rights are then amortized over the
estimated servicing life of the loan and is a reduction of loan servicing
income. Since 1995, the Bank has retained the servicing rights on approximately
75% of the loans sold into the secondary market. The current servicing portfolio
consists primarily of FHLMC and FNMA mortgage backed securities pool servicing
that was originated in-house. The Bank has not purchased any mortgage servicing
rights. The Bank derives servicing income by collecting the difference between
the note rate of the loans and the pass-through rate paid to the investor.
Typically, this difference is 25 to 35 basis points of the loan balances. The
Bank also receives late and service charge revenue generated from these loans.
During 1995 and 1996, the Bank sold a portion of these servicing rights,
representing 20% in 1995 and 12% in 1996, of the servicing loan balances.
Consumer Loans. Prior to the Split-Off Transactions, the Bank's consumer
loan portfolio included home equity, credit card and loans secured by
automobiles. Because the Bank is discontinuing its Automobile Finance Business
as a result of the Split-Off Transactions, after the Closing, the Bank's
consumer loan business will primarily be comprised of its home equity and credit
card lines. The Bank's consumer loan portfolio consists of both collateralized
and unsecured loans to individuals for various personal reasons, such as home
improvements. This category includes home equity lines of credit issued by the
Bank that can be drawn at the discretion of the borrower. The majority of home
equity lines, after giving effect to the outstanding loan balance of any
existing mortgage loan, does not exceed 80% of the appraised value of the
underlying real estate
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collateral. On a pro forma basis after giving effect to the Split-Off
Transactions at September 30, 1996, approximately 12% of loans outstanding were
consumer loans.
Loan Approval Procedures and Authority. The Bank's Loan Policy is
established by the Board of Directors based upon the recommendations of the
Bank's Chief Credit Officer and the Credit Policy Committee. The Loan Policy of
the Bank is reviewed and reaffirmed by the Board of Directors not less often
than annually. The Bank's Lending Guidelines for its various product lines are
approved by the Credit Policy Committee and reviewed annually by that committee
as well as the Directors' Loan Committee. These guidelines and policies set
forth the underwriting criteria for the various types of loans originated by the
Bank based upon the risks attendant to each type of loan, the borrowers of such
loans and the types of collateral. The Credit Policy Committee also determines
the adequacy of the Bank's allowance for loan losses.
The Bank delegates lending decision authority among various committees and
officers based primarily on the size of the loan sought. With limited
exceptions, the Bank generally applies a self-imposed maximum of $10.0 million
total credit exposure for each borrower. The Loan Committee of the Bank reviews
all loans in excess of $100,000, and any loan which would result in an aggregate
credit exposure to a borrower in excess of $500,000 requires the prior approval
of the Loan Committee of the Bank. Loans in excess of $500,000 that result in an
aggregate credit exposure to a borrower in excess of $5.0 million require the
prior approval of the Credit Policy Committee. All loans or commitments in
excess of $2.0 million are presented for review on a monthly basis to the
Directors' Loan Committee (which includes members of the Bank's Board of
Directors). Subject to these requirements, each loan officer has authority to
approve loans that comply with the Bank's commercial lending guidelines and loan
policies of up to a specified amount which is determined based upon such
person's experience and position with the Bank. Any exception to the Bank's
commercial lending guidelines and loan policies must be approved by a higher
authority, such as the Loan Committee or Credit Policy Committee.
Investment Portfolio. The Company's investment portfolio is used primarily
to provide a source of earnings and secondarily for liquidity management
purposes. Management maintains an investment grade portfolio oriented toward
U.S. government and U.S. government agency securities. The portfolio is
comprised of U.S. Treasury securities, U.S. government agency instruments and a
modest amount of investment grade obligations of state and political
subdivisions. In managing its interest rate exposure the Company also invests in
mortgage-backed securities and floating rate collateralized mortgage
obligations. Investment securities of the Company on a pro forma basis were
$535.5 million, or 28.5% of pro forma total assets, at September 30, 1996.
Virtually all of the Bank's securities at September 30, 1996 were rated
investment grade by a nationally recognized rating organization. The Bank is a
party to two interest rate swap contracts with a combined notional amount of $75
million. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Financial Condition -- Investment Securities" and
"Management's Discussion and Analysis of Pro Forma Financial Condition and
Results of Operation -- Financial Condition -- Investment Securities."
DEPOSITS
Each of the Bank branches offers the usual and customary range of
depository products provided by commercial banks, including checking, savings
and money market accounts, and certificates of deposit. Deposits at each Bank
are insured by the Federal Deposit Insurance Corporation up to statutory limits.
The Bank also gathers deposits through brokerage relationships and the National
Certificates of Deposit Network. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
TRUST AND INVESTMENT DEPARTMENT
The Bank's trust and investment department provides a wide array of trust
services for corporations and individuals. As of November 30, 1996, the Bank's
trust asset mix consisted of approximately 49% employee benefits, 10%
exchange/land trusts, 29% personal trusts, and 12% corporate trusts.
Historically, the trust and investment department primarily has serviced its
commercial customers out of its office located near downtown Chicago. Recently,
however, the Bank has placed a greater emphasis on offering trust services to
its retail as well as commercial customers out of its other branch offices. The
Bank's trust and investment department is also
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emphasizing ESOPs, tax deferred exchanges and employee benefit plans to
commercial business customers for additional growth. The Bank's retail
investment securities activities are sold through a third party agreement with a
registered broker/dealer to effect securities and annuity transactions for
retail clients.
COMPETITION
The banking business is highly competitive. The Bank encounters competition
primarily in seeking deposits and in obtaining loan customers. The Bank's
principal competitors include other commercial banks, savings and loan
associations, mutual funds, money market funds, finance companies, credit
unions, mortgage companies, the United States Government, private issuers of
debt obligations and suppliers of other investment alternatives, such as
securities firms. In recent years, several major multi-bank holding companies
have entered the Chicago metropolitan market. Generally, these financial
institutions are significantly larger than the Bank and have access to greater
capital and other resources. As a result of these and other factors, future
growth opportunities for the Bank may be limited. In addition, many of the
Bank's non-bank competitors are not subject to the same extensive federal
regulations that govern bank holding companies and federally insured banks and
state regulations governing state chartered banks. As a result, such non-bank
competitors may have advantages over the Bank in providing certain services.
THE MORTGAGE COMPANY
During the fourth quarter of 1995, the Company formed a new subsidiary, the
Mortgage Company. In the first quarter of 1996, the Mortgage Company entered the
subprime mortgage market for loans secured by first and second mortgages on a
brokered basis. Depending on referrals from independent brokers, the
subsidiaries of the Mortgage Company, originate, warehouse and resell
residential mortgages of borrowers who do not qualify for conventional loans or
whose borrowing needs are not met by traditional residential mortgage lenders.
Such borrowers may not satisfy the more rigid underwriting standards of the
traditional residential mortgage lending market for a number of reasons, such as
blemished credit histories (from past loan delinquencies or bankruptcy),
inability to provide income verification data or lack of established credit
history. Management of the Mortgage Company believes that this market is
underserved by traditional lenders. Therefore, there is less competition in this
market and interest rates are higher than on mortgage loans for more
credit-worthy borrowers.
These wholesale originated loans are funded using the underwriting criteria
of selected secondary mortgage market investors and are typically sold to one of
those buyers after a period of warehousing at the Mortgage Company, which
generally ranges from 30 to 90 days or longer. The Mortgage Company is currently
funding such loans at a rate of approximately $3 million per month. Once funded,
and prior to sale, the loans are carried under either a warehouse line of credit
granted by the Bank or advances from the Company.
The Mortgage Company derives its income principally from gains on the sale
of loans and, to a lesser degree, from net interest income on loans being held
for sale. In instances wherein a sold loan is prepaid during the first year
after sale, the Mortgage Company may be obligated to refund a portion of the
premium paid by the secondary mortgage market investor for such loan. In
addition, the agreements under which the loans are sold to institutional buyers
contain representations and warranties which are standard in the mortgage
industry. Violations of these representations and warranties could constitute
grounds for a requirement for the seller of the loan to repurchase any such
loan. Furthermore, the agreements under which the loans are sold contain
indemnification provisions which are standard in the mortgage industry and which
could require the payment of sums beyond the repurchase price. All obligations
of CT Mortgage and its subsidiaries under the various loan sales agreements,
including, without limitation, obligations to make refunds, to repurchase loans
and to indemnify, will be guaranteed by the Company.
The Mortgage Company's principal office is located in Altamonte Springs,
Florida. Through its subsidiaries, the Mortgage Company currently provides
mortgage services primarily to borrowers in the southeastern United States.
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EMPLOYEES
After giving effect to the Split-Off Transactions, the Company, the Bank
and the Mortgage Company will have a total of approximately 660 full-time
equivalent employees. None of the employees of the Company, the Bank or the
Mortgage Company is subject to a collective bargaining agreement. The Company,
the Bank and the Mortgage Company consider their relationship with their
employees to be good.
PROPERTIES
The principal offices of both the Company and the Bank are located in the
Bank's main office building at 350 East Dundee Road, Wheeling, Illinois. The
Bank's main office is leased by the Bank and consists of a three-story building
which has six drive-up windows. The Bank occupies approximately 58,310 square
feet. The Bank also owns an adjacent 1.65 acre parking lot which can accommodate
approximately 150 cars. Both the building and the land are leased by the Bank
under a renegotiated lease which commenced on January 1, 1995 and expires March
31, 2010, with options to extend until March 31, 2025.
The Company owns six of the buildings from which the Bank branches are
operated, although the underlying land for two of these properties is leased.
The Company leases buildings for its Woodlawn, Jackson and Cicero branches,
which in accordance with the current lease terms expire in or may be extended to
May 2013, March 2014, and January 2002, respectively.
LEGAL PROCEEDINGS
The Bank and the Mortgage Company are from time to time parties to various
legal actions arising in the normal course of business. Management believes that
there is no proceeding threatened or pending against the Company, the Bank or
the Mortgage Company which, if determined adversely, would have a material
adverse impact on the financial condition or results of operations.
On February 16, 1996, Carolyn B. Blackwell, Sandra Carbone, Phyllis K.
Cramer, George Havelka and Philip A. Roche v. Cole Taylor Bank, Cole Taylor
Financial Group, Inc., Sidney Taylor, Jeffrey Taylor, Bruce Taylor, Richard
Keneman, Daniel Bleil and Fred deRoode was filed by five former Bank branch
managers in the U.S. District Court for the Northern District of Illinois,
Eastern Division, claiming age discrimination, race discrimination (as to one of
them) and defamation. The plaintiffs seek unspecified compensatory and punitive
damages. The case is currently in the discovery phase and has not been set for
trial. The Bank believes that the complaint is without merit and intends to
vigorously defend the allegations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company will, as of the
Split-Off Closing, be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Jeffrey W. Taylor............. 44 Chairman of the Board, Chief Executive Officer and
Director of the Company, Chairman of the Board and
Director of the Bank and Director of the Mortgage
Company
Bruce W. Taylor............... 41 President and Director of the Company, President,
Director and Chief Executive Officer of the Bank and
Director of the Mortgage Company
Sidney J Taylor............... 73 Director of the Company and Director of the Bank
Richard W. Tinberg(1)......... 46 Director of the Company
Melvin E. Pearl(1)............ 60 Director of the Company
Adelyn Dougherty(1)........... 66 Director of the Company
John Christopher Alstrin...... 50 Chief Financial Officer and Director of the Company, the
Bank and the Mortgage Company
Richard C. Keneman............ 52 Director and Executive Vice President of the Bank
Frank DeGradi................. 48 Executive Vice President of the Bank and President and
Director of the Mortgage Company
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
JEFFREY W. TAYLOR is Chairman of the Board, Chief Executive Officer and a
director of the Company and Chairman of the Board and a director of both the
Bank and the Mortgage Company. Mr. Taylor will have served as a director of CTFG
from its inception in 1984 until the Split-Off Closing. From February 1994 until
prior to the Split-Off Transactions, Mr. Taylor served as Chairman and Chief
Executive Officer of CTFG and Chairman of the Bank. From 1990 to February 1994,
Mr. Taylor served as Vice Chairman of CTFG and Chairman and Chief Executive
Officer of the Bank. Mr. Taylor served as Vice Chairman of Banking Strategy from
April 1990 until the end of 1990. Mr. Taylor began his career with the Bank in
1978 as Associate General Counsel and has held several management positions with
the Bank since that time. Mr. Taylor is the son of Sidney J Taylor and the
brother of Bruce W. Taylor.
BRUCE W. TAYLOR is President and a director of the Company and President
and Chief Executive Officer of the Bank and a director of the Mortgage Company.
Mr. Taylor will have served as a director of CTFG from its inception in 1984
until the Split-Off Closing. From February 1994 until prior to the Split-Off
Transactions, Mr. Taylor served as President of CTFG in addition to President
and Chief Executive Officer of the Bank. From 1991 to February 1994, Mr. Taylor
served as Vice Chairman of CTFG and President and Chief Operating Officer of the
Bank. Mr. Taylor began working for Cole Taylor Bank in 1979 and has held several
management positions with the Bank since that time. Mr. Taylor is the son of
Sidney J Taylor and the brother of Jeffrey W. Taylor.
SIDNEY J TAYLOR is a director of the Company and of the Bank and will have
been a director of CTFG from its inception in 1984 until the Split-Off Closing.
From the inception of CTFG through February 1994, Mr. Taylor served as its
Chairman and Chief Executive Officer. Mr. Taylor has over 50 years of banking
experience. Mr. Taylor began his banking career in 1946 and in 1960 became the
President of Main State Bank. In 1969, Mr. Taylor purchased Main State Bank with
Irwin H. Cole and became Chairman of the Board. Mr. Taylor is the father of
Jeffrey W. Taylor and Bruce W. Taylor.
RICHARD W. TINBERG is a director of the Company and will have been a
director of CTFG from 1995 until the Split-Off Closing. Since 1985, Mr. Tinberg
has been the President and Chief Executive Officer of The Bradford Group, a
group of organizations engaged in the development and marketing of collectibles
and Chief
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Executive Officer of Hammacher Schlemmer & Company, which specializes in the
marketing of innovative products and gifts.
MELVIN E. PEARL is a director of the Company and will have been a director
of CTFG from its inception in 1984 until the Split-Off Closing. Mr. Pearl is a
Partner with the law firm of Katten, Muchin & Zavis.
ADELYN DOUGHERTY is a director of the Company and will have been a director
of CTFG from August 1995 until the Split-Off Closing. Ms. Dougherty retired in
August 1996 as the President of the Institute of European and Asian Studies.
From 1988 to 1992, Ms. Dougherty was Senior Vice President and director of Human
Resources for First Colonial Bankshares Corporation, a holding company for
sixteen banks and three non-bank subsidiaries located in the greater
metropolitan Chicago area.
JOHN CHRISTOPHER ALSTRIN is a director and the Chief Financial Officer of
the Company. Mr. Alstrin was the Chief Financial Officer of CTFG from August
1995 until prior to the Split-Off Transactions. Mr. Alstrin also has been Chief
Financial Officer of the Bank since August 1995, and has served as a director of
the Mortgage Company since its inception. From March 1989 to June 1994, Mr.
Alstrin was the Chief Financial Officer and the Chief Investment Officer of the
Farm & Home Financial Corp., a multi-state financial services corporation.
RICHARD C. KENEMAN joined the Bank in August 1990 and is currently the
Bank's Executive Vice President-Relationship Banking Division. Since 1991, Mr.
Keneman also has served as director of the Bank. Prior to joining the Bank, Mr.
Keneman was Senior Vice President of the bank consulting firm BMR, Inc., held
executive management positions with First America Bank, Atlanta, Georgia and
served as a director of Escambia Bank in Pensacola, Florida.
FRANK S. DEGRADI has been the President and a director of the Mortgage
Company since its inception and has been the Bank's Executive Vice
President-Mortgage Banking and Servicing since April 1995. Mr. DeGradi was Vice
President and Regional Manager for Norwest Mortgage in Southfield, Michigan from
October 1994 to March 1995 and was employed by Independence One Mortgage
Corporation, which was purchased by Norwest Mortgage in 1994, from November 1983
to September 1994, ultimately holding the position of Senior Vice President,
Regional Manager from 1988 to 1994.
KEY EMPLOYEES
Other key employees of the Company will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ------------------------------------------------
<S> <C> <C>
Roy Postel........................... 51 Chief Credit Officer of the Bank
Jean C. Schmidt...................... 52 Director of Human Resources and Business
Planning of the Company
Richard Schwartz..................... 57 Executive Vice President of the Company
Richard S. White, Jr................. 62 Executive Vice President of the Bank
</TABLE>
ROY POSTEL has been the Bank's Chief Credit Officer since 1990 and
currently serves as chairman of the Bank's Loan Committee. Prior to joining the
Bank, Mr. Postel was President of Columbian Financial Corp. in Kansas City,
Missouri, and prior to that served as Senior Vice President, Corporate Loan
Review for Boatmen's Bancshares in St. Louis, Missouri.
JEAN C. SCHMIDT is the Company's Director of Human Resources and Business
Planning and will have held such position with CTFG from 1993 until the
Split-Off Closing. From 1990 to 1993, Ms. Schmidt was Vice President in charge
of human resources consulting services for Management Resource Group Inc. Prior
to 1990, Ms. Schmidt served as Senior Vice President and Director of Corporate
Human Resources of First America Corp., a bank holding company based in
Nashville, Tennessee.
RICHARD SCHWARTZ is the Company's Executive Vice President-Acquisitions and
will have held such position with CTFG from June 1994 until the Split-Off
Closing. From 1963 to 1994, Mr. Schwartz was
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employed by American National Bank and Trust Company of Chicago, ultimately
serving as Executive Vice President, Middle Market Commercial Banking.
RICHARD S. WHITE, JR. has been the Bank's Executive Vice President-Trust &
Investment Department and Director, Trust Services since December 1994. From
1988 to 1994, Mr. White was Executive Vice President, Trust & Investments for
Premier Bank of Baton Rouge, Louisiana. From 1979 to 1988, Mr. White held
several executive positions at Republic Bank in Houston, Texas.
TERM OF OFFICE
Each member of the Board of Directors of the Company will be elected
annually. All officers of the Company will serve at the pleasure of the Board of
Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Certificate contains a provision eliminating the personal liability of
its directors for monetary damages resulting from breaches of their fiduciary
duty to the extent permitted by the General Corporation Law of Delaware. The
By-Laws provide that the Company will indemnify its directors and officers to
the fullest extent permitted by law. These provisions do not eliminate the duty
of care and, in appropriate circumstances, equitable remedies such as an
injunction or other forms of non-monetary relief would remain available under
Delaware law. Each director will continue to be subject to liability for breach
of a director's duty of loyalty to the Company or its stockholders, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit and for improper distributions to stockholders. These
provisions also do not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws. The By-Laws also permit the Company to secure insurance on behalf of any
person it is required or permitted to indemnify for any liability arising out of
his or her actions in such capacity, regardless of whether the By-Laws would
permit indemnification. The Company maintains liability insurance for its
directors and officers.
The Company intends to enter into agreements to indemnify its directors and
certain of its officers, in addition to the indemnification provided for in the
Certificate and By-Laws. These agreements, among other things, will indemnify
the Company's directors and such officers for all direct and indirect expenses
and costs (including, without limitation, all reasonable attorneys' fees and
related disbursements, other out of pocket costs and reasonable compensation for
time spent by such persons for which they are not otherwise compensated by the
Company or any third person) and liabilities of any type whatsoever (including,
but not limited to, judgments, fines and settlement fees) actually and
reasonably incurred by such person in connection with either the investigation,
defense, settlement or appeal of any threatened, pending or completed action,
suit or other proceeding, including any action by or in the right of the
corporation, arising out of such person's services as a director or officer of
the Company or as a director, officer, employee or other agent of any subsidiary
of the Company or any other company or enterprise to which the person provides
services at the request of the Company. The Company believes that these
provisions and agreements are necessary to attract and retain talented and
experienced directors and officers.
Except as disclosed under "Business--Legal Proceedings", there is no
pending litigation or proceeding involving any director or officer of the
Company where indemnification will be required or permitted. The Company is not
aware of any additional threatened litigation or proceeding that might result in
a claim for such indemnification.
BOARD COMMITTEES
The Board of Directors intends to establish four standing committees: the
Nominating Committee, the Audit Committee, the Compensation Committee and the
Executive Committee. The Nominating Committee will conduct a continuing study of
the size, structure and composition of the Board, will determine Board selection
and retention criteria and will nominate proposed directors. The Audit Committee
will recommend the appointment of auditors and oversee the accounting and audit
functions of the Company. The
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Compensation Committee will determine executive officers' and key employees'
salaries and bonuses and administer any future stock option plan. The Executive
Committee will have the authority to take all actions which the Board of
Directors as a whole would be able to take, except as limited by applicable law.
DIRECTOR COMPENSATION
Directors who are not employees or officers of the Company will receive
$ for each Board and committee meeting attended. In addition, all
directors may be reimbursed for certain expenses in connection with attendance
at Board and committee meetings. Other than with respect to reimbursement of
expenses, directors who are employees or officers of the Company will not
receive additional compensation for service as a director.
EXECUTIVE COMPENSATION
The Company was incorporated on October 9, 1996. Therefore, the requirement
for prior years' information regarding the Chief Executive Officer of the
Company and the next four most highly compensated executives of the Company is
not applicable. The following table sets forth the estimated compensation to be
paid in 1997 by the Company to such individuals (collectively, the "Named
Officers"). With the exception of the bonus figures as described in footnote 1
below, the estimated compensation figures represent estimates of compensation
projected to be paid in 1997, with calculations of such amounts based on actual
compensation paid by CTFG in 1996.
ESTIMATED COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION COMPENSATION
- ------------------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Jeffrey W. Taylor................................ $365,510 $127,929 $ 19,378 $ 43,216
Chairman of the Board and Chief Executive Officer
of the Company(2)
Bruce W. Taylor.................................. 344,525 120,619 22,269 40,389
President of the Company(3)
Sidney J Taylor.................................. 300,000 -- 76,675 97,884
Director of the Company(4)
Richard S. White, Jr............................. 309,000 20,000 2,425 38,410
Executive Vice President of the Bank(5)
Richard Keneman.................................. 216,300 27,729 37,835 25,653
Executive Vice President of the Bank(6)
</TABLE>
- ---------------
(1) The Company anticipates that bonuses in each future year will be based upon
the Company's performance compared to budgeted goals set by the
Compensation Committee each year. Different groups of executives will
receive a percentage of salary for surpassing earnings, returns on assets
and return on equity goals established by the Compensation Committee. The
classifications of employees will involve committee judgments as to the
value of the employee to the Company and in the market place and the growth
and contribution demonstrated by the executive. The bonus amounts reflect
actual CTFG bonus amounts for fiscal year 1996 to be paid in 1997.
(2) "Other Annual Compensation" includes the following estimated amounts: $933
for reimbursement of premiums to be paid by Mr. Taylor for split-dollar
life insurance for Mr. Taylor for 1997 and $18,445 in reimbursement for
country club dues and company car costs to be paid in 1997. "All Other
Compensation" includes an estimated: $5,250 in 401(k) contributions by the
Company to the Profit Sharing/ESOP, $24,899 in contributions to the
deferred compensation plan which the Company expects to establish, $5,625
in ESOP stock account contributions to the Profit Sharing/ESOP and
payments totaling $7,442, representing the full dollar value of all
premiums expected to be paid by the Company for split-dollar life
insurance for Mr. Taylor.
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(3) "Other Annual Compensation" includes the following estimated amounts: $771
for reimbursement of premiums to be paid by Mr. Taylor for split-dollar
life insurance for Mr. Taylor for 1997 and $21,498 in reimbursement for
country club dues and company car costs to be paid in 1997. "All Other
Compensation" includes an estimated: $5,250 in 401(k) contributions by the
Company to the Profit Sharing/ESOP, $22,855 in contributions to the
deferred compensation plan which the Company expects to establish, $5,625
in ESOP stock account contributions to the 401(k)/ESOP and payments
totaling $6,659, representing the full dollar value of all premiums
expected to be paid by the Company for split-dollar life insurance for Mr.
Taylor.
(4) "Other Annual Compensation" includes the following estimated amounts:
$61,893 for reimbursement of premiums to be paid by Mr. Taylor for
split-dollar life insurance for Mr. Taylor for 1997 and $14,782 in
reimbursement for country club dues and company car costs to be paid in
1997. "All Other Compensation" includes an estimated: $5,250 in 401(k)
contributions by the Company to the Profit Sharing/ESOP, $5,625 in ESOP
stock account contributions to the Profit Sharing/ESOP and payments
totaling $87,009, representing the full dollar value of all premiums
expected to be paid by the Company for split-dollar life insurance for Mr.
Taylor.
(5) "Other Annual Compensation" includes an estimated $379 for reimbursement of
premiums to be paid by Mr. White for split-dollar life insurance for Mr.
White for 1997 and $2,046 in reimbursement for country club dues to be paid
in 1997. "All Other Compensation" includes an estimated: $5,250 in 401(k)
contributions by the Company to the Profit Sharing/ESOP, $12,978 in
contributions to the deferred compensation plan which the Company expects
to establish, $5,625 in ESOP stock account contributions to the Profit
Sharing/ESOP and payments totaling $14,557, representing the full dollar
value of all premiums expected to be paid by the Company for split-dollar
life insurance for Mr. White.
(6) "Other Annual Compensation" includes an estimated $945 for reimbursement of
premiums to be paid by Mr. Keneman for split-dollar life insurance for Mr.
Keneman for 1997 and $36,890 in reimbursement for country club dues to be
paid in 1997. "All Other Compensation" includes an estimated: $5,250 in
401(k) contributions by the Company to the Profit Sharing/ESOP, $6,817 in
contributions to the deferred compensation plan which the Company expects
to establish, $5,625 in ESOP stock account contributions to the Profit
Sharing/ESOP and payments totaling $7,961, representing the full dollar
value of all premiums expected to be paid by the Company for split-dollar
life insurance for Mr. Keneman.
STOCK OPTION PLANS
The Company currently does not have a stock option plan in place. However,
the Company intends to establish such a plan in the future and accordingly
expects to reserve 500,000 shares of Common Stock for issuance under such plan.
SEVERANCE AGREEMENTS
Subject to the approval of the Compensation Committee, the Company intends
to enter into severance agreements with Jeffrey Taylor, Bruce Taylor, Richard
White, Richard Keneman and certain other officers (collectively, the "Senior
Managers"). Although the terms of the agreements have not been finalized, it is
anticipated that upon termination other than for cause, each Senior Manager will
be entitled to severance payments which will range from the amount of such
Senior Manager's base salary to one and one half times such Senior Manager's
base salary plus an amount equal to the performance bonus payable to such Senior
Manager in the year immediately preceding termination (the "Past Performance
Amount"). The Senior Manager will also receive medical benefits and outplacement
assistance for a defined period following termination.
CHANGE OF CONTROL AGREEMENTS
Subject to the approval of the Compensation Committee, the Company intends
to enter into change of control agreements with Richard White, Richard Keneman
and certain other Senior Managers. Although the terms of the agreements have not
been finalized, it is anticipated that upon termination due to a change of
control of the Company, any stock options held by the Senior Manager will be
fully exercisable and any
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contributions to the Company's deferred compensation plan will become fully
vested. In addition, each Senior Manager will receive a change of control
severance payment in an amount which will range from one and one half times such
Senior Manager's base salary plus the Past Performance Amount to two and one
half times base salary plus the Past Performance Amount.
PROFIT SHARING/ESOP
The Company will sponsor a defined contribution retirement plan that will
be designed to qualify under Sections 401(a), 401(k) and 4975(e)(7) of the Code
(the "Profit Sharing/ESOP"). Prior to the Split-Off Closing, CTFG will transfer
to the Profit Sharing/ESOP the account balances held in the Cole Taylor
Financial Group, Inc. Employee Stock Ownership Plan (the "CTFG ESOP") and the
Cole Taylor Financial Group, Inc. 401(k)/Profit Sharing Plan (the "CTFG Profit
Sharing") on behalf of the active and former Bank employees and any employee of
CTFG who will be a Bank employee on the date of the Split-Off Closing. The
Profit Sharing/ESOP is intended to provide substantially the same benefits on
substantially the same terms as the CTFG ESOP and the CTFG Profit Sharing/ESOP.
The Profit Sharing/ESOP will permit each eligible employee of the Company to
elect to contribute, through payroll deductions, a specified percentage of his
or her compensation up to the statutory limitation. The Company will make a
matching contribution and a profit sharing contribution to the Profit
Sharing/ESOP. The Profit Sharing contribution will be in an amount as determined
at the discretion of the Board of Directors. The Company's contribution may be
made in the form of shares of Common Stock, cash to be invested in shares of
Common Stock or cash to be invested as directed by the Profit Sharing/ESOP
participants. The account values to be transferred from the CTFG ESOP and CTFG
Profit Sharing to the Profit Sharing/ESOP for each of the Named Executives above
as of November 15, 1996 are as follows: Jeffery Taylor, $202,788.10 and
9,157.9857 shares of CTFG common stock; Bruce Taylor, $360,386.96 and 9,157.9986
shares of CTFG common stock; Sidney Taylor, $105,409.64 and 8,656.1145 shares of
CTFG common stock; Richard White, $2,919.78 and 467.6112 shares of CTFG common
stock; and Richard Keneman, $66,331.32 and 3,088.1648 shares of CTFG common
stock.
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SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state laws. As a result, the business, financial
condition and prospects of the Company and its subsidiaries, including the Bank,
can be materially affected not only by management decisions and general economic
conditions, but also by applicable statutes and regulations and the legislative
and governmental actions of Congress and the various federal and state
regulatory agencies with jurisdiction over the Company and the Bank, such as the
Federal Reserve Board ("FRB"), Federal Deposit Insurance Corporation ("FDIC")
and the Illinois Office of Banks and Real Estate ("IOBRE"). The effect of
applicable statutes, regulations and policies can be significant, cannot be
predicted with a high degree of certainty and can change over time. Furthermore,
such statutes, regulations and other pronouncements and policies are intended to
protect the Bank's depositors and the FDIC's deposit insurance fund, not to
protect stockholders. Bank holding companies and banks are subject to
enforcement actions by their regulators for statutory and regulatory violations
and safety and soundness considerations. In addition to compliance with
statutory and regulatory limitations and requirements concerning financial,
managerial and operating matters, regulated financial institutions such as the
Company and the Bank must file periodic and other reports and information with
their regulators and are subject to examination by each of their regulators.
The statutory requirements applicable to, and regulatory supervision of,
bank holding companies and banks have increased significantly and have undergone
substantial change in recent years. These changes are embodied in, among others,
the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the Riegle Community Development and Regulatory Improvement Act of
1994 (the "Community Development Act") and the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "IBBEA"), and the regulations
promulgated thereunder. Many of the regulations promulgated pursuant to FDICIA
have only recently been finalized, and the provisions of the Community
Development Act and IBBEA are still being implemented. As a result, the impact
of these new laws on the Company and the Bank cannot be predicted with
certainty.
Legislation may be introduced from time to time that could, if enacted,
have significant impact on the operations of the Company and its subsidiaries.
On September 30, 1996 President Clinton signed into law the Deposit Insurance
Funds Act of 1996 ("DIFA") which imposes a special assessment on
federally-insured depository institutions to contribute towards the cost of
interest due on bonds issued between 1987 and 1989 to resolve failed savings and
loan associations. Because the Bank has no Savings Association Insurance Fund
("SAIF")--assessable deposits, it will not be required to pay the special
assessment imposed by DIFA. However, to cover the annual Financing Corporation
("FICO") assessment for the period from January 1, 1997 until December 31, 1999,
banks, including the Bank, will pay semiannually on their Bank Insurance Fund
("BIF") deposit base 1.29 basis points, according to revised Banking Committee
estimates. Starting in the year 2000 until the FICO bonds are retired, banks and
thrifts will pay the FICO assessment on a pro rata basis (estimated to run 2.43
basis points on each institution's insured deposit base). Recently enacted
legislation allows well-capitalized bank holding companies to engage in certain
activities without the advance approval of the FRB. Well-capitalized bank
holding companies are required merely to notify the FRB within 10 business days
of engaging in such activity. Congress currently is considering legislation to
broaden the powers of bank holding companies and permit other financial service
companies to own banks. Legislation also has been introduced in the Congress to
restructure the federal bank regulatory system. Although the Secretary of
Treasury of the United States and the Chairman of the FRB have previously
expressed support for restructuring the federal bank regulatory system, there
can be no certainty as to the effect, if any, that such legislation would have
on the regulation of the Company or the Bank.
The following discussion and other references to and descriptions of the
regulation of financial institutions and their parent holding companies
contained herein are not intended to constitute and do not purport to be a
complete statement of all legal restrictions and requirements applicable to the
Company and the Bank, and all such descriptions are qualified in their entirety
by reference to applicable statutes, regulations and policies.
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REGULATION OF BANK HOLDING COMPANIES AND THEIR NON-BANK SUBSIDIARIES
The Company is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended ("BHCA"). As such, the Company is subject to
regulation, supervision and examination by the FRB. The Company is also subject
to the limitations and requirements of the Illinois Bank Holding Company Act
("IBHCA"). These limitations and requirements, however, are no more restrictive
in most instances than those imposed by the BHCA and the FRB. The business and
affairs of the Company are regulated in a variety of ways, including limitations
on acquiring control of other banks and bank holding companies, limitations on
activities and investments, regulations relating to capital requirements and
limitations on payment of dividends. In addition, it is the FRB's policy that a
bank holding company is expected to act as a source of financial strength to
banks that it owns or controls and, as a result, the FRB could require the
Company to commit resources to support the Bank in circumstances in which the
Company might not do so absent the FRB's policy.
In 1996, Federal Reserve examiners began to assign a formal supervisory
rating to the adequacy of a bank holding company's and its member bank's risk
management processes, including their internal controls. The emphasis on sound
risk management processes and strong internal controls reflects the Federal
Reserve's view that proper risk management is critical to the conduct of safe
and sound banking activities in light of new technologies, activities in product
innovation and other changes to the banking industry.
ACQUISITION OF BANKS AND BANK HOLDING COMPANIES
The BHCA generally prohibits a bank holding company from (1) acquiring,
directly or indirectly, more than 5% of the outstanding shares of any class of
voting securities of a bank or bank holding company, (2) acquiring control of a
bank or another bank holding company, (3) acquiring all or substantially all of
the assets of a bank or (4) merging or consolidating with another bank holding
company, without first obtaining FRB approval. In considering an application
with respect to any such transaction, the FRB is required to consider a variety
of factors, including the potential anti-competitive effects of the transaction,
the financial conditions, managerial resources and future prospects of the
combining and resulting institutions, the convenience and needs of the
communities the combined organization would serve, the record of performance of
each combining organization under the CRA and the prospective availability to
the FRB of information appropriate to determine ongoing regulatory compliance
with applicable banking laws. In addition, both the federal Change In Bank
Control Act and the Illinois Banking Act ("IBA") impose limitations on the
ability of one or more individuals or other entities to acquire control of the
Company or the Bank.
AFFILIATE TRANSACTIONS
The Federal Reserve Act and IBA impose certain limitations on extensions of
credit and other transactions by and between banks and their parent holding
companies or affiliates of their parent holding companies. Under the Bank
Holding Company Act Amendments of 1970 and the FRB's regulations, a bank holding
company and its bank and nonbanking subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property and the furnishing of any services.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
INTERSTATE BANKING AND BRANCHING
Until September 29, 1995, the BHCA prohibited a bank holding company from
acquiring control of a bank whose principal office is located outside of the
state in which the principal place of business of the bank holding company is
located unless specifically authorized by applicable state law. The IBHCA
permitted Illinois bank holding companies to acquire control of banks in any
state and permitted bank holding companies
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whose principal place of business is in another state to acquire control of
Illinois banks or bank holding companies, provided the other state afforded
reciprocal rights to Illinois bank holding companies and certain other
requirements were satisfied.
As of September 29, 1995, interstate acquisitions of banks and bank holding
companies were permitted without geographic limitation. Beginning June 1, 1997,
the IBBEA authorizes a bank to merge with a bank in another state as long as
neither of the states has opted out of interstate branching between the date of
enactment of the IBBEA and May 31, 1997. The IBBEA also provides that states may
enact laws permitting interstate bank merger transactions prior to June 1, 1997.
Once a bank has established branches in a state through an interstate merger
transaction, the bank may establish and acquire additional branches at any
location in the state where any bank involved in the interstate merger
transaction could have established or acquired branches under applicable federal
or state law. A bank may also establish and operate a de novo branch in a state
in which the bank does not maintain a branch if that state expressly permits
such de novo branching. A bank that has established a branch in a state through
de novo branching may establish and acquire additional branches in such state in
the same manner and to the same extent as a bank having a branch in such state
as a result of an interstate merger. If a state opts out of interstate branching
within the specified time period, no bank in any other state may establish a
branch in the opting out state, whether through an acquisition or de novo.
Legislation was recently enacted in Illinois to permit Illinois chartered banks,
such as the Bank, to establish out-of-state branches by merger beginning June 1,
1997 and permit out-of-state banks to branch into Illinois as of the same date.
The restrictions described above represent limitations on expansion by the
Company and the Bank, the acquisition of control of the Company by another
company and the disposition by the Company of all or a portion of the stock of
the Bank or by the Bank of all or a substantial portion of its assets.
PERMITTED NON-BANKING ACTIVITIES
The BHCA generally prohibits a bank holding company from engaging in
activities or acquiring or controlling, directly or indirectly, more than 5% of
the voting securities or assets of any company engaged in any activity other
than banking, managing or controlling banks and bank subsidiaries or another
activity that the FRB has determined, by regulation or otherwise, to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Those activities that the FRB has determined by regulation to
be closely related to banking include real estate mortgage lending, the
principal activity of the Mortgage Company. Subject to certain exceptions, a
bank holding company must obtain the prior approval of the FRB to engage in or
acquire control of a company engaging in a permissible nonbanking activity.
In evaluating such applications, the FRB will consider, among other
relevant factors, whether permitting the bank holding company to engage in the
activity in question can reasonably be expected to produce benefits to the
public (such as increased convenience, competition or efficiency) that outweigh
any possible adverse effects (such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or safety and soundness
concerns).
The recent enactment of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 ("EGRPRA") streamlines the nonbanking activities
application process for well capitalized and well managed bank holding
companies. Under EGRPRA, qualified bank holding companies may commence a
regulatory approved nonbanking activity without prior notice to the FRB; written
notice is merely required within 10 days after commencing the activity. Also,
under EGRPRA, the prior notice period is reduced to 12 days in the event of any
nonbanking acquisition or share purchase, assuming the size of the acquisition
does not exceed 10% of risk-weighted assets of the acquiring bank holding
company and the consideration does not exceed 15% in Tier 1 capital. This prior
notice requirement also applies to commencing a nonbanking activity de novo
which has been previously approved by order of the FRB, but not yet implemented
by regulations.
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CAPITAL REQUIREMENTS
The FRB has adopted minimum risk-based capital standards for bank holding
companies. The FRB requires bank holding companies to maintain certain minimum
ratios of risk-weighted capital to total risk-adjusted assets. Risk-adjusted
assets include a "credit equivalent amount" of off-balance sheet items,
determined in accordance with conversion factors set forth in the FRB's
regulations. In August 1995, the federal bank regulators implemented a final
rule to revise and expand the conversion factors used to calculate the credit
equivalent amounts to recognize certain derivative contracts and transactions
subject to qualifying bilateral netting arrangements. Each asset and off-balance
sheet item, after certain adjustments, is assigned to one of four risk-weighing
categories, 0%, 20%, 50% or 100%, and the risk-adjusted values then are added
together to determine the total amount of risk-weighted assets.
A bank holding company must meet two risk-based capital standards, a "core"
or "Tier 1" capital requirement and a total capital requirement. The current
regulations require that a bank holding company maintain Tier 1 capital equal to
4% of risk-adjusted assets and total capital equal to 8% of risk-adjusted
assets, at least one-half of which must be Tier 1 capital. Tier 1 capital
consists of common stockholders' equity; qualifying noncumulative perpetual
preferred stock; qualifying cumulative perpetual preferred stock (up to 25% of
total Tier 1 capital); and minority interests in the equity accounts of
consolidated subsidiaries. Core capital excludes goodwill and certain other
intangible assets. It is intended that the Preferred Stock will be considered
Tier 1 capital for the purposes of those regulations.
Total capital represents the sum of Tier 1 capital plus "Tier 2" capital,
less certain deductions. Tier 2 or "supplementary" capital consists, subject to
certain limitations, of allowances for loan and lease losses (up to 1.25% of
total weighted risk assets); perpetual preferred stock (to the extent not
included in Tier 1 capital); hybrid capital instruments; perpetual debt;
mandatory convertible debt securities; term subordinated debt; and intermediate
term preferred stock. In determining total capital, a bank holding company must
deduct its investments in unconsolidated banking and finance subsidiaries and,
as determined by the FRB on a case-by-case basis, other designated subsidiaries
or associated companies, reciprocal holdings of certain securities of banking
organizations; and other deductions required by regulation or determined by the
FRB on a case-by-case basis.
The FRB also has established a minimum leverage ratio requirement for bank
holding companies. The minimum leverage ratio, which is defined as Tier 1
capital divided by average quarterly assets (net of allowance for losses and
goodwill), is 3% for banking organizations that do not anticipate significant
growth and that have well-diversified risk (including no undue interest rate
risk), excellent asset quality, high liquidity and good earnings. Banking
organizations, however, generally are expected to operate well above these
minimum risk-based ratios and are expected to have ratios of at least 100 to 200
basis points above the stated minimum, depending upon their particular condition
and growth plans. Higher capital ratios could be required if warranted by the
particular circumstances or risk profile of a given banking organization. The
FRB has not advised the Company of any specific minimum Tier 1 leverage ratio
applicable to it.
As of September 30, 1996, CTFG had Tier 1 and total risk-based capital
ratios of 10.03% and 12.73%, respectively, and a Tier 1 leverage ratio of 7.91%.
As adjusted for the Split-Off Transactions and giving effect to the offering of
Preferred Stock described hereby, the Company had pro forma September 30, 1996
Tier 1 and total risk-based capital ratios of 6.94% and 8.20%, respectively, and
a leverage ratio of 5.08%.
The failure of a bank holding company to meet its risk-weighted capital
ratios may result in supervisory action, as well as an inability to obtain
approval of any regulatory applications and, potentially, increased frequency of
examination. The nature and intensity of the supervisory action will depend upon
the level of noncompliance. Under the IBHCA, no bank holding company may acquire
control of a bank if, at the time it applies for approval or at the time the
transaction is consummated, its ratio of total capital to total assets as
determined in accordance with then applicable FRB regulations, is or will be
less than 7%.
The federal bank regulators have previously indicated a desire to raise
minimum capital requirements for banking organizations and have suggested that
revisions to the risk-based capital requirements should be
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made. The effect of any future change in the required capital ratios of the
Company or the Bank cannot be determined at this time.
Risk-based capital ratios which focus principally on broad categories of
credit risk are only one indicator of the overall financial health of a bank
organization. They do not incorporate other factors that can affect the
Company's financial condition, such as overall interest rate risk exposure,
liquidity, funding and market risks, the quality and level of earnings,
investment or loan portfolio concentrations, the quality of loans and
investments, the effectiveness of loan and investment policies and management's
ability to monitor and control financial and operating risks.
In the event that the subsidiary institution fails to meet minimum capital
requirements and is required to submit a capital restoration plan, such plan
would be acceptable only if the parent holding company guarantees compliance
with the plan up to the lesser of 5% of the institution's total assets or the
amount necessary to bring the institution into compliance with capital standards
applicable at the time that the institution fails to comply.
DIVIDENDS
The FRB has indicated that banking organizations should generally pay cash
dividends out of current operating earnings and the current rate of earnings
retention should be consistent with the organization's capital needs, asset
quality and overall financial condition. A banking organization experiencing
earnings weaknesses should not pay cash dividends which exceed its net income or
which could only be funded in ways that would weaken its financial health or
undermine its ability to serve as a source of strength to its subsidiary bank,
such as by borrowing. The FRB may, and in certain circumstances must, prohibit a
bank holding company from making any capital distributions without prior FRB
approval if the subsidiary institution is undercapitalized. See "--Capital
Requirements." The FRB also may impose limitations on the payment of dividends
as a condition to its approval of certain applications, including applications
for approval of mergers or acquisitions. Between 1989 and 1992, the FRB did not
permit CTFG, then the Bank's parent holding company, to pay dividends on its
stock without the FRB's prior consent. In 1992, the FRB modified this
restriction to require only prior notification of such dividends. In 1993, the
FRB informed CTFG that CTFG was permitted to pay dividends without restriction.
REGULATION OF BANKS
The Bank is a banking corporation organized under the IBA. As such, it is
subject to regulation, supervision and examination by the IOBRE. The Bank is a
member of the Federal Reserve System and, therefore, subject to regulation,
supervision and examination by the FRB. The deposit accounts of the Bank are
insured up to applicable limits by the FDIC's Bank Insurance Fund (the "BIF").
Thus, the Bank is also subject to regulation, supervision and examination by the
FDIC. In certain instances, statutes administered and regulations promulgated by
certain of these agencies are more stringent than those of other agencies with
jurisdiction. In these instances, the Bank must comply with the more stringent
restrictions, prohibitions or requirements.
The business and affairs of the Bank are regulated in a variety of ways.
Regulations apply to, among other things, insurance of deposit accounts, the
Bank's capital ratios, payment of dividends, liquidity requirements, the nature
and amount of the investments that the Bank may make, transactions with
affiliates, community and consumer lending, internal policies and controls,
reporting by and examination of the Bank and changes in control of the Bank. The
federal bank regulators have recently adopted an interest rate risk component to
the risk capital requirements to assess the exposure of banks to declines in the
economic value of the bank's capital due to changes in interest rates.
DEPOSIT INSURANCE
As a BIF-insured institution, the Bank is required to pay deposit premiums
to the BIF. The FDIC has implemented a risk-based deposit insurance assessment
system under which each insured depository institution is assigned to one of
nine categories based upon its level of capital and an evaluation of other
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supervisory factors and assessed insurance premiums accordingly. These premium
rates for the semiannual period beginning July 1, 1996 range from 0.0% of
deposits included in an institution's "assessment base" for the highest rated
institutions to .27% of such deposits for the lowest rated institutions, with
well-capitalized and well-managed institutions paying only the statutory minimum
yearly fee of $2,000. Risk classification of an insured institution is made by
the FDIC for each semiannual assessment period.
In August 1995, the FDIC revised the schedule for BIF-insured institutions
to lower the premium rates to .04% for the highest rated institutions and .31%
for the lowest rated institutions. The BIF rates were further reduced to 0.0%
for the highest rated institutions and .27% for the lowest rated institutions
effective January 1, 1996. The FDIC left untouched the premium levels for the
period beginning July 1, 1996. Rates may be increased in the future if the
designated reserve ratio for BIF falls below 1.25%, or are otherwise modified by
the FDIC or the Congress. The FDIC may propose additional changes in the
assessment rate matrix at a later date.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound banking practices, is in a condition
that is unsafe or unsound for the continuation of operations or otherwise has
violated any applicable law, regulation or order, or any condition imposed in
writing by or in a written agreement with the FDIC. The FDIC also may suspend
deposit insurance temporarily during the pendency of a proceeding to terminate
insurance if the institution has no tangible capital.
CAPITAL REQUIREMENTS
FRB regulations establish the same three minimum capital standards for
insured state member banks as they do for bank holding companies. Under the FRB
regulations, the Bank's capital ratios are computed in a manner substantially
similar to the manner in which bank holding company capital ratios are
determined. See "Regulation of Bank Holding Companies and Their Non-Bank
Subsidiaries--Capital Requirements." The FRB capital requirements are minimum
requirements and higher levels of capital will be required if warranted by the
particular circumstances or risk profile of an individual bank.
FDICIA provides the federal banking regulators with broad power to take
"prompt corrective action" to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers under this provision depends
on whether the institution in question is "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Under regulations adopted by the federal banking
regulators, a bank is considered "well capitalized" if it (i) has a total
risk-based capital ratio of 10% or greater, (ii) has a Tier 1 risk-based capital
ratio of 6% or greater, (iii) has a leverage ratio of 5% or greater and (iv) is
not subject to any order or written directive to meet and maintain a specific
capital level. An "adequately capitalized" bank is defined as one that (i) has a
total risk-based capital ratio of 8% or greater, (ii) has a Tier 1 risk-based
capital ratio of 4% or greater, (iii) has a leverage ratio of 4% or greater (or
3% or greater in the case of a bank with the highest composite regulatory
examination rating that is not experiencing or anticipating significant growth)
and (iv) does not meet the definition of a well capitalized bank. A bank would
be considered (A) "undercapitalized" if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or
(iii) a leverage ratio of less than 4% (or 3% in the case of a bank with the
highest composite regulatory examination rating that is not experiencing or
anticipating significant growth); (B) "significantly undercapitalized" if the
bank has (i) a total risk-based capital ratio of less than 6%, (ii) a Tier 1
risk-based capital ratio of less than 3% or (iii) a leverage ratio of less than
3% and (C) "critically undercapitalized" if the bank has a ratio of tangible
equity to total assets of equal to or less than 2%. The appropriate federal
banking regulator may downgrade a bank to the next lower category if the
regulator determines (i) after notice and opportunity for hearing or response,
that the bank is in an unsafe or unsound condition or (ii) that the bank has
received (and not corrected) a less-than-satisfactory rating for any of the
categories of asset quality, management earnings or liquidity in its most recent
exam.
As of September 30, 1996, the Bank qualified as "well capitalized," with a
total risk-based capital ratio of 10.88%, a Tier 1 risk-based capital ratio of
9.63% and a leverage ratio of 7.31%. As adjusted for the Split-Off Transactions
and giving effect to the offering of Preferred Stock described hereby and the
assumption of the
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Credit Facilities, the Bank had pro forma September 30, 1996 total and Tier 1
risk-based capital ratios of 9.99% and 8.73% respectively, and a leverage ratio
of 6.38%.
Depending upon the capital category to which an institution is assigned,
the regulators' supervisory and corrective powers, many of which are mandatory
in certain circumstances, include a prohibition on capital distributions by the
institution if, after making the distribution, it would be undercapitalized;
prohibition on payment of management fees to controlling persons; requiring the
submission of a capital restoration plan; placing limits on asset growth;
limiting acquisitions, branching or new lines of business, requiring the
institution to issue additional capital stock (including additional voting
stock) or to be acquired; restricting transactions with affiliates; restricting
the interest rates that the institution may pay on deposits; ordering a new
election of directors of the institution; requiring that senior executive
officers or directors be dismissed; prohibiting the institution from accepting
deposits from correspondent banks; requiring the institution to divest certain
subsidiaries; requiring the holding company to divest the institution or other
nonbanking subsidiaries; prohibiting the holding company from making any
distributions without FRB approval, prohibiting the payment of principal or
interest on subordinated debt; and, ultimately, appointing a receiver for the
institution. See "--Regulation of Bank Holding Companies and Their Non-Bank
Subsidiaries--Dividends."
DIVIDENDS
Under the IBA, the Bank is permitted to declare and pay dividends in
amounts up to the amount of its accumulated net profits, provided that it shall
retain in its surplus at least one-tenth of its net profits since the date of
the declaration of its most recent previous dividend until said additions to
surplus, in the aggregate, equal at least the paid-in capital of the Bank. In no
event may the Bank, while it continues its banking business, pay dividends in
excess of its net profits then on hand (after deductions for losses and bad
debts). The Bank is also subject to various regulatory policies and requirements
relating to the payment of dividends. See "--Capital Requirements."
The FRB permits a state member bank such as the Bank to pay dividends,
while it continues its banking operations, in an amount not greater than its net
profits then on hand, after deducting therefrom its losses and bad debts. No
state member bank may pay as a dividend any portion of its paid-in capital and
no state member bank may pay dividends if its accumulated losses equal or exceed
its undivided profits then on hand. The FRB cash dividend policy statement
described above (See "Regulation of Bank Holding Companies and Their Non-Bank
Subsidiaries--Dividends") also applies to the payment of dividends by state
member banks.
INSIDER AND AFFILIATE TRANSACTIONS
The Bank is subject to certain restrictions imposed by the Federal Reserve
Act and the IBA on any extensions of credit to, purchase of assets from, and
other transactions with the Company and its nonbanking subsidiaries, on
investments in the stock or other securities of the Company and its subsidiaries
and the acceptance of the stock or other securities of the Company or its
subsidiaries as collateral for loans made by the Bank.
Such restrictions prevent the Company and its affiliates from borrowing
from the Bank unless the loans are secured by marketable obligations of
specified amounts. Further, such secured loans, investments and other
transactions between the Bank and the Company or its affiliates are limited to
10% of the Bank's capital and surplus (as defined by federal regulations) and
such secured loans, investments and other transactions are limited, in the
aggregate, to 20% of either the Bank's capital and surplus (as defined by
federal regulations). The sales of some assets, for example the sales of
mortgages by the Mortgage Company to the Bank, are exempt from these percentage
limitations and security requirements only if specific regulatory requirements
are met. In addition, all covered transactions with affiliates must comply with
regulations prohibiting terms that would be preferential to the Company or the
Mortgage Company. There have been no intercompany transactions between the
Company or the Mortgage Company and the Bank which would implicate these
provisions.
Certain limitations and reporting requirements also are placed on
extensions of credit by the Bank to principal stockholders of the Company and to
directors and certain executive officers of the Company, its non-
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bank subsidiaries and the Bank and to "related interests" of such principal
stockholders, directors and officers. In addition, any director or officer of
the Company or the Bank or principal stockholder of the Company may be limited
in his or her ability to obtain credit from banks with which the Bank maintains
a correspondent relationship.
COMMUNITY REINVESTMENT ACT
In connection with its lending activities, the Bank is subject to a variety
of federal and state laws designed to protect borrowers and promote lending to
various sectors of the economy and population. Included among these are the Home
Mortgage Disclosure Act ("HMDA"), Real Estate Settlement Procedures Act
("RESPA"), Truth-In-Lending Act ("TILA"), the Equal Credit Opportunity Act
("ECOA"), Fair Credit Reporting Act ("FCRA"), the CRA and similar Illinois laws
applicable to, among other things, usury, credit discrimination and business
practices.
The CRA requires a bank to define the communities that it serves, identify
the credit needs of such communities and adopt and implement a "Community
Reinvestment Act Statement" pursuant to which it offers credit products and
takes other actions that respond to the credit needs of the communities. Under
FIRREA, the FRB is required to conduct annual CRA examinations of insured
financial institutions and to assign to them a CRA rating of "outstanding,"
"satisfactory," "needs improvement" or "unsatisfactory" based on their record of
meeting community needs.
The federal banking regulatory agencies will take into account the CRA
ratings of combining organizations and their level of compliance with the Equal
Credit Opportunity Act in connection with acquisitions involving a change in
control of a financial institution and, if any of the combining institutions has
a CRA rating of "needs improvement" or "unsatisfactory," the agency may deny the
application or require corrective action as a condition of its approval. In
1995, 1994 and 1993 the Bank's CRA rating was "satisfactory". Under recently
approved regulations, the Bank will be subject to a new system for evaluating
its actual performance in meeting community needs beginning with the December
1996 examination. There can be no certainty as to the effect, if any, that such
changes will have on the Bank.
The operations of the Mortgage Company and its subsidiaries are subject to
HMDA, RESPA, TILA, ECOA, the regulations promulgated thereunder and similar
state laws applicable to among other things, usury, credit discounts and
business practices. Provisions of those statutes and related regulations
prohibit discrimination and require disclosure of certain basic information to
mortgagors such as credit and settlement costs. Each of the subsidiaries of the
Mortgage Company has or will obtain all necessary licenses in all states in
which it conducts or expects to conduct its mortgage operations.
ANNUAL AUDIT, REPORTING AND MANAGERIAL CONTROL REQUIREMENTS
Under FDICIA, the FDIC was required to promulgate regulations requiring
FDIC-insured financial institutions over a certain size to have an annual
independent audit of their financial statements in accordance with generally
accepted auditing standards, to have an independent audit committee of outside
directors, and to file with the FDIC and their respective primary federal
regulators annual reports, attested to by their independent auditors, as to
their internal control structure and compliance with certain designated laws and
regulations. The FDIC's regulations apply these requirements to insured
depository institutions with total assets of $500 million or more. The
requirements can be satisfied by audit procedures adhered to by a parent entity
such as the Company that is consolidated with the Bank for financial reporting
purposes. Legislation is pending that could result in substantial changes to the
audit requirements. There is no certainty as to what, if any, effect such
legislation may have on the Company or the Bank.
BROKERED DEPOSITS
The FDIC has issued a rule regarding the ability of depository institutions
to accept brokered deposits, i.e. deposits obtained through a deposit broker.
The rule provides that (i) an "undercapitalized" institution is prohibited from
accepting, renewing or rolling over brokered deposits, (ii) an "adequately
capitalized" institution must obtain a waiver from the FDIC before accepting,
renewing or rolling over brokered deposits
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and is subject to limitations on the rate of interest payable on brokered
deposits, and (iii) a "well capitalized" institution may accept or renew
brokered deposits without restriction. At September 30, 1996 the Bank had
brokered deposits of $106.9 million and was considered "well capitalized" for
purposes of this rule. See "Risk Factors--Liquidity Management".
OTHER FDICIA RULES
The banking agencies have also adopted or proposed rules to implement
provisions of FDICIA, the Community Development Act and the IBBEA, including:
(i) real estate lending standards for banks, which provide guidelines concerning
loan-to-value ratios for various types of real estate loans; (ii) revisions to
the risk-based capital rules to account for interest rate risk, concentration of
credit risk, transferring of assets without recourse and the risks posed by
"non-traditional activities"; (iii) rules requiring depository institutions to
develop and implement internal procedures to evaluate and control credit and
settlement exposure to their correspondent banks; (iv) rules prohibiting, with
certain exceptions, state member banks from making equity investments of types
and amounts not permissible for national banks; and (v) rules addressing various
"safety and soundness" issues, including operations and managerial standards,
standards for asset quality, earnings and stock valuations, and compensation
standards for the officers, directors, employees and principal shareholders of
the depository institution.
CHANGE IN CONTROL
As an Illinois bank, the Bank is subject to the rules regarding change in
control of Illinois banks contained in the IBA. The Company is also subject to
these rules by virtue of its control of the Bank. Generally, the IBA provides
that no person or entity or group of affiliated persons or entities may, without
the IOBRE's consent, directly or indirectly, acquire control of an Illinois
bank. Such control is presumed if any person, directly or indirectly, owns or
controls 20% or more of the outstanding stock of an Illinois bank or such lesser
amount as would enable the holder or holders, by applying cumulative voting, to
elect one director of the bank.
In evaluating applications for acquisition of control of an Illinois bank
or bank holding company, in addition to the IOBRE's consideration of other
factors deemed relevant, the IOBRE must find that the character of the proposed
management of the bank, after the change in control will assure reasonable
promise of successful, safe and sound operation, that the future earnings
prospects of the bank after the promised change in control are favorable, and
that any prior involvement that the proposed controlling persons or the proposed
management of the institution after the change in control have had with any
other financial institution has been conducted in a safe and sound manner. See
"Regulation of Bank Holding Companies and Their Non-Bank Subsidiaries --
Acquisition of Banks and Bank Holding Companies."
The IOBRE has reviewed the Split-Off Transactions and on September 9, 1996
issued its determination that such transactions do not constitute a change of
control for purposes of the IBA.
REGULATION OF THE MORTGAGE COMPANY
The Mortgage Company's business is subject to extensive regulation at both
the Federal and state level. Regulated matters include loan origination, credit
activities, truth in lending, maximum interest rates and finance and other
charges, disclosure to customers, equal credit opportunity, the terms of secured
transactions, the collection, repossession and claims handling procedures
utilized by the Mortgage Company, multiple qualification and licensing
requirements for doing business in various jurisdictions and other trade
practices.
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SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The Company has filed a Registration Statement with the Commission and the
applicable state securities authorities registering Common Stock which will be
issued to the Taylor Family and the other members of the Taylor Group in the
Common Stock Offering. See "The Split-Off Transactions--Related Common Stock
Offering." The following table sets forth certain information regarding the
Common Stock which, based on commitments the Company has received as of the date
of this Prospectus, is projected to be beneficially owned as of the Split-Off
Closing by (i) each stockholder known by the Company to be the beneficial owner
of more than five percent of the outstanding shares of the Common Stock, (ii)
each director of the Company, (iii) each Named Executive Officer and (iv) all
directors and executive officers of the Company as a group. (Collectively, such
Stockholders set forth below, together with certain other investors, each of
whom shall own less than 1% of the Common Stock, make up the "Taylor Group").
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common Stock listed below, based on information provided by such owners,
will have sole investment and voting power with respect to such shares, subject
to community property laws where applicable. Except as set forth below, the
address of each of the stockholders named below is the Company's principal
executive and administrative office.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED(1) COMMON STOCK(2)
- ---------------------------------------------------------- --------------------- ---------------
<S> <C> <C>
Iris A. Taylor(3).........................................
Sidney J Taylor(4)(5).....................................
Jeffrey W. Taylor.........................................
Bruce W. Taylor...........................................
Richard S. White, Jr. ....................................
Richard Keneman...........................................
Richard W. Tinberg(6).....................................
Melvin E. Pearl(7)........................................
Adelyn Dougherty..........................................
J. Christopher Alstrin....................................
All directors and executive officers as a group (9
persons)................................................
</TABLE>
- ---------------
* less than 1%
(1) To be completed after expressions of interest are received following
distribution of the Preliminary Prospectus related to the Common Stock
Offering.
(2) Percentage of beneficial ownership is based on 4.5 million shares of Common
Stock to be outstanding immediately following the Split-Off Closing.
(3) Excludes 684,842 shares beneficially owned by Iris A. Taylor's husband,
Sidney J Taylor, of which shares Iris Taylor disclaims beneficial ownership.
Includes an aggregate 1,781,000 shares held by various Taylor Family Trusts,
including 633,960 shares held by the Shirley Tark Grandchildren Trust dated
January 20, 1978; 783,960 shares held by the Shirley Tark Great
Grandchildren Trust dated January 20, 1978; 152,200 shares held by the
Lillian M. Tark Trust dated October 26, 1971 and 210,880 shares held by the
Annual Gift Trusts dated December 14, 1982, July 10, 1983, November 10,
1985, November 18, 1985, December 15, 1987 and August 1, 1988; over all of
which Iris A. Taylor has sole voting and investment power. Also includes
750,000 shares held by the Taylor Family Partnership, L.P., over which Iris
Taylor has sole voting and investment power.
(4) Excludes 2,531,000 shares beneficially owned by Sidney J Taylor's wife, Iris
A. Taylor, of which shares Sidney J Taylor disclaims beneficial ownership.
Includes 626,840 shares held by various Taylor Family Trusts including
547,320 shares held in the Sidney J Taylor Trust dated September 17, 1976,
over which Sidney J Taylor has sole voting and investment power.
(5) Upon the death of the sole beneficiary of each Taylor Family Trust or all of
the beneficiaries of the Trust, the trust assets will be divided among
sub-trusts for the benefit of the deceased beneficiary's descendants and/or
siblings. However, each trust agreement contains a "rule against
perpetuities" provision which generally provides that all trust assets must
be distributed outright to the current income beneficiaries of the trust
twenty-one years after the date of death of the last survivor of the
Grantor/Donor, and all descendants of the Grantor/Donor and all natural
persons mentioned by name in the Trust Agreement who were living at the date
of the execution of the Agreement or the date on which the Trust Agreement
became irrevocable.
(6) The address of the stockholder is 159 Sheridan Road, Winnetka, Illinois
60093.
(7) Mr. Pearl disclaims beneficial ownership of 53,600 shares which are held by
the 12/17/92 Gift Trust of which Mr. Pearl serves as a Trustee. The address
of the stockholder is c/o Katten Muchin & Zavis, 525 West Monroe Street,
Suite 1600, Chicago, Illinois 60661.
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CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS, OFFICERS AND FAMILY MEMBERS
Certain of the directors and officers of the Company and of the Bank and
members of their immediate families, and firms and corporations with which they
are associated, have had transactions with the Bank, including borrowings and
investments in certificates of deposit. These arrangements will continue after
the Split-Off Closing. Management believes that all such loans and investments
have been and will continue to be made in the ordinary course of business of the
Bank on substantially the same terms, including interest rates paid or changed
and collateral required, as those prevailing at the time for comparable
transactions with unaffiliated persons, and did not involve more than the normal
risk of collectibility or present other unfavorable features. As of September
30, 1996, the aggregate outstanding amount of all loans which are projected to
exceed $60,000 to officers and directors of the Company, and members of their
immediate families and firms and corporations in which they have at least a 10%
beneficial interest was approximately $20.5 million. The Company relies on its
directors and executive officers for identification of loans to their related
interests.
The Company expects that its primary insurance brokers will be Dann
Brothers, Inc., which provides property and casualty insurance brokerage
services, and Benefit Planning Associates, which provides health insurance
brokerage services. Each of Russell Dann and Scott Dann, the brothers-in-law of
Jeffrey W. Taylor, beneficially owns approximately 25% of the capital stock of
Dann Brothers, Inc. Each of Russell Dann, Scott Dann and Armand Dann, the
father-in-law of Jeffrey Taylor and a director of the Bank, beneficially owns
approximately 16% of the partnership interests of Benefit Planning Associates.
During 1995, CTFG paid total commissions of approximately $180,000 to Dann
Brothers, Inc. and Benefit Planning Associates in connection with various
insurance policies. The Company anticipates it will pay commissions to such
entities in substantially similar amounts in 1997.
It is expected that the Company will reimburse the Taylor family for
expenses incurred in connection with the organization of the Company and the
transactions contemplated by the Split-Off Transactions. Such expenses are
estimated to be $2 million.
The Share Exchange Agreement between CTFG and members of the Taylor Family
provides for a series of Split-Off Transactions. The Company was formed solely
for the purpose of facilitating the Split-Off Transactions. Accordingly, the
Share Exchange Agreement and related agreements and arrangements affecting the
Company, some of which will continue beyond the Closing, were negotiated with
CTFG and executed by representatives of the Taylor Family. See "Risk
Factors--Risks Arising From the Split-Off Transactions--Interest of Taylor
Family; Possible Conflicts of Interest", "--Liabilities Under Share Exchange
Agreement" and "The Split-Off Transactions." In addition, the Company and the
Taylor Family have entered into an Indemnity Agreement whereby the Company
agrees to indemnify and hold harmless the Taylor Family in the event the Company
fails to satisfy certain agreements of the Taylor Family set forth in the Share
Exchange Agreement and in certain other events. The Company has also entered
into an agreement with CTFG which provides for the assumption by the Company of
various obligations of the Taylor Family. See "The Split-Off
Transactions--Liabilities Under Share Exchange Agreement."
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10 million shares,
of which 7 million shares are Common Stock, par value $.01 per share, and 3
million shares are preferred stock, par value $.01 per share. Upon completion of
the Company's offering of Common Stock and the consummation of the Split-Off
Transactions, there will be shares of Common Stock outstanding and
held of record by stockholders. No shares of preferred stock are currently
outstanding.
The following description of the capital stock of the Company and certain
provisions of Delaware General Corporation Law, as amended (the "DGCL"), the
Certificate, Certificate of Designation (as defined) and By-Laws is a summary
and is qualified in its entirety by the DGCL and the Certificate, Certificate of
Designation and By-Laws, which have been filed as exhibits to the Company's
Registration Statement on Form S-1, of which this Prospectus forms a part.
COMMON STOCK
The shares of Common Stock which will be issued and outstanding as of the
closing of the Split-Off Transactions will be validly issued, fully paid and
nonassessable. Subject to the rights of holders of preferred stock which may be
issued, the holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets legally available therefor at such times and in
such amounts as the Board of Directors may from time to time determine. The
shares of Common Stock are neither redeemable nor convertible, and the holders
thereof have no preemptive or subscription rights to purchase any securities of
the Company. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive, pro rata, the assets of the
Company which are legally available for distribution, after payment of all debts
and other liabilities and subject to the prior rights of any holders of
preferred stock then outstanding, including holders of the Preferred Stock
described hereby. Each outstanding share of Common Stock is entitled to one vote
on all matters submitted to a vote of stockholders. There is no cumulative
voting in the election of directors.
The Board of Directors may approve for issuance, without approval of the
holders of Common Stock, preferred stock which has voting, dividend or
liquidation rights superior to the Common Stock and which may adversely affect
the rights of holders of Common Stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting power
of the holders of Common Stock and could have the effect of delaying, deferring
or preventing a change in control of the Company.
PREFERRED STOCK
The Certificate authorizes the Board of Directors to issue preferred stock
in classes or series and to establish the designations, preferences,
qualifications, limitations or restrictions of any class or series with respect
to the rate and nature of dividends, the price and terms and conditions on which
shares may be redeemed, the terms and conditions for conversion or exchange into
any other class or series of the stock, voting rights and other terms. Pursuant
to this authority, prior to the commencement of this offering, the Board of
Directors designated 1,530,000 shares as % Noncumulative Perpetual
Preferred Stock, Series A (the "Preferred Stock"), $25.00 stated value per
share. The rights, preferences, privileges, qualifications, restrictions and
limitations of the Preferred Stock are described in a Certificate of Designation
filed with the Delaware Secretary of State ("Certificate of Designation").
The shares of Preferred Stock which will be issued and outstanding as of
the Preferred Closing will be validly issued, fully paid and nonassessable. The
rights of holders of Preferred Stock could be subject to, and may be adversely
affected by, the rights of holders of any additional series of preferred stock
that may be issued in the future and that may rank prior to, or on parity with,
as to dividends or distributions of assets, the Preferred Stock described
herein. However, any such issuance will be subject to the approval of the
holders of shares entitled to cast at least two-thirds of the votes entitled to
be cast by the holders of the Preferred Stock then outstanding, voting together
separately as a class. See "--Voting Rights."
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The shares of Preferred Stock will not be convertible into, or exchangeable
for, shares of Common Stock, any other class or classes of capital stock (or any
other security) or any other series of any class or classes of capital stock (or
any other security) of the Company and will have no preemptive rights. No
fractional shares of Preferred Stock will be issued. The Company will treat the
Preferred Stock as Tier 1 Capital for purposes of the risk-based capital
guidelines of the Federal Reserve Board. The shares of Preferred Stock will be
subject to redemption under the circumstances described under "--Redemption at
the Option of the Company" below.
Since the Company is a holding company, the right of the Company, and hence
the rights of creditors and shareholders of the Company, to participate in any
distribution of assets of any subsidiary upon its liquidation or reorganization
or otherwise is necessarily subject to the prior claims of creditors of such
subsidiary, including depositors in the case of the Bank, except to the extent
that claims of the Company itself as a creditor of the subsidiary may be
recognized.
DIVIDEND RIGHTS
Holders of shares of Preferred Stock shall be entitled to receive
noncumulative cash dividends payable quarterly in arrears for each quarter at an
annual rate of $ per share, when, as and if declared by the Board of
Directors, or a duly authorized committee thereof, out of funds legally
available therefor, from the date of original issuance of such shares to and
including March 31, 1997, and for each dividend period (a "Dividend Period")
commencing on the first day of each April, July, October and January thereafter,
and ending on and including the day next preceding the first day of the next
Dividend Period. Dividends so declared will be payable on the first day of each
April, July, October and January, commencing on April 1, 1997 (each, a "Dividend
Payment Date"), to the holders of record on a date not more than 30 days and not
less than 10 days preceding the related Dividend Payment Date, as may be
determined by the Board of Directors, or a duly authorized committee thereof, in
advance of such Dividend Payment Date. Dividends payable for any period of less
than a quarter will be paid on the basis of a 360-day year of twelve 30 day
months. The amount of dividends payable per share of Preferred Stock for each
Dividend Period shall be computed by dividing the amount due on an annual basis
by four. When a Dividend Payment Date falls on a non-business day, the dividend
will be paid on the next business day. Holders of Preferred Stock will not
participate in dividends, if any, declared and paid on the Common Stock.
The Company intends to declare and pay dividends on the Preferred Stock as
well as the Common Stock each quarter. However, the right of holders of
Preferred Stock to receive dividends is noncumulative. Accordingly, if the Board
fails to declare a dividend on the Preferred Stock for a Dividend Period, then
holders of the Preferred Stock will have no right to receive a dividend for that
Dividend Period, and the Company will have no obligation to pay the dividend
accrued for that Dividend Period, whether or not dividends are declared for any
subsequent Dividend Period. The Company may redeem the Preferred Stock without
ever having declared or paid a dividend on such stock.
Under the DGCL, the Company can pay dividends on the Preferred Stock only
out of (i) the Company's surplus, which is equal to the amount by which its net
assets (excess of assets over liabilities) exceed the stated capital
attributable to all outstanding shares of capital stock), or (ii) if it has no
surplus, its net profits for the current or preceding year. If the Company has
no surplus or profits, it would be unable to pay the scheduled dividends on the
Preferred Stock. The Company's right to pay dividends on the Preferred Stock
also will be subject to certain restrictions under the Company's Loan Agreement.
See "The Split-Off Transactions--Related Financing."
No full dividends will be declared or paid or set apart for payment on any
share of any series of preferred stock or any share of any other class of stock,
or series thereof, in any such case ranking on a parity with or junior to the
Preferred Stock as to dividends unless full dividends for the then-current
Dividend Period on the Preferred Stock have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof, and
for all prior Dividend Periods for which dividends were declared, set apart for
such payment. When dividends are not paid in full upon the Preferred Stock and
any other series or class of stock ranking on a parity with the Preferred Stock
as to dividends, all dividends declared upon the Preferred Stock and such other
series or class of stock will be declared pro rata so that the amount of
dividends declared per share on the Preferred Stock and such other series or
class of stock will in all cases bear the same ratio that accrued dividends per
share (which in the case of the Preferred Stock will not include any
accumulation in
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respect of undeclared or unpaid dividends for prior Dividend Periods) on the
Preferred Stock and on such other series or class of stock bear to each other.
Except as set forth in the paragraph immediately following, so long as any
shares of Preferred Stock are outstanding, unless the full dividends on all
outstanding shares of Preferred Stock have been declared and paid or set apart
for payment for the current Dividend Period and have been paid for all Dividend
Periods for which dividends were declared, and except as provided in the
immediately preceding paragraph, (i) no dividend (other than a dividend in
Common Stock or in any other stock of the Company ranking junior to the
Preferred Stock as to dividends or distribution of assets upon liquidation,
dissolution or winding up) may be declared and paid, or set aside for payment,
or other distribution declared or made, on the Common Stock or on any other
stock ranking junior to or on a parity with Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, and (ii) no
shares of Common Stock or shares of any other stock of the Company ranking
junior to or on a parity with Preferred Stock as to dividends or distribution of
assets upon liquidation, dissolution or winding up, will be redeemed, purchased
or otherwise acquired for any consideration by the Company or any subsidiary of
the Company (nor may any moneys be paid to or made available for a sinking or
other fund for the redemption, purchase or other acquisition of any shares of
any such stock), other than by conversion into or exchange for Common Stock or
any other stock of the Company ranking junior to the Preferred Stock as to
dividends or distribution of assets upon liquidation, dissolution or winding up.
Participants with ESOP stock account balances under the Profit Sharing/ESOP
will have the right to exercise certain limited "put" rights requiring the
Company to purchase their shares of Common Stock following their termination of
employment with the Company and the Bank. These former Profit Sharing/ ESOP
participants will receive in-kind distribution of shares of Common Stock,
subject to the terms of the Profit Sharing/ESOP. Upon receipt of their shares of
Common Stock, former participants will have a "put" right entitling them to sell
the shares to the Company. The rights of the Preferred Stockholders described in
the preceding paragraph notwithstanding, the Company has a legal obligation to
honor a holder's "put" rights by purchasing the shares of Common Stock at a
purchase price that is equal to the fair market value, as determined by the
Trustee of the Profit Sharing/ESOP, based on a valuation report by an
independent appraiser. The Company may pay for these shares of Common Stock in
cash or by issuing a five-year, interest-bearing promissory note.
DIVIDEND RATE
Except as provided below, the dividend rate per annum referred to above for
any Dividend Period will be equal to % per annum (or $ per share of
Preferred Stock). The amount of dividends payable per share for each Dividend
Period shall be computed by dividing the annual rate by four.
REDEMPTION AT THE OPTION OF THE COMPANY
Shares of Preferred Stock are not redeemable prior to December 15, 2001. On
or after such date, the shares of Preferred Stock will be redeemable at the
option of the Company, in whole or in part, at any time or from time to time on
not less than 30, nor more than 60, days' written notice, at a redemption price
of $25.00 per share, plus an amount equal to dividends declared and unpaid for
the then-current Dividend Period (without accumulation of accrued and unpaid
dividends for prior Dividend Periods and without interest) to the date fixed for
redemption.
In the event the Company shall redeem shares of Preferred Stock, on or
before 12:00 noon, Chicago time, on the date fixed for redemption, the Company
shall deposit with a paying agent (which may be an affiliate of the Company) (a
"Paying Agent"), which shall be a bank or trust company organized and in good
standing under the laws of the United States, the state of Illinois or the state
of New York, and having capital, surplus and undivided profits aggregating at
least $100 million, funds necessary for such redemption, in trust, with
irrevocable instructions and authorization that such funds be applied to the
redemption of the shares of Preferred Stock called for redemption upon surrender
of certificates for such shares (properly endorsed or assigned for transfer). If
notice of redemption shall have been mailed or if the Company shall have given
to a Paying Agent irrevocable authorization promptly to mail such notice, then
deposit of the funds necessary for redemption with a Paying Agent shall be
deemed to constitute full payment of such shares to their holders and from and
after the date of such deposit, notwithstanding that any certificates for such
shares shall not have
88
<PAGE> 90
been surrendered for cancellation, the shares represented thereby shall no
longer be deemed to be outstanding. Thereafter, all rights of the holders of
such shares as holders of Preferred Stock (except the right to receive the
redemption price, but without interest) will cease.
In no event shall the Company redeem less than all the outstanding shares
of Preferred Stock, unless dividends for the then-current Dividend Period to the
date fixed for redemption for such series shall have been declared and paid or
set apart for payment on all outstanding shares of Preferred Stock; provided
however, that the foregoing provisions will not prevent, if otherwise permitted,
the purchase or acquisition by the Company of shares of Preferred Stock pursuant
to a tender or exchange offer made on the same terms to holders of all the
outstanding shares of Preferred Stock, and mailed to the holders of record of
all such outstanding shares at such holders' addresses as the same appear on the
books of the Company; and provided, further, that if some, but less than all, of
the shares of Preferred Stock are to be purchased or otherwise acquired pursuant
to such tender or exchange offer and the number of shares so tendered exceeds
the number of such shares so to be purchased or otherwise acquired by the
Company, the shares of Preferred Stock so tendered will be purchased or
otherwise acquired by the Company on a pro rata basis (with adjustments to
eliminate fractions) according to the number of such shares tendered by each
holder so tendering shares of Preferred Stock for such purchase or exchange.
If less than all of the outstanding shares of Preferred Stock are to be
redeemed, the Company will select the shares to be redeemed by lot, pro rata (as
nearly may be), or in such other equitable manner as the Board of Directors of
the Company may determine.
Any optional redemption by the Company will be with the approval of the
Federal Reserve Board, unless at the time the Federal Reserve Board determines
that its approval is not required, and with the approval of LaSalle pursuant to
the Loan Agreement.
VOTING RIGHTS
Except as indicated below and except as required by applicable law, the
holders of the Preferred Stock shall have no voting rights.
Generally, in the election of directors, the holders of Preferred Stock,
voting separately as a class, together with the holders of shares of any one or
more other series of preferred stock entitled to vote in the election of
directors, shall be entitled at the Corporation's next annual meeting of
stockholders and at each subsequent annual meeting of stockholders to cast one
vote (or fraction thereof) for each $25.00 of liquidation preference to which
such preferred stock is entitled for the election of one director of the
Company, with the remaining directors of the Company to be elected by the
holders of the shares of any other class or classes or series of stock entitled
to vote therefor. Any director who has been so elected may be removed at any
time, with or without cause, only by the affirmative vote of the holders of the
shares at the time entitled to cast a majority of the votes entitled to be cast
for the election of any such director at a special meeting of such holders
called for that purpose, and any vacancy thereby created may only be filled by
the vote of such holders.
If a Voting Event (as hereinafter defined) occurs, the holders of a
majority of the shares of Preferred Stock, voting separately as a class with the
holders of shares of any one or more other series of preferred stock entitled to
vote upon the occurrence of such Voting Event, will be entitled commencing with
the Company's next annual meeting of stockholders and at each subsequent annual
meeting of stockholders, unless prior thereto such Voting Event has been
terminated, to elect one additional director of the Company, (and to exercise
any right of removal or replacement of such director). At elections for such
director, each holder of Preferred Stock and holders of one or more series of
preferred stock then entitled to vote thereon shall be entitled to cast one vote
(or fraction thereof) for each $25.00 of liquidation preference to which such
preferred stock is entitled, with the remaining directors of the Company to be
elected by the holders of shares of any other class or classes or series of
stock entitled to vote therefor. The Board of Directors at no time will include
more than two directors who have been elected by the holders of shares of
Preferred Stock or other preferred stock. Until such Voting Event has been
terminated, any director who has been elected as described above may be removed
at any time, either with or without cause, only by the affirmative vote of the
holders of the shares at the time entitled to cast a majority of the votes
entitled to be cast for the election of any such director at a special meeting
of such holders called for that purpose, and any vacancy thereby created may
only be filled by the vote of such holders. If and when such Voting Event has
been terminated, the holders of shares of
89
<PAGE> 91
Preferred Stock then outstanding and so authorized will be divested of the
foregoing special voting rights, subject to revesting upon the further
occurrence of a Voting Event. Upon termination of such Voting Event, the terms
of office of any person who may have been elected a director by vote of the
holders of shares of Preferred Stock and such other series of preferred stock
pursuant to the foregoing special voting rights will immediately terminate.
A "Voting Event" will be deemed to have occurred in the event that
dividends payable on any share or shares of Preferred Stock shall not be
declared and paid at the stated rate for the equivalent of six full quarterly
Dividend Periods (whether or not consecutive). A Voting Event will be deemed to
have been terminated when all such dividends in arrears have been declared and
paid or declared and set apart for payment in full, subject always to the
revesting of the right of holders of the Preferred Stock voting as a class with
the holders of any other preferred stock, to elect a director as provided above
in the event of any future failure on the part of the Company to pay dividends
at the stated rate for any six full quarterly Dividend Periods (whether or not
consecutive).
The Company is not permitted to amend, alter or repeal (whether by merger,
consolidation or otherwise) any provisions of the Certificate so as to adversely
affect the rights, powers or preferences of the Preferred Stock or the holders
thereof without the approval of the holders of two-thirds of the outstanding
shares of Preferred Stock voting separately as a class. The Company may not,
without the consent of the holders of at least two-thirds of the outstanding
shares of Preferred Stock, voting separately as a class, create, authorize or
increase the authorized or issued amount of shares of any class of stock ranking
prior to or on a parity with the Preferred Stock as to dividends or distribution
of assets on liquidation.
Under regulations adopted by the Federal Reserve Board, the Preferred Stock
may be deemed a "class of voting securities" and a holder of 25% or more of such
Preferred Stock (or a holder of 5% or more if it otherwise exercises a
"controlling influence" over the Company) may then be subject to regulation as a
bank holding company in accordance with the BHCA. In addition, at such time (i)
any bank holding company may be required to obtain the approval of the Federal
Reserve Board under the BHCA, to acquire or retain 5% or more of the Preferred
Stock and (ii) any person other than a bank holding company may be required to
obtain the approval of the Federal Reserve Board under the Bank Change in
Control Act to acquire 10% or more of the Preferred Stock.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of shares of Preferred Stock will be
entitled to receive out of assets of the Company available for distribution to
stockholders, before any distribution of the assets is made to the holders of
shares of the Common Stock or on any other class or series of stock of the
Company ranking junior to the shares of Preferred Stock as to such a
distribution, an amount equal to $25.00 per share, plus an amount equal to
dividends declared and unpaid for the then-current Dividend Period up to the
date of liquidation (without accumulation of accrued and unpaid dividends for
prior Dividend Periods) to the date fixed for payment of such distribution. If,
upon any voluntary or involuntary liquidation, dissolution or winding up of the
Company, the assets of the Company will be insufficient to make the full
liquidating payment on the Preferred Stock and liquidating payments on any other
class or series of stock of the Company ranking on a parity with the Preferred
Stock as to any such distribution, then such assets will be distributed among
the holders of the Preferred Stock and such other class or series of stock,
ratably in proportion to the respective full preferential amounts to which they
are entitled. After any liquidating payments, the holders of shares of Preferred
Stock will be entitled to no other payments. A consolidation or merger of the
Company with or into any other corporation or corporations or the merger or
consolidation of any other corporation into or with the Company or plan of
exchange between the Company and any other corporation (in which consolidation
or merger or plan of exchange any stockholders of the Company received
distributions of cash or securities or other property), or the sale, lease or
conveyance, whether for cash, shares of stock, securities or properties, of all
or substantially all the assets of the Company will not be regarded as a
liquidation, dissolution or winding up of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Preferred Stock is Cole Taylor
Bank.
90
<PAGE> 92
UNDERWRITING
The Company has entered into a Purchase Agreement (the "Purchase
Agreement") with the underwriters listed in the table below (the
"Underwriters"). Subject to the terms and conditions set forth in the Purchase
Agreement, the Company has agreed to sell to each of the Underwriters, and each
of the Underwriters has severally agreed to purchase from the Company, the
number of shares of Preferred Stock set forth opposite each Underwriter's name
in the table below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------- ---------
<S> <C>
Piper Jaffray Inc.............................................
Robert W. Baird & Co. Incorporated............................
---------
Total.................................................... 1,530,000
========
</TABLE>
Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the shares of Preferred Stock being
sold pursuant thereto if any shares are purchased. In the event of a default by
either Underwriter, the Purchase Agreement provides that, in certain
circumstances, purchase commitments of the nondefaulting Underwriter may be
increased or the Purchase Agreement may be terminated.
The Underwriters have advised the Company that the Underwriters propose to
offer shares of the Preferred Stock to the public initially at the public
offering price set forth on the cover page of this Prospectus and to certain
selected dealers at such price less a concession of not in excess of $ per
share. Additionally, the Underwriters may allow, and such dealers may re-allow,
a concession not in excess of $ per share to certain other dealers. After
the initial public offering of the Preferred Stock, the public offering price
and other selling terms may be changed by the Underwriters.
The Underwriters have informed the Company that the Underwriters will not,
without customer authority, confirm sales to any accounts over which they
exercise discretionary authority.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the Underwriters may be required to make in
respect thereof.
The Company does not intend to list the shares of Preferred Stock on any
securities exchange or include the Preferred Stock on any quotation system and
no active trading market is expected to develop. Although each Underwriter has
indicated an intention to make a market in the Preferred Stock, neither
Underwriter is obligated to make a market in the Preferred Stock and any market
making may be discontinued at any time at the sole discretion of such
Underwriter. If shares of the Preferred Stock are traded after their original
issuance, they may trade at a discount to their offering price. Without an
active market, it may be difficult for investors to resell shares of Preferred
Stock.
In connection with the Split-Off Transactions, Piper Jaffray Inc. provided
investment banking services to the Taylor Family, some of whom are directors,
officers or affiliates of the Company. As compensation for those investment
banking services Piper Jaffray Inc. received an initial payment of $100,000 and
will receive a final payment of $500,000 upon the Split-Off Closing.
LEGAL MATTERS
The validity of the shares of Preferred Stock offered hereby will be passed
upon for the Company by McDermott, Will & Emery, Chicago, Illinois. Certain
legal matters will be passed upon for the Underwriters by Faegre & Benson LLP,
Minneapolis, Minnesota.
91
<PAGE> 93
EXPERTS
The financial statements of the Bank as of December 31, 1995 and 1994 and
for each of the years in the three year period ended December 31, 1995 have been
included in this Prospectus and the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, schedules and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the Preferred
Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Preferred Stock offered hereby, reference is made
to the Registration Statement. The Registration Statement and the exhibits
thereto may be inspected, without charge, at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at
Northwestern Atrium Center, 500 West Madison Street, Room 1400, Chicago, IL
60661, and 7 World Trade Center, Suite 1300, New York, NY 10048. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy
statements and other information filed by the Company at (http://www.sec.gov).
92
<PAGE> 94
INDEX TO FINANCIAL STATEMENTS
COLE TAYLOR BANK
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.................................................... F-2
Financial Statements:
Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995
and 1994................................................................... F-3
Statements of Income for the nine months ended September 30, 1996 and 1995
(unaudited) and for the years ended December 31, 1995, 1994 and 1993....... F-4
Statements of Changes in Stockholder's Equity for the nine months ended
September 30, 1996 (unaudited) and for the years ended December 31, 1995,
1994 and 1993.............................................................. F-5
Statements of Cash Flows for the nine months ended September 30, 1996 and 1995
(unaudited) and for the years ended December 31, 1995, 1994 and 1993....... F-6
Notes to Financial Statements................................................. F-7 - F-22
</TABLE>
All schedules are omitted, because they are not required or applicable, or
the required information is shown in the financial statements or notes thereto.
The financial statements of Taylor Capital Group, Inc. have been omitted,
because Taylor Capital Group, Inc. has not yet issued any stock, has no assets
and no liabilities and has not conducted any business other than of an
organizational nature.
F-1
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Cole Taylor Bank:
We have audited the balance sheets of Cole Taylor Bank (a wholly owned
subsidiary of Cole Taylor Financial Group, Inc.) as of December 31, 1995 and
1994, and the related statements of income, changes in stockholder's equity and
cash flows for each of the years in the three year period ended December 31,
1995. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Cole Taylor Bank (a wholly
owned subsidiary of Cole Taylor Financial Group, Inc.) as of December 31, 1995
and 1994 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Chicago, Illinois KPMG PEAT MARWICK LLP
November 21, 1996
F-2
<PAGE> 96
COLE TAYLOR BANK
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1996 1995 1994
------------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash and due from banks.................................. $ 95,193 $ 87,547 $ 69,715
Federal funds sold....................................... 10,950 5,000 23,600
Investment securities:
Available-for-sale, at fair value...................... 372,460 361,735 58,431
Held-to-maturity, at amortized cost (fair value of
$79,329 (unaudited), $80,239 and $386,474 at
September 30, 1996, and December 31, 1995 and 1994,
respectively)....................................... 76,772 76,613 405,988
Loans held for sale, net................................. 98,875 15,748 1,554
Loans, less allowance for loan losses of $24,630
(unaudited), $23,869 and $22,833 at September 30, 1996,
and December 31, 1995 and 1994, respectively........... 1,132,709 1,172,005 1,105,790
Premises, leasehold improvements and equipment, net...... 15,655 16,844 13,873
Other assets............................................. 43,440 38,540 40,702
---------- ---------- ----------
Total assets...................................... $ 1,846,054 $1,774,032 $1,719,653
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits:
Noninterest-bearing.................................... $ 297,448 $ 318,117 $ 318,800
Interest-bearing....................................... 1,158,359 1,045,958 974,611
---------- ---------- ----------
Total deposits...................................... 1,455,807 1,364,075 1,293,411
Short-term borrowings.................................... 153,410 202,033 243,997
Accrued interest, taxes and other liabilities............ 16,253 14,180 15,384
Long-term borrowings..................................... 85,836 61,003 47,864
---------- ---------- ----------
Total liabilities................................. 1,711,306 1,641,291 1,600,656
---------- ---------- ----------
Commitments and contingent liabilities
Stockholder's equity:
Common stock, $10 par value; 1,500,000 shares
authorized, issued and outstanding.................. 15,000 15,000 15,000
Surplus................................................ 52,028 50,826 50,826
Retained earnings...................................... 71,245 66,993 56,777
Unrealized holding loss on securities
available-for-sale, net of income taxes............. (3,525) (78) (3,606)
---------- ---------- ----------
Total stockholder's equity........................ 134,748 132,741 118,997
---------- ---------- ----------
Total liabilities and stockholder's equity........ $ 1,846,054 $1,774,032 $1,719,653
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 97
COLE TAYLOR BANK
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
------------------- -----------------------------------
1996 1995 1995 1994 1993
-------- ------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans................. $ 82,099 $76,946 $103,654 $ 87,057 $ 76,160
Interest on investment securities:
Taxable................................. 17,146 19,186 25,382 25,045 21,928
Tax-exempt.............................. 2,892 2,979 3,976 3,891 3,638
Interest on cash equivalents............... 1,052 402 672 274 102
-------- ------- -------- -------- --------
Total interest income.............. 103,189 99,513 133,684 116,267 101,828
-------- ------- -------- -------- --------
Interest expense:
Deposits................................... 40,102 34,341 47,034 32,998 27,472
Short-term borrowings...................... 6,537 10,517 13,584 9,483 6,639
Long-term borrowings....................... 2,854 2,858 3,748 1,637 1,036
-------- ------- -------- -------- --------
Total interest expense............. 49,493 47,716 64,366 44,118 35,147
-------- ------- -------- -------- --------
Net interest income.......................... 53,696 51,797 69,318 72,149 66,681
Provision for loan losses.................... 3,005 3,297 4,056 7,374 10,521
-------- ------- -------- -------- --------
Net interest income after provision
for loan losses.................. 50,691 48,500 65,262 64,775 56,160
-------- ------- -------- -------- --------
Noninterest income:
Service charges............................ 6,499 5,381 7,452 7,199 6,947
Trust fees................................. 2,697 2,500 3,539 3,095 2,944
Legal settlement........................... -- -- -- -- 2,438
Investment securities gains, net........... -- -- -- 8 565
Other noninterest income................... 2,552 2,366 3,236 2,585 2,531
-------- ------- -------- -------- --------
Total noninterest income........... 11,748 10,247 14,227 12,887 15,425
-------- ------- -------- -------- --------
Noninterest expense:
Salaries and employee benefits............. 22,634 21,766 28,973 28,691 28,069
Occupancy of premises, net................. 3,801 3,747 4,880 4,885 5,114
Furniture and equipment.................... 2,261 1,961 2,651 2,385 2,458
Computer processing........................ 1,484 1,212 1,676 1,444 1,403
Legal fees................................. 1,146 1,159 1,655 1,106 1,116
Advertising and public relations........... 1,325 1,109 1,582 2,298 2,183
FDIC deposit insurance..................... 2 1,329 1,451 2,646 2,400
Other real estate and repossessed asset
expense................................. 897 74 1,169 999 1,292
Other noninterest expense.................. 7,249 7,142 9,512 10,794 9,891
-------- ------- -------- -------- --------
Total noninterest expense.......... 40,799 39,499 53,549 55,248 53,926
-------- ------- -------- -------- --------
Income before income taxes................... 21,640 19,248 25,940 22,414 17,659
Income taxes................................. 7,288 5,732 7,774 6,512 4,937
-------- ------- -------- -------- --------
Net income......................... $ 14,352 $13,516 $ 18,166 $ 15,902 $ 12,722
======== ======= ======== ======== ========
Earnings per share........................... $ 9.57 $ 9.01 $ 12.11 $ 10.60 $ 8.48
======== ======= ======== ======== ========
Cash dividends declared per share............ $ 6.73 $ 3.43 $ 5.30 $ 3.07 $ 4.27
======== ======= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 98
COLE TAYLOR BANK
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
GAIN (LOSS) ON
SECURITIES
COMMON RETAINED AVAILABLE-
STOCK SURPLUS EARNINGS FOR-SALE TOTAL
------- ------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993................ $15,000 $40,826 $ 39,153 $ -- $ 94,979
Adoption of SFAS No. 115................ 462 462
Dividends on common stock -- $4.267 per
share................................ (6,400) (6,400)
Net income.............................. 12,722 12,722
------- ------- ------- ------- --------
Balance at December 31, 1993.............. 15,000 40,826 45,475 462 101,763
Change in unrealized holding loss on
investment securities, net of income
taxes................................ (4,068) (4,068)
Capital contribution.................... 10,000 10,000
Dividends on common stock -- $3.067 per
share................................ (4,600) (4,600)
Net income.............................. 15,902 15,902
------- ------- ------- ------- --------
Balance at December 31, 1994.............. 15,000 50,826 56,777 (3,606) 118,997
Change in unrealized holding gain on
investment securities, net of income
taxes................................ 3,528 3,528
Dividends on common stock -- $5.300 per
share................................ (7,950) (7,950)
Net income.............................. 18,166 18,166
------- ------- ------- ------- --------
Balance at December 31, 1995.............. 15,000 50,826 66,993 (78) 132,741
Nine months ended September 30, 1996
(unaudited):
Change in unrealized holding loss on
investment securities, net of income
taxes................................ (3,447) (3,447)
Tax benefit associated with exercise of
CTFG common stock options............ 1,202 1,202
Dividends on common stock -- $6.733 per
share................................ (10,100) (10,100)
Net income.............................. 14,352 14,352
------- ------- ------- ------- --------
Balance at September 30, 1996............. $15,000 $52,028 $ 71,245 $ (3,525) $134,748
======= ======= ======= ======= ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 99
COLE TAYLOR BANK
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
--------------------- -------------------------------------
1996 1995 1995 1994 1993
--------- -------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 14,352 $ 13,516 $ 18,166 $ 15,902 $ 12,722
Adjustments to reconcile net income to net cash provided
by operating activities:
Investment security gains, net.......................... -- -- -- (8) (565)
Amortization of premiums and discounts, net............. 592 809 1,024 2,058 2,518
Deferred loan fee amortization.......................... (1,818) (1,768) (2,515) (2,146) (1,851)
Provision for loan losses............................... 3,005 3,297 4,056 7,374 10,521
(Gain) loss on sales of loans originated for sale....... (822) (76) (150) 87 --
Loans originated and held for sale...................... (173,913) (60,683) (87,250) (17,795) --
Proceeds from sales of loans originated for sale........ 171,113 49,163 73,368 16,154 --
Depreciation and amortization........................... 2,261 1,876 2,534 2,343 2,343
Amortization of intangible assets....................... 125 146 196 180 121
Deferred income taxes................................... 459 (168) 16 (1,239) (2,662)
Provision for other real estate......................... 38 96 243 587 266
Other, net.............................................. (509) 23 75 158 (115)
Changes in assets and liabilities:
Accrued interest receivable........................... 259 (1,048) (251) (4,045) 1
Other assets.......................................... (3,633) 1,645 1,940 434 (655)
Accrued interest, taxes and other liabilities......... 3,275 (1,108) (1,204) 814 3,145
--------- -------- --------- --------- ---------
Net cash provided by operating activities..... 14,784 5,720 10,248 20,858 25,789
--------- -------- --------- --------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities.............. (154,883) (27,228) (27,228) -- --
Purchases of held-to-maturity securities................ (3,228) (3,784) (4,744) (93,993) (71,220)
Proceeds from principal payments and maturities of
available-for-sale securities......................... 137,826 13,559 29,130 29,879 --
Proceeds from principal payments and maturities of
held-to-maturity securities........................... 3,027 19,275 33,317 52,075 90,400
Proceeds from sales of investment securities............ -- -- -- 525 41,914
Proceeds from sale of loans............................. -- 28,924 28,924 -- --
Net increase in loans................................... (43,168) (75,752) (100,743) (178,878) (191,922)
Net additions to premises, leasehold improvements and
equipment............................................. (922) (3,344) (5,502) (4,438) (2,124)
Acquisition of land trust customer base................. -- (204) (204) -- (887)
Proceeds from sale of other real estate................. 2,318 2,145 2,145 2,227 1,164
--------- -------- --------- --------- ---------
Net cash used in investing activities......... (59,030) (46,409) (44,905) (192,603) (132,675)
--------- -------- --------- --------- ---------
Cash flows from financing activities:
Net increase (decrease) in deposits..................... 91,732 41,130 70,664 112,566 49,995
Net (decrease) increase in short-term borrowings........ (48,623) (42,319) (41,964) 34,770 56,968
Repayments of long-term borrowings...................... (50,167) (22,111) (37,111) (15,076) (50)
Proceeds from long-term borrowings...................... 75,000 35,000 50,250 25,250 32,250
Proceeds from capital contribution...................... -- -- -- 10,000 77
Dividends paid.......................................... (10,100) (5,150) (7,950) (4,600) (6,400)
--------- -------- --------- --------- ---------
Net cash provided by financing activities..... 57,842 6,550 33,889 162,910 132,840
--------- -------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents...... 13,596 (34,139) (768) (8,835) 25,954
Cash and cash equivalents, beginning of year.............. 92,547 93,315 93,315 102,150 76,196
--------- -------- --------- --------- ---------
Cash and cash equivalents, end of year.................... $ 106,143 $ 59,176 $ 92,547 $ 93,315 $ 102,150
========= ======== ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest............................................ $ 48,858 $ 46,909 $ 63,339 $ 46,612 $ 35,901
Income taxes........................................ 4,878 5,198 7,448 8,576 7,348
Supplemental disclosures of noncash investing and
financing activities:
Unrealized holding (loss) gain on investment securities,
net of income taxes................................... (3,447) 2,651 3,528 (4,068) 462
Securitization of mortgage loans transferred to
investment securities................................. -- -- -- 33,414 106,260
Reclassification of investment securities from
held-to-maturity to available-for-sale................ -- -- 299,858 -- 94,821
Mortgage servicing rights originated.................... 1,274 705 958 -- --
Real estate acquired through foreclosure................ 498 1,485 2,465 1,090 2,050
Sale of other real estate financed...................... -- -- -- -- 1,575
Tax benefit associated with exercise of parent company
common stock options.................................. 1,202 -- -- -- --
Transfer of consumer loans to loans held for sale....... 79,667 -- -- -- --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 100
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES:
Cole Taylor Bank ("the Bank") is a wholly owned subsidiary of Cole Taylor
Financial Group, Inc. ("CTFG", or "the Parent"). The accounting and reporting
policies of the Bank conform to generally accepted accounting principles and
general reporting practices within the banking industry. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates. The unaudited September 30, 1996 financial statements of
the Bank reflect all adjustments which are, in the opinion of management, of a
normal recurring nature and necessary to a fair statement of the results of the
financial statements presented. The results of operations for the nine month
periods ended September 30, 1996 and 1995 is not necessarily indicative of the
results to be expected for the full year. The following is a summary of the more
significant accounting and reporting policies:
INVESTMENT SECURITIES:
Securities that may be sold as part of the Bank's asset/liability or
liquidity management or in response to or in anticipation of changes in interest
rates and resulting prepayment risk, or for other similar factors, are
classified as available-for-sale and carried at fair value. Unrealized holding
gains and losses on such securities are reported net of tax in a separate
component of stockholder's equity. Securities that the Bank has the ability and
positive intent to hold to maturity are classified as held-to-maturity and
carried at amortized cost, adjusted for amortization of premiums and accretion
of discounts using the interest method. Realized gains and losses on the sales
of all securities are reported in income and computed using the specific
identification method. The Bank did not maintain a trading portfolio in 1996 or
prior years.
LOANS HELD FOR SALE:
Mortgage and consumer loans held for sale are carried at the lower of cost
or market as determined by the aggregate method. In determining the aggregate
lower of cost or market, the unrealized gains and losses associated with the
corresponding closed loans, outstanding commitments to originate loans and the
forward sale/delivery commitments used to hedge these loans and loan commitments
are netted together. Market prices are generally taken from on-line market
reporting services or dealer quoted prices for specialized loans and
commitments.
LOANS:
Loans are stated at the principal amount outstanding, net of unearned
discount. Unearned discount on consumer loans is recognized as income over the
terms of the loans using the sum-of-the-months-digits method, which approximates
the interest method. Interest on other loans is accrued on the principal amount
outstanding during the period. Loan origination and commitment fees and certain
direct loan origination costs are deferred and the net amount amortized as an
adjustment of the related loans' yields.
ALLOWANCE FOR LOAN LOSSES:
An allowance for loan losses has been established to provide for those
loans which may not be repaid in their entirety. The allowance is increased by
provisions for loan losses charged to expense and decreased by charge-offs, net
of recoveries. Although a loan is charged off by management when deemed
uncollectible, collection efforts continue and future recoveries may occur.
F-7
<PAGE> 101
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The allowance is maintained by management at a level considered adequate to
cover losses that are currently anticipated based on past loss experience,
general economic conditions, information about specific borrower situations
including their financial position and collateral values, and other factors and
estimates which are subject to change over time. Estimating the risk of loss and
amount of loss on any loan is necessarily subjective and ultimate losses may
vary from current estimates. These estimates are reviewed periodically and, as
adjustments become necessary, they are reported in income in the periods in
which they become known.
Effective January 1, 1995, the Bank adopted SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures." A loan is
considered impaired, based on current information and events, if it is probable
that the Bank will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. SFAS
No. 114 and SFAS No. 118 do not apply to certain groups of small-balance
homogenous loans which are collectively evaluated for impairment and are
generally represented by consumer and residential mortgage loans or loans which
are measured at fair value or at the lower of cost or fair value. The Bank
generally identifies impaired loans within the nonaccrual and restructured
commercial and commercial real estate portfolios on an individual loan-by-loan
basis. The measurement of impaired loans is generally based on the present value
of expected future cash flows discounted at the historical effective interest
rate, except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral. Prior to January 1, 1995, the Bank's
impaired loans were described as, and included in, nonaccrual loans. The
adoption of SFAS No. 114 and SFAS No. 118 had no impact on the Bank's
nonperforming assets or financial statements, determined as of January 1, 1995.
INCOME RECOGNITION ON IMPAIRED LOANS AND NONACCRUAL LOANS:
Loans, including impaired loans, are generally placed on a nonaccrual basis
for recognition of interest income when, in the opinion of management,
uncertainty exists as to the ultimate collection of principal or interest. The
nonrecognition of interest income on an accrual basis does not constitute
forgiveness of the interest. While a loan is classified as nonaccrual,
collections of interest and principal are generally applied as a reduction to
principal outstanding.
Loans may be returned to accrual status when all principal and interest
amounts contractually due are reasonably assured of repayment within an
acceptable period of time, and there is a sustained period of repayment
performance by the borrower, in accordance with the contractual terms of
interest and principal.
PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT:
Premises, leasehold improvements and equipment are reported at cost less
accumulated depreciation and amortization. Depreciation is charged to operating
expense using the straight-line and accelerated methods over a three to thirty
year period, the estimated useful lives of the assets. Leasehold improvements
are amortized over a three to thirty year period, which represents the shorter
of the lease term or the estimated useful life of the improvement.
OTHER REAL ESTATE:
Other real estate primarily includes properties acquired through
foreclosure or deed in lieu of foreclosure. Other real estate is recorded in
other assets at the lower of the amount of the loan balance or the current fair
value. Fair value is based on the estimated sales price of the property less any
selling expenses. Any charge-off of the loan balance to fair value when the
property is acquired is charged to the allowance for loan losses. Subsequent
provisions for losses, operating expenses and gains or losses on the sale of
other real estate are charged or credited to other real estate expense.
F-8
<PAGE> 102
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MORTGAGE SERVICING RIGHTS:
Effective January 1, 1995, the Bank adopted SFAS No. 122 "Accounting for
Mortgage Servicing Rights." This new standard requires that an entity recognize
as separate assets the right to service mortgage loans for others, however those
servicing rights are acquired, eliminating the previously existing accounting
distinction between servicing rights acquired through purchase transactions and
those acquired through loan originations. This statement requires the assessment
of capitalized mortgage servicing rights for impairment to be based on the
current fair value of those rights.
The fair value of capitalized mortgage servicing rights is estimated using
the present value of estimated expected future cash flows based upon assumptions
on interest, default and prepayment rates which are consistent with assumptions
that market participants would utilize. The Bank stratifies the capitalized
mortgage servicing rights generally on the basis of the note rate and loan type
for purposes of measuring impairment. Impairment is recognized through a
valuation allowance for each impaired stratum. Capitalized mortgage servicing
rights are amortized in proportion to, and over the period of, estimated net
servicing income similar to the interest method. The amortization of capitalized
mortgage servicing rights is reflected in the income statement as a reduction to
mortgage servicing fee income.
INTANGIBLE ASSETS:
Intangible assets are comprised of the excess cost over net assets acquired
and are principally allocated, based on independent appraisals, to core deposit
benefit, land trust customer base and goodwill. These intangibles are being
amortized on a straight-line basis over eleven to forty years.
INCOME TAXES:
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
income tax provision.
FINANCIAL INSTRUMENTS:
In the ordinary course of business the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit, unused
lines of credit, letters of credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they are funded or
related fees are incurred or received.
The Bank uses interest-rate exchange agreements (swaps) to manage interest
rate risk. These contracts are designated and are effective as hedges of
specific existing assets and liabilities. Net interest income (expense)
resulting from the differential between exchanging floating and fixed rate
interest payments is recorded on a current basis. The Bank's asset and liability
management and investment policies do not allow the use of derivative financial
instruments for trading purposes.
STATEMENTS OF CASH FLOWS:
For the purpose of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold. Generally, federal
funds are sold with maturities of three months or less.
F-9
<PAGE> 103
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. CASH AND DUE FROM BANKS:
The Bank is required to maintain a reserve balance with the Federal Reserve
Bank. The average reserve balance for the years ended December 31, 1995 and 1994
was approximately $7.7 million and $9.1 million, respectively.
3. INVESTMENT SECURITIES:
The amortized cost and estimated fair value of investment securities at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Treasury securities..................... $ 110,897 $ 964 $ (173) $ 111,688
U.S. government agency securities............ 55,131 698 (91) 55,738
Mortgage-backed securities................... 195,827 1,014 (2,532) 194,309
-------- ------ ------- --------
Total Available-for-Sale................ 361,855 2,676 (2,796) 361,735
-------- ------ ------- --------
Held-to-Maturity:
State and municipal obligations.............. 67,110 3,646 (23) 70,733
Other securities............................. 9,503 3 -- 9,506
-------- ------ ------- --------
Total Held-to-Maturity.................. 76,613 3,649 (23) 80,239
-------- ------ ------- --------
Total................................ $ 438,468 $6,325 $ (2,819) $ 441,974
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Treasury securities....................... $ 11,051 $ 43 $ (7) $ 11,087
Mortgage-backed securities..................... 52,927 -- (5,583) 47,344
-------- ------ -------- --------
Total Available-for-Sale.................. 63,978 43 (5,590) 58,431
-------- ------ -------- --------
Held-to-Maturity:
U.S. Treasury securities....................... 110,207 -- (3,942) 106,265
U.S. government agency securities.............. 51,240 32 (3,107) 48,165
Mortgage-backed securities..................... 170,266 59 (12,564) 157,761
State and municipal obligations................ 66,639 1,398 (1,394) 66,643
Other securities............................... 7,636 4 -- 7,640
-------- ------ -------- --------
Total Held-to-Maturity.................... 405,988 1,493 (21,007) 386,474
-------- ------ -------- --------
Total.................................. $ 469,966 $1,536 $ (26,597) $ 444,905
======== ====== ======== ========
</TABLE>
On November 15, 1995, the Financial Accounting Standards Board issued its
Special Report on the implementation of SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Guidance in the Special Report
allows entities to reclassify securities, including held-to-maturity debt
securities, without calling into question the intent of the entity to hold debt
securities to maturity in the future.
F-10
<PAGE> 104
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Special Report indicates that the one-time reclassification permitted should
occur as of a single date between November 15, 1995 and December 31, 1995. In
conjunction with the provisions contained in the Special Report, the Bank
reclassified approximately $299.8 million of held-to-maturity securities, at
amortized cost, into the available-for-sale classification. Unrealized gains of
approximately $400,000 were recorded as a result of this reclassification.
The amortized cost and estimated fair value of investment securities at
December 31, 1995, categorized by the earlier of call or contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Available-for-Sale:
Due in one year or less................................ $ 89,173 $ 89,951
Due after one year through five years.................. 76,855 77,475
Mortgage-backed securities............................. 195,827 194,309
-------- --------
Totals............................................ $ 361,855 $ 361,735
======== ========
Held-to-Maturity:
Due in one year or less................................ $ 5,459 $ 5,516
Due after one year through five years.................. 31,043 32,621
Due after five years through ten years................. 30,983 32,969
Due after ten years.................................... 9,128 9,133
-------- --------
Totals............................................ $ 76,613 $ 80,239
======== ========
</TABLE>
Mortgage-backed securities are collateralized by residential real estate
loans and consist primarily of Federal National Mortgage Association (FNMA) and
Federal Home Loan Mortgage Corporation (FHLMC) certificates.
Proceeds from sales of investment securities available for sale and the
related gross realized gains and losses are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales.................................... $ -- $525 $41,914
Gross realized gains................................... -- 8 717
Gross realized losses.................................. -- -- (152)
</TABLE>
Investment securities with an approximate book value of $297 million at
December 31, 1995 were pledged to collateralize certain deposits, securities
sold under agreements to repurchase and for other purposes as required or
permitted by law.
F-11
<PAGE> 105
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS:
Loans classified by type at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Commercial and industrial............................. $ 638,497 $ 611,670
Real estate--construction............................. 121,547 94,223
Real estate--mortgage................................. 207,377 202,455
Consumer.............................................. 231,717 224,927
Other loans........................................... 2,061 1,136
---------- ----------
Gross loans...................................... 1,201,199 1,134,411
Less: Unearned discount............................... (5,325) (5,788)
---------- ----------
Total loans...................................... 1,195,874 1,128,623
Less: Allowance for loan losses....................... (23,869) (22,833)
---------- ----------
Loans, net....................................... $1,172,005 $1,105,790
========== ==========
</TABLE>
Loans on a nonaccrual basis, including impaired loans, at December 31,
1995, 1994 and 1993 were approximately $9.9 million, $10.5 million and $10.4
million, respectively. Interest on these loans included in income amounted to
$240,000, $346,000 and $78,000 in 1995, 1994 and 1993, respectively. The total
interest income which would have been recognized under the original terms of the
loans was $1,073,000, $942,000 and $827,000 in 1995, 1994 and 1993,
respectively.
At December 31, 1995, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS No. 114 totaled $9.6 million, of
which $3.9 million related to impaired loans which do not require a related
allowance for loan losses because the loans have been partially written down
through charge-offs, and $5.7 million related to loans with a corresponding
allowance for loan losses of $604,000. For the year ended December 31, 1995, the
average recorded investment in impaired loans was approximately $7.8 million.
The Bank recognized $39,000 of interest on impaired loans during the portion of
the year that they were impaired.
The Bank provides several types of loans to its customers including
residential, construction, commercial and consumer loans. Lending activities are
conducted with customers in a wide variety of industries as well as with
individuals with a wide variety of credit requirements. The Bank does not have a
concentration of loans in any specific industry. Credit risks tend to be
geographically concentrated in that the majority of the Bank's customer base
lies within the Chicago metropolitan area.
Activity in the allowance for loan losses for the years ended December 31,
1995, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................................ $22,833 $19,740 $14,661
Provision for loan losses................................... 4,056 7,374 10,521
Loans charged-off........................................... (4,901) (5,158) (7,971)
Recoveries on loans previously charged-off.................. 1,881 877 2,529
------- ------- -------
Net charge-offs............................................. (3,020) (4,281) (5,442)
------- ------- -------
Balance at end of year...................................... $23,869 $22,833 $19,740
======= ======= =======
</TABLE>
F-12
<PAGE> 106
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Bank has extended loans to directors and executive officers of the
Bank, the Parent and their related interests. The aggregate loans outstanding as
reported by the directors and executive officers of the Bank and their related
interests, which individually exceeded $60,000, totaled $20.3 million, $7.4
million and $11.8 million at December 31, 1995, 1994 and 1993, respectively.
During 1995, 1994 and 1993, new loans totaled $20.2 million, $2.2 million and
$6.3 million, respectively, and repayments totaled $7.3 million, $6.6 million
and $4.1 million, respectively. In the opinion of management, these loans were
made in the normal course of business and on substantially the same terms for
comparable transactions with other borrowers and do not involve more than a
normal risk of collectibility. The Bank relies on its directors and executive
officers for identification of loans to their related interests.
At December 31, 1995, 1994 and 1993, mortgage loans serviced for others
totaled $195 million, $166 million and $135 million, respectively.
5. PREMISES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT:
Premises, leasehold improvements and equipment at December 31, 1995 and
1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements........................... $ 4,524 $ 2,915
Buildings and improvements...................... 7,522 5,577
Leasehold improvements.......................... 4,398 4,234
Furniture, fixtures and equipment............... 19,039 17,255
-------- --------
Total cost................................. 35,483 29,981
Less accumulated depreciation and
amortization.................................. (18,639) (16,108)
-------- --------
Net book value............................. $ 16,844 $ 13,873
======== ========
</TABLE>
6. OTHER REAL ESTATE AND REPOSSESSED ASSETS:
Other real estate and repossessed assets included in other assets in the
balance sheet at December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Other real estate................................... $2,928 $2,843
Repossessed assets.................................. 2,488 356
------ ------
Net book value................................. $5,416 $3,199
====== ======
</TABLE>
Activity in the allowance for other real estate for the years ended
December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year................. $ 795 $ 482 $ 381
Provision for other real estate.............. 243 587 266
Charge-offs.................................. (451) (274) (165)
----- ----- -----
Balance at end of year....................... $ 587 $ 795 $ 482
===== =====
</TABLE>
F-13
<PAGE> 107
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. MORTGAGE SERVICING RIGHTS:
Capitalized mortgage servicing rights included in other assets in the
balance sheet totaled $895,000 as of December 31, 1995, which approximates fair
value. For the year ended December 31, 1995, amortization of capitalized
mortgage servicing rights totaled $68,000. During 1995, there were no valuation
allowances established for capitalized mortgage servicing rights.
8. INTEREST-BEARING DEPOSITS:
Interest-bearing deposits at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
---------- --------
(IN THOUSANDS)
<S> <C> <C>
NOW accounts.......................................... $ 66,049 $ 57,795
Savings accounts...................................... 124,210 135,291
Money market deposits................................. 266,351 275,384
Certificates of deposit, less than $100,000........... 292,489 214,162
Certificates of deposit, $100,000 or more............. 84,910 61,089
Public time deposits.................................. 114,127 132,940
Brokered certificates of deposit...................... 97,822 97,950
---------- --------
Total............................................ $1,045,958 $974,611
========== ========
</TABLE>
Interest expense on certificates of deposit, $100,000 or more, was $3.4
million, $1.7 million and $1.1 million for the years ended December 31, 1995,
1994 and 1993, respectively.
At December 31, 1995 the scheduled maturities of time deposits are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1996....................................... $465,011
1997....................................... 104,108
1998....................................... 11,889
1999....................................... 3,333
2000 and thereafter........................ 5,007
--------
$589,348
========
</TABLE>
9. SHORT-TERM BORROWINGS:
Short-term borrowings at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Securities sold under agreements to repurchase......... $148,546 $181,624
Federal funds purchased................................ 43,500 48,450
U.S. Treasury tax and loan note option................. 9,987 13,923
-------- --------
Total............................................. $202,033 $243,997
======== ========
</TABLE>
Securities sold under agreements to repurchase generally mature within 1 to
180 days from the transaction date. Under the terms of the repurchase
agreements, if the market value of the pledged securities declines below the
repurchase liability, the Bank may be required to provide additional collateral
to the buyer.
F-14
<PAGE> 108
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Average balance during the year............ $196,728 $179,027 $143,057
Average interest rate during the year...... 5.81% 4.13% 3.22%
Maximum month end balance during the
year..................................... $224,907 $190,142 $166,523
</TABLE>
Additional information with respect to securities sold under agreements to
repurchase as of December 31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
COLLATERAL
-----------------------------------------------------
U.S. TREASURY AND
GOVERNMENT AGENCY MORTGAGE-BACKED
WEIGHTED SECURITIES SECURITIES
AVERAGE ------------------------ ------------------------
REPURCHASE INTEREST AMORTIZED ESTIMATED AMORTIZED ESTIMATED
TERM LIABILITY RATE COST FAIR VALUE COST FAIR VALUE
---- ---------- -------- --------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Overnight.................. $ 93,429 5.43% $23,244 $ 23,387 $ 75,899 $ 74,763
Up to 30 days.............. 27,604 5.13 10,177 10,285 19,903 19,699
30 to 90 days.............. 9,673 5.49 514 519 10,587 10,574
Over 90 days............... 17,840 5.72 6,859 6,986 13,147 13,185
-------- ---- ------- ------- -------- --------
$148,546 5.41% $40,794 $ 41,177 $ 119,536 $ 118,221
======== ==== ======= ======= ======== ========
</TABLE>
Under the treasury tax and loan note option, the Bank is authorized to
accept U.S. Treasury deposits of excess funds along with the deposits of
customer taxes. These liabilities bear interest at a rate of .25% below the
average federal funds rate and are collateralized by a pledge of various
investment securities.
At December 31, 1995, the Bank had outstanding and unused lines of credit
for short-term borrowings with various entities totaling $233 million.
10. INCOME TAXES:
The components of the income tax expense (benefit) for the years ended
December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Federal................................. $7,758 $ 7,751 $ 7,599
Deferred tax expense (benefit):
Federal................................. 16 (1,139) (2,662)
State................................... -- (100) --
------ ------- -------
Total................................ 16 (1,239) (2,662)
------ ------- -------
Applicable income taxes............ $7,774 $ 6,512 $ 4,937
====== ======= =======
</TABLE>
F-15
<PAGE> 109
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are presented below:
<TABLE>
<CAPTION>
AMOUNT
--------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Fixed assets, principally due to differences in depreciation..... $ 478 $ 316
Loans, principally due to allowance for loan losses.............. 8,454 8,092
State net operating loss carryforwards........................... 261 941
Deferred income, principally net loan origination fees........... 1,183 1,248
Other real estate................................................ 352 276
Other accruals................................................... 216 353
------- -------
Gross deferred tax assets..................................... 10,944 11,226
Less valuation allowance......................................... (261) (941)
------- -------
Gross deferred tax assets, net of valuation allowance......... 10,683 10,285
------- -------
DEFERRED TAX LIABILITIES:
Discount accretion............................................... (224) (123)
Mortgage servicing rights........................................ (313) --
------- -------
Gross deferred tax liabilities................................ (537) (123)
------- -------
Subtotal.................................................... 10,146 10,162
------- -------
Tax effect of unrealized holding losses on investment
securities.................................................... 42 1,941
------- -------
Net deferred tax assets..................................... $10,188 $12,103
======= =======
</TABLE>
There was no securities transactions tax effect for 1995. The securities
transactions tax effect for 1994 and 1993 was approximately $3,000 and $198,000,
respectively.
At December 31, 1995 and 1994, the Bank had net operating loss
carryforwards for Illinois state income tax purposes of approximately $6 million
and $20 million, respectively. These carryforwards will expire at various dates
through the year 2006. A valuation allowance has been provided for these net
operating loss carryforwards because of the uncertainty surrounding their
recognition prior to their expiration.
Income tax expense (benefit) was different from the amounts computed by
applying the federal statutory rate of 35% in 1995, 1994 and 1993 to income
before income taxes because of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax expense at statutory rate $ 9,079 $ 7,845 $ 6,181
(Decrease) increase in taxes resulting from:
Tax-exempt interest income, net of disallowed
interest deduction......................... (1,423) (1,448) (1,370)
Other, net.................................... 118 115 126
------- ------- -------
Total...................................... $ 7,774 $ 6,512 $ 4,937
======= ======= =======
</TABLE>
F-16
<PAGE> 110
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. LONG-TERM BORROWINGS:
Long-term borrowings consisted of the following at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Federal Home Loan Bank (FHLB) various advances ranging from $5 million to
$15 million due at various dates through May 8, 1997; collateralized by
qualified first mortgage residential loans and FHLB stock totaling
approximately $256 million and $7 million, respectively, as of December
31, 1995; weighted average interest rates at December 31, 1995 and 1994
are 6.33% and 5.99%, respectively...................................... $60,000 $47,000
Chicago Equity Fund non-interest bearing notes payable over a five to
seven year period in approximately equal annual installments........... 1,003 864
------- -------
Total............................................................... $61,003 $47,864
======= =======
</TABLE>
Following are the scheduled maturities of long-term borrowings at December
31, 1995:
<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1996.............................................. $ 50,166
1997.............................................. 10,204
1998.............................................. 192
1999.............................................. 151
2000.............................................. 109
Thereafter........................................ 181
-------
Total........................................ $ 61,003
=======
</TABLE>
12. EMPLOYEE BENEFIT PLANS:
The employees of the Bank participate in the employee benefit plans of
CTFG, consisting of the CTFG Profit Sharing Plan, the CTFG 401(k) Plan, and the
CTFG ESOP. Company contributions are at the discretion of the CTFG Board of
Directors, with the exception of certain matching of employee contributions and
a minimum ESOP contribution sufficient to service the ESOP debt. During 1995,
1994 and 1993, Bank contributions paid to the profit-sharing plan and ESOP were
$1.5 million, $1.2 million and $857,000, respectively.
13. RELATED PARTY TRANSACTIONS:
Included in other assets are amounts due from and to the Parent and other
affiliates. As of December 31, 1995 and 1994, the amounts due from the Parent
and other affiliates totaled $131,000 and $46,000, respectively. The amount due
to the Parent as of December 31, 1995 totaled $99,000.
During the years ended December 31, 1995, 1994 and 1993, payments were made
to the Parent and other affiliates for interest expense on securities sold under
agreements to repurchase totaling $303,000, $173,000 and $43,000, respectively.
The Bank received from the Parent and other affiliates, $422,000, $418,000
and $509,000, during the years ended December 31, 1995, 1994 and 1993,
respectively, for office space and various services performed by Bank employees
on behalf of the Parent and other affiliates. These services include accounting,
marketing,
F-17
<PAGE> 111
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
operations, human resources, and legal services. These fees were recorded as a
reduction to occupancy and salaries and employee benefits. During 1995, the Bank
paid $1.1 million to the Parent for various services which include acquisition
related services, human resources services, and audit services during 1995.
These fees are included in salaries and employee benefits. No such payments were
made in 1994 or 1993.
14. ALLOCATION OF PARENT COMPANY EXPENSES:
The Parent Company provides certain executive and other services to the
Bank. Costs related to those services are not allocated to the Bank, nor are the
costs reflected in the Bank's financial statements. The Parent estimates these
costs to be $2.86 million, $1.82 million and $1.69 million for the years ended
December 31, 1995, 1994 and 1993, respectively. These costs are computed using
various estimates and a predefined formula based upon assets, revenues and
employees. The above estimates would change if different methods were applied.
15. COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS:
COMMITMENTS:
The Bank is obligated in accordance with the terms of various long-term
noncancelable operating leases for premises (land and building) and office space
and equipment. The terms of the leases generally require periodic adjustment of
the minimum lease payments based on an increase in the consumer price index. In
addition, the Bank is obligated to pay the real estate taxes assessed on the
properties and certain maintenance costs. Certain of the leases contain renewal
options for periods of up to five years. Total rental expense was approximately
$2.0 million, $2.3 million and $1.9 million for 1995, 1994 and 1993,
respectively.
Estimated future minimum rental commitments under these operating leases as
of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
1996................................................... $ 1,718
1997................................................... 1,642
1998................................................... 1,472
1999................................................... 858
2000................................................... 821
Thereafter............................................. 7,205
-------
Total............................................. $ 13,716
=======
</TABLE>
CONTINGENCIES:
The Bank is a defendant in various legal proceedings arising in the normal
course of business. In the opinion of management, based on the advice of legal
counsel, the ultimate resolution of these matters will not have a material
adverse effect on the Bank's financial position.
FINANCIAL INSTRUMENTS:
The Bank is party to various financial instruments with off-balance sheet
risk. The Bank uses these financial instruments in the normal course of business
to meet the financing needs of customers and to effectively manage exposure to
interest rate risk. These financial instruments include commitments to extend
credit, standby letters of credit, interest-rate exchange contracts (swaps) and
forward commitments to sell loans. When viewed in terms of the maximum exposure,
those instruments may involve, to varying degrees,
F-18
<PAGE> 112
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheet. Credit risk is the possibility that a
counterparty to a financial instrument will be unable to perform its contractual
obligations. Interest rate risk is the possibility that, due to changes in
economic conditions, the Bank's net interest income will be adversely affected.
The Bank mitigates its exposure to credit risk through its internal
controls over the extension of credit. These controls include the process of
credit approval and review, the establishment of credit limits, and, when deemed
necessary, securing collateral. Collateral held varies but may include deposits
held in financial institutions; U.S. Treasury securities; other marketable
securities; income-producing commercial properties; accounts receivable;
inventories; and property, plant and equipment. The Bank manages its exposure to
interest rate risk, on a limited basis, by using off-balance sheet instruments
to offset existing interest rate risk of its assets and liabilities, and by
generally setting variable rates of interest on contingent extensions of credit.
The following is a summary of the contractual or notional amount of each
significant class of off-balance sheet financial instrument outstanding. The
Bank's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
these instruments. For interest-rate exchange contracts (swaps) and forward
commitments to sell loans the contract or notional amounts substantially exceed
actual exposure to credit loss.
At December 31, 1995, the contractual or notional amounts are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Financial instruments wherein contract amounts represent credit
risk:
Commitments to extend credit................................... $394,877
Standby letters of credit...................................... 53,683
Financial instruments wherein notional amounts exceed the amount
of credit risk:
Interest rate exchange agreements (swaps)...................... $ 75,000
Forward commitments to sell loans.............................. 18,926
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Such instruments are
generally issued for one year or less. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. Most of the Bank's standby letters of credit are
expected to expire undrawn.
An interest-rate exchange contract (swap) is an agreement in which two
parties agree to exchange, at specified intervals, interest payment streams
calculated on an agreed-upon notional principal amount with at least one stream
based on a specified floating-rate index. The Bank's objective in holding
interest-rate swaps is interest rate risk management. The Bank entered into an
agreement based on a $25 million notional amount to assume variable-market
indexed interest payments in exchange for fixed-rate interest payments. The
original maturity of this agreement (12/6/98) was five years and the fixed-rate
component received is 5.32%. The variable-interest rate component paid is based
on three-month LIBOR and was 5.81% as of December 31, 1995. The Bank also
entered into an agreement based on a $50 million notional amount to assume
fixed-rate interest payments in exchange for variable-market indexed payments.
The original maturity of this agreement
F-19
<PAGE> 113
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5/12/97) was 2 years and the fixed-rate component paid is 5.97%. The
variable-interest component paid is based on the federal funds rate and was
5.65% as of December 31, 1995.
The Bank enters into forward commitments to sell loans to manage the
interest rate risk exposure of mortgage banking activities. The hedging activity
helps to protect the Bank from a risk that the market value of mortgage loans
intended to be sold will be adversely affected by changes in interest rates. At
December 31, 1995, the Bank's forward commitments to sell loans had delivery
commitments expiring within three months. Gross unrealized losses on forward
sale commitments, based on dealer-quoted prices, approximated $103,000 at
December 31, 1995.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 (SFAS No. 107),
"Disclosures about Fair Value of Financial Instruments," requires disclosure of
the estimated fair value of financial instruments. For the Bank, a significant
portion of its assets and liabilities are considered financial instruments as
defined in SFAS No. 107. Many of the Bank's financial instruments, however, lack
an available, or readily discoverable, trading market as characterized by a
willing buyer and willing seller engaging in an exchange transaction.
Significant estimations and present value calculations were used by the Bank for
the purposes of estimating fair values. Accordingly, fair values are based on
various factors relative to expected loss experience, current economic
conditions, risk characteristics, and other factors. The assumptions and
estimates used in the fair value determination process are subjective in nature
and involve uncertainties and significant judgment and, therefore, fair values
cannot be determined with precision. Changes in assumptions could significantly
affect these estimated values.
The methods and assumptions used to determine fair values for each
significant class of financial instruments are presented below:
CASH AND CASH EQUIVALENTS:
Cash, due from banks and federal funds sold are reported at amounts which
approximate fair value in the balance sheet.
INVESTMENT SECURITIES:
Fair values for investment securities are determined from quoted market
prices. If a quoted market price is not available, fair value is estimated using
quoted market prices for similar instruments. The fair values pertaining to
investment securities are disclosed in Note 3.
LOANS:
Fair values of loans have been estimated by the present value of future
cash flows, using current rates at which similar loans would be made to
borrowers with similar credit ratings and the same remaining maturities. The
estimated fair value of the entire loan portfolio as of December 31, 1995 and
1994 was $1.21 billion and $1.11 billion, respectively.
DEPOSIT LIABILITIES:
Deposit liabilities with stated maturities have been valued at the present
value of future cash flows using rates which approximate current market rates
for similar instruments. Fair values of demand deposits are equal to the
respective amounts due on demand. The carrying amount of variable rate
instruments approximates fair value. The estimated fair value of deposit
liabilities as of December 31, 1995 and 1994 was $1.366 billion and $1.287
billion, respectively.
F-20
<PAGE> 114
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
Short-term borrowings and long-term debt have been valued at present values
of future cash flows using rates which approximate current market rates for
similar instruments. The estimated fair value of short-term borrowings as of
December 31, 1995 and 1994 was $202 million and $244 million, respectively. The
estimated fair value of long-term debt as of December 31, 1995 and 1994 was $61
million and $48 million, respectively.
FINANCIAL INSTRUMENTS:
The fair value of commitments to extend credit and standby letters of
credit is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments,
fair value also considers the difference between current levels of interest
rates and the committed rates. The fair value of these commitments is not
material. The fair value of interest rate swap agreements is estimated using
quoted market prices for similar instruments. The estimated fair value of
interest rate exchange contracts (swaps) as of December 31, 1995 and 1994 was
$(796,000) and $(2.4) million, respectively.
17. REGULATORY DISCLOSURES
The Bank is subject to various 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
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification 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 Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1995, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1995, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as "well-capitalized" under
the regulatory framework for prompt corrective action. To be categorized
"well-capitalized" the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
F-21
<PAGE> 115
COLE TAYLOR BANK
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Bank's actual capital amounts and ratios as of December 31, 1995 and
1994 are also presented in the following table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSE ACTION PROVISION
------------------ ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995
Total Capital
(to Risk Weighted Assets)..... $146,770 11.44 $102,597 >8.00 $128,246 >10.00
Tier 1 Capital
(to Risk Weighted Assets)..... 130,642 10.19 51,248 >4.00 76,948 >6.00
Tier 1 Capital
(to Average Assets)........... 130,642 7.41 70,533 >4.00 88,166 >5.00
As of December 31, 1994
Total Capital
(to Risk Weighted Assets)..... 135,492 11.44 94,758 >8.00 118,448 >10.00
Tier 1 Capital
(to Risk Weighted Assets)..... 120,587 10.18 47,379 >4.00 71,069 >6.00
Tier 1 Capital
(to Average Assets)........... 120,587 7.15 67,423 >4.00 84,279 >5.00
</TABLE>
18. DEFINITIVE SHARE AGREEMENT
On June 12, 1996 the Board of Directors of CTFG approved a definitive share
agreement as amended providing for the split-off of the Bank to an investment
group headed by CTFG's Chairman, President, and Company director and co-founder.
Under the terms of the agreement, CTFG will receive between 4.0 and 4.5 million
shares of common stock of CTFG plus the Bank's used automobile receivables
business, principally consisting of cash and sales finance receivables secured
by automobiles and cash amounts. The aggregate value of the cash and receivables
to be transferred to CTFG will range from $82 million to $98 million depending
on the number of shares exchanged. The Bank anticipates that the split-off
transaction will be consummated by the first quarter of 1997.
F-22
<PAGE> 116
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR EITHER UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.
-------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
The Split-Off Transactions........... 16
Use of Proceeds...................... 26
Pro Forma Capitalization............. 27
Selected Bank Financial Data......... 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 29
Unaudited Pro Forma Condensed
Consolidated Financial
Statements......................... 52
Notes to Unaudited Pro Forma
Condensed Consolidated Financial
Statements......................... 57
Management's Discussion and Analysis
of Pro Forma Financial Condition
and Results of Operations.......... 60
Business............................. 63
Management........................... 69
Supervision and Regulation........... 75
Security Ownership of Management and
Certain Beneficial Owners.......... 84
Certain Transactions................. 85
Description of Capital Stock......... 86
Underwriting......................... 91
Legal Matters........................ 91
Experts.............................. 92
Additional Information............... 92
Index to Financial Statements........ F-1
</TABLE>
-------------------------------
Until , 1997 (25 days from the date of this Prospectus), all
dealers effecting transactions in the Preferred Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
1,530,000 SHARES
TAYLOR CAPITAL
GROUP, INC.
% NONCUMULATIVE
PERPETUAL PREFERRED
STOCK, SERIES A
---------------------------
PROSPECTUS
---------------------------
PIPER JAFFRAY INC.
ROBERT W. BAIRD & CO. INCORPORATED
January , 1997
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than the SEC registration
fee and the NASD filing fee) of the issuance and distribution of the securities
being registered, all of which will be paid by the Company.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 11,591
NASD filing fee.................................................... 4,325
Printing expenses.................................................. 150,000
Fees and expenses of counsel....................................... 200,000
Fees and expenses of accountants................................... 75,000
Transfer agent and registrar fees.................................. 5,000
Blue sky fees and expenses......................................... 15,500
Miscellaneous...................................................... 10,000
--------
Total............................................................ $471,416
========
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<S> <C>
**1 Form of Purchase Agreement
*2 Amended and Restated Share Exchange Agreement among Cole Taylor Financial
Group, Inc. and the Taylor Family dated June 12, 1996
*3.1.1 Certificate of Incorporation of Taylor Capital Group, Inc., dated October
9, 1996
**3.1.2 Form of Certificate of Designation of the Preferred Stock
*3.2 By-Laws of Taylor Capital Group, Inc.
**5.1 Opinion of McDermott, Will & Emery regarding legality
10.1 Form of Loan Agreement between LaSalle National Bank and Taylor Capital
Group, Inc.
10.1(a) Form of Safekeeping Agreement between LaSalle National Bank and Taylor
Capital Group, Inc.
*10.2 Form of Cole Taylor Bank 401(k)/Profit Sharing and Employee Stock
Ownership Plan
*10.3 Form of Cole Taylor Bank 401(k)/Profit Sharing and Employee Stock
Ownership Trust
**10.4 Form of Agreement among Taylor Capital Group, Inc., Cole Taylor Financial
Group, Inc. and the Taylor Family
**10.5 Form of Indemnity Agreement by and among Taylor Capital Group, Inc. and
the Taylor Family
**10.6 Form of Purchase Agreement by and between First Midwest Bank, National
Association and Cole Taylor Bank
10.7 Form of Taylor Capital Group, Inc. Deferred Compensation Plan
12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of Taylor Capital Group, Inc. and CT Mortgage Company, Inc.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of McDermott, Will & Emery (see Exhibit 5.1 above)
*24 Power of Attorney (included with the signature page to the Registration
Statement)
27 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules:
None.
II-1
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Wheeling, Illinois on December 12, 1996.
TAYLOR CAPITAL GROUP, INC.
By /s/ JEFFREY W. TAYLOR
-------------------------------------
Jeffrey W. Taylor
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<S> <C> <C>
* Chairman of the Board and December 12, 1996
- ------------------------------------------ Chief Executive Officer
Jeffrey W. Taylor (Principal Executive Officer)
* Chief Financial Officer December 12, 1996
- ------------------------------------------ and Director
John Christopher Alstrin (Principal Financial and
Accounting Officer)
* President and Director December 12, 1996
- ------------------------------------------
Bruce W. Taylor
* Director December 12, 1996
- ------------------------------------------
Richard W. Tinberg
*By: /s/ JEFFREY W. TAYLOR
- ------------------------------------------
Jeffrey W. Taylor
Attorney-in-Fact
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffrey W. Taylor and Bruce W. Taylor and each of
them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities (including his or her capacity as a
director of Taylor Capital Group, Inc.) to sign any or all amendments (including
post-effective amendments) to this Registration Statement and to sign a
Registration Statement pursuant to Section 462(b) of the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement and power of attorney have been signed by
the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<S> <C> <C>
/s/ SIDNEY J TAYLOR Director December 12, 1996
- ------------------------------------------
Sidney J Taylor
/s/ MELVIN E. PEARL Director December 12, 1996
- ------------------------------------------
Melvin E. Pearl
/s/ ADELYN DOUGHERTY Director December 12, 1996
- ------------------------------------------
Adelyn Dougherty
</TABLE>
II-2
<PAGE> 1
EXHIBIT 10.1
DRAFT
12/5/96
LOAN AGREEMENT
Dated as of December ___, 1996
among
TAYLOR CAPITAL GROUP, INC.
as Borrower,
and
LASALLE NATIONAL BANK
as Bank
<PAGE> 2
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached but
is inserted for convenience only.
<TABLE>
<S> <C> <C>
1. DEFINITIONS AND TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Certain UCC and Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2. LOANS: BANK'S COMMITMENTS AND BORROWING PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1 Revolving Credit Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.2 Term Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3 Borrowing Procedures under the Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.4 All Loans to Constitute One Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.5 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3. LOANS: NOTES EVIDENCING LOANS; SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.1 Revolving Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.3 Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.4 Security Interest in Stock of Cole Taylor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. LOANS: AMOUNTS; INTEREST; BALANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1 Applicable Borrowing Amounts; Interest Rates; Default Rate . . . . . . . . . . . . . . . . . . . . . 16
4.2 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.3 Conversion and Reborrowing of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 Change of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.5 Unavailability of Deposits or Inability to Ascertain the LIBOR Rate or Adjusted LIBOR Rate . . . . . 19
4.6 Yield Protection, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.7 Funding Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.8 Discretion of Bank as to Manner of Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.9 Interest Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5. LOANS: GENERAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.1 Payments to Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.2 Application of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.3 Conditions Precedent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.4 Offset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.5 Credit Termination Date; Continuance of Obligations, Etc. . . . . . . . . . . . . . . . . . . . . . . 23
5.6 Loan Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.7 Over-Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.8 Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6. LOANS: CONDITIONS TO LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.1 Initial Loan Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7. REPRESENTATIONS AND WARRANTIES; COVENANTS; INDEMNIFICATION; CONTINUING OBLIGATION . . . . . . . . . . . . . . . . 26
7.1 Representations and Warranties of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.3 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.2 Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.3 Acceleration and Termination of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.4 Rights of Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.1 Payment Application Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.2 Statement of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.3 Manner of Application; Waiver of Setoff Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.5 Integration; Amendment; Assignment; Participation . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.6 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.9 Conflict with Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.10 No Impairment by Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.11 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.12 Costs, Fees and Expenses Related to Agreement and Other
Agreements . . . . . . . . . . . . . . 45
9.13 Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.14 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.15 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.16 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.17 FORUM; BANK; VENUE; JURY TRIAL WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.18 Other Costs, Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.19 Revival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.20 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.21 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.22 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.23 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.24 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
ii
<PAGE> 4
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of the ___ day of
December, 1996, by and between TAYLOR CAPITAL GROUP, INC., a Delaware
corporation ("Borrower"), and LASALLE NATIONAL BANK, a national banking
association ("Bank").
W I T N E S E T H:
WHEREAS, Borrower desires to borrow funds and obtain other financial
accommodations from Bank; and
WHEREAS, pursuant to Borrower's request, Bank is willing to lend
monies to Borrower pursuant hereto;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements set forth herein, Borrower agrees to borrow from Bank, and Bank
agrees to lend to Borrower, subject to and upon the following terms and
conditions:
1. DEFINITIONS AND TERMS
1.1 Certain Definitions. The following words, terms and/or
phrases shall have the meanings set forth thereafter and such meanings shall be
applicable to the singular and plural form thereof, giving effect to the
numerical difference.
"Adjusted LIBOR Rate" shall mean a rate per annum determined
pursuant to the following formula:
Adjusted LIBOR Rate = LIBOR
-----------------------------------------------
100% - Reserve Percentage
"Affiliate" means any Person (a) that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or
is under common control with Borrower or one or more Subsidiaries, (b)
that directly or beneficially owns or holds 10% or more of any equity
interest in Borrower or one or more Subsidiaries or (c) 10% or more of
whose voting stock (or in the case of a Person which is not a
corporation, 10% or more of any equity interest) is owned directly or
beneficially or held by Borrower or one or more Subsidiaries. For
purposes of this definition and this Agreement, the term "control"
shall mean, the power to direct or cause the direction, directly or
indirectly, of the management or policies of a Person, whether through
ownership interest or otherwise, including without limitation the
power to elect or appoint, directly or indirectly, a majority of the
members of its governing board or body.
<PAGE> 5
"Allowance for Loan and Lease Losses" means the valuation
reserve established and maintained by Cole Taylor to absorb credit
losses related to loans and leases in accordance with GAAP and
regulatory accounting.
"Authorized Officer" means the Chairman, President, or Chief
Financial Officer of Borrower.
"Bank Stock" means all of the issued and outstanding Stock of
Cole Taylor.
"Banking Liabilities" means (i) any deposits with Cole Taylor
or funds collected by Cole Taylor, (ii) any banker's acceptance credit
of Cole Taylor, (iii) any check, note, certificate of deposit, money
order, letter of credit, travelers check, draft or bill of exchange
issued, accepted or endorsed by Cole Taylor, (iv) any discount with,
borrowing from, or other obligation to, any Federal Reserve Bank, (v)
any agreement made by Cole Taylor to purchase or repurchase
securities, loans or federal funds or any interest or participation in
any thereof, (vi) any guarantee or similar obligation incurred by Cole
Taylor in such circumstances as may be incidental or usual in carrying
on the banking or trust business of a bank or trust company, (vii) any
transaction in the nature of an extension of credit, whether in the
form of a commitment or otherwise, undertaken by Cole Taylor for the
account of a third party with the application of the same banking
considerations and legal lending limits that would be applicable if
the transaction were a loan to such party, (viii) any transaction in
which Cole Taylor acts solely in a fiduciary or agency capacity, (ix)
any obligation of Cole Taylor on account of any loans from the Federal
Deposit Insurance Corporation which may or may not be secured by any
assets of Cole Taylor; and (x) any Lien, in favor of a public or
governmental authority, upon securities guaranteed by agencies and
instrumentalities of the federal government held by Borrower or any
Subsidiary equal in market value to the amount by which the funds
deposited by such public or governmental authority with Cole Taylor
exceeding the federally insured amount of such deposits and any Lien
arising in connection with any commercial repurchase agreement entered
into the normal course of business by Borrower or a Subsidiary.
"BHCA" means the Bank Holding Company Act of 1956, as amended.
"Base Rate" shall have the meaning assigned to such term in
the definition of "Prime Rate" in this Paragraph 1.1 below.
"Base Rate Loan" shall mean a Loan bearing interest as
specified in Paragraph 4.1(a).
2
<PAGE> 6
"Borrower's Liabilities" means all obligations and liabilities
of Borrower in the aggregate to Bank (including, without limitation,
all debts, claims and indebtedness) whether primary, secondary,
direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable, however evidenced,
created, incurred, acquired or owing and however arising, whether
under this Agreement or the Other Agreements or by operation of law or
otherwise.
"Business Day" means (i) for all purposes other than as
covered by clause (ii) below, any day on which commercial banking
institutions are open for the transaction of commercial banking
business in Chicago, Illinois other than a Saturday or Sunday, and
(ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, any LIBOR Loan, any
day which is a Business Day described in clause (i) and which is also
a day for trading by and between banks in U.S. dollar deposits in the
interbank eurodollar market.
"Capital" means the Tier 1 capital of Cole Taylor as that term
is defined in Appendix A to 12 C.F.R Section 208.
"Capital Lease" as applied to any Person shall mean any lease
of property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is accounted for as a capital lease on
the balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of the Borrower or any of its Subsidiaries in
each case taken at the amount thereof accounted for as liabilities in
accordance with GAAP.
"Charges" means all national, federal, state, county, city,
municipal and/or other governmental (or any instrumentality, division,
agency, body or department thereof, including, without limitation, the
PBGC) taxes, levies, assessments, charges, liens, claims or
encumbrances upon and/or relating to Borrower's Liabilities,
Borrower's business, Borrower's ownership and/or use of its assets,
income and/or gross receipts.
"Closing Date" means ____________, 1996.
"Code" means the Internal Revenue Code of 1986, as amended.
"Cole Taylor" means Cole Taylor Bank, an Illinois banking
corporation and a 100% owned subsidiary of Borrower (after giving
effect to the Transactions).
3
<PAGE> 7
"Collateral Interest" means a Lien held by Borrower or Cole
Taylor in another Person which is granted to the holder pursuant to a
financing arrangement, and shall also include any Lien held during and
after foreclosure of that Lien by the holder thereof, unless and until
the subject holder first commences to treat, in any manner (howsoever
evidenced by a single act or a course of dealing or otherwise), the
subject Lien, or the subject other Person, as an on-going equity
investment or an affiliated business operation, rather than a Lien.
"Commitment" means as to Bank, the aggregate obligation of the
Bank to Borrower under the Revolving Credit Commitment and the Term
Loan Commitment.
"Conversion Date" means the Business Day on which a Base Rate
Loan is converted to a LIBOR Loan.
"CT Mortgage Company" means CT Mortgage Company, Inc., a
________ corporation and a 100% owned subsidiary of Borrower (after
giving effect to the Transactions).
"Debt" means, without duplication, all of a Person's
liabilities, obligations and indebtedness to any Person of any and
every kind and nature, whether primary, secondary, direct, indirect,
absolute, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable, however evidenced,
created, incurred, acquired or owing and however arising, whether
under written or oral agreement, by operation of law or otherwise.
Without in any way limiting the generality of the foregoing, Debt
specifically includes (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, debentures, notes or other similar
instruments, (iii) obligations to pay the deferred purchase price of
property or services, (iv) obligations as lessee under leases which
shall have been or should be, in accordance with GAAP, recorded as
capital leases, and (v) obligations under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (iv) above.
"Default" shall have the meaning assigned to such term in
Paragraph 6.1(b)(iii) hereof.
"Default Rate" shall have the meaning assigned to such term in
Paragraph 4.1(c) hereof.
4
<PAGE> 8
"Early Termination Date" means the date, pursuant to Paragraph
8.3, upon which, whether by notice or by right hereunder, Bank's
Commitment is terminated.
"Environmental Claim" means any notice of violation, claim,
demand, abatement order or other order or direction (conditional or
otherwise) by any governmental authority for any damage, including,
without limitation, personal injury (including sickness, disease or
death), tangible or intangible property damage, contribution,
indemnity, indirect or consequential damages, damage to the
environment, nuisance, pollution, release of any Hazardous Material to
the environment, contamination or other adverse effects on the
environment, or for fines, penalties or restrictions, resulting from
or based upon (i) the occurrence of a Release (whether sudden or
non-sudden or accidental or non-accidental) of, or exposure to, any
Hazardous Material, in, into or onto the environment at, in, by, from,
onto or related to any Facility, (ii) the generation, use, handling,
transportation, storage, treatment or disposal of Hazardous Materials
in connection with the operation of any Facility, or (iii) the
violation, or alleged violation, of any Environmental Laws or any
Governmental Authorizations relating to environmental matters in
connection with the Facilities.
"Environmental Laws" means all statutes, ordinances, orders,
rules, regulations, plans, policies, or decrees and the like relating
to (i) environmental matters, including, without limitation, those
relating to fines, injunctions, penalties, damages, contribution, cost
recovery compensation, losses or injuries resulting from the Release
or threatened Release of Hazardous Materials, (ii) the generation,
use, handling, transportation, storage, treatment or disposal of
Hazardous Materials or (iii) occupational safety and health,
industrial hygiene, land use or the protection of human, plant or
animal health or welfare related to Hazardous Materials, in any manner
applicable to Borrower or an Affiliate or any of their respective
properties, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C.
Section 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery
Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42
U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. Section 2601 et seq.), the Occupational Safety and Health Act
(29 U.S.C. Section 651 et seq.) and the Emergency Planning and
Community Right-To-Know Act (42 U.S.C. Section 11001 et seq.), each as
amended or supplemented, and any analogous present or future local,
state and federal statutes and regulations promulgated pursuant
thereto, each as in effect as of the date of determination.
5
<PAGE> 9
"ERISA" means the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time and, unless the
context otherwise requires, the regulations promulgated thereunder and
any successor statute.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) which together with Borrower or an Affiliate would be
deemed to be a "single employer" within the meaning of Section 4001(b)
of ERISA or, where applicable, would be treated as a "single employer"
under Section 412(c)(11) of the Code.
"ERISA Termination Event" means (i) a "Reportable Event"
described in Section 4043 of ERISA (other than a "Reportable Event"
not subject to the provision for 30-day notice to the PBGC under such
regulations), (ii) the withdrawal of Borrower or any Affiliate from a
Plan during a plan year in which it was a "substantial employer," as
defined in Section 4001(a) of ERISA, including a cessation of
operations that is treated as a withdrawal by a "substantial employer"
under Section 4062(e) of ERISA, (iii) the filing of a notice of
intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC, (v) any other event or
condition which in the reasonable judgment of Borrower is likely to
constitute grounds under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to or any ERISA administer, any Plan,
or (vi) the partial or complete withdrawal of Borrower or any ERISA
Affiliate from a Multiemployer Plan.
"Event of Default" shall have the meaning assigned to such
term in Paragraph 8.1 hereof.
"Excess Interest" shall have the meaning assigned to such term
in Paragraph 4.9 hereof.
"Facilities" means any and all real property (including,
without limitation, all buildings, or other improvements located
thereon) now, hereafter or heretofore, owned, leased, operated or used
by Borrower, its Subsidiaries or any of its respective successors and
assigns.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day,
provided that (i) if the day for which such rate is to be determined
is not a Business Day, the Federal Funds Rate for
6
<PAGE> 10
such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and
(ii) if such rate is not so published for any day, the Federal Funds
Rate for such day shall be the average rate charged to Bank on such
day on such transactions as determined by Bank.
"Federal Reserve" means the Board of Governors of the Federal
Reserve System or its designee, the Federal Reserve Bank of Chicago.
"Financials" means those financial statements of Borrower
heretofore or concurrently herewith delivered by or on behalf of
Borrower to Bank.
"Five Year Average Yield" means the average yield to maturity
for actively traded marketable U.S. Treasury fixed interest rate
securities (adjusted to constant maturities of five years).
"Fixed Rate" means the Five Year Average Yield plus one
hundred sixty (160) basis points.
"Fixed Rate Election" shall have the meaning assigned to such
term in Paragraph 4.1(c) hereof.
"Fixed Rate Loan" means a Term Loan bearing interest at the
Fixed Rate.
"GAAP" shall mean generally accepted accounting principles as
in effect from time to time.
"Governmental Authorization" means any permit, license,
authorization, plan, directive, consent order or consent decree of or
from any federal, state or local governmental authority, agency or
court having jurisdiction over Borrower or any Facility.
"Hazardous Materials" means (i) any chemical, material or
substance defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," "infectious waste,"
"toxic substances" or any other formulations intended to define, list
or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity,
reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of
similar import under any applicable Environmental Laws or publications
promulgated pursuant thereto, (ii) any oil, petroleum or petroleum
derived substance, (iii) any drilling fluids, produced waters and
other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources, (iv) any
flammable substances or explosives, (v) any
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radioactive materials, (vi) asbestos in any form (which is or could
become friable), (vii) urea formaldehyde foam insulation, (viii)
electrical equipment which contains any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty
parts per million, (ix) pesticides or (x) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by
any governmental authority or which may or could pose a hazard to the
health and safety of the owners, occupants or any Persons in the
vicinity of the Facilities.
"Interest Period" means with respect to the LIBOR Loans, the
period used for the computation of interest commencing on the date the
relevant LIBOR Loan is effected by conversion or continued and
concluding on the date one (1), two (2) or three (3) months
thereafter, at Borrower's option, with any subsequent Interest Period
commencing on the last day of the immediately preceding Interest
Period and concluding one (1), two (2) or three (3) months thereafter,
at Borrower's option; provided, however, that no Interest Period for
any LIBOR Loan made under the Commitment may extend beyond the
Revolving Credit Maturity Date or the Term Loan Maturity Date, as the
case may be. Each Interest Period for a LIBOR Loan which would
otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day (unless such next succeeding Business Day
is the first Business Day of a calendar month, in which case such
Interest Period shall end on the next preceding Business Day).
"Liabilities" means, as of any date, the aggregate amount of
all liabilities of Borrower, in accordance with GAAP.
"LIBOR" means for each Interest Period the rate of interest
per annum as determined by Bank (rounded upward, if necessary, to the
nearest whole multiple of one-sixteenth of one percent (1/16th of 1%)
or such other integral multiple thereof at which interest rates for
LIBOR-based loans are commonly quoted to major banks in the interbank
eurodollar market) at which deposits of United States Dollars in
immediately available and freely transferable funds would be offered
at 11:00 a.m., Chicago time, two (2) Business Days prior to the
commencement of such Interest Period by the principal offshore funding
office of Bank to major banks in the interbank eurodollar market upon
request by such major banks for a period equal to such Interest Period
and in an amount equal to the principal amount of the LIBOR Loan to be
outstanding from Bank during such Interest Period. Each determination
of LIBOR made by Bank in accordance with this paragraph shall be
conclusive and binding on Borrower except in the case of manifest
error.
"LIBOR Loan" means a Loan bearing interest as specified in
Paragraph 4.1(b).
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"LIBOR Margin" means one and 25/100 percent (1.25%).
"Lien" means, with respect to any asset of Borrower, any
mortgage, pledge, security interest, encumbrance, lien or charge of
any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the
nature thereof and the filing of or agreement to give any financing
statement under the Uniform Commercial Code in effect in any
jurisdiction).
"Loan" or "Loans" means and includes all Prime Rate Loans and
LIBOR Loans made under the Commitment, unless the context in which
such term is used shall otherwise require.
"Loan Loss Reserve" means that amount reserved for possible
loan losses as reflected in the financial statements of Cole Taylor.
"Material Adverse Effect" means: (i) a material adverse effect
upon the financial condition of (x) either Borrower or Cole Taylor,
(y) Borrower and the Subsidiaries, taken as a whole, or (z) any
Subsidiary comprising 20% or more of the assets or earning power of
Borrower, and other Subsidiaries, taken as a whole, in any such case
measured against the most recently delivered Financials (or, if more
favorable to Borrower, measured against the Financials as of the
fiscal year-end of Borrower immediately preceding the date hereof); or
(ii) a change in the business, operations or assets of Borrower, or
any Subsidiary which could reasonably be expected to cause Borrower to
be unable to repay Borrower's Liabilities or satisfy the covenants set
forth in Paragraphs 7.2 and 7.3.
"Maximum Rate" shall have the meaning assigned to such term
in Paragraph 4.9 hereof.
"Multiemployer Plan" means a plan defined as such in Section
4001(a)(3) of ERISA to which contributions have been made by Borrower
or an ERISA Affiliate.
"Net Worth" means, as of any date of determination thereof,
the amount of all assets of Cole Taylor as may be properly classified
as such less the amount of all unsubordinated Liabilities of Cole
Taylor, all as determined in accordance with GAAP.
"Non-Performing Assets" means those assets of Cole Taylor
classified as non-performing in accordance with standard industry
practices on the most recent consolidated financial statements of
Borrower.
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"Non-Performing Loans" means those loans of Cole Taylor
classified as non-performing in accordance with standard industry
practices on the most recent consolidated financial statements of
Borrower.
"Notes" means the Revolving Note and the Term Note.
"OBRE" means Illinois Office of Banks and Real Estate.
"Other Agreements" means all agreements, instruments and
documents, including, without limitation, guaranties, mortgages, deeds
of trust, guaranties, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, leases,
financing statements and all other written matter heretofore, now
and/or from time to time hereafter executed by and/or on behalf of
Borrower and delivered to the Bank in connection with this Agreement
including, without limitation, the Notes, the Safekeeping Agreement
and the Pledge Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Permitted Debt" means (i) Debt incurred pursuant to this
Agreement; (ii) the Capitalized Lease Obligations of Borrower,
provided that the aggregate Capitalized Lease Obligations under all
Capital Leases shall not exceed $500,000; (iii) Subordinated Debt of
Borrower; (iv) legal fees with respect to the transactions
contemplated by this Agreement; (v) Debt incurred in the ordinary
course of business not exceeding $100,000 in aggregate; (vi) Debt
arising or accruing in the ordinary course of business, which Debt
does not give rise to a Lien or other security interest, other than a
Permitted Lien; (vii) guarantees of the obligations of CT Mortgage
Company under sales of loan pools; and (viii) trade payables accrued
in the ordinary course of business.
"Permitted Liens" means (i) Liens securing the payment by
Borrower or a Subsidiary of taxes, assessments or governmental
charges, provided that Borrower is contesting in good faith, by an
appropriate proceeding, the validity, amount or imposition of the
above while maintaining reserves deemed adequate by Bank to cover the
above and (a) such contest does not have or cause a Material Adverse
Effect, (b) Borrower has made an adequate provision for the payment of
all taxes, assessments, penalties, interest and other governmental
charges which are accruing but are not yet due and payable, and (c)
Borrower has no knowledge and is not aware of any deficiency or
additional assessment which may have or has arisen in connection with
the foregoing, in all cases where such failure could not reasonably be
expected to have a Material Adverse Effect; (ii) Liens securing
charges, levies, claims or demands against Borrower or a Subsidiary of
materialmen, mechanics, carriers, warehousemen, landlords
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and other like persons, provided that the obligations secured by
such Liens are otherwise permitted hereunder; (iii) Liens incurred or
deposits made in the ordinary course of business (a) in connection with
workmen's compensation, unemployment insurance, social security and
other like laws against Borrower or a Subsidiary, and (b) to secure the
performance of letters of credit, bids, tenders, contracts, leases,
surety, appeal and performance bonds and other similar obligations
against Borrower or a Subsidiary not incurred in connection with the
borrowing of money; (iv) Liens to secure, or which are granted in
connection with, Banking Liabilities of Borrower or a Subsidiary; (v)
attachment, judgment and other similar Liens arising in connection with
court proceedings involving Borrower or a Subsidiary, provided that
such Liens do not involve any judgement or order requiring payment of
monies in excess of $10,000 in aggregate which are not covered by
insurance; (vi) Liens on the property of a Bank or a Subsidiary
securing obligations owing to Borrower, a Bank or a Subsidiary; (vii)
reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other similar title
exceptions or encumbrances affecting real property of Borrower or a
Subsidiary, provided that such Liens do not interfere with the use or
value of the real property in a manner which would have a Material
Adverse Effect; (viii) Liens, mortgages, pledges, conditional sales
contracts, security interests, capitalized leases and arrangements for
the retention of title existing as to Borrower or a Subsidiary
outstanding on the date of this Agreement; (ix) Liens issued or
incurred pursuant to Collateral Interests; (x) Liens of a Subsidiary
arising under the Interest Rate and Currency Exchange Agreement dated
as of April 16, 1992 and related documents, granted by Cole Taylor Bank
in favor of Bear Stearns Capital Markets, Inc. and liens of a
Subsidiary granted to others in connection with interest rate swaps and
other hedging devices comparable in function to the foregoing
arrangement with Bear Stearns Capital Markets, Inc.; (xi) Liens or
mortgages incurred by a Bank or Subsidiary after the date hereof, given
to secure the payment of the purchase price incurred in connection with
the acquisition of assets intended to be used in carrying on the
business of a Subsidiary; provided that (a) such Liens or mortgages
attach solely to the property acquired or purchased, (b) at the time of
the acquisition of such assets, the aggregate amount remaining unpaid
on all Debt secured by the applicable Lien shall not exceed an amount
equal to seventy percent (70%) of the lesser of the total purchase
price or the fair market value at the time of acquisition of such
assets (as determined in good faith by the Board of Directors of such
Subsidiary), and (c) the Debt secured by such Liens shall not result in
or cause a Default of the financial covenants contained in Paragraph
7.2(i) hereof; (xii) (A) Liens or encumbrances granted in connection
with leases of real property and (B) Liens granted in connection with
leases on personal property (long-term, capital or otherwise) so long
as such leases qualify as Permitted Debt; and (xiii) Liens issued or
incurred in connection with the replacement, extension and renewal of
any obligations secured by a Lien permitted under this
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definition provided that the Debt secured by such Liens shall
not result in or cause a Default of the financial covenants contained
in Paragraph 7.2(i) hereof.
"Person" means and includes an individual, a partnership, a
joint venture, a corporation (whether or not for profit), a trust, an
unincorporated organization, a government or any department or agency
thereof or any other entity or organization.
"Plan" means, at any time, any single-employer plan, as
defined in Section 4001(a) and subject to Title IV of ERISA, which is
maintained, or at any time during the five calendar years preceding
the time in question was maintained, for employees of Borrower or an
Affiliate.
"Pledge Agreement" means that certain pledge agreement made by
Borrower in favor of the Bank which may be executed and delivered from
time to time by Borrower in connection with the Safekeeping Agreement.
"Prime Rate" or "Base Rate" means the rate of interest
(expressed as a percentage per annum) most recently announced or
published publicly from time to time by Bank as its prime or base rate
of interest, which is not necessarily the lowest or most favorable
rate of interest charged by Bank on commercial loans at any one time.
The rate of interest shall change automatically and immediately as and
when the prime or base rate shall change, without notice to Borrower,
and any notice to which it may be entitled is hereby waived, and any
such change in Bank's prime or base rate shall not affect any of the
terms and conditions of this Agreement, all of which shall remain in
full force and effect.
"Release" means any release, spill, emission, leaking,
pumping, pouring, injection, escaping, deposit, disposal, discharge,
dumping, leaching, or migration of Hazardous Materials into the indoor
or outdoor environment (including, without limitation, the abandonment
or disposal of any barrels, containers or other closed receptacles
containing any Hazardous Materials), or into or out of any Facility.
"Reserve Percentage" means, for the purpose of computing the
Adjusted LIBOR Rate, the reserve requirement imposed by the Board of
Governors of the Federal Reserve System (or any successor) under
Regulation D on "Eurocurrency liabilities" (as such term is defined in
Regulation D) for the applicable Interest Period as of the first day
of such Interest Period, but subject to any amendments of such reserve
requirement by such Board or its successor, and taking into account
any transitional adjustments thereto becoming effective during such
Interest Period. For purposes of this definition, LIBOR Loans shall
be deemed to be Eurocurrency liabilities as defined in
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Regulation D without benefit of or credit for prorations, exemptions
or offsets under Regulation D.
"Return on Average Assets" means Cole Taylor's ratio of (i)
net income after taxes but before extraordinary items to (ii) total
assets, all as determined in accordance with GAAP.
"Revolving Credit Commitment" shall have the meaning assigned
to such term in Paragraph 2.1 hereof.
"Revolving Credit Maturity Date" means December ____, 1997.
"Revolving Credit Termination Date" means the earlier to occur
of (i) the Revolving Credit Maturity Date or (ii) the Early
Termination Date.
"Revolving Loan" means and includes all Loans made under the
Revolving Credit Commitment.
"Revolving Note" means that certain Revolving Note of even
date herewith in the original aggregate maximum principal amount of
Five Million Dollars ($5,000,000), as the same may be amended,
modified or supplemented from time to time, and together with any
renewals thereof or exchanges or substitutes therefor.
"Safekeeping Agreement" means that certain Safekeeping
Agreement of even date herewith between Borrower and Bank.
"Stock" means all shares, interests, participation or other
equivalents, however designated, of or in a corporation, bank, limited
liability corporation, partnership or other entity, whether or not
voting, including but not limited to common stock, warrants, preferred
stock, convertible debentures, and all agreements, instruments and
documents convertible, in whole or in part, into any one or more or
all of the foregoing.
"Subordinated Debt" means, as of any date, the amount of Debt
which is subordinated in right of payment to Borrower's Liabilities on
terms reasonably satisfactory to the Bank in each particular case.
"Subsidiary" means any corporation of which a Person owns,
directly or indirectly through one or more intermediaries, more than
50% of the voting stock at the time of determination.
"Term Loan Commitment" shall have the meaning assigned to such
term in Paragraph 2.2 hereof.
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"Term Loan" means and includes all Loans made under the Term
Loan Commitment, unless the context in which such term is used shall
otherwise require.
"Term Loan Maturity Date" means December ____, 2001.
"Term Loan Termination Date" means the earlier to occur of the
(i) Term Loan Maturity Date or (ii) Early Termination Date.
"Term Note" means that certain Term Note of even date herewith
made payable by Borrower in favor of Bank in the original aggregate
principal amount of Twenty-Five Million Dollars ($25,000,000), as the
same may be amended, modified or supplemented from time to time, and
together with any renewals thereof or exchanges or substitutes
therefor.
"Termination Date" means the later to occur of the (i)
Revolving Credit Termination Date and (ii) the Term Loan Termination
Date.
"Transactions" means the transactions contemplated by that
certain Amended and Restated Share Exchange Agreement dated as of June
12, 1996, among Cole Taylor Financial Group, Inc. and various
shareholders of the Borrower.
1.2 Certain UCC and Accounting Terms. Except as otherwise defined
in this Agreement or the Other Agreements, all words, terms and/or phrases used
herein and therein shall be defined by the applicable definition therefor (if
any) in the Uniform Commercial Code as adopted by the State of Illinois.
Notwithstanding the foregoing, any accounting terms used in this Agreement
which are not specifically defined herein shall have the meaning customarily
given to them in accordance with GAAP. All financing computations hereunder
shall be computed, unless otherwise specifically provided herein, in accordance
with GAAP as consistently applied.
2. LOANS: BANK'S COMMITMENTS AND BORROWING PROCEDURES
2.1 Revolving Credit Commitment. On the terms and subject to the
conditions set forth in this Agreement, Bank agrees to make revolving credit
available to Borrower from time to time prior to the Revolving Credit
Termination Date in such aggregate amounts as Borrower may from time to time
request but in no event exceeding Five Million Dollars ($5,000,000) (the
"Revolving Credit Commitment"). The Revolving Credit Commitment shall be
available to Borrower by means of Revolving Loans, it being understood that
Revolving Loans may be repaid and used again during the period from the date
hereof to and including the Revolving Credit Termination Date, at which time
the Revolving Credit Commitment shall expire.
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2.2 Term Loan Commitment. On the terms and subject to the
conditions set forth in this Agreement, Bank agrees to make the Term Loan to
Borrower in the aggregate principal amount of Twenty-Five Million Dollars
($25,000,000) (the "Term Loan Commitment"). The Term Loan shall be funded in
one drawing. Amounts borrowed in respect of the Term Loan and repaid may not
be reborrowed; provided LIBOR Loans consisting of Term Loans may be continued
as LIBOR Loans or converted into Base Rate Loans pursuant to Paragraph 4.3
hereof.
2.3 Borrowing Procedures under the Commitment. Borrower shall
give Bank irrevocable telephonic notice (with prompt written confirmation),
written notice or telecopied notice by no later than 11:00 a.m., Chicago time,
on the date it requests to make a Base Rate Loan hereunder. Each such notice
shall be effective upon receipt by Bank and shall specify the date the Loan
shall be funded by Bank (which shall be a Business Day) and the amount of such
Loan. Borrower shall give Bank irrevocable telephonic notice (which notice
shall be promptly confirmed in writing) no later than 10:00 a.m., Chicago time,
two (2) Business Days prior to the date that it requests Bank to make a LIBOR
Loan hereunder or to effect a conversion from a Base Rate Loan to a LIBOR Loan,
including a reborrowing as provided in Paragraph 4.3. Each such notice shall
be effective upon receipt by Bank, and shall specify the date of such Loan
(which shall be a Business Day), the amount of such Loan, and the Interest
Period applicable thereto. Borrower agrees that Bank may rely on any notice
given by any person it reasonably believes to be an Authorized Officer without
the necessity of independent investigation. Each borrowing shall be on a
Business Day. Each borrowing shall be funded by Bank by 2:00 p.m., Chicago
time, on the applicable Business Day determined above.
2.4 All Loans to Constitute One Obligation. The Loans shall
constitute one general obligation of Borrower.
2.5 Use of Proceeds. The proceeds of the Term Loan shall be used
by Borrower primarily to infuse additional capital into Cole Taylor to comply
with the minimum capital requirements of any applicable banking laws or
regulations or any requirements of any regulatory agencies and any funds not so
used shall be applied to expenses for the Transactions or for general working
capital purposes. The proceeds of the Revolving Loans will be used for general
working capital purposes.
3. LOANS: NOTES EVIDENCING LOANS; SECURITY
3.1 Revolving Note. The Revolving Loans made by Bank under the
Revolving Credit Commitment shall be evidenced by the Revolving Note
substantially in the form set forth in Exhibit 3.1, with appropriate
insertions, dated the date hereof (or such other date prior thereto as shall be
satisfactory to Bank), payable to the order of Bank in the maximum aggregate
principal amount of Five Million Dollars ($5,000,000). The unpaid principal
amount of the Revolving Loan shall bear interest and be due and
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payable as provided in this Agreement and the Revolving Note. Payments to be
made by Borrower under the Revolving Note shall be made at the time, in the
amounts and upon the terms set forth herein and therein.
3.2 Term Note. The Term Loan made by Bank under the Term Loan
Commitment shall be evidenced by the Term Note substantially in the form set
forth in Exhibit 3.2, with appropriate insertions, dated the date hereof (or
such other date prior thereto as shall be satisfactory to Bank), payable to the
order of Bank in the aggregate principal amount of Twenty-Five Million Dollars
($25,000,000). The unpaid principal amount of the Term Loan shall bear
interest and be due and payable as provided in this Agreement and the Term
Note. Payments to be made by Borrower under the Term Note shall be made at the
time, in the amounts and upon the terms set forth herein and therein.
3.3 Recordation. The type, date and amount of each Loan made by
Bank, the interest rate, and the date and amount of each repayment of principal
received by Bank shall be recorded by Bank in its records. The aggregate
unpaid principal amount so recorded shall be prima facia evidence of the
principal amount owing and unpaid on the Revolving Note and the Term Note. The
failure to so record any such amount or any error in so recording any such
amount shall not limit or otherwise affect the obligations of Borrower
hereunder or under the Revolving Note and the Term Note to repay the principal
amount of the Loans together with all interest accrued thereon.
3.4 Security Interest in Stock of Cole Taylor. In the
circumstances described in the Safekeeping Agreement, Borrower agrees that it
shall immediately pledge, assign, transfer, deliver and set over to Bank
pursuant and subject to the Safekeeping Agreement and the Pledge Agreement, all
of Borrower's right, title and interest in and to, and grant Bank a
first-priority Lien on and security interest in, all of the Stock of Cole
Taylor, to be retained subject to the terms of such agreements by Bank.
4. LOANS: AMOUNTS; INTEREST; BALANCES
4.1 Applicable Borrowing Amounts; Interest Rates; Default Rate
(a) Borrower hereby promises to pay interest on the
unpaid principal amount of each Revolving Loan that is a Base Rate Loan at a
rate per annum equal to the Base Rate from time to time in effect for the
period commencing on the date of such Loan until such Base Rate Loan is (A)
converted to a LIBOR Loan pursuant to Paragraph 4.3 hereof, or (B) paid in
full. Borrower hereby promises to pay interest on the unpaid principal amount
of the Term Loan that is a Base Rate Loan at a rate per annum equal to the Base
Rate from time to time in effect for the period commencing on the date of such
Loan until such Base Rate Loan is (i) converted to a LIBOR Loan pursuant to
Paragraph 4.3 hereof or (ii) paid in full. Accrued interest on the outstanding
principal amount of Loans shall be payable (i) quarterly in arrears on the
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last Business Day of each calendar quarter in the case of a Base Rate Loan or a
Fixed Rate Loan, (ii) on the last day of the Interest Period therefor in the
case of a LIBOR Loan, (iii) upon conversion of any Loan into a LIBOR Loan (such
amount of accrued interest then coming due to be calculated based on the
principal amount of the Loan so converted) and (iv) upon the Revolving Credit
Termination Date (in the case of a Revolving Loan) and the Term Loan Maturity
Date (in the case of a Term Loan), which payments shall commence with the last
Business Day of December, 1996 in the case of a Base Rate Loan or a Fixed Rate
Loan. After the Revolving Credit Termination Date (in the case of a Revolving
Loan) and the Term Loan Maturity Date (in the case of a Term Loan) or
Conversion Date covered in (ii) above, as applicable, accrued interest on such
Loans shall be payable on demand.
(b) Each LIBOR Loan shall be in a minimum amount of
$1,000,000 or such greater amount which is an integral multiple of $100,000 and
shall bear interest (computed on the basis of a year of 360 days and actual
days elapsed) on the unpaid principal amount thereof from the date such LIBOR
Loan is effected by conversion or continued until maturity (whether by
acceleration or otherwise) at a rate per annum equal to the sum of the LIBOR
Margin plus the Adjusted LIBOR Rate, with such interest payable in accordance
with Paragraph 4.1(a) above.
(c) Notwithstanding the provisions of Paragraph 4.1(a)
above, prior to the occurrence of a Default or Event of Default, Borrower may
make a single, irrevocable election to convert the rate of interest on the
entire outstanding principal amount of the Term Loan to the Fixed Rate (the
"Fixed Rate Election"); provided, however, that prior to the effectiveness of a
Fixed Rate Election, the following shall occur: (i) all LIBOR Loans in respect
of the Term Loan shall have been converted into a Base Rate Loan and (ii) all
unpaid interest on the outstanding principal amount of the Term Loan shall be
paid in full at a rate per annum equal to the Five Year Average Yield.
(d) If an Event of Default shall have occurred and be
continuing hereunder, the Loans shall bear interest from the date of such Event
of Default, payable on demand, at a rate per annum (the "Default Rate") equal
to the sum of two percent (2%) plus the applicable interest rate from time to
time in effect (computed on the basis of a 360 day year and actual days
elapsed).
4.2 Computation of Interest. Interest on each Loan shall be
computed for the actual number of days elapsed on the basis of a 360-day year.
The interest rate applicable to each Base Rate Loan shall change simultaneously
with each change in such Base Rate. Upon conversion of less than all the
aggregate principal amount of Base Rate Loans outstanding at any one time to a
LIBOR Loan, interest on the remaining principal amount of Base Rate Loans
outstanding after such conversion shall be calculated assuming such LIBOR Loan
replaced a corresponding amount of Base Rate Loans bearing interest at the Base
Rate applicable thereto immediately prior to
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such conversion such that the remaining principal amount of Base Rate Loans
outstanding after such conversion shall bear interest at the Base Rate which
would have been applicable to such Base Rate Loans had no such conversion been
effected.
4.3 Conversion and Reborrowing of Loans.
(a) Provided that no Event of Default has occurred and is
continuing, Base Rate Loans may, subject to Paragraphs 2.3 and 4.1(b) hereof,
at any time be converted by Borrower to LIBOR Loans, which LIBOR Loans shall
mature and become due and payable on the last day of the Interest Period
applicable thereto. Provided that no Event of Default has occurred and is
continuing, Borrower shall have the right, subject to the terms and conditions
of this Agreement, to reborrow through a new LIBOR Loan in whole or in part,
subject to Paragraph 4.1(b), any LIBOR Loan from any current Interest Period
into a subsequent Interest Period, provided that Borrower shall give Bank
notice of the reborrowing of any such LIBOR Loan as provided in Paragraph 2.3
hereof.
(b) In the event that (i) Borrower fails to give notice
pursuant to Paragraph 2.3 hereof of the reborrowing of any LIBOR Loan or fails
to specify the Interest Period applicable to such reborrowing or (ii) an Event
of Default has occurred and is continuing at the time any such LIBOR Loan is to
be reborrowed hereunder, then such LIBOR Loan shall be automatically reborrowed
as a Base Rate Loan, subject to Paragraphs 4.1(c) (in the case of subpart (ii)
of this Paragraph 4.3(b)) and 8.3 hereof if an Event of Default has occurred
and is continuing, whichever is applicable, unless the relevant LIBOR Loan is
paid in full on the last day of the then applicable Interest Period.
(c) Notwithstanding anything contained herein to the
contrary, Borrower may not have outstanding at any one time more than (i) three
(3) LIBOR Loans in respect of the Revolving Credit Commitment and (ii) five (5)
LIBOR Loans in respect of the Term Loan Commitment.
4.4 Change of Law. Notwithstanding any other provisions of this
Agreement or the Notes, if at any time Bank shall determine in good faith that
any change in applicable law or regulation or in the interpretation thereof
makes it unlawful or impossible for Bank to effect a conversion of a Base Rate
Loan into a LIBOR Loan or to continue to maintain any LIBOR Loan, Bank shall
promptly give notice thereof to Borrower, and the obligation of Bank to effect
by conversion or continue such LIBOR Loan under this Agreement shall terminate
until it is no longer unlawful or impossible for Bank to effect by conversion
or maintain such LIBOR Loan. Upon the receipt of such notice, Borrower may
elect to either (i) pay or prepay, as the case may be, the outstanding
principal amount of any such LIBOR Loan, together with all interest accrued
thereon and all other amounts payable to Bank under this Agreement, or
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(ii) convert the principal amount of such affected LIBOR Loan to a Base Rate
Loan available hereunder, subject to the terms and conditions of this
Agreement.
4.5 Unavailability of Deposits or Inability to Ascertain the LIBOR
Rate or Adjusted LIBOR Rate. Notwithstanding any other provision of this
Agreement or the Notes to the contrary, if prior to the commencement of any
Interest Period Bank shall determine in good faith (i) that deposits in the
amount of any LIBOR Loan scheduled to be outstanding are not available to Bank
in the relevant market or (ii) by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist for ascertaining
the LIBOR rate or Adjusted LIBOR Rate, then Bank shall promptly give notice
thereof to Borrower, and the obligation of Bank to effect by conversion or
continue any such LIBOR Loan in such amount and for such Interest Period shall
terminate until deposits in such amount and for the Interest Period selected by
Borrower shall again be readily available in the relevant market and adequate
and reasonable means exist for ascertaining the LIBOR rate or Adjusted LIBOR
Rate, as the case may be. Upon the giving of such notice, Borrower may elect
to either (i) pay or prepay, as the case may be, the outstanding principal
amount of any such LIBOR Loan, together with all interest accrued thereon and
all other amounts payable to the Bank under this Agreement or (ii) convert the
principal amount of such affected LIBOR Loan to a Base Rate Loan available
hereunder, subject to all the terms and conditions of this Agreement.
4.6 Yield Protection, Etc.
(a) Increased Costs. If (x) Regulation D of the Board of
Governors of the Federal Reserve System, or (y) the adoption of any applicable
law, treaty, rule, regulation or guideline, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank or its lending branch with
any request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency,
(i) shall subject Bank, its lending branch or any
Loan to any tax, duty, change, stamp tax, fee, deduction, withholding
or other charge in respect of this Agreement, any Loan, the Notes or
the obligation of Bank to make or maintain any Loan, or shall change
the basis of taxation of payments to Bank of the principal of or
interest on any Loan or any other amounts due under this Agreement in
respect of any Loan or its obligation to make or maintain any Loan
(except for changes in the rate of tax on the overall net income of
Bank imposed by the federal, state or local jurisdiction in which
Bank's principal executive office or its lending branch is located);
(ii) shall impose, modify or deem applicable any
reserve (including, without limitation, any reserve imposed by the
Board of Governors
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of the Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, Bank; or
(iii) shall impose on Bank any penalty with respect
to the foregoing or any other condition affecting this Agreement, any
Loan, the Notes or the obligation of Bank to make or maintain any
Loan;
and the result of any of the foregoing is to increase the cost to (or to impose
a cost on) Bank of making or maintaining any Loan, or to reduce the amount of
any sum received or receivable by Bank under this Agreement or under the Notes
with respect thereto, then Bank shall notify Borrower after it receives final
notice of any of the foregoing and, within forty-five (45) days after demand by
Bank (which demand shall be accompanied by a statement setting forth in
reasonable detail with calculations the basis of such demand), Borrower shall
pay directly to Bank for such additional amount or amounts as will compensate
Bank for such increased cost or such reduction.
In the event that an additional payment is made under Paragraph 4.6(a)(i) for
the account of Bank and Bank, in its good faith judgment, determines that it
has finally and irrevocably received or been granted a credit against or
release or remission for, or repayment of, any tax paid or payable by it in
respect of or calculated with reference to the deduction or withholding giving
rise to such payment, Bank shall, to the extent that it determines that it can
do so without prejudice to the retention of such amount or such credit, relief,
remission or repayment, pay to Borrower such amount as Bank shall, in its good
faith judgment, have determined to be attributable to such deduction or
withholding and to leave Bank (after such payment and net of related expenses)
in no worse position than it would have been in if Borrower had not been
required to make such deduction or withholding.
(b) Capital Adequacy. If either (i) the introduction of
or any change in or change in the interpretation of any law or regulation or
(ii) compliance by Bank with any guideline or request from any central bank or
other governmental authority (whether or not having the force of law) affects
or would affect the amount of capital required or expected to be maintained by
Bank or any corporation controlling Bank and Bank determines that the amount of
such capital is increased solely by or solely based upon the existence of
Bank's Commitment and other commitments of this type, then, upon demand by
Bank, Borrower shall immediately pay to Bank, from time to time as specified by
the Bank, additional amounts sufficient to compensate Bank in the light of such
circumstances, to the extent that Bank reasonably determines such increase in
capital to be allocable to the existence of Bank's commitment to lend
hereunder; provided such demand shall be accompanied by a summary in reasonable
detail with calculations showing the bases therefor.
4.7 Funding Indemnity. In the event Bank shall incur any loss,
cost or expense (including, without limitation, any loss of profit and any
loss, cost or expense
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<PAGE> 24
incurred by reason of the liquidation or re-employment of deposits or other
funds acquired by Bank to fund or maintain any LIBOR Loan or the relending or
reinvesting of such deposits or amounts paid or prepaid to Bank) as a result
of:
(a) any payment of a LIBOR Loan on a date other than the
last day of the then applicable Interest Period;
(b) any failure by Borrower to effect by conversion or
continue any LIBOR Loan on the date specified in the notice given pursuant to
Paragraph 2.3 hereof;
(c) any failure by Borrower to make any payment of
principal or interest when due on any LIBOR Loan, whether at stated maturity,
by acceleration or otherwise; or
(d) the occurrence of any Event of Default;
then, upon the demand by Bank, Borrower shall pay to the applicable Bank such
amount as will reimburse Bank for such loss, cost or expense. If Bank makes
such a claim for compensation under this Paragraph 4.7, Bank shall provide to
Borrower a certificate setting forth the amount of such loss, cost or expense
in reasonable detail with calculations and such certificate shall be conclusive
and binding on Borrower as to the amount thereof except in the case of manifest
error.
4.8 Discretion of Bank as to Manner of Funding. Notwithstanding
any provision of this Agreement to the contrary other than Paragraph 4.7, Bank
shall be entitled to fund and maintain its funding of all or any part of the
Loans in any manner each sees fit, it being understood, however, that for the
purposes of this Agreement all determinations hereunder shall be made as if
Bank had actually funded and maintained each LIBOR Loan during each Interest
Period for such LIBOR Loan through the purchase of deposits in the London
Interbank Market having a maturity corresponding to such Interest Period and
bearing an interest rate equal to the Adjusted LIBOR Rate for such Interest
Period.
4.9 Interest Laws. Notwithstanding any provision to the contrary
contained in this Agreement or the Other Agreements, Borrower shall not be
required to pay, and Bank shall not be permitted to collect, any amount of
interest in excess of the maximum amount of interest permitted by law ("Excess
Interest"). If any Excess Interest is provided for or determined by a court of
competent jurisdiction to have been provided for in this Agreement or in any of
the Other Agreements, then in such event: (a) the provisions of this Paragraph
shall govern and control; (b) Borrower shall not be obligated to pay any Excess
Interest; (c) any Excess Interest Bank may have received hereunder shall be, at
Bank's option, (i) applied as a credit against the outstanding principal
balance of Borrower's Liabilities or accrued and unpaid interest (not to exceed
the maximum amount permitted by law), (ii) refunded to the payor thereof, or
(iii) any
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combination of the foregoing; (d) the interest rate(s) provided for herein
shall be automatically reduced to the maximum lawful rate allowed from time to
time under applicable law (the "Maximum Rate"), and this Agreement and the
Other Agreements shall be deemed to have been and shall be reformed and
modified to reflect such reduction; and (e) Borrower shall not have any action
against Bank for any damages arising out of the payment or collection of any
Excess Interest. Notwithstanding the foregoing, if for any period of time
interest on any Borrower's Liabilities is calculated at the Maximum Rate rather
than the applicable rate under this Agreement, and thereafter such applicable
rate becomes less than the Maximum Rate, the rate of interest payable on such
Borrower's Liabilities shall remain at the Maximum Rate until Bank shall have
received the amount of interest which Bank would have received during such
period on such Borrower's Liabilities had the rate of interest not been limited
to the Maximum Rate during such period.
5. LOANS: GENERAL TERMS
5.1 Payments to Bank. That portion of Borrower's Liabilities
consisting of: (a) principal payable on account of the Loans made by Bank to
Borrower pursuant to this Agreement shall be payable by Borrower to Bank (i) as
provided in the Revolving Note in respect of the Revolving Loans and (ii) as
provided in the Term Note in respect of the Term Loan; (b) costs, fees and
expenses payable pursuant to this Agreement shall be payable by Borrower on
demand; (c) interest payable pursuant to this Agreement shall be payable by
Borrower for account of Bank as provided in Paragraph 4.1; and (d) the balance
of Borrower's Liabilities, if any, shall be payable by Borrower as and when
provided in this Agreement or the Other Agreements.
5.2 Application of Payment. Borrower shall, at the time of making
each payment under this Agreement or any Note (whether by account debit or
otherwise), specify to the Bank the Loan or other amounts payable by Borrower
hereunder to which such payment is to be applied (and in the event that it
fails to so specify, or if an Event of Default has occurred and is continuing,
Bank may distribute such payment in such manner as it may determine to be
appropriate).
5.3 Conditions Precedent Events. Each Loan made by the Bank to
Borrower, other than a conversion from a LIBOR Loan to a Base Rate Loan, at the
request of Borrower pursuant to this Agreement or the Other Agreements shall in
any event be subject to the following conditions precedent: (a) there shall not
then exist an Event of Default (as hereinafter defined) or any event or
condition which with notice, lapse of time and/or the making of such Loan would
constitute an Event of Default; (b) the representations, warranties and
covenants of Borrower contained in this Agreement shall be true and correct in
all material respects as of the date of such Loan with the same effect as
though made on such date; (c) all of the covenants and agreements of Borrower
in this Agreement, and all of the requirements of this Agreement with respect
to such Loan, shall have been complied with; and (d) there shall not have
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<PAGE> 26
occurred, since the date of this Agreement, any material adverse change in the
financial condition, results of operations or business of Borrower. Each
borrowing by Borrower hereunder shall be deemed a representation and warranty
by Borrower that the foregoing conditions have been fulfilled as of the date of
such borrowing. Bank shall have received upon request a certificate signed by
an Authorized Officer of Borrower dated the date of such requested Loan
certifying satisfaction of the conditions specified in clauses (a)-(d) of this
Paragraph 5.3.
5.4 Offset. Borrower agrees that, in addition to (and without
limitation of) any right of set-off, bankers' lien or counterclaim Bank may
otherwise have, Bank shall be entitled, at its option to offset balances held
by it for account of Borrower at any of its offices, in United States Dollars
or in any other currency, against any principal of or interest on any of its
Loans, or any other amount payable to Bank hereunder, which is not paid when
due (regardless of whether such balances are then due to Borrower).
5.5 Credit Termination Date; Continuance of Obligations, Etc.
This Agreement, Bank's Commitment and Borrower's ability to borrow monies from
Bank shall be in effect until the Revolving Credit Termination Date or Term
Loan Termination Date, as applicable. Notwithstanding the foregoing and until
such date when Borrower's Liabilities shall be paid in full, Borrower's
obligations hereunder and under the Other Agreements shall continue, interest
shall continue to be paid in accordance with the foregoing and the Bank shall
retain all of its rights and remedies under this Agreement and the Other
Agreements.
5.6 Loan Evidence. Loans made by Bank to Borrower pursuant to
this Agreement may or may not (at Bank's sole and absolute discretion) be
evidenced by notes or other instruments issued or made by Borrower to Bank.
Where such loans are not so evidenced, such loans shall be evidenced solely by
entries upon the ledgers, books, records and/or computer records of Bank
maintained for that purpose, which entries shall be rebuttably presumptive
evidence of such loans in the absence of manifest error.
5.7 Over-Advances. If, at any time and for any reason, the
aggregate amount of Borrower's Liabilities outstanding hereunder exceeds the
limitations set forth in Paragraph 2.1 or Paragraph 2.2 (an "Over-Advance"),
then Borrower shall immediately pay to Bank, in cash, the amount of such
Over-Advance. If such Over-Advance remains outstanding for more than three (3)
days, until such Over-Advance is so repaid to Bank, the amount of such
Over-Advance shall bear interest at the applicable Default Rate.
5.8 Prepayment. If Borrower, after the Fixed Rate Election,
prepays the Term Loan, in whole or in part, prior to the Termination Date, the
same shall pay (i) the Make-Whole Amount (as defined below) plus (ii) one
percent (1%) prior to the
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<PAGE> 27
third (3rd) anniversary of the Closing Date and zero percent (0%) thereafter.
For the purposes hereof, the "Make-Whole Amount" shall be the amount calculated
as follows:
(i) There shall first be determined, as of the
date fixed for prepayment (the "Prepayment Date"), the amount, if any,
by which (A) the Fixed Rate exceeds (B) the yield to maturity
percentage for the United States Treasury Note dated ______________,
2001 (the "Treasury Note") as published in The Wall Street Journal on
the fifth business day preceding the Prepayment Date plus two hundred
and twenty-five basis points (2.25%) (the "Current Yield"). If (A)
publication of The Wall Street Journal is discontinued, or (B)
publication of the Treasury Note in The Wall Street Journal is
discontinued, Bank, in its sole discretion, shall designate another
daily financial or governmental publication of national circulation to
be used to determine the Current Yield;
(ii) The difference calculated pursuant to clause
(i) above shall be multiplied by the outstanding principal balance
hereof as of the Prepayment Date;
(iii) The product calculated pursuant to clause
(ii) above shall be multiplied by the quotient, rounded to the nearest
one-hundredth of one percent, obtained by dividing (A) the number of
days from and including the Prepayment Date to and including the Term
Loan Maturity Date, by (B) 365; and
(iv) The sum calculated pursuant to clause (iii)
above shall be discounted at the annual rate of the Current Yield to
the present value thereof as of the Prepayment Date, on the assumption
that said sum would be received in equal monthly installments on each
monthly anniversary of the Prepayment Date prior to the Maturity Date,
with the final such installment to be deemed received on the Maturity
Date;
provided that Borrowers shall not be entitled in any event to a credit against,
or a reduction of, the Debt being prepaid if the Current Yield exceeds the
Fixed Rate or for any other reason.
6. LOANS: CONDITIONS TO LENDING
6.1 Initial Loan Conditions Precedent. In addition to those
conditions set forth in Paragraph 5.4 above with respect to all Loans and
advances hereunder, prior to or contemporaneously with the making of the
initial advance of funds, Bank's obligation to make any Loan is subject to the
satisfaction of the following conditions precedent:
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(a) Fees and Expenses. Borrower shall have paid all fees
owed to Bank and reimbursed Bank for all expenses due and payable hereunder on
or before the date hereof including, but not limited to, reasonable counsel
fees provided for in Paragraph 9.12 hereof.
(b) Documents. Bank shall have received the following
documents, in form and substance reasonably satisfactory to Bank, and all of
the transactions contemplated by each such document shall have been consummated
or each condition contemplated by each such document shall have been satisfied:
(i) Related Documents. Copies of this Agreement
as required by Bank and one copy of the Revolving Note and the Term
Note conforming to the requirements hereof duly executed by Borrower.
(ii) Legal Opinion. The legal opinion of counsel
to Borrower.
(iii) Officer's Certificate. A certificate
executed by the President of Borrower stating that (A) no Event of
Default or event which, but for the giving of notice or lapse of time
or both, would be an Event of Default (each such event, a "Default")
has occurred and is continuing, (B) the representations, warranties
and covenants of Borrower contained herein are true and correct, and
(C) all of the covenants, conditions and agreements of Borrower in
this Agreement, and all of the requirements of this Agreement shall
have been complied with.
(iv) Insurance Policies. Certificates from
Borrower's insurance carriers evidencing that all insurance policies
and coverage required by Paragraph 7.2(h) below are in effect.
(v) Certificate of Incorporation and Bylaws. A
copy of Borrower's Certificate or Articles of Incorporation, and all
amendments, certified by the Secretary of State of its jurisdiction of
incorporation, and a copy of Borrower's Bylaws certified by the
Secretary of Borrower.
(vi) Good Standing Certificate. A Good Standing
Certificate for Borrower from its jurisdiction of incorporation and
each state in which Borrower is required to be qualified to transact
business as a foreign corporation.
(vii) Regulatory Certificate. Regulatory
certificate from the Federal Reserve indicating that Borrower is a
registered bank holding company that was duly organized and registered
and is validly existing and has filed all reports required by the
Federal Reserve.
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(viii) Affiliate Regulatory Certificate.
Certificate from the OBRE that Cole Taylor is an Illinois banking
corporation in good standing and authorized to transact the business
of banking dated as of a date not earlier than ten (10) business days
prior to the date hereof.
(ix) Affiliate Charter Documents. A copy of the
charter of Cole Taylor certified to be true and correct by the OBRE.
(x) Board Resolutions. Certified copies of
resolutions of the Board of Directors of Borrower authorizing the
execution and delivery of and the consummation of the transactions
contemplated by this Agreement and the Other Agreements and all other
documents or instruments to be executed and delivered in conjunction
herewith and therewith on behalf of Borrower.
(xi) Incumbency Certificate. A certificate of the
Secretary or an Assistant Secretary of Borrower certifying the names
of the officer or officers of Borrower authorized to sign this
Agreement and the Other Agreements on behalf of Borrower together with
a sample of the true signature of each such officer.
(xii) Other Documents. Such other documents as
Bank may reasonably request.
(xiii) Disbursement Instructions. Written
instructions executed by an Authorized Officer as to the disbursement
of the initial advances of funds hereunder.
(c) Consummation of Split Off Transaction. The
transactions contemplated by that certain Amended and Restated Share Exchange
Agreement dated as of June 12, 1996 (the "Exchange Agreement") among Cole
Taylor Financial Group, Inc. and certain members of the Taylor family listed
therein shall close simultaneously with this Agreement and 100% of the Stock of
Cole Taylor shall simultaneously with this Agreement be owned, directly and
beneficially, by Borrower.
7. REPRESENTATIONS AND WARRANTIES; COVENANTS;
INDEMNIFICATION; CONTINUING OBLIGATION
7.1 Representations and Warranties of Borrower. Borrower hereby
represents and warrants to the Bank as of the date hereof and, with respect to
subsections (a) through (e) and subsections (g) through (ee) below, the date of
disbursement of each Loan or advance hereunder, as follows:
(a) Corporate Existence, Authority and Capitalization.
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(i) Borrower is a corporation registered as a
bank holding company under the BHCA. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and is duly qualified to do business and is in good
standing under the laws of each state in which the ownership of its
properties and the nature and extent of the activities transacted by
it makes such qualification necessary except where the failure to be
so qualified could not reasonably be expected to have a Material
Adverse Effect.
(ii) Borrower has all requisite corporate power
and authority to conduct its activities as presently conducted, to own
its properties and to perform its obligations under this Agreement.
(iii) The authorized and issued capital stock of
Borrower, pursuant to Borrower's Certificate or Articles of
Incorporation and By-Laws, as of the Closing Date, consists of ______
shares of common stock, $______ par value per share, ______ of which
shares are validly issued and outstanding and fully paid and
non-assessable. As of the Closing Date, no other shares of Borrower's
Stock are authorized, issued or outstanding. As of the Closing Date,
the ownership of the Stock of Borrower is as set forth on Exhibit
7.1(a)(iii) . Borrower is not subject to any obligation, option,
warrant, put or call right (contingent or otherwise) to repurchase,
issue, acquire or retire any of its Stock nor are there any agreements
between any parties with respect to the voting or transfer of
Borrower's Stock. Borrower has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance
of its Stock.
(b) Corporate Existence and Capitalization of Cole
Taylor. Cole Taylor is an Illinois state banking corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois,
with deposit accounts federally insured by the Federal Deposit Insurance
Corporation, and has the requisite power and authority, corporate or otherwise,
to conduct its business as now conducted and as proposed to be conducted while
this Agreement is in effect. The authorized capital stock of Cole Taylor
consists of _________ shares of common stock, $______ par value per share,
__________ of which shares are validly issued and outstanding and fully paid
and non- assessable (except as provided by state banking law). Borrower is the
beneficial and record owner of 100% of the issued and outstanding Stock of Cole
Taylor, free and clear of all liens, encumbrances, rights of first refusal,
options or other restrictions of any nature whatsoever, and there are no
options, warrants or rights outstanding to acquire any capital stock of Cole
Taylor and no Person has any other right to purchase or acquire any unissued
shares of Cole Taylor, nor does Cole Taylor have any obligation of any nature
with respect to its unissued shares of capital stock. Such Stock owned by
Borrower represents 100% of the voting power of Cole Taylor.
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(c) Authorization; No Conflict. The execution, delivery
and performance by Borrower of this Agreement and the Other Agreements to which
it is a party are within Borrower's corporate powers, have been duly authorized
by all necessary corporate action and do not contravene (i) Borrower's
Certificate or Articles of Incorporation or Bylaws or (ii) any law or any
contractual restriction binding on or affecting Borrower, or its respective
properties, and do not result in or require the creation of any Lien (except as
may be created under this Agreement or the Other Agreements) upon or with
respect to any of its properties except for which consent has been obtained and
remains effective.
(d) No Approval. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
Borrower of this Agreement or any Other Agreement to which Borrower is a party
except for which the same has been obtained and remains effective.
(e) Validity and Binding Nature. This Agreement is, and
the Other Agreements to which Borrower is a party when delivered hereunder will
be, legal, valid and binding obligations of Borrower, enforceable against
Borrower in accordance with their respective terms except as such
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights, generally.
(f) Financial Statements and Condition.
(i) Borrower has delivered to Bank a pro forma
opening balance sheet as of September 30, 1996. The pro forma balance
sheet fairly presents on a pro forma basis the financial condition of
the Borrower as of September 30,1996, on a consolidated basis, after
giving effect to the consummation of the Exchange Agreement and
acquisition by Borrower of the Stock of Cole Taylor including, without
limitation, all material fees and expenses incurred in connection
therewith. All pro forma information with respect to the Borrower
included in the pro forma balance sheet or otherwise provided by Cole
Taylor has been derived from financial statements and information
prepared on the basis of accounting consistent with GAAP and with
accounting principles currently used by Borrower and all material
assumptions on which such pro forma information was based are
disclosed therein. The pro forma balance sheet has been prepared in
good faith and represents the good faith opinion of the Borrower as to
the assets and liabilities of Borrower at such date after giving
effect to the acquisition of Cole Taylor. The portion of such pro
forma balance sheet involving Cole Taylor has been prepared in
accordance with the rules and regulations of the OBRE.
(ii) Borrower has delivered to Bank copies of audited
financial statements as of and for the year ended December 31, 1995,
and interim
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<PAGE> 32
financials as of the nine month period ended September 30, 1996 for
Cole Taylor. All of these financial statements are complete and
correct, are in accordance with the respective books of account and
records of Cole Taylor have been prepared in accordance with GAAP
applied on a basis consistent with prior periods and the rules and
regulations of the OBRE and fairly present the financial condition of
Cole Taylor and its respective assets and liabilities and the results
of its operations as at such date. Since September 30, 1996, there
has been no material adverse change in the respective financial
condition, business, properties and operations of Cole Taylor.
(iii) Borrower has delivered to Bank copies of Form FFIEC
032 filed by Cole Taylor for the periods ended June 30, 1996,
September 30, 1996 and the year ended December 31, 1995 and copies of
Form FRY-9 filed by Cole Taylor Financial Group, Inc. and the most
recent Form 10-K and Form 10-Q filings of Cole Taylor Financial Group,
Inc. for the periods ended June 30, 1996, September 30, 1996 and for
the year ended December 31, 1995. All of these reports are complete
and correct, are in accordance with the respective books of account
and records of Cole Taylor, and have been prepared in accordance with
applicable banking regulations, rules and guidelines on a basis
consistent with prior periods, and fairly and accurately present the
financial condition of Cole Taylor and its respective assets and
liabilities and the results of their operations as at such date.
(g) Litigation. Except as set forth on Exhibit 7.1(g),
there is no pending or, to the knowledge of Borrower, threatened action, suit,
inquiry, investigation, or proceeding affecting, directly or indirectly,
Borrower, its Subsidiaries or their respective properties before any court,
governmental agency or arbitrator, which, in any case, (i) could reasonably be
expected to have a Material Adverse Effect, (ii) seeks to restrain the
transactions contemplated herein, or (iii) would affect the validity or
enforceability of this Agreement or the Other Agreements. Neither Borrower nor
any Subsidiary is currently operating under any restriction (other than
restrictions of general application to bank holding companies or Illinois
banking corporations, as applicable) imposed by any bank regulatory authority
having jurisdiction over Borrower or any Subsidiary.
(h) Securities Transaction. No proceeds of any Loan or
advance made by Bank to Borrower hereunder will be used to acquire any security
in any transaction which is subject to Section 13 or 14 of the Securities
Exchange Act of 1934, as amended.
(i) Regulation U. Neither Borrower nor its Subsidiaries
are engaged in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulation U issued by the
Board of Governors of the Federal Reserve System), and no proceeds of any Loan
or advance made by Bank to
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<PAGE> 33
Borrower hereunder will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock.
(j) ERISA Termination Event and Funding. No ERISA
Termination Event has occurred nor is expected to occur with respect to any
Plan and all Plans, to the extent governed by ERISA, meet the minimum funding
standards of Section 302 of ERISA.
(k) Withdrawal Liability and Reportable Events. Neither
Borrower nor any ERISA Affiliate has incurred, or expects to incur, any
withdrawal liability under Section 4201 of ERISA to any Multiemployer Plan. No
Reportable Event (as defined in ERISA) has occurred with respect to any Plan.
(l) Taxes. Borrower and each of its Subsidiaries have
filed all tax returns (Federal, state and local) required to be filed and paid
all taxes shown thereon to be due, including interest and penalties, other than
such taxes that Borrower or a Subsidiary is contesting in good faith by
appropriate legal proceedings and proper reserves therefor have been
established on the respective books of Borrower or such Subsidiary. Each of
Borrower and its Subsidiaries have withheld amounts from its employees,
shareholders or holders of public deposit accounts in full and complete
compliance with the tax withholding provisions of applicable federal, state and
local laws and each has filed all federal, state and local returns and reports
for all years for which any such return or report would be due with respect to
employee income tax withholding, social security, unemployment taxes, income
and other taxes and all payments or deposits with respect to such taxes have
been made within the time period required by law.
(m) Liens. There are no Liens upon or with respect to
any of the properties of Borrower or any right to receive revenues of Borrower
or any of its Subsidiaries other than Permitted Liens.
(n) Conflicts. Neither Borrower nor any of its
Subsidiaries is a party to any indenture, loan or credit agreement or any lease
or other agreement or instrument (including corporate charters) which is likely
to have a Material Adverse Effect.
(o) Environmental Matters. To the best of Borrower's
knowledge after diligent inquiry:
(i) the operations of Borrower and each of its
Subsidiaries (including, without limitation, all operations and
conditions at or in the Facilities) comply with all Environmental
Laws; and
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<PAGE> 34
(ii) no Hazardous Materials are stored or
otherwise located on any Facility owned, leased or operated by
Borrower, and no part of such Facility, including the groundwater
located thereon or thereunder, is contaminated by any Hazardous
Materials.
(p) Investment Company Act. Neither Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
(q) Compliance with Laws. Borrower and its Subsidiaries
are in compliance with all laws, orders, regulations and ordinances of all
federal, foreign, state and local governmental authorities and regulatory
authorities binding upon or affecting the business, operation or assets of
Borrower and such Subsidiaries except where non-compliance therewith could not
reasonably be expected to have a Material Adverse Effect. Neither Borrower nor
any Subsidiary has received any notice or other information indicating that
subsidiary is not an "insured depository institution" as defined in 12 U.S.C.
1813.
(r) Other Agreements. Borrower makes each of the
representations and warranties contained in the Other Agreements to which
Borrower is a party operative and applicable for the benefit of the Bank as if
the same were set forth at length herein.
(s) Regulatory Reporting. Borrower and its Subsidiaries
have filed all reports, notices and other statements, together with any
amendments required to be made with respect thereto, if any, that they were
each required to file with the Federal Reserve and the OBRE and any other
governmental agency or authority with jurisdiction over Borrower or its
Subsidiaries and each of such reports, notices and other statements, including
the financial statements, exhibits and schedules thereto, complied in all
material respects with the relevant statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed. Cole
Taylor has complied in all material respects with all laws and regulations
relating to the extension of credit.
(t) Affiliate Transactions. Neither Borrower nor its
Subsidiaries are a party to any transactions or agreements with any of
Borrower's other Affiliates; it being understood the foregoing shall not
prohibit transactions between Borrower and its Subsidiaries or between
Borrowers' Subsidiaries, provided such transactions or agreements shall be
arms' length transactions on terms no more favorable than would be applicable
in a third party transaction.
(u) Affiliates and Subsidiaries. Except as disclosed on
Exhibit 7.1(u), Borrower has no Affiliates or Subsidiaries.
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(v) Labor. As of the Closing Date, none of the employees
of Borrower or its Subsidiaries are subject to any collective bargaining
agreement. There are no strikes, work stoppages, election or decertification
petitions or proceedings, unfair labor charges, equal employment opportunity
proceedings, wage payment or material unemployment compensation proceedings,
material worker's compensation proceedings or other material labor or employee-
related controversies pending or threatened involving Borrower and any of its
employees.
(w) Solvency. Borrower has capital sufficient to carry
on its business and transactions and all businesses and transactions in which
it is about to engage and is solvent and able to pay its debts as they mature.
No transfer of property is being made and no Debt is being incurred in
connection with the transactions contemplated by this Agreement with the intent
to hinder, delay or defraud either present or future creditors of Borrower, its
Subsidiaries or any Affiliate.
(x) Loan Loss Reserve. The reserves for possible loan
and lease losses shown on the financial statements and reports for Borrower and
its Subsidiaries described in the financial statements specified in Paragraph
7.1(f) are adequate in all material respects to provide for all losses, net of
recoveries relating to loans previously charged off, on loans outstanding, as
of the date of such statement, and Borrower and its Subsidiaries have no reason
to believe that the loan portfolios of its Subsidiaries at such date will incur
losses in excess of such reserves.
(y) Title. Borrower has good, indefeasible and
merchantable title to and ownership of its assets, free and clear of all Liens,
claims, security interests and other encumbrances, except for Permitted Liens.
(z) Debt. As of the date of this Agreement, Borrower has
no Debt except for the Permitted Debt.
(aa) Insurance. Borrower and its Subsidiaries are
adequately insured under its policies of insurance currently in effect, no
notice of cancellation has been received with respect to such policies and
Borrower and its Subsidiaries are in compliance with all conditions contained
in such policies.
(bb) Absence of Default. No event has occurred which
either of itself or with the lapse of time or the giving of notice or both,
would give any creditor of Borrower or its Subsidiaries, the right to
accelerate the maturity of any Debt of Borrower or its Subsidiaries having a
principal amount, individually or in the aggregate in excess of $50,000.
Neither Borrower nor any Subsidiary is in default under any other lease,
agreement or instrument, or any law, rule, regulation, order, writ, injunction,
decree, determination or award, non-compliance with which could reasonably be
expected to have a Material Adverse Effect.
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(cc) No Burdensome Agreements. Neither Borrower nor any
Subsidiary or Affiliate is a party to any agreement, instrument or undertaking
or subject to any other restriction, (i) which presently has a Material Adverse
Effect, or (ii) under or pursuant to which Borrower or any Subsidiary or
Affiliate is or will be required to place (or under which any other person may
place) a Lien upon any of its properties securing indebtedness either upon
demand or upon the happening of a condition, with or without such demand.
(dd) Accuracy of Information. All factual information
heretofore or contemporaneously furnished by or on behalf of Borrower to Bank
for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all other factual information (taken as a whole)
hereafter furnished by or on behalf of Borrower to Bank will be, true and
accurate in every material respect on the date as of which such information is
dated or certified, and Borrower has not omitted and will not omit any material
fact necessary to prevent such information from being false or misleading.
7.2 Affirmative Covenants. At all times prior to the Termination
Date and thereafter for so long as any amounts are due or owing to the Bank
hereunder, Borrower hereby covenants that it will, and cause its Subsidiaries
to, unless the Bank otherwise consents in writing:
(a) Existence, Etc. Do or cause to be done all things
necessary to preserve and keep in full force and effect Borrower's and each
Subsidiary's corporate existence in good standing in their respective
jurisdictions of incorporation and in each other jurisdiction where the failure
to be in good standing could reasonably be expected to have a Material Adverse
Effect.
(b) Compliance with Laws, Etc. Comply, and cause each
Subsidiary to comply, with all applicable present and future laws, rules,
ordinances, regulations and orders including, without limitation, laws, rules,
ordinances, regulations and orders regarding the operation and maintenance of
Borrower's and each Subsidiary's respective business including, without
limitation, the BHCA, the Illinois Banking Act and the Federal Deposit
Insurance Act.
(c) Payment of Taxes and Other Claims. Pay or discharge
or cause to be paid or discharged, before the same shall become delinquent, (i)
all Charges levied or imposed upon Borrower and each Subsidiary or upon the
income, profits or property of Borrower and each Subsidiary, and (ii) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a Lien upon the property of Borrower or any Subsidiary; provided,
however, that Borrower or any Subsidiary shall not be required to pay or
discharge or cause to be paid or discharged any such Charge or claim whose
amount, applicability or validity is being contested in good faith by
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appropriate proceedings to the extent adequate reserves have been established
on the books of Borrower or any Subsidiary, as the case may be.
(d) Reporting Requirements. Keep true books of record
and account in which full, true and correct entries in accordance with GAAP
consistently applied will be made of all dealings or transactions in relation
to its business and activities, and shall furnish to the Bank:
(i) within ninety (90) days after the close of
each fiscal year of Borrower, consolidated audited financial
statements for Borrower and its Subsidiaries, including a balance
sheet and related profit and loss statement, prepared in accordance
with GAAP consistently applied throughout the periods reflected
therein by independent certified public accountants acceptable to
Bank, who shall give their opinion with respect thereto subject only
to such qualifications which are reasonably acceptable to Bank and
including Borrower-only financial statements prepared in accordance
with GAAP consistently applied throughout the periods reflected
therein for the same fiscal year as the annual audited financials;
(ii) within forty-five (45) days after the close
of each quarter of each fiscal year of Borrower (other than the last
fiscal quarter of each fiscal year), consolidated financial statements
for Borrower and its Subsidiaries, including a balance sheet and
related profit and loss statement, prepared in accordance with GAAP
consistently applied throughout the period reflected therein;
(iii) within forty-five (45) days after the close
of each quarter of each fiscal year of Borrower, or within such
further time as Bank may permit, copies of the Form FFIEC 032 as filed
by Cole Taylor with federal bank regulatory agencies, and as soon as
available, but in any event not more than forty-five (45) days after
the close of each quarter of each fiscal year of Borrower, or within
such further time as Bank may permit, a copy of Form Y-9 filed by
Borrower with the Federal Reserve;
(iv) concurrently with the delivery of the
financial statements required by subsection (i) above, Borrower shall
deliver to Bank (a) a certificate of the accountants who performed the
audit in connection with such statements (1) containing a computation
of, and showing compliance with the financial covenants and
restrictions set forth in Paragraph 7.2(i) of this Agreement; (2)
stating that in making the audit necessary to the issuance of a report
on such financial statements, they have obtained no knowledge that any
Event of Default or event which, with notice or a lapse of time or
both, would constitute an Event of Default, as it relates to
accounting matters, has occurred and is continuing or, if such
accountants have obtained knowledge of an Event
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of Default or such event, specifying the nature and period of
existence thereof and (b) a certificate of Borrower executed by the
President or Chief Financial Officer of Borrower stating whether any
Event of Default, or Default, currently exists and is continuing and
what activities, if any, Borrower is taking or proposing to take with
respect thereto;
(v) concurrently with the delivery of the
financial statements referred to in Paragraphs (i) and (ii) , a
compliance certificate duly completed and executed by both the
Chairman of the Board or President and the Chief Financial Officer of
Borrower (a) stating that Borrower has observed and performed all of
its covenants and other agreements and satisfied every condition,
contained in this Agreement, the Term Note, the Revolving Note and all
Other Agreements to which Borrower is a party to be observed,
performed or satisfied by it and that such officer has no knowledge of
any Event of Default except as specified in such certificate, (b)
stating that, to the best of such officer's knowledge, all such
financial statements are complete and correct in all respects and have
been prepared in accordance with GAAP consistently applied throughout
the periods reflected therein, and (c) showing calculations of
compliance with the financial covenants set forth in Paragraph 7.2(i).
(vi) as soon as possible and in any event within
ten (10) days after the occurrence of an Event of Default or Default,
the statement of an Authorized Officer of Borrower setting forth
details of such Event of Default or Default and the action which
Borrower has taken or proposes to take to cure the same;
(vii) (A) as soon as possible and in any event
(i) within thirty (30) days after Borrower or any ERISA Affiliate
knows or has reason to know that any ERISA Termination Event described
in clause (i) of the definition of ERISA Termination Event with
respect to any Plan has occurred and (ii) within ten (10) days after
Borrower or any ERISA Affiliate knows or has reason to know that any
other ERISA Termination Event with respect to any Plan has occurred, a
statement of the Chief Financial Officer (or designee) of Borrower
describing such ERISA Termination Event and the action, if any, which
Borrower, or any such ERISA Affiliate proposes to take with respect
thereto;
(B) promptly and in any event within two
(2) Business Days after receipt thereof by Borrower or any ERISA
Affiliate from the PBGC, copies of each notice received of the PBGC's
intention to terminate any Plan or to have a trustee appointed to
administer any Plan; and
(C) promptly and in any event within ten
(10) Business Days after receipt thereof by Borrower or any ERISA
Affiliate from a Multiemployer Plan sponsor, a copy of each notice
received concerning the
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imposition or amount of withdrawal liability pursuant to Section 4202
of ERISA;
(viii) promptly after notice to Borrower of the commencement
thereof, notice, in writing, of any action, suit, arbitration or other
proceeding instituted, commenced or threatened in writing against or
affecting Borrower with an amount in controversy in excess of
$100,000;
(ix) if requested by Bank, Borrower's federal,
state and local tax returns as soon as said returns are completed in
the form said returns will be filed with the Internal Revenue Service
and any state or local department of revenue or taxing authority;
(x) promptly upon their becoming available,
copies of (A) all registration statements and regular periodic reports
which Borrower shall have filed with the Securities and Exchange
Commission (or any governmental agency substituted therefor) or any
national securities exchange and (B) all financial statements, reports
and proxy statements so mailed; and
(xi) such other information respecting the
condition or operations, financial or otherwise, of Borrower or any
Affiliate as the Bank may from time to time reasonably request.
(e) Loan Loss Reserves. Cole Taylor shall maintain a
reserve for possible loan losses which is adequate in all respects to provide
for possible or specific losses, net of recoveries relating to loans previously
charged off, on loans outstanding and which contains an additional amount of
unallocated reserves for unanticipated future losses at a level consistent with
administrative policies approved by the Board of Directors of Cole Taylor.
(f) Visitation Rights. At any time or times during
regular business hours, permit Bank or any agents or representatives thereof,
to examine and make copies of and abstracts from the records and books of
account of and visit and inspect the properties of Borrower, all as Bank shall
reasonably request, and to discuss the affairs, finances and accounts with
Borrower's officers or directors; provided, however, that prior to the
occurrence of an Event of Default, no more than one (1) such visit shall be
made by Bank in any calendar year. In furtherance and not in limitation of the
foregoing, Borrower agrees to bear all expenses of any visitation made by Bank
for the purposes set forth in this Paragraph 7.2(f).
(g) Environmental Disclosure and Inspection.
(i) Exercise due diligence in order to comply in
all material respects with all Environmental Laws.
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(ii) Promptly advise Bank in writing and in
reasonable detail of (i) any Release of any Hazardous Materials
required to be reported to any federal, state or local governmental or
regulatory agency under any applicable Environmental Laws, (ii) any
and all written communications with respect to Environmental Claims or
any Release of Hazardous Material required to be reported to any
federal, state or local governmental or regulatory agency, (iii) any
remedial action taken by Borrower or any other person in response to
(1) any Hazardous Material on, under or about any Facility, the
existence of which is reasonably likely to give rise to an
Environmental Claim, or (2) any Environmental Claim that could have a
material adverse effect on Borrower or any Affiliate, (iv) Borrower's
discovery of any occurrence or condition on any real property
adjoining or in the vicinity of any Facility that could cause such
Facility or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use there of under any
Environmental Laws, and (v) any request for information from any
governmental agency indicating that such agency has initiated an
investigation as to whether Borrower or any Affiliate may be
potentially responsible for a Release or threatened Release of
Hazardous Materials.
(iii) At its own expense, provide copies of such
documents or information as Bank may reasonably request in relation to
any matters disclosed pursuant to this Paragraph 7.2(g).
(iv) Promptly take any and all necessary remedial
action in connection with the presence, storage, use, disposal,
transportation, Release or threatened Release of any Hazardous
Materials on, under or about any Facility in order to comply with all
applicable Environmental Laws and Governmental Authorizations. In the
event Borrower or any Affiliate undertakes any remedial action with
respect to any Hazardous Material on, under or about any Facility,
Borrower or such Affiliate shall conduct and complete such remedial
action in compliance with all applicable Environmental Laws and in
accordance with the policies, orders and directives of all federal,
state and local governmental authorities.
(h) Insurance.
(i) At its sole cost and expense, keep and
maintain business interruption insurance and public liability and
property damage insurance relating to its business and properties.
All such policies of insurance shall be in form and with insurers
recognized as adequate by prudent business persons and all such
policies shall be in amounts reasonably satisfactory to Bank.
Borrower shall deliver to Bank the original (or certified) copy of
each policy of insurance, or a certificate of insurance, and evidence
of payment of all premiums for each such policy on or prior to the
date of this Agreement. Such policies shall:
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(A) contain a lender's loss payable clause naming Bank, for the
benefit of Bank, as loss payee and additional insured as its interest
may appear; and (B) provide that the insurance companies will give
Bank at least thirty (30) days written notice before any such policy
or policies of insurance shall be altered or cancelled.
(ii) In the event Borrower at any time or times hereafter
shall fail to obtain or maintain any of the policies of insurance
required above or to pay any premium in whole or in part relating
thereto, then Bank after giving five (5) days' prior notice to
Borrower, without waiving or releasing any obligation or Event of
Default by Borrower hereunder, may at any time or times thereafter
(but shall be under no obligation to) obtain and maintain such
policies of insurance and pay such premium and take any other action
with respect thereto which Bank deems advisable. All sums so
disbursed by Bank, including reasonable attorneys fees, court costs,
expenses and other charges relating thereto, shall be part of
Borrower's Liabilities, payable by Borrower to Bank on demand.
(i) Financial Covenants. Borrower warrants and
represents to and covenants with the Bank that it shall cause Cole Taylor to:
(i) Maintain applicable regulatory ratios at or
above the "Well Capitalized" level at all times as determined by the
Federal Reserve in accordance with 12 C.F.R. Section 208 or any
successor thereof.
(ii) Maintain Capital, at all times, of not less
than $110.0 million.
(iii) Maintain a Return on Average Assets, at all
times, of at least (A) one-half of one percent (0.50%) from the
Closing Date to December 31, 1997; (B) six-tenths of one percent
(0.60%) from January 1, 1998 until December 31, 1998; and (C)
seven-tenths of one percent (0.70%) from January 1, 1999 through the
Termination Date, in each case calculated in accordance with GAAP.
(iv) Maintain a ratio of (a) Non-Performing Assets
to (b) Capital (plus the amount of the Allowance for Loan and Lease
Losses) not exceeding twenty-five percent (25%) at any time.
(v) Maintain ratio of (a) Allowance for Loan and
Lease Losses to (b) Non-Performing Loans of not less than 1:1, at any
time, determined in accordance with GAAP.
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Borrower further agrees to maintain a ratio of (a) Debt to (b)
shareholder's equity (as determined in accordance with GAAP) not exceeding
thirty percent (30%) at any time. Notwithstanding anything contained herein to
the contrary, all of the financial covenants contained in this Paragraph 7.2(i)
shall be measured as of the end of each calendar quarter.
7.3 Negative Covenants. Prior to the Term Loan Termination Date
and thereafter for so long as any amount is due or owing to the Bank hereunder,
unless the Bank shall otherwise consent in writing, Borrower shall not:
(a) Liens, Etc. Create or suffer to exist, any Lien,
other charge, pledge or encumbrance, or any other type of preferential
arrangement, upon or with respect to any of its assets or properties including,
but not limited to, the Stock of Cole Taylor, whether now owned or hereafter
acquired, or assign any right to receive income, except for Permitted Liens.
(b) Maintain Existence, Merger, Etc. (i) dissolve or
liquidate or amend or modify its Articles or Certificate of Incorporation, as
applicable, or the Charter, of any Affiliate or Subsidiary; or (ii) convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) any assets (whether now owned or hereafter acquired) to
any Person except in the ordinary course of business; or (iii) together with
one or more Affiliates convey, transfer, lease or otherwise dispose of (whether
in one transaction or in a series of transactions) all or substantially all of
the assets of Borrower and such Affiliates (whether now owned or hereafter
acquired) to any Person; or (iv) purchase, lease or otherwise acquire all or
substantially all of the assets or properties of, or acquire any capital stock,
equity interests, debt or other securities of any Person, or enter into any
joint venture or become a partner in any partnership; (v) engage in any
transaction out of the ordinary course of business; or (vi) merge or
consolidate with any Person.
(c) Transfer of Stock. Sell, pledge, transfer, assign or
otherwise dispose of, nor permit any stockholder of Borrower to sell, pledge,
transfer, assign or otherwise dispose of, to any person or entity, or group of
persons or entities acting in concert, directly or indirectly, in one
transaction or a series of transactions, any shares of the outstanding Stock of
Borrower or any Subsidiary or Affiliate.
(d) Debt. Incur, create, assume, become or be liable in
any manner with respect to or permit to exist, any Debt, obligations or
indebtedness, except for Permitted Debt.
(e) Investments or Loans. Make or permit to exist
investments or loans in or to any other Person. Nothing in this Paragraph
7.3(e) shall prohibit Cole Taylor from making loans, advances or other
extensions of credit in the ordinary course of its banking business upon
substantially the same terms as may at the time
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be customary in the banking business, which loans, advances, or other
extensions of credit may (but need not) be secured by capital stock or other
security of any third party. Furthermore, nothing in this Paragraph 7.3(e)
shall prohibit Cole Taylor from acquiring capital stock or other security from
any third party by foreclosure or otherwise, provided such capital stock or
other security is acquired in the ordinary course of Cole Taylor's banking
business when collecting a debt previously contracted in good faith.
(f) Guaranties. Guaranty, endorse or otherwise in any
way directly, indirectly or contingently become liable for the obligations or
liabilities of any other Person, except endorsements of negotiable instruments
for collection in the ordinary course of business.
(g) Stock and Dividends.
(i) Redeem, retire, purchase or otherwise acquire,
directly or indirectly, any Stock of Borrower or other evidence of
ownership interest, or declare or pay dividends upon any Stock of
Borrower or make any distribution of Borrower's property or assets,
except for (a) if no Event of Default exists or would result
therefrom, dividend payments on common and preferred stock issued
prior to the date hereof or concurrent with the consummation of the
Transactions in accordance with Borrower's Certificate or Articles of
Incorporation, (b) redemptions of Stock from retiring employees, or
(c) redemptions of Stock from former employees or their estates in
connection with Borrower's Employee Stock Ownership Plan or other
employee benefit plans.
(ii) Authorize or issue any Stock of Borrower or any
Subsidiary or Affiliate thereof, except for such Stock authorized,
issued or outstanding on the date hereof.
(h) Transactions with Affiliates or Insiders. Enter
into, or be a party to, any transaction with any Affiliate or stockholder of
Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms which
are fully disclosed to Bank and are no less favorable to Borrower than would
obtain in a comparable arm's length transaction with a Person not an Affiliate
or stockholder of Borrower.
(i) Safe and Sound Banking Practices. Engage in, or permit
any Affiliate to engage in, any unsafe or unsound banking practices.
8. DEFAULT
8.1 Events of Default. The occurrence of any one of the following
events shall constitute a default ("Event of Default") by Borrower under this
Agreement: (a) if
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Borrower fails or neglects to perform, keep or observe any covenant or agreement
contained in this Agreement or in the Other Agreements which is required to be
performed, kept or observed by Borrower and such failure continues for thirty
(30) days after notice thereof from Bank; (b) any representation or warranty
made by Borrower herein or in any Other Agreement is breached or is false or
misleading in any material respect, or any exhibit, schedule, certificate,
financial statement, report, notice or other writing furnished by Borrower or
any of its partners, shareholders, directors, officers, employees, or agents
to any Bank is false or misleading in any material respect on the date as of
which the facts therein set forth are stated or certified; (c) if Borrower
fails to pay Borrower's Liabilities when due and payable or declared due and
payable; (d) if any of Borrower's assets are attached, seized, subjected to a
writ or distress warrant or is levied upon, or comes within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors and
the same is not terminated or dismissed within thirty (30) days thereafter; (e)
if a petition under any section or chapter of the Bankruptcy Reform Act of 1978,
as amended, or any similar law or regulation shall be filed by Borrower or if
Borrower shall make an assignment for the benefit of its creditors or if any
case or proceeding is filed by Borrower for its dissolution or liquidation; (f)
if Borrower is enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business affairs or if a petition
under any section or chapter of the Bankruptcy Reform Act of 1978, as amended,
or any similar law or regulation is filed against Borrower or if any case or
proceeding is filed against Borrower for its dissolution or liquidation and such
injunction, restraint or petition is not dismissed or stayed within forty-five
(45) days after the entry or filing thereof; (g) if an application is made by
Borrower for the appointment of a receiver, trustee or custodian for any of
Borrower's assets; (h) if an application is made by any Person other than
Borrower for the appointment of a receiver, trustee or custodian for the assets
of Borrower and the same is not dismissed within forty-five (45) days after the
application therefor; (i) if a notice of lien, levy, or assessment is filed of
record with respect to all or any of the assets of Borrower by the United States
or any department, agency or instrumentality thereof or by any state, county,
municipal or other governmental agency, including without limitation the PBGC,
or if any taxes or debts owing at any time or times thereafter to any one of
them becomes a lien or encumbrance upon any of the assets of Borrower and the
same is not released within forty-five (45) days after the same becomes a lien
or encumbrance; (j) if Borrower becomes insolvent or is unable generally to pay
its debts as they become due; (k) if Borrower is in default in the payment of
Debt in an amount in excess of $100,000; (l) the appointment of a conservator
for all or any portion of the assets of Borrower; or (m) the occurrence of a
material breach, a default or an event of default by Borrower under any of the
Other Agreements after any cure period applicable to any such breach, default or
event of default has expired.
8.2 Cumulative Remedies. All of the Bank' and Bank's rights and
remedies under this Agreement and the Other Agreements are cumulative and
non-exclusive.
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8.3 Acceleration and Termination of Loans. Upon the occurrence
and during the continuance of an Event of Default, (a) upon notice by any Bank
to Borrower, Borrower's Liabilities shall be immediately due and payable,
unless there shall have occurred an Event of Default under subparagraphs
8.1(d), (e), (f), (g), (h), (i), (j) or (l), in which case Borrower's
Liabilities shall automatically become due and payable without notice or
demand, and (b) without notice by any Bank to or demand by any Bank of
Borrower, the Bank shall have no further obligation to and may then forthwith
cease advancing monies or extending credit to or for the benefit of Borrower
under this Agreement and the Other Agreements.
8.4 Rights of Creditor. Upon an Event of Default, Bank, in its
sole and absolute discretion, may exercise any one or more of the rights and
remedies accruing (a) under applicable law upon default by a debtor, (b) under
any instrument or (c) under any document or agreement. Nothing contained
herein shall interfere with Bank's right under law to set-off the balances of
any deposit accounts maintained by Borrower with Bank against Borrower's
Liabilities.
8.5 Injunctive Relief. Borrower recognizes that in the event
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement or the Other Agreements, no remedy of law will
provide adequate relief to Bank, and agrees that Bank shall be entitled to
temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages or the posting of bond, surety or other
security.
9. GENERAL
9.1 Payment Application Date. Any check, draft, or similar item
of payment by or for the account of Borrower delivered to Bank on account of
Borrower's Liabilities shall be applied by Bank on account of Borrower's
Liabilities on the date final settlement thereof is reflected by irrevocable
credit to Bank.
9.2 Statement of Account. Each statement of account by Bank
delivered to Borrower relating to Borrower's Liabilities shall be presumed
correct and accurate, absent manifest error, and shall constitute an account
stated between Borrower and Bank unless, within ninety (90) days after
Borrower's receipt of said statement, Borrower delivers to Bank, by registered
or certified mail addressed to Bank at its Address for Notices specified on the
signature pages hereto, written objection thereto specifying the error or
errors, if any, contained in any such statement.
9.3 Manner of Application; Waiver of Setoff Prohibition. Upon the
occurrence and during the continuance of an Event of Default, Borrower waives
the right to direct the application of any and all payments at any time or
times hereafter received by Bank on account of Borrower's Liabilities and
Borrower agrees that Bank shall have the right, in its absolute and sole
discretion, to apply and re-apply any and
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<PAGE> 46
all such payments in such manner as Bank may deem advisable, notwithstanding
any entry by Bank upon any of its books and records. Borrower further waives
any right under or benefit of any law that would restrict or limit the right or
ability of Bank to obtain payment of Borrower's Liabilities, including any law
that would restrict or limit Bank in the exercise of its right to appropriate
any indebtedness owing from Bank to Borrower and any deposits or other property
of Borrower in the possession or control of Bank and apply the same toward or
setoff the same against the payment of Borrower's Liabilities.
9.4 Survival of Representations and Warranties. Borrower
covenants, warrants and represents to Bank that all representations and
warranties of Borrower contained in this Agreement and the Other Agreements
shall be true at the time of Borrower's execution of this Agreement and the
Other Agreements and shall survive the execution, delivery and acceptance
thereof by the parties thereto and the closing of the transactions described
therein or related thereto.
9.5 Integration; Amendment; Assignment; Participation.
(a) This Agreement and the Other Agreements constitute
the entire agreement and understanding between the parties relating to the
subject matter hereof and supersede all prior agreements, whether oral or
written, including without limitation, that certain Commitment Letter dated
October 17, 1996. This Agreement and the Other Agreements may not be modified,
altered or amended except by an agreement in writing signed by Borrower and
Bank, and no provision of this Agreement may be waived except with the consent
in writing of Bank in accordance with Paragraph 9.6 below.
(b) Bank shall have the right to assign to one or more
banks or other financial institutions all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of the Commitment, the Loans and the Other Agreements). Upon any such
assignment, (i) the assignee shall become a party hereto and, to the extent of
such assignment, have all rights and obligations of Bank hereunder and under
the Other Agreements and (ii) Bank shall, to the extent of such assignment,
relinquish its rights and be released from its obligations hereunder and under
the Other Agreements. Borrower hereby agrees to execute and deliver such
documents, and to take such other actions, as Bank may reasonably request to
accomplish the foregoing.
(c) In addition to the assignments permitted in
subsection (b) of this Paragraph 9.5, Bank and any assignee pursuant to
subsection (b) above shall have the right to grant participations to one or
more banks or other financial institutions in or to any Loan hereunder (and the
Other Agreements) without notice to or consent from Borrower.
43
<PAGE> 47
9.6 No Waiver. Bank's failure at any time or times hereafter to
require strict performance by Borrower of any provision of this Agreement shall
not waive, affect or diminish any right of Bank or Bank thereafter to demand
strict compliance and performance therewith. Any suspension or waiver by Bank
of an Event of Default by Borrower under this Agreement or the Other Agreements
shall not suspend, waive or affect any other Event of Default by Borrower under
this Agreement or the Other Agreements, whether the same is prior or subsequent
thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants or representations of Borrower
contained in this Agreement or the Other Agreements and no Event of Default by
Borrower under this Agreement or the Other Agreements shall be deemed to have
been suspended or waived by Bank unless such suspension or waiver is by an
instrument in writing by Bank specifying such suspension or waiver and given
pursuant to the requirements of Paragraph 9.16 hereof.
9.7 Severability. If any provision of this Agreement or the Other
Agreements or the application thereof to any Person or circumstance is held
invalid or unenforceable, the remainder of this Agreement and the Other
Agreements and the application of such provision to other Persons or
circumstances will not be affected thereby and the provisions of this Agreement
and the Other Agreements shall be severable in any such instance.
9.8 Successors and Assigns. This Agreement and the Other
Agreements shall be binding upon and inure to the benefit of the successors and
assigns of Borrower and Bank. This provision, however, shall not be deemed to
modify Paragraph 9.5 hereof.
9.9 Conflict with Other Agreements. The provisions of the Other
Agreements are incorporated in this Agreement by this reference thereto.
Except as otherwise provided in the Other Agreements by specific reference to
the applicable provision of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in the Other
Agreements, the provision contained in this Agreement shall govern and control.
9.10 No Impairment by Termination. Except to the extent provided
to the contrary in this Agreement and in the Other Agreements, no termination
or cancellation (regardless of cause or procedure) of this Agreement or the
Other Agreements shall in any way affect or impair the powers, obligations,
duties, rights and liabilities of Borrower or Bank in any way or respect
relating to (a) any transaction or event occurring prior to such termination or
cancellation and/or (b) any of the undertakings, agreements, covenants,
warranties and representations of Borrower contained in this Agreement or the
Other Agreements. All such undertakings, agreements, covenants, warranties and
representations shall survive such termination or cancellation.
44
<PAGE> 48
9.11 Waivers. Except as otherwise specifically provided in this
Agreement, Borrower waives any and all notice or demand which Borrower might be
entitled to receive with respect to this Agreement or the Other Agreements by
virtue of any applicable statute or law and waives presentment, demand and
protest and notice of presentment, protest, default, dishonor, non-payment,
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, contract rights, documents, instruments, chattel
paper and guaranties at any time held by the Bank on which Borrower may in any
way be liable and hereby ratifies and confirms whatever Bank may do in this
regard.
9.12 Costs, Fees and Expenses Related to Agreement and Other
Agreements. In accordance with this Agreement on or prior to the date hereof
and thereafter upon demand by Bank therefor, Borrower shall pay or reimburse
Bank for all costs, fees and expenses incurred by Bank, or for which Bank
becomes obligated, in connection with the negotiation, preparation and
consummation of this Agreement and the Other Agreements, including but not
limited to, reasonable attorneys' fees, costs and expenses; search fees, costs
and expenses; and all taxes (other than taxes payable on the net income of
Bank) payable in connection with this Agreement or the Other Agreements. That
portion of Borrower's Liabilities consisting of costs, expenses or advances to
be reimbursed by Borrower to Bank pursuant to this Agreement or the Other
Agreements which are not paid on or prior to the date hereof shall be payable
by Borrower to Bank on demand.
9.13 Environmental Indemnity. Borrower agrees to indemnify and
save Bank, its officers, directors, employees and agents, harmless of, from and
against any liability, loss, damage or expense (including reasonable attorneys'
fees) to which Bank or any of such persons may become subject, arising from or
based upon (a) any violation, or claim of violation, by Borrower of any laws,
regulations or ordinances relating to Hazardous Materials, or (b) any Hazardous
Materials located or disposed of on or released or transported from any
property owned, leased or operated by Borrower, or any claim of any of the
foregoing.
9.14 Release. Borrower releases Bank from any and all causes of
action, claims or rights which Borrower may now or hereafter have for, or which
may arise from, any loss or damage caused by or resulting from any act or
omission to act on the part of Bank, its officers, agents or employees, except
in each instance for willful misconduct and gross negligence.
9.15 Governing Law. This Agreement and the Other Agreements shall
be governed and controlled by the laws of the State of Illinois as to
interpretation, enforcement, validity, construction, effect, choice of law, and
in all other respects including, but not limited to, the legality of the
interest rate and other charges.
45
<PAGE> 49
9.16 Notices. All notices, consents, requests, demands and other
communications hereunder shall be in writing and shall be deemed duly given to
any party or parties (a) upon delivery to the address of the party or parties
as specified in the "Address for Notices" below such party or parties' name on
the signature pages hereof if delivered in person or by courier or if sent by
certified or registered mail (return receipt requested), or (b) upon dispatch
if transmitted by telecopy or other means of facsimile transmission and
electronic confirmation of receipt, in any case to the party or parties at the
telecopy numbers specified on the same, or to such other address or telecopy
number as any party may hereafter designate by written notice in the aforesaid
manner.
9.17 FORUM; BANK; VENUE; JURY TRIAL WAIVER. TO INDUCE BANK TO
ACCEPT THIS AGREEMENT AND THE OTHER AGREEMENTS, BORROWER, IRREVOCABLY AGREES
THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS
IN ANY WAY, MANNER, OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS
AGREEMENT OR THE OTHER AGREEMENTS SHALL BE LITIGATED ONLY IN COURTS HAVING
SITUS WITHIN CHICAGO, ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH
THIS PARAGRAPH. BORROWER HEREBY IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY
WITH RESPECT TO ANY ACTION IN WHICH BORROWER IS A PARTY.
9.18 Other Costs, Fees and Expenses. If at any time or times
hereafter Bank: (a) employs counsel for advice or other representation (i) with
respect to this Agreement or the Other Agreements, (ii) to represent Bank in
any litigation, contest, dispute, suit or proceeding or to commence, defend, or
intervene or to take any other action in or with respect to any litigation,
contest, dispute, suit, or proceeding (whether instituted by Bank, Borrower, or
any other Person) in any way or respect relating to this Agreement, the Other
Agreements or Borrower's affairs, or (iii) to enforce any rights of Bank
against Borrower or any other Person which may be obligated to Bank by virtue
of this Agreement or the Other Agreements; and/or (b) attempts to or enforces
any of Bank's rights or remedies under the Agreement or the Other Agreements,
the reasonable costs and expenses incurred by Bank in any manner or way with
respect to the foregoing, shall be part of Borrower's Liabilities, payable by
Borrower to Bank on demand.
9.19 Revival. To the extent that Bank receives any payment on
account of Borrower's Liabilities and any such payment(s) and/or proceeds or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, subordinated and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy act, state or federal
law, common law or equitable cause, then,
46
<PAGE> 50
to the extent of such payment(s) and/or proceeds received, Borrower's
Liabilities or part thereof intended to be satisfied shall be revived and
continue in full force and effect, as if such payment(s) and/or proceeds had
not been received by Bank and applied on account of Borrower's Liabilities.
9.20 Acknowledgments. Borrower acknowledges that (i) it has been
advised by counsel of its choice with respect to this Agreement and the
transactions contemplated hereby, (ii) each of the waivers set forth herein was
knowingly and voluntarily made; and (iii) the obligations of Bank hereunder,
including the obligation to advance and lend funds to Borrower in accordance
herewith, shall be strictly construed and shall be expressly subject to
Borrower's compliance in all respects with the terms and conditions herein set
forth.
9.21 Section Headings. Section headings used in this Agreement are
for convenience only and shall not effect the construction or interpretation of
this Agreement.
9.22 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
9.23 Effectiveness. This Agreement shall become effective upon the
execution and delivery to Bank of counterparts of this Agreement by Borrower
and the Bank.
9.24 Effectiveness. Bank shall hold all non-public information
obtained pursuant to this Agreement in accordance with its customary procedures
for handling confidential information of this nature and will use such
information only in connection with the transactions contemplated by this
Agreement, and in any event may make disclosure of any such information (i) to
the extent required by law (including statute, rule, regulation or judicial
process), (ii) to counsel for Bank or to their accountants, each of whom shall
also be bound by the confidentiality obligations set forth herein, (iii) to
bank examiners and auditors and appropriate government examining authorities,
(iv) to the extent necessary or appropriate in connection with any litigation
to which Bank is a party, or (v) to any permitted actual or prospective
participant in or any Loan owing to or Note held by Bank; provided that each
such person or entity shall undertake in writing to Bank (for the benefit of
Bank and Borrower) prior to such disclosure by Bank to maintain the
confidentiality of such information subject to the same terms and restrictions
provided in this Paragraph 9.24 for Bank.
[SIGNATURE PAGE FOLLOWS]
47
<PAGE> 51
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year specified at the beginning hereof.
ATTEST: TAYLOR CAPITAL GROUP, INC.
By:
- --------------------------------------- ---------------------------------
- ------------------------------Secretary Title:
---------------------------
Address for Notices:
350 East Dundee Road
Wheeling, Illinois 60090-5766
Telecopier No.: (847)
--------------
Telephone No.: (847)
--------------
Attention:
--------------------------
LASALLE NATIONAL BANK
By:
---------------------------------
Name: Jay C. Goldner
Title: Vice President
Address for Notices:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Telecopier No.: (312) 904-6352
Telephone No.: (312) 904-2776
Attention: Mr. Jay C. Goldner
Vice President
With a copy to:
Michael A. Nemeroff, Esq.
Vedder, Price, Kaufman & Kammholz
222 N. LaSalle Street
Chicago, Illinois 60601-1003
Telecopy No.: (312) 609-5005
Telephone No.: (312) 609-7500
48
<PAGE> 52
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit 3.1 Form of Revolving Note
Exhibit 3.2 Form of Term Note
Exhibit 7.1(a)(iii) Ownership of the Stock of Borrower
Exhibit 7.1(g) Litigation
Exhibit 7.1(u) Affiliates and Subsidiaries
</TABLE>
<PAGE> 53
EXHIBIT 3.1
to
Loan Agreement
REVOLVING NOTE
$5,000,000 Chicago, Illinois
December____, 1996
FOR VALUE RECEIVED, on or before December _____, 1997 (or, if such day
is not a Business Day, on the next following Business Day), the undersigned,
TAYLOR CAPITAL GROUP, INC., a Delaware corporation (herein, together with its
successors and assigns, called the "Borrower"), promises to pay to the order of
LASALLE NATIONAL BANK, a national banking association (herein, together with
its successors and assigns, called the "Bank"), the maximum principal sum of
FIVE MILLION and 00/100 DOLLARS ($5,000,000) or, if less, the aggregate unpaid
principal amount of all Revolving Loans made by the Bank to the undersigned
pursuant to that certain Loan Agreement of even date herewith between the
Borrower and Bank (herein, as the same may be amended, modified or supplemented
from time to time, called the "Loan Agreement") as shown in the Bank's records.
The Borrower further promises to pay to the order of the Bank interest
on the aggregate unpaid principal amount hereof from time to time outstanding
from the date hereof until paid in full at such rates and at such times as
shall be determined in accordance with the provisions of the Loan Agreement.
Accrued interest shall be payable on the dates specified in the Loan Agreement.
Payments of both principal and interest are to be made in the lawful
money of the United States of America in immediately available funds at the
Bank's principal office at 135 South LaSalle Street, Chicago, Illinois 60603
or at such other place as may be designated by the Bank to the Borrower in
writing.
This Note is the Revolving Note referred to in, evidences indebtedness
incurred under, and is subject to the terms and provisions of, the Loan
Agreement. The Loan Agreement, to which reference is hereby made, sets forth
said terms and provisions, including those under which this Note may or must be
paid prior to its due date or may have its due date accelerated. Terms used
but not otherwise defined herein are used herein as defined in the Loan
Agreement.
In addition to, and not in limitation of, the foregoing and the
provisions of the Loan Agreement hereinabove referred to, the Borrower further
agrees, subject only to any limitation imposed by applicable law, to pay all
expenses, including attorneys' fees
<PAGE> 54
and expenses, incurred by the holder of this Note in seeking to collect any
amounts payable hereunder which are not paid when due, whether by acceleration
or otherwise.
All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.
This Note is binding upon the undersigned and its successors and
assigns, and shall inure to the benefit of the Bank and its successors and
assigns. This Note is made under and governed by the laws of the State of
Illinois without regard to conflict of laws principles.
TAYLOR CAPITAL GROUP, INC., a
Delaware corporation
By:
-------------------------------------
Title:
----------------------------------
Borrower's Address:
350 East Dundee Road
Wheeling, Illinois 60090-5766
<PAGE> 55
EXHIBIT 3.2
to
Loan Agreement
TERM NOTE
$25,000,000 Chicago, Illinois
December __, 1996
FOR VALUE RECEIVED, the undersigned, TAYLOR CAPITAL GROUP, INC., a
Delaware corporation (herein, together with its successors and assigns, called
the "Borrower"), promises to pay to the order of LASALLE NATIONAL BANK, a
national banking association (herein, together with its successors and assigns,
called the "Bank"), the principal sum of TWENTY-FIVE MILLION DOLLARS
($25,000,000), plus interest as described below, with annual principal
installments of One Million Dollars ($1,000,000) due on the last Business Day
of each calendar year commencing December 31, 1998, and with a final payment of
the entire principal balance outstanding hereunder due on December 31, 2001,
pursuant to that certain Loan Agreement of even date herewith between the
Borrower and the Bank (herein, as the same may be amended, modified or
supplemented from time to time, called the "Loan Agreement").
The Borrower further promises to pay to the order of the Bank interest
on the aggregate unpaid principal amount hereof from time to time outstanding
from the date hereof until paid in full at such rates and at such times as
shall be determined in accordance with the provisions of the Loan Agreement.
Accrued interest shall be payable on the dates specified in the Loan Agreement.
Payments of both principal and interest are to be made in the lawful
money of the United States of America in immediately available funds at the
Bank's principal office at 135 South LaSalle Street, Chicago, Illinois 60603,
or at such other place as may be designated by the Bank to the Borrower in
writing.
This Note is the Term Note referred to in, evidences indebtedness
incurred under, and is subject to the terms and provisions of, the Loan
Agreement. The Loan Agreement, to which reference is hereby made, sets forth
said terms and provisions, including those under which this Note may or must be
paid prior to its due date or may have its due date accelerated. Terms used
but not otherwise defined herein are used herein as defined in the Loan
Agreement.
In addition to, and not in limitation of, the foregoing and the
provisions of the Loan Agreement hereinabove referred to, the Borrower further
agrees, subject only to
<PAGE> 56
any limitation imposed by applicable law, to pay all expenses, including
attorneys' fees and expenses, incurred by the holder of this Note in seeking
to collect any amounts payable hereunder which are not paid when due, whether
by acceleration or otherwise.
All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.
This Note is binding upon the undersigned and its successors and
assigns, and shall inure to the benefit of the Bank and its successors and
assigns. This Note is made under and governed by the laws of the State of
Illinois without regard to conflict of laws principles.
TAYLOR CAPITAL GROUP, INC., a
Delaware corporation
By:
-------------------------------------
Title:
----------------------------------
Borrower's Address:
350 East Dundee Road
Wheeling, Illinois 60090-5766
<PAGE> 57
EXHIBIT 7.1(u)
to
Loan Agreement
AFFILIATES AND SUBSIDIARIES
<TABLE>
<S> <C>
Affiliates: Cole Taylor Bank
CT Mortgage Company
Subsidiaries: Cole Taylor Bank
</TABLE>
<PAGE> 1
EXHIBIT 10.1(a)
SAFEKEEPING AGREEMENT
This Safekeeping Agreement (this "Agreement") is entered as of
December ___, 1996 by and between LaSalle National Bank, a national banking
association ("Bank") and Taylor Capital Group, Inc., a Delaware corporation
("Borrower").
WITNESSETH
WHEREAS, Bank and Borrower are parties to a Loan Agreement of
even date herewith (the "Loan Agreement") pursuant to which Bank has agreed to
make loans and advances to Borrower;
WHEREAS, Borrower owns beneficially and of record all of the
issued and outstanding shares of capital stock of Cole Taylor Bank (the
"Shares");
WHEREAS, as a condition to the making of certain loans and
advances to Borrower under the Loan Agreement, Bank has required that Borrower
enter into this Agreement and deliver to Bank for safekeeping all of the
Shares; and
WHEREAS, terms used herein but not defined herein shall have
the meanings assigned to them in the Loan Agreement.
NOW, THEREFORE, Bank and Borrower agree as follows:
1. Delivery of Shares. Borrower hereby agrees that
contemporaneously with the execution and delivery of this Agreement, it shall
deliver to Bank for safekeeping and not as a pledge, all of the Shares and,
subject to the terms of Sections 2 and 3 hereof, Bank shall retain the shares
until Borrower's Liabilities have been paid in full and the Commitment has
expired. Upon delivery of the Shares pursuant to this Agreement, Cole Taylor
Bank shall make a note in its corporate stock records that the Shares are
subject to this Agreement and are required to be pledged to Bank upon the
occurrence and during the continuance of an Event of Default.
2. Pledge of the Shares. Borrower agrees that at any
time, and from time to time, upon the occurrence and during the continuance of
an Event of Default, it shall grant to Bank a first priority lien on and
security interest in the Shares to secure the payment and performance of
Borrower's Liabilities and shall enter into a pledge agreement attached hereto
in the form of Exhibit A hereto (the "Pledge Agreement"). Upon the occurrence
of an Event of Default, the possession of the Shares under this Agreement shall
constitute possession for purposes of perfection under Article 9 of the
Illinois Uniform Commercial Code. The pledge of such Shares shall remain
effective until the earlier to occur of (i) Borrower's Liabilities are fully
paid and satisfied or (ii) the time when no Event of Default or Default is
continuing. For purposes of this Section 2 only, an Event of Default resulting
from a breach of the financial covenants contained in Paragraph 7.2(i) of the
Loan Agreement shall be deemed not continuing
<PAGE> 2
if, at the time of measurement thereof, Borrower is in compliance with such
financial covenants as of the end of the most recent fiscal quarter or year
end, as the case may be.
3. Return of the Shares. During such time as Bank is
holding the Shares for safekeeping and not as a pledge, Borrower may request
that Bank return the Shares to Borrower for any proper corporate purpose, other
than the sale, assignment, transfer, pledge, or other disposition or
hypothecation of the Shares and Bank's consent to the return of the Shares
shall not be unreasonably withheld. Borrower agrees that it shall return the
Shares (or any replacements or reissues thereof or substitutions therefor) to
Bank as soon thereafter as practicable.
4. Liability of Bank. Bank shall not be liable or
responsible for any act it may do or omit to do in connection with the
safekeeping of the Shares, except in connection with its gross negligence or
willful misconduct.
5. General. This Agreement shall be binding upon and
inure to the benefit of Bank and Borrower and their successors and assigns.
This Agreement shall be governed by and construed in accordance with the laws
of the State of Illinois. In the case of any conflict between the terms of
this Agreement and the Loan Agreement, the terms of the Loan Agreement shall
prevail.
6. Further Assurances. Borrower agrees to cooperate
fully with, and to cause Cole Taylor Bank to cooperate fully with, Bank to
execute and deliver this Pledge Agreement if so required by this Agreement, and
to take all other such action as Bank may reasonably request to effectuate the
intent of the foregoing.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
TAYLOR CAPITAL GROUP, INC.
By:
-------------------------------------
Title:
----------------------------------
LASALLE NATIONAL BANK
By:
-------------------------------------
Title:
----------------------------------
2
<PAGE> 3
EXHIBIT A
FORM OF
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Pledge") is entered into as of
___________________, 199__ between Taylor Capital Group, Inc., a Delaware
corporation ("Pledgor"), in favor of LaSalle National Bank, a national banking
association ("LaSalle").
WITNESSETH:
WHEREAS, the Pledgor is the owner of one hundred percent
(100%) of the issued and outstanding shares of capital stock of Cole Taylor
Bank, an Illinois corporation (the "Pledged Shares"), represented as of the
date hereof by common stock certificate number ______;
WHEREAS, on December ___, 1996, Pledgor and LaSalle entered
into a Loan Agreement (as the same has been amended or otherwise modified from
time to time, the "Loan Agreement"), pursuant to which LaSalle may, subject to
certain conditions precedent, loan certain monies to the Pledgor;
WHEREAS, as a condition to the lending of funds under the Loan
Agreement, Borrower executed and delivered to LaSalle that certain Safekeeping
Agreement dated December ___, 1996 ("Safekeeping Agreement") to which a form of
this Pledge Agreement was attached as Exhibit A;
WHEREAS, pursuant to Section 2 of the Safekeeping Agreement,
Borrower is now obligated to enter into this Pledge Agreement and perform its
obligations hereunder; and
WHEREAS, terms used herein but not defined herein shall have
the meanings assigned to them in the Loan Agreement.
NOW, THEREFORE, for and in consideration of the foregoing and
of any financial accommodations or extensions of credit (including, without
limitation, any loan or advance by renewal, refinancing or extension of the
Loan Agreement or otherwise) heretofore, now or hereafter made to or for the
benefit of the Pledgor by LaSalle, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Security Interest.
(a) Pledge Period. From and after the time when any
Event of Default has occurred and is continuing, the Pledgor will
grant a security interest to LaSalle as described herein, and such
security interest will continue until the earlier to occur of (i)
<PAGE> 4
Borrower's Liabilities are fully paid and satisfied, or (ii) the time
when no Event of Default or Default or event that with the passage of
time, the giving of notice, or both, would become an Event of Default
is continuing (a "Pledge Period"). For purposes of this paragraph
only, an Event of Default resulting from a breach of the financial
covenants contained in Paragraph 7.2(i) of the Loan Agreement shall be
deemed not to be continuing if, at the time of measurement thereof,
the Borrower is in compliance with such financial covenants as of the
end of the most recent calendar quarter or year end, as the case may
be.
(b) Grant of Security Interest. The Pledgor hereby
grants to LaSalle, as security for the prompt and complete payment,
observance and performance of all of Borrower's Liabilities whether
now or at any time or times hereafter owing, a security interest in
(a) all of the Pledged Shares now or at any time or times hereafter
owned by the Pledgor, and (b) all warrants, options and other rights
to acquire the Pledged Shares now or at any time or times hereafter
owned by the Pledgor (the "Rights") (the Pledged Shares, the Rights
together with the "Powers" (as defined below), the property and
interests in property described in paragraphs 6 and 7 below, and all
proceeds of any of the foregoing, being hereinafter collectively
referred to as the "Pledged Collateral"). The Pledgor agrees to
execute and deliver to LaSalle (i) stock powers in the form of Exhibit
A attached hereto and made a part hereof, appropriately endorsed in
blank, with respect to the Pledged Shares and any warrants or options
for the purchase of the Pledged Shares included in the Rights and (ii)
such other documents of transfer as LaSalle may from time to time
request to enable LaSalle to transfer the Pledged Shares and the
Rights into its name or the name of its nominee (all of the foregoing
are hereinafter referred to as the "Powers"). The Pledgor shall be
entitled to keep the proceeds of the Pledged Shares during the Pledge
Period unless and until an Event of Acceleration (as defined below)
has occurred and is continuing. The term "Event of Acceleration"
means (i) the occurrence of an Event of Default described in
Paragraphs 8.1(c), (d), (e), (f), (g), (h) and (i) of the Loan
Agreement or (ii) the occurrence any Event of Default, other than the
Events of Default described in Paragraphs 8.1(c), (d), (e), (f), (g),
(h) and (i) of the Loan Agreement, at the same time that of any of the
following occurs: (a) a failure by Borrower to maintain a Tangible Net
Worth in accordance with Paragraph 7.2(i) of the Loan Agreement as of
the end of the most recent reporting period or (b) if in any two
consecutive quarterly reporting periods (beginning in the quarter
succeeding the quarter in which the first occurrence of the subject
Event of Default occurs) Borrower incurs a consolidated net loss
determined in accordance with GAAP of $_____________ or more in the
aggregate for the entire period or (c) the existence or incurrence of
any Liens on assets or properties or interests of the Borrower (or any
of the Stock of Cole Taylor), Cole Taylor or any Subsidiaries, which
Liens are not removed within thirty (30) days, (other than Permitted
Liens).
2. Perfection of Security Interest. The Pledgor agrees
(i) to immediately deliver to LaSalle all certificates evidencing any of the
Pledged Collateral which may at any time come into the possession or control of
the Pledgor, (ii) to execute and deliver to LaSalle such
2
<PAGE> 5
financing statements as LaSalle may request with respect to the Pledged
Collateral, (iii) to cause a registration of the security interest granted
herein with respect to the Pledged Collateral which is not evidenced by
certificates to be made in accordance with Article 8 of the Illinois Uniform
Commercial Code, as amended, and (iv) to take such other steps as LaSalle may
from time to time reasonably request to perfect LaSalle's security interest in
the Pledged Collateral under applicable law. The Pledgor further agrees, at
the request of LaSalle, to cause the Subsidiaries to issue, in substitution for
existing certificates evidencing any of the Pledged Collateral or in the case
of the Pledged Collateral not theretofore certificated, one or more new
certificates ("Substitute Certificate(s)") intended to evidence all of the
Pledged Collateral evidenced by the certificates or not theretofore evidenced
by certificates, as the case may be, which are exchanged for the Substitute
Certificate(s), and the Pledgor shall immediately thereafter deliver such
Substitute Certificate(s) to LaSalle, together with attached Powers. The
Pledgor agrees that this Pledge or photocopy of this Pledge shall be sufficient
as a financing statement.
3. Voting Rights. During the term of the Pledge Period,
and so long as there shall not exist an Event of Acceleration, the Pledgor
shall have the right to vote the Pledged Shares and exercise any voting rights
pertaining to the Pledged Collateral, and to give consents, ratifications and
waivers with respect thereto, on all corporate questions for all purposes not
conflicting with the terms of this Pledge or the Loan Agreement. LaSalle shall
be entitled to exercise all voting powers pertaining to the Pledged Collateral
from and after (a) the occurrence of an Event of Acceleration and (b) LaSalle's
delivery of written notice to the Pledgor of LaSalle's intention to exercise
such voting powers.
4. Representations and Covenants. The Pledgor warrants
and represents that the Pledgor is the sole owner and holder of record, free
and clear of all liens, claims, security interests and encumbrances (except
those held by LaSalle) of the percentages of the issued and outstanding Pledged
Shares indicated in the first Recital hereof and the voting rights associated
therewith, and that the Pledgor has full power and authority to enter into this
Pledge. The Pledgor covenants that the Pledgor will continue to be the sole
owner and holder of record, free and clear of all liens, claims, security
interests, encumbrances (except those held by LaSalle) of all of such issued
and outstanding Pledged Shares and the voting rights associated therewith. The
Pledgor represents and warrants that (i) all of the Pledged Shares have been
duly authorized and validly issued and are fully paid and non-assessable and
(ii) the Powers are duly executed and give LaSalle the authority they purport
to confer. The Pledgor further represents and warrants that (i) there are no
restrictions upon the voting rights or upon the transfer of any of the Pledged
Collateral other than those which may appear on the certificates evidencing the
Pledged Collateral, (ii) there are no warrants or other rights or options
issued by or outstanding (other than the Rights pledged hereby) in any
connection with any of the Pledged Collateral, (iii) the Pledgor has the right,
subject to the provisions of this Pledge and the Loan Agreement, to vote,
pledge and grant a security interest in or otherwise transfer such Pledged
Collateral free of any liens, claims or encumbrances, (iv) the Pledgor has the
right (subject, however, to the Securities Act of 1933, as amended) (the
"Securities Act") and/or the terms and provisions of this Pledge or the Loan
Agreement to otherwise transfer all or any part of the Pledged Collateral free
of any liens, claims or encumbrances and (v) no authorization, approval, or
other action by, and no notice to,
3
<PAGE> 6
or filing with, any governmental authority or private party is required for the
Pledgor's execution and delivery of this Pledge.
5. Subsequent Changes Affecting Collateral. The Pledgor
represents to LaSalle that the Pledgor has made its own arrangements for
keeping informed of changes or potential changes affecting the Pledged
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights), and the Pledgor agrees that, except as otherwise
specifically provided herein, LaSalle shall have no responsibility or liability
for informing the Pledgor of any such changes or for taking any action or
omitting to take any action with respect thereto.
6. Pledged Shares Adjustments. In the event that,
during the term of this Pledge, any stock dividend, reclassification,
readjustment or other change is declared or made in the capital structure of
Cole Taylor Bank (including, without limitation, the issuance of additional
Pledged Shares and/or the issuance of new capital stock to the Pledgor, or any
of the Rights are exercised, or both) the Pledgor agrees to immediately deliver
for LaSalle's possession all certificates evidencing any of the new,
substituted and/or additional shares of capital stock which may at any time
come into the possession of the Pledgor, so that LaSalle shall have a perfected
first security interest in such shares, including any shares not classified as
common stock, or other securities issued to or acquired by the Pledgor by
reason of any such change or exercise, and such shares or other securities
shall become part of the Pledged Collateral, provided, however, that nothing
contained in this paragraph 6 shall be deemed to permit any stock dividend,
issuance of additional stock, reclassification, readjustment or other change in
the capital structure of Cole Taylor Bank which activity is prohibited by the
Loan Agreement or any of the agreements and documents executed in connection
therewith.
7. Warrants, Options and Other Rights. In the event
that, subscription warrants or any other rights or options shall be issued in
connection with the Pledged Collateral or any other classes of capital stock
issued to or acquired by the Pledgor, the Pledgor agrees to immediately deliver
for LaSalle's possession all warrants, rights, and options arising from any
such exercise which may at any time come into the possession of the Pledgor, so
that LaSalle shall have a perfected security interest in such warrants, rights
and options, and such warrants, rights and options shall become part of the
Pledged Collateral, provided, however, that nothing contained in this paragraph
7 shall be deemed to permit the issuance of any warrants or other rights or
options of Cole Taylor Bank which issuance is prohibited by the Loan Agreement
or any agreement or document executed in connection therewith.
8. Waivers. No failure on the part of LaSalle or any of
its agents to exercise, and no course of dealing with respect to, no delay in
exercising, any right, power or remedy hereunder and no exchange, surrender,
release, alteration, renewal or extension of Borrower's Liabilities shall
operate as a waiver thereof; nor shall any single or partial exercise by
LaSalle or any of its agents of any right, power or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. The remedies herein are cumulative and are not exclusive of any
remedies provided by law. The Pledgor waives
4
<PAGE> 7
presentment and demand for payment of any of Borrower's Liabilities, protest
and notice of dishonor or the occurrence of any default with respect to any or
all of Borrower's Liabilities, and all other notices to which the Pledgor might
otherwise be entitled, except as otherwise expressly provided herein, in the
Loan Agreement or in any other agreement or document executed in connection
with the transactions contemplated thereby.
9. Remedies of LaSalle Following Event of Default.
LaSalle may, upon the occurrence of an Event of Default, without notice and at
LaSalle's option, transfer or register the Pledged Collateral or any part
thereof into LaSalle's or LaSalle's nominee's name. The Pledgor hereby
appoints LaSalle as its attorney-in-fact to arrange at LaSalle's option for
such transfer. LaSalle shall have, in addition to the foregoing and any other
rights given under this Pledge or by law, all of the rights and remedies with
respect to the Pledged Collateral of a secured party under the Uniform
Commercial Code as in effect in the State of Illinois. In addition, following
the occurrence of an Event of Default, LaSalle shall have such powers of sale
and other powers as may be conferred by applicable law. With respect to the
Pledged Collateral or any part thereof which shall then be in or shall
thereafter come into the possession or custody of LaSalle or which LaSalle
shall otherwise have the ability to transfer under applicable law, LaSalle may,
in its sole discretion, but subject to applicable securities laws, without
notice except as specified below, upon the occurrence of such Event of Default,
sell or cause the same to be sold at any broker's board or at public or private
sale, in one or more sales or lots, at such price as LaSalle may deem best, for
cash or on credit or for future delivery, without assumption of any credit
risk, and the purchaser of any or all of the Pledged Collateral so sold shall
thereafter own the same, absolutely free from any claim, encumbrance or right
of any kind whatsoever. Unless any of the Pledged Collateral threatens to
decline speedily in value or is or becomes of a type sold on a recognized
market, LaSalle will give the Pledgor reasonable notice of the time and place
of any public sale thereof, or of the time after which any private sale or
other intended disposition is to be made. Any sale of the Pledged Collateral
conducted in substantial conformity with the standard commercial practices of
banks, commercial finance companies, insurance companies or other financial
institutions disposing of property similar to the Pledged Collateral shall be
deemed to be commercially reasonable. Notwithstanding any provision to the
contrary contained herein, any requirements of reasonable notice shall be met
if twenty (20) days' prior notice of such sale or disposition is provided to
the Pledgor. Any other requirement of notice, demand or advertisement for sale
is, to the extent permitted by law, waived. LaSalle may, in its own name or in
the name of a designee or nominee, buy all or any part of the Pledged
Collateral at any public sale and, if permitted by applicable law, buy all or
any part of the Pledged Collateral at any private sale. The Pledgor will pay
to LaSalle all reasonable expenses (including, without limitation, court costs
and reasonable attorneys' and paralegals' fees and expenses) of, or incident
to, (i) the administration of this Pledge, (ii) the custody or preservation of,
or the sale or collection of, or other realization upon, any of the Pledged
Collateral, (iii) the exercise or enforcement of any of the rights of LaSalle
hereunder, or (iv) the failure by the Pledgor to perform or observe any
provision hereof. In view of the fact that federal and state securities laws
may impose certain restrictions on the method by which a sale of the Pledged
Collateral may be effected, the Pledgor agrees that upon the occurrence of an
Event of Default with respect to which LaSalle has exercised its rights of
acceleration under the Loan Agreement, and subject to the terms of the
5
<PAGE> 8
Loan Agreement, LaSalle may, from time to time, attempt to sell all or any part
of the Pledged Collateral by means of a private placement, restricting the
bidders and prospective purchasers to those who are qualified and will
represent and agree that they are purchasing for investment only and not for
distribution. In so doing, LaSalle, subject to applicable law, may solicit
offers to buy the Pledged Collateral, or any part of it, for cash, from a
limited number of investors deemed by LaSalle, in its reasonable judgment, to
be financially responsible parties who might be interested in purchasing the
Pledged Collateral, and if LaSalle solicits such offers from not less than 3
such investors, then the acceptance by LaSalle of the highest offer obtained
therefrom shall be deemed to be a commercially reasonable method of disposing
of such Pledged Collateral.
10. Term. This Pledge shall remain in full force and
effect until the end of each Pledge Period, which is described in detail in
Paragraph 2 above. At the end of the Pledge Period, LaSalle will hold the
Pledged Shares in accordance with the terms of the Safekeeping Agreement;
provided, however, that the Pledge hereunder and this Agreement shall be
re-effectuated and re-executed and delivered by Pledgor for any subsequent
Pledge Period.
11. Definitions. Any capitalized terms used herein and
not otherwise defined are used herein as defined in the Loan Agreement. The
singular shall include the plural and vice versa and any gender shall include
any other gender as the context may require.
12. Successors and Assigns. This Pledge shall be binding
upon the Pledgor and upon the successors and assigns of the Pledgor and shall
inure to the benefit of LaSalle and its successors and assigns. The Pledgor's
successors and assigns shall include, without limitation, a
debtor-in-possession, receiver, trustee or other such custodian of or for the
Pledgor.
13. Applicable Law. This Pledge shall be governed by and
construed in accordance with the internal laws (as distinguished from the
conflicts of law provisions) of the State of Illinois. Whenever possible, each
provision of this Pledge shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Pledge shall be
held to be prohibited or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Pledge.
14. Further Assurances. The Pledgor agrees that the
Pledgor will cooperate fully with LaSalle and will execute and deliver, or
cause to be executed and delivered, all such other stock powers, proxies,
instruments, documents, and resignations of officers and directors, and will
take all such other action, including, without limitation, the filing of UCC
financing statements, as LaSalle may reasonably request from time to time in
order to carry out the provisions and purposes of this Pledge.
15. LaSalle Appointed Attorney-in-Fact. The Pledgor
hereby appoints LaSalle as the Pledgor's attorney-in-fact, with full authority
in the place and stead of the Pledgor and in the name of the Pledgor or
otherwise, from time to time upon the occurrence of an Event of Default, in
LaSalle's discretion to take any action and to execute any instrument which
LaSalle
6
<PAGE> 9
may deem necessary or advisable to accomplish the purpose of this Pledge,
including, without limitation, to receive, endorse and collect all instruments
made payable to the Pledgor representing any dividend, interest payment or
other distribution in respect to the Pledged Collateral or any part thereof and
to give full discharge for the same. This power of attorney created under this
paragraph 15, being coupled with an interest, shall be irrevocable for the term
of the Pledge Period.
16. LaSalle's Duty. LaSalle shall not be liable for any
actions, omissions, errors of judgment or mistakes of fact or law, including,
without limitation, acts, omissions, errors or mistakes with respect to the
Pledged Collateral, except for those arising out of or in connection with
LaSalle's (i) willful misconduct or gross negligence or (ii) failure to use
reasonable care with respect to the safe custody of any certificate evidencing
any of the Pledged Collateral which is in the physical possession of LaSalle.
Without limiting the generality of the foregoing, LaSalle shall be under no
obligation to take any steps necessary to preserve rights in the Pledged
Collateral against any other parties but may do so at its option, and all
expenses incurred in connection therewith shall be for the sole account of the
Pledgor, and shall be added to Borrower's Liabilities secured hereby.
17. Notices. All notices, consents, requests, demands
and other communications hereunder shall be in writing and shall be deemed duly
given to any party or parties (a) upon delivery to the address of the party or
parties as specified in the "Address for Notices" below such party or parties'
name on the signature pages hereof if delivered in person or by courier or if
sent by certified or registered mail (return receipt requested), or (b) upon
dispatch if transmitted by telecopy or other means of facsimile transmission
and electronic confirmation of receipt, in any case to the party or parties at
the telecopy numbers specified on the same, or to such other address or
telecopy number as any party may hereafter designate by written notice in the
aforesaid manner.
<TABLE>
<S> <C>
(a) If to LaSalle at:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Jay C. Goldner
with a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601-1003
Attn: Michael A. Nemeroff, Esq.
</TABLE>
7
<PAGE> 10
<TABLE>
<S> <C>
(b) If to the Pledgor at:
Taylor Capital Group, Inc.
350 East Dundee Road
Suite 300
Wheeling, Illinois 60090
Attn: Marjorie J. MacLean, Esq.
with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attn: Jeffrey A. Jung, Esq.
</TABLE>
18. Paragraph Headings. The paragraph headings in this
Pledge are for convenience of reference only, and shall not affect in any way
the interpretation of any of the provisions of this Pledge.
19. Counterparts. This Pledge may be executed in
separate counterparts, each of which shall be an original and all of which
taken together shall constitute one and the same instrument.
8
<PAGE> 11
IN WITNESS WHEREOF, the Pledgor and LaSalle have executed this
Pledge on the day and year first above written.
TAYLOR CAPITAL GROUP, INC.
By:
-------------------------------------
Its:
------------------------------------
LA SALLE NATIONAL BANK
By:
-------------------------------------
Its:
------------------------------------
9
<PAGE> 12
EXHIBIT A
to
PLEDGE AGREEMENT
Form of Stock Power
Attached.
10
<PAGE> 13
STOCK POWER
FOR VALUE RECEIVED, the undersigned, Taylor Capital Group, Inc.
("Pledgor"), does hereby sell, assign and transfer to LaSalle National Bank, a
national banking association ("LaSalle"), ________ share(s) of the capital
stock of Cole Taylor Bank, an Illinois banking corporation, represented by
certificate(s) no(s). _____, standing in the name of Pledgor on the books of
said corporation. Pledgor does hereby irrevocably constitute and appoint
LaSalle attorney to transfer the shares of said corporation, with full power of
substitution in the premises.
Dated:
-----------------------------
TAYLOR CAPITAL GROUP, INC.
By:
--------------------------------
Its:
-------------------------------
11
<PAGE> 14
CONSENT TO PLEDGE
The undersigned, Cole Taylor Bank, an Illinois banking corporation
("Bank"), hereby (i) acknowledges receipt of a copy of the foregoing Pledge
Agreement (the "Pledge") relating to the Pledge of all of the issued and
outstanding shares of common stock of Bank owned by Taylor Capital Group, Inc.,
(ii) irrevocably consents to the terms of such Pledge, and (iii) agrees not to
issue any stock dividends, subscription warrants or any other rights or options
to the Pledgor without notifying LaSalle of such issuance and delivering the
originals of all certificates evidencing such dividends, warrants, rights or
options to LaSalle at its address set forth in the Pledge.
Dated:
-----------------------------
COLE TAYLOR BANK
By:
----------------------------------------
Its:
---------------------------------------
12
<PAGE> 1
EXHIBIT 10.7
TAYLOR CAPITAL GROUP, INC.
Deferred Compensation Plan
<PAGE> 2
TAYLOR CAPITAL GROUP, INC.
Deferred Compensation Plan
I. PURPOSE
II. DEFINITIONS
III. PRIOR PLAN BENEFIT OBLIGATION
IV. ELIGIBILITY; PARTICIPATION LIMITS
V. BENEFITS
VI. CLAIM FOR BENEFITS PROCEDURE
VII. ADMINISTRATION
VIII. AMENDMENT AND TERMINATION
IX. MISCELLANEOUS
<PAGE> 3
DRAFT
TAYLOR CAPITAL GROUP, INC.
Deferred Compensation Plan
I PURPOSE
The purpose of the Taylor Capital Group, Inc. Deferred Compensation Plan is to
provide a means whereby Taylor Capital may afford certain employees and senior
management with an opportunity to build additional financial security, by
providing a vehicle to defer Salary and Bonus amounts, and to permit
Participants who also participate in the 401 (k)/ Profit Sharing and Employee
Stock Ownership Plan ("401(k) / ESOP") to defer amounts in excess of the dollar
limitation of IRC Section 402(g) applicable to the 401(k) / ESOP Plan.
In addition, the Company shall credit a Participant's Deferred Benefit Account
with an amount equivalent to the amount which would have been contributed to
the 401 (k) / ESOP for a Participant but for the limitation on the recognition
of "compensation" of any amount deferred under this Plan, and restore certain
benefits from the Company's qualified retirement plan otherwise limited by
Section 401(a)(17) and Section 415(c) of the Internal Revenue Code.
The Plan is a defined contribution plan. Deferrals of Salary and Bonus,
together with Company Allocations made pursuant to the Plan, will be credited
with interest based on an interest index, in accordance with the Plan, and paid
to the Participant (or his or her Beneficiary) as described herein. By
providing a means whereby Salary and Bonus may be deferred into the future, and
by restoring contributions otherwise foregone because of the operation of IRC
Sections 401(a)(17) and 415(c), the Plan will aid in attracting and retaining
managers of exceptional ability, provide them with additional financial
security at the time of Retirement, and supplement other Company-sponsored
benefits in the event of death or Disability.
II DEFINITIONS
2.1 "Agreement" means the Taylor Capital Group, Inc. Deferred
Compensation Election Agreement, executed between a Participant and the
Company, whereby a Participant agrees to participate in the Plan and may defer
a portion of his or her Salary or Bonus (as the case may be) or both, pursuant
to the provisions of the Plan, and the Company agrees to pay benefits in
accordance with the provisions of the Plan and Agreement. A Participant shall
file an Agreement for each Plan Year as provided in Section 4.2.
2.2 "Bank" and "Affiliate Bank" mean any affiliated subsidiary
bank of the Company.
2.3 "Beneficiary" means the person, persons, or trust designated
Beneficiary pursuant to Section 5.11.
2.4 "Bonus" means the gross annual bonus amount(s) payable to a
Participant from the Company's Management Incentive Plan or successor plan(s),
if any, in effect for the Company fiscal year coinciding with the Plan Year
(but payable after the end of the Plan Year) otherwise payable in cash, and
considered "wages" for FICA and federal income tax withholding, and including
any amount deferred under an unfunded, nonqualified plan maintained by the
Company. For purposes of this Section, Bonus amounts considered shall exclude
reimbursements or other expense allowances (whether or not includable in gross
income, and including but not limited to car allowanc-
<PAGE> 4
es), (cash or noncash) fringe benefits (including but not limited to contest
prizes), moving expenses, deferred compensation (other than Participant
Contributions made under this Plan), welfare benefits (including but not limited
to imputed income on life insurance coverage, unused and/or accrued vacation pay
and severance pay), and any distribution of stock (excluding proceeds from any
stock options, stock appreciation rights, or any other stock or equity based
management incentive plan). Bonus amounts considered shall include any amounts
by which the Participant's Bonus is reduced by a bonus reduction or similar
arrangement under any qualified plan described in IRC Section 401(a) or any
cafeteria plan (as described in IRC Section 125) maintained by the Company.
2.5 "Committee" means the Plan Committee appointed pursuant to Article VI
to manage and administer the Plan.
2.6 "Company" means Taylor Capital Group, Inc., a Delaware corporation,
its successors and assigns, and any affiliated company and Affiliate Bank which
grants participation hereunder to an employee with the Company's consent.
2.7 "Company Allocation" means an amount added to a Participant's
Deferred Benefit Account, pursuant to Sections 4.6.
2.8 "Compensation" means cash remuneration paid pursuant to this Plan
for services rendered prior to the date paid.
2.9 "Deferred Benefit Account" and "Account" mean the separate accounting
record(s) maintained by the Company for each Participant, pursuant to Articles
IV and V. The total amount of each Participant's Deferred Benefit Account shall
consist of the amounts described in Section 5.1. Deferred Benefit Account(s)
shall be utilized solely as a recordkeeping device for the measurement and
determination of the amounts to be paid to the Participant pursuant to this
Plan, and shall be subject to Section 9.2 hereof. Notwithstanding the provisions
of Section 9.8, a Participant's Deferred Benefit Account shall not constitute or
be treated as a trust fund or escrow arrangement of any kind.
2.10 "Deferred Compensation Plan Trust" and "Trust" mean the irrevocable
grantor trust or trusts which may be established by the Company with an
independent trustee for the benefit of persons entitled to receive payments
hereunder.
2.11 "Determination Date" means the date on which the amount of a
Participant's Deferred Benefit Account is determined as provided in Article V.
The last day of each fiscal quarter and the date of a Participant's Termination
of Service shall be a Determination Date.
2.12 "Disability" shall have the same meaning and be determined in the
same manner as in the Taylor Capital Group, Inc. Long-Term Disability Income
Plan. In the absence of such a plan, "Disability" or "Disabled" shall mean a
permanent impairment of the physical or mental condition of a Participant,
which, in the sole discretion of the Company, prevents Participant from
performance of the usual duties of employment attendant to the Participant's
function with the Company. The determination of the Company as to a Disability
shall be made on the basis of such medical and other competent evidence as the
Company shall deem relevant, and shall be binding on Participant.
2.13 "ERISA" means the Employee Retirement Income Security Act of 1974.
2.14 "ERISA Funded" means that the Plan does not meet the "unfunded"
criterion of the exceptions to the application of Parts 2 through 4 of Subtitle
B of Title I of ERISA.
2.15 "401(k)/ESOP" means the Taylor Capital Group, Inc. 401 (k) / Profit
Sharing and Employee Stock Ownership Plan, as amended.
2
<PAGE> 5
2.16 "Interest Crediting Rate" and "Interest" mean the average yield on
corporate bonds for the preceding fiscal quarter. For purposes of this Section,
the average yield on corporate bonds means the composite average yield of
industrial and public utility bonds, rates Aaa through Baa, as determined from
Moody's Bond Record published monthly by Moody's Investor's Service, Inc. (or
any successor thereto), or, if such yield is no longer available, a
substantially similar average selected by the Administrative Committee.
2.17 "IRC" means the Internal Revenue Code of 1986, as amended.
2.18 "Participant" means an employee of the Company who is eligible to
participate in the Plan pursuant to Section 3.1, and, if he or she becomes a
Participant in accordance with the provisions of Section 4.1, who enters into an
Agreement with the Company.
2.19 "Plan" means the Taylor Capital Group, Inc. Deferred Compensation
Plan, as amended from time to time.
2.20 "Plan Effective Date" means October 1, 1994.
2.21 "Plan Restatement Date" means January 1, 1997.
2.22 "Plan Year" means the Company's fiscal year, which, unless and
until changed, is January 1 to December 31. For the Plan Year coincident with
the Plan Effective Date, the Plan Year shall be from October 1, 1994 to December
31, 1994.
2.23 "Prior Plan" means the Cole Taylor Financial Group, Inc. Deferred
Compensation Plan, as amended from time to time, in effect prior to the Plan
Restatement Date with respect to Participants who were employed by the Cole
Taylor Financial Group, Inc. or affiliate, and who were Participants in the
Prior Plan as of the date, immediately preceding the Plan Restatement Date.
2.24 "Retirement Date" and "Retirement" mean the date of termination of
service of a Participant for reasons other than death or Disability after he or
she (i) attains age fifty-five (55) and has ten (10) Years of Service; (ii) has
attained age 65; or (iii) terminates under circumstances which the Company, in
its sole discretion, elects to treat as a Retirement for purposes of the Plan.
2.25 "Salary" for purposes of the Plan shall be the total of the
Participant's base salary paid during a Plan Year, and considered "wages" for
FICA and federal income tax withholding, but before any deferral made pursuant
to this or any other plan. For purposes of this Section, Salary amounts
considered shall exclude reimbursements or other expense allowances (whether or
not includable in gross income, and including but not limited to car
allowances), (cash or noncash) fringe benefits (including but not limited to
contest prizes), moving expenses, deferred compensation (other than Participant
Contributions made under this Plan), welfare benefits (including but not limited
to imputed income on life insurance coverage, unused and/or accrued vacation pay
and severance pay), and any distribution of stock (excluding proceeds from any
stock options, stock appreciation rights, or any other stock or equity based
management incentive plan). Salary amounts considered shall include any amounts
by which the Participant's Salary is reduced by a salary reduction or similar
arrangement under any qualified plan described in IRC Section 401(a) or any
cafeteria plan (as described in IRC Section 125) maintained by the Company.
2.26 "Tax Funded" means that the interest of a Participant in the Plan
will be includable in the gross income of the Participant for federal income tax
purposes prior to actual receipt of Plan benefits by the Participant.
2.27 "Termination of Service" means the Participant's ceasing his or
her employment with
3
<PAGE> 6
the Company for any reason whatsoever, whether voluntarily or involuntarily.
2.28 "Years of Service" means years of service credited to a Participant
in the 401(k)/ESOP Plan. In its sole discretion, the Committee may award
additional Years of Service to a Participant at any time prior to his or her
Retirement Date.
III PRIOR PLAN BENEFIT OBLIGATION
3.1 Prior Plan Participants. Notwithstanding any provision of Section 4.1
to the contrary, all employees of the Company who were Participants in the Prior
Plan on the day immediately preceding the Plan Restatement Date are Participants
in the Plan.
3.2 Transfer of Benefit Liability. Without the consent of any Prior
Plan Participant, any benefit liability on the books of the Cole Taylor
Financial Group, Inc. attributable to the Prior Plan shall be transferred to and
become a benefit liability on the books of the Company, to be paid in the manner
set forth in this Plan, with the Company substituted for the Cole Taylor
Financial Group, Inc. under the Plan. Subject to the provisions of the Prior
Plan, upon such book transfer.
(a) the Cole Taylor Financial Group, Inc. shall thereafter have no
obligation to the Participant under the Prior Plan;
(b) the Company's rights and obligations with respect to each
Participant in the Prior Plan who is a Participant in this Plan shall
be governed by the terms of this Plan;
(c) the Participant shall not be deemed to have incurred a
Termination of Service for purposes of the Prior Plan; and
(d) the Participant's rights shall at all times be subject to the
provisions of Section 9.2.
3.3 Non-Duplication of Benefits. The amount of any benefit payable under
the Prior Plan shall be paid solely by the Company, from the general assets of
the Company, at the same time, in the same manner, and in the same amount as
such benefit would have been payable as provided in the Prior Plan, and shall be
in lieu of any benefit payable by the Cole Taylor Financial Group, Inc. under
the terms of the Prior Plan.
3.4 Deferred Benefit Account. In accordance with Section 3.2, a Deferred
Benefit Account shall be established as a recordkeeping device for each Prior
Plan Participant who becomes a Participant in this Plan in the manner provided
in Section 3.1. Each such Participant's Deferred Benefit Account beginning
balance, as of the Plan Restatement Date, shall be the Prior Plan's Deferred
Benefit Account balance, including interest, as of the end of the day
immediately preceding the Plan Restatement Date.
IV ELIGIBILITY: PARTICIPATION LIMITS
4.1 Eligibility and Participation. Eligibility to participate in the Plan
shall be limited to management employees of the Company who meet all of the
following conditions. Each employee
(a) must be in Salary Grade 34 or above, or
(b) must be designated as eligible upon recommendation of the Chief
Executive Officer, and approved by the Committee.
Each employee so eligible to participate must file an Agreement with the
Company in accordance
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with Section 4.2 in order to become a Participant in the Plan. An employee who
meets all of the requirements of this Section shall become a Participant in the
Plan. Except as otherwise provided in Section 4.4, once an employee becomes a
Participant in the Plan, he or she shall remain a Participant until all benefit
payments, if any, to the Participant (or his or her Beneficiary) have been
made.
4.2 Deferral of Salary and Bonus. Eligible employees of the Company who
elect to participate in the Plan must file an Agreement to participate in the
Plan and to defer Salary, Bonus, or both, with the Company prior to the
beginning of the Plan Year in which the Salary or Bonus is to be earned. An
eligible employee who fails to file an Agreement before the beginning of a Plan
Year may file an Agreement to defer Salary, Bonus, or both, with respect to a
subsequent Plan Year. A Participant's Agreement shall be subject to all of the
limitations of Section 4.3.
4.3 Deferral Limitations. A Participant's Agreement to participate in
the Plan and to defer Salary, Bonus, or both, shall be subject to the following
limitations:
(a) a Participant may elect to defer no less than five percent
(5%) and no more than fifteen percent (15%) of Salary, in
increments of one percentage point (1%); and
(b) a Participant's Agreement to defer up to one hundred percent
(100%) of Bonus shall be in increments of ten percentage points
(10%); and
(c) for the Plan Year coincident with the Plan Effective Date, a
Participant may elect to defer no less than five percent (5%) nor
more than one hundred percent (100%) of Salary, in increments of
one percentage point (1%), remaining to be paid in 1994 Plan Year;
and
(d) any Agreement to defer Salary, Bonus, or both, may not apply
to a Plan Year after the 1999 Plan Year; and
(e) the Agreement shall be irrevocable upon acceptance by the
Company.
4.4 Suspension of Agreement to Defer. A Participant's Agreement to
defer Salary, Bonus, or both, shall be suspended in the event that the Company,
in its sole discretion, reasonably determines that a Participant ceases to meet
the eligibility requirements of the Plan. In such event, no additional Company
Allocations shall be made to the Account of a Participant for the period his or
her Agreement is suspended. A Participant whose Agreement has been suspended
pursuant to this Section shall not be deemed to have incurred a Termination of
Service, and his or her Deferred Benefit Account shall continue to be maintained
under the terms of the Plan.
4.5 Timing of Deferral Credits. The amount of Salary or Bonus that
a Participant elects to defer in the Agreement shall cause an equivalent
reduction in his or her Salary or Bonus payment, and shall be credited to the
Participant's Deferred Benefit Account throughout the Plan Year as the
Participant is paid (or would have been paid) the non-deferred portion of his
or her Salary or Bonus in each Plan Year. Any Company Allocation to be made to
a Participant's Deferred Benefit Account in accordance with Section 4.6 shall
be credited to the Deferred Benefit Account of a Participant at the same time
the Company's contributions are made (or would have been made) to the
401(k)/ESOP.
4.6 Annual Company Allocation. The Company shall credit a Company
Allocation to a Participant's Deferred Benefit Account. The amount of the
Company Allocation, if any, shall be calculated and determined as follows:
(a) The Company shall credit a Participant's Deferred Benefit
Account with the amount,
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if any, which is equivalent to reductions of Company contributions
under the 401 (k)/ESOP caused by the Participant's reduction in Salary
and Bonus attributable to participation in this Plan.
(b) The Company shall credit a Participant's Deferred Benefit
Account with the amount, if any, which is equivalent to the Company
contribution which could not be made under the 401(k)/ESOP because of:
(1) the dollar limit on contributions under IRC Section
415(c); and
(2) the annual limitation of compensation which can be taken
into account under IRC Section 401(a)(17).
In order to qualify for the Company Allocation to be credited in
accordance with this subsection (b), a Participant must elect (or have
elected) either:
(1) to defer at least six percent (6%) of compensation as a
contribution to the 401(k)/ESOP, or
(2) a percentage amount which would result (but for the
limits of IRC Section 402(g)) in a deferral amount which exceeds
the maximum dollar amount permitted under IRC Section 402(g).
A Company Allocation, if any, made to a Participant's Deferred Benefit Account
in accordance with this Section shall be credited to his or her Deferred Benefit
Account at the same time the Company's contributions are made (or would have
been made) to the 401(k)/ESOP.
4.7 Vesting. A Participant shall be one hundred percent (100%) vested
in the amount of Salary and Bonus deferred and credited to his or her Deferred
Benefit Account, including interest attributable thereto. Any amount credited
to a Participant's Deferred Benefit Account as a Company Allocation attributable
to the 401(k)/ESOP pursuant to Section 4.6, together with any interest
attributable thereto, shall vest in the same percentage as if such Company
Allocation had been a Company contribution made to the 401(k)/ESOP Plan Account
of a Participant.
V BENEFITS
5.1 Determination of Account. Each Participant's Deferred Benefit
Account as of each Determination Date shall consist of:
(a) subject to the provisions of Section 3.4, the balance, if any,
of the Participant's Deferred Benefit Account as of the immediately
preceding Determination Date, plus
(b) the Participant's Salary or Bonus deferred pursuant to Section
4.2, and credited to a Participant's Account since the immediately
preceding Determination Date in accordance with Section 4.5, plus
(c) any Company Allocation made pursuant to Section 4.6, and
credited to a Participant's Account since the immediately preceding
Determination Date in accordance with Section 4.5, less
(d) all benefit payment(s) made to the Participant (or his or her
Beneficiary) from such Account in accordance with this Article IV since the
preceding Determination Date, plus
(e) Interest credited on the average daily balance of the Deferred
Benefit Account as
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of the Determination Date and since the last preceding Determination
Date, after the Account has been adjusted for any additions or
distributions to be credited or deducted.
5.2 Retirement Benefit. Upon a Participant's Retirement Date, the
Company shall pay to the Participant, as Compensation earned prior to
Retirement, a benefit equal to the value of his or her Deferred Benefit
Account, with the Company Allocation vested in accordance with Section 4.7,
determined under Section 5.1 as of the Determination Date coincident with such
Retirement Date. The form of benefit payment shall be provided in Section 5.8
upon and after such Retirement Date, the Participant shall immediately cease to
be eligible for any benefit provided under Section 5.3, 5.4, 5.5, 5.6, or 5.7
of the Plan.
5.3 Termination Benefit. Upon Termination of Service of the
Participant before his or her Retirement Date for reasons other than his or her
death or Disability, the Company shall pay to the Participant, as Compensation
earned prior to his or her Termination of Service, a benefit equal to the value
of his or her Deferred Benefit Account, vested in accordance with Section 4.7,
determined under Section 5.1 as of the date of Termination of Service. Unless
otherwise directed by the Committee, the termination benefit shall be payable
in a lump sum. Upon a Termination of Service, the Participant shall immediately
cease to be eligible for any benefit provided under Section 5.2, 5.4, 5.5, 5.6,
or 5.7 of the Plan.
5.4 Death Benefit. Upon the death of the Participant prior to his or
her Termination of Service, the Company shall pay to the Beneficiary of the
deceased Participant, as Compensation earned prior to his or her death, a
benefit equal to the value of the Participant's Deferred Benefit Account,
vested in accordance with Section 4.7, determined under Section 5.1 as of the
Determination Date coincident with or next following the Participant's date of
death. The death benefit shall be paid in a lump sum. Upon a Termination of
Service, the Participant shall immediately cease to be eligible for any benefit
provided under Section 5.2, 5.3, 5.5, 5.6, or 5.7 of the Plan.
5.5 Disability Benefit. In the event of Disability prior to his or
her Retirement Date, the Company shall pay to the Disabled Participant, as
Compensation earned prior to the Disability, a benefit equal to the value of his
or her Deferred Benefit Account, with the Company Allocation vested in
accordance with Section 4.7, determined under Section 5.1. Such benefit shall be
payable in annual installments, as provided in Section 5.8, until the earliest
of the following events:
(a) The Participant ceases to be Disabled and resumes employment
with the Company;
(b) The Participant ceases to be Disabled and does not resume
employment with the Company. If the Participant has attained his
or her Retirement Date, he or she shall be entitled to the
benefits provided for in Section 5.2. If the Participant has
not attained his or her Retirement Date, such Participant's
Deferred Benefit Account shall be recomputed and adjusted to
reflect the vesting provisions of Section 4.7. Upon any such
recomputation and adjustment, the value of his or her Deferred
Benefit Account, if any, shall be paid in a lump sum as a
Termination Benefit in the manner provided in Section 5.3. In
no event shall the recomputation and adjustment of a
Participant's Deferred Benefit Account made pursuant to this
subsection operate to require that such previously Disabled
Participant repay any Disability benefit paid hereunder;
(c) The Participant dies. The Deferred Benefit Account balance
remaining shall be paid in a lump sum as provided in Section
5.4; or
(d) The Participants Deferred Benefit Account balance reaches
zero.
If a Disability occurs during the period elected in the Agreement, the
Disabled Participant's
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Agreement shall be suspended, and further deferrals shall not be required during
the period of Disability. Upon a written request by a Participant filed with the
Committee, the Committee may, in its sole discretion, pay a Disability benefit
equal to the value of the Disabled Participant's Deferred Benefit Account in a
single lump sum payment.
5.6 Interim Distribution Benefit. A Participant may elect in his or her
Agreement to have a portion his or her Deferred Benefit Account paid to him or
her at the time specified in such Agreement. If the Participant so elects, the
Company shall pay to the Participant, as Compensation earned prior to the
interim distribution date, a lump sum benefit equal to the amount so elected in
the Agreement, subject to all of the following:
(a) The date selected for the interim distribution is a January 1
occurring on or after the fifth (5th) anniversary of the first day of
the Fiscal Year the Agreement became effective;
(b) The amount to be distributed pursuant to such Agreement will be
equal to the amount by which his or her Salary, Bonus, or both, were
reduced pursuant to such Agreement;
(c) A Participant's Agreement may not provide for more than one date
on which a benefit shall be paid in accordance with this Section.
The date specified in the Agreement shall be disregarded if the
Participant's Termination of Service occurs prior to such date. An
election to receive an interim distribution benefit at a date
specified in the Agreement shall be irrevocable, unless the
Administrative Committee, in its sole discretion, grants a
Participant's request to revoke his or her election. Any such
request to revoke his or her election must be filed with and
approved by the Committee at least one year prior to the January 1
that the interim distribution would otherwise be made. If the
request is granted by the Committee, the value of such benefit shall
remain as a credit to the balance of the Participant's Deferred
Benefit Account, to be maintained in the manner provided in Section
5.1, and paid instead in the manner provided in Sections 5.2, 5.3,
5.4, 5.5, or 5.7; and
(d) The amount to be distributed in accordance with this Section
shall be distributed without Committee approval required.
5.7 Emergency Benefit. In the event that the Committee, upon written
petition of the Participant, determines, in its sole discretion, that the
Participant has suffered a severe financial hardship, the Company shall pay to
the Participant, as soon as practicable following such determination, as
Compensation earned prior to the severe financial hardship, a benefit equal to
the amount necessary to meet the severe financial hardship not in excess of the
value of the vested portion of the Participant's Deferred Benefit Account,
including interest. For purposes of this Section, a severe financial hardship
is an unexpected need for cash arising from an illness, casualty loss, sudden
financial reversal, or other such unforeseeable occurence. Cash needs arising
from events such as the purchase of a house or education expenses for children,
shall not be considered to be the result of a severe financial hardship. For
purposes of this Section, the criteria for establishing and determining a
severe financial hardship shall be made in accordance with IRC Section
457(d)(1)(A), and Internal Revenue Service Regulation 1.457-2(h)(4).
5.8 Form of Benefit Payment. Upon the happening of an event described in
Section 5.2 or 5.5, the Company shall pay to the Participant (or his or her
Beneficiary) the amount calculated in accordance with this Section in annual
installments payable in substantially equal amounts, calculated and determined
as follows:
(a) An annual installment payment shall be determined for the
Participant's Deferred Benefit Account. The amount of the installment
payment shall be a fixed amount calculated to
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amortize the unpaid balance of the Deferred Benefit
Compensation balance in fifteen (15) equal annual installments (or,
in its sole discretion, in fewer than fifteen (15) annual
installments), and shall be based on the Interest Crediting Rate in
effect at the time payments commence. The Committee may recompute the
amount of the installment each year to reflect actual or projected
changes in the Interest Crediting Rate. Installment benefit payments
shall cease when the Deferred Benefit Account balance reaches zero, or
with the final payment determined hereunder.
(b) Unless an annual payment is the final annual
installment payment, each annual installment payment shall be at least
equal to $5,000. Notwithstanding the amortization method described in
Section 5.8(a) immediately above, in the event an installment payment
determined under Section 5.8(a) is less than $5,000, the annual
installment payment shall be $5,000. Annual installment payments in the
amount of $5,000 shall continue until the amount of the installment is
recomputed, as provided below, or until the remaining Account balance
is less than $5,000. Once the Account balance is less than $5,000, the
subsequent annual payment, which shall be the final payment, shall
equal the remaining Deferred Benefit Account balance.
Upon the death of a Participant after the commencement of payment of benefits
pursuant to Section 5.2, the Deferred Benefit Account remaining shall be paid
to the Beneficiary in annual installments over the remaining number of years
determined above. Upon a written request of a Beneficiary, or upon the request
of Disabled Participant, the Committee may, in its sole discretion, pay the
value of a Disabled or deceased Participant's Deferred Benefit Account in a
lump sum.
Upon a written request by a Participant filed with the Committee prior to the
commencement of benefits under this Plan, the Committee may, in its sole
discretion, pay the value of his or her Deferred Benefit Account in a lump sum,
or in fewer than fifteen (15) annual installments.
5.9 Withholding: Employment Taxes. To the extent required by the
law in effect at the time payments are made, the Company shall withhold any
taxes required to be withheld by the federal, or any state or local,
government.
5.10 Commencement of Payments. Unless otherwise provided, payments
under this Plan shall commence as soon as practicable following the
Participant's Termination of Service, but in no event later than ninety (90)
days following receipt of notice by the Committee of an event which entitles a
Participant (or a Beneficiary) to payments under this Plan. The date of each
subsequent annual installment shall be on the same Determination Date each
year, as determined by the Committee in its sole discretion.
5.11 Recipients of Payments: Designation of Beneficiary. All
payments to be made by the Company under the Plan shall be made to the
Participant during his or her lifetime, provided that if the Participant dies
prior to the commencement or completion of such payments, then all subsequent
payments under the Plan shall be made by the Company to the Beneficiary or
Beneficiaries determined in accordance with this Section 5.11. The Participant
shall designate a Beneficiary by filing a written notice of such designation
with the Committee in such form as the Committee requires and may change such
designation without the consent of such Beneficiary or Beneficiaries by filing
a new designation in writing with the Committee. (In community property states,
the spouse of a married Participant shall join in any designation of a
Beneficiary other than the spouse.) If no designation shall be in effect at the
time when any benefits payable under this Plan shall become due, the
Beneficiary shall be the Beneficiary designated by the Participant in the
401(k) / ESOP Plan, and otherwise shall be the executor(s) or administrator(s)
of the deceased Participant's estate.
5.12 Facility of Payment. Any benefit payable hereunder to any
person under a legal disability, or to any person who, in the judgment of the
Committee, is unable to properly administer his or her financial affairs, may
be paid to the legal representative of such person, or may be applied
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for the benefit of such person in a manner which the Committee may select.
VI CLAIM FOR BENEFITS PROCEDURE
6.1 Claim for Benefits. Any claim for benefits under the Plan shall be
made in writing to the Committee. If such claim for benefits is wholly or
partially denied by the Committee, the Committee shall, within a reasonable
period of time, but not later than sixty (60) days after receipt of the claim,
notify the claimant of the denial of the claim. Such notice of denial shall be
in writing and shall contain:
(a) the specific reason or reasons for the denial of the claim;
(b) a reference to the relevant Plan provisions upon which the
denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim, together with an
explanation of why such material or information is necessary; and
(d) an explanation of the Plan's claim review procedure.
6.2 Request for Review of a Denial of a Claim for Benefits. Upon the
receipt by the claimant of written notice of denial of the claim, the claimant
may within ninety (90) days file a written request to the Committee, requesting
a review of the denial of the claim, which review shall include a hearing if
deemed necessary by the Committee. In connection with the claimant's appeal of
the denial of his or her claim, he or she may review relevant documents and may
submit issues and comments in writing.
6.3 Decision Upon Review of Denial of Claim for Benefits. The
Committee shall render a decision on the claim review promptly, but no more than
sixty (60) days after the receipt of the claimant's request for review, unless
special circumstances (such as the need to hold a hearing) require an extension
of time, in which case the sixty (60) day period shall be extended to one
hundred-twenty (120) days. Such decision shall:
(a) include specific reasons for the decision;
(b) be written in a manner calculated to be understood by the
claimant; and
(c) contain specific references to the relevant Plan provisions
upon which the decision is based.
The decision of the Committee shall be final and binding in all respects on
both the Company and the claimant.
VII ADMINISTRATION
7.1 Plan Committee. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company, which shall be the Committee
of the Plan. The Committee may assign duties to an officer or other employees
of the Company, and delegate such duties as it sees fit.
7.2 General Rights, Powers and Duties of Committee. The Committee shall
be responsible for the management, operation and administration of the Plan. In
addition to any powers, rights, and duties set forth elsewhere in the Plan, it
shall have the following powers and duties to:
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(a) adopt, alter, and repeal such rules, regulations, guidelines, and
practices, which rules, regulations, guidelines, and practices may
alter any provisions of the Plan that are administrative or
ministerial in nature without the necessity of an amendment to the
Plan as it deems necessary for the proper and efficient administration
of the Plan;
(b) administer the Plan in accordance with its terms and any rules
and regulations it establishes;
(c) maintain records concerning the Plan sufficient to prepare
reports, returns, and other information required by the Plan or by
law;
(d) construe and interpret the Plan, to correct any defect, omission,
or inconsistency in the Plan, and to resolve all questions arising
under the Plan;
(e) direct the Company to pay benefits under the Plan, and to give
such other directions and instructions as may be necessary for the
proper administration of the Plan;
(f) employ or retain agents, attorneys, actuaries, accountants or
other persons who may also be employed by or represent the Company;
and
(g) be responsible for the preparation, filing, and disclosure on
behalf of the Plan of such documents and reports as are required by
any applicable federal or state law.
All rules, regulations, guidelines, and practices adopted by the Committee, and
all interpretations and constructions of the Plan and determinations of the
benefits payable hereunder made by the Committee, if made in good faith, shall
be final and binding on all persons.
7.3 Information to be Furnished to Committee. The records of the Company
shall be determinative of each Participant's period of employment, age,
Termination of Service and the reason therefor, Disability, leave of absence,
reemployment, personal data, and Salary and Bonus. Participants and their
Beneficiaries shall furnish to the Committee such evidence, data or information,
and execute such documents as the Committee requests.
7.4. Responsibility. No member of the Committee shall be liable to any
person for any action taken or omitted in connection with the administration of
this Plan unless attributable to his or her own fraud or willful misconduct; nor
shall the Company be liable to any person for any such action unless
attributable to fraud or willful misconduct on the part of a director, officer
or employee of the Company. Further, the Company shall hold harmless and defend
any individual in the employment of the Company and any Director of the Company
against any claim, action, or liability asserted against him or her in
connection with any action or failure to act regarding the Plan, except as and
to the extent such liability may be based upon the individual's own willful
misconduct or fraud. This indemnification shall not duplicate, but may
supplement, any coverage available under any applicable insurance coverage.
VIII. AMENDMENT AND TERMINATION
8.1 Amendment. The Plan may be amended in whole or in part by the
Board of Directors of the Company at any time. Notice of any material amendment
shall be given in writing to the Committee and to each Participant and each
Beneficiary of a deceased Participant. No amendment shall retroactively
decrease the balance of a Participant's Deferred Benefit Account or
retroactively decrease the Interest Crediting Rate used prior to the date of the
amendment.
8.2 Company's Right to Terminate. The Company reserves the sole right
to terminate the
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Plan. The Company also reserves the sole right to terminate the Agreement
pertaining to a Participant at any time prior to the commencement of payment of
his or her benefits. In the event of any such termination, the Company shall
continue to be obligated to pay benefits accrued prior to the date of such
termination in accordance with the Plan. The Participant shall be deemed to
have incurred a Termination of Service, and his or her Deferred Benefit Account
shall be paid in the manner provided in Section 5.3.
8.3 Special Termination. Any other provision of the Plan to the
contrary notwithstanding, the Plan shall terminate if the Plan is held to be
ERISA Funded or Tax Funded by a federal court, and appeals from that holding
are no longer timely or have been exhausted. The Company may terminate the
Plan if it determines, based on a legal opinion which is satisfactory to the
Company, that either judicial authority or the opinion of the U.S. Department
of Labor, Treasury Department or Internal Revenue Service (as expressed in
proposed or final regulations, advisory opinions or rulings, or similar
administrative announcements) creates a significant risk that the Plan will be
held to be ERISA Funded or Tax Funded, and failure to so terminate the Plan
could subject the Company or the Participants to material penalties. Upon any
such termination, the Company may:
(a) transfer the rights and obligations of the Participants and the
Company to a new plan established by the Company, which is not deemed
to be ERISA Funded or Tax Funded, but which is similar in all other
respect to this Plan, if the Company determines that it is possible to
establish such a Plan;
(b) if the Company, in its sole discretion, determines that it is not
possible to establish the Plan in (a) above, each Participant shall be
paid a lump sum benefit equal to the value of the vested portion of
his or her Deferred Benefit Account;
(c) pay a lump sum benefit equal to the value of the vested portion
of the Participant's Deferred Benefit Account to the extent that a
federal court has held that the interest of the Participant in the
Plan is includable in the gross income of the Participant for federal
income tax purposes prior to actual payment of Plan benefits. The
value of any amount remaining in the Participant's Deferred Benefit
Account shall remain as an obligation of the Company, to be paid to
the Participant as provided in the Plan;
(d) pay to a Participant a lump sum benefit equal to the vested
portion of a Participant's Deferred Benefit Account if, based on a
legal opinion satisfactory to the Company, there is a significant risk
that such Participant will be determined not to be part of a "select
group of management or highly compensated employees" for purposes of
ERISA.
Any benefit payable under this Section shall be payable as soon as practicable
following the Company's determination that the Plan is ERISA Funded or Tax
Funded, but in no event later than ninety (90) days following receipt of notice
by the Committee that the Plan is ERISA Funded or Tax Funded, or at such other
date as may be determined by the Committee in its sole discretion.
A lump sum payment to be made in accordance with this Section shall be subject
to the provisions of Section 5.10. Unless otherwise directed by the Committee,
the termination benefit shall be payable in a lump sum.
IX MISCELLANEOUS
9.1 Separation of Plan; No Implied Rights. The Plan shall not operate to
increase any benefit payable to or on behalf of a Participant (or his or her
Beneficiary) from any other Plan maintained by the Company. Neither the
establishment of the Plan nor any amendment thereof shall be construed as giving
any Participant, Beneficiary, or any other person any legal or equitable right
unless such right shall be specifically provided for in the Plan or conferred by
specific action of the
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Company in accordance with the terms and provisions of the Plan. Except as
expressly provided in this Plan, the Company shall not be required or be
liable to make any payment under this Plan.
9.2 No Right to Company Assets. Neither the Participant nor any other
person shall acquire by reason of the Plan any right in or title to any assets,
funds or property of the Company whatsoever, including, without limiting the
generality of the foregoing, any specific funds, assets or other property
which the Company, in its sole discretion, may set aside in anticipation of a
liability hereunder. Any benefits which become payable hereunder shall be paid
from the general assets of the Company. The Participant shall have only a
contractual right to the amounts, if any, payable hereunder, unsecured by any
asset of the Company or by a Trust pursuant to Section 9.8. Nothing contained
in the Plan constitutes a guarantee by the Company that the assets of the
Company shall be sufficient to pay any benefits to any person.
9.3 No Employment Rights. Nothing herein shall constitute a contract
of employment or of continuing service or in any manner obligate the Company to
continue the services of the Participant, or obligate the Participant to
continue in the service of the Company, or as a limitation of the right of the
Company to discharge any of its employees, with or without cause. Nothing
herein shall be construed as fixing or regulating the Salary, Bonus, or other
remuneration payable to the Participant.
9.4 Offset. If, at the time payments or installments of payments are
to be made hereunder, the Participant or the Beneficiary or both are indebted
or obligated to the Company, then the payments remaining to be made to the
Participant or the Beneficiary or both may, at the discretion of the Company,
be reduced by the amount of such indebtedness or obligation, provided, however,
that an election by the Company not to reduce any such payment or payments
shall not constitute a waiver of its claim, or prohibit or otherwise impair the
Company's right to offset future payments for such indebtedness or obligation.
9.5 Non-assignability. Neither the Participant nor any other person
shall have any voluntary or involuntary right to commute, sell, assign, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate, or convey in
advance of actual receipt the amounts, if any, payable hereunder, or any part
thereof, which are expressly declared to be unassignable and non-transferrable
except by will or in accordance with the laws of descent and distribution. No
part of the amounts payable shall be, prior to actual payment, subject to
seizure or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by the Participant or any other person, or be
transferrable by operation of law in the event of the Participant's or any
other person's bankruptcy or insolvency.
9.6 Notice. Any notice required or permitted to be given under the
Plan shall be sufficient if in writing and hand delivered, or sent by registered
or certified mail to the last known address of the Participant if to the
Participant, or, if given to the Company, to the principal office of the
Company, directed to the attention of the Plan Committee. Such notice shall be
deemed given as of the date of delivery, or, if delivery is made by mail, as of
the date shown on the postmark or the receipt for registration or certification.
9.7 Governing Laws. The Plan shall be construed and administered
according to the laws of the State of Illinois.
9.8 Deferred Compensation Plan Trust. The Company may establish a
Trust or Trusts with (an) independent trustee(s), and shall comply with the
terms of the Trust(s). If established, the Company may transfer to the
trustee(s) an amount of cash, marketable securities, or other property
acceptable to the trustee(s) ("Trust Property") equal in value to the amount
necessary, calculated on an actuarial basis in accordance with the terms of the
Trust(s), to pay the Company's obligations under the Plan (the "Funding
Amount"), and may make additional transfers to the trustee(s) as may be
necessary in order to maintain the Funding Amount. Trust Property so
transferred shall be held.
13
<PAGE> 16
managed, and disbursed by the Trustee(s) in accordance with the terms of the
Trust(s). To the extent that Trust Property shall be used to pay the Company's
obligations under the Plan, such payments shall discharge obligations of the
Company; however, the Company shall continue to be liable for amounts not paid
by the Trust(s). The Company shall have no obligation to establish such
Trust(s), or to pay or deliver the Funding Amount over to the trustee(s). In
the event of a Change of Control, the amount and timing of the payment of
benefits shall be as determined under any provisions of the Trust agreement
relating thereto, which shall replace the payment provisions of Article IV
herein. Trust Property will nevertheless be subject to claims of the Company's
creditors in the event of bankruptcy or insolvency, and the Participant's
rights under the Plan and Trust(s) shall at all times be subject to the
provisions of Section 9.2.
9.9 Transfer of Benefit Liability. The amount of any benefit payable
under the Plan shall be paid from the general assets of the Company or
Affiliate Bank with respect to whose employee or former employee the benefit is
payable. Subject to the provisions of the Plan, the liability of an Affiliate
Bank (the "Original Bank") with respect to a Participant shall not be affected
by the Participant's termination of employment with such Original Bank to become
an employee of an Affiliate Bank; provided, however, that, with the consent of
the Original Bank and the Affiliate Bank, but without the consent of the
Participant, the benefit liability on the books of the Original Bank may be
transferred to and become a benefit liability on the books of the Affiliate
Bank. In the event of such book transfer:
(a) the Original Bank shall thereafter have no obligation to the
Participant under the Plan;
(b) the Affiliate Bank's rights and obligations with respect to the
Participant shall be governed by the terms of the Plan, with the
Affiliate Bank substituted for the Original Bank under the Plan;
(c) the Affiliate Bank shall not be required to give effect to the
Participant's Agreement with respect to remuneration earned at the
Affiliate Bank;
(d) the Participant shall not be deemed to have incurred a
Termination of Service for purposes of the Plan; and
(e) the Participant's rights shall at all times be subject to the
provisions of Section 9.2.
IN WITNESS WHEREOF, the Company has adopted the amended and restated Taylor
Capital Group, Inc. Deferred Compensation Plan as of the Plan Restatement Date.
TAYLOR CAPITAL GROUP, INC.
By________________________
Its_______________________
Date______________
14
<PAGE> 1
EXHIBIT 12
TAYLOR CAPITAL GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS (PRO FORMA BASIS)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
LINE 1996 1995
- ---- ------------ ------------
<S> <C> <C> <C>
1 Income before income taxes...................................... $ 13,863 $ 16,012
ADD BACK FIXED CHARGES:
2 Total interest expense(1)....................................... 50,960 66,271
3 Interest included in operating lease rental expense(2).......... 805 996
4 Preferred stock dividend(3)..................................... 4,027 5,370
-------- --------
5 Adjusted earnings including interest on deposits................ 69,655 88,648
6 Less: interest expense on deposits.............................. 40,094 47,034
-------- --------
7 Adjusted earnings excluding interest on deposits................ $ 29,561 $ 41,614
======== ========
8 Fixed charges including interest on deposits (line 2 + line 3 +
line 4)......................................................... $ 55,792 $ 72,636
======== ========
9 Fixed charges excluding interest on deposits
(line 8 - line 6)............................................... $ 15,698 $ 25,602
======== ========
RATIO OF EARNINGS TO FIXED CHARGES
Including interest on deposits (line 5/line 8).................. 1.25 1.22
======== ========
Excluding interest on deposits.................................. 1.88 1.63
======== ========
</TABLE>
- ---------------
(1) Interest expense includes cash interest expense on deposits and other debt
and amortization of debt issuance costs.
(2) Calculation of interest included in operating lease rental expense is
representative of the interest factor attributable to the lease payment.
(3) Preferred stock dividends have been computed assuming that $38,250,000 of
preferred stock is issued and that the dividend rate is 9.125% per annum.
The stock dividend amount has been grossed up to compute the pretax income
equivalent assuming an estimated 35% tax rate.
<PAGE> 2
COLE TAYLOR BANK
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (HISTORICAL BASIS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER
30, FOR THE YEARS ENDED DECEMBER 31,
------------ ----------------------------------------------------
LINE 1996 1995 1994 1993 1992 1991
- ---- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Income before income taxes... $ 21,640 $25,940 $22,414 $17,659 $14,513 $11,419
ADD BACK FIXED CHARGES:
2 Total interest expense(1).... 49,493 64,366 44,118 35,147 43,572 56,384
Interest included in
operating lease rental
3 expense(2)................... 805 996 1,067 965 1,365 1,536
4 Preferred stock dividend.....
------------ -------- -------- -------- -------- --------
Adjusted earnings including
5 interest on deposits......... 71,938 91,302 67,599 53,771 59,450 69,339
Less: interest expense on
6 deposits..................... 40,102 47,034 32,998 27,472 36,550 47,447
------------ -------- -------- -------- -------- --------
Adjusted earnings excluding
7 interest on deposits......... $ 31,836 $44,268 $34,601 $26,299 $22,900 $21,892
=========== ======= ======= ======= ======= =======
Fixed charges including
interest on deposits (line 2
8 + line 3 + line 4)........... $ 50,298 $65,362 $45,185 $36,112 $44,937 $57,920
=========== ======= ======= ======= ======= =======
Fixed charges excluding
interest on deposits (line 8
9 - line 6).................... $ 10,196 $18,328 $12,187 $8,640 $8,387 $10,473
=========== ======= ======= ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES
Including interest on
deposits (line 5/line 8)..... 1.43 1.40 1.50 1.49 1.32 1.20
=========== ======= ======= ======= ======= =======
Excluding interest on
deposits..................... 3.12 2.42 2.84 3.04 2.73 2.09
=========== ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Interest expense includes cash interest expense on deposits and other debt
and amortization of debt issuance costs.
(2) Calculation of interest included in operating lease rental expense is
representative of the interest factor attributable to the lease payment.
<PAGE> 1
EXHIBIT 21
Upon consummation of the Split-Off Transactions, the Company will own 100%
of the Capital Stock of Cole Taylor Bank and CT Mortgage Company, Inc.
Subsidiaries of the Mortgage Company include CT Mortgage Company of
Louisiana, Inc., CT Mortgage Company of Kentucky, Inc., CT Mortgage Company of
Florida, Inc., CT Mortgage Company of South Carolina, Inc., CT Mortgage Company
of Virginia, Inc., CT Mortgage Company of North Carolina, Inc., CT Mortgage
Company of Georgia, Inc., CT Mortgage Company of Illinois, Inc., CT Mortgage
Company of Tennessee, Inc., CT Mortgage Finance Company of Tennessee, Inc., CT
Mortgage Company of Missouri, Inc., CT Mortgage Company of Colorado, Inc., CT
Mortgage Company of Indiana, Inc. and CT Mortgage Company of Ohio, Inc.
<PAGE> 1
EXHIBIT 23.1
[KPMG PEAT MARWICK LLP]
Consent of Independent
Certified Public Accountants
The Board of Directors
Cole Taylor Bank:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the propectus.
Chicago, Illinois KPMG Peat Marwick LLP
December 11, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COLE TAYLOR
BANK SEPTEMBER 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 95,193
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,950
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 372,460
<INVESTMENTS-CARRYING> 76,772
<INVESTMENTS-MARKET> 79,329
<LOANS> 1,256,214
<ALLOWANCE> 24,630
<TOTAL-ASSETS> 1,846,054
<DEPOSITS> 1,455,807
<SHORT-TERM> 153,410
<LIABILITIES-OTHER> 16,253
<LONG-TERM> 85,836
0
0
<COMMON> 15,000
<OTHER-SE> 119,748
<TOTAL-LIABILITIES-AND-EQUITY> 1,846,054
<INTEREST-LOAN> 82,099
<INTEREST-INVEST> 20,038
<INTEREST-OTHER> 1,052
<INTEREST-TOTAL> 103,189
<INTEREST-DEPOSIT> 40,102
<INTEREST-EXPENSE> 49,493
<INTEREST-INCOME-NET> 53,696
<LOAN-LOSSES> 3,005
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 40,799
<INCOME-PRETAX> 21,640
<INCOME-PRE-EXTRAORDINARY> 21,640
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,352
<EPS-PRIMARY> 9.57
<EPS-DILUTED> 9.57
<YIELD-ACTUAL> 8.31
<LOANS-NON> 10,710
<LOANS-PAST> 5,462
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,400
<ALLOWANCE-OPEN> 23,869
<CHARGE-OFFS> 2,799
<RECOVERIES> 555
<ALLOWANCE-CLOSE> 24,630
<ALLOWANCE-DOMESTIC> 24,630
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,282
</TABLE>
