Registration No. 333-53797
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Mound City Financial Services, Inc.
(Name of small business issuer in its charter)
Wisconsin 6711 39-1867686
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code No.)
organization) Number)
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25 East Pine Street
Platteville, Wisconsin 53818
(608) 348-2685
(Address and telephone number of principal executive
offices and principal place of business or
intended principal place of business)
Robert J. Just, Jr., President
Mound City Financial Services, Inc.
25 East Pine Street
Platteville, Wisconsin 53818
(608) 348-2685
(Name, address and telephone number of agent for service)
With copies to: John E. Knight, Esq.
Boardman, Suhr, Curry & Field LLP
One South Pinckney Street, 4th Floor
Madison, Wisconsin 53701-0927
(608) 257-9521
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this registration statement.
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. o
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. o
If this Form is a post-effective amendment filed pursuant to Rule
462(d) 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. o
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. o
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<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Each Class Amount to be Offering Price Aggregate Amount of
of Securities to be Registered Registered per Unit(1) Offering Price(1) Registration Fee
<S> <C> <C> <C> <C>
Common Stock, No Par Value 12,000 shares $310.00 $3,720,000.00 $1,097.40
<FN>
(1) Calculated pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
</FN>
</TABLE>
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
PROSPECTUS
[LOGO]
Mound City Financial Services, Inc.
12,000 Shares of Common Stock
$310.00 per Share
Mound City Financial Services, Inc. ("Company") was organized in September,
1996, as a Wisconsin corporation for the purpose of owning all the stock of
Mound City Bank, a Wisconsin state bank, with offices located in Platteville,
Belmont and Cuba City, Wisconsin ("Bank"). The Company hereby offers 12,000
shares of common stock, no par value ("Common Stock"), at a subscription price
of $310.00 per share on the terms described in this Prospectus. No public market
for the Common Stock is anticipated. See "TERMS OF THE OFFERING."
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THE COMMON STOCK INVOLVES A SIGNIFICANT DEGREE OF RISK. INVESTORS SHOULD
CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE
2 OF THIS PROSPECTUS.
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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.
Offering Selling Expenses Proceeds to
Price Commissions of Offering(1) Company
------------ ------------ ---------------- ------------
Per Share $310.00 -0- $2.92 $307.08
Total Minimum(2) -0- -0- -0- -0-
Total Offering $3,720,000 -0- $35,000 $3,685,000
(1) Expenses associated with this Offering are estimated to be $35,000.
Management does not anticipate paying commissions in connection with the
sale of the Common Stock. See "USE OF PROCEEDS."
(2) The Company is under no obligation to sell a minimum amount of stock in
this Offering and any funds received in this Offering will be available for
immediate use by the Company. See 'USE OF PROCEEDS."
The date of this Prospectus is ________________, 1998.
<PAGE>
SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS.
THESE SECURITIES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENT AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION NOR HAS THE FEDERAL DEPOSIT INSURANCE CORPORATION PASSED
ON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
NO LITERATURE, OTHER PROMOTIONAL MATERIALS OR ORAL REPRESENTATIONS IN WHATEVER
FORM SHALL BE EMPLOYED OR MAY BE RELIED UPON IN CONNECTION WITH THE PROPOSED
SALE OF SHARES PURSUANT TO THIS OFFERING EXCEPT FOR THE INFORMATION CONTAINED IN
THIS PROSPECTUS. NO PERSON HAS BEEN AUTHORIZED TO MAKE REPRESENTATIONS, OR GIVE
ANY INFORMATION, WITH RESPECT TO MOUND CITY FINANCIAL SERVICES, INC., OTHER THAN
THE INFORMATION CONTAINED IN THIS PROSPECTUS. ANY INFORMATION OR REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE BANK OR THE COMPANY.
THE COMPANY RESERVES THE RIGHT, IN ITS SOLE DISCRETION AND FOR ANY REASON, TO
ACCEPT OR REJECT IN WHOLE OR IN PART ANY SUBSCRIPTION FOR STOCK PURSUANT TO THIS
PROSPECTUS.
----------------------
AVAILABLE INFORMATION
The Company is not currently a reporting company pursuant to the Securities
Exchange Act of 1934, as amended ("Exchange Act"), but will file the reports
required to be filed thereunder for the Company's 1998 fiscal year and for any
other period for which the Exchange Act's requirements apply to the Company.
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Prospectus. The summary is of necessity incomplete and selective and is
therefore qualified in its entirety by the more detailed information contained
elsewhere in this Prospectus. Unless the context clearly suggests otherwise,
references in this Prospectus to the Company include the Bank. Investors should
carefully consider the information set forth under the section entitled "RISK
FACTORS."
The Company
Mound City Financial Services, Inc. ("Company") is a business corporation
that was organized for the purpose of acquiring and holding all the stock of its
subsidiary, Mound City Bank ("Bank"). Its offices are located at 25 East Pine
Street, Platteville, Wisconsin 53818, (608) 348-2685. The Bank is a
state-chartered bank that has been operating as a commercial bank since 1915,
with offices in located in Belmont, Cuba City and Platteville, Wisconsin. The
Bank provides full service commercial and consumer banking services from its
four offices. See "HISTORY, BUSINESS AND PROPERTIES."
Reasons for the Offering
The Company and its Board of Directors believe that the best avenue for the
continued success of the Bank is through the controlled and stable growth of the
Bank. This Offering is intended to further the Bank's growth strategy by raising
capital to repay $3,400,000 in borrowings made by the Bank for the purposes of
purchasing shares owned by a Bank shareholder who dissented from the shareholder
vote ratifying formation of the Company. This Offering is also viewed by the
Board as an important step in the Bank's growth strategy because of the Bank's
long-term interest in expansion, its need to increase its capacity for acquiring
and holding fixed assets, and its plan to provide additional products to Bank
customers.
Risk Factors
Investment in the Common Stock offered by this Prospectus involves
significant risks, including the absence of a public market for the Common
Stock, extensive regulation of the Bank and the Company, and the possibility of
adverse economic conditions. See "RISK FACTORS."
The Offering
The Company is offering 12,000 shares of its Common Stock at a purchase
price of $310.00 per share to shareholders of record as of March 31, 1998, Bank
employees, and the public. For purposes of this Offering, shareholders of record
means those shareholders who hold certificates of the Company's Common Stock as
of March 31, 1998. Each shareholder of record as of March 31, 1998, will be
entitled to purchase up to 1,000 shares of Common Stock. Each Bank employee who
is not presently a shareholder will be entitled to purchase up to 100 shares of
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Common Stock. In the event that less than all 12,000 shares have been subscribed
for, the Board of Directors may offer those remaining shares to the public and
existing shareholders and Bank employees, provided that a person's beneficial
ownership does not exceed 5% of the total shares outstanding after the Offering.
The Company has reserved the right to accept or reject any subscription, in
whole or in part. Questions concerning the Offering may be addressed to Mr.
Robert J. Just, Jr., President of the Company, at (608) 348-2685. Directors and
executive officers of the company are expected to purchase 1,540 shares in this
Offering. See "TERMS OF THE OFFERING" and "PRINCIPAL SHAREHOLDERS."
Use of Proceeds
Approximately $35,000 of the proceeds will be used to pay professional fees
and other expenses associated with this Offering. The net proceeds of the
Offering, totaling approximately $3,685,000, will be used by the Bank to repay
$3,400,000 in borrowings. The Company is under no obligation to sell a minimum
amount of Common Stock in this Offering. To the extent that insufficient funds
are received in the Offering to repay the entire loan, any loan which remains
unpaid will be repaid on the original terms of the loan over a 12-year period.
The remainder of the net proceeds, if any, will be invested by the Company.
Funds will be contributed by the Company to the Bank as and when necessary to
increase the Bank's capital. See "USE OF PROCEEDS."
RISK FACTORS
The Common Stock offered hereby involves a significant degree of risk. The
following constitutes some of the potential risks of an investment in the Common
Stock and should be carefully considered by prospective investors prior to
subscribing for Common Stock. The following is not intended to be inclusive of
all risks of investment in the Common Stock.
Competition
The financial services industry is highly competitive. The Company faces
competition from financial institutions in Platteville, Belmont and Cuba City
and their surrounding markets, and from nonbank financial institutions such as
mutual funds that are aggressively expanding into markets traditionally served
by banks. The Company also competes indirectly with regional and national
financial institutions. Expanded interstate banking (including recently enacted
legislation) may increase competition from out-of-state banking organizations
and other financial institutions. These financial institutions are generally
much larger than the Company and have greater access to capital and other
resources. Some of the financial services organizations with which the Company
competes are not subject to the same degree of regulation as that imposed on
bank holding companies and federally insured, state-chartered banks. As a
result, such nonbank competitors have advantages over the Company in providing
certain services. See "HISTORY, BUSINESS AND PROPERTIES" and "SUPERVISION AND
REGULATION."
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Need for Additional Capital
Additional capital beyond that which may be provided by this Offering and
any amounts that may be generated by the Bank's operations over the next few
years may be necessary before the Company could undertake any acquisitions or
expansions of its operations. There can be no assurance that any funds necessary
to finance such acquisitions or expansions will be available. Regulatory capital
requirements and borrowing restrictions that will apply to the Bank and the
Company may have the effect of constraining future growth. To the extent the
Company relied upon the sale of additional equity securities to finance future
expansion, such sale could result in significant dilution to the interests of
persons purchasing shares in this Offering.
Reliance on Key Personnel
The Company's success has been and will be greatly influenced by the Bank's
continuing ability to retain the services of the Bank's existing senior
management and, as it expands, to attract and retain qualified additional senior
and middle management. The unexpected loss of the services of any of the key
management personnel, or the inability to recruit and retain qualified personnel
in the future, could have an adverse effect on the Company's business and
financial results. In 1992, the Bank entered into an Executive Employee Salary
Continuation Agreement with Robert J. Just, President and CEO. The Agreement
calls for continued compensation of $40,000 per year for 17 years upon
retirement or, in specific cases, termination of Mr. Just's employment. Also,
the Bank maintains "Key Man" insurance on Mr. Just and David Jones, Bank Vice
President of Marketing and Business Development. See "MANAGEMENT."
Impact of Interest Rates and Economic Conditions
The results of operations for financial institutions, including the Bank,
may be materially and adversely affected by changes in prevailing economic
conditions, including declines in real estate market values, rapid changes in
interest rates and the monetary and fiscal policies of the federal government.
The Bank's profitability is in part a function of the spread between the
interest rates earned on investments and loans and the interest rates paid on
deposits and other interest-bearing liabilities. In the early 1990s, many
banking organizations experienced historically high interest rate spreads. More
recently, interest rate spreads have generally narrowed due to changing market
conditions and competitive pricing pressure, and there can be no assurance that
such factors will not continue to exert such pressure or that such high interest
rate spreads will return. Most of the Bank's loans are to businesses and
individuals in Wisconsin and any decline in the economy of this area could have
an adverse impact on the Bank. Like most banking institutions, the Bank's net
interest spread and margin will be affected by general economic conditions and
other factors that influence market interest rates and the Bank's ability to
respond to changes in such rates. At any given time, the Bank's assets and
liabilities will be such that they are affected differently by a given change in
interest rates. As a result, an increase or decrease in rates could have a
positive or negative effect on the Bank's net income, capital and liquidity. See
"SUPERVISION AND REGULATION."
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Lack of Liquidity; No Public Market
There is no public or other market for the Common Stock of the Company and
no market is expected to develop in the foreseeable future.
No Assurance of Dividends
Although dividends have been paid by the Company on its Common Stock since
1998, and by the Bank since 1988, no assurance can be given that future earnings
of the Bank, and resulting dividends to the Company, will be sufficient to
permit the legal payment of dividends to Company shareholders at any time in the
future. Even if the Company may legally declare dividends, the amount and timing
of such dividends will be at the discretion of the Board of Directors. The Board
may in its sole discretion decide not to declare dividends.
Certain Anti-Takeover and Indemnification Provisions
Certain provisions of the Company's Articles of Incorporation, bylaws and
Wisconsin's Business Corporation Law may have the effect of delaying or
preventing a change in control of the Company without action by the
shareholders, and could adversely affect the price of the Common Stock. The
Company's Bylaws provide for the indemnification of its officers and directors
and insulate its officers and directors from liability for certain breaches of
the duty of care. See "DESCRIPTION OF COMMON STOCK."
Year 2000 Compliance
A critical issue has emerged in the banking industry and for the economy
overall regarding how existing application software programs and operating
systems can accommodate the date value for the year 2000. Many existing
application software products in the marketplace were designed only to
accommodate a two digit date position which represents the year (e.g., "98" is
stored on the system and represents the year 1998). As a result, the year 1999
(i.e. "99") could be the maximum date value these systems will be able to
accurately process. Management is in the process of working with its software
vendors to assure that the Bank is prepared for the year 2000. Management
anticipates that the financial impact to the Company to ensure year 2000
compliance will not be material to the financial position, results of operations
or cash flow of the Company. Management anticipates that the Bank's computer
system will be in compliance by December 31, 1998. Nevertheless, the Company
cannot assure that the computer system will be year 2000 compliant and the
inability of the Bank to successfully address year 2000 issues could result in
interruptions in the Bank's business and have a material adverse effect on the
Company's results of operations. See "HISTORY, BUSINESS AND PROPERTIES."
Need for Technological Change
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. The Bank's future
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success will depend in part on its ability to address the needs of its customers
by using technology to provide products and services that will satisfy customer
demands for convenience as well as to create additional efficiencies in the
Bank's operations. Many of the Bank's competitors have substantially greater
resources to invest in technological improvements. There can be no assurance
that the Bank will be able to effectively implement new technology-driven
products and service or be successful in marketing such products and services to
its customers.
Lending Risks and Lending Limits
The risk of nonpayment of loans is inherent in commercial banking, and such
nonpayment, if it occurs, may have a material adverse effect on the Company's
earnings and overall financial condition as well as the value of the Common
Stock. Management will attempt to minimize the Bank's credit exposure by
carefully monitoring the concentration of its loans within specific industries
and through prudent loan application and approval procedures, but there can be
no assurance that such monitoring and procedures will reduce such lending risks.
The Bank's lending limit as of March 31, 1998, is $2,023,812. Some of the
Bank's competitors have higher lending limits. Accordingly, the size of the
loans that the Bank can offer to potential customers is sometimes less than the
size of loans that the Bank's competitors are able to offer. This limit may
affect the ability of the Bank to seek relationships with area businesses and to
generate an acceptable return on assets. The Bank attempts to accommodate loan
volume in excess of its lending limit through the sale of participation in such
loans to other banks. However, there can be no assurance that the Bank will be
successful in attracting or maintaining customers seeking larger loans or that
the Bank will be able to engage in participations of such loans or on terms
favorable to the Bank.
Determination of Offering Price
The offering price of $310.00 was determined by Company management based
upon several factors including an appraisal of the Company stock by Bankers'
Service Corporation and the recent sale prices of Common Stock. Nevertheless,
there can be no assurance that the Common Stock may be resold above the Offering
Price. See "DETERMINATION OF OFFERING PRICE" and "DESCRIPTION OF COMMON STOCK."
Terms of the Offering
Funds received by the Company in its Offering will be retained by the
Company prior to acceptance. The Company will, in it sole discretion, accept or
reject all subscriptions not later than 10 days after the Expiration Date. The
Expiration Date may be extended by the Company, in its discretion, for an
additional period of time beyond the Expiration Date as determined by the
Company. As a result of these extensions, funds received by the Company may be
held indefinitely. See "TERMS OF THE OFFERING."
5
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Government Regulation and Monetary Policy
The Company and the Bank are subject to extensive state and federal
government supervision, regulation and control. Existing state and federal
banking laws subject the Bank to substantial limitations with respect to loans,
purchase of securities, payment of dividends and many other aspects of its
banking business. There can be no assurance that future legislation or
government policy will not adversely affect the banking industry or the
operations of the Bank. Federal economic and monetary policy may affect the
Bank's ability to attract deposits and make loans. See "SUPERVISION AND
REGULATION."
Forward-Looking Statements
Statements contained in this Prospectus that relate to the Company's
beliefs or expectations as to future events relating to, among other things, the
Company's financial position, business plans and growth strategy, and
management's objectives are forward-looking statements and not statements of
historical fact. When used in this Prospectus, words such as "anticipate,"
"believe," "estimate," "expect," "intend" and similar expressions, as they
relate to the Company or its management, identify forward-looking statements.
Such forward-looking statements are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. Such statements are inherently uncertain, and there
can be no assurance that the underlying assumptions will prove to be valid.
Actual results could differ materially from those contemplated by the
forward-looking statements as a result of certain factors, such as those
disclosed under "RISK FACTORS," including but not limited to competitive factors
and pricing pressures, changes in legal and regulatory requirements,
technological change, product development risks and general economic conditions,
including, but not limited to, changes in interest rates, loss of deposits and
loans to other savings and financial institutions, substantial changes in
financial markets and substantial changes in real estate values and the real
estate market. Such statements reflect the current views of the Company with
respect to future events and are subject to these and other risks, uncertainties
and assumptions relating to the operations, results of operations, growth
strategy and liquidity of the Company. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this paragraph. Although the
Company believes that the assumptions upon which such forward-looking statements
are based are reasonable within the bounds of its knowledge of its business and
operations, it can give no assurance that the assumptions will prove to have
been correct. Reference to sections in this Prospectus which contain
forward-looking statements and important factors that could cause actual results
to differ materially and adversely from the Company's expectations and beliefs
are set out under "RISK FACTORS." These factors should be carefully considered
by potential investors.
TERMS OF THE OFFERING
The Offering
The Company is offering 12,000 shares of its Common Stock at a subscription
price of $310.00 per share. Initially, the Common Stock is being offered to
shareholders of record as of March 31, 1998, and Bank employees. For the purpose
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of this offering, shareholders of record means those shareholders who hold
certificates of the Company's stock as of March 31, 1998. Each shareholder of
record as of March 31, 1998, shall be entitled to purchase up to 1,000 shares of
Common Stock. Each Bank employee who is not presently an existing shareholder
will be entitled to purchase up to 100 shares of Common Stock. In the event that
less than all of the 12,000 shares have been subscribed for, the Board of
Directors may offer the remaining shares of Common Stock at $310.00 per share to
the public and to existing shareholders, provided that a person's total
beneficial ownership does not exceed 5% of the total shares outstanding after
the Offering.
If a substantial number of shareholders choose not to subscribe for stock
in the Offering, it is possible that others may make substantial stock
purchases, thereby diluting the ownership interest of certain shareholders. Any
shareholder who would like to purchase additional shares (in excess of the
number to which they are entitled) should indicate the number of additional
shares he or she would like to purchase in the enclosed Subscription Agreement.
No fractional shares may be purchased.
Solicitations for the sale of Common Stock will be made by officers and
directors of the Company. It is anticipated that no brokers or other agents will
conduct a solicitation and that the Company will pay no fees or commissions with
respect to the sale of Common Stock.
How to Subscribe for Common Stock
In order to purchase Common Stock, a prospective investor must complete and
sign the enclosed Subscription Agreement. Signed Subscription Agreements must be
returned to Mound City Financial Services, Inc., c/o Robert J. Just, Jr.,
President, 25 East Pine Street, Platteville, Wisconsin 53818, on or before the
Expiration Date. Payment of the subscription price of $310.00 per share will be
due with the executed Subscription Agreement. Upon acceptance by the Company of
an investor's subscription for Common Stock, the Subscription Agreement will
constitute a legally binding agreement to pay the subscription price of the
Common Stock in accordance with the terms of the Offering.
All Subscription Agreements must be properly addressed to the mailing
address shown in the preceding paragraph and deposited in the United States mail
and postmarked on or before midnight of the Expiration Date, or personally
delivered to Mound City Financial Services, Inc., c/o Robert J. Just, Jr.,
President, 25 East Pine Street, Platteville, Wisconsin 53818, on or before 5:00
p.m. local time on the Expiration Date.
Acceptance and Oversubscription
Subscriptions will be effective only upon acceptance by the Company, which
reserves the right to accept or reject any subscription in whole or in part for
any reason. In the event the Offering is oversubscribed, the Company may accept
in full or may prorate subscriptions that have not then been accepted in any
manner it deems appropriate. The Company will, in its sole discretion, act on
all subscriptions not later than 10 days after the Expiration Date. If the
Company fails to act within such time with respect to a subscription, the
subscription will be deemed rejected.
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If a subscription is accepted in whole or in part, it shall be irrevocable
unless the Offering is abandoned by the Company. Upon acceptance, the Company
will return a copy of the Subscription Agreement, executed by the Company, to
the investor. If the Offering is abandoned, all Subscription Agreements and
amounts paid by investors pursuant to such Subscription Agreements will be
returned promptly to investors.
Expiration Date
The Company reserves the right, in its sole discretion, to extend the
period within which Common Stock will be offered pursuant to this Offering for
an additional period of time beyond the Expiration Date as determined by the
Company. The Company may also waive late delivery of any Subscription Agreement.
For purposes of this Offering, the Expiration Date means _____, 1998, (sixty
days after the Offering becomes effective), or such other date as may be
determined by the Board of Directors of the Company in its sole discretion.
Because of these possible extensions, funds received by the Company in the
Offering may be held indefinitely.
Abandonment of Offering
Consummation of the Offering and the sale of Common Stock is contingent
upon and will not occur if the Board of Directors of the Company has determined,
in its sole discretion, that the Offering should be abandoned. This contingency
is for the sole benefit of the Company and may be asserted by the Company
regardless of the circumstances giving rise to any such determination. If for
any reason the Offering is abandoned by the Company, funds which have been
received pursuant to the Offering shall be returned to the investors. No
interest will be paid to investors on funds returned upon abandonment of this
Offering.
USE OF PROCEEDS
The Company will use approximately $35,000 of the proceeds to pay
professional fees and other expenses associated with the Offering. The net
proceeds of the Offering, totaling approximately $3,685,000, will be used to
repay a $3,400,000 loan by Bankers' Bank to the Company. The Company contributed
the proceeds of this loan to the Bank and the Bank used those proceeds to
purchase 906 shares of Bank stock owned by the E.R. and Mariam T. Clare Trusts,
who dissented from the shareholder vote taken on January 9, 1997, to form the
Company. This note is due May 1, 1998, with an interest rate based upon floating
prime (8.5% as of December 31, 1997). The note is secured by 3,600 shares of
Bank Common Stock.
The remaining net proceeds, if any, will be used for general corporate
purposes including, if and when opportunities arise, establishing additional
branches and offices and acquiring business complementary to those of the
Company. At present, the Company is not a party to any understanding, letter of
intent or agreement with respect to the acquisition of the stock assets of
another entity. Pending such uses, the Company intends to invest the remaining
net proceeds.
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The Company is under no obligation to sell a minimum amount of Common Stock
in this Offering. Funds received in this Offering will be available for
immediate use by the Company.
DETERMINATION OF OFFERING PRICE
There is no public or other market for the Common Stock of the Company and
no public market is expected to develop in the foreseeable future. The offering
price of $310.00 was determined by Company management based upon several factors
including an appraisal of the stock by Banker's Service Corporation at $301.00
per share, and recent sales of Common Stock ranging between $220.00 and $252.80.
CAPITALIZATION
The following table sets forth the consolidated borrowings and
capitalization of the Company at March 31, 1998 and as adjusted to give effect
to the issuance of the common stock by Mound City Financial Services, Inc. in
this offering and the use of net proceeds therefrom as described in "Use of
Proceeds."
<TABLE>
<CAPTION>
March 31, 1998
Actual As Adjusted
(Dollars in thousands)
<S><C><C> <C> <C>
Borrowings - note payable $3,400,000 $ -
Stockholders' equity: (1)
Common stock, no par value; 300,000 shares authorized,
26,940 and 38,940 shares issued respectively $ 27,000 $ 39,000
Surplus 6,270,000 9,943,000
Retained earnings 542,000 542,000
Unrealized gain on securities for sale, net
of income tax effect 142,000 142,000
Treasury stock, 20 shares at cost (5,000) (5,000)
Total stockholders' equity $6,976,000 $10,661,000
Consolidated regulatory capital ratios:
Total capital to risk-weighted assets 9.0% 13.1%
Tier I capital to risk-weighted assets 7.7% 11.9%
Tier I capital to tangible assets 5.5% 8.5%
<FN>
(1) Issue 12,000 shares at $310 net of issuance cost of $35,000.
</FN>
</TABLE>
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
concerning Mound City Financial Services, Inc. and is qualified in its entirety
by the detailed information and financial statements, including notes thereto,
included elsewhere or incorporated by reference in this Prospectus. The results
for the interim period ended March 31, 1998 are not necessarily indicative of
the results for the entire year.
<TABLE>
<CAPTION>
Comparative five-year summary (000's omitted except per share data)
--------------------------------------------------------------------------------
Years ended December 31, Three months ended
------------------------------------------------------- -----------------------
1997 1996 1995 1994 1993 1998 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of income: (dollars in thousands)
Interest income $ 8,833 $ 8,210 $ 7,614 $ 6,719 $ 6,367 $ 2,302 $ 2,131
Interest expense:
Deposits 4,795 4,293 3,853 2,906 2,965 1,278 1,118
Short-term borrowing 233 26 14 14 6 92 15
-------------------------------------------------------------------------------
Net interest income 3,805 3,891 3,747 3,799 3,396 932 998
Provision for loan losses 130 184 110 217 261 30 30
-------------------------------------------------------------------------------
Net interest income after
provision for loan losses 3,675 3,707 3,637 3,582 3,135 902 968
Other income 682 495 427 461 488 194 162
Other expense 3,237 3,009 2,732 2,654 2,481 881 788
-------------------------------------------------------------------------------
Income before provision
for income taxes 1,120 1,193 1,332 1,389 1,142 215 342
Provision for income taxes 208 255 316 309 316 35 68
-------------------------------------------------------------------------------
Net income $ 912 $ 938 $ 1,016 $ 1,080 $ 826 $ 180 $ 274
===============================================================================
Per share of common stock:
Net income $ 30.49 $ 26.06 $ 28.24 $ 30.00 $ 22.94 $ 6.69 $ 7.61
Dividends $ 7.50 $ 7.50 $ 7.50 $ 7.00 $ 6.50 $ - $ -
Book value(1) $ 247.21 $ 271.94 $ 253.36 $ 232.64 $ 209.64 $ 253.88 $ 279.56
Weighted average number of shares outstanding 29,914 36,000 36,000 36,000 36,000 26,920 36,000
Selected year-end balances: (dollars in thousands)
Year-end assets $122,115 $115,045 $105,428 $ 94,772 $ 89,436 $122,016 $113,202
===============================================================================
Average assets $116,356 $108,379 $ 98,032 $ 92,104 $ 88,006 $122,462 $114,124
===============================================================================
Year-end equity capital(1) $ 6,655 $ 9,790 $ 9,121 $ 8,375 $ 7,547 $ 6,834 $ 10,064
===============================================================================
Average equity capital(1) $ 7,639 $ 9,646 $ 8,675 $ 7,961 $ 7,251 $ 6,745 $ 9,930
===============================================================================
Performance ratios:
Return on average assets $ 0.78 $ 0.87 $ 1.04 $ 1.17 $ 0.94 $ 0.59 $ 0.96
Return on average equity(1) $ 11.94 $ 9.72 $ 11.71 $ 13.57 $ 11.39 $ 10.67 $ 11.04
Ending equity to ending assets(1) $ 5.45 $ 8.51 $ 8.65 $ 8.84 $ 8.44 $ 5.60 $ 8.89
Total risk based capital(1) $ 9.30 $ 13.40 $ 14.05 $ 13.78 $ 12.91 $ 9.00 $ 13.46
<FN>
(1) Ending equity, Average equity and related ratio calculations are before any FASB 115 adjustment for unrealized gains and
losses on investment.
</FN>
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF COMPANY'S
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General
The following discussion and analysis provides information regarding the
financial condition and historical results of operations of Mound City Financial
Services, Inc. (the "Company"), Platteville, Wisconsin for the three months
ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996
and 1995. This discussion and analysis should be read in conjunction with the
related financial statements and notes thereto and the other financial
information included herein.
On May 1, 1997, the Company exchanged one (1) share of common stock for
each share outstanding of Mound City Bank. 906 shares of Mound City Bank's
common stock was purchased for $3,840,000. All share information, common stock
and retained earning, and earning per share, has been restated to reflect the
exchange.
Discussions in this Management's Discussion and Analysis, that are not
statements of historical facts (including statements in the future tense or
which include terms such as "believe", "expect", "anticipate" or "may") are
forward-looking statements that involve risks and uncertainties, and the
Company's actual future results could materially differ from those discussed.
Factors that could cause or contribute to such differences include, but are not
limited to, the Company's future lending and collections experiences, the
effects of acquisitions, competition from other institutions, changes in the
banking industry and its regulation, needs for technological change, and other
factors, including those described in this Management's Discussion and Analysis
and elsewhere in this report.
Results of Operations Overview
Results of operations for three months ended March 31, 1998 compared with the
three months ended March 31, 1997
For the three months ended March 31, 1998, the Company's net income was
$180,000, a decrease from the same period in 1997 by $94,000, or 34.3%. The
major factors contributing to this decrease are increased interest expense
related to borrowings needed to purchase 906 shares of Mound City Bank's common
stock and an increase in noninterest expense.
Net Interest Income
Net interest income decreased by $66,000, or 6.6% to $932,000 for the first
three months of 1998 compared to the same period in 1997. Interest income
increased $171,000, or 8.0% while interest expense increased by $237,000, or
20.9%. The first three months of 1998 include $72,000 of interest expense on
borrowed funds relating to the purchase of Mound City Bank common stock.
11
<PAGE>
Allowance for Loan Losses
The amount charged to allowance for loan losses is based on management's
evaluation of the loan portfolio. Management determines the adequacy of the
allowance for loan losses based on past loan loss experience, current economic
conditions, composition of the loan portfolio and the potential for future loss.
During the first three months of 1998 and 1997, provisions of $30,000 were made
to the allowance for loan losses. Total nonperforming loans increased $326,000
at March 31, 1998, from a year earlier. Nonperforming loans totaled $390,000 at
March 31, 1998 and $64,000 at March 31, 1997. There were net chargeoffs of
$83,000 in the first three months of 1998 and $7,000 in the same period in 1997.
Management believes that nonperforming loans increasing 326,000 over the same
period in 1997 are still extremely low at .43% of loans and that this increase
is more reflective of normal fluctuations in nonperforming loans.
Other Operating Revenue and Expenses
Other operating revenue increased $32,000, or 19.8% between periods.
Service fees increased by $5,000, other income increased by $11,000. Security
gains were $22,000 in the first quarter of 1998 compared to $6,000 for the same
period in 1997. Other operating expenses increased $93,000, or 11.8% to $881,000
for the three months ended March 31, 1998, compared to the same period in 1997.
Salary and benefits increased 14.4% relating to managements adjusting base
salaries to market rates and implementing an incentive bonus plan in an effort
to attract and retain highest quality staff. Occupancy cost decreased a modest
3.2%. All other expenses increased $33,000 or 15.1% consisting of $6,000
increase in professional fees, $6,000 increase in supply and delivery cost,
$4,000 increase in TYME machine activity cost, $3,000 increase in FDIC
assessments and $14,000 or 5.6% increase in all other expenses.
Income Taxes
Income tax expense decreased $33,000 in the first three months of 1998
compared to the same period in 1997 resulting from a decrease in pretax income
of $127,000, and a decrease in tax-exempt interest income of $2,000.
Results of Operations for Years Ended 1997, 1996 and 1995
Results of Operations Overview
For the year ended December 31, 1997, net income was $912,000, a decrease
of $26,000, or 2.8% from the net income of $938,000 a year earlier. The major
reason for the decrease was the change in interest margin discussed below.
For the year ended December 31, 1996, net income was $938,000, a decrease
of $78,000, or 7.7% from 1995. Increased occupancy cost due to facility
remodeling was the primary reason for the decline in earnings.
12
<PAGE>
Net Interest Income
Net interest income is the difference between income earned on
interest-earning assets and the interest expense incurred on interest-bearing
liabilities. The interest income on certain loans and investment securities is
not subject to Federal income tax. For analytical purposes, at December 31,
1997, 1996 and 1995, the interest income and rates on these types of assets are
adjusted to a "fully taxable equivalent" basis, net of the effect of any
interest expense disallowed. The fully taxable equivalent adjustment was
calculated using the Company's statutory Federal income tax rate of 34%. See
Table I for an analysis of net interest income including an average balance
sheet, interest income and expense, and the resulting yields. Table 2 shows the
changes in interest income (tax equivalent) and interest expense attributable to
volume and rate variances. The change in interest income (tax equivalent) due to
both volume and rate has been allocated to volume and rate changes in proportion
to the relationship of the absolute dollar amount of the changes in each.
Net interest revenue (FTE) decreased by $70,000 to $4,091,000 in 1997.
Total interest income increased $639,000 in 1997 and was offset by increases in
total interest expense of $709,000. Average earning assets increased $7,926,000
while average yield decreased from 8.66% in 1996 to 8.62% in 1997. Average
interest-bearing liabilities increased 9.3% to $97,421,000. Average balance for
short-term borrowings was $2,994,000 compared to $600,000 in 1996 reflecting the
debt to acquire shares of Mound City Bank common stock. As a result, cost of
interest-bearing liabilities increased to 5.16% from 4.84% in 1996.
Net interest revenue (FTE) increased by $163,000 or 4.1% to $4,161,000 in
1996. Total interest income increased 7.8% to $8,480,000 in 1996. Average
earning assets increased $7,311,000 while average yield remained relatively
unchanged at 8.66% in 1996 to 8.68% in 1995. Interest expense increased 11.7% to
$4,319,000. Average interest-bearing liabilities increased 9.2% to $89,171,000.
Average cost of such balances increased from 4.73% to 4.84%.
Interest rate spread is the difference between the tax equivalent rate
earned on average earning assets and the rate paid on average interest-bearing
liabilities. The rate spread decreased to 3.46% in 1997 from 3.82% in 1996. The
average yield on earning assets remained flat at 8.62% in 1997 and 8.66% in
1996, the yield on interest-bearing liabilities increased from 4.84% in 1996 to
5.16% in 1997.
The rate spread decreased to 3.82% in 1996 from 3.95% in 1995. The average
yield on earning assets was 8.66%, a decrease from 8.68% in 1995. The repricing
of liabilities also increased the average cost of interest-bearing liabilities
from 4.73% in 1995 to 4.84% in 1996.
Allowance for Loan Losses
The Company's management evaluates the adequacy of the allowance for loan
losses based on an analysis of specific problem loans, as well as on an
aggregate basis. Provisions charged to expense were $130,000, $184,000 and
$110,000 in 1997, 1996 and 1995 respectively. The allowance for loan loss
13
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
ANALYSIS OF NET INTEREST INCOME AND AVERAGE BALANCE SHEET
Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, 1997 December 31, 1996 December 31, 1995
--------------------------- --------------------------- ----------------------------
<S><C><C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- --------- -------- -------- --------- -------- -------- --------- --------
Assets
Interest- Earning Assets:
Taxable securities(2) 11,345 740 6.52% 13,535 877 6.48% 13,921 906 6.51%
Tax-exempt securities(l)(2) 8,422 685 8.13% 7.903 671 8.49% 7,641 671 8.78%
Loans(l)(3) 83,705 7,563 9.04% 74,656 6,836 9.16% 65,493 6,087 9.29%
Federal funds sold 2,334 131 5.61% 1,786 96 5.38% 3,514 201 5.72%
--------------- --------------- ---------------
Total Interest Earning Assets 105,806 9,119 8.62% 97,880 8,480 8.66% 90,569 7,865 8.68%
Noninterest Earning Assets 10,550 10,499 7,463
------- ------- ------
Total Assets 116,356 108,379 98,032
======= ======= ======
Liabilities and Stockholders' Equity
Interest Bearing Liabilities:
Interest Bearing Demand and Savings 31,133 1,028 3.30% 27,391 675 2.46% 28,253 725 2.57%
Time Deposits 63,294 3,767 5.95% 61,180 3,618 5.91% 53,130 3,128 5.89%
--------------- --------------- ---------------
Total Interest Bearing Deposits 94,427 4,795 5.08% 88,571 4,293 4.85% 81,383 3,853 4.73%
Short-term borrowings 2,994 233 7.78% 600 26 4.33% 299 14 4.68%
--------------- --------------- ---------------
Total Interest Bearing Liabilities 97,421 5,028 5.16% 89,171 4,319 4.84% 81,682 3,867 4.73%
Noninterest Bearing Liabilities:
Demand deposits 9,161 7,904 6,437
Other liabilities 2,135 1,658 1,238
------- ------- ------
Total liabilities 108,717 98,733 89,357
Stockholders' Equity 7,639 9,646 8,675
Total liabilities _______ _______ ______
and Stockholders' Equity 116,356 108,379 98,032
======= ======= ======
Net Interest income (FTE) 4,091 4,161 3,998
===== ===== =====
Net Interest Spread (FTE) 3.46% 3.82% 3 95%
===== ===== =====
Interest Rate Margin (FTE) 3.87% 4.25% 4.41%
===== ===== =====
<FN>
(1) The interest on tax-exempt investments securities and tax-exempt loans is calculated on a tax equivalent basis assuming a
federal tax rate of 34%.
(2) The average balance has been adjusted to exclude the effects of Statement of Financial Accounting Standards No. 115.
(3) The average balance on loans including nonaccrual loans and loan fees are included in interest income.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
VOLUME/RATE ANALYSIS
Twelve Months Ended Twelve Months Ended
December 31, 1997/December 31, 1996 December 31, 1996/December 31, 1995
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase Due to Total Increase Due to Total
(Decrease) Change In Net (Decrease) Change In Net
Average Average Increase Average Average Increase
Volume Rate (Decrease) Volume Rate (Decrease)
(in thousands)
<S><C><C> <C> <C> <C> <C> <C> <C>
Interest Income:
Taxable securities(2) (143) 6 (137) (25) (4) (29)
Tax-exempt securities(l)(2) 43 (29) 14 23 (23) (0)
Loans(l) 819 (92) 727 840 (91) 749
Federal funds sold 31 4 35 (94) (11) (105)
--------------------------- ---------------------------
Total Interest Earning Assets 749 (111) 639 744 (129) 615
=========================== ===========================
Interest Expense:
Interest Bearing Demand and Savings 101 252 353 (22) (28) (50)
Time Deposits 126 23 149 476 14 490
--------------------------- ---------------------------
Total Interest-Bearing Deposits 227 275 502 454 (14) 440
Short-term borrowings 173 34 207 (22) (28) (50)
--------------------------- ---------------------------
Total Interest-Bearing Liabilities 399 310 709 433 (43) 390
=========================== ===========================
Net Interest Margin/Net Interest income (FTE) 350 (420) (70) 312 (87) 225
=========================== ===========================
<FN>
(1) The interest on tax-exempt investments securities and tax-exempt loans is calculated on a tax equivalent basis assuming a
federal tax rate of 34%.
(2) The average balance has been adjusted to exclude the effects of Statement of Financial Accounting Standards No 115.
</FN>
</TABLE>
15
<PAGE>
balance as a percent of gross loans was 1.31%, 1.35% and 1.39% at December 31,
1997, 1996 and 1995 respectively. Management reviews the calculation of the
allowance for loan losses on a quarterly basis and believes that the allowance
for loan losses is adequate. The allowance for loan losses is maintained at a
level considered adequate to provide for potential future losses. The level of
the allowance is based on management's periodic and comprehensive evaluation of
the loan portfolio, including past loan loss experience; current and projected
economic trends; the volume, growth, and composition of the loan portfolio; and
other relevant factors. Reports of examinations furnished by bank regulatory
authorities are also considered by management in this regard.
The Company's management has established the allowance for loan losses to
reduce the gross level of loans outstanding by an estimate of uncollectible
loans. As loans are deemed uncollectible, they are charged against the
allowance. A provision for loan losses is expensed against current income on a
monthly basis. This provision acts to replenish the allowance for loan losses to
accommodate chargeoffs and growth in the loan portfolio, thereby maintaining the
allowance at an adequate level.
Other Operating Revenue
Other operating revenue increased by $188,000 to $682,000 in 1997. Service
fees increased by $69,000 while other income increased by $113,000, primarily
due to mutual funds sales which increased 302% to $82,000 in 1997.
Other operating revenue increased by $67,000 to $494,000 in 1996. Service
fees increased by $12,000 while other income decreased by $5,000. Security
losses of $1,000 were recorded in 1996 compared to losses of $61,000 in 1995.
Other Operating Expenses
Other operating expenses increased by $228,000, or 7.6% to $3,237,000 in
1997. Salaries and employee benefits increased $138,000, or 8.4% which related
to increases in compensation and increased staffing level requirements. Computer
services expenses increased $18,000, or 12.3% due to software and hardware
upgrades to facilitate networking. This increase is also attributable to
increased volume in loan and deposit accounts. Occupancy expenses increased
$60,000 or 14.4% due to facility remodeling. FDIC insurance decreased $20,000
due to a change in assessment rates. All other expenses increased an aggregate
of $32,000, or 4.1%.
Other operating expenses increased by $277,000, or 10.1% to $3,009,000 in
1996. Salaries and employee benefits increased $96,000, or 6.2% which related to
increases in compensation and increased staffing level requirements. Computer
services expenses increased $12,000, or 9.0%. Occupancy expenses increased
$106,000 or 34.0% due to facility remodeling. FDIC insurance decreased $71,000
due to a change in assessment rates. Furniture and equipment expenses included a
$91,000 loss on the disposal of fixed assets relating to the remodeling project.
All other expenses increased an aggregate of $43,000 or 6.7%.
16
<PAGE>
Income Taxes
Income tax expense decreased $47,000 in 1997 compared to 1996 primarily due
to the decrease in pretax income of $73,000 and an increase in tax-exempt income
of $9,000.
Income tax expense decreased $61,000 in 1996 compared to 1995 primarily due
to the decrease in pretax income of $ 139,000.
Balance Sheet Analysis
Financial Condition
Total assets of $121,850,000 at March 31, 1998 decreased $265,000 or .2%
from $122,115,000 at December 31, 1997. The Bank has normally decreased in total
assets in the first quarter of operations. The Bank historically experienced
growth in assets in the third and fourth quarters.
Securities
Total securities as of December 31, 1997 were $19,957,000 a decrease of
$113,000, or .56% over prior year end. At December 31, 1997 and 1996, the total
securities portfolio comprised 17.9% and 19.2% respectively, of total earning
assets.
All securities are classified available for sale. This aids the company's
ability to manage interest rate and liquidity risk. The classification of
available for sale securities will result in a fluctuation in comprehensive
income. However, banking regulators exclude the unrealized gain or loss on
available for sale securities from regulatory risk based capital calculations.
The security portfolio serves a primary role in overall context of balance
sheet management. The decision to purchase or sell securities is based upon the
current assessment of economic and financial conditions, including the interest
rate environment. The portfolio's scheduled maturities and the prepayment of
mortgage-backed securities represent a significant source of liquidity. See
Table 3 regarding the maturity of securities.
17
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
MATURITY OF SECURITIES
December 31, 1997
-------------------------------------------------------------------
U.S. State and
Government Political
U.S. Treasury Agencies Subdivisions(1) Total
--------------- ----------------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amount Yield Amount Yield Amount Yield Amount Yield
(in thousands)
Securities Available for Sale: (3)
One year or less 1,002 6.20% 2,955 5.95% 1,370 7.29% 5,327 6.34%
After one through five years 508 6.50% 2,003 6.36% 3,237 8.46% 5,748 7.55%
After five through ten years - - 1,802 6.82% 2,599 7.93% 4,401 7.48%
After ten years - - - - 1,333 9.27% 1,333 9.27%
Mortgage-backed securities (2) - - 2,374 7.07% - - 2,374 7.07%
-------------------------------------------------------------------
Total Securities 1,510 6.30% 9,134 6.46% 8,539 8.21% 19,183 7.23%
===================================================================
<FN>
(1) Yields were calculated on a tax equivalent basis assuming a federal tax rate of 34%.
(2) Mortgage-backed security maturities may differ from contractual maturities because the underlying mortgages may be called
or prepaid without any penalties. Therefore, these securities are not included within the maturity categories above.
(3) Yields were calculated excluding the effects of FASB No. 115
</FN>
</TABLE>
Loans
As of December 31, 1997, loans outstanding were $88,427,000, an increase of
$6,772,000, or 8.3% from December 31, 1996. Residential real estate loans
increased $3,457,000 or 12.9%, real estate construction increased $1,144,000 to
$1,256,000 at December 31, 1997. Real estate agricultural and commercial,
increased $881,000 and $1,581,000, or 14.7% and 8.0% respectively. Commercial,
agricultural and financial loans decreased $310,000 or 1.4%. Municipal loans
decreased to $ 1,171,000 at December 31, 1997. See Table 4 which contains loans
by category from 1993 through 1997.
During 1997 and 1996, the loan mix in the Company's portfolio remained
relatively constant except for commercial real estate and residential real
estate.
The increase in commercial real estate is a result of increased demand due
to commercial growth in the market serviced by the Company.
The increase in residential real estate loans is a result of increased
volume due to refinancing of residential mortgages. The Company does not
originate and sell mortgages into the secondary market.
18
<PAGE>
<TABLE>
<CAPTION>
TABLE 4
LOAN PORTFOLIO
December 31
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------------
(in thousandths)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 22,399 $ 22,708 $ 22,726 $ 24,420 $ 22,451
Real estate:
Construction 1,256 112 119 822 1,677
Commercial 21,270 19,689 11,869 6,958 6,236
Agricultural 6,874 5,993 5,743 5,582 6,007
Residential 30,355 26,900 23,899 22,128 21,013
Installment and consumer 5,102 4,851 4,095 4,595 5,824
Municipal 1,171 1,402 1,255 541 667
-------------------------------------------------------------------
Gross loans 88,427 81,655 69,706 65,046 63,875
Allowance for loan losses (1,159) (1,104) (972) (880) (734)
-------------------------------------------------------------------
Net loans $ 87,268 $ 80,551 $ 68,734 $ 64,166 $ 63,141
===================================================================
</TABLE>
The scheduled repayments and maturities of loans represent a substantial
source of liquidity. Table 5 shows selected loan maturity data as of December
31, 1997.
<TABLE>
<CAPTION>
TABLE 5
MATURITY AND INTEREST SENSITIVITY OF LOANS
December 31, 1997
-----------------------------------------------------------------------
Loans Due After
Time Remaining to Maturity One Year
--------------------------------------------- ------------------------
One After Fixed Floating
Due Within To Five Five Interest Interest
One Year Years Years Total Rate Rate
----------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural 17,733 4,666 - 22,399 2,886 1,780
Real estate-construction 1,176 80 - 1,256 80 -
-----------------------------------------------------------------------
Total 18,909 4,746 - 23,655 2,966 1,780
=======================================================================
</TABLE>
Deposits
Total deposits of $107,634,000 at March 31, 1998 decreased $1,517,000 or
1.4% from $109,151,000 at December 31, 1997. Noninterest-bearing deposits
decreased $1,597,000 or 15.9% to $8,432,000 at March 31, 1998, while
interest-bearing deposits increased $80,000 to $99,202,000, or .1% from December
31, 1997.
At December 31, 1997 the Company had $8,565,000 in time deposits of
$100,000 or more. Table 6 shows the maturity distribution of time deposits
$100,000 or over.
19
<PAGE>
TABLE 6
MATURITY OF TIME DEPOSITS $100,000 OR MORE
December 31, 1997
Time Remaining to Maturity:
Due within three months 862
Three to six months 325
Six to twelve months 5,015
After twelve months 2,363
------
Total 8,565
======
Short-Term Borrowings
Short-term borrowing increased to $4,376,000 at December 31, 1997 from
$469,000 in 1996. In May 1997 the Company financed the purchase of 906 shares of
Mound City Bank's common stock with $3,840,000 in bank notes payable. At
December 31, 1997 the balance due on these notes was $3,400,000. The balance of
the short-term debt in demand notes due to the U.S. Treasury which increased to
$976,000 at December 31, 1997 from $469,000 at December 31, 1996.
<TABLE>
<CAPTION>
TABLE 7
SHORT-TERM BORROWINGS
Demand
Notes Federal
Bank Due US Funds
Notes Treasury Purchased
---------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Data for December 31, 1997
Outstanding at December 31 3,400 976 -
Highest outstanding at any month-end
during the year 3,240 976 2,115
Average outstanding during the year 2,282 342 370
Weighted average yield for year 8.5% 4.9% 5.9%
Weighted average interest rate on
outstanding balances at December 31 8.5% 5.25% -
Data for December 31, 1996
Outstanding at December 31 - 469 -
Highest outstanding at any month-end
during the year - 763 1,297
Average outstanding during the year - 418 183
Weighted average yield for year - 6.9% 6.3%
Weighted average interest rate on
outstanding balances at December 31 - 5.15% -
</TABLE>
20
<PAGE>
Asset Quality Review and Credit Risk Management
The Company's credit risk is centered in the loan portfolio, which on
December 31, 1997, totaled $87 million, or 79.10%, of total earning assets. The
objective in managing loan portfolio risk is to quantify and manage credit risk
on a portfolio basis as well as reduce the risk of a loss resulting from a
customers failure to perform according to the terms of a transaction. To achieve
this objective, the Company strives to maintain a loan portfolio that is diverse
in terms of loan type, industry concentration, and borrower concentration.
The accrual of interest income on nonaccrual loans is discontinued when, in
the opinion of management, there is reasonable doubt as to the borrowers ability
to meet payment of interest or principal when they become due. When the interest
accrual is discontinued, all unpaid accrued interest is reversed. Cash
collections on nonaccrual loans are credited to the loan receivable balance, and
no interest income is recognized on those loans until the principal balance is
current. Accrual of interest is generally resumed when the customer is current
on all principal and interest payments and has been paying on a timely basis for
a period of time.
Nonaccrual loans having recorded investment at December 31, 1997 of $78,000
and $171,000 at December 31, 1996 has been recognized in conformity with FASB
Statement No. 114 as amended by FASB Statement No. 118. The average recorded
investment in impaired loans during 1997 and 1996 was $95,000 and $455,000
respectively. The total allowance for loan losses related to these loans was
$8,000 and $17,000 on December 31, 1997 and 1996 respectively. Interest income
on impaired loans of $2,000, $3,000 and $-0- was recognized for cash payments
received in 1997, 1996, and 1995 respectively.
Allowance for Loan and Lease Losses
The allowance for loan losses represents management's estimate of what
amount is necessary to provide for possible losses incurred in the loan
portfolio. In making this determination, management analyzes the ultimate
collectibility of the loan portfolio, incorporating feedback provided by lending
officers and examinations performed by regulatory agencies. Management makes an
ongoing evaluation as to the adequacy of the allowance for loan losses. To
establish the appropriate level of the allowance, all loans and commitments to
extend credit are reviewed and classified as to potential loss exposure. An
additional allowance is maintained based upon the size, quality and
concentration characteristics of the remaining loan portfolio, using both
historical quantitative trends and managements evaluation of qualitative factors
including future economic and industry outlooks.
The determination by management of the appropriate level of the allowance
amounted to $1,159,300 at December 31, 1997. However, since the allowance for
loan losses is based on estimates, ultimate losses may vary from the current
estimates. These estimates are reviewed regularly and, as adjustments become
necessary, they are reported in earnings of that period. A detailed analysis of
the allowance for loan losses and the allocation of the allowance for loan
losses by category for the past five years is shown in Table 8.
21
<PAGE>
As of December 31, 1997, the allowance for loan losses as a percent of
total loans and the nonperforming loans to the allowance for loan losses was
1.31% and 6.7%, respectively. These compare to the same ratios for the prior
year of 1.35% and 15.5%. Net chargeoffs as a percent of average loans increased
to .09% for 1997 versus .07% in 1996.
Nonperforming Loans
Nonperforming loans consist of nonaccrual loans and 90 days past due.
Nonperforming loans totaled $78,000 as of year-end 1997, a decrease of $93,000
or 54.4% from the $171,000 at year-end 1996. Total nonperforming assets
represent 0.06% of total assets at December 31,1997, compared to .15% at
December 31, 1996.
Loans generally classified an nonaccrual when there are reasonable doubts
as to the collectibility of principal and interest or when payment becomes 90
days past due, except loans which are well secured and in the process of
payment. Any loans classified for regulatory purposes that have not been
included in nonperforming loans are not expected to materially impact future
operating results, liquidity or capital. Interest collection on nonaccrual loans
for which the ultimate collectibility of principal is uncertain are applied as
principal reductions. Otherwise, such collections are applied to interest when
received.
Table 9 presents nonperforming loans for each of the past five years.
Loans 90 days or more past due were zero at December 31, 1997 and 1996.
TABLE 8
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
1997 1996 1995
--------------------------
(in thousands)
--------------------------
Commercial financial and agricultural 190 153 172
Real estate - construction - - -
Real estate mortgage 177 200 236
Installment loans to individuals 4 3 -
Unallocated 788 748 564
--------------------------
Total 1,159 1,104 972
==========================
It was not practical to retrieve allocation data for 1994 and 1993.
22
<PAGE>
<TABLE>
<CAPTION>
TABLE 9
NONPERFORMING LOANS
<S> <C> <C> <C> <C> <C> <C> <C>
December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
(in thousands)
Nonaccrual 78 171 52 155 587
90 Days past due - - 1 33 96
-----------------------------------------------------
Total nonperforming loans 78 171 53 188 683
=====================================================
</TABLE>
Liquidity
The liquidity position of the Company is managed to ensure that sufficient
funds are available to meet customers' needs for loans and deposit withdrawals.
Liquidity to meet demand is provided by maintaining marketable investment
securities, federal funds sold, as well as, maintaining a full line of
competitively priced deposit and short-term borrowing products. The ratio of
loans to deposits is a key indicator of a bank's liquidity position. The
Company's loan to deposit ratio was 85% on March 31, 1998. The Company's loan to
deposit ratio was 81% and 79% at December 31, 1997 and 1996 respectively.
The Company's strategy with respect to asset/liability management is to
maximize net interest income while limiting exposure to potential downward
movement. This strategy is implemented by the company's Asset/Liability
Committee, which takes actions based upon its analysis of the company's present
positioning, its future positioning and economic forecast. Table 9 summarizes
the repricing opportunities as of December 31, 1997, for each major category of
interest-bearing asset and interest- bearing liability.
<TABLE>
<CAPTION>
23
<PAGE>
TABLE 10
RATE SENSITIVITY
0-90 91-365 1-5 Over 5
Days Days Years Years Total
--------- ---------- ----------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans 13,557 26,445 31,269 17,156 88,427
Investment Securities 4,568 2,555 5,749 7,085 19,957
Other earning assets 4,562 - - - 4,562
-------------------------------------------------------
Total rate sensitive assets (RSA) 22,687 29,000 37,018 24,241 112,946
=======================================================
Savings and NOW 34,400 - - - 34,400
Time Deposits 13,762 37,989 12,971 - 64,722
-------------------------------------------------------
Total rate sensitive liabilities 48,162 37,989 12,971 - 99,122
=======================================================
Interest sensitivity gap (25,475) (8,989) 24,047 24,241 13,824
Cumulative interest sensitivity gap (25,475) (34,464) (10,417) 13,824 27,648
=======================================================
Ratio of rate sensitivity gap to RSA -112.3% -31.0% 65.0% 100.0% 12.2%
=======================================================
</TABLE>
Capital
The Bank is well capitalized and the Company is adequately capitalized
using total capital to risk-weighted assets. Both the Company and the Bank are
well capitalized with regard to Tier I capital ratios.
Below is a comparison of the Company's March 31, 1998 actual with the
minimum requirements for well-capitalized and adequately capitalized banks, as
defined by the federal regulatory agencies' Prompt Corrective Action Rules:
<TABLE>
<CAPTION>
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
--------------------- -------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998:
Total capital (to risk-weighted assets) $7,940,000 9.0% $7,077,000 8.0% $8,847,000 10.0%
Tier I capital (to risk-weighted assets) $6,834,000 7.7% $3,539,000 4.0% $5,308,000 6.0%
Tier I capital (to average assets) $6,834,000 5.5% $4,943,000 4.0% $6,178,000 5.0%
</TABLE>
Year 2000 Compliance
A significant issue has emerged in the banking industry and for the economy
overall regarding how existing application software programs and operating
systems can accommodate the date value for the year 2000. The financial impact
to the Company to ensure year 2000 compliance is not anticipated by management
to be material to the financial position, results of operations or cash flow of
the Company.
24
<PAGE>
HISTORY, BUSINESS AND PROPERTIES
The Company was incorporated as a Wisconsin business corporation under the
Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statutes, in
September, 1996, at the direction of the Board of Directors of the Bank. The
Company was formed to acquire the Bank stock and to engage in business as a bank
holding company under the Bank Holding Company Act of 1956, as amended (the
"Act").
The Company acts as a holding company for the capital stock of the Bank.
The Company has no employees, no current business, and has no anticipated
transactions other than capital injection in the Bank. The Company is not a
party to any legal proceedings. As of March 31, 1998, there were 220
shareholders of the Company.
The Bank was chartered by the Wisconsin Commissioner of Banking in 1915.
The Bank's initial shareholders opened the Bank in Platteville, Wisconsin, to
provide needed personal and small business banking services to the community. In
September of 1935, the Bank opened a paying and receiving station at Belmont,
Wisconsin. This station is still operated today as a branch of the Bank. On July
1, 1992, the Bank purchased the fixed assets and assumed the deposit liabilities
of the Anchor Savings and Loan Association branch office in Cuba City,
Wisconsin.
The Bank offers comprehensive banking services to the residential,
commercial, industrial, and agricultural areas that it serves. Services include
agricultural, commercial, real estate and personal loans; checking, savings, and
time deposits; and other customer services, such as safe deposit facilities. The
Bank also offers alternative investments, individual retirement accounts and
trust services. Drive-up banking is available at the Belmont, Cuba City and
Platteville branches. Full-service lending is available at every location. The
Bank has also offered 24-hour telephone banking since 1995.
The general banking business in the State of Wisconsin is characterized by
a high degree of competition. The principal methods of competition among
commercial banks are price (including interest rates paid on deposits, interest
rates charged on borrowings, and fees charged) and service (including
convenience and quality of service rendered to customers). In addition to
competition among commercial banks, banks face significant competition from
nonbanking financial institutions, including savings and loan associations,
credit unions, small loan companies, and insurance companies.
There are two other commercial banks, one savings bank and one credit union
located in Platteville. There is one other commercial bank located in Cuba City
and no other banks, savings institutions or credit unions located in Belmont.
The Bank's competition comes from these institutions and others located nearby.
Insurance companies, mortgage bankers and brokerage firms provide additional
competition for certain banking services. The Bank also competes for
interest-bearing funds with issuers of commercial paper and other securities,
including the United States Government.
25
<PAGE>
The Bank's principal banking office is located at 25 East Pine Street,
Platteville, Wisconsin, in a 22,000 square foot facility built in 1977. The Bank
also operates a 3,400 square foot Motor Branch constructed in 1995 and located
at 90 South Second Street, directly across from the main office. The Bank's
office in Belmont is located at 112 Mound Avenue and the Bank's office in Cuba
City is located at 200 South Main Street. Both branches offer full-service
banking, including drive-up service. All facilities are owned by the Bank.
On January 1, 1998, the Bank's staff included 20 officers, 28 full-time and
5 part-time employees. The Company is the Bank's sole shareholder.
Bank management is aware of the problems involved in making its computer
systems ready for the year 2000. The Bank has developed a task force and is in
the process of working with its software vendors to assure that the Bank's
computer systems are prepared for the year 2000. Bank management believes that
the costs of upgrading its computer system and making its employees and
customers aware of this issue will not have a material impact on the Bank's
financial condition. The Bank anticipates that its computer system will be in
compliance by December 31, 1998. The Bank is in the process of developing a
contingency plan in the event its computer systems are unable to adequately
address this issue.
MANAGEMENT
Directors and Executive Officers
The name, age and position of each of the Directors and executive officers
of the Company are as follows:
Name Age Position
- ---- --- --------
Wilson J. Boldt................... 84 Director
Barry J. Brodbeck................. 42 Director
Keith R. Buchert.................. 53 Director
Donna J. Hoppenjan................ 39 Secretary
Robert J. Just, Jr................ 51 President, Chief Executive
Officer, Director
W. Phil Karrmann.................. 58 Director
Richard J. Kopp................... 53 Director
Richard L. McWilliams............. 61 Vice President, Director
James D. Soles.................... 74 Director
Douglas W. Speth.................. 62 Director
Each of the directors and executive officers named has had the same
principal occupation or employment for the past five years. The Company's
Articles of Incorporation provide for the election of at least seven but not
more than nine directors, with the precise number to be set by resolution of the
Company's Board of Directors. Shareholders elect the Board at each annual
meeting of shareholders. The initial term of office for Messrs. Brodbeck, Just
and Kopp is one year, for Messrs. Buchert, Karrmann and McWilliams is two years,
and for Messrs. Boldt, Soles and Speth is three years. Thereafter, the term of
office for all directors shall be three years. The term of office for each of
the executive officers named above is one year. There are no family
relationships among any of the Company's directors, officers or key employees.
26
<PAGE>
Business Background of Directors and Executive Officers
Wilson J. Boldt (Director) - A lifelong resident of Platteville, Mr. Boldt
has been in business in the Platteville area for over 50 years. He has been the
owner/operator of the Pioneer Ford and Mercury dealership in Platteville since
1961. Mr. Boldt has been an active participant in the Platteville Chamber of
Commerce and other civic groups. He received the Outstanding Community Service
Award in 1978 and was named Business Person of the Year in 1980 by the
Platteville Chamber of Commerce. He has served as Council President of the
Lutheran Church of Peace, Secretary of the Platteville Park Board for ten years,
and served on the Board of Review for the City of Platteville for 15 years. He
also served on the Board of Directors of the University of Wisconsin -
Platteville Foundation for six years. Mr. Boldt has been a director of the
Company since 1996 and a director of the Bank since 1976.
Barry J. Brodbeck (Director) - A native of Platteville, Mr. Brodbeck is
Vice President of Human Resources of Brodbeck Enterprises, Inc., Platteville,
Wisconsin, the parent company of Dick's Supermarkets, and has been associated
with that company since 1982. A 1979 graduate of Hillsdale College in Hillsdale,
Michigan, Mr. Brodbeck has served as Chairman of the Board of Directors of
Cornell University Distance Education and as Chairman of the Board of Trustees
for Southwest Health Center in Platteville. Mr. Brodbeck was first elected to
the Company's and Bank's Board of Directors in 1996.
Keith R. Buchert (Director) - Mr. Buchert is the owner/operator of three
area restaurants: Country Kitchen of Platteville; Country Kitchen of Columbus,
Wisconsin; and the Timbers, of Platteville. He is a past member of the
Franchisee Advisory Board of Country Kitchen of Wisconsin. Active in community
affairs, he has served as Council President of the Lutheran Church of Peace and
is Past President of the Platteville Area Chamber of Commerce. Mr. Buchert was
honored in 1993 as the Small Business Person of the Year by the Platteville
Chamber of Commerce and in 1995 he and his spouse were named Citizens of the
Year by the Platteville Journal. Mr. Buchert is also active in Ducks Unlimited
and is responsible for the creation of the Friends of Conservation Scholarship
program. Mr. Buchert has served on the Company's Board of Directors since 1996
and the Bank's Board of Directors since 1994.
Donna J. Hoppenjan (Secretary) - Mrs. Hoppenjan began employment with the
Bank in June of 1977 as a teller and has had experience in every phase of the
retail operations of the Bank. She served as Internal Auditor from 1988 until
her promotion to Vice President in January of 1995. She has been responsible for
leadership in many Bank projects, including the acquisition and conversion of
the branch office in Cuba City, Wisconsin, and the construction and occupation
of the Motor Branch facility and newly remodeled main office in Platteville,
Wisconsin. She is responsible for general operations, including but not limited
to, Human Resources, Education and Training, and Compliance, and is currently
Chairperson of the Bank's Year 2000 Task Force. She currently serves as Cashier
and Secretary to the Bank's Board of Directors and as Secretary of the Company.
27
<PAGE>
Robert J. Just, Jr. (President, Chief Executive Officer, Director) - Mr.
Just has been employed with the Mound City Bank since August of 1971. He also
has served as President, Chief Executive Officer and Director of the Company
since 1996. A graduate of the University of Wisconsin - Platteville and the
Graduate School of Banking in Madison, Mr. Just has served as President and a
Director of the Bank since November of 1986. Under his leadership, the Bank has
expanded its market area with the acquisition of the Cuba City branch office and
has expanded its facilities in Platteville with the construction of the new
Motor Branch and main office facility. During his tenure as President, the
Bank's assets have grown by more than 89%, from $64,500,000 in 1986 to over
$122,000,000 in 1997. Active in the community, Mr. Just has served as Chairman
for the United Way, Chairman of the Board of Directors of Southwest Health
Center in Platteville, and President of the Platteville Jaycees. He has also
served on the Board of Directors of the Platteville Chamber of Commerce, and as
Treasurer of the University of Wisconsin - Platteville Alumni Association for
five years. He received the Distinguished Service Award for community service
from the Platteville Jaycees in 1981, and was named Business Person of the Year
by the Platteville Chamber of Commerce in 1998.
W. Phil Karrmann (Director) - A Platteville native and partner in the Law
Firm of Karrmann, Buggs and Baxter, Mr. Karrmann received his law degree from
the University of Wisconsin Law School in 1964. Mr. Karrmann has also been
active in the community, including chairing the United Way drive and serving as
Director of the University of Wisconsin - Platteville Foundation. He has served
as a member of the Board and Treasurer of the Platteville School District and as
Past Director and President of the Wisconsin School Attorneys Association. He
has also served as Legal Counsel for the Wisconsin Auctioneers Association. Mr.
Karrmann has served as a member of the Board of Directors of the Bank since 1972
and the Company since 1996.
Richard J. Kopp (Director) - A native of Platteville and graduate of the
University of Wisconsin - Platteville, Mr. Kopp has been the owner/operator of
the House of Insurance since May of 1972. He has served as a Director of the
Platteville Area Industrial Development Corporation, Platteville Chamber of
Commerce, and as President of the Platteville Golf and Country Club. He has also
served on the City of Platteville Police and Fire Commission and its Planning
Commission. Currently he is serving as a Director for the Independent Insurance
Agents of Wisconsin. An active member of St. Mary's Church in Platteville, Mr.
Kopp has been a director of the Bank since 1988 and the Company since 1996.
Richard L. McWilliams (Vice President, Director) - A native of Platteville,
Dr. McWilliams received his Chiropractic Degree from Palmer Chiropractic College
in 1959. He had been a partner in Chiropractic Associates in Platteville since
1960. He has served two years on the Platteville Common Council and played a
role in the establishment of the Platteville Area Industrial Development
Corporation. He is a past recipient of the Distinguished Service Award for
community service. Dr. McWilliams has been a member of the Board of Directors of
the Bank since 1981 and has served as Chairman of the Board since May of 1994.
He has also been Vice President and Director of the Company since 1996.
28
<PAGE>
James D. Soles (Director) - A native of Platteville, Mr. Soles was the
owner/operator of Dewey's Shoe Store, on Main Street in Platteville, from 1949
until his retirement in 1987. Mr. Soles has been active in the business
community, and was named Business Person of the Year by the Platteville Chamber
of Commerce in 1986. He has served on the Board of Directors for the Bank since
1959 and the Company since 1996.
Douglas W. Speth (Director) - A native of Belmont, Wisconsin, Mr. Speth
managed a 264-acre beef and crop farming operation in Elk Grove Township. Mr.
Speth has served as Director with the Bank since 1976 and the Company since
1996.
Executive Compensation
Since its incorporation, the Company has not paid any remuneration to any
of its directors or executive officers, to date has not proposed remuneration to
be made in the future to any of its directors or executive officers, and to date
has not established standards or other arrangements by which its directors are
compensated for services as directors, including any additional amounts payable
for committee participation or special assignments. No profit-sharing plan or
any other benefit plan exists or is contemplated for the Company.
26
<PAGE>
The following tables outline the annual compensation and 401(k) payments
made by the Bank to Mr. Just for services rendered in his capacity as President
and Chief Executive Officer of the Bank:
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C> <C> <C> <C>
Name and Principal Position Year Salary ($) (1) Bonus ($) Other ($) (2)
- --------------------------- ---- -------------- --------- -------------
Robert J. Just, Jr., 1997 $110,552.40 $4,920.00 $ 4,114.80
President/CEO
Robert J. Just, Jr., 1996 $ 95,577.75 $4,466.25 $ 6,978.92
President/CEO
Robert J. Just, Jr., 1995 $ 88,596.50 $4,140.00 $11,781.16
President/CEO
<FN>
(1) "Salary" includes 401(k) contributions made by the Bank on behalf of Mr. Just.
(2) These are the amounts paid by the Bank for Mr. Just's health insurance premiums in the amount of $4,114.80 in 1997,
$3,253.92 in 1996, and $3,037.92 in 1995. This item also includes meeting attendance fees of $3,725.00 in 1996, and $8,200.00
in 1995.
</FN>
</TABLE>
The entire Board of Directors reviews and determines the compensation for
the officers of the Bank. The Board's Compensation Committee is responsible for
making specific compensation recommendations to the Board. The Compensation
Committee consists of Messrs. Brodbeck, Just, Kopp, McWilliams and Soles. Mr.
Just is the only executive officer who is a member of the Board and thus
participates in decisions concerning compensation. In 1992, the Bank entered
into an Executive Employee Salary Continuation Agreement with Mr. Just. The
Agreement calls for continued compensation of $40,000 per year for 17 years upon
retirement or, in specific cases, termination of Mr. Just's employment. Normal
retirement is defined as age 60. The contractual benefit is being funded with
the purchase of life insurance policies owned by the Bank insuring Mr. Just.
29
<PAGE>
Directors Compensation
The directors of the Company do not receive any fees for serving on the
Board. Outside directors of the Bank receive $300 per meeting attended for
regularly scheduled monthly Board of Directors meetings. They also receive $150
for each Committee meeting (averaging two per month or 24 per year) and an
annual $500 bonus. Bank board members are also eligible for the Bank's health
insurance plan and the Bank pays 75% of the monthly premium for this coverage.
The current cost to the Bank for health insurance coverage for outside directors
is $4,191.84 per participating director per year.
The only inside director of the Bank is President and CEO Robert J. Just,
Jr. Until June 30, 1996, Mr. Just received the same meeting attendance fees as
outside directors but did not receive the annual director bonus. As of July 1,
1996, no meeting attendance fees are paid Mr. Just over and above his regular
salary.
Certain Transactions
The Company has not engaged in any transactions or entered into any
contracts with any of its directors or executive officers. No such transactions
or contracts are anticipated at this time by the Company.
The Bank has had, in the ordinary course of business, and will continue to
have in the future, banking transactions such as personal and business loans
with its directors and officers. Such loans are now and will continue to be on
the same terms, including collateral and interest rate, as those prevailing at
the same time for comparable transactions with others of similar credit standing
and do not and will not in the future involve more than normal risks of
collectibility or present other unfavorable features.
At no time during 1996 and 1997 did the maximum aggregate direct and
indirect extensions of credit to any director, executive officer or 10%
shareholder of the Company or Bank, and to his or her respective related
interest, exceed fifteen percent (15%) of the Bank's capital. From time to time,
the Bank has entered into nonbanking business transactions with entities with
which some of its directors are affiliated. Those transactions have been at
arm's length and at competitive prices.
30
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998, and as adjusted to
reflect the sale of Common Stock offered hereby, by (i) each person who is known
to the Company to own beneficially more than five percent (5%) of the Company's
outstanding stock; (ii) each of the Company's Directors; (iii) each of the
Company's executive officers; and (iv) all Directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
Percentage of
Outstanding Shares
---------------------------
<S> <C> <C> <C> <C>
Number of
Shares Benefi- Expected Prior To After
Name(1) cially Owned(2) Purchase Offering Offering
- ------- ---------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Wilson J. Boldt(3)....................... 650 200 2.4% 2.2%
Barry J. Brodbeck(4)..................... 50 100 * *
Keith R. Buchert......................... 60 200 * *
Donna J. Hoppenjan(5).................... 20 10 * *
Robert J. Just, Jr.(6)................... 380 275 1.4% 1.7%
W. Phil Karrmann(7)...................... 1,230 100 4.6% 3.4%
Richard J. Kopp(8)....................... 250 240 * 1.3%
Richard L. McWilliams(9)................. 340 350 1.3% 1.8%
James D. Soles(10)....................... 600 0 2.2% 1.5%
Douglas W. Speth......................... 90 65 * *
Directors and executive officers
as a group............................... 3,670 1,540 13.6% 13.4%
<FN>
- -----------------------------------
* Less than one percent (1%).
(1) The address of each principal shareholder is 25 East Pine Street, Platteville, Wisconsin 53818.
(2) Unless otherwise stated below, each person has sole voting and investment power with respect to all such shares.
(3) Includes 150 shares beneficially owned by Mr. Boldt's spouse, Vera Boldt.
(4) Mr. Brodbeck is also a beneficiary of the Richard W. Brodbeck Family Trust, Gus Harms, Trustee. The Trust owns 560 shares.
(5) Includes 10 shares beneficially owned by Ms. Hoppenjan and her spouse, Rick Hoppenjan.
(6) Includes 20 shares beneficially owned by Mr. Just's spouse, Joan E. Just.
(7) Includes 630 shares beneficially owned by Mr. Karrmann's spouse, Barbara H. Karrmann.
(8) Includes 250 shares held by a trust for which Mr. Kopp and his spouse, Patricia T. Kopp, act as trustees.
(9) Includes 130 shares beneficially owned by Mr. McWilliams' spouse, Patricia A. McWilliams.
(10) Includes 200 shares beneficially owned by Mr. Soles' spouse, Maxine F. Soles.
</FN>
</TABLE>
31
<PAGE>
SUPERVISION AND REGULATION
General
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of the Company and the Bank can be affected not only by management
decisions and general economic conditions, but also by the statutes administered
by, and the regulations and policies of, various governmental regulatory
authorities including, but not limited to, the Federal Reserve Board, the
Federal Deposit Insurance Corporation ("FDIC"), the Wisconsin Department of
Financial Institutions Division of Banking ("DFI"), the Internal Revenue Service
("IRS"), federal and state taxing authorities, and the Securities and Exchange
Commission ("SEC"). The effect of such statutes, regulations and policies can be
significant, and cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions and their holding companies regulate, among other things, the scope
of business, investments, reserves against deposits, capital levels relative to
operations, the nature and amount of collateral for loans, the establishment of
branches, mergers, consolidations and dividends. The system of supervision and
regulation applicable to the Company and the Bank establishes a comprehensive
framework for their respective operations and is intended primarily for the
protection of the FDIC's deposit insurance funds and the depositors, rather than
the shareholders, of the Bank.
The following references to material statutes and regulations affecting the
Company and the Bank are brief summaries thereof and do not purport to be
complete, and are qualified in their entirety by reference to such statutes and
regulations. Any change in applicable law or regulations may have a material
effect on the business of the Company and the Bank.
Banking Regulation
The Company is subject to the supervision of the Board of Governors of the
Federal Reserve System under the Act. In accordance with Federal Reserve Board
policy, the Company acts as a source of financial strength to the Bank and
commits resources to support the Bank in circumstances where the Company might
not do so absent such policy. As a bank holding company, the Company is required
to file with the Board of Governors annual reports and such additional
information as the Board of Governors may require pursuant to the Act. The Board
of Governors may make examinations of the Company and its subsidiary. Because
the Bank is chartered under Wisconsin law, the Company is also subject to the
examination, supervision, reporting and enforcement requirements of the DFI.
The Act requires every bank holding company to obtain the prior approval of
the Board of Governors before it may acquire direct or indirect ownership of
more than five percent (5%) of the voting securities or substantially all of the
assets of any bank. The Act limits the activities by bank holding companies to
managing, controlling, and servicing their subsidiary banks and to engaging in
certain nonbanking activities which have been determined by the Board of
32
<PAGE>
Governors to be closely related to banking. Similarly, the Act, with specified
exceptions relating to permissible nonbanking activities, forbids holding
companies from acquiring voting control (generally, 25% or more of the voting
power) of any company which is not a bank. Some of the activities that the Board
of Governors has determined by regulation to be closely related to banking are
making or servicing loans, leasing real and personal property where the lease
serves as the functional equivalent of as an extension of credit, making
investments in corporations or projects designed primarily to promote community
welfare, acting as an investment or financial advisor, providing data processing
services, and acting as an insurance agent or broker, as those activities are
defined and limited by the regulation.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Act on any extensions of credit to the bank holding
company or any of its subsidiaries, on investments in the stock or other
securities thereof, and on the taking of such stock or securities as collateral
for loans to any borrower. Further, under the Act and regulations of the Board
of Governors, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or provision of any property or services. The Board of Governors
possesses cease and desist powers over bank holding companies and their
nonbanking subsidiaries if their actions represent as an unsafe or unsound
practice or a violation of law.
The Bank is a Wisconsin-chartered bank. Its deposit accounts are insured by
the Bank Insurance Fund (the "BIF") of the FDIC. As a BIF-insured,
Wisconsin-chartered bank, the Bank is subject to the examination, supervision,
reporting and enforcement requirements of the DFI, as the chartering authority
for Wisconsin banks, and the FDIC, as administrator of the BIF. Areas subject to
regulation by the authorities include reserves, investments, loans, mergers,
issuance of securities, payment of dividends, establishment of branches, and
other aspects of banking operations.
Capital Requirements for the Company and the Bank
The Bank is well capitalized and the Company is adequately capitalized
using total capital-to-risk-weighted assets. Both the Company and the Bank are
"well capitalized" with regard to Tier 1 capital ratios. The Federal Reserve
Board and the FDIC use capital adequacy guidelines in their examination and
regulation of bank holding companies and banks. If capital falls below minimum
guideline levels, a bank holding company may, among other things, be denied
approval to acquire or establish additional banks or nonbank businesses.
The Federal Reserve Board and the FDIC's capital guidelines establish the
following minimum regulatory capital requirements for bank holding companies: a
risk-based requirement expressed as a percentage of total risk-weighted assets,
and a leverage requirement expressed as a percentage of total assets. The
risk-based requirement consists of a minimum ratio of total capital to a total
risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital
(which consists principally of shareholders' equity). The leverage requirement
consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most
highly rated companies, with minimum requirements of 4% to 5% for all others.
33
<PAGE>
As of December 31, 1997, the Bank's ratio of total capital to risk-weighted
assets was 13.2%, its ratio of Tier 1 capital to risk-weighted assets was 11.9%,
and its ratio of Tier 1 capital to average assets was 8.4%.
The risk-based and leverage standards presently used by the Federal Reserve
Board and the FDIC are minimum requirements, and higher capital levels will be
required if warranted by the particular circumstances or risk profiles of
individual banking organizations. Further, any banking organization experiencing
or anticipating significant growth would be expected to maintain capital ratios,
including tangible capital positions (i.e., Tier 1 capital less all intangible
assets), well above the minimum levels.
FDIC Deposit Insurance Premiums
The Bank pays deposit insurance premiums to the FDIC based on a risk-based
assessment system established by the FDIC for all institutions insured by the
FDIC. The Bank has been classified as a well capitalized bank and, therefore,
the Bank has paid FDIC premiums at the lowest rate. The premiums assessable in
1997 for FDIC insurance were approximately $12,143.57.
Loan Limits to Borrowers
Generally, under the Wisconsin Banking Law, a Wisconsin-chartered bank may
make to any one borrower total loans and extensions of credit fully secured by
collateral having a market value at least equal to the loan in as an amount not
to exceed 20% of the capital of the bank. Bank holding companies are not subject
to specific limitations on loans to one borrower. However, bank holding company
lending activities require the prior approval of the Federal Reserve Board under
Regulation Y. The Company has not made loans to any persons and has no present
intention of making any loans.
Interstate Banking and Branching
Since September 1995, bank holding companies have been permitted under
federal banking law to acquire banks located in any state in the United States
without regard to geographic restrictions or reciprocity requirements imposed by
state law, but subject to certain conditions, including limitations on the
aggregate amount of deposits that may be held by the acquiring holding company
and all of its insured depositor institution affiliates. Banks are permitted
under federal banking law to establish interstate branch networks through
acquisitions of other banks, subject to certain conditions, including certain
limitations on the aggregate amount of deposits that may be held by the
surviving bank and all of its insured depository institution affiliates. The
establishment of de novo interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of as an
out-of-state bank in its entirety) is allowed only if specifically authorized by
state law. Over time, the interstate banking and branching laws may increase
competition in the market served by the Company and the Bank.
34
<PAGE>
DESCRIPTION OF COMMON STOCK
The Company's authorized capital stock consists of 300,000 shares, no par
value, all of one class, designated as common stock, of which 26,940 shares, as
of the date hereof, are issued and/or outstanding. The maximum number of shares
of the Company's common stock which will be issued in this Offering is 12,000
shares which constitutes four percent (4%) of the authorized capital stock of
the Company.
Voting Rights
Each share of Company stock has one vote on all matters presented to the
shareholders of the Company, and may not be voted cumulatively. Shareholders
have no preemptive rights or other rights to subscribe for additional shares of
the Company. Each act by the shareholders of the Company requires a majority
vote, except as otherwise provided by law or its Articles of Incorporation.
Presently, the Board of Directors of the Company consists of nine members.
The Board is divided into three classes consisting of three directors. Directors
are elected at the annual meeting of shareholders for a term of three years and
until their successors are duly elected and qualified, except that the initial
term of office for Messrs. Brodbeck, Just and Kopp is one year and Messrs.
Buchert, Karrmann and McWilliams is two years. No Company directors may be
removed, with or without cause, except by an affirmative vote of seventy-five
percent (75%) of the directors or of the outstanding shares entitled to vote.
The officers of the Company will be elected annually by the Company Board
of Directors. The directors of the Company will vote the shares of Bank stock
held by the Company, and therefore will elect the Bank Board of Directors.
There is no requirement that the Boards of the Bank and of the Company be
identical. Shareholders of the Company will exercise direct control over the
Company by election of the Company directors and by other voting rights, and
therefore will exercise indirect control over the Bank. The direct control of
the Bank stock will be exercised by the Company Board of Directors, who are
obligated to act in the best interests of the Company shareholders.
Dividends
The Company has paid dividends to its shareholders as follows:
Year Paid Dividend Per Share
--------- ------------------
1997 None
1998 $7.50
The Board of Directors of the Company intends to pay cash dividends on its
Common Stock at least annually. Substantially all of the Company's assets
35
<PAGE>
consist of its investment in the Bank and the availability of funds for
dividends to be paid by the Company depends primarily upon the receipt of
dividends from the Bank. Dividends of the Company are also dependent on future
earnings, the financial condition of the Company and the Bank, and other
factors. Whether the dividends, if any, paid by the Company in the future will
be equal to, less than, or more than the dividends paid by the Bank in the past
cannot be predicted.
The Bank has paid cash dividends on its common stock each year since 1988,
and expects to continue to pay dividends to its sole shareholder, the Company,
in the future. Recent dividends have been as follows:
Year Paid Dividend Per Share
--------- ------------------
1994 $65.00
1995 $70.00
1996 $75.00
1997 $75.00
These dividends were paid on the Bank's stock prior to the 9-for-1 stock
dividend in 1997. In 1998, the Bank paid a dividend to its sole shareholder, the
Company, a total of $950,000.
Under the Wisconsin Banking Law, the Board of Directors of a bank may
declare and pay a dividend from its undivided profits in an amount they consider
expedient. The Board of Directors shall provide for the payment of all expenses,
losses, required reserves, taxes, and interest accrued or due from the bank
before the declaration of dividends from undivided profits. If dividends
declared and paid in either of the two immediately preceding years exceeded net
income for either of those two years respectively, the bank may not declare or
pay any dividend in the current year that exceeds year-to-date net income except
with the written consent of the DFI.
A bank's dividends may not in any way impair or diminish the capital of the
bank other than by reducing undivided profits. If a dividend is paid that does
not comply with this limitation, every shareholder receiving the dividend is
liable to restore the full amount of the dividend unless the capital is
subsequently made good. If the Board of Directors of a bank pays dividends when
the bank is insolvent or in danger of insolvency, or not having reason to
believe that there were sufficient undivided profits to pay the dividends, the
members of the Board of Directors are jointly and severally liable to the
creditors of the bank at the time of declaring dividends in an amount equal to
twice the amount of the dividends.
Federal regulators have authority to prohibit a bank from engaging in any
action deemed by them to constitute an unsafe or unsound practice, including the
payment of dividends. In addition to the foregoing, Wisconsin business
corporations such as the Company are prohibited by Wisconsin law from paying
dividends while they are insolvent or if the payment of dividends would render
them unable to pay debts as they come due in the usual course of business.
36
<PAGE>
Market for the Stock
There is no established public trading market for Company stock. Although
Company purchases of its own shares will generally be permissible, in some
circumstances prior approval of the Federal Reserve Board may be required.
Specifically, if the Company desires to purchase as much as 10% (in value) of
its own stock in any 12-month period, it may be required to obtain approval for
so doing from the Federal Reserve Board. Otherwise, the Company is restricted by
sound business judgment, its prior commitments, and the consolidated financial
condition of the Company and the Bank. In no event may a Wisconsin corporation
purchase its own shares when the corporation is insolvent or when such a
purchase would make it insolvent. Although the Company may be able, in the
Board's discretion, to purchase shares of its stock, it is not obligated to do
so. In the event that the Company fails to exercise its right of first refusal,
a selling shareholder may be required to locate a prospective buyer for his or
her shares on a person-to-person basis.
Right of First Refusal
Pursuant to Article 5C of its Articles of Incorporation, the Company has a
right of first refusal to purchase any shares of its stock at the price and on
the terms and conditions offered to any Company shareholder by a prospective
purchaser.
The right of first refusal applies to all sales, assignments, or
dispositions of any right, title or interest in or to Company shares, whether
voluntary or by operation of law, except for (1) transactions between a
shareholder and his or her spouse, a member of his or her immediate family or
lineal descendants of his or her immediate family, and (2) any pledge of Company
stock. For purposes of transactions described in (1), "immediate family" means a
shareholder's children, ancestors, brothers and sisters (whether by full or half
blood), the spouses of such brothers and sisters, and the lineal decedents of
the shareholder's spouse. Transferees in either of the transactions described in
(1) or (2) are subject to the Company's right of first refusal. The Company is
not obligated to make any purchases of the Company stock, but may do so at the
discretion of its Board of Directors.
In the event a shareholder (the "Selling Shareholder"), desires to dispose
of his or her shares of stock, or any portion thereof (the "Offered Shares"),
other than in a transaction of the type described in (1) or (2) above, without
first obtaining the written consent of the Company, the Selling Shareholder,
first, shall give the Company written notice of his or her intent to do so,
stating the identity of the proposed transferee of the Offered Shares, the
number of Offered Shares the Selling Shareholder proposes to transfer, the
proposed consideration for the Offered Shares and the other terms and conditions
of the proposed transfer of the Offered Shares. The Company shall have a right
of first refusal to acquire all, but not less than all, of the Offered Shares
for the consideration and on the other terms and conditions offered by the
proposed transferee and as contained in the written notice given to the Company
by the Selling Shareholder. The Company shall exercise its right to acquire the
Offered Shares by giving written notice to the Selling Shareholder, indicating
the number of Offered Shares it will acquire, within thirty (30) days following
receipt of the written notice from the Selling Shareholder. If the Company does
not exercise its acquisition rights within that time period, the Selling
37
<PAGE>
Shareholder shall be free for a period of thirty (30) days thereafter to
transfer all of the Offered Shares to the transferee identified in the written
notice to the Company, at the same consideration and on the same terms and
conditions set forth in the notice. After giving notice of the intended
transfer, the Selling Shareholder shall refrain from participating as an
officer, director or shareholder of the Company with respect to the Company's
decision on whether or not to acquire the Offered Shares unless requested by the
other shareholders holding a majority of the Company's outstanding shares of
capital stock, not including the shares held by the Selling Shareholder. As a
condition precedent to the effectiveness of any transfer of Offered Shares, the
transferee shall agree in writing to be bound by all of the terms and conditions
of the Company's right of first refusal.
Each certificate representing shares of Company stock shall bear a legend
in substantially the following form:
"The shares represented by this certificate and any sale,
transfer, or other disposition thereof are restricted under
and subject to the terms and conditions contained in Article
5C of the Corporation's Articles of Incorporation, a copy of
which is on file at the offices of the Corporation."
The provisions of the Company's Articles of Incorporation relating to this
right of first refusal may not be amended, altered or repealed except by the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of Company stock.
The Company's right of first refusal may reduce the ability of third
parties to obtain control of the Company. In particular, the Company's right to
match the price offered by a prospective buyer might make acquisitions of large
blocks of Company stock by other buyers more difficult. The right of first
refusal might also discourage tender offers, proxy contests, or other attempts
to gain control of the Company through the acquisition of voting stock.
Shareholders who might support the takeover of the Company in a given situation
could amend, alter or repeal the right-of-first-refusal provision only by
obtaining an affirmative vote of seventy-five percent (75%) of the issued and
outstanding shares.
Because of these effects, this provision may render removal of current
management by a new owner less likely. This could be the case whether or not
such removal would be beneficial to shareholders generally. Another overall
effect of the provision may be to limit shareholder participation in
transactions such as tender offers.
Whether the right of first refusal serves as an advantage to management or
to shareholders depends on the particular circumstances. In a hostile tender
offer, for example, members of management and shareholders who support the
present ownership may benefit from the provision, while shareholders desirous of
participating in the tender offer or removing management would be disadvantaged.
38
<PAGE>
The Boards of Directors of the Company and the Bank believe that giving the
Company a right of first refusal to purchase shares of its stock is in the best
interests of the Company and its shareholders and the Bank because one of the
purposes of forming the Company was to enable the Bank to continue under local
control. The proposed right of first refusal effectuates this purpose by
providing a mechanism for assuring local control of the Company and the Bank.
The Articles of Incorporation also require the affirmative vote of
seventy-five percent (75%) of the outstanding shares of voting stock to approve
certain fundamental changes such as mergers or consolidations of the Company or
the sale of all or substantially all of the Company's assets, unless such
changes have received advance approval of seventy-five percent (75%) of the
Company's directors, in which case the required vote is a majority.
In addition, the Articles of Incorporation provide that the provisions of
the Articles of Incorporation establishing the Company's classified board of
directors, establishing additional voting requirements, and providing the
Company with a right of first refusal to purchase its stock may be amended only
by the affirmative vote of not less than seventy-five percent (75%) of the
outstanding shares of voting stock of the Company.
As set forth in Sections 180.0850 through 180.0859 of the Wisconsin
Statutes, the bylaws of the Company require that the Company indemnify a
director or officer from all reasonable expenses and liabilities asserted
against, incurred by, or imposed on that person in any proceeding to which he or
she is made or threatened to be made a party by reason of being or having been
an officer or director of the Company. Indemnification will not be made if the
person breached a duty to the Company in one of the following ways: (a) a wilful
failure to deal fairly with the Company in a matter in which the director or
officer has a material conflict of interest; (b) a violation of criminal law,
unless the person had reasonable cause to believe his or her conduct was lawful
or had no reasonable cause to believe his or her conduct was unlawful; (c) a
transaction from which the person derived improper personal profit; or (d)
wilful misconduct. The right to indemnification includes, in some circumstances,
the right to receive reimbursement of costs and expenses in such a proceeding as
they are incurred.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be available to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions of its bylaws, or
otherwise, the Company has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act.
The Company may purchase insurance against liabilities asserted against its
directors, officers, employees, or agents whether or not it has the power to
indemnify them against such liabilities under the provisions of its bylaws or
pursuant to applicable law. Indemnification insurance for directors and officers
of the Company has not been purchased by the Company. The Company's directors
and officers are named as additional insureds on the Bank's Directors and
Officers liability coverage and on the Financial Institution Bond.
39
<PAGE>
Value
As of March 31, 1998, the net tangible book value of the Company's Common
Stock, according to the Bank's internal financial statements, was $6,834,566.24,
or $253.88 per share. Net tangible book value is the total shareholders' equity
of the Company less intangible assets. Net tangible book value per share is
determined by dividing the net tangible book value of the Company by the number
of outstanding shares of Common Stock. An appraisal of the Bank stock prepared
for Bank management by Bankers' Service Corporation as of March 31, 1998,
estimated the value of the stock as it relates to minority share transactions at
$301.00 per share, or 119% of adjusted book value and 8.9x (times) weighted
average earnings.
To the best knowledge of the Company, there have been 3 different transfers
of its Common Stock, involving a total of 40 shares, between January 1, 1997,
and the date of this Prospectus. To the best of the Company's knowledge, most of
those transactions were conducted at a price ranging from $220.00 to $252.80 per
share. Also, to the Company's knowledge, there have been 19 additional transfers
of its Common Stock between family members for no consideration. In addition, in
May, 1997, the Bank purchased 906 shares owned by the E.R. and Mariam T. Clare
Trust, which at the time constituted approximately twenty-six percent 26% of the
Company, at a purchase price of $4,238.40 per share. The price paid for these
shares equals $423.84 per share when adjusted for the 9 for 1 stock dividend
issued in December 1997.
Other
(a) Liquidation Rights. The shareholders of the Company are entitled to
share pro rata in the net assets of the organization, after payment of all
liabilities, if the organization is ever liquidated.
(b) Preemptive Rights. Shareholders of the Company do not have preemptive
rights to acquire additional shares of the organization that may be issued in
the future.
(c) Conversion Rights. The Company stock is not convertible into any other
security.
(d) Call. The Company stock is not subject to any call or redemption rights
on the part of the organization.
(e) Assessability. All of the Company stock issued in connection with this
Offering is or will be fully paid and nonassessable, except as provided by law.
The Wisconsin Business Corporation Law imposes a statutory liability on
shareholders of every corporation up to as an amount equal to the par value of
their shares, and to the consideration for which their shares without par value
were issued, for all debts owing to employees of the corporation for services
performed for such corporation, but not exceeding six months' service in any one
case.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 38,940 shares of
Common Stock issued and/or outstanding. Of these shares, the 12,000 shares sold
in the Offering will be freely tradable by persons other than "affiliates" of
the Company without restriction or registration under the Securities Act,
notwithstanding the Company's right of first refusal. In general, an affiliate
for these purposes includes directors, executive officers, and any person who,
individually or through a group, is deemed to control the Company. Members of a
family may be regarded as members of a group if, by acting in concert, they have
the power to control the Company. Control may be evidenced by ownership of ten
percent (10%) or more of the voting securities of the Company. Certificates for
shares of Company stock received by an affiliate in the Offering will carry a
legend referring to the resale restrictions. Specifically, that legend will
state:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY BE OFFERED
AND SOLD ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR IF AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
In addition, the Company will issue stop-transfer instructions to the
Company transfer agent with respect to such certificates. The Company will not
register the shares of its stock for resale, and any such registration will be
at the expense of any shareholder desiring such registration.
This Prospectus may not be used by an affiliate of the Company for the
resale of Company stock received in this Offering.
LEGAL PROCEEDINGS
The Company is not aware of any legal proceeding that is threatened or
pending in which the Company or the Bank is involved.
LEGAL MATTERS
Certain legal matters in connection with this Offering are being passed
upon for the Company by Boardman, Suhr, Curry & Field LLP, Madison, Wisconsin.
41
<PAGE>
EXPERTS
The consolidated financial statements of the Company have been included
herein in reliance on the report of Conley McDonald LLP, independent certified
public accountants, and upon the authority of said firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
The Company has filed with SEC, Washington, D.C., a Registration Statement
(No. 333-53797) on Form SB-2 under the Securities Act of 1933, as amended
("Securities Act"), for the registration of Company Common Stock to be issued in
their Offering. This Prospectus constitutes the Prospectus that was filed as
part of that Registration Statement.
The Company is not currently a reporting company pursuant to the Securities
Exchange Act of 1934, as amended ("Exchange Act"), but will be subject to the
informational requirements of the Exchange Act following the completion of the
Offering, pursuant to ss. 15(d) of the Exchange Act. The Company's duty to file
such reports in each fiscal year, except the year this registration statement
becomes effective, is automatically suspended if, at the beginning of the fiscal
year, the Company Common Stock is held by fewer than 300 shareholders. Upon
completion of this Offering, the Company's Common Stock will be held by no more
than 299 shareholders. Accordingly, the Company will file reports and other
information with the SEC this fiscal year only. However, the Company will
voluntarily provide shareholders with reports of the same nature, and with the
same frequency, as are currently provided by the Company to Company
shareholders.
The reports and other information filed by the Company with the SEC can be
inspected and copied at the SEC's public reference facilities at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at 7
World Trade Center, Suite 1300, New York, NY 10048, and 450 West Madison Street,
Chicago, IL 60661. Copies of such material may also be obtained from the SEC's
Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The information is also available on the SEC's website at
http://www.sec.gov.
Requests for such documents may also be made to Robert J. Just, Jr.,
President, Mound City Financial Services, Inc., 25 East Pine Street,
Platteville, WI 53818, (608) 348-2685.
42
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MOUND CITY FINANCIAL SERVICES, INC.
Page
----
Report of Conley McDonald LLP, Independent Auditors......................F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.............F-3
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995.........................................F-4
Consolidated Statements of Comprehensive Income for the
years ended December 31, 1997, 1996 and 1995.............................F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995.....................F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995...................................F-7
Notes to Consolidated Financial Statements...............................F-9
Consolidated Balance Sheet as of March 31, 1998..........................F-27
Consolidated Statements of Income for the three months
ended March 31, 1998 and 1997............................................F-28
Consolidated Statements of Comprehensive Income for the three months
ended March 31, 1998 and 1997............................................F-29
Consolidated Statements of Changes in Stockholders' Equity for the
three months ended March 31, 1998 and 1997...............................F-29
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997............................................F-30
Notes to Interim Consolidated Financial Statements.......................F-31
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Mound City Financial Services, Inc.
and Subsidiary
Platteville, Wisconsin
We have audited the accompanying consolidated balance sheets of Mound City
Financial Services, Inc. and Subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of income, comprehensive income, changes in
stockholders' equity, and cash flows for the years ended December 31, 1997, 1996
and 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mound City Financial
Services, Inc. and Subsidiary as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for the years ended December 31, 1997, 1996
and 1995, in conformity with generally accepted accounting principles.
As described in Note B to the financial statements, the 1996 and 1995 financial
statements have been restated to adopt FASB No. 130.
Conley McDonald LLP
Brookfield, Wisconsin
January 23, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
MOUND CITY FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------
ASSETS 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks (Note C) $ 3,495,103 $ 4,253,805
Federal funds sold 4,562,000 3,468,000
-------------------------------
Cash and cash equivalents 8,057,103 7,721,805
Available for sale securities stated at fair value (Note D) 19,956,739 20,070,636
Loans, less allowance for loan losses of $1,159,300 and
$1,104,338 in 1997 and 1996 respectively (Notes E, F and N) 87,268,114 80,551,383
Office buildings and equipment, net (Note G) 4,343,474 4,386,082
Accrued interest receivable and other assets (Note J) 2,489,203 2,315,022
-------------------------------
Total assets $ 122,114,633 $ 115,044,928
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits: (Note H)
Demand $ 10,029,112 $ 10,133,795
Savings and NOW 34,400,049 28,622,318
Other Time 64,721,866 64,186,171
-------------------------------
Total deposits 109,151,027 102,942,284
Short-term borrowings (Note I) 4,376,625 469,334
Accrued interest payable and other liabilities (Note J and L) 1,771,702 1,692,201
-------------------------------
Total liabilities 115,299,354 105,103,819
-------------------------------
Commitments and contingencies (Note M)
Stockholders' equity: (Notes P and Q)
Common stock, no par value, $1.00 stated value; 300,000 26,940 36,000
shares authorized, 26,940 and 36,000 shares issued in
1997 and 1996 respectively
Surplus 6,270,446 7,464,000
Retained earnings (Notes O and R) 362,546 2,289,873
-------------------------------
6,659,932 9,789,873
Less Treasury stock, 20 shares in 1997, at cost (5,056) -
Accumulated other comprehensive income -unrealized
gain on available for sale securities, net 160,403 151,236
Total stockholders' equity 6,815,279 9,941,109
-------------------------------
Total liabilities and stockholders' equity $ 122,114,633 $ 115,044,928
===============================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
MOUND CITY FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
- ----------------------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------
<S><C><C><C> <C> <C> <C>
Interest income:
Interest and fees on loans (Note E) $ 7,509,603 $ 6,794,327 $ 6,064,097
Interest on investment securities:
Taxable 740,450 877,008 905,741
Tax-exempt 452,480 442,715 443,338
Interest on federal funds sold 130,688 95,507 201,220
------------------------------------------------
Total interest income 8,833,221 8,209,557 7,614,396
------------------------------------------------
Interest expense:
Interest on deposits (Note H) 4,794,625 4,292,758 3,853,603
Interest on short-term borrowings (Note I) 233,587 25,985 13,719
------------------------------------------------
Total interest expense 5,028,212 4,318,743 3,867,322
------------------------------------------------
Net interest income before provision for loan losses 3,805,009 3,890,814 3,747,074
Provision for loan losses (Notes E and F) 130,000 183,851 110,000
------------------------------------------------
Net interest income after provision for loan losses 3,675,009 3,706,963 3,637,074
------------------------------------------------
Other operating income:
Service fees 364,164 295,259 283,533
Other income 313,018 199,975 204,865
Securities gain (losses) (Note D) 5,241 (649) (60,948)
------------------------------------------------
Total other operating income 682,423 494,585 427,450
------------------------------------------------
Other operating expenses:
Salaries 1,250,802 1,161,158 1,083,422
Employee benefits 521,380 473,282 454,246
Occupancy expense 477,572 418,074 312,441
Computer services 163,706 145,551 134,474
FDIC assessment 12,144 31,699 102,562
Other expenses (Note L) 811,368 779,008 644,889
------------------------------------------------
Total other operating expenses 3,236,972 3,008,772 2,732,034
------------------------------------------------
Income before income taxes 1,120,460 1,192,776 1,332,490
Less applicable income taxes (Note J) 208,501 254,580 315,967
------------------------------------------------
Net income $ 911,959 $ 938,196 $ 1,016,523
================================================
Earnings per share $ 30.49 $ 26.06 $ 28.24
================================================
Weighted average shares outstanding 29,914 36,000 36,000
================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
MOUND CITY FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Years ended December 31, 1997, 1996 and 1995
- ----------------------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------
<S><C><C><C> <C> <C> <C>
Net income $ 911,959 $ 938,196 $ 1,016,523
------------------------------------------------
Other comprehensive income:
Unrealized gains (losses) arising during period 12,629 (71,287) 535,481
Reclassified adjustment for (gains)
losses included in net income (3,459) (7,053) 69,924
------------------------------------------------
Total other comprehensive income 9,170 (78,340) 605,405
------------------------------------------------
Comprehensive income $ 921,129 $ 859,856 $ 1,621,928
================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
MOUND CITY FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders Equity Years ended December
31, 1997, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------------------
Other
comprehensive
income (loss)
-------------------
Unrealized
gain (loss)
on available Total
Common Retained Treasury for sale stockholders
stock Surplus earnings stock securities equity
-------------------------------------------------------------------------------------
<S><C><C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 (Note P) $ 3,600 $ 5,996,400 $ 2,375,154 $ - $(375,829) $ 7,999,325
Adjustment for 10 for 1
stock split (Note Q) 32,400 (32,400) - - - -
------------------------------------------------------------------------------------
Balances, December 31, 1994 (restated) 36,000 5,964,000 2,375,154 - (375,829) 7,999,325
Dividends - $7.50 per share - - (270,000) - - (270,000)
Net income - 1995 - - 1,016,523 - - 1,016,523
Other comprehensive income (loss) -
change in unrealized gain (loss) on
available for sale securities, net - - - - 605,405 605,405
Transfer from retained earnings - 1,000,000 (1,000,000) - - -
------------------------------------------------------------------------------------
Balances, December 31, 1995 36,000 6,964,000 2,121,677 - 229,576 9,351,253
Dividends - $7.50 per share - - (270,000) - - (270,000)
Net income - 1996 - - 938,196 - - 938,196
Other comprehensive income (loss) -
change in unrealized gain (loss) on
available for sale securities, net - - - - (78,340) (78,340)
Transfer from retained earnings - 500,000 (500,000) - - -
------------------------------------------------------------------------------------
Balances, December 31, 1996 36,000 7,464,000 2,289,873 - 151,236 9,941,109
Dividends - $7.50 per share - - (201,900) - - (201,900)
Net income - 1997 - - 911,959 - - 911,959
Purchase 20 shares of Treasury stock - - - (5,056) - (5,056)
Purchase of 906 dissenter
shares of bank stock (9,060) (1,193,554) (2,637,386) - - (3,840,000)
Other comprehensive income (loss) -
change in unrealized gain (loss) on
available for sale securities, net - - - - 9,167 9,167
------------------------------------------------------------------------------------
Balances, December 31, 1997 $ 26,940 $ 6,270,446 $ 362,546 $(5,056) $ 160,403 $ 6,815,279
====================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
MOUND CITY FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
- -------------------------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------
<S><C><C><C><C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 911,959 $ 938,196 $ 1,016,523
----------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 273,417 224,813 157,183
Provision for loan losses 130,000 183,851 110,000
Amortization and accretion of bond
premiums and discounts - net (10,295) (44,456) (44,457)
Provision (benefit) for deferred taxes (25,472) (41,416) (57,000)
Securities (gain) losses (5,241) 649 60,948
Change in assets and liabilities:
Increase in accrued interest
receivable and other assets (178,855) (138,846) (163,754)
Increase in accrued interest
payable and other liabilities 104,972 230,226 452,067
----------------------------------------------
Total adjustments 288,526 414,821 514,987
----------------------------------------------
Net cash provided by operating activities 1,200,485 1,353,017 1,531,510
----------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of securities 10,494,251 5,620,360 2,741,155
Purchase of securities (19,613,625) (11,440,576) (4,790,000)
Proceeds from sale of securities 9,262,649 7,768,706 2,646,000
Net increase in loans (6,846,731) (12,001,033) (4,678,448)
Purchase of office buildings and equipment (230,809) (1,210,441) (1,724,209)
-----------------------------------------------
Net cash used in investing activities (6,934,265) (11,262,984) (5,805,502)
-----------------------------------------------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
MOUND CITY FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (concluded) Years ended December 31, 1997,
1996 and 1995
- --------------------------------------------------------------------------------------------------------------
1997 1996 1995
-----------------------------------------------
<S><C><C><C><C> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 6,208,743 $ 9,204,656 $ 8,215,184
Net increase (decrease) in demand
notes issued to U.S. Treasury 507,291 (366,476) 693,684
Payment of dissenter shares (3,840,000) - -
Proceeds on note payable 3,840,000 - -
Payment on note payable (440,000) - -
Purchase treasury shares (5,056) - -
Dividends paid (201,900) (270,000) (270,000)
----------------------------------------------
Net cash provided by financing activities 6,069,078 8,568,180 8,638,868
----------------------------------------------
Increase (decrease) in cash and cash
equivalents 335,298 (1,341,787) 4,364,876
Cash and cash equivalents:
Beginning of year 7,721,805 9,063,592 4,698,716
----------------------------------------------
End of year $ 8,057,103 $ 7,721,805 $ 9,063,592
==============================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,941,219 $ 4,178,178 $ 3,542,000
==============================================
Income taxes $ 269,908 $ 299,824 $ 387,000
==============================================
Supplemental schedule for noncash
investing and financing activities:
Net change in unrealized gain (loss)
on available for sale securities, net $ 9,167 $ (78,340) $ 605,405
==============================================
Held to maturity securities reclassified to
available for sale securities $ - $ - $14,159,000
==============================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note A. Summary of Significant Accounting Policies
1. Consolidation:
The consolidated financial statements of Mound City Financial Services, Inc.
include the accounts of its wholly-owned subsidiary, Mound City Bank. Mound City
Bank includes the accounts of its wholly-owned subsidiary, Mound City Investment
Corporation. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and conform to general
practices within the banking industry. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements. On
May 1, 1997, Mound City Financial Services, Inc. and Subsidiary exchanged one
(1) share of common stock for each share outstanding of Mound City Bank.
(Note O).
2. Nature of banking activities:
The consolidated income of Mound City Financial Services, Inc. (the "Company")
is principally from income of its subsidiary, Mound City Bank. Mound City Bank
(the "subsidiary Bank") grants agribusiness, commercial and residential loans,
consumer loans, accepts deposits from customers and provides trust services,
concentrated in the counties surrounding the subsidiary Bank's various
locations. The subsidiary Bank is subject to competition from other financial
institutions and nonfinancial institutions providing financial products.
Additionally, the Company and the subsidiary Bank are subject to the regulations
of certain regulatory agencies and undergo periodic examination by those
regulatory agencies.
3. Basis of financial statement presentation:
The preparation of financial statements in conformity with general 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 period.
Actual results could differ from those estimates.
4. Cash and cash equivalents:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, federal funds sold and investments with original
maturity of three months or less. Generally, federal funds are sold for one-day
periods.
The subsidiary Bank maintains amounts due from banks which, at times, may exceed
federally insured limits. The subsidiary Bank has not experienced any losses in
such accounts.
5. Available for sale securities:
Securities classified as available for sale are those debt securities that the
Company and its subsidiary Bank intend to hold for an indefinite period of time,
but not necessarily to maturity.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Any decision to sell a security classified as available for sale would be based
on various factors, including significant movements in interest rates, changes
in the maturity mix of the subsidiary Bank's assets and liabilities, liquidity
needs, regulatory capital consideration, and other similar factors. Securities
classified as available for sale are carried at fair value. Unrealized gains or
losses are reported as increases or decreases in other comprehensive income, net
of the related deferred tax effect. Realized gains or losses, determined on the
basis of the cost of specific securities sold, are included in earnings.
6. Held to maturity securities:
Securities classified as held to maturity are those debt securities the Company
and its subsidiary Bank has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or changes in
general economic conditions. These securities are carried at cost, adjusted for
amortization of premium and accretion of discount, computed by the interest
method over their contractual lives. The sale of a security within three months
of its maturity date or after collection of at least 85 percent of the principal
outstanding at the time the security was acquired is considered a maturity for
purposes of classification and disclosure.
7. Trading securities:
Trading securities, which are generally held for the short term, usually under
90 days, in anticipation of market gains, are carried at fair value. Realized
and unrealized gains and losses on trading account assets are included in
interest income on trading account securities.
8. Loans:
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are reported at the amount of unpaid
principal, reduced by the allowance for loan losses. Interest on loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. The accrual of interest income on impaired loans
is discontinued when, in the opinion of management, there is reasonable doubt as
to the borrower's ability to meet payment of interest or principal when they
become due. When the interest accrual is discontinued, all unpaid accrued
interest is reversed. Cash collections on impaired loans are credited to the
loan receivable balance, and no interest income is recognized on those loans
until the principal balance is current. Accrual of interest is generally resumed
when the customer is current on all principal and interest payments and has been
paying on a timely basis for a period of time.
9. Allowance for loan losses:
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely.
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrowers ability to repay, the estimated
value of any underlying collateral, and current economic conditions. While
management uses the best information available to make its evaluation, future
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
adjustments to the allowance may be necessary if there are significant changes
in economic conditions. Impaired loans are measured based on the present value
of expected future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. A loan is impaired
when it is probable the creditor will be unable to collect all contractual
principal and interest payments due in accordance with the terms of the loan
agreement.
In addition, various regulatory agencies periodically review the allowance for
loan losses. These agencies may require the subsidiary Bank to make additions to
the allowance for loan losses based on their judgments of collectibility based
on information available to them at the time of their examination.
10. Office buildings and equipment:
Depreciable assets are stated at cost less accumulated depreciation. Provisions
for depreciation are computed on a straight-line or accelerated basis over the
estimated useful lives of the assets, which are 40 years for office buildings
and 3 to 25 years for equipment.
11. Other real estate:
Real Estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in loss on foreclosed real
estate.
12. Off-balance-sheet financial instruments:
In the ordinary course of business, the subsidiary Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments under credit card arrangements, commercial 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.
13. Profit-sharing plans:
The subsidiary Bank has established a trusteed contributory 401(k)
profit-sharing plan for qualified employees. The subsidiary Bank's policy is to
fund contributions as accrued.
14. Income taxes:
The Company files a consolidated federal income tax return and individual
subsidiary state income tax returns. Accordingly, amounts equal to tax benefits
of those companies having taxable federal losses or credits are reimbursed by
the other companies that incur federal tax liabilities.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Amounts provided for income tax expense are based on income reported for
financial statement purposes and do not necessarily represent amounts currently
payable under tax laws. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. The differences relate principally to the reserve
for loan losses, nonaccrual loan income, deferred compensation, alternative
minimum tax and fixed assets. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
15. Trust assets and fees:
Property held for customers in fiduciary or agency capacities is not included in
the accompanying balance sheet, since such items are not assets of the
subsidiary Bank. In accordance with established industry practice, income from
trust fees is reported on the cash basis. Reporting of trust fees on an accrual
basis would have no material effect on reported income.
16. Earnings per share:
Earnings per share are based on the Bank's weighted average number of shares
outstanding during the year.
17. Fair value of financial instruments:
Financial Accounting Standards Board Statement No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement No. 107 excludes certain
financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Carrying amounts approximate fair values for the following instruments:
Cash and cash equivalents
Federal funds sold
Short-term borrowing
Accrued interest receivable
Accrued interest payable
Variable rate loans that reprice frequently where no
significant change in credit risk has occurred
Demand deposits Variable rate money market accounts
Variable rate certificate of deposit Trading account
securities Available for sale securities
Quoted market prices:
Where available, or if not available, based on quoted market prices of
comparable instruments for the following instrument:
Held to maturity securities
Discounted cash flows:
Using interest rates currently being offered on instruments with
similar terms and with similar credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposit Short-term borrowing
Notes payable and other borrowing Interest rate swaps
Quoted fees currently being charged for similar instruments:
Taking into account the remaining terms of the agreements and the
counterparties credit standing:
Off-balance-sheet instruments:
Guarantees
Letters of credit
Lending commitments
Since the majority of the Company's off-balance-sheet instruments consists of
nonfee-producing, variable rate commitments, the Company had determined it does
not have a distinguishable fair value.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note B. Accounting Change
In 1997, the Financial Accounting Standards Board (FASB) issued Statement No.
130, Reporting Comprehensive Income, which requires all entities to report
comprehensive income in the financial statements. This Statement is effective
for fiscal years beginning after December 15, 1997 with early adoption
permitted. The Company has elected to early adopt FASB No. 130. As provided by
this Statement, 1996 comparative financial statements have been restated for the
change in accounting principle. Adoption of this Statement has no effect on
total stockholders equity.
Note C. Cash and Due from Banks
The Company's Bank subsidiary is required to maintain vault cash or reserve
balances with Federal Reserve Banks based upon a percentage of deposits. These
requirements approximated $710,000 and $440,000 at December 31, 1997 and 1996
respectively.
Note D. Available for Sale Securities
Amortized costs and fair values of available for sale securities as of December
31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-----------------------------------------------------------
<S><C> <C> <C> <C> <C>
U.S. Treasury securities $ 1,501,571 $ 8,329 $ - $ 1,509,900
U.S. Government agency and corporation obligations 6,755,559 6,798 2,543 6,759,814
Obligations of states and political subdivisions 8,315,518 224,504 902 8,539,120
-----------------------------------------------------------
16,572,648 239,631 3,445 16,808,834
Mortgage backed securities 2,367,417 8,031 1,229 2,374,219
Bankers Bank Stock 24,765 - - 24,765
Federal Home Loan Bank Stock 345,200 - - 345,200
Farmer Mac Stock 4,000 - - 4,000
Mutual Funds 399,721 - - 399,721
-----------------------------------------------------------
$ 19,713,751 $ 247,662 $ 4,674 $ 19,956,739
===========================================================
U.S. Treasury securities $ 2,478,689 $ 8,444 $ 953 $ 2,486,180
U.S. Government agency and
corporation obligations 5,179,614 20,695 7,061 5,193,248
Obligations of states and political subdivisions 7,842,966 189,546 10,844 8,021,668
-----------------------------------------------------------
15,501,269 218,685 18,858 15,701,096
Mortgage backed securities 3,930,328 32,811 3,491 3,959,648
Bankers Bank stock 24,765 - - 24,765
Federal Home Loan Bank stock 316,300 - - 316,300
Farmer Mac stock 4,000 - - 4,000
Mutual funds 64,827 - - 64,827
-----------------------------------------------------------
$ 19,841,489 $ 251,496 $ 22,349 $ 20,070,636
===========================================================
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized costs and fair value of available for sale securities as of
December 31, 1997 by contractual maturity are shown below:
December 31, 1997
----------------------------------
Amortized Fair
cost value
----------------------------------
Due in one year or less $ 5,315,430 $ 5,326,029
Due after one year through five years 5,675,163 5,748,543
Due after five years 5,582,055 5,734,262
--------------------------------
$ 16,572,648 $ 16,808,834
================================
Realized gains and losses on sale of available for sale securities as of
December 31, 1997, 1996 and 1995 are as follows:
December 31,
-------------------------------------------
1997 1996 1995
-------------------------------------------
Gross gains $ 6,555 $ 36,831 $ 2,321
Gross losses (1,314) (37,480) (63,269)
$ 5,241 $ (649) $ (60,948)
===========================================
Related income taxes (benefits) $ 1,782 $ 6,404 $ (8,976)
===========================================
Available for sale securities with an amortized cost of $1,498,152 and
$1,996,268 as of December 31, 1997 and 1996 respectively were pledged as
collateral on public deposits and for other purposes as required or permitted by
law.
Note E. Loans
Major classifications of loans are as follows: December 31,
---------------------------------
1997 1996
---------------------------------
Commercial $ 12,955,565 $ 13,338,963
Agricultural production 9,442,645 9,368,979
Real estate:
Construction 1,256,125 112,449
Commercial 21,269,618 19,689,241
Agriculture 6,874,402 5,993,396
Residential 30,356,310 26,899,278
Installment and consumer 5,101,709 4,851,381
Municipal loans 1,171,040 1,402,034
---------------------------------
88,427,414 81,655,721
Allowance for loan losses 1,159,300 1,104,338
---------------------------------
Net loans $ 87,268,114 $ 80,551,383
=================================
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Impairment of loans having recorded investment at December 31, 1997 of $78,726
and $171,135 at December 31, 1996 has been recognized in conformity with FASB
Statement No. 114 as amended by FASB Statement No. 118. The average recorded
investment in impaired loans during 1997 and 1996 was $95,432 and $454,803
respectively. The total allowance for loan losses related to these loans was
$7,873 and $17,113 on December 31, 1997 and 1996 respectively. Interest income
on impaired loans of $2,013, $2,708 and $-0- was recognized for cash payments
received in 1997, 1996 and 1995 respectively.
Certain directors, principal shareholders and executive officers of the Company,
and their related interests, had loans outstanding in the aggregate amounts of
$2,615,110 and $2,313,931 at December 31, 1997 and 1996 respectively. During
1997, $1,924,390 of new loans were made and repayments totaled $1,623,211. These
loans were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other persons and did not involve more than normal risks of collectibility
or present other unfavorable features.
Note F. Allowance for Loan Losses
The allowance for loan losses reflected in the consolidated financial statements
represents the allowance available to absorb loan losses. An analysis of changes
in the allowance is presented in the following tabulation:
December 31,
----------------------------------------
1997 1996 1995
----------------------------------------
Balance, beginning of year $ 1,104,338 $ 971,722 $ 880,061
Chargeoffs (97,753) (74,653) (82,238)
Recoveries 22,715 23,418 63,899
Provision charged to operations 130,000 183,851 110,000
----------------------------------------
Balance, end of year $ 1,159,300 $ 1,104,338 $ 971,722
=======================================
Note G. Office Buildings and Equipment
Office buildings and equipment are stated at cost less accumulated depreciation
and are summarized as follows:
December 31,
---------------------------------
1997 1996
---------------------------------
Land $ 568,376 $ 424,484
Buildings and improvements 3,514,085 3,504,953
Furniture and equipment 1,494,985 1,503,995
---------------------------------
5,577,446 5,433,432
Less accumulated depreciation 1,233,972 1,047,350
---------------------------------
Total office buildings and equipment $ 4,343,474 $ 4,386,082
=================================
Depreciation expense amounted to $273,417 in 1997, $224,813 in 1996 and $157,183
in 1995.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note H. Deposits
The aggregate amount of other Time deposits (including CDs), each with a minimum
denomination of $100,000 was approximately $8,564,989 and $6,338,024 in 1997 and
1996 respectively.
At December 31, 1997, the scheduled maturities of other Time deposits are as
follows:
1998 $ 51,751,394
1999 5,417,007
2000 2,846,889
2001 2,576,602
2002 2,129,974
--------------
$ 64,721,866
==============
Interest expense on deposits is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1997 1996 1995
-----------------------------------------------------
<S> <C> <C> <C> <C>
Savings and NOW accounts $ 1,027,593 $ 675,067 $ 725,600
Time, $100,000 and over 567,878 405,736 296,716
Other Time 3,199,154 3,211,955 2,831,287
-----------------------------------------------------
Total interest expense on deposits $ 4,794,625 $ 4,292,758 $ 3,853,603
=====================================================
</TABLE>
Note I. Short-Term Borrowing
Short-term borrowing consists of the following:
December 31,
-----------------------------------
1997 1996
-----------------------------------
Demand notes issued to U.S. treasury $ 976,625 $ 469,334
Note payable bank 3,400,000 -
-----------------------------------
Total $ 4,376,625 $ 469,334
===================================
Note payable bank is due May 1, 1998 with interest rate based on floating prime
(8.5% at December 31, 1997). The note is secured by 3,600 shares of common stock
of Mound City Bank.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Interest expense on short-term borrowing was as follows:
December 31,
-------------------------------------
1997 1996 1995
-------------------------------------
Federal funds purchased $ 21,977 $ 11,509 $ 3,121
Demand notes issued to U.S. Treasury 16,837 14,476 10,598
Note payable bank 194,773 - -
-------------------------------------
$ 233,587 $ 25,985 $ 13,719
=====================================
Note J. Income Taxes
The provision for income taxes included in the consolidated financial statements
consists of the following:
December 31,
-------------------------------------
1997 1996 1995
-------------------------------------
Current provision:
Federal $ 194,971 $ 256,866 $ 316,694
State 39,002 39,130 56,273
-------------------------------------
Total current provision 233,973 295,996 372,967
Deferred income taxes (benefit) (25,472) (41,416) (57,000)
-------------------------------------
Total provision for income taxes $ 208,501 $ 254,580 $ 315,967
=====================================
The net deferred tax assets in the accompanying consolidated balance sheets
include the following amounts of deferred tax assets and liabilities:
December 31,
----------------------------
1997 1996
----------------------------
Deferred tax assets:
Allowance for loan losses $ 296,536 $ 274,826
Nonaccrual loan income 833 5,805
Deferred compensation 111,999 97,373
Alternative minimum tax 25,230 -
Deferred tax liabilities:
Depreciation (72,986) (41,864)
Unrealized gain on available for sale securities (82,584) (77,910)
----------------------------
$ 279,028 $ 258,230
============================
Management believes it is more likely than not, that the gross deferred tax
assets will be fully realized. Therefore, no valuation allowance has been
recorded as of December 31, 1997, 1996 and 1995.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A reconciliation of statutory federal income taxes based upon income before
taxes to the provision for federal and state income taxes, as summarized
previously, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- -----------------------
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
-------------------------------------------------------------------------------
<S> <C><C><C> <C> <C> <C> <C> <C> <C>
Reconciliation of statutory to effective taxes:
Federal income taxes at
statutory rate $ 380,956 34.0% $ 405,543 34.0% $ 453,047 34.0%
Adjustments for:
Tax-exempt interest on
municipal obligations (178,097) (15.9) (170,136) (14.3) (172,436) (12.9)
Increases in taxes
resulting from state
income taxes 25,741 2.3 25,826 2.2 37,140 2.8
Officer life (15,745) (1.4) (19,560) (1.6) (18,318) (1.4)
Other - net (4,354) (0.4) 12,907 1.0 16,534 1.2
-------------------------------------------------------------------------------
Effective income
taxes - operations $ 208,501 18.6% 254,580 21.3% 315,967 23.7%
===============================================================================
</TABLE>
Note K. Pension and Profit-Sharing Plans
The subsidiary Bank has a trusteed contributory 401(k) profit-sharing plan
covering all eligible employees. The Bank matches 50% of the amount contributed
by an eligible participant up to a maximum of 4% of the participant's annual
compensation. Additional contributions by the Bank are discretionary and based
on factors related to profits and wages, etc. Contributions for the years ended
December 31, 1997, 1996 and 1995 were $87,893, $74,008 and $77,064 respectively.
Note L. Salary Continuation Agreements
The subsidiary Bank has salary continuation agreements with three officers and
one former officer. The agreements provide for the payment of specified amounts
upon the employee's retirement or death which is being accrued over the
anticipated remaining period of employment. Expense recognized for future
benefits under these agreements totaled $65,628 $68,524 and $64,610 during 1997,
1996 and 1995 respectively.
Although not part of the agreement, the subsidiary Bank purchased paid-up life
insurance on the officers which could provide funding for the payment of
benefits. Included in other assets is $1,007,602 and $961,277 of related cash
surrender value as of December 31, 1997 and 1996 respectively.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note M. Commitments and Contingencies
In the normal course of business, the subsidiary Bank is involved in various
legal proceedings. In the opinion of management, any liability resulting from
such proceedings would not have a material adverse effect on the consolidated
financial statements.
The subsidiary Bank is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of their
customers. These financial instruments include commitments to extend credit and
standby letters of credit. They involve, to varying degrees, elements of credit
risk in excess of amounts recognized on the consolidated balance sheets.
The subsidiary Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The subsidiary Bank uses the same credit policies in making
commitments and issuing letters of credit as it does for on-balance-sheet
instruments.
A summary of the contract or notional amount of the subsidiary Bank's exposure
to off-balance-sheet risk as of December 31, 1997 and 1996 is as follows:
1997 1996
---------------------------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 9,884,088 $ 7,000,727
Credit card commitments $ 1,487,855 $ 1,300,922
Standby letters of credit $ 80,000 $ 694,725
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 subsidiary Bank to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The subsidiary Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the subsidiary Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, property and equipment, and
income-producing commercial properties. Credit card commitments are unsecured.
The subsidiary Bank did not engage in the use of interest rate swaps, futures,
forwards or options contracts.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note N. Concentration of Credit Risk
Practically all of the subsidiary Bank's loans, commitments, and commercial and
standby letters of credit have been granted to customers in the Bank's market
area. Although the subsidiary Bank has a diversified loan portfolio, the ability
of its debtors to honor their contracts is dependent on the economic conditions
of the counties surrounding the subsidiary Bank. The concentration of credit by
type of loan are set forth in Note E.
Note O. Retained Earnings
The principal source of income and funds of Mound City Financial Services, Inc.
are dividends from its subsidiary. Dividends declared by the subsidiary that
exceed the retained net income for the most current year plus retained net
income for the preceding two years must be approved by Federal and State
regulatory agencies. Under this formula, dividends of approximately $1,512,406
may be paid without prior regulatory approval. Maintenance of adequate capital
at the subsidiary effectively restricts potential dividends to an amount less
than $1,512,406.
Note P. Stock Exchange
On May 1, 1997, Mound City Financial Services, Inc. exchanged one (1) share of
common stock for each share outstanding of Mound City Bank. 906 shares of Mound
City Banks common stock was purchased for $3,840,000. All share information,
common stock and retained earning, and earning per share, has been restated as
if the stock exchange occurred on December 31, 1994.
Note Q. Stock Split
In 1997, the Board of Directors approved a 9 for 1 stock split payable to
stockholders of record on December 11, 1997. All amounts of per share data have
been adjusted to reflect the stock split.
Note R. Regulatory Capital Requirements
The subsidiary Bank is subject to various regulatory capital requirements
administered by the federal and state 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 subsidiary Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the subsidiary Bank must meet specific capital guidelines that involve
quantitative measures of the subsidiary Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
subsidiary Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk-weightings, and
other factors.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Quantitative measures established by regulation to ensure capital adequacy
requires the subsidiary 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 Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, the
subsidiary Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the regulatory
agencies categorized the subsidiary Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the subsidiary Bank must maintain minimum total risk-based,
Tier I risk-based, and leverage ratios as set forth in the table. There are no
conditions or events since these notifications that management believes have
changed the institution's category.
Below is a comparison of the Company and bank subsidiary 1997 and 1996 actual
with the minimum requirements for well-capitalized and adequately capitalized
banks, as defined by the federal regulatory agencies' Prompt Corrective Action
Rules:
<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
---------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------------------
<S><C><C> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital (to risk-weighted assets):
Mound City Financial Services, Inc. $ 7,693,854 9.3% $ 6,646,316 8.0% $ 8,307,895 10.0%
Mound City Bank $ 10,924,775 13.2% $ 6,634,893 8.0% $ 8,293,617 10.0%
Tier I capital (to risk-weighted assets):
Mound City Financial Services, Inc. $ 6,654,876 8.0% $ 3,323,158 4.0% $ 4,984,737 6.0%
Mound City Bank $ 9,886,559 11.9% $ 3,317,447 4.0% $ 4,976,170 6.0%
Tier I capital (to average assets):
Mound City Financial Services, Inc. $ 6,654,876 5.7% $ 4,697,604 4.0% $ 5,872,004 5.0%
Mound City Bank $ 9,886,559 8.4% $ 4,697,604 4.0% $ 5,872,004 5.0%
As of December 31, 1996:
Total capital (to risk-weighted assets):
Mound City Financial Services, Inc. $ 10,793,570 13.4% $ 6,430,732 8.0% $ 8,038,415 10.0%
Mound City Bank $ 10,793,570 13.4% $ 6,430,732 8.0% $ 8,038,415 10.0%
Tier I capital (to risk-weighted assets):
Mound City Financial Services, Inc. $ 9,787,539 12.2% $ 3,215,366 4.0% $ 4,823,049 6.0%
Mound City Bank $ 9,787,539 12.2% $ 3,215,366 4.0% $ 4,823,049 6.0%
Tier I capital (to average assets):
Mound City Financial Services, Inc. $ 9,787,539 8.7% $ 4,488,491 4.0% $ 5,610,614 5.0%
Mound City Bank $ 9,787,539 8.7% $ 4,488,491 4.0% $ 5,610,614 5.0%
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note S. Fair Value of Financial Instruments
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------------- ------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 8,057,103 $ 8,057,103 $ 7,721,805 $ 7,721,805
================================================================
Securities $ 19,956,739 $ 19,956,739 $ 20,070,636 $ 20,070,636
================================================================
Net loans $ 87,268,114 $ 88,050,335 $ 80,551,383 $ 80,991,716
================================================================
Accrued interest receivable $ 1,001,105 $ 1,001,105 $ 983,199 $ 983,199
================================================================
Financial liabilities:
Deposits $109,151,027 $109,253,037 $102,942,284 $103,063,440
================================================================
U.S. Treasury note account $ 976,625 $ 976,625 $ 469,334 $ 469,334
================================================================
Note payable - bank $ 3,400,000 $ 3,400,000 $ - $ -
================================================================
Accrued interest payable $ 1,243,067 $ 1,243,067 $ 1,156,074 $ 1,156,074
================================================================
</TABLE>
The estimated fair value of fee income on letters of credit at December 31, 1997
and 1996 is insignificant. Loan commitments on which the committed interest rate
is less than the current market rate are also insignificant at December 31, 1997
and 1996.
The subsidiary Bank assumes interest rate risk (the risk that general interest
rate levels will change) as a result of its normal operations. As a result, fair
values of the subsidiary Bank's financial instruments will change when interest
rate levels change and that change may be either favorable or unfavorable to the
subsidiary Bank. Management attempts to match maturities of assets and
liabilities to the extent believed necessary to minimize interest rate risk.
However, borrowers with fixed rate obligations are less likely to prepay in a
rising rate environment and more likely to repay in a falling rate environment.
Conversely, depositors who are receiving fixed rates are more likely to withdraw
funds before maturity in a rising rate environment and less likely to do so in a
falling rate environment. Management monitors rates and maturities of assets and
liabilities and attempts to minimize interest rate risk by adjusting terms of
new loans and deposits and by investing in securities with terms that mitigate
the subsidiary Bank's overall interest rate risk.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note T. Mound City Financial Services, Inc. and Subsidiary (Parent Company only)
Financial Information
December 31,
CONDENSED BALANCE SHEETS 1997
- --------------------------------------------------------------------------------
Assets:
Cash $ 277,168
Investment in subsidiary 10,047,962
Other assets 141,018
----------------
Total assets $ 10,466,148
================
Liabilities:
Note payable $ 3,400,000
Other liabilities 250,869
----------------
Total liabilities 3,650,869
----------------
Stockholders' equity:
Common stock, no par value, $1.00 stated value; 300,000
shares authorized; 26,940 shares issued in 1997 26,940
Surplus 6,270,446
Retained earnings 362,546
----------------
6,659,932
Treasury stock - 20 shares for 1997, at cost (5,056)
Other comprehensive income - unrealized
gain on available for sale securities, net 160,403
----------------
Total stockholders' equity 6,815,279
----------------
Total liabilities and stockholders' equity $ 10,466,148
================
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31,
Condensed statements of income 1997
- --------------------------------------------------------------------------------
Income:
Dividends from subsidiary $ 950,000
Interest 2,265
----------------
Total income 952,265
----------------
Expenses:
Interest 194,774
Other expenses 13,138
----------------
Total expenses 207,912
----------------
Income before income tax benefit and equity
in undistributed net income of subsidiary 744,353
Income tax (benefit) (69,920)
----------------
Income before equity in undistributed
net income of subsidiary 814,273
Equity in undistributed net income of subsidiary 97,686
----------------
Net income $ 911,959
================
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31,
CONDENSED STATEMENTS OF CASH FLOWS 1997
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 911,959
----------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in other assets (141,018)
Increase in other liabilities 250,869
Equity in undistributed earnings (97,686)
----------------
Total adjustments 12,165
----------------
Net cash provided by operating activities 924,124
----------------
Cash flows from financing activities:
Purchase treasury stock (5,056)
Payment dissenter shares (3,840,000)
Note proceeds 3,840,000
Payment note (440,000)
Dividends paid (201,900)
----------------
Net cash used in financing activities (646,956)
----------------
Increase in cash and cash equivalents 277,168
Cash and cash equivalents at beginning of year -
----------------
Cash and cash equivalents at end of year $ 277,168
================
F-26
<PAGE>
MOUND CITY FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
March 31, 1998
- --------------------------------------------------------------------------------
ASSETS (Unaudited)
- --------------------------------------------------------------------------------
Cash and due from banks $ 4,322,000
Federal funds sold 1,303,000
----------------
Cash and cash equivalents 5,625,000
Available for sale securities stated at fair value 19,026,000
Loans, less allowance for loan losses of $1,106,000 90,371,000
Office buildings and equipment, net 4,310,000
Accrued interest receivable and other assets 2,518,000
----------------
Total assets $ 121,850,000
================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Liabilities:
Deposits:
Noninterest bearing $ 8,432,000
Savings 36,066,000
Other Time 63,136,000
----------------
Total deposits 107,634,000
Short-term borrowings 5,341,000
Accrued interest payable and other liabilities 1,899,000
----------------
Total liabilities 114,874,000
----------------
Commitments and contingent liabilities Stockholders' equity:
Common stock, no par value; $1 stated value; 300,000
shares authorized, 26,940 shares issued 27,000
Surplus 6,270,000
Retained earnings 542,000
----------------
6,839,000
Less Treasury stock, 20 shares at cost (5,000)
Accumulated other comprehensive income -
unrealized gain on available for sale securities, net 142,000
-----------------
Total stockholder's equity 6,976,000
-----------------
Total liabilities and stockholders' equity $ 121,850,000
=================
F-27
<PAGE>
MOUND CITY FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months ended March 31, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
1998 1997
--------------------------
Interest income:
Interest and fees on loans $ 1,980,000 $ 1,814,000
Interest on investment securities:
Taxable securities 182,000 190,000
Tax-exempt securities 115,000 117,000
Interest on federal funds sold 25,000 10,000
--------------------------
Total interest income 2,302,000 2,131,000
--------------------------
Interest expense:
Interest on deposits 1,278,000 1,118,000
Interest on short-term borrowing 92,000 15,000
--------------------------
Total interest expense 1,370,000 1,133,000
--------------------------
Net interest income 932,000 998,000
Provision for loan losses 30,000 30,000
--------------------------
Net interest income after provision
for loan losses 902,000 968,000
--------------------------
Other operating income:
Service fees 97,000 92,000
Other income 75,000 64,000
Security gains, net 22,000 6,000
--------------------------
Total other operating income 194,000 162,000
--------------------------
Other operating expenses:
Salaries 339,000 315,000
Pensions and other employee benefits 170,000 130,000
Occupancy expense 120,000 124,000
Computer services 44,000 42,000
Advertising and business development 37,000 35,000
Other expenses 171,000 142,000
--------------------------
Total other operating expenses 881,000 788,000
--------------------------
Income before income taxes 215,000 342,000
Less applicable income taxes 35,000 68,000
--------------------------
Net income $ 180,000 $ 274,000
==========================
Earnings per share $ 6.69 $ 7.61
==========================
Weighted average shares outstanding 26,920 36,000
==========================
F-28
<PAGE>
MOUND CITY FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months ended March 31, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
1998 1997
--------------------------
Net Income $ 180,000 $ 274,000
Other comprehensive income:
Unrealized gains (losses) arising during period (4,000) (70,000)
Reclassified adjustment for (gains) losses
included in net income (15,000) (2,000)
--------------------------
Total other comprehensive income (19,000) (72,000)
--------------------------
Comprehensive income $ 161,000 $ 202,000
==========================
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Three Months ended
March 31, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Other
comprehensive
income
(loss)
------------
Unrealized
gain (loss)
on available Total stock-
Common Retained for sale Treasury holders'
stock Surplus earnings securities stock equity
--------------------------------------------------------------------------------
<S><C><C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 $ 36,000 $ 7,464,000 $ 2,290,000 $ 151,000 $ - $ 9,941,000
Net income - - 274,000 - - 274,000
Change in unrealized gain (loss) on
available for sale securities, net - - - (72,000) - (72,000)
------------------------------------------------------------------------------
Balances, March 31, 1997 $ 36,000 $ 7,464,000 $ 2,564,000 $ 79,000 $ - $10,143,000
==============================================================================
Balances, December 31, 1997 $ 27,000 $ 6,270,000 $ 362,000 $ 161,000 $ (5,000) $ 6,815,000
Net income - - 180,000 - - 180,000
Change in unrealized gain (loss) on
available for sale securities, net - - - (19,000) - (19,000)
------------------------------------------------------------------------------
Balances, March 31, 1998 $ 27,000 $ 6,270,000 $ 542,000 $ 142,000 $ (5,000) $ 6,976,000
==============================================================================
</TABLE>
F-29
<PAGE>
MOUND CITY FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months ended March 31, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
1998 1997
--------------------------
Cash flows from operating activities:
Net income $ 180,000 $ 274,000
--------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 69,000 68,000
Provision for loan losses 30,000 30,000
Gain on sale of securities (22,000) (6,000)
Change in assets and liabilities:
Increase in accrued interest receivable
and other assets (20,000) (72,000)
Increase in accrued interest payable
and other liabilities 127,000 69,000
--------------------------
Total adjustments 184,000 89,000
--------------------------
Net cash provided by operating activities 364,000 363,000
--------------------------
Cash flows from investing activities:
Maturity of available for sale securities 2,471,000 2,624,000
Sale of available for sale securities 641,000 2,316,000
Purchase of available for sale securities (2,187,000) (5,684,000)
Net (increase) decrease in loans (3,133,000) (1,218,000)
Purchase of office buildings and equipment (36,000) (21,000)
--------------------------
Net cash used in investing activities (2,244,000) (1,983,000)
--------------------------
Cash flows from financing activities:
Net decrease in deposits (1,517,000) (2,510,000)
Net decrease in demand notes issued to
U.S. Treasury (535,000) (30,000)
Net increase in federal funds purchased - 426,000
Federal Home Loan Bank advances 1,500,000 -
--------------------------
Net cash used in financing activities (552,000) (2,114,000)
--------------------------
Decrease in cash and cash equivalents (2,432,000) (3,734,000)
Cash and cash equivalents, beginning of period 8,057,000 7,722,000
--------------------------
Cash and cash equivalents, end of period $ 5,625,000 $ 3,988,000
==========================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,066,000 $ 926,000
==========================
Income taxes $ 25 $ 4,130
==========================
Supplemental schedule of noncash investing and
financing activities:
Net change in unrealized gain (loss)
on available for sale securities, net $ (19,000) $ (72,000)
==========================
F-30
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
Note 1. Interim Financial Information
The unaudited interim financial statements have been prepared in conformity with
generally accepted accounting principles and include all adjustments which are,
in the opinion of management, normal and recurring in nature and necessary to a
fair presentation of the interim periods presented. Results of operations for
the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
Note 2. Loans
Major classifications of loans are as follows: March 31,
1998
---------------
Commercial $ 12,615,000
Agricultural production 9,758,000
Real estate:
Construction 1,023,000
Commercial 23,735,000
Agriculture 7,059,000
Residential 30,906,000
Installment and consumer 5,228,000
Municipal loans 1,153,000
---------------
91,477,000
Allowance for loan losses 1,106,000
---------------
Net loans $ 90,371,000
===============
Note 3. Allowance for Loan Losses
As of March 31, 1998, nonaccrual loans totaled $390,000 or .43% of gross loans.
The allowance for loan losses reflected in the consolidated financial statements
represents the allowance available to absorb loan losses. An analysis of changes
in the allowance is presented in the following tabulation:
1998 1997
----------------------------------
Balance, beginning of year $ 1,159,000 $ 1,104,000
Chargeoffs (89,000) (14,000)
Recoveries 6,000 7,000
Provision charged to operations 30,000 30,000
----------------------------------
Balance, end of first quarter $ 1,106,000 $ 1,127,000
==================================
F-31
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
Note 4. Regulatory Capital Requirements
The subsidiary Bank is subject to various regulatory capital requirements
administered by the federal and state 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 subsidiary Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the subsidiary Bank must meet specific capital guidelines that involve
quantitative measures of the subsidiary Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
subsidiary 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
requires the subsidiary 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 Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, the
subsidiary Bank meets all capital adequacy requirements to which it is subject.
As of March 31, 1998, the most recent notification from the regulatory agencies
categorized the subsidiary Bank as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized,
the subsidiary Bank must maintain minimum total risk-based, Tier 1 risk-based,
and leverage ratios as set forth in the table. There are no conditions or events
since these notifications that management believes have changed the institutions
category.
Below is a comparison of the Company's March 31, 1998 actual with the minimum
requirements for well-capitalized and adequately capitalized banks, as defined
by the federal regulatory agencies' Prompt Corrective Action Rules:
<TABLE>
<CAPTION>
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
-------------------- ---------------------- -----------------------
Total Ratio Total Ratio Total Ratio
---------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C>
As of March 31, 1998:
Total capital (to $ 7,940,000 9.0% $ 7,077,000 8.0% $ 8,847,000 10.0%
risk-weighted assets)
Tier I capital (to $ 6,834,000 7.7% $ 3,539,000 4.0% $ 5,308,000 6.0%
risk-weighted assets)
Tier I capital (to $ 6,834,000 5.5% $ 4,943,000 4.0% $ 6,178,000 5.0%
average assets)
</TABLE>
F-32
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
Note 5. Mound City Financial Services, Inc. and Subsidiary (Parent Company only)
Financial Information
March 31,
CONDENSED BALANCE SHEET 1998
- --------------------------------------------------------------------------------
Assets:
Cash $ 144,000
Investments in subsidiary 10,261,000
Other assets 93,000
-----------------
Total assets $ 10,498,000
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Liabilities:
Notes payable $ 3,400,000
Other liabilities 122,000
-----------------
Total liabilities 3,522,000
-----------------
Stockholders' equity:
Common stock, no par value; $1 stated value; 300,000
shares authorized, 26,940 shares issued 27,000
Surplus 6,270,000
Retained earnings 542,000
-----------------
6,839,000
Treasury stock, 20 shares at cost (5,000)
Other comprehensive income - unrealized
gain on available for sale securities, net 142,000
-----------------
Total stockholder's equity 6,976,000
-----------------
Total liabilities and stockholders' equity $ 10,498,000
=================
F-33
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
Note 5. Mound City Financial Services, Inc. and Subsidiary (Parent Company only)
Financial Information (continued)
March 31,
CONDENSED STATEMENT OF INCOME 1998
- --------------------------------------------------------------------------------
Income - interest $ 1,000
----------------
Expenses:
Interest 72,000
Other expenses 7,000
----------------
Total expenses 79,000
----------------
Income before income tax benefit and equity
in undistributed net income of subsidiary (78,000)
Income tax (benefit) (26,000)
----------------
Income before equity in undistributed net
income of subsidiary (52,000)
Equity in undistributed net income of subsidiary 232,000
-----------------
Net income $ 180,000
=================
F-34
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus, and if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date hereof. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities offered 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 anyone to whom it is unlawful to
make such offer or solicitation.
-----------------
TABLE OF CONTENTS
Page
Summary.......................................................................1
Risk Factors .................................................................2
Terms of the Offering.........................................................6
Use of Proceeds...............................................................8
Determination of Offering Price...............................................9
Capitalization................................................................9
Selected Consolidated Financial Data.........................................10
Management's Discussion and Analysis.........................................11
History, Business, and Properties............................................25
Management...................................................................26
Principal Shareholders.......................................................31
Supervision and Regulation...................................................32
Description of Common Stock..................................................35
Shares Eligible for Future Sale..............................................41
Legal Proceedings............................................................41
Legal Matters................................................................41
Experts......................................................................41
Available Information........................................................42
Index to Financial Statements...............................................F-1
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Until __________________, 1998 (25 days after the commencement date of this
offering), all dealers effecting transactions in the Common Stock, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriter and with respect to their unsold
allotments or subscriptions.
12,000 Shares
MOUND CITY FINANCIAL
SERVICES, INC.
Common Stock
---------------------
PROSPECTUS
---------------------
_________, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
The Company's bylaws provide that the Company shall indemnify its directors
and officers, to the fullest extent permitted by law, against liability in
connection with proceedings to which the director or officer is made or
threatened to be made a party by reason of his or her capacity as a director or
officer. Indemnification shall not be available where the director or officer
breached or failed to perform a duty to the Company and the breach or failure
constitutes: (a) a willful failure to deal fairly with the Company or its
shareholders in connection with the matter in which the director or officer has
a material conflict of interest; (b) a violation of criminal law, unless the
director or officer had reasonable cause to believe his or her conduct was
lawful or no reasonable cause to believe his or her conduct was unlawful; (c) a
transaction from which the director or officer derived an improper personal
benefit; or (d) willful misconduct.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection with the
sale and distribution of the Common Stock being registered, other than
underwriting discounts and commissions. All amounts shown are estimates, except
the SEC registration fee:
SEC registration fee.............................. $ 1,097.40
Printing and mailing expenses..................... 2,500.00
Fees and expenses of company counsel.............. 20,000.00
Accounting and related expenses................... 10,000.00
Blue Sky fees and expenses........................ 2,000.00
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TOTAL............................................. $35,597.40
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Item 26. Recent Sales of Unregistered Securities
The Company has not sold any shares of its Common Stock since its
formation.
Item 27. Exhibits.
Exhibit No. Description
3.1 Articles of Incorporation of Mound City Financial Services, Inc.
3.2 Bylaws of Mound City Financial Services, Inc.
4.1 Specimen Stock Certificate of Mound City Financial Services, Inc.
5.1 Opinion of Boardman, Suhr, Curry & Field LLP regarding legality
of securities being registered
10.1 Executive Employee Salary Continuation Agreement between
Mound City Bank and Robert J. Just, Jr.
21.1 List of Subsidiaries of Mound City Financial Services, Inc.
23.1 Consent of Boardman, Suhr, Curry & Field LLP (included in
opinion filed as Exhibit 5.1)
23.2 Consent of Conley McDonald LLP
24.1 Power of Attorney (included on the signature page of this
Registration Statement)
99.1 Subscription Agreement
99.2 Appraisal
Item 28. Undertakings.
The undersigned registrant hereby undertakes as follows:
(1) The registrant will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by ss. 10(a)(3) of the Securities
Act.
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any
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increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the SEC pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a twenty percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, the registrant will
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) The registrant will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
Offering.
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against liabilities arising under the Securities Act (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2/A and authorizes this Amendment to
Registration Statement No. 333-53797 to be signed on its behalf by the
undersigned, in the City of Platteville, State of Wisconsin, on July 10, 1998.
MOUND CITY FINANCIAL SERVICES, INC.
By:
/s/ Robert J. Just, Jr.
Robert J. Just, Jr., President, Principal
Financial and Accounting Officer
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In accordance with the requirements of the Securities Act of 1933,
Registration Statement No. 333-53797 was signed by the following persons in the
capacities indicated on May 27, 1998.
Name Title(s)
Wilson J. Boldt Director
Barry J. Brodbeck Director
Keith R. Buchert Director
Donna J. Hoppenjan Secretary
Robert J. Just, Jr. President, Chief Executive Officer, Director
W. Phil Karrmann Director
Richard J. Kopp Director
Richard L. McWilliams Vice President, Director
James D. Soles Director
Douglas W. Speth Director
Robert J. Just, Jr., by signing his name hereto, does hereby sign this
document on behalf of himself and on behalf of each of the other directors and
executive officers named above pursuant to powers of attorney duly executed by
each other person.
MOUND CITY FINANCIAL SERVICES, INC.
/s/ Robert J. Just, Jr.
Robert J. Just, Jr.
Attorney-in-Fact
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EXHIBIT 3.1
Articles of Incorporation of
Mound City Financial Services, Inc.
<PAGE>
ARTICLES OF INCORPORATION
Stock (for profit)
Executed by the undersigned for the purpose of forming a Wisconsin
for-profit corporation under Chapter 180 of the Wisconsin Statutes repealed and
recreated by 1989 Wis. Act 303:
ARTICLE 1. Name of Corporation: Mound City Financial Services, Inc.
ARTICLE 2. The Corporation shall be authorized to issue 300,000 shares.
ARTICLE 3. The street address of the initial registered office is: 25 East
Pine Street, Platteville, Wisconsin 53818
ARTICLE 4. The name of the initial registered agent at the above registered
office is: Robert J. Just, Jr.
ARTICLE 5. Other provisions (OPTIONAL): Article 5 continued on attached
pages incorporated by reference.
ARTICLE 6. Executed on August 5, 1996.
Name and complete address of each incorporator:
Robert J. Just, Jr.
President
Mound City Bank
25 East Pine Street, Box 263
Platteville, WI 53818
/s/ Robert J. Just, Jr.
(Incorporator Signature)
This document was drafted by John E. Knight.
DFI CORP FILE ID NO. M046562
Document stamped Received August 29, 1996, 3:30 P.M. by State of
Wisconsin, Department of Financial Institutions.
Document stamped Filed September 6, 1996 by State of Wisconsin,
Department of Financial Institutions.
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Mound City Financial Services, Inc.
ARTICLES OF INCORPORATION
Article 5. (CONTINUED):
A. The number of directors shall not be less than seven (7) nor more than
nine (9), the exact number of directors to be determined from time to time by
resolution adopted by a majority of the entire Board of Directors, and such
exact number shall be nine (9) until otherwise determined by resolution adopted
by a majority of the entire Board of Directors. As used in this Article 5
"entire Board of Directors" means the total number of directors which the
Corporation would have if there were no vacancies.
The Board of Directors shall be divided into three (3) classes of nearly
equal in number as may be, with the term of office of one class expiring each
year. At the first annual meeting of the shareholders, directors of the first
class (Class I) shall be elected to hold office for a term expiring at the next
succeeding annual meeting, directors of the second class (Class II) shall be
elected to hold office for a term expiring at the second succeeding annual
meeting and directors of the third class (Class III) shall be elected to hold
office for a term expiring at the third succeeding annual meeting. Subject to
the foregoing, at each annual meeting of shareholders, directors chosen to
succeed those terms then expired shall be elected for a term of office expiring
at the third succeeding annual meeting of shareholders after their election, so
that the term of one class of directors shall expire each year. Any vacancies on
the Board of Directors for any reason, and any newly created directorships
resulting from any increase in the number of directors, may be filled by the
Board of Directors, acting by a majority of the directors then in office,
although less than a quorum. Each director shall hold office until the next
election of the class for which such director shall have been elected or
appointed and until his or her successor shall be elected and qualified or until
his or her death, or until he or she shall resign or shall have been removed in
the manner hereinafter provided. No decrease in the number of directors shall
shorten the term of any incumbent director.
The names and addresses of the persons who are to serve as directors until
the first annual meeting of the shareholders or until their successors are
elected and shall qualify are:
Wilson J. Boldt Barry J. Brodbeck
715 N. Second 949 Stonebridge Road
Platteville, WI 53818 Platteville, WI 53818
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Keith R. Buchert Robert J. Just, Jr.
110 Virgin Avenue P.O. Box 303
Platteville, WI 53818 Platteville, WI 53818
W. Phil Karrmann Richard J. Kopp
1690 County Road B 100 Highpoint Circle
Platteville, WI 53818 Platteville, WI 53818
James D. Soles Douglas W. Speth
150 South Hickory St. 15021 Highway 126
Platteville, WI 53818 Belmont, WI 53510
Richard L. McWilliams
P.O. Box 55
Platteville, WI 53818
No director of the Corporation shall be removed from office with or without
cause unless such removal is approved either by the holders of seventy-five
percent (75%) of the common stock of the Corporation outstanding at the time a
determination is made or by the affirmative vote of seventy-five percent (75%)
of the directors in office at the time the determination is made.
B. Except as otherwise expressly provided in this Article 5B: (i) any
merger or consolidation of the Corporation with or into any other corporation;
(ii) any share exchange in which a corporation, person or entity acquires the
issued or outstanding shares of capital stock of the Corporation pursuant to a
vote of shareholders; (iii) any sale, exchange or other disposition of all or
substantially all of the assets of the Corporation, including, but not limited
to, the stock of any subsidiary organization held by the Corporation to or with
any other corporation, person or entity; or (iv) any transaction similar to, or
having similar effect as, any of the foregoing transactions, shall require the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of the capital stock of the Corporation issued and outstanding and
entitled to vote.
The provisions of this Article 5B shall not apply to any transaction
described above in clauses (i), (ii), (iii) or (iv) of this Article 5B, (a)
which has been approved by resolution adopted by seventy-five percent (75%) of
the entire Board of Directors of the Corporation at any time prior to the
consummation thereof, or (b) with another corporation or entity if a majority of
the outstanding shares of stock of such other corporation or entity is owned of
record or beneficially directly or indirectly by the Corporation or its
subsidiaries. If the provisions of this Article 5B do not apply because of
clauses (a) or (b) in this paragraph, the transactions described in clauses (i),
(ii), (iii) or (iv) in the first paragraph of this Article 5B shall require the
affirmative vote of the holders of at least a majority of the shares of the
Stock of the Corporation issued and outstanding and entitled to vote or as
otherwise required by law.
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The Board of Directors of the Corporation shall have the power and duty to
determine for purposes of this Article 5B, on the basis of information then
known to it, whether any sale, exchange or other disposition of part of the
assets of the Corporation involves substantially all of the assets of the
Corporation. Any such determination by the Board of Directors shall be
conclusive and binding for all purposes of this Article 5B.
C. Shareholders of the Corporation's capital stock, herein the "Stock," may
not sell, transfer, assign, encumber, pledge, hypothecate, or in any way dispose
of or alienate any of their shares of the Stock, or any right, title or interest
therein, whether voluntarily or by operation of law, or by gift or otherwise,
without the prior written consent of the Corporation. Provided, however, that
the prior written consent of the Corporation shall not be required as to: (i)
any transaction between a shareholder and his or her spouse, a member of his or
her immediate family or any lineal descendant thereof; or (ii) any pledge or
hypothecation of shares of the Stock, provided, that as a condition precedent to
the effectiveness of either of the transactions described in (i) or (ii) herein,
the transferee in any such transaction shall be bound by all of the terms and
conditions of this Article 5C.
In the event a shareholder, herein the "Selling Shareholder", desires to
dispose of his or her shares of Stock, or any portion of it, called the "Offered
Shares", other than in a transaction of the type described in (i) or (ii) above,
without first obtaining the written consent of the Corporation, the Selling
Shareholder, first, shall give the Corporation written notice of his or her
intent to do so, stating in the notice the identity of the proposed transferee
of the Offered Shares, the number of Offered Shares the Selling Shareholder
proposes to transfer, the proposed consideration for the Offered Shares and the
other terms and conditions of the proposed transfer of the Offered Shares. The
Selling Shareholder shall include with the written notice given to the
Corporation under this paragraph a copy of the written offer to purchase the
Offered Shares. The Corporation shall have a right of first refusal to acquire
all, but not less than all, of the Offered Shares for the consideration and on
the other terms and conditions offered by the proposed transferee and as
contained in the written notice given to the Corporation by the Selling
Shareholder. The Corporation shall exercise its right to acquire the Offered
Shares by giving written notice to the Selling Shareholder, indicating the
number of Offered Shares it will acquire, within thirty (30) days following
receipt of the written notice of the Selling Shareholder. In the event the
Corporation does not exercise its acquisition rights within the time period as
provided herein with respect to all of the Offered Shares, the Selling
Shareholder shall be free for a period of thirty (30) days thereafter to
transfer all of the Offered Shares to the transferee identified in the written
notice to the Corporation, and at the same consideration and on the same terms
and conditions as set forth in such written notice. After giving any notice
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of intended transfer of any shares of the Stock pursuant to this Article 5C, the
Selling Shareholder, unless requested by the other shareholders of the
Corporation holding a majority of the Corporation's outstanding shares of
capital stock, not including the shares of the Stock held by the Selling
Shareholder, shall refrain from participating as an officer, director or
shareholder of the Corporation with respect to the Corporation's decision on
whether or not to acquire the Offered Shares and, if so requested to
participate, the Selling Shareholder shall cooperate with the other shareholders
and the Corporation in every reasonable way to effectuate the purpose of this
Article 5C. Except as provided in this Article 5C, the Selling Shareholder shall
be bound by the restrictions and limitations imposed by this Article 5C after
any notice of a desire to transfer is given and whether or not any such transfer
actually occurs. As a condition precedent to the effectiveness of any transfer
of Offered Shares to any person or entity, such transferee shall agree in
writing to be bound by all of the terms and conditions of this Article 5C.
Each certificate representing shares of the Stock shall have endorsed
thereon a legend in substantially the following form:
The shares represented by this certificate and any sale,
transfer, or other disposition thereof are restricted under
and subject to the terms and conditions contained in Article
5C of the Corporation's Articles of Incorporation, a copy of
which is on file at the offices of the Corporation.
Any attempted or purported sale, transfer, assignment, encumbrance, pledge,
hypothecation or other disposition or alienation of any of the shares of the
Stock by a shareholder in violation of this Article 5C shall be null, void and
ineffectual, and shall not operate to transfer any right, title or interest
whatsoever in or to such shares of the Stock.
D. The provision of this Article 5, may not be amended, altered or repealed
except by the affirmative vote of holders of at least seventy five percent (75%)
of the shares of the capital stock of the Corporation issued and outstanding and
entitled to vote, at any regular or special meeting of the shareholders if
notice of the proposed amendment, alteration or repeal be contained in the
notice of meeting.
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EXHIBIT 3.2
Bylaws of Mound City Financial Services, Inc.
<PAGE>
BYLAWS OF
MOUND CITY FINANCIAL SERVICES, INC.
ARTICLE I. OFFICES
The principal office of the Corporation shall be located in the City of
Platteville, Grant County, Wisconsin.
ARTICLE II. SHAREHOLDERS
SECTION l. Annual Meeting. The annual meeting of the Shareholders shall be
held at such place, on such date, and at such time as the Board of Directors
shall each year fix for the purposes of electing Directors and for the
transaction of such other business as may come before the meeting. If the
election of Directors is not held on the day designated for any annual meeting
of the Shareholders, or at any adjournment thereof, the Board of Directors shall
cause the election to be held at a special meeting of the Shareholders as soon
thereafter as may be convenient.
SECTION 2. Special Meetings. Special meetings of the Shareholders, for any
purpose, unless otherwise prescribed by statute, may be called by the President
or the Board of Directors, and shall be called by the President at the request
of Shareholders owning, in the aggregate, not less than ten percent (10%) of all
the outstanding shares of the Corporation entitled to vote at the meeting,
provided that such Shareholders deliver a signed and dated written demand to the
Corporation, describing the purpose(s) for which the meeting is to be held.
SECTION 3. Place of Meeting. The President may designate any place, either
within or without the State of Wisconsin, as the place of meeting for any annual
meeting or for any special meeting called by the Board of Directors. If no
designation is made, or if a special meeting is otherwise called, the place of
meeting shall be the principal office of the Corporation in the State of
Wisconsin. Any meeting may be adjourned to reconvene at any place designated by
vote of a majority of the shares represented at the meeting.
SECTION 4. Notice of Meeting. Written notice stating the place, day and
hour of the meeting, and, in case of a special meeting, the purpose for which
the meeting is called, shall be delivered not less than ten (10) days (unless a
longer period is required by law) nor more than sixty (60) days before the date
of the meeting, either personally or by mail, by or at the direction of the
President or the Secretary, to each Shareholder of record entitled to vote at
the meeting. If mailed, the notice shall be deemed to be delivered when
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deposited in the United States mail, addressed to the Shareholder at his or her
address as it appears on the stock record books of the Corporation, postage
prepaid.
SECTION 5. Quorum; Manner of Acting. Except as otherwise provided by law,
the Articles of Incorporation or these Bylaws, a majority of the outstanding
shares of the Corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of Shareholders and a majority of votes
cast at any meeting at which a quorum is present shall be decisive of any
motion, except that each Director shall be elected by a plurality of the votes
cast by the shares entitled to vote. Though less than a quorum of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting.
SECTION 6. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining Shareholders entitled to notice of or to vote at any
meeting of Shareholders or any adjournment thereof, or Shareholders entitled to
receive payment of any dividend, or in order to make a determination of
Shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, sixty (60) days. If the stock transfer books shall be
closed for the purpose of determining Shareholders entitled to notice of or to
vote at a meeting of Shareholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting. In lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of Shareholders, such date in any case to be not
more than sixty (60) days and, in case of a meeting of Shareholders, not less
than ten (10) days prior to the date on which the particular action, requiring
such determination of Shareholders, is to be taken. If the stock transfer books
are not closed and no record date is fixed for the determination of Shareholders
entitled to notice of or to vote at a meeting of Shareholders, or Shareholders
entitled to receive payment of a dividend, the close of business on the date
next preceding the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
Shareholders. When a determination of Shareholders entitled to vote at any
meeting of Shareholders has been made as provided in this section, such
determination shall be applied to any adjournment thereof except where the
determination has been made through the closing of the stock transfer books and
the stated period of closing has expired.
SECTION 7. Proxies. At all meetings of Shareholders, a Shareholder entitled
to vote may vote by proxy appointed in writing by the Shareholder or by his or
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her duly authorized attorney in fact. Proxies shall be filed with the Secretary
of the Corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. A proxy may be revoked at any time before it is voted,
either by written notice filed with the Secretary of the Corporation or the
acting secretary of the meeting, or by oral notice given by the Shareholder to
the presiding officer during the meeting. The Board of Directors shall have the
power and authority to make rules establishing presumptions as to the validity
and sufficiency of proxies. Proxies may be subject to the examination by any
Shareholder at the meeting, and all proxies shall be filed and preserved.
SECTION 8. Voting of Shares. Each outstanding share entitled to vote shall
be entitled to one (l) vote upon each matter submitted to a vote at a meeting of
Shareholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Articles of Incorporation.
SECTION 9. Voting of Shares by Certain Shareholders. Shares standing in the
name of another corporation may be voted either in person or by proxy, by the
president of such corporation or any other officer appointed by such president.
A proxy executed by any principal officer of such other corporation or assistant
thereto shall be conclusive evidence of the signer's authority to act, in the
absence of express notice to this Corporation, given in writing to the Secretary
of this Corporation, of the designation of some other person by the board of
directors or the bylaws of such other corporation. A Shareholder whose shares
are pledged shall be entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred.
SECTION 10. Waiver of Notice by Shareholders. Whenever any notice is
required to be given to any Shareholder of the Corporation under the Articles of
Incorporation, these Bylaws or any provision of law, a waiver of such notice, in
writing, signed at any time (whether before or after the time of meeting) by the
Shareholder entitled to such notice, shall be deemed equivalent to the giving of
such notice. A waiver with respect to any matter of which notice is required
under any provision of Chapter 180, Wisconsin Statutes, shall contain the same
information as would have been required to be included in the notice, except the
time and place of meeting.
ARTICLE III. BOARD OF DIRECTORS
SECTION l. General Powers. The business and affairs of the Corporation
shall be managed by its Board of Directors.
SECTION 2. Number of Directors. The number of Directors of the Corporation
shall be not less than seven (7) nor more than nine (9), the exact number of
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Directors to be determined from time to time by resolution adopted by a majority
of the entire Board of Directors, and such exact number shall be nine (9) until
otherwise determined by resolution adopted by a majority of the entire Board of
Directors. As used in this Section, "entire Board of Directors") means the total
number of Directors which the Corporation would have if there were no vacancies.
Whenever the authorized number of Directors is increased between annual meetings
of the Shareholders, a majority of the Directors then in office shall then have
the power to elect such new Directors for the balance of a term and until their
successors are elected and qualified. Any decrease in the authorized number of
Directors shall not become effective until the expiration of the term of the
Directors then in office unless, at the time of such decrease, their shall be
vacancies on the Board which were being eliminated by the decrease.
SECTION 3. Nominations for Director. Nominations for election to the Board
of Directors may be made by the Board of Directors or by a Shareholder of any
outstanding class of stock of the Corporation entitled to vote for the election
of Directors. Nominations, other than those made by the Board of Directors,
shall be made in writing and shall be delivered or mailed to the President of
the Corporation not less than ten (10) days nor more than fifty (50) days prior
to any meeting of Shareholders called for the election of Directors, provided,
however, that if less than twenty-one (21) days' notice of the meeting is given
to the Shareholders, such nominations shall be mailed or delivered to the
President of the Corporation not later than the close of business on the seventh
day following the day on which the notice of meeting was mailed. Such
notification shall contain the following information to the extent known to the
notifying Shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the name and residence
address of the notifying Shareholder; and (d) the number of shares of the
capital stock of the Corporation owned by the notifying Shareholder. Nominations
not made in accordance herewith may, in his or her discretion, be disregarded by
the chairman of the Shareholders meeting, and upon his or her instructions, the
vote tellers may disregard all votes cast for each such nominee.
SECTION 4. Election and Term. The Directors shall be elected by the
Shareholders at the regular annual meeting of Shareholders. Each Director shall
hold office until the next election of the class for which such Director shall
have been elected and until his or her successor has been elected or until his
or her death, resignation or removal in the manner provided in this Article. The
Board of Directors shall be divided into three (3) classes as nearly equal in
number as possible, with the term of office of one class expiring each year.
Directors of the first class (Class I) shall be elected to hold office for a
term expiring at the next succeeding annual meeting, Directors of the second
class (Class II) shall be elected to hold office for a term expiring at the
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second succeeding annual meeting, and Directors of the third class (Class III)
shall be elected to hold office for a term expiring at the third succeeding
annual meeting. Subject to the foregoing, at each annual meeting of the
Shareholders, Directors chosen to succeed those terms then expired shall be
elected for a term of office expiring at the third succeeding annual meeting of
Shareholders after their election, so that the term of one class of Directors
shall expire each year. The persons receiving the greatest number of votes (up
to the number of Directors then to be elected) shall be the persons elected.
The provisions of this Section may not be amended, altered or repealed
except by the affirmative vote of holders of at least seventy-five percent (75%)
of the shares of the capital stock of the Corporation issued and outstanding and
entitled to vote, at any regular or special meeting of the Shareholders if the
notice of the proposed amendment, alteration or repeal is contained in the
notice of meeting.
SECTION 5. Regular Meetings. The Board of Directors may provide, by
resolution, the time and place, either within or without the State of Wisconsin,
for the holding of regular meetings of the Board of Directors without other
notice than such resolution.
SECTION 6. Special Meetings. Special meetings of the Board of Directors may
be called at any time by or at the request of the President, and shall be called
at the request of three or more directors. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either within
or without the State of Wisconsin, as the place for holding any special meeting
of the Board of Directors called by them.
SECTION 7. Notice. Notice of any special meeting shall be given at least
forty-eight (48) hours in advance of the meeting by written notice delivered
personally or mailed to each Director at his or her business address, or by
telegram. If mailed, the notice shall be deemed to be delivered when deposited
in the United States mail so addressed with postage prepaid. If notice is given
by telegram, it shall be deemed to be delivered when the telegram is delivered
to the telegraph company. Whenever any notice is required to be given to any
Director of the Corporation under the Articles of Incorporation, these Bylaws or
any provision of law, a waiver of such notice, in writing, signed at any time
(whether before or after the time of meeting) by the Director entitled to such
notice, shall be deemed equivalent to the giving of such notice. The attendance
of a Director at a meeting shall constitute a waiver of notice of that meeting,
except where a Director attends a meeting and at the meeting objects to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
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SECTION 8. Quorum. Except as otherwise provided by law, the Articles of
Incorporation, or these Bylaws, a majority of the number of Directors then in
office shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors, but a majority of the Directors present (though less
than such quorum) may adjourn the meeting from time to time without further
notice.
SECTION 9. Participation in Meetings By Conference Telephone. Members of
the Board of Directors, or of any committee of the Board, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communication equipment by which all persons participating in the meeting can
hear each other and such participation shall constitute presence in person at
such meeting. All participating Directors shall be informed that a meeting is
taking place at which official business may be transacted by conference
telephone or similar communication equipment.
SECTION 10. Manner of Acting. The act of the majority of the Directors then
in office shall be the act of the Board of Directors, unless the act of a
greater number is required by law, the Articles of Incorporation, or these
Bylaws.
SECTION 11. Removal and Resignation. No Director of the Corporation shall
be removed from office with or without cause unless such removal is approved
either by the holders of seventy-five percent (75%) of the shares of the capital
stock of the Corporation issued and outstanding and entitled to vote or by the
affirmative vote of seventy-five percent (75%) of the Directors in office at the
time the determination is made. A Director may resign at any time by filing a
written resignation with the Secretary of the Corporation.
The provisions of this Section may not be amended, altered or repealed
except by the affirmative vote of holders of at least seventy-five percent (75%)
of the shares of the capital stock of the Corporation issued and outstanding and
entitled to vote, at any regular or special meeting of the Shareholders if the
notice of the proposed amendment, alteration or repeal is contained in the
notice of meeting.
SECTION 12. Vacancies. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of Directors, may be
filled until the next succeeding annual Shareholders' meeting by the affirmative
vote of a majority of the Directors then in office.
SECTION 13. Compensation. The Board of Directors, irrespective of any
personal interest of any of its members, may establish reasonable compensation
of all Directors for services to the Corporation as Directors, officers or
otherwise, or may delegate such authority to an appropriate committee. The Board
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of Directors also shall have authority to provide for, or to delegate authority
to, an appropriate committee to provide for reasonable pensions, disability or
death benefits, and other benefits or payments, to Directors, officers and
employees and to their estates, families, dependents, or beneficiaries on
account of prior services rendered to the Corporation.
SECTION 14. Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors or a committee thereof at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless the dissent or abstention of the Director shall be
entered in the minutes of the meeting or unless the Director shall file a
written dissent to such action with the person acting as the Secretary of the
meeting before adjournment or shall forward such dissent by certified mail to
the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a Director who voted in favor
of such action.
SECTION 15. Committees. The Board of Directors may designate one or more
committees, each committee to consist of three or more Directors elected by the
Board of Directors, which to the extent provided in said resolution shall have
and may exercise, when the Board of Directors is not in session, the powers of
the Board of Directors in the management of the business and affairs of the
Corporation, except action in respect to dividends to Shareholders, election of
the principal officers, action under or pursuant to the Articles of
Incorporation, amendment, alteration or repeal of these Bylaws, or the removal
or filling of vacancies in the Board of Directors or committees created pursuant
to this section. The Board of Directors may elect one or more of its members as
alternate members of any such committee who may take the place of any absent
member or members at any meeting of such committee, upon request by the
President or upon request by the chairman of such meeting. Each such committee
shall fix its own rules governing the conduct of its activities and shall make
such reports to the Board of Directors of its activities as the Board of
Directors may request.
SECTION 16. Informal Action Without Meeting. Any action required or
permitted by the Articles of Incorporation, these Bylaws, or any provision of
law to be taken by the Board of Directors at a meeting or by resolution may be
taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all of the Directors then in office.
ARTICLE IV. OFFICERS
SECTION l. Number, Election and Term of Office. The principal Officers of
the Corporation shall be a President, a Vice President, and a Secretary, each of
whom shall be elected by the Board of Directors. Such other Officers and
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Assistant Officers as may be deemed necessary may be elected or appointed by the
Board of Directors. Any two or more offices may be held by the same person. Each
Officer shall hold office until his or her successor shall have been duly
elected or until his or her death or until he or she resigns or is removed in
the manner provided below.
SECTION 2. Removal. Any Officer or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors whenever in its judgment
the best interests of the Corporation will be served thereby. Any such removal
shall be without prejudice to the contract rights, if any, of the person being
removed. Election or appointment shall not of itself create contract rights.
SECTION 3. Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification, or otherwise, shall be filled by the
Board of Directors.
SECTION 4. President. The President shall be the principal executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the Corporation. The President shall, when present, preside at all
meetings of the Shareholders and of the Board of Directors. The President shall
have authority, subject to such rules as may be prescribed by the Board of
Directors, to appoint such agents and employees of the Corporation as he shall
deem necessary, to prescribe their powers, duties and compensation, and to
delegate authority to them. Such agents and employees shall hold office at the
discretion of the President. The President shall have authority to sign,
execute, and acknowledge, on behalf of the Corporation, all deeds, mortgages,
bonds, stock certificates, contracts, leases, reports, and all other documents
or instruments necessary or proper to be executed in the course of the
Corporation's regular business, or which shall be authorized by resolution of
the Board of Directors. Except as otherwise provided by law or the Board of
Directors, the President may authorize any Vice President or other Officer or
agent of the Corporation to sign, execute, and acknowledge such documents or
instruments in his place and stead. In general, the President shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 5. The Vice President. In the case of the removal of the President
from office, or death or resignation, the powers and duties of the office shall
devolve upon the Vice President, who shall perform all duties of the office
until a meeting of the directors is held and a President is elected. The Board
of Directors shall empower a Vice President to discharge the duties of the
President in the event of absence or disability of the President. In general,
the Vice President shall perform all duties incident to the office of Vice
President and such other duties as may be prescribed by the Board of Directors
and the President from time to time.
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SECTION 6. The Secretary. The Secretary shall: (a) keep the minutes of the
Shareholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be custodian of
the corporate records; (d) keep a register of the post office address of each
Shareholder which shall be furnished to the Secretary by such Shareholder; (e)
sign with the President, or Vice President, certificates for shares of the
Corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the Corporation; and (g) in general, perform all duties incident to the office
of Secretary and have such other duties and exercise such authority as from time
to time may be designated or assigned to the Secretary by the President or by
the Board of Directors.
SECTION 7. Compensation. The compensation of the Officers shall be fixed
from time to time by the Board of Directors and no Officer shall be prevented
from receiving such compensation by reason of the fact that he or she is also a
Director of the Corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION l. Contracts. The Board of Directors may authorize any Officer or
Officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such
authorization may be general or confined to specific instances.
SECTION 2. Loans. No loans may be contracted on behalf of the Corporation
and no evidences of indebtedness may be issued in its name unless authorized by
or under the authority of a resolution of the Board of Directors. Such
authorization may be general or confined to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such Officer or Officers, agent or agents
of the Corporation and in such manner as shall from time to time be determined
by or under the authority of a resolution of the Board of Directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies, or other depositories as may be selected by or under the
authority of the Board of Directors.
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SECTION 5. Voting of Securities Owned by this Corporation. Subject always
to the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
Corporation may be voted at any meeting of security holders of such other
corporation by the President of this Corporation if he be present, or, in his
absence, by the Vice President of this Corporation, and (b) whenever, in the
judgment of the President, or in his absence, the Vice President, it is
desirable for this Corporation to execute a proxy or written consent in respect
to any shares or other securities issued by any other corporation and owned by
this Corporation, such proxy or consent shall be executed in the name of this
Corporation by the President or Vice President of this Corporation, without
necessity of any authorization by the Board of Directors, affixation of
corporate seal or countersignature or attestation by another officer. Any person
or persons designated in the manner above stated as the proxy or proxies of this
Corporation shall have full right, power, and authority to vote the shares or
other securities issued by such other corporation and owned by this Corporation
the same as such shares or other securities might be voted by this Corporation.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION l. Certificates for Shares. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the Board of
Directors. Each certificate shall be signed by the President and by the
Secretary. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be canceled and
no new certificates shall be issued until the former certificates for a like
number of shares shall have been surrendered and canceled, except that in case
of a lost, destroyed, or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of the Corporation shall
be made only on the stock transfer books of the Corporation by the holder of
record or by his or her legal representative, who shall furnish proper evidence
of authority to transfer, or by the holder's attorney authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
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SECTION 3. Restriction Upon Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the Corporation upon the transfer of such shares.
SECTION 4. Lost, Destroyed or Stolen Certificates. Where the owner claims
that his or her certificate for shares has been lost, destroyed or wrongfully
taken, a new certificate shall be issued in place thereof if the owner (a) so
requests before the Corporation has notice that such shares have been acquired
by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity
bond, and (c) satisfies such other reasonable requirements as the Board of
Directors may prescribe.
SECTION 5. Consideration for Shares. The shares of the Corporation may be
issued for such consideration as shall be fixed from time to time by the Board
of Directors. The consideration to be paid for shares may be paid in whole or in
part in money, in other property, tangible or intangible, or in labor or
services actually performed for the Corporation. When payment of the
consideration for which shares are to be issued shall have been received by the
Corporation, such shares shall be deemed to be fully paid and nonassessable by
the Corporation, except as required by law. No certificate shall be issued for
any share until such share is fully paid.
SECTION 6. Stock Regulations. The Board of Directors shall have the power
and authority to make all such further rules and regulations not inconsistent
with the statutes of the State of Wisconsin as it may deem expedient concerning
the issue, transfer and registration of certificates representing shares of the
Corporation.
ARTICLE VII. LIABILITY AND INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS; INSURANCE
SECTION 1. Liability of Directors. No Director shall be liable to the
Corporation, its Shareholders, or any person asserting rights on behalf of the
Corporation or its Shareholders, for damages, settlements, fees, fines,
penalties, or other monetary liabilities arising from a breach of, or a failure
to perform, any duty resulting solely from his or her status as a Director of
the Corporation (or from his or her status as a director, officer, partner,
trustee, member of any governing or decision-making committee, employee or agent
of another corporation or foreign corporation, partnership, joint venture, trust
or other enterprise, including service to an employee benefit plan, which
capacity the Director is or was serving in at the Corporation's request while a
Director of the Corporation) to the fullest extent not prohibited by law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent such amendment permits the Corporation to further limit or
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eliminate the liability of a Director than the law permitted the Corporation to
provide prior to such amendment); provided, however, that this limitation on
liability shall not apply where the breach or failure to perform constitutes (a)
a willful failure to deal fairly with the Corporation or its Shareholders in
connection with a matter in which the Director has a material conflict of
interest; (b) a violation of criminal law, unless the Director had reasonable
cause to believe his or her conduct was lawful or no reasonable cause to believe
his or her conduct was unlawful; (c) a transaction from which the Director
derived an improper personal benefit; or (d) willful misconduct.
SECTION 2. Liability of Officers. No Officer shall be liable to the
Corporation for any loss or damage suffered by it on account of any action taken
or omitted to be taken by him or her as an officer of the Corporation (or as an
officer, director, partner, trustee, member of any governing or decision-making
committee, employee or agent of another corporation or foreign corporation,
partnership, joint venture, trust or other enterprise, including service to an
employee benefit plan, which capacity the Officer is or was serving in at the
Corporation's request while being an Officer of the Corporation) in good faith,
if such person (a) exercised and used the same degree of care and skill as a
prudent person would have exercised or used under the circumstances in the
conduct of his or her own affairs, or (b) took or omitted to take such action in
reliance upon information, opinions, reports or statements prepared or presented
by: (1) an officer or employee of the Corporation whom the officer believed in
good faith to be reliable and competent in the matters presented, or (2) legal
counsel, public accountants and other persons as to matters the officer believed
in good faith were within the person's professional or expert competence.
SECTION 3. Indemnification of Directors, Officers, Employees and Agents.
(a) Right of Directors and Officers to Indemnification. Any person shall be
indemnified and held harmless to the fullest extent permitted by law, as the
same may exist or may hereafter be amended (but, in the case of any such
amendment, only to the extent such amendment permits the Corporation to provide
broader indemnification rights than the law permitted the Corporation to provide
prior to such amendment), from and against all reasonable expenses (including
fees, costs, charges, disbursements, attorney fees and any other expenses) and
liability (including the obligation to pay a judgment, settlement, penalty,
assessment, forfeiture or fine, including an excise tax assessed with respect to
an employee benefit plan) asserted against, incurred by or imposed on him or her
in connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("proceeding") to which he or she is made or
threatened to be made a party by reason of his or her being or having been a
Director or Officer of the Corporation (or by reason of, while serving as a
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Director or Officer of the Corporation, having served at the Corporation's
request as a director, officer, partner, trustee, member of any governing or
decision-making committee, employee or agent of another corporation or foreign
corporation, partnership, joint venture, trust or other enterprise, including
service to an employee benefit plan); provided, however, in situations other
than a successful defense of a proceeding, the Director or Officer shall not be
indemnified where he or she breached or failed to perform a duty to the
Corporation and the breach or failure to perform constitutes (a) a willful
failure to deal fairly with the Corporation or its Shareholders in connection
with the matter in which the Director or Officer has a material conflict of
interest; (b) a violation of criminal law, unless the Director or Officer had
reasonable cause to believe his or her conduct was lawful or no reasonable cause
to believe his or her conduct was unlawful; (c) a transaction from which the
Director or Officer derived an improper personal benefit; or (d) willful
misconduct. Such rights to indemnification shall include the right to be paid by
the Corporation reasonable expenses as incurred in defending such proceeding;
provided, however, that payment of such expenses as incurred shall be made only
upon such person delivering to the Corporation (a) a written affirmation of his
or her good faith belief that he or she has not breached or failed to perform
his or her duties to the Corporation, and (b) a written undertaking, executed
personally or on his or her behalf, to repay the allowance to the extent it is
ultimately determined that such person is not entitled to indemnification under
this provision. The Corporation may require that the undertaking be secured and
may require payment of reasonable interest on the allowance to the extent that
it is ultimately determined that such person is not entitled to indemnification.
(b) Right of Director or Officer to Bring Suit. If a claim under subsection
(a) is not paid in full by the Corporation within 30 days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to be
paid also the reasonable expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking has been tendered to the Corporation)
that the claimant has not met the standards of conduct under this Section which
make it permissible for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
(c) Indemnification For Intervention, Etc. The Corporation shall not,
however, indemnify a Director or Officer under this Section for any liability
incurred in a proceeding otherwise initiated (which shall not be deemed to
include counterclaims or affirmative defenses) or participated in as an
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intervenor by the person seeking indemnification unless such initiation of or
participation in the proceeding is authorized, either before or after its
commencement, by the affirmative vote of the majority of the Directors in
Office.
(d) Right of Employees and Agents to Indemnification. The Corporation by
its Board of Directors may on such terms as the Board deems advisable indemnify
and allow reasonable expenses of any employee or agent of the Corporation with
respect to any action taken or failed to be taken in his or her capacity as such
employee or agent.
SECTION 4. Contract Rights; Amendment or Repeal. All rights under this
Article shall be deemed a contract between the Corporation and the Director or
Officer pursuant to which the Corporation and the Director or Officer intend to
be legally bound. Any repeal, amendment or modification of this Article shall be
prospective only as to conduct of a Director or Officer occurring thereafter,
and shall not affect any rights or obligations then existing.
SECTION 5. Scope of Article. The rights granted by this Article shall not
be deemed exclusive of any other rights to which a Director, Officer, employee
or agent may be entitled under any statute, agreement, vote of Shareholders or
disinterested Directors or otherwise. The indemnification and advancement of
expenses provided by or granted pursuant to this Article shall continue as to a
person who has ceased to be a Director or Officer in respect to matters arising
prior to such time, and shall inure to the benefit of the heirs, executors,
administrators and personal representatives of such a person.
SECTION 6. Insurance. The Corporation may purchase and maintain insurance,
at its expense, to protect itself and any person who is a Director, Officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, member of any governing or
decision-making committee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service to an
employee benefit plan, against any liability asserted against that person or
incurred by that person in any such capacity, or arising out of that person's
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under this Article.
SECTION 7. Prohibited Indemnification and Insurance. Notwithstanding any
other Section in this Article, the Corporation shall not be required to
indemnify and may not purchase and maintain insurance if such indemnification or
insurance is prohibited under applicable federal law or regulation, but shall
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indemnify and may purchase and maintain insurance in accordance with this
Article to the extent such indemnification and insurance is not prohibited under
applicable federal law or regulation.
ARTICLE VIII. TRANSACTIONS WITH
CORPORATION; DISALLOWED EXPENSE
SECTION 1. Transactions with the Corporation. Any contract or other
transaction between the Corporation and one or more of its Directors, or between
the Corporation and any firm of which one or more of its Directors are members
or employees, or in which they are interested, or between the Corporation and
any corporation or association of which one or more of its Directors are
Shareholders, members, directors, officers, or employees, or in which they are
interested, shall be valid for all purposes, notwithstanding the presence of
such Director or Directors at the meeting of the Board of Directors of the
Corporation, which acts upon, or in reference to, such contract or transaction,
and notwithstanding his or their participation in such action, if the fact of
such interest shall be disclosed or known to the Board of Directors and the
Board of Directors shall, nevertheless, authorize, approve and ratify such
contract or transaction by a vote of a majority of the Directors present, such
interested Director or Directors to be counted in determining whether a quorum
is present, but not counted in calculating the majority of such quorum necessary
to carry such vote. This Section shall not be construed to invalidate any
contract or other transaction which would otherwise be valid under the common
and statutory law applicable thereto.
SECTION 2. Reimbursement of Disallowed Expenses. In the event any payment
(either as compensation, interest, rent, expense reimbursement or otherwise) to
any Officer, Director or Shareholder which is claimed as a deduction by this
Corporation for federal income tax purposes shall subsequently be determined not
to be deductible in whole or in part by this Corporation, the recipient shall
reimburse the Corporation for the amount of the disallowed payment, provided
that this provision shall not apply to any expense where the Board, in its sole
discretion, determines such disallowance (including any concession of such issue
by the Corporation in connection with the settlement of other issues in a
disputed case) is manifestly unfair and contrary to the facts. For purposes of
this provision, any such payment shall be determined not to be deductible when
and only when either (a) the same may have been determined by a court of
competent jurisdiction and either the Corporation shall not have appealed from
such determination or the time for perfecting an appeal shall have expired or
(b) such disallowed deduction shall constitute or be contained in a settlement
with the Internal Revenue Service which settlement may have been authorized by
the Board of Directors.
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ARTICLE IX. FISCAL YEAR
The fiscal year of the Corporation shall begin on the 1st day of January
and end on the 31st day of December in each year.
ARTICLE X. DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.
ARTICLE XI. SEAL
The Corporation shall not have a corporate seal, and all formal corporate
documents shall carry the designation "No Seal" along with the signature of the
Officers.
ARTICLE XII. AMENDMENT
SECTION 1. By Shareholders. Except as otherwise provided in Article III,
Sections 3, 4 and 11, these Bylaws may be altered, amended or repealed and new
Bylaws may be adopted by the Shareholders by affirmative vote of not less than a
majority of the outstanding shares of the Corporation entitled to vote.
SECTION 2. By Directors. Except as otherwise provided in Article III,
Sections 3, 4 and 11, these Bylaws may also be altered, amended or repealed and
new Bylaws may be adopted by the Board of Directors by affirmative vote of not
less than a majority of the directors then in office; but no Bylaw adopted by
the Shareholders shall be amended or repealed by the Board of Directors if the
Bylaw so adopted so provides.
SECTION 3. Implied Amendments. Any action taken or authorized by the
Shareholders which would be inconsistent with the Bylaws then in effect but is
taken or authorized by affirmative vote of not less than the number of shares
required to amend the Bylaws so that the Bylaws would be consistent with such
action shall be given the same effect as though the Bylaws had been temporarily
amended or suspended so far, but only so far, as is necessary to permit the
specific action so taken or authorized.
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EXHIBIT 4.1
Stock Certificate
<PAGE>
SPECIMEN
STOCK CERTIFICATE
NUMBER: SHARES:
RESTRICTED STOCK
Incorporated under the laws of the State of Wisconsin.
MOUND CITY FINANCIAL SERVICES, INC.
Authorized Common 300,000 Shares No Par Value
This certifies that ______________________ is the owner of
______________________ (common shares--no par value) full paid and nonassessable
transferable on the books of the Corporation in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF the said Corporation has caused this Certificate to be
signed by its duly authorized officers and sealed with the Seal of the
Corporation this _____ day of ___________ A.D., 19___.
- --------------------------- ---------------------------
Secretary President
ON REVERSE:
FOR VALUE RECEIVED, _____ hereby sell, assign and transfer unto
______________________________________________________ Shares represented by the
within Certificate, and do hereby irrevocably constitute and appoint
_____________________________ Attorney to transfer the said Shares on the books
of the within named Corporation with full power of substitution in the premises.
Dated ______________________, 19___.
In presence of:
- ---------------------------- ----------------------------
THE SHARES REPRESENTED BY THIS CERTIFICATE AND ANY SALE,
TRANSFER, OR OTHER DISPOSITION THEREOF ARE RESTRICTED UNDER
AND SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN ARTICLE
5(C) OF THE CORPORATION'S ARTICLES OF INCORPORATION, A COPY OF
WHICH IS ON FILE AT THE OFFICES OF THE CORPORATION.
EXHIBIT 5.1
Opinion of Boardman, Suhr, Curry & Field, LLP
<PAGE>
May 28, 1998
Board of Directors of Mound City
Financial Services, Inc.
25 East Pine Street
Platteville, WI 53818
Gentlemen:
We have acted as counsel to Mound City Financial Services, Inc., a
Wisconsin corporation ("Company"), in connection with the proposed offering of
12,000 shares of its common stock, no par value ("Common Stock"), by the Company
("Offering") as described in the Form SB-2 Registration Statement filed with the
Securities and Exchange Commission (the "SEC") on May 28, 1998 ("Registration
Statement"). Capitalized terms used, but not defined, herein shall have the
meanings given such terms in the Registration Statement. You have requested our
opinion concerning certain matters in connection with the Offering.
In arriving at the opinions expressed below, we have reviewed and examined
the following documents:
a. the Articles of Incorporation of the Company filed with the Secretary
of the State of the State of Wisconsin on September 6, 1996, and
the Company's Bylaws;
b. the Registration Statement and the Wisconsin Registration Statement,
including the prospectus constituting a part thereof ("Prospectus");
c. Resolutions of the Board of Directors of the Company relating to the
Offering; and
d. a form of share certificate representing the Common Stock.
We have made such legal investigation as we deemed necessary for purposes
of this opinion. In that investigation, we have assumed the genuineness of all
signatures, the proper execution of all documents submitted to us as originals,
the conformity to the original documents of all documents submitted to us as
copies, and the authenticity and proper execution of the originals of such
copies. We have not made any independent factual investigation, have relied
without such investigation on all the listed documents, and disclaim any duty to
make such an independent factual investigation. You accept this letter on that
understanding.
<PAGE>
May 28, 1998
Page 2
In rendering the following opinions, we express no opinion with respect to
any laws relevant to this opinion other than the Securities Act of 1933, as
amended, and the rules and regulations thereunder, and the laws and regulations
of the State of Wisconsin in effect as of this date.
Based upon the foregoing, but assuming no responsibility for the accuracy
or the completeness of the data supplied by the Company and subject to the
qualifications, assumptions and limitations set forth herein, it is our opinion
that:
1. The Company has been duly organized and is validly existing under the
laws of the State of Wisconsin and has authority to carry on its business.
2. The Company is authorized to issue up to 300,000 shares of Common Stock,
of which 26,940 have been issued or are presently outstanding.
3. When the Registration Statement shall have been duly declared effective
by order of the SEC, and when the Common Stock to be sold thereunder shall have
been issued and sold upon the terms and conditions set forth in the Registration
Statement, then such Common Stock will be legally issued, fully paid and
nonassessable, except that Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law imposes a statutory liability upon shareholders for unpaid wage
claims of the Company's employees, not exceeding six months' service in any one
case.
We express no opinion with respect to any specific legal issues other than
those explicitly addressed herein. We assume no obligation to advise you of any
change in the foregoing subsequent to the date of this opinion (even though the
change may affect the legal conclusion stated in this opinion letter).
We hereby consent (i) to be named in the Registration Statement, and in the
Prospectus, as attorneys who will pass upon the legality of the Common Stock to
be sold thereunder and (ii) to the filing of this opinion as an Exhibit to the
Registration Statement.
Sincerely,
/s/ Boardman, Suhr, Curry & Field LLP
BOARDMAN, SUHR, CURRY & FIELD LLP
EXHIBIT 10.1
Executive Employee Salary Continuation Agreement between
Mound City Bank and Robert J. Just, Jr.
<PAGE>
EXECUTIVE EMPLOYEE SALARY CONTINUATION AGREEMENT
FOR
ROBERT J. JUST, JR.
THIS AGREEMENT is made as of this 14th day of May, 1992, between Mound City
Bank, a Wisconsin banking corporation (the "Company") and Robert J. Just, Jr.
(the "Participant").
WHEREAS, the Participant is an executive employee of the Company and as
such has materially contributed to the Company's position, and
WHEREAS, the Company wishes to establish this Agreement for purposes of
promoting in the Participant the strongest interest in the successful operation
of the Company and increased efficiency in his or her work and to provide the
Participant benefits upon retirement, death, disability or other termination of
employment, in consideration of services to be performed after the date of this
Agreement but prior to his or her retirement.
NOW, THEREFORE, in consideration of the premises, the parties hereto agree
as follows:
1. Definitions.
1.1 Administrative Committee. "Administrative Committee" shall mean the
committee appointed pursuant to Section 4 of this Agreement.
1.2 Age. "Age" shall mean the age of the person as of his or her last
birthday.
1.3 Change in Control. "Change in Control" shall mean the first to occur of
any of the following events: (a) any person or entity becomes, subsequent to the
date of this Agreement, the beneficial owner, directly or indirectly of 51% or
more of the then issued and outstanding voting stock of the Company (and, for
the purposes hereof, a person will be considered to be a beneficial owner of
such stock if such person, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise has or shares voting
power, which includes the power to vote or to direct the voting of such stock,
or investment power, which includes the power to dispose or to direct the
disposition of such stock), (b) the Company merges or consolidates with or
reorganizes with or into any other corporation or corporations other than its
affiliates or engages in any other similar business combination or
reorganization, or (c) the Company sells, assigns or transfers all or
substantially all of its business and assets, in one or a series of related
transactions, except any such sales to affiliates.
1.4 Disability. "Disability" shall mean, if the Participant is insured
under a life insurance policy, the premiums for which are paid by the Company,
and which policy contains a "waiver of premiums" benefit, the definition of
total disability contained in the insurance policy. If the Participant is not
insured under such a life insurance policy, the Company shall, in its complete
and sole discretion, determine whether the Participant is disabled for the
purposes of this Agreement.
<PAGE>
1.5 Discharge for Cause. "Discharge for Cause" shall mean the termination
of the Participant's employment with the Company because of (a) the
Participant's willful and continued failure to substantially perform his or her
duties (other than any such failure resulting from his or her incapacity due to
physical or mental illness), after a demand for substantial performance is
delivered to him or her by the Company which specifically identifies the manner
in which the Company believes he or she has not substantially performed his or
her duties; (b) any willful act of misconduct by the Participant; (c) a criminal
conviction of the Participant for any act involving the business and affairs of
the Company or for any act involving dishonesty, breach of trust or a violation
of the banking laws of the State of Wisconsin or the United States; (d) a
criminal conviction of the Participant for commission of a felony; or (e) the
removal of the Participant by a regulatory agency. For purposes of this
definition, no act or failure to act on the Participant's part will be
considered "willful" unless done or omitted by him or her not in good faith and
without reasonable belief that his or her act or omission was in the best
interest of the Company.
1.6 Normal Retirement Date. "Normal Retirement Date" shall mean the first
day of the month following the month in which the Participant reaches age 60.
1.7 Termination of Employment. "Termination of Employment" shall mean the
Participant's ceasing to be employed by the Company for any reason whatsoever,
voluntary or involuntary, including by reason of death or disability.
2. Eligibility.
The Participant is eligible for the benefits provided herein in accordance
with the terms of this Agreement upon the execution hereof.
The Participant shall cease to be a Participant at Termination of
Employment. However, the employment of the Participant shall not be deemed to be
terminated by reason of an approved leave of absence granted in accordance with
uniform rules applied in a nondiscriminatory manner.
3. Payment of Benefits.
3.1 Benefits For Termination Upon Normal Retirement Date.
Upon the Participant's Termination of Employment on the Normal Retirement
Date for reasons other than death or Discharge for Cause, the Company shall pay
to the Participant, as compensation for services rendered prior to such date,
the sum of $40,000 per year, payable in monthly installments of $3,333 each,
commencing on the first day of the month coincident with or next following the
date of Termination of Employment and continuing on the first day of each month
until a total of 204 monthly payments are made to the Participant or the
Participant's beneficiary per Section 3.6(b).
2
<PAGE>
3.2 Benefits For Termination After Normal Retirement Date.
Upon the Participant's Termination of Employment after the Normal
Retirement Date for reasons other than death or Discharge for Cause, the Company
shall pay to the Participant as compensation for services rendered prior to such
date, the normal retirement benefit described in Section 3.1 above, increased by
5% per year or .416% for each month that the Participant's Termination of
Employment is deferred beyond the Normal Retirement Date.
3.3 Benefits Upon Disability.
Upon the Participant's Termination of Employment prior to the Normal
Retirement Date due to Disability, no separate provision is made for a
disability benefit under this Agreement. However, in the event of such
Participant's death while disabled prior to reaching the Normal Retirement Date,
such Participant's beneficiary shall receive the survivor's benefits described
in Section 3.5(a). In the event the Participant lives to the Normal Retirement
Date, the Participant shall thereupon receive the normal retirement date benefit
described in Section 3.1.
3.4 Other Terminations of Employment.
(a) Voluntary Termination of Employment prior to the Normal Retirement
Date or Discharge for Cause at any time. Except as provided in subparagraph
(c), upon the Participant's voluntary Termination of Employment prior to
reaching the Normal Retirement Date, for reasons other than death or
Disability, or upon the Participant's Discharge for Cause at any time, the
Company shall not be obligated to pay any benefit to the Participant
pursuant to this Agreement, and the Participant shall have no further right
to receive any benefit hereunder.
(b) Involuntary Termination of Employment prior to the Normal
Retirement Date other than because of death, Disability or Discharge for
Cause. Except as provided in subparagraph (c), upon the Participant's
involuntary Termination of Employment prior to the Normal Retirement Date
for reasons other than death, Disability, or Discharge for Cause, the
Company shall pay to the Participant, as compensation for services rendered
prior to such Termination of Employment, the sum of $40,000 per year,
payable in monthly installments of $3,333 each, commencing on the first day
of the month coincident with or next following the date of such Termination
of Employment and continuing on the first day of each month thereafter
until a total of 144 total monthly payments are made to the Participant or
the Participant's beneficiary per Section 3.5(b). For purposes of this
subsection 3.4(b), the Participant shall be deemed to have incurred an
involuntary Termination of Employment covered by this subsection if he or
she quits employment as a result of the Company's significantly lessening
either his or her title, duties, responsibilities, compensation or altering
his or her situs of employment, without his or her consent. The
Participant's compensation shall be deemed to be significantly lessened if
any cut-back is imposed except as a part of an overall cut-back applied
proportionately to all of the Company's
3
<PAGE>
management employees or if the Participant fails to receive periodic
increases substantially proportionate to and coincident with the increases
granted to management employees.
(c) Termination of Employment at or after a Change in Control. If a
Participant incurs a voluntary or involuntary Termination of Employment
prior to reaching the Normal Retirement Date, for reasons other than death,
Disability or Discharge for Cause, but on or after the occurrence of a
Change in Control, and in connection with such change, the Participant's
title, duties, responsibilities or compensation is significantly lessened
or his or her situs of employment is changed, without his or her consent,
the Company shall pay to the Participant, as compensation for services
rendered prior to such event, the sum of $40,000 per year, payable in
monthly installments of $3,333 each, commencing on the first day of the
month coincident with or next following the date of such Termination of
Employment and continuing on the first day of the month thereafter until a
total of 144 monthly payments are made to the Participant or the
Participant's beneficiary per Section 3.5(b). For purposes hereof, the
standards set forth in subparagraph (b) above with respect to what
constitutes a significant lessening of compensation shall apply.
(d) Limitations on Compensation.
(i) In the event that the benefits payable to the Participant
under Section 3.4(c) ("Severance Benefits"), or any other payments or
benefits received or to be received by the Participant from the
Company (whether payable pursuant to the terms of this Agreement, any
other plan, agreement or arrangement with the Company or any
corporation ("Affiliate") affiliated with the Company within the
meaning of Section 1504 of the Internal Revenue Code of 1954, as
amended (the "Code"), in the opinion of tax counsel selected by the
Company's independent auditors, constitute "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and the present value
of such "parachute payments" equals or exceeds three (3) times the
average of the annual compensation payable to the Participant by the
Company (or an Affiliate) and includable in the Participant's gross
income for federal income tax purposes for the five (5) calendar years
preceding the year in which a change in ownership or control of the
Company occurred ("Base Amount"), such Severance Benefits shall be
reduced to an amount the present value of which (when combined with
the present value of any other payments or benefits otherwise received
or to be received by the Participant from the Company (or an
Affiliate) that are deemed "parachute payments") is equal to 2.99
times the Base Amount, notwithstanding any other provision to the
contrary in this Agreement. The Severance Benefits shall not be
reduced if (A) the Participant shall have effectively waived his
receipt or enjoyment of any such payment or benefit which triggered
the applicability of this Section 3.4(d), or (B) in the opinion of
such tax counsel, the Severance Benefits (in its full amount or as
partially reduced, as the case may be) plus all other payments or
benefits which constitute "parachute payments" within the meaning of
Section 280G(b)(2) of the Code are reasonable compensation for
services actually rendered, within the meaning of Section 280G(b)(4)
of the Code, and such payments are deductible by the Company. The Base
Amount shall include every type and form of compensation includable in
the Participant's gross income in respect of his employment by the
4
<PAGE>
Company (or an Affiliate), except to the extent otherwise provided in
temporary or final regulations promulgated under Section 280G(b) of
the Code. For purposes of this Section 3.4(d), a "change in ownership
or control" shall have the meaning set forth in Section 280G(b) of the
Code and any temporary or final regulations promulgated thereunder.
The present value of any non-cash benefits or any deferred cash
payment shall be determined by the Company's independent auditors in
accordance with the principles of Sections 280G(b)(3) and (4) of the
Code.
(ii) The Participant shall have the right to request that the
Company obtain a ruling from the Internal Revenue Service ("Service")
as to whether any or all payments or benefits determined by such tax
counsel are, in the view of the Service, "parachute payments" under
Section 280G. If a ruling is sought pursuant to the Participant's
request, no Severance Benefits payable under this Agreement shall be
made to the Participant until after fifteen (15) days from the date of
such ruling. For purposes of this Subsection 3.4(d)(ii), the
Participant and the Company agree to be bound by the payments under
Section 280G. If the Service declines, for any reason, to provide the
ruling requested, the tax counsel's opinion provided under Subsection
3.4(d)(i) with respect to what payments or benefits constitute
"parachute payments" shall control, and the period during which the
Severance Benefits may be deferred shall be extended to a date fifteen
(15) days from the date of the Service's notice indicating that no
ruling would be forthcoming.
(iii) In the event that Section 280G, or any successor statute,
is repealed, this Section 3.4(d) shall cease to be effective on the
effective date of such repeal. The parties to this Agreement recognize
that final Treasury Regulations under Section 280G of the Code may
affect the amounts that may be paid under this Agreement and agree
that, upon issuance of such final Regulations, this Agreement may be
modified as in good faith deemed necessary in light of the provisions
of such Regulations to achieve the purposes of this Agreement, and
that consent to such modifications shall not be unreasonably withheld.
(e) Non-Competition Covenant and Termination of Benefits. The
Participant agrees that during the three (3) year period after a
Termination of Employment for which the Participant is receiving benefits
pursuant to this Agreement, he shall not directly or indirectly, as agent,
employee, officer, director, trustee, partner, proprietor or otherwise
become engaged by, render advice or assistance to, or be employed on a
compensated basis without the prior written consent of the Company by any
person or entity which competes in Grant County, Wisconsin, with the
business of the Company (a "Competitor"). The Participant acknowledges that
these restrictions on competition are reasonable and are necessary to
protect the interests of the Company.
If following Participant's Termination of Employment pursuant to paragraph
3.4(b) or 3.4(c), Participant receives compensation, directly or indirectly, as
agent, employee, consultant, partner or in any other capacity for services
provided to or employment by any person or entity other than a Competitor, the
benefits payable under this Agreement during any such month shall be reduced by
amounts received by or to be paid to the Participant during such month by the
other person or entity.
5
<PAGE>
If after a Termination of Employment for which the Participant is receiving
benefits pursuant to this Agreement, the Participant receives compensation,
directly or indirectly, as agent, employee, consultant, partner or in any other
capacity for services provided to or employment by a Competitor, all benefits
otherwise payable under this Agreement shall thereupon cease, and the
Participant shall have no further right to receive any benefit hereunder.
3.5 Survivorship Benefits.
(a) Prior to commencement of normal retirement benefits. If a
Participant dies while in the service of the Company or after a Termination
of Employment due to Disability and while disabled, but prior to
commencement of any benefit payments under this Agreement, the Company
shall pay to the Participant's beneficiary a survivor's benefit of 204
equal monthly installments of $3,333 each commencing on the first day of
the month after the Participant's death and continuing on the first day of
each month thereafter until all such payments are completed. In the event a
beneficiary dies before receiving all the survivor's benefit payments, the
remaining payments shall be paid to the legal representative of the
beneficiary's estate. Payment of the survivor's benefit shall relieve the
Company of the obligation to pay any other benefit which the Participant
would have otherwise received, under the terms of this Agreement.
(b) After commencement of benefits. If the Participant dies after any
benefit payments have commenced, but prior to receiving all of the
scheduled number of monthly payments, the Company shall pay the remaining
monthly payments to the Participant's beneficiary. In the event a
beneficiary dies before receiving all the remaining payments, the then
remaining payments shall be paid to the legal representative of the
beneficiary's estate.
3.6 Receipts of Payments: Designation of Beneficiary. All payments to be
made by the Company shall be made to the Participant, if living. In the event of
the Participant's death prior to the receipt of all benefit payments, all
subsequent payments to be made under this Agreement shall be to the beneficiary
or beneficiaries of the Participant. The Participant shall designate the
beneficiary by filing a written notice of such designation with the Company in
such form as the Company may prescribe. The Participant may revoke or modify
said designation at any time by a further written designation. The Participant's
beneficiary designation shall be deemed automatically revoked in the event of
the death of the beneficiary or, if the beneficiary is the Participant's spouse,
in the event of dissolution of marriage. If no designation shall be in effect at
the time when any benefits payable under this Agreement shall become due, the
beneficiary shall be the spouse of the Participant, or if no spouse is then
living, the legal representative of the Participant's estate.
4. Administration and Interpretation of this Agreement. The Board of
Directors shall appoint an Administrative Committee consisting of three (3) or
more persons to administer and interpret this Agreement. Interpretation by the
Administrative Committee shall be final and binding upon the Participant. The
6
<PAGE>
Administrative Committee may adopt rules and regulations relating to this
Agreement as it may deem necessary or advisable for the administration thereof,
but may not reduce benefits without consent of the Participant.
5. Claims Procedure. If the Participant or the Participant's beneficiary
(hereinafter referred to as a "Claimant") is denied all or a portion of an
expected benefit under this Agreement for any reason, he or she may file a claim
with the Administrative Committee. The Administrative Committee shall notify the
Claimant within sixty (60) days of allowance or denial of the claim, unless the
Claimant receives written notice from the Administrative Committee prior to the
end of the sixty (60) day period stating that special circumstances require an
extension of the time for decision. The notice of the Administrative Committee's
decision shall be in writing, sent by mail to Claimant's last known address,
and, if a denial of the claim, must contain the following information:
(a) the specific reasons for the denial;
(b) specific reference to pertinent provisions of this Agreement on
which the denial is based; and
(c) if applicable, a description of any additional information or
material necessary to perfect the claim, an explanation of why such
information or material is necessary, and an explanation of the claims
review procedure.
6. Review Procedure.
(a) A Claimant is entitled to request a review of any denial of his or
her claim by the Administrative Committee. The request for review must be
submitted in writing within sixty (60) days of mailing of notice of the
denial. Absent a request for review within the 60-day period, the claim
will be deemed to be conclusively denied. The Claimant or his or her
representative shall be entitled to review all pertinent documents, and to
submit issues and comments orally and in writing.
(b) If the request for review by a Claimant concerns the
interpretation and application of the provisions of this Agreement and the
Company's obligations, then the review shall be conducted by a separate
committee consisting of three (3) persons designated or appointed by the
Administrative Committee. The separate committee shall afford the Claimant
a hearing and the opportunity to review all pertinent documents and submit
issues and comments orally and in writing and shall render a review
decision, together with specific reasons for the decision and reference to
the pertinent provisions of this Agreement.
7. Life Insurance and Funding. The Company in its discretion may apply for
and procure as owner and for its own benefit, insurance on the life of the
Participant, in such amounts and in such forms as the Company may choose. The
Participant shall have no interest whatsoever in any such policy or policies,
but at the request of the Company he or she shall submit to medical examinations
and supply such information and execute such documents as may be required by the
insurance company or companies to whom the Company has applied for insurance.
7
<PAGE>
The rights of the Participant, or his or her beneficiary, or estate, to
benefits under this Agreement shall be solely those of an unsecured creditor of
the Company. Any insurance policy or other assets acquired by or held by the
Company in connection with the liabilities assumed by it pursuant to this
Agreement shall not be deemed to be held under any trust for the benefit of the
Participant, his or her beneficiary, or his or her estate, or to be security for
the performance of the obligations of the Company but shall be, and remain, a
general, unpledged, and unrestricted asset of the Company.
If this Agreement is funded through insurance on the life of the
Participant, then in the event of such Participant's death during the first two
(2) years after the effective date of this Agreement, or if such Participant's
death was a result of suicide or if such Participant made any material
misstatement or failed to make a material disclosure of information in any
documentation which the Participant is requested to complete in connection with
this Agreement, then no death benefits under the terms of this Agreement will be
payable, unless and to the extent that the Board of Directors of Company, in
their absolute discretion, may otherwise determine.
8. Assignment of Benefits. Neither the Participant nor any other
beneficiary under this Agreement shall have any right to assign the right to
receive any benefits hereunder, and in the event of any attempted assignment or
transfer, the Company shall have no further liability hereunder.
9. Employment Not Guaranteed by Agreement. Neither this Agreement nor any
action taken hereunder shall be construed as giving a Participant the right to
be retained as an Executive Employee or as an employee of the Company for any
period.
10. Taxes. The Company shall deduct from all payments made hereunder all
applicable federal or state taxes required by law to be withheld from such
payments.
11. Amendment and Termination. The Board of Directors may, at any time,
amend or terminate this Agreement, provided that the Board may not reduce or
modify any benefit in pay status to the Participant or beneficiary hereunder or
any benefit that would become payable hereunder if the Participant were to have
died or were to have been involuntarily terminated under Section 3.4(b) hereof
on the day prior to such action by the Board, without the prior written consent
of the Participant.
The Company is entering into this Agreement upon the assumption that
certain existing tax laws will continue in effect in substantially their current
form. In the event of any changes in Federal law relating to and allowing the
tax-free accumulation of earnings within a life insurance policy, the income
tax-free payment of proceeds from life insurance policies or any other law which
would result in a material adverse impact upon the Company's ability to perform
its obligations under this Agreement, the Company shall have an option to
terminate or modify this Agreement subject to the protections afforded
Participant in the preceding paragraph above.
8
<PAGE>
12. Construction. This Agreement shall be construed according to the laws
of the State of Wisconsin.
13. Form of Communication. Any election, application, claim, notice or
other communication required or permitted to be made by a Participant to the
Company shall be made in writing and in such form as the Company shall
prescribe. Such communication shall be effective upon mailing, if sent by first
class mail, postage prepaid, and addressed to the Company's office at 25 East
Pine Street, Platteville, Wisconsin, 53818.
14. Captions. The captions at the head of a section or paragraph of this
Agreement are designed for convenience of reference only and are not to be
resorted to for the purpose of interpreting any provision of this Agreement.
15. Severability. The invalidity of any portion of this Agreement shall not
invalidate the remainder thereof, and the remainder shall continue in full force
and effect.
16. Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the Company and the Participant, and each of their successors,
heirs, personal representatives and permitted assigns. No sale of substantially
all of the Company's assets shall be made without the buyer expressly assuming
the obligation of this Agreement. The Company further agrees that it will not be
a party to any merger, consolidation or reorganization unless and until its
obligations hereunder are expressly assumed by the successor or successors.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of
the date first set forth above.
ATTEST: MOUND CITY BANK
/s/ David D. Jones /s/ Bernard A. Rosemeyer
Its Vice President & Chairman
of the Board
ATTEST:
/s/ John W. Meisel /s/ Robert J. Just, Jr.
Robert J. Just, Jr., Participant
9
EXHIBIT 21.1
Mound City Financial Services, Inc. Subsidiaries
<PAGE>
Mound City Financial Services, Inc. Subsidiaries
Mound City Bank, 25 East Pine Street, Platteville, Wisconsin 53818.
Mound City Investment, Inc., 3800 Howard Hughes Parkway, Suite 1560, Las Vegas,
Nevada 89109 (a wholly-owned subsidiary of Mound City Bank).
EXHIBIT 23.2
Consent of Conley McDonald LLP
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
Board of Directors
and Shareholders
Mound City Financial Services, Inc.
We consent to the incorporation by reference in this Registration Statement of
Mound City Financial Services, Inc. on Form SB-2 of our report dated January 23,
1998, on our audit of the consolidated financial statements for the year ended
December 31, 1997.
/s/ Conley McDonald LLP
CONLEY McDONALD LLP
Brookfield, Wisconsin
May 28, 1998
EXHIBIT 99.1
Subscription Agreement
<PAGE>
MOUND CITY FINANCIAL SERVICES, INC.
PROSPECTUS DATED _________________, 1998
IMPORTANT: PLEASE READ CAREFULLY BEFORE SIGNING:
SIGNIFICANT REPRESENTATIONS ARE CALLED FOR
SUBSCRIPTION AGREEMENT
Mound City Financial Services, Inc.
c/o Robert J. Just, Jr.
25 East Pine Street
Platteville, Wisconsin 53818
By executing this Subscription Agreement, the undersigned,
________________________ __________, offers to subscribe for and purchase
__________ shares of Common Stock of Mound City Financial Services, Inc., a
Wisconsin corporation ("Company"), at a price of $310.00 per share, pursuant to
the terms and conditions of the Offering described in the Prospectus of the
Company dated ____________, 1998 (the "Prospectus"), and the terms of this
Subscription Agreement. (Unless otherwise defined herein, capitalized terms in
this Subscription Agreement have the same meaning as in the Prospectus.) The
undersigned agrees to deliver, with the executed Subscription Agreement, payment
in full of the subscription price for all shares of Common Stock subscribed for
under this Agreement. The Offering expires on _______________, 1998, unless
extended. The undersigned presently owns ____________ shares of common stock.
1. Restriction Transfer. The undersigned agrees that he or she will not
transfer, sell or assign the Common Stock purchased pursuant to this
Subscription Agreement unless the Common Stock has been registered pursuant to
the Securities Act of 1933 or is exempt from the registration requirement, and
is not in violation of applicable state securities laws.
2. Additional Shares. _____ If checked here, the undersigned would like the
opportunity to purchase additional shares of Common Stock at $310.00 per share
if other shareholders do not subscribe for all the Common Stock to which they
are entitled. The number of additional shares of Common Stock that the
undersigned would like to purchase is ______.
3. Name in Which Title is to be Held.
----------------------------------------------------------
<PAGE>
4. Manner in Which Title is to be Held. (check one)
_____ Individual Ownership
_____ Survivorship Marital Property (to surviving
spouse on death of one spouse)
_____ Joint Tenant with Right of Survivorship (for
persons other than husband and wife)
_____ Partnership*
_____ Tenants in Common
_____ Corporation*
_____ Limited Liability Company ("LLC")*
_____ Trust*
_____ Other (specify:______________________)*
*If Shares are being subscribed for by a corporation, partnership, LLC or other
organization, the attached Certificate of Authorized Signer must also be
completed.
- --------------------------------------------------------------------------------
BY EXECUTING THIS AGREEMENT, YOU ARE NOT WAIVING ANY RIGHTS UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934.
- --------------------------------------------------------------------------------
<PAGE>
SUBSCRIBER SIGNATURE(S)
Dated: _________________
Number of Shares subscribed for on page 1: _____
- ---------------------------------- ----------------------------------
Signature Signature
- ---------------------------------- ----------------------------------
Name to Appear on Stock Certificate Name Typed or Printed
- ---------------------------------- ----------------------------------
Residence Address Residence Address
- ---------------------------------- ----------------------------------
City, State and Zip Code City, State and Zip Code
- ---------------------------------- ----------------------------------
Tax Identification or Tax Identification or
Social Security Number Social Security Number
(PLEASE MAKE CHECKS PAYABLE TO MOUND CITY FINANCIAL SERVICES, INC.)
THIS SUBSCRIPTION AGREEMENT MUST BE POSTMARKED ON OR BEFORE THE EXPIRATION DATE
OF THE OFFERING AND MAILED TO MOUND CITY FINANCIAL SERVICES, INC., C/O ROBERT J.
JUST, JR., 25 EAST PINE STREET, PLATTEVILLE, WISCONSIN 53818, OR DELIVERED ON OR
BEFORE 5:00 P.M. LOCAL TIME ON THE EXPIRATION DATE TO MOUND CITY FINANCIAL
SERVICES, INC., C/O ROBERT J. JUST, JR., 25 EAST PINE STREET, PLATTEVILLE,
WISCONSIN 53818. THE EXPIRATION DATE IS _________________, 1998, UNLESS
EXTENDED.
<PAGE>
CERTIFICATE OF AUTHORIZED SIGNER
(To be completed if shares of Common Stock are being
subscribed for by a corporation, partnership, or
other organization.)
I, ______________________________, am the duly appointed and acting
______________ of _________________________, of ___________________, Wisconsin
(the "Organization").
I certify that I am empowered and duly authorized by the Organization to
execute and carry out the terms of the Subscription Agreement and to purchase
and hold the shares of Common Stock, and certify further that the Subscription
Agreement has been duly and validly executed on behalf of the Organization and
constitutes a legal and binding obligation of the Organization.
IN WITNESS WHEREOF, I have set my hand this _____ day of
__________________.
-----------------------------------
(Signature)
ACCEPTANCE
This Subscription Agreement for _____ shares is accepted as of
________________.
MOUND CITY FINANCIAL SERVICES, INC.
By_________________________________
Its________________________________
EXHIBIT 99.2
VALUATION FOR
MOUND CITY FINANCIAL SERVICES, INC.
PLATTEVILLE, WISCONSIN
AS OF MARCH 31, 1998
<PAGE>
VALUATION FOR
MOUND CITY FINANCIAL SERVICES, INC.
AS OF MARCH 31, 1998
TABLE OF CONTENTS
Page One Opinion Page
Section 1
Page 2-3 Introduction
Page 4 Company Background
Page 5-7 Economic Update
Page 8-9 Financial Analysis of
Mound City Bank
Section 2
Page 10-11 Valuation Techniques
Page 12 Summary and Valuation
Estimate
Section 3 Summary of Value
Section 4 Valuation Worksheets
Section 5 Financial Statements
Section 6 Ratio Information and Other
Miscellaneous
Section 7 Resume of Analyst
<PAGE>
[LETTERHEAD OF BANKERS' SERVICE CORPORATION
7700 Mineral Point Road, Madison, WI 53707]
May 18, 1998
Board of Directors
Mound City Bank
Platteville, Wisconsin
Bankers' Service Corporation (BSC) was engaged to estimate the fair market value
of Mound City Financial Services, Inc. (MCFS) common stock as of March 31, 1998.
The purpose of the valuation is to arrive at a fair market value to support the
price for minority share transactions of MCFS. MCFS is the holding company of
Mound City Bank, thus this valuation was primarily based on the value of the
bank with any tangible assets and liabilities of MCFS netted against the value
derived. We define fair market value, as does the IRS, as the price at which the
property would change hands between a willing buyer and a willing seller when
the former is not under any compulsion to buy and the later is not under any
compulsion to sell, both parties having reasonable knowledge of relevant facts.
We used information supplied to us from Mound City Bank and MCFS along with
other information from several outside sources to prepare the valuation. We
considered the information to be reliable, however, we did not independently
verity any of the information.
The value we derived was based on a multiple of book value and price earnings
value analysis. The assumptions used in the valuation were a combination of
historical and current information along with the use of projections. Because
all valuations of this type are imperfect in that we are making assumptions and
comparisons of historical data, we do not consider the resultant valuation to be
an absolute value, only an estimate. BSC does not purport to be a guarantee of
value. Valuations of any type are an inexact science and reasonable persons can
differ In estimates of value. BSC has used, however, conceptually sound and
accepted methods and procedures of valuation in determining the estimate of
value.
In our opinion, based on the analysis performed, the estimate of value of MCFS
for purposes outlined in this letter is $301 per share or approximately 119% of
tangible book value.
Sincerely,
Bankers' Service Corporation
Valuation Analyst: John M. Anderson, CPA, CVA
JA/ps
<PAGE>
INTRODUCTION
Purpose of Valuation
Bankers' Service Corporation (BSC) has been retained to determine a value for
the common stock of Mound City Financial Services. Inc. (MCFS) the holding
company of Mound City Bank (MCB). The purpose of the valuation is to arrive at a
fair market value to support the price as it pertains to the Issuance of
additional stock of MCFS.
Although this valuation is not being performed for tax purposes we used the
definition of fair market value as the Internal Revenue Service defines it in
Revenue Ruling 59-60. They define fair market value:
"...as the price at which the property would change hinds between a willing
buyer and a willing seller when the former if not under any compulsion to
buy and the later is not under any compulsion to sell, both parties having
reasonable knowledge of relevant facts,"
Limiting Conditions
The estimate of fair value that was arrived at in this report was determined
from information that was supplied to us by several sources including
information from MCB and MCFS management We have not audited or attempted to
confirm this information for accuracy or completeness. Additionally, we relied
on several outside sources for our information without verification. The data
used from the various sources is considered reliable, but we make no warranty to
its accuracy or validity.
All appraisals of this nature are imperfect in that several assumptions must be
made upon which o valuation is determined. The assumption is that MCB is a going
concern with no unforeseen economic, regulatory or asset-quality concerns. We
further assume that it will continue to operate in its defined trade area in
much the same manner as it has historically operated. A substantial expansion of
the trade area or change in operation may Influence the valuation positively or
negatively.
BSC does not purport to be a guarantee of value. Valuations of any type are an
inexact science and reasonable persons can differ in estimates of value. BSC has
used, however, conceptually sound and accepted methods and procedures of
valuation in determining the estimate of value included in this report.
Approaches to the Valuation
There are many different valuation methods that can be used to estimate a value
of bank stock. In our opinion there Is not one method that can be used by
Itself. Therefore, when valuing the common stock of MCB for purposes of this
valuation, BSC took into account several valuation methods to arrive at a fair
value.
In assigning a value to MCB, we considered the following methods:
1) Net asset value represents the stated operating assets of the
institution to the extent that the value of the assets has a
conversion value greater than the total liabilities. This value
basically assumes liquidation of the institution and thus we did not
use it.
2) Multiple of book value is the value of market price to book for a
group of comparable banks and applying flat rate to the subject bank.
2
<PAGE>
3) Price/earnings value uses comparable data from a group of banks and
applying their price/earnings ratio to the subject bank.
4) Discounted cash flow analysis is the value of the forecasted income
stream of the bank when considered objectively in the face of other
investment opportunities.
5) Dividend capacity method was not used due to the inability of minority
shareholders to change the dividend paying policy. The analyst
determined it to be an inappropriate method in this valuation.
Minority Value
Minority stock, defined as less than a simple majority, Is almost always worth
considerably less than that of majority. Various blocks of minority stock may
have different values dependent on the specific situation. The reason minority
shares are worth less than majority are numerous. Among others, minority
shareholders cannot
o Elect directors and appoint management
o Set compensation of management and employee perquisites
o Determine dividends
o Set company policy
o Purchase or sell assets
o Determine when and if to sell the corporation
o Make amendments to the articles of incorporation or bylaws
o Establish policy and strategic direction for the corporation
3
<PAGE>
COMPANY BACKGROUND
Miscellaneous Information
MCB (established in 1915) is located in the city of Platteville, Wisconsin, in
the county of Grant Platteville with a population of approximately 9,800 is
located in the southwestern corner of the state. The closest metropolitan areas
are Madison, Wisconsin, 70 miles to the northeast and Dubuque, Iowa, 20 miles to
the west.
MCB completed two building projects during 1995 that included a drive-up
facility and a major addition to the main office building. The total capital
outlay of the project was $3.8mrn thus negatively affecting current and future
earnings. According to management, it is anticipated that pre-construction
earnings will return in year 2000. In addition to their separate drive-up
facility, MCB also has branches in Belmont to the east and Cuba City to the
south.
MCB is 100% owned by Mound City Financial Services, Inc. MCFS is fairly widely
held with about 220 total shareholders with the largest shareholder having under
5% of the shares outstanding. There were 3,600 shares outstanding in MCB and
2,694 shares outstanding in MCFS. MCFS was established in 1997 in order to
provide flexibility for expansion and to allow for a market for the shareholders
where needed. MCFS has debt outstanding of $3.4mm which was taken out in order
to purchase the shares of a large (25%) minority shareholder In 1997.
Competition
According to the Branch Source software by Sheshunoff, as of June 30, 1997 (the
latest information available, there were five different financial institutions
In Platteville. There was 1 S&L, one credit union and three banks. MCB held the
most amount of market share in deposits with 33%. The second and third largest
holders of market share in deposits was First National Bank of Platteville (27%)
and Clare Bank (21%). The total amount of deposits held by all the financial
institutions in Platteville was $238mm.
In Grant County, according to the software, there were 16 different financial
institutions: 1 S&L, 1 CD and 14 banks. MCB held the second largest amount of
market share in deposits with 12%. The first and third largest holders of market
share in deposits was Clare Bank (14%) and Anchorbank (11%). The total amount of
deposits held by the financial institutions in Grant county was $726mm.
MCB held 100% of the market share in deposits in Belmont. There were two banks
in Cuba City. The Cuba City State Bank held the most amount of market share in
deposits with 72% and MCB held the rest. As of this writing the Cuba City State
Bank is in process of being sold to a bank located in Dubuque, Iowa. This should
have a positive affect on MCB's market share in Cuba City. In the past when
local community banks have been sold It has created opportunity and growth for
the surviving bank in the community. Although MCB just has a branch in Cuba
City, it should still have a positive impact on MCB.
In addition to the financial institution competition, there is strong
competition from nonbank competitors such as Edwards D. Jones, IDS, etc.
4
<PAGE>
ECONOMIC UPDATE
National Economy
In 1998, the economy Is predicted to gradually slow down from its rapid growth
over the last couple of years. Since only 4.7% of the people in the labor force
are unemployed as of the fourth quarter of 1997, there are too many jobs and not
enough skilled workers to fill them. The nation has depleted its labor force and
is unable to grow as fast as it has been.
Over the past six years, the personal savings rate has been steadily decreasing.
Currently, as of the fourth quarter of 1997, the personal savings rate was 4.2%.
The real disposable income rate has remained steady over the past six years with
a slight upward trend. The rate was at 4% as of the fourth quarter of 1997.
Combined with an anticipated slow down in the national economy, the fact that
consumers still have the same amount of disposable Income as they did at
year-end 1994 and are saving less shows that they have confidence in the economy
to continue its current course.
As of the fourth quarter of 1997, the 10 year treasury bond Interest rate was at
6%. There has been a downward trend in the rate since 1981. If interest rates
are in a downward trend while the economy is growing, then the economy has a
much more stable environment. Housing starts remained above 1.5 million
throughout the fourth quarter of 1997. With the warm weather during the winter
of 1997-1998, housing starts are liable to remain high with the added time to
the home construction season. Also, with interest rates being low and
predictable, refinancing of debt among home owners would leave consumers in more
control of their funds.
The real GDP annual rate was 4.3 as of the fourth quarter of 1997. This is a
3.9% increase from the fourth quarter of 1996. Over the last ten years, real GDP
has been growing at about the same rate. However, during the recession in 1990
and 1991, real GDP had negative growth. Since the first quarter of 1995, there
has been an upward trend. During the first quarter of 1995, real GDP grew by
only 0.9%.
Wisconsin Economy
Wisconsin's unemployment rate has been declining since 1992, but has recently
leveled off at the end of 1997 at 3.4%. There is an anticipated upward trend in
the unemployment rate that may relieve the labor shortage In the job market The
increase in the unemployment rate Is predicted to be slight if the market
experiences any change. The employers most effected by this labor shortage are
construction companies and engineering companies.
With the mild winter, construction companies were able to start more projects In
December than in previous years. 1998 is also predicted to have one of the
highest levels of public construction over the last several years. With the
construction industry experiencing favorable economic conditions, it is no
surprise that job growth in the construction sector has grown 4.2% since 1996.
This Is the highest growth of any category. The second highest job growth in an
industry was in services (3.9%). Services is the largest industry in Wisconsin.
It is predicted that poor job growth (0.9% in 1997) in Wisconsin's non-durable
manufacturing industry will reverse itself and grow to Increasing levels in 1998
and 1999. However, durable manufacturing jobs grew 2.6% since year-end 1996.
That is the fourth largest job growth for an industry in Wisconsin. Durable
manufacturing is the second largest industry in the state.
It is highly anticipated that farm sector earnings will be low in 1998. Many
farm commodity prices were depressed in early 1998. The top five commodities in
Wisconsin in order of one to five are dairy products. corn, cattle and calves,
soybean and hogs.
5
<PAGE>
Activity in the banking and finance sector continued to be strong after year-end
1997. Most banks have reported that loan growth has been high, especially
towards commercial lending. With low interest rates many homeowners are
refinancing their debt. However, competition for loans among commercial
customers and consumers is fierce pushing down loan rates and forcing banks to
find other ways of generating income.
Overall, Wisconsin is following many national economic trends such as a low
unemployment rate, a favorable construction market and a fiercely competitive
debt market for the finance industry. The ripples of southeast Asia's economic
collapse are subtle, but they have affected exports.
In terms of income, Wisconsin residents' income grew 4.50% last year, the same
as the nation as a whole. Average income of $23,269 for 1996 was just below the
national average of $24,231. The 4.50% growth rate ranked 23rd In the nation.
Average weekly earnings, hours and average hourly earnings for the month of
March for production workers compare favorably with those for the United States.
Average weekly earnings for the U.S. in March were $550 as compared with $565
for Wisconsin. While average hourly earnings for the U.S. production workers
were $13.09 compared to $13.57 for Wisconsin.
6
<PAGE>
The Banking Industry
National: Nationally, net income in the banking sector was up by 7% from 1996 to
1997. Year-to-date December 31, 1997, net income was up 13% from the same period
in 1996. Return-on-assets for 1997 was the highest in the past five years as was
return-on-equity. Return-on-assets increased to 1.30% from 1.24% while return on
equity increased to 15.5% from 14.9%.
Total assets and deposits as of year-end 1997 were up by 8.7% and 6.2%
respectively, compared to year-end 1996. Loans grew by 5.1% over 1996 and the
loan-to-deposit ratio nationally as of year-end 1997 fell slightly to 87% from
88% in 1996.
Loan chargeoffs through year-end 1997 were up by more than 4% from 1996, while
net chargeoffs were up by even more at 12%. About 55% of the total chargeoffs
were due to credit cards, up from 51% in 1996 and 43% in 1995.
Total nonaccruals and loans and investments 90 days past due actually showed a
slight decline through year-end 1997. The total of the two went from $31,765mm
(1997) to $30,910mm (1996). In 1997, the total represented 7.7% as a percentage
of average capital and 1.1% as a percentage of average loans.
As of December 31, 1997 tier one to average capital to average assets ratio was
7.6% which was down from 7.7% the previous year-end. Risk adjusted capital
actually declined slightly to 12.43% from 12.68%. The nation's banks remained
well capitalized.
Although the number of announced merger transactions are down to 1991 levels,
the size and price of the transactions are up. The overall consensus of banking
on a national level is that it is very stable but with precautions in the loan
area. 1997 is the first year in the last five In which the loan-to-deposit ratio
decreased and total loans outstanding increased. The potential risks associated
with high loans outstanding and a high loan to deposit ratio remain because the
national aggregate level Is still very high. Any downturn in the economy could
have a significant effect on the banks due to the continued competitive pressure
in the banking industry to increase earnings through loan volume.
Banking in Wisconsin: Like the national trend, net income was up from 1997 to
1996; however, by only 2.6%. ROE was 14.3% down from 15.2% in 1996, and ROA was
1.2% down from 1.4%.
As of December 31, 1997, total assets and deposits in Wisconsin were $78,188mm
and $59,726mm. This represented a 5.7% increase in assets and a 4.5% increase in
deposits over year-end 1996. Loans were up by close to 7%. Loans continued to
outpace deposit growth thus increasing the loan-to-deposit ratios to new highs.
As of December 31, 1997 the loan-to-deposit ratio for the state of Wisconsin
rose to 92.6% from 90.5% at the previous year-end.
As of December 31, 1997 total nonaccrual and loans and investments past due more
than 90 days were up by more than 6% from the same time in 1996. As a percentage
of loans and capital, nonperforming loans are 0.6%. The nonperforming loans as a
percentage of total average capital was 5.9% and as a percentage of average
loans they were 0.8%. Actual chargeoffs in Wisconsin are also on the rise. They
were up by 9% in 1997 with net chargeoffs up by more than 17%. Credit card
chargeoffs constituted 30% of the total chargeoffs up from 25% at year end 1996.
Sales of community banks in Wisconsin are on the rise with the primary
purchasers of the community banks being F&M Bancorporation, Inc. in Kaukauna and
Associated Banc-Corp in Green Bay, both in Wisconsin. The larger holding
companies have not been active in the small bank market. There have been several
mergers of Wisconsin banks with out-of-state holding companies. With the large
banks not buying the smaller banks, it will give some opportunity for larger
community banks to buy other community banks in cash transactions.
Overall, the banking industry in Wisconsin is very healthy with an average
capital ratio of more than 8.2% and continued good earnings.
7
<PAGE>
FINANCIAL ANALYSIS OF MOUND CITY BANK
BALANCE SHEET
(m=thousand, mm=million)
Asset and Deposit Growth: MCB's assets and deposits grew 6% and 8.3%
respectively in 1997. From year-end 1997 to the valuation date assets were down
slightly and deposits were down by close to 2%. In comparison the average growth
for all Wisconsin banks for the calendar year 1997 was 5.7% for assets and 6.8%
for deposits. Almost all of the asset growth was funded by the increase in
deposits.
Loans and Loan Quality: MCB's loans rose 6.3% in 1997, while the average for all
Wisconsin banks was just over that. Loans were up by more than 3% as of March 31
from year-end 1997. Because of the decline In deposits in the first quarter of
1998, the funding of the $3mm Increase in loans came from a shifting from fed
funds and investments to loans.
Nonaccrual loans were down to only $78m at year-end 1997 but up to $390m at the
end of the first quarter. In either case nonaccruals were at an acceptable level
considering the size of the loan portfolio. As a percentage of equity,
nonaccrual loans were less than 4%.
MCB's net loan chargeoffs were up slightly in 1997 to $75m but were up to $83m
in the first quarter of 1998. MCB's allowance for loan loss account was at 1.21%
of total loans as of the valuation date. This is down from 1.31% at year-end
1997. We did not inspect loans that are currently in the portfolio; however,
from calculations done based on the information provided to us, it appears that
the allowance account is more than adequate as of the effective date of the
report.
In the past five years, MCB's loan to deposit ratio has fluctuated from 70%
(1992) to its current ratio of 85% which is the highest it has been during that
time period. The average for all banks in Wisconsin was 88% as of December 31.
1997, however, for banks between $100mm and $250mm the ratio was 84%.
Investment Portfolio: As of the effective date of the valuation, MCB's
investment portfolio was comprised of a mix of U.S. treasuries and U.S. agencies
(37%). state and political subdivisions (44%), other mortgage backed securities
(11%) and other equity securities (8%). Market value/book value was 101.1%.
There did not appear to be any other permanent identified tosses other than
market in the investment portfolio. MCB keeps all of its securities in
available-for-sale which allows them to sell securities in case of liquidity
needs.
Capital: MCB is well capitalized according to regulatory standards. Their
tier one capital to assets was 8.14% as of the valuation date. In the past five
years, MCB had paid a relatively consistent dividend which ranged from 23% to
29% of net income each year. In 1997 the dividend to the holding company was
over 90% in order to service the debt in MCFS. This trend will continue.
INCOME STATEMENT
Net Earnings: MCB, in 1997, had net income of $1,048m which was up from 1996
when net income was $938m. Year-to-date March 31, 1997 income was $232m which
annualizes to $940m, however, because monthly income generally increases as the
year goes on this is not an accurate assessment of how the current year will end
up. Despite the increase in income in 1997 return-on-assets increased only
slightly due to the increase in assets. Return on equity, however, increased 50
basis points to 10.1%. The average ROA and ROE for Wisconsin banks with assets
between $100mm and $250mm was 1.22% and 12.3% respectively.
Interest Income Expense: Net interest income as a percentage of average earning
assets decreased from 4.19% in 1996 to 3.98% in 1997. The cost of interest
8
<PAGE>
bearing deposits was 5.08% in 1997 compared to 4.84% in 1996. Tax equivalent
yield on loans was 8.9% which was down slightly from 1996. Year-to-date 1998
cost of deposits increased to 5.11%. Competition has been driving the cost of
deposits up and the yield on loans down with predictable results and that is a
decline in interest spreads. This appears to be a trend with MCB along with most
other banks.
Overhead Expense: In 1997, MCB's overhead expense to average assets ratio was
2.75% which has been the same in the past three years. Their net overhead
expense to average assets ratio has declined by 13 basis point due to an
increase in their noninterest income.
Noninterest Income: Noninterest income as a percentage of average assets for MCB
was 0.58% as year-end of 1997. This same ratio was 0.45% in 1996. Through the
first quarter of 1998 the noninterest income continued with the same ratio.
See Section 5 and 6, Exhibits A through D for the detail balance sheet, income
statement, ratios, and peer group comparisons.
9
<PAGE>
VALUATION TECHNIQUES
As stated in the introduction, the reason for the valuation Is for fair market
value purposes as It relates to trades of minority shareholders. There is no
established or regular market for the common stock of MCB or MCFS; thus, with
the exception of a sale or merger with another banking association, the market
for the stock has a fairly limited trading range. Because of many factors,
including offering equity values in banks, it is this analyst's position that
two valuation methods should be used to arrive at a fair market value of the
common stock. These methods are described below. Methods we did not use included
net asset, dividend capacity method, nor investment value. It was determined
that the best methods would be the multiple of book value approach and the
price/earnings method.
The multiple of book value and price/earnings approaches are driven by
comparatives for similar transactions between similar institutions in similar
circumstances. Because the market for community bank stocks is limited, we used
the averages of "pink sheet stocks" located primarily in the Midwest as the
basis of our calculations. "Pink sheet stocks" are stocks of institutions that
are generally greater than $100mm and less than $1 billion that are not traded
on an exchange but do create a limited market for their stock through various
brokers. Although the marketability of these stocks is not as great as those
that are publicly traded, they do have more of an established market than does
MCB and MCFS. Additionally it is this analyst's opinion that the "pink sheets"
already factor in a discount for minority value thus we do not apply a minority
discount for purposes of this valuation.
See Section 4, Schedule l(a) for the summary of the information used. The
information was obtained from Howe Barnes Investments, Inc., Quarterly Bank and
Thrift Report from March 31, 1998. We used the average prices of all of those
stocks in our sample.
Multiple of Book Value
Equity-to-asset ratios differ substantially from one bank to another, thus, when
making comparisons for purposes of this calculation, the capital ratios of those
banks in our sample must be reviewed to see how they fit with the bank being
valued. The weighted average equity to asset ratio of the banks was 9.5% while
MCB had a ratio of just over 8%; therefore, compared to the other banks in the
sample, MCB was not overly capitalized (in accordance with our comparative
banks); and thus, we applied the average equity multiplier to all of the capital
of the bank excluding the allowance for loan loss and unrealized gain/loss.
For purposes of this calculation we reviewed the allowance for loan loss account
for adequacy or excess. Based on our calculations with the information available
to us we determined that the equity should be adjusted upward slightly, This
adjustment was carried forward to the multiple of equity calculation. This
calculation is shown on Schedules I and l(a).
We used the average price/equity multiplier of 1.76x, of the group of banks in
our sample. This calculation is documented on Schedule II, Section 4. When
calculating the multiple-of-equity value, we applied the multiplier to the
adjusted stockholders' equity. The value we arrived at per share was $4,976
before applying any discounts for lack of marketability.
Multiple of Earnings
The price/earnings of the banks were also used as part of this calculation. In
order for this method to have validity there should be a history of earnings
that can be projected going forward as this method requires the ability to
attain future earnings. Additionally, it is important to make sure that there
are not any significant "blips" in the earnings that would be considered
nonrecurring both on the income and expense side. If there are, then those
earnings should be adjusted in order to "normalize" the income for that
particular year. It was determined that no adjustments needed to be made to
normalized earnings.
The price/earnings of the banks were used as part of this calculation. The
average price earnings for the "pink sheet" stocks was 15.5x as shown on
Schedule ll(a). We then calculated a weighted averse net income from the past
three years placing the most weight to the projected 1997 earnings and the least
10
<PAGE>
to the 1995 earnings. Although this valuation was as of March 31, 1998 we did
not use those earnings as part of our calculation due to the tact the annualized
income would probably not be an accurate reflection of the year in total.
We then applied the 15.5 price to earnings ratio to the weighted average
earnings. The estimated value using this approach was determined to be $4,332
per common share of stock prior to any discounts
being applied.
11
<PAGE>
SUMMARY AND VALUATION ESTIMATE
The ultimate estimate of the fair market value takes the two methods of
valuation into consideration. It is our opinion that each has its place in the
determination of value but that each cannot stand alone. We gave more weight to
the price earnings method and the balance to the multiple of book value method.
As stated previously in this valuation report the stock of MCB or MCFS is not
traded on any exchange and does not have a formal market for its stock. The
stocks we used as our basis in this valuation were "pink sheets" stocks which
are not as marketable as those that are traded on an exchange but more
marketable than the stock of MCB. In order to arrive at fair market value for
the common stock of MCB we needed to apply a marketability discount to the
$4,547 base price of the stock.
The combined studies of the SEC Institutional Investor, Moroney and the Maher,
all well known studies, report a median marketability discount of about 35%.
These studies used publicly traded stocks as their basis. Because we used the
"pink sheets" as our basis we only used a 30% marketability discount to arrive
at fair market value for the stock of MCB. For MCB that discount was determined
to be $1,364 which resulted in a fair market value for MCB of $3,183 per share.
Mound City Financial Services, Inc., the holding company of MCB, had cash and
receivables in addition to some liabilities. MCFS borrowed $3.84mm to buy out
the shares of a large minority shareholder. The balance of the loan was $3.4mm
as of the valuation date. In order to calculate the fair market value of MCFS we
subtracted the net liabilities of MCFS from the fair market value of MCFS's
holdings of MCB. This calculation is documented on Schedule A. The fair market
value of MCFS was determined to be $301 per share or approximately 119% of book
value.
12
<PAGE>
<TABLE>
<CAPTION>
Schedule A
Mound City Financial Services, Inc.
Summary of Value
March 31, 1998
Mound City Bank Calculated
Price Weight Result
<S> <C> <C> <C>
BOOK VALUE MULTIPLIER APPROACH-SCHEDULE II 4,976 33.33% 1,659
PRICE EARNINGS MULTIPLIER-SCHEDULE III 4,332 66.67% 2,888
----------
TOTAL PRIOR TO DISCOUNT FOR LACK OF MARKETABILITY $4,547
DISCOUNT FOR LACK OF MARKETABILITY 30.00%
DISCOUNT AMOUNT 1,364
ESTIMATED FAIR MARKET VALUE AFTER DISCOUNT $3,183
BOOK VALUE PER SHARE FOR THE COMMON STOCK $2,811
FAIR MARKET VALUE AS A PERCENTAGE OF BOOK VALUE 113.22%
FAIR MARKET VALUE WEIGHTED AVERAGE EARNINGS. 11.4
Mound City Financial Services, Inc.
VALUE OF BANK PER SHARE $3,183
TOTAL SHARES OF BANK OWNED BY HOLDING COMPANY 3,600
TOTAL OF OWNERSHIP IN BANK $11,458,053
NET ASSETS (LIABILITIES) OF HOLDING COMPANY (3,351,000)
TOTAL VALUE OF CONSOLIDATED HOLDING COMPANY 8,107,053
TOTAL SHARES OF OUTSTANDING AS OF VALUATION DATE 26,920
ESTIMATED CONSOLIDATED VALUE PER SHARE $301
-----------
BOOK VALUE PER SHARE (NOT INCLUDING UNREALIZED GAIN/LOSS) $254
FAIR MARKET VALUE/BOOK VALUE 118.61%
TANGIBLE ASSETS AND LIABILITIES OF HOLDING COMPANY
==================================================
<S> <C> <C>
CASH 144,000
LOANS AND ADVANCES FROM SUBSIDIARY 26,000
------------
TOTAL ASSETS 170,000
LONG TERM BORROWINGS 3,400,000
ACCRUED INTEREST 121,000
------------
TOTAL LIABILITIES 3,521,000
NET ASSETS (LIABILITIES) (3,351,000)
</TABLE>
<PAGE>
Schedule I
Mound City Bank
Net Asset Value
March 31, 1998
Mound City Bank
Stockholder equity $10,120,000
Adjustment for reserve for loan losses (Schedule l(a)) 58,578
Adjustment for other real estate 0
Adjustment for excess market/book value of securities 0
------------
Net asset value $10,178,578
Total shares outstanding 3,600
Net asset value per share $2,827
<PAGE>
Schedule 1(a)
Allowance for Loan Loss
Calculation
March 31, 1998
Mound City Bank
Current balance In allowance account 1,106,000
Total outstanding loans 91,477,000
Current balance/total loans 1.21%
$ Amount % Allocation Anticipated loss
Current losses in portfolio 0 100.00% 0
90 days past due 0 20.00% 0
Nonaccrual loans 390,000 25.00% 97,500
----------- ---------
Total 390,000 97,500
Minimum allowance for balance of loans 1.00%
Total loans less above 91,087,000 910,870
Total required balance per calculation 1.10%
Total required balance according to calculation 1,008,370
Excess (deficit) in allowance account 97,630
Tax adjustment 60.00%
Adjustment to NAV after tax 58,578
<PAGE>
Schedule II
Mound City Bank
Book Value Multiple Approach
March 31, 1998
Mound City Bank
Price/equity Calculation $10,178,578
Adjusted stockholders' equity
Adjusted stockholders' equity $10,178,578
Book value multiplier(Schedule II(a)) 1.76
-----------
Value using Price/equity comparables
prior to excess capital adjustment $17,914,778
Excess capital $1/$1 0
-----------
Resultant value with price/equity calculation $17,914,776
Total Shares outstanding 3,600
Price to equity value per shares $4,976
Price equity value/weighted average earnings 17.8
<PAGE>
<TABLE>
<CAPTION>
Schedule II(a)
PINK SHEET BANKS
Pricing from March 31, 1998
Price/
Stock Total Equity/ LTM P/E Ratio Book
Price/ Assets Assets ROAA LTM Stated
Name City State Share($) (MIL $'s) (%) (%) X (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Baraboo Bancorporation Baraboo WI 30.00 274 10.04 1.27 16.13 196.59
Baylake Corporation Sturgeon Bay WI 30.75 450 8.74 1.26 14.37 200.72
Blackhawk Bancorp, Inc. Beloit WI 15.00 199 11.25 1.16 18.29 153.69
First Bankers Trustshares, Inc. Quincy IL 11.50 223 5.10 1.07 7.82 134.82
First Busey Corporation Urbana IL 32.00 916 8.08 1.18 20.65 299.63
First Evergreen Corporation Evergreen Park IL 430.00 1900 10.02 1.00 9.06 90.61
First Financial Bancorporation Iowa City IA 35.75 550 10.01 1.31 18.82 216.67
First Mid-Illinois Bancshares Malloon IL 40.25 533 6.83 0.92 18.55 186.77
First National Bancorp, Inc. Joilet IL 63.00 861 7.78 1.13 16.36 231.45
First Robinson Financial Corp. Robinson IL 17.50 76 16.95 0.90 16.99 117.53
Heartland Financial USA, Inc. Dubuque IA 30.00 852 8.76 1.09 16.85 191.69
Iowa First Bancshares Corp. Muscaline IA 31.00 306 9.36 1.13 17.03 198.46
Merchants and Manufacturers
Bank Milwaukee WI 48.25 288 9.95 0.82 18.63 151.25
Northwest Bank & Trust Co. Davenport IA 35.50 152 10.92 1.09 13.50 184.70
Southern Bancshares, Ltd. Carbondale IL 62.00 247 8.20 0.98 15.20 182.25
Tri City Bankshares Corporation Oak Creek WI 25.00 460 11.64 1.49 9.62 116.66
Upbancorp, Inc. Chicago IL 132.00 231 8.98 0.87 14.73 140.29
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGES 62.91 501.06 9.57 1.10 15.50 176.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule III
Mound City Bank
Price/Earnings Multiplier Approach
March 31, 1998
Price/earnings calculation
Weighted average earnings
(Schedule III(a)) $1,006,167
Price/earnings multiple
(Schedule II(a)) 15.5
----------
Total value using price/
earnings approach 15,595,583
Less preferred stock 0
-----------
Resultant value with price/earning calculation $15,595,583
Total Shares outstanding 3,600
Resultant value per share using price/earnings method $4,332
Price/Total equity value 1.53
<PAGE>
Schedule III(a)
Mound City Bank
Weighted Average Net Income Calculation
1995 through 1997
BANK: Mound City Bank
Weighted
Year Net Income Weight Given Net Income
- ---- ---------- ------------ ----------
1997 1,048,000 50.00% 524,000
1996 938,000 33.33% 312,667
1995 1,017,000 16.67% 169,500
- ---------------------------------------------------------------------------
Weighted Average Income 100.00% $1,006,167
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET INFORMATION Exhibit A
Name of Bank: Mound City Bank
City: Platteville
State: Wisconsin
Compiled by: Sheshunoff Information Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Assets Dec 93 % Dec 94 % Dec 95 % Dec 96 % Dec 97 % Mar 98 %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash & bal due: Noninterest bearing 3380 3.8% 4209 4.4% 5368 5.1% 4237 3.7% 3474 2.8% 4299 3.5%
Cash & bal due: Interest bearing 0 0.0% 0 0.0% 0 0.0% 17 0.0% 21 0.0% 23 0.0%
Securities 18322 20.5% 21984 23.2% 22109 21.0% 20071 17.4% 19965 16.4% 0 15.6%
Held-to-Maturity Secs: Amort Cost N/A 14159 0 0 0 0
Avail-for-Sale Secs: Fair Value N/A 7825 22109 20071 19965 19026
Fed funds sold & secs purchased 1721 1.9% 490 0.5% 3696 3.5% 3468 3.0% 4582 3.7% 1303 1.1%
Loans & leases, net unearned inc. 63675 65048 69706 81656 38427 91477
Allowance for loan losses 734 880 972 1104 1159 1108
Loans and leases, net 63141 70.6% 64166 67.7% 68734 65.2% 80562 70.0% 87268 71.5% 90371 74.2%
Trading Assets 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Premises and fixed assets 1049 1.2% 1833 1.9% 3400 3.2% 4386 3.8% 4344 3.6% 4310 3.5%
Other real estate owned 24 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Investments in unconsolidated subs 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Customers' liability on acceptances 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Intangible assets 27 0.0% 14 0.0% 4 0.0% 2 0.0% 1 0.0% 1 0.0%
Other assets 1772 2.0% 2076 2.2% 2117 2.0% 2304 2.0% 2339 1.9% 2517 2.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 89436 100.0% 94772 100.0% 105428 100.0% 115045 100.0% 121974 100.0% 121850 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits in domestic offices: 80583 90.1% 85523 90.2% 90738 88.9% 102942 89.5% 109428 89.7% 107777 88.5%
Domestic dep: Noninterest bearing 6415 8299 7738 10134 10306 8576
Domestic dep: Interest bearing 74168 77224 86000 92608 99122 99201
Fed funds purchased & sec sold 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Demand notes issued to U.S.Treasury 331 0.4% 142 0.1% 836 0.8% 470 0.4% 977 0.8% 441 0.4%
Trading liabilities N/A 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Other borrowed money 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 1500 1.2%
Mortgage indebtedness 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Bank's liabilities on acceptances 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Subordinated notes and debentures 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Other liabilities 979 1.1% 1108 1.2% 1503 1.4% 1692 1.5% 1521 1.2% 1871 1.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 81893 91.6% 86773 91.6% 95077 91.1% 105104 91.4% 111928 91.8% 111589 91.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Capital
Preferrred Stock 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%
Common Stock 360 0.4% 360 0.4% 360 0.3% 360 0.3% 360 0.3% 360 0.3%
Surplus 4640 5.2% 5840 6.0% 6640 6.3% 7140 6.2% 7140 5.9% 7140 5.9%
Undivided profits & reserves 2547 2.8% 2375 2.5% 2122 2.0% 2290 2.0% 2388 2.0% 2620 2.2%
Unrealized Gains: avail-for-sale secs -4 -0.0% -376 -0.4% 229 0.2% 151 0.1% 160 0.1% 141 0.1%
Total Equity Capital 7543 8.4% 7999 8.4% 9351 8.9% 9941 8.6% 10048 8.2% 10261 8.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities & Equity Capital 89436 100.0% 94772 100.0% 105428 100.0% 115045 100.0% 121974 100.0% 121850 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INCOME STATEMENT INFORMATION Exhibit B
Name of Bank: Mound City Bank
City: Platteville
State: Wisconsin
Compiled by: Sheshunoff Information Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income Dec 93 Dec 94 % Change Dec 95 % Change Dec 96 % Change Dec 97 % Change Mar 98 % Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and fee income on loans: 5110 5530 8.22% 6065 9.67% 6795 12.04% 7510 10.52% 1980 -73.64%
Income from lease fin. receivables 0 0 ERR 0 ERR 0 ERR 0 ERR 0 ERR
Interest income on balances due 11 0 -100.00% 0 ERR 1 ERR 1 0.00% 1 0.00%
Interest and dividend inc. on secs: 1186 1143 -3.63% 1348 17.94% 1319 -2.15% 1191 -9.70% 294 -75.31%
Securities of state & pol. subs: 465 457 -1.72% 443 -3.06% 443 0.00% 452 2.03% 115 -74.56%
Taxable securities 0 0 ERR 0 ERR 0 ERR 0 ERR 0 ERR
Tax exempt securities 465 457 -1.72% 443 -3.06% 443 0.00% 452 2.03% 115 -74.56%
U.S. Government & other sec. 721 686 -4.65% 905 31.92% 878 -3.20% 739 -15.64% 165 -77.67%
U.S. Treasury & agency oblig. N/A N/A 876 N/A 686 N/A 1133 684 0 N/A 0
Other domestic securities N/A N/A N/A N/A N/A N/A N/A 0 0 N/A 0
Foreign securities N/A N/A N/A N/A N/A N/A N/A 0 0 N/A 0
Equity securities 19 151 694.74% 167 10.60% 84 -49.70% 55 -34.52% 14 -74.55%
Income from trading account assets 0 0 ERR 0 ERR 0 ERR 0 ERR 0 ERR
Interest income on fed funds sold 60 46 -23.33% 201 336.96% 96 -52.24% 131 36.46% 25 -80.92%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 6367 6719 5.53% 7614 13.32% 8211 7.84% 8833 7.58% 2300 -73.96%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits: 2965 2906 -1.99% 3853 32.59% 4294 11.45% 4796 11.69% 1278 -73.35%
Interest on dep/domestic offices 2965 2906 -1.99% 3853 32.59% 4294 11.45% 4796 11.69% 1278 -73.35%
Transaction accounts 246 241 -2.03% 271 12.45% 277 2.21% 567 104.69% 188 -66.84%
Nontransaction accounts
Money market deposit accounts 265 221 -16.60% 237 7.24% 193 -18.57% 293 51.61% 103 -64.85%
Other savings deposits 202 191 -5.45% 217 13.61% 208 -5.07% 167 -18.93% 36 -78.44%
Time CDs over $100,000 123 102 -17.07% 195 91.18% 296 51.79% 436 47.30% 123 -71.79%
All other time deposits 2129 2151 1.03% 2933 36.36% 3322 13.26% 3333 0.33% 828 -75.16%
Int on dep in foreign offices 0 0 ERR 0 ERR 0 ERR 0 ERR 0 ERR
Expense of fed funds purchased 1 8 700.00% 3 -62.50% 11 266.67% 22 100.00% 2 -90.91%
Int. on demand notes & other borrow. 5 6 20.00% 11 83.33% 14 27.27% 17 21.43% 17 0.00%
Interest on mortgage indebtedness 0 0 ERR 0 ERR 0 ERR 0 ERR 0 ERR
Interest on subord notes and debs 0 0 ERR 0 ERR 0 ERR 0 ERR 0 ERR
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 2971 2920 -1.72% 3867 32.43% 4319 11.69% 4835 11.95% 1297 -73.17%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 3396 3799 11.67% 3747 -1.37% 3892 3.87% 3998 2.72% 1003 -74.91%
Net interest income (tax adj.) 3654 4054 10.95% 3998 -1.38% 4162 4.10% 4231 1.65% 1041 -75.40%
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for loan and lease losses 261 217 -16.86% 110 -49.31% 184 67.27% 130 -29.35% 30 -76.92%
Noninterest income
Income from fiduciary activities N/A N/A ERR N/A ERR N/A ERR 20 ERR N/A -1
Service charges on deposit accounts 206 268 30.10% 262 5.22% 310 9.93% 394 27.10% 97 -75.36%
Other noninterest income 245 244 -0.41% 206 -15.57% 185 -10.19% 263 42.16% 74 -71.86%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 451 512 13.53% 488 -4.69% 495 1.43% 677 36.77% 171 -74.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Gains (losses) on securities 37 -51 -237.84% -61 19.61% -1 -98.36% 5 -600.00% 22 340.00%
Noninterest Expense
Salaries and employee benefits 1318 1406 6.68% 1537 9.32% 1635 6.36% 1772 8.38% 509 -71.28%
Expenses premises & fixed assets 266 265 -0.38% 312 17.74% 414 32.69% 478 15.46% 120 -74.90%
Other noninterest expense 897 983 9.59% 882 -10.27% 961 8.96% 974 1.35% 245 -74.85%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 2481 2654 6.97% 2731 2.90% 3010 10.22% 3224 7.11% 874 -72.89%
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes and other 1142 1389 21.63% 1333 -4.03% 1192 -10.58% 1326 11.24% 292 -77.98%
- ------------------------------------------------------------------------------------------------------------------------------------
Applicable income taxes 316 309 -2.22% 316 2.27% 254 -19.62% 278 9.45% 60 -78.42%
Income before extraordinary items 826 1080 30.75% 1017 -5.83% 938 -7.77% 1048 11.73% 232 -77.86%
Extraordinary items, net 0 0 ERR 0 ERR 0 ERR 0 ERR 0 ERR
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) 826 1080 30.75% 1017 -5.83% 936 -7.77% 1048 11.73% 232 -77.86%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATIO AND PEER GROUP INFORMATION Exhibit C
Name of Bank: Mound City Bank
City: Platteville
State: Wisconsin
Compiled by: Sheshunoff Information Services, Inc.
Peer Peer Peer Peer Peer Peer
Dec 93 Grp Dec 94 Grp Dec 95 Grp Dec 96 Grp Dec 97 Grp Mar 98 Grp
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rating in Asset Peer Group 50 62 63 50 N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Core Cap - Unreal. Loss/Assets 8.51 34 8.66 40 8.70 41 8.81 43 8.14 29 8.62 N/A
Risk Adjusted Capital Ratio 12.91 12 13.78 20 14.05 32 13.23 28 12.58 23 N/A
Dividend Payout 28.33 62 23.33 72 26.55 71 28.78 68 90.65 14 0.00 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Nonperforming Loans/Gross Loans 1.07 36 0.29 68 0.08 94 0.21 82 0.19 91 0.43 N/A
Nonperf. Lns & Secs/Core Cap&Res 8.28 21 2.03 61 0.53 91 1.57 78 1.63 88 3.43 N/A
Net Chargeoffs/Average Loans 0.32 25 0.11 39 0.03 73 0.07 65 0.09 60 0.09 N/A
Loan Loss Reserve/Total Loans 1.15 21 1.35 42 1.39 51 1.35 53 1.31 53 1.21 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Return on Average Assets (ROA) 0.94 19 1.17 44 1.00 23 0.86 11 0.90 12 0.78 N/A
Return on Average Equity (ROE) 11.39 32 13.90 61 11.67 33 9.74 15 10.25 22 9.06 N/A
Yield/Avg Earn Assets (Tax Adj.) 8.08 68 8.14 75 8.63 65 8.53 62 8.48 54 8.29 N/A
Rate/Average Earning Assets 3.62 11 3.41 17 4.24 15 4.34 10 4.50 8 4.56 N/A
Spread/Average Earning Assets 4.45 37 4.73 54 4.39 37 4.19 25 3.98 15 3.73 N/A
Cost of Deposits 4.08 17 3.64 23 4.74 25 4.84 19 5.08 9 5.11 N/A
Yield on Loans (Tax Adj.) 6.64 29 8.61 37 9.13 33 9.02 28 8.92 24 8.71 N/A
Yield on Securities (Tax Adj.) 6.90 66 6.77 77 7.26 85 7.23 87 7.27 89 6.90 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest Income/Average Assets 0.51 42 0.56 50 0.50 30 0.45 24 0.58 42 0.58 N/A
Overhead Expense/Average Assets 2.82 52 2.88 49 2.77 52 2.76 48 2.75 48 2.95 N/A
Net Overhead Expense/Avg Assets 2.31 45 2.33 45 2.28 37 2.30 30 2.17 39 2.38 N/A
Net Income/Salary & Benefits Exp. 62.67 19 76.81 41 68.17 24 57.37 13 59.14 16 57.37 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans/Deposits 79.29 12 76.06 28 74.36 44 79.32 32 80.81 33 84.86 N/A
Fair Value to Mort Cost: Total Secs 102.93 80 97.48 69 101.67 79 101.16 86 101.23 69 101.14 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Earning Assets/Total Assets 93.01 48 91.42 29 89.67 6 90.49 15 91.67 29 91.78 N/A
Overhead Efficiency Ratio 60.44 40 58.13 51 60.68 30 64.63 16 65.00 16 72.12 N/A
Avg Salary Expense per Employee 34,684 20 35,150 23 36,250 18 35,237 28 36,016 33 39,596 N/A
IPC Deposits Per Employee ($000) 2,015 72 1,950 67 2,025 67 1,976 62 2,033 66 2,113 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Amt of % of Amt of % of Amt of % of Amt of % of Amt of % of Amt of % of
Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth
- ------------------------------------------------------------------------------------------------------------------------------------
Assets 2,861 3.30% 5,336 5.97% 10,656 11.24% 9,617 9.12% 6,929 6.02% (124) -0.10%
Loans 9,660 17.82% 1,171 1.63% 4,660 7.16% 11,950 17.14% 6,771 8.29% 3,050 3.45%
Deposits 2,248 2.87% 4,940 6.13% 8,215 9.61% 9,204 9.82% 6,486 6.30% (1,851) -1.51%
Equity 588 8.45% 828 10.97% 747 8.92% 668 7.32% 98 1.00% 232 2.35%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit D
OTHER MISCELLANEOUS DATA
Name of Bank: Mound City Bank
City: Platteville
State: Wisconsin
Compiled by: Sheshunoff Information Services, Inc.
DEC 93 DEC 94 DEC 95 DEC 96 DEC 97 MAR 98
<S> <C> <C> <C> <C> <C> <C>
Amort Cost U.S. Treasury secs 2509 3506 3007 2478 1502 1001
Amort Cost U.S. govt obligations 5542 3722 5226 5180 6764 5986
Amort Cost Sec issd by states 7188 7922 7614 7843 8315 8293
Amort Cost Pass-through sec 0 0 0 0 0 0
Amort Cost Other MBS 0 4443 4089 3930 2367 2123
Amort Cost-Other debt securities 0 0 0 0 0 0
Amort Cost Equity securities 3083 2808 1810 410 774 1408
- --------------------------------------------------------------------------------------------------------------------
Total Amort Cost Securities 18322 22401 21746 19841 19722 18811
- --------------------------------------------------------------------------------------------------------------------
Total Fair Value Securities 18858 21836 22109 20071 19965 19026
- --------------------------------------------------------------------------------------------------------------------
Secured by real estate
Construction & land dev. 1677 822 119 113 1256 1023
Farmland 6007 5582 5743 5993 6874 7059
1 to 4 family residential 21013 22128 23899 26899 30356 30906
Multifamily (5 plus) residential 1233 1247 1761 1250 694 677
Nonfarm nonresidential 5003 5711 10108 18440 20576 23068
Loans to depository institutions 0 0 0 0 0 0
Loans to finance ag. production 8888 9692 9543 9369 9443 9758
Commercial and industrial loans 13536 14694 13156 13305 12937 12559
Acceptances of other Banks 0 0 0 0 0 0
Loans to individuals 5824 4595 4095 4851 5101 5228
Obligations of states & pol sub: 667 541 1255 1402 1171 1153
All other loans 27 34 27 34 19 56
Lease financing receivables 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------
Total Restructured Loans 0 0 0 0 0 0
Total Assets Past Due 90 Days 96 33 1 0 0 0
Total Nonaccrual Assets 587 155 52 171 78 390
- --------------------------------------------------------------------------------------------------------------------
Total Charge Offs 278 127 82 75 94 89
Total Recoveries 86 56 64 23 19 6
- --------------------------------------------------------------------------------------------------------------------
Time CDs over $100,000 2794 2064 3861 6229 8566 8107
Open-account time over $100,000 0 0 0 109 0 0
- --------------------------------------------------------------------------------------------------------------------
Average Assets 88006 92104 98462 109119 117165 117430
- --------------------------------------------------------------------------------------------------------------------
Average Earning Assets 82012 85719 91166 99424 107610 112910
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
JOHN M. ANDERSON, CPA, CVA
Executive Vice President & CEO
John Anderson is Executive Vice President and CEO of Bankers' Service
Corporation (a wholly owned bank auditing and consulting subsidiary of Bankers'
Bank) where he has been since 1987. He is a Certified Public Accountant and a
Certified Valuation Analyst. Mr. Anderson has had eleven years experience in
valuing banks for all purposes. He has served as an expert for the State of
Wisconsin Department of Financial institutions and for other financial
institutions. He also performs analysis work for the purposes of branch and unit
bank acquisitions. He is a CVA (Certified Valuation Analyst). To become a CVA,
the candidate is required to successfully complete a training and testing
process which is only available to CPAs. They also must maintain continuing
education credits in the area of valuations.
Previous to joining BSC, Mr. Anderson was in charge of the operations of
Heritage Bank and Trust in Kenosha ($100mm bank). Early in his career, he was
employed by Firstar Corporation in the capacity of staff and investigative
auditor. Mr. Anderson has his BBA in accounting from the University of
Wisconsin-Milwaukee.
He is currently a member of the Wisconsin Institute of CPAs financial
institutions committee and is the past chairman of that committee. He also
serves as a member of the education committee of the Community Bankers' of
Wisconsin. He has been a speaker for various organizations such as WICPA,
Wisconsin Bankers Association (WBA), Community Bankers of Wisconsin, Bankers'
Bank, Bank Holding Company Association and other organizations throughout
Wisconsin and Iowa. His speaking engagements included subject matter such as
unfriendly takeovers, holding company issues, valuations of banks, data
processing alternatives, loan review and many others. He has been an instructor
for Gateway Technical Institute in Kenosha and the American institute of
Banking.
John is also a member of the AICPA and NACVA (National Association of Certified
Valuation Analysts). He is also a candidate for associate membership in the
American Society of Appraisers.
