SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 1998.
Commission file number 333-53797
MOUND CITY FINANCIAL SERVICES INC.
(Name of small business issuer in its charter)
Wisconsin 39-1867686
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 East Pine Street, Platteville, Wisconsin 53818
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (608) 348-2685
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether Issuer (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports) (or for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained, to the best of Registrant's
knowledge, in definitive Proxy or Information Statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[X] Not Applicable
Issuer's revenues for its most recent fiscal year were $10,162,423.
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates of the Registrant (26,247 shares) on February 26, 1999, was
$7,226,690. As of such date, no organized trading market existed for the Common
Stock of the Registrant. The aggregate market value was computed by reference to
the book value of the Common Stock of the Registrant as of February 26, 1999.
For the purposes of this response, directors, officers and holders of 5% or more
of the Registrant's Common Stock are considered the affiliates of the Registrant
at that date.
The number of shares outstanding of Issuer's class of common stock at December
31, 1998 was 31,464 shares of common stock.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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TABLE OF CONTENTS
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PAGE
PART I
ITEM 1. DESCRIPTION OF BUSINESS ..........................................1
ITEM 2. DESCRIPTION OF PROPERTIES .......................................12
ITEM 3. LEGAL PROCEEDINGS ...............................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS ...........................................12
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ...........................................12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS .........................................13
ITEM 7. FINANCIAL STATEMENTS ............................................40
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ..........................................67
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT .....................................67
ITEM 10. EXECUTIVE COMPENSATION ..........................................70
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT .........................................72
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS ..................................................73
PART IV
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K ................................74
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PART I
======
Cautionary Statement for Purposes of the
"Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
- ----------------------------------------
When used in this 10-KSB and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, and in oral statements made with the
approval of an authorized executive officer, the words or phrases "are expected
to," "estimate," "is anticipated," "project," "will continue," "will likely
result," or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including changes in economic conditions in the Company's market area, the
Company's future lending and collection experiences, the effects of
acquisitions, changes in policies by regulatory agencies, fluctuation in
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interest rates, demand for loans in the Company's market area, needs for
technological change, and competition, that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that factors addressed within the discussion
below could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, the Company
cautions that, while it believes such assumptions or bases to be reasonable and
makes them in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending on the circumstances. Where, in any forward-looking
statement, the Company, or its Management, expresses an expectation or belief as
to the future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result, or be achieved or accomplished.
The Company does not undertake -- and specifically declines any obligation
- -- to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Item 1. Description of Business
- --------------------------------
General
- -------
Mound City Financial Services, Inc. ("Company") was incorporated under the
laws of the State of Wisconsin in September, 1996, and owns 100% of the
outstanding capital stock of Mound City Bank ("Bank"), a state-chartered
commercial bank located in Platteville, Wisconsin. The Company was organized as
a mechanism to enhance the Bank's ability to serve its future customers'
requirements for financial services. The bank holding company structure provides
flexibility for expansion of the Company's banking business through the
acquisition of other financial institutions and the provision of additional
banking -related services which the traditional commercial bank may not provide
under present laws. For example, banking regulations require the Bank to
maintain a minimum ratio of capital to assets. If the Bank's growth is such that
this minimum ratio is not maintained, the Company may borrow funds, subject to
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the capital adequacy guidelines of the Federal Reserve Board, and contribute
them to the capital of the Bank and otherwise raise capital in a manner that is
unavailable to the Bank under existing banking regulations.
The Bank's principal banking office is located at 25 East Pine Street,
Platteville, Wisconsin, in a facility built in 1977. Its telephone number is
(608) 348-2685. This 11,000 square foot facility was constructed in 1977. In
1996, an addition and complete remodeling has resulted in a new 22,000 square
foot facility. 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 branch facilities are located at 112 Mound Avenue,
in Belmont, Wisconsin, and 200 South Main Street, in Cuba City, Wisconsin.
The Bank is a state chartered bank that has been operating as a commercial
bank since 1915, with offices located in Belmont, Cuba City and Platteville,
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 and Cuba City
branches, as well as the newly completed Motor Branch in Platteville.
Full-service lending is available at every location. 24-hour telephone banking
has been available since 1995.
The primary business of the Bank is to attract deposits from the general
public and to use such deposits, together with borrowings and other funds, to
make residential loans and purchase investment and other securities. The Bank
also makes consumer loans, commercial loans, and provides other financial
services to its customers. The Bank also provides second mortgages on existing
structures and construction loans, as well as a variety of consumer loans for
personal, education, and automobile purchases. Customer deposits with the Bank
are insured to the maximum extent provided by law through the Federal Deposit
Insurance Corporation (the "FDIC").
The Bank's income is primarily derived from interest and fees collected on
loans and interest on investment securities and gains received on sales of
loans. The principal expenses of the Bank are interest paid on deposits,
interest paid on other borrowings by the Bank, employee compensation, office
expenses, and other overhead expenses.
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Market Area and Competition
- ---------------------------
The Company and the Bank face vigorous competition from a number of
sources, including other bank holding companies and commercial banks, consumer
finance companies, thrift institutions, other financial institutions and
financial intermediaries. The Bank's main office is located in Platteville,
Wisconsin, and it has branches in Belmont and Cuba City. There are two other
commercial banks, one savings bank and one credit union located in Platteville,
and there is one other commercial bank located in Cuba City. The Bank's
competition comes from those institutions and others located near Platteville,
Belmont and Cuba City. In addition to commercial banks, savings and loan
associations, savings banks and credit unions actively compete to provide a wide
variety of banking services. 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.
Loan Portfolio
- --------------
The Bank engages in a full range of lending activities, including
agribusiness, commercial, consumer and real estate loans. As of December 31,
1998, the Bank had a legal lending limit of $2,049,000.
While risk of loss in the Bank's loan portfolio is primarily tied to the
credit quality of the various borrowers, risk of loss may also increase due to
factors beyond the Bank's control, such as local, regional, and/or national
economic downturns. General conditions in the real estate market may also impact
the relative risk in the Bank's real estate portfolio. Of the Bank's target
areas of lending activities, commercial loans are generally considered to have
greater risk of loss than real estate loans or consumer loans.
Management of the Bank originates loans and participates with other banks
with respect to loans which exceed the Bank's lending limits. Management of the
Bank does not believe that loan participations necessarily pose any greater risk
of loss than loans with the Bank originates.
Agricultural Production Loans
- -----------------------------
Agricultural production lending is directed towards farmers for the
purchase and holding of cattle, machinery and equipment as well as operating
funds for crop and livestock production. The primary repayment risks for
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agricultural loans is the failure of the farm business due to economic factors
including management, farm markets and weather. The banks typically looks to
farm cash flows as the principle source of repayment but secures most farm
credits with mortgages on real or personal property.
Commercial Loans
- ----------------
Commercial lending is directed primarily towards businesses whose demands
for funds fall within the Bank's legal lending limits and which are potential
customers of the Bank. Commercial loans include loans made to individual,
partnership or corporate borrowers, which are obtained for a variety of business
purposes. The primary repayment risk for commercial loans is the failure of
businesses due to economic or financial factors. Although the Bank typically
looks to a commercial borrower's cash flow as the principal source of repayment
for such loans, many commercial loans are secured by inventory, equipment,
accounts receivable, and other assets.
Consumer Loans
- --------------
The Bank's consumer loans consist primarily of installment loans to
individuals for personal, family and household purposes, including automobile
loans to individuals and pre-approved lines of credit. This loan category also
includes lines of credit and term loans secured by second mortgages on the
residences of borrowers for a variety of purposes including home improvements,
education and other personal expenditures. In evaluating these loans, the Bank
reviews the borrower's level and stability of income and past credit history and
the impact of these factors on the ability of the borrower to repay the loan in
a timely manner. In addition, the Bank maintains a proper margin between the
loan amount and collateral value.
Real Estate Loans
- -----------------
The Bank's real estate loans consist of residential first and second
mortgage loans, agricultural loans, commercial real estate loans, and to a more
limited degree, construction loans. These loans are made consistent with the
Bank's appraisal policy and real estate lending policy which detail maximum
loan-to-value ratios and maturities. These loan-to-value ratios are sufficient
to compensate for fluctuations in the real estate market to minimize the risk of
loss to the Bank.
5
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Deposits
- --------
The Bank offers a full range of interest bearing and non-interest bearing
accounts, including commercial and retail checking accounts, money market
accounts, individual retirement accounts, regular interest bearing statement
accounts, and certificates of deposit with fixed and variable rates and a range
of maturity date options. The sources of deposits are residents, businesses, and
employees of business within the Bank's market area. The Bank obtains these
deposits through personal solicitation by the Bank's officers and directors,
direct mail solicitation, and advertisements published in the local media. The
Bank pays competitive interest rates on time and savings deposits. In addition,
the Bank has in place a service charge fee schedule competitive with other
financial institutions in the Bank's market area, covering such matters as
maintenance fees on checking accounts, per item processing fees on checking
accounts, returned check charges and the like.
Loan and Deposit Volume Distribution
- ------------------------------------
The following schedule indicates loan and deposit volume distribution for
the local area zip codes, as of December 31, 1998:
Deposits Percent of Percent of
City, Town, Village (000s) Total Loans Total
- --------------------------------------------------------------------------------
Belmont 53510 12,697 11.13% 5,124 5.18%
Benton 53803 843 .74% 1,595 1.61%
Cuba City 53807 14,019 12.29% 9,520 9.62%
Darlington 53530 1,495 1.31% 438 .44%
Dickeyville 53808 942 .83% 601 .61%
East Dubuque 61025 208 .18% 422 .43%
Hazel Green 53811 2,549 2.24% 650 .66%
Kieler 53812 465 .41% 246 .25%
Lancaster 53813 2,242 1.97% 3,455 3.49%
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Deposits Percent of Percent of
City, Town, Village (000s) Total Loans Total
- --------------------------------------------------------------------------------
Livingston 53554 535 .47% 1,305 1.32%
Mineral Point 53565 1,156 1.01% 904 .91%
Montfort 53565 187 .16% 1,111 1.12%
Platteville 53818 57,788 50.67% 48,770 49.30%
Potosi 53820 1,629 1.43% 1,290 1.30%
Rewey 53580 603 .53% 804 .81%
Shullsburg 53586 760 .67% 302 .31%
Stitzer 53825 230 .20% -0- -0-
All Other 15,703 13.76% 22,392 22.64%
------- ------- ------- -------
Totals 114,051 100.00% 98,929 100.00%
Fee Income From Lending Activities
- ----------------------------------
The Bank generally charges loan origination fees (including fees for
private insurance) for first mortgage loans secured by residential property or
land. The Bank also charges fees for builder's construction loans and home
equity second mortgage loans. Original fees on commercial and multi-family
residential property loans are negotiated, along with other loan terms, for each
loan. Loan application fees and out-of-pocket costs of the Bank in reviewing
loan applications, such as appraisal and survey costs, are paid by the borrower.
The Bank believes that its loan origination fees generally are competitive with
those of other lenders in its market area.
In addition to origination fees, the Bank charges fees for late payments,
changes in property ownership, and for miscellaneous services. Income realized
from these activities can vary significantly with the volume and type of loans
in the portfolio and in response to competitive factors.
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Investments
- -----------
The Bank invests primarily in obligations of the United States, obligations
guaranteed as to principal and interest by the United States, other taxable
securities and certain obligations of states and municipalities.
Asset/Liability Management
- --------------------------
The goal of the Bank's asset/liability management strategy is to maximize
earnings while limiting interest rate risk. Certain Bank officers are
responsible for developing and monitoring policies and procedures and to ensure
acceptable composition of the asset/liability mix. The Bank's asset/liability
mix is monitored regularly through monthly deposit, loan, earnings and yield
reports.
Employees
- ---------
The Bank presently employs 5 persons on a part-time basis and 49 persons on
a full-time basis, including 20 officers. The Bank intends to hire additional
persons as needed, including additional tellers and financial service
representatives.
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
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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 non-banking activities which have been determined by the Board of
Governors to be closely related to banking. Similarly, the Act, with specified
exceptions relating to permissible non-banking 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
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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
non-banking 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 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 non-bank
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.
10
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As of December 31, 1998, the Company's ratio of total capital to
risk-weighted assets was 10.2%, its ratio of Tier 1 capital to risk-weighted
assets was 9.0%, and its ratio of Tier 1 capital to average assets was 6.9%.
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
1998 for FDIC insurance were approximately $15,073.51.
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
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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.
Item 2. Properties
- -------------------
As of December 31, 1998, the Company owned properties in Platteville,
Belmont, and Cuba City, Wisconsin with over thirty-two thousand square feet in
total.
Item 3. Legal Proceedings
- --------------------------
There are no pending or threatened legal proceedings known to the
Company or Bank that, in the opinion of the directors and officers of the
Company and the Bank, may be materially adverse to the Company's or Bank's
financial condition, business, or operations; nor are there material proceedings
known to the Company or the Bank to be contemplated by any governmental
authority. There are no material pending or threatened legal proceedings known
to the Company or Bank in which any director, executive officer, or affiliate of
the Bank (or any associate of any of them) has a material interest that is
adverse to the Company or the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
There have been no matters submitted to a vote of security holders
during the quarter ended December 31, 1998.
PART II
=======
Item 5. Market for Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------
Market Information
- ------------------
During the period covered by this report and to date there has been no
established public trading market for the Company's stock. To the best knowledge
of the Bank, there have been 32 different transfers of Company stock, involving
a total of 2,337 shares of Company stock, between the date of the formation of
the Company and December 31, 1998.
12
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The following is a listing of sales of Company stock known to the Company.
Date Shares Price per Share
----------------------------------------------------------------
9/29/1997 10* $2,400.00*
9/30/1997 20* $2,528.00*
12/22/1997 10 $260.77
3/5/1998 10 $220.00
6/16/1998 10 $301.00
* Shares sold prior to 9 for 1 share dividend in December, 1997.
All of the sales were conducted between non-family members. The remaining
transfers of Company stock did not involve a sale of the stock.
Holders of Common Stock
- -----------------------
As of December 31, 1998, the Company had 31,464 shares of its common stock
outstanding and approximately 282 holders of record of its common stock.
Dividends
- ---------
As of December 31, 1998, the Company has paid dividends to its shareholders
as follows:
Year Paid Dividend Per Share
--------- ------------------
1997 None
1998 $7.50
Item 6. Management's Discussion and Analysis
- ---------------------------------------------
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 years ended
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December 31, 1998 and 1997. This discussion and analysis should be read in
conjunction with the related financial statements and notes thereto and the
other financial information included herein.
Readers are cautioned that 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. Please refer to the
Company's disclosures under the heading "Cautionary Statement for Purposes of
the 'Safe Harbor' Provisions of the Private Securities Litigation Reform Act of
1995" beginning on page 3.
Results of Operations Overview
- ------------------------------
Comparison of operating results for
the years ended December 31, 1998
and December 31, 1997.
Net Income. For the year ended December 31, 1998, the Company reported net
income of $822,000 or $30.11 per share compared to net income of $912,000 or
$30.49 per share for the year ended December 31, 1997. This decrease of $90,000
or 9.8% is related to increased interest expense related to borrowings needed to
purchase dissenter shares and an increase in noninterest expense.
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, 1998 and 1997, the interest income and rates on these
types of assets are adjusted to a "fully taxable equivalent" ("FTE") 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 1 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 variance.
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Net interest revenue (FTE) increased by $126,000 to $4,271,000 in 1998.
Total interest income increased $526,000 in 1998 and was offset by increases in
total interest expense of $400,000. Average earning assets increased $9,098,000
while average yield decreased from 8.62% in 1997 to 8.39% in 1998. Average
interest-bearing liabilities increased 8.3% to $105,484,000. Average balance for
other borrowings was $2,984,000 at December 31, 1998 compared to $-0- at
December 31, 1997 due to the subsidiary Bank obtaining advances from the Federal
Home Loan Bank. The cost of interest-bearing liabilities had a minimal decrease
from 5.16% in 1997 to 5.15% in 1998.
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 3.25% in 1998 from 3.46% in 1997. The
average yield on earning assets decreased to 8.39% in 1998 as compared to 8.62%
in 1997, the yield on interest-bearing liabilities remained flat at 5.16% in
1998 and in 1997.
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 $271,000
and $130,000 for 1998 and 1997 respectively. The allowance for loan loss balance
as a percent of gross loans was 1.29% and 1.31% at December 31, 1998 and 1997
respectively. Table 3 is a detail analysis of the activity in the allowance for
loan loss account.
The allowance for loan losses is adequate to cover probable credit losses
relating to specifically identified loans, as well as probable credit losses
inherent in the balance of the loan portfolio. In accordance with FASB
Statements 5 and 114, the allowance is provided for losses that have been
incurred as of the balance sheet date, The allowance is based on past events and
current economic conditions, and does not include the effect of expected losses
on specific loans or groups of loans that are related to future events or
expected changes in economic conditions. Reports of examinations furnished by
bank regulatory authorities are also considered by management in this regard.
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 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 charge-offs and growth in the loan portfolio, thereby maintaining
the allowance at an adequate level.
15
<PAGE>
Noninterest income. Noninterest income increased $105,000, or 15.3% from
1997. Service fees increased by $5,000, other income increased by $83,000 and
securities gains increased by $16,000.
Noninterest Expense. Noninterest expenses increased $182,000, or 5.6% to
$3,420,000. Salaries and employee benefits increased $198,000, or 11.1%. This
increase is related to adjustment of salaries to market rates and incentive
bonuses given in an effort to attract and retain high quality staff. All other
expenses decreased an aggregate of $16,000, or 1.0%.
Income Taxes. Income tax expense increased $12,000 from $209,000 in 1997 to
$221,000 in 1998.
Selected Financial Ratios. Table 4 shows selected financial ratios for the
Company for 1998 and 1997.
Balance Sheet Analysis
- ----------------------
Total Assets. Total assets of $130,446,000 at December 31, 1998 increased
$8,332,000 or 6.8% from $122,115,000 at December 31, 1997.
Investment Securities. Total securities as of December 31, 1998 were
$18,568,000 a decrease of $1,389,000, or 7.0% over prior year end balance of
$19,957,000. Table 5 details the major classification of investments held by the
Company.
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 6 regarding the maturity of securities.
16
<PAGE>
Loans
- -----
As of December 31, 1997, gross loans outstanding were $98,997,000, an
increase of $10,570,000, or 12.03% from December 31, 1997. Residential real
estate loans increased $2,913,000 or 9.4%, real estate construction decreased
$444,000 to $812,000 at December 31, 1998. Agricultural and commercial real
estate increased $494,000 and $6,509,000, or 7.2% and 30.6% respectively.
Commercial, and agricultural loans increased $521,000 or 2.3%. Municipal loans
increased to $1,393,000 at December 31, 1998. See Table 7 which contains loans
by category for 1997 and 1998.
The scheduled repayments and maturities of loans represent a substantial
source of liquidity. Table 8 shows selected loan maturity data as of December
31, 1998 and 1997.
Deposits
- --------
Total deposits of $113,738,000 at December 31, 1998 increased $4,587,000 or
4.2% from $109,151,000 at December 31, 1997. Noninterest-bearing deposits
increased $2,254,000 or 22.5% to $12,283,000 at December 31, 1998, while
interest-bearing deposits increased $2,333,000 to $101,455,000, or 2.4% from
December 31, 1997.
Table 9 shows a two year summary of average deposits and the corresponding
rate paid.
At December 31, 1998 the Company had $8,418,000 in time deposits of
$100,000 or more. Table 10 shows the maturity distribution of time deposits of
$100,000 or over.
Other Borrowings
- ----------------
Other borrowings increased from $4,377,000 at December 31, 1997 to
$6,880,000 at December 13, 1998. Short-term borrowings decreased to $2,088,000
at December 31, 1998 from $4,376,000 at December 31, 1997. During 1998 the
Company issued 4,554 shares of common stock. A large portion of the proceeds
were used to pay down the bank notes payable. At December 31, 1998 the balance
of bank notes payable was $1,848,000, a decrease of $1,552,000 over prior year.
The balance of the short-term debt is demand notes due to the U.S. Treasury
which decreased to $240,000 at December 31, 1998 from $976,000 at December 31,
1997. Table 11 presents various analytical information regarding short-term
borrowings as of December 31, 1998 and 1997.
17
<PAGE>
Long-term borrowings increased to $4,000,000 at December 31, 1998 from $-0-
at December 31, 1997. This increase was caused by the Bank obtaining advances
from the Federal Home Loan Bank to fund asset growth.
Asset Quality
- -------------
The Company's credit risk is centered in the loan portfolio, which on
December 31, 1998 totaled $98 million, or 82.2%, 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 balances,
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, 1998 of
$823,000 and $79,000 at December 31, 1997 have been recognized in conformity
with FASB Statement No. 114 as amended by FASB Statement No. 118. The average
recorded investment in impaired loans during 1998 and 1997 was $585,000 and
$95,000 respectively. The total allowance for loan losses related to these loans
was $58,000 and $8,000 on December 31, 1998 and 1997 respectively. Interest
income on impaired loans of $1,000 and $2,000 was recognized for cash payments
received in 1998 and 1997.
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
18
<PAGE>
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 management's
evaluation of qualitative factors.
The determination by management of the appropriate level of the allowance
amounted to $1,282,000 at December 31, 1998. However, since the allowance for
loan losses is based on estimates, ultimate losses may vary from the current
estimated. 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 is shown in Table 12.
As of December 31, 1998, the allowance for loan losses as a percent of
total loans was 1.29%. This compares to the ratio as of December 31, 1997 of
1.31%. Net charge-offs as a percent of average loans increased to 0.16% for 1998
as compared to 0.09% in 1997.
Nonperforming Loans. Nonperforming loans consist of nonaccrual loans and
loans 90 days or more past due. Nonperforming loans totaled $823,000 as of
year-end 1998, an increase of $745,000 over the $78,000 recorded at December 31,
1997. This increase was caused by two large loans being classified as impaired
as of year end. Total nonperforming assets represent 0.63% of total assets at
December 31, 1998 compared to 0.06% at December 31, 1997.
Loans generally are classified as 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 13 presents nonperforming loans for each of the past two years.
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
19
<PAGE>
loans to deposits is a key indicator of a bank's liquidity position. The
Company's loan to deposit ratio was 87% on December 31, 1998. The Company's loan
to deposit ratio was 81% at December 31, 1997.
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.
Capital. The Company and the Bank are well capitalized using total capital
to risk-weighted assets. They are also both well capitalized with regard to Tier
1 capital ratios.
Year 2000 Update
- ----------------
New Federal Minimum Safety and Soundness Standards
--------------------------------------------------
The federal banking regulators recently issued guidelines establishing
minimum safety and soundness standards for achieving Year 2000 compliance. The
guidelines, which took effect October 15, 1998 and apply to all FCIC-insured
depository institutions, establish standards for developing and managing Years
2000 project plans, testing remediation efforts and planning for contingencies.
The guidelines are based upon guidance previously issued by the agencies under
the auspices of the Federal Financial Institutions Examination Council (the
"FFIEC"), but are not intended to replace or supplant the FFIEC guidance which
will continue to apply to all federally insured depository institutions.
The guidelines were issues under Section 39 of the Federal Deposit
Insurance Act, as amended (the "FDIA"), which requires the federal banking
regulators to establish standards for the safe and sound operation of federally
insured depository institutions. Under Section 39 of the FDIA, if an institution
fails to meet any of the standards established in the guidelines, the
institution's primary federal regulator may require the institution to submit a
plan for achieving compliance. If an institution fails to submit an acceptable
compliance plan, or fails in any materials respect to implement a compliance
plan that has been accepted by its primary federal regulator, the regulator is
required to issue an order directing the institution to cure the deficiency.
Such order is enforceable in court in the same manner as a cease and desist
order. Until the deficiency cited in the regulator's order is cured, the
regulator may restrict the institution's rate of growth, require the institution
to increase its capital, restrict the rates the institution pays on deposits or
20
<PAGE>
require the institution to take any action the regulatory deems appropriate
under the circumstances. In addition to the enforcement procedures established
in Section 39 of the FDIA, noncompliance with the standards established by the
guidelines may also be grounds for other enforcement action by the federal
banking regulators, including cease and desist orders and civil money penalty
assessments.
Year 2000 Plan
--------------
The Company utilizes and is dependent upon data processing systems,
software, and certain non-information technology to conduct its business. The
data processing systems and software include those developed and maintained by
the company's data processor and purchased software which is run on in-house
computer networks. In response to the issue of computer programs and embedded
computer chips being unable to distinguish between the year 1900 and the year
2000, the Company has a written plan for the correction of, or contingency plan
for, the Year 2000 problem ("Plan"). This Plan is generally proceeding on
schedule. Pursuant to the Plan, senior management of the Bank has been reporting
to the Board at least monthly on the Bank's year 2000 progress.
Pursuant to the Plan, the Company has divided its efforts into eight
different phases:
1. Awareness of the Problem. Includes informing the Board of Directors,
senior management, officers and staff, and customers about the problem;
attending seminars; and hiring a full-time computer network administrator.
The Company believes that, as of December 31, 1998, this phase is 100%
complete.
2. Assessment. Includes assessing the need for renovation or replacement of
information and non-information technology systems; rating date sensitive items
by risk and criticality; and contacting Company vendors to obtain completed
compliance dates.
The Company believes that, as of December 31, 1998, this phase is 100%
complete.
3. Credit Policy and Underwriting. Includes contacting affected customers;
gathering information from those customers about the consequences of Year 2000
on their ability to repay; and developing a risk rating system for these
customers in order to determine whether the Company's loan loss reserves are
21
<PAGE>
adequate and to adjust the Company's reserves accordingly. Due to this
assessment, an additional $26,376.22 has been added to the current Reserve for
Loss on Loans as of December 31, 1998. The reserve for loan loss attributed to
Year 2000 risk is reviewed and adjusted monthly.
The Company has added to its new loan documents entered into after April
22, 1998, covenants that the borrower will be Year 2000 compliant.
The Company believes that as of December 31, 1998 this phase is 100%
complete, but in continual review.
4. Renovation. Involves renovating or replacing the company's in-house
software and hardware and embedded technology as well as working with its
outside data processor and vendors to ensure that all of its mission critical
operating systems are Year 2000 compliant by December 31, 1998. In 1997, the
Company initiated a review and assessment of all hardware and software to
confirm that it will function properly in the year 2000. The Company's data
processing provider and those vendors who have been contacted indicate that
their hardware and/or software will be Year 2000 compliant by the end of 1998.
Additionally, alarms, heating and cooling systems and other computer-controlled
mechanical devices on which the company relies have been evaluated. We have
received certifications on all equipment that will not need to be tested. The
Company has replaced and modified equipment found not to be in compliance. The
Company has replaced six computers and upgraded the operating system to become
Year 2000 complaint. The costs associated with these upgrades were approximately
$26,000.
The Company believes that, as of December 31, 1998, this phase is 60%
complete.
5. Contingency Plan. Involves prioritizing all core business processes and
developing a contingency plan in the event that certain mission critical systems
are not Year 2000 compliant on or before certain targeted date. The plan has not
needed to be revised to date as system vendors certified year 2000 compliance,
but the Company anticipates that it may need to be revised as additional system
vendors certify year 2000 compliance.
The Company believes that, as of December 31, 1998, this phase is 100%
complete, but in continual review.
6. Strategies to Discuss Customer Awareness. Includes informing Company
officers and employees of the year 2000 problem; mailing brochures to all
Company customers and making them available to customers at the Company lobby;
22
<PAGE>
and conducting a seminar on the year 2000 problem for Company customers. The
Company conducted the seminar for customers on September 15, 1998.
The Company believes that, as of December 31, 1998, this phase is 100%
complete. However, the Company anticipates making additional customers
notifications throughout 1999.
7. Validation. Involves testing the Company's outside data processor and
other systems critical to the Company's operation. All hardware and software
testing is substantially completed as of December 31, 1998. The Company's
outside data processor concluded 19XX testing in August, 1998, and will conclude
20XX testing in March, 1999. The Company tested the data processing renovation
on October 4, 1998. Our data processing vendor received ITAA 2000 certification
(Information Technology Association of America) in August, 1998.
Some test plans for certain services, such as credit cards, are dependent
upon notice from the outside vendor that its systems are ready for testing. The
Company intends to test such services when the vendor notifies the Company of
the proper test script. To date, the Company has tested most of these services.
Most all other providers have begun their own testing.
The Company has rated its computer systems based on the degree of risk of
non-compliance and has 39 systems that are high and medium risk. Of the 39
systems, 70% are Year 2000 compliant as of December 31, 1998. The Company
anticipates that all will be compliant by March 31, 1999.
The Company believes that as of December 31, 1998, this phase is 60%
complete.
8. Implementation. Involves the implementation of the Company's mission
critical systems. The company's outside data processor implemented the Company's
mission critical system on October 3, 1998. As of December 31, 1998,
implementation has been completed on all mission critical systems.
The Company believes that as of December 31, 1998, this phase is 100%
complete.
23
<PAGE>
Updated Year 2000 Budget
------------------------
The Company has updated its budget established for year 2000 compliance.
The total amount of the budget as of December 31, 1998 is $101,330.53, and is
comprised of the following:
To Date Projected Total
------- --------- -----
Hardware Replacement $73,453.15 -0- $73,453.15
Hardware Upgrade -0- 6,700.00 6,700.00
Software Replacement 7,136.07 -0- 7,136.07
Software Upgrade -0- 581.71 581.71
Education of Problem 3,000.00 4,000.00 7,000.00
ATM Upgrades -0- 6,459.60 6,459.60
------------ ------------ -------------
TOTALS $83,589.22 $17,741.31 $101,330.53
All hardware costs to date will be capitalized on a five year depreciated
schedule. Software costs to date will be capitalized on a three year depreciated
schedule. The remaining balance of $4,000 constitutes operational expenses for
1998 and 1999.
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's financial position.
Risks
-----
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failure could materially and adversely affect the Company's
results of operations, liquidity or financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party vendors and customers, the
Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Year 2000 Plan is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem and about the Year 2000 compliance and readiness of its material outside
24
<PAGE>
vendors. The Company believes that, with the completion of the Plan as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
Readers are cautioned that forward-looking statements contained in the Year
2000 Update should be read in conjunction with the Company's disclosures under
the heading "Cautionary Statement for Purposes of the 'Safe Harbor' Provisions
of the Private Securities Litigation Reform Act of 1995" beginning on page 3.
25
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
MOUND CITY FINANCIAL SERVICES, INC.
TWO YEAR SUMMARY OF INTEREST RATES AND INTEREST DIFFERENTIAL
(000's omitted)
1998 1997
================================= =================================
Average Related Yield Average Related Yield
Balance Interest Rate Balance Interest Rate
================================= =================================
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest - Earning assets:
Taxable securities (2) $ 11,092 686 6.18% 11,345 740 6.52%
Tax-exempt securities (1) (2) 7,902 639 8.09% 8,422 685 8.13%
Loans (1) 93,539 8,193 8.76% 83,705 7,563 9.04%
Federal funds sold 2,371 127 5.36% 2,334 131 5.61%
------------------- --------------------
Total interest earning assets $114,904 9,645 8.39% 105,806 9,119 8.62%
Noninterest earning assets 9,957 0
-------- --------
Total assets 124,861 105,806
======== ========
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Interest bearing demand and savings $ 38,215 1,393 3.65% 31,133 1,028 3.30%
Time deposits 61,216 3,587 5.86% 63,294 3,767 5.95%
------------------- --------------------
Total interest bearing deposits 99,431 4,980 5.01% 94,427 4,795 5.08%
Short-term borrowings 3,069 284 9.25% 2,994 233 7.78%
Other borrowings 2,984 164 5.50% 0 0 0
------------------- --------------------
Total interest bearing liabilities $105,484 5,428 5.15% 97,421 5,028 5.16%
Noninterest bearing liabilities:
Demand deposits 9,776 9,161
Other liabilities 2,063 2,135
--------- --------
Total liabilities 117,323 108,717
Stockholders equity 7,538 7,639
-------- --------
Total liabilities and stockholders'
equity 124,861 116,356
========= ========
Net interest income 4,217 4,091
Interest spread 3.25% 3.46%
===== =====
Interest margin 3.67% 3.87%
===== =====
(1) The interest on tax-exempt investment 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) Loan interest income includes net loan fees.
(4) Loans placed on nonaccrual status have been included in average balances to determine average rates.
</TABLE>
26
<PAGE>
TABLE 2
MOUND CITY FINANCIAL SERVICES, INC.
TWO YEAR SUMMARY OF RATE AND VOLUME VARIANCES
(000's Omitted)
$ Amount Volume Rate (3)
of Change Variance Variance
------------------------------------
Increase (decrease) for 1998:
Taxable securities (2) $ (54) (16) (38)
Tax-exempt securities (1)(2) (46) (42) (4)
Loans 630 889 (259)
Federal funds sold (4) 2 (6)
------------------------------------
Total interest income 526 833 (307)
------------------------------------
Interest bearing demand and savings 365 234 131
Time deposits (180) (124) (56)
Short-term borrowings 51 6 45
Other borrowings 164 164 0
------------------------------------
Total interest expense 400 280 120
------------------------------------
Net interest margin/net interest income $ 126 553 (427)
====================================
Increase (decrease) for 1997:
Taxable securities (2) $ (137) (143) 6
Tax-exempt securities (1)(2) 14 43 (29)
Loans 727 819 (92)
Federal funds sold 35 31 4
------------------------------------
Total interest income 639 750 (111)
------------------------------------
Interest bearing demand and savings 353 101 252
Time deposits 149 126 23
Short-term borrowings 207 173 34
Other borrowings 0 0 0
------------------------------------
Total interest expense 709 400 309
------------------------------------
Net interest margin/net interest income $ (70) 350 (420)
====================================
(1) The interest on tax-exempt investment 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 application of the rate/volume variance has been allocated in full to
the rate variance
27
<PAGE>
TABLE 3
MOUND CITY FINANCIAL SERVICES, INC.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(000's Omitted)
----------------------------
1998 1997
----------------------------
Beginning loan loss reserve $ 1,159 1,104
Charge-offs:
Commercial 79 11
Agricultural production 0 0
Real Estate:
Construction 0 0
Commercial 0 0
Agriculture 0 0
Other Mortgages 0 1
Installment - consumer 100 85
Recoveries:
Commercial 3 2
Agricultural production 0 0
Real Estate:
Construction 0 0
Commercial 0 0
Agriculture 0 0
Other Mortgages 0 0
Installment - consumer 28 20
--------- ---------
Net Charge-offs/(Recoveries) 148 75
Additions charged to operations (1) 271 130
Additions related to
branch acquisitions 0 0
--------- ---------
Balance at end of period $ 1,282 1,159
========= =========
Ratio of net charge-offs/
recoveries during the period
to ave. loans outstanding
during the period 0.158% 0.088%
Note: (1) For each year ending December 31, the determination of the
additions to loan loss reserve charged to operating expenses was based
on an evaluation of the loan portfolio, current domestic economic
conditions, past loan losses and other factors.
28
<PAGE>
TABLE 4
MOUND CITY FINANCIAL SERVICES, INC.
TWO YEAR SUMMARY OF RETURN ON EQUITY AND ASSETS
1998 1997
-----------------------------
Return on average assets 0.66% 0.78%
Return on average equity 11.45% 11.94%
Dividend payout ratios on common stock 28.70% 22.14%
Average equity to average assets 5.75% 6.56%
29
<PAGE>
TABLE 5
MOUND CITY FINANCIAL SERVICES, INC.
BOOK VALUE OF INVESTMENT PORTFOLIO
(000's Omitted)
Available for Sale: 1998 1997
-----------------------
U.S. Treasury and other U.S.
Gov't. Agencies and Corporations $ 9,767 $ 10,644
Obligations of states and
political subdivisions 7,340 8,539
Other 1,461 774
Held to Maturity:
U.S. Treasury and other U.S.
Gov't. Agencies and Corporations 0 0
Obligations of states and
political subdivisions 0 0
Other 0 0
------------------------
Total $ 18,568 $ 19,957
========================
NOTE: The aggregate book value of securities from any single issuer does not
exceed ten percent of stockholder's equity; except for, securities
issued by the U.S. Government and U.S. Government agencies and
corporations.
30
<PAGE>
TABLE 6
MOUND CITY FINANCIAL SERVICES, INC.
MATURITY SCHEDULE OF INVESTMENTS BY BOOK VALUE
December 31, 1998
(000's Omitted)
<TABLE>
<CAPTION>
After 1 After 5
Year Years
1 Year through through After
or Less 5 Years 10 Years 10 Years Total
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Available for Sale Securities
U.S. Treasury and U.S. Gov't agencies and
corporations(a) $ 1,789 5,320 2,658 0 9,767
Weighted average yield 5.97% 6.09% 6.07% 0.00% 6.06%
States of the U.S. and Political Subdivisions (b) 1,374 2,745 1,676 1,545 7,340
Weighted average yield 7.09% 7.88% 7.70% 9.03% 7.94%
Other Securities (a) 1,461 0 0 0 1,461
Weighted average yield 4.10% 0.00% 0.00% 0.00% 4.10%
-------- -------- -------- ------- --------
TOTAL AVAILABLE FOR SALE $ 4,624 8,065 4,334 1,545 18,568
======== ======== ======== ======= ========
Weighted Avg. Yield of Total 5.71% 6.70% 6.70% 9.03% 6.65%
========= ========= ======== ======= ========
(a) Portions of investments both taxable and nontaxable have been presented on a state taxable equivalent basis assuming a 7.9%
tax rate.
(b) The interest and average yield for nontaxable securities are presented on a federal taxable equivalent basis assuming a 34%
tax rate.
</TABLE>
31
<PAGE>
TABLE 7
MOUND CITY FINANCIAL SERVICES, INC.
LOAN SUMMARIZATION
(000's Omitted)
December 31,
----------------------------
1998 1997
----------------------------
Commercial $ 13,063 12,956
Agricultural production 9,857 9,443
Real Estate:
Construction 812 1,256
Commercial 27,779 21,270
Agriculture 7,368 6,874
Residential 33,269 30,355
Municipal 5,456 1,171
Consumer 1,393 5,102
---------- ----------
TOTAL $ 98,997 88,427
========== ==========
32
<PAGE>
<TABLE>
<CAPTION>
TABLE 8
MOUND CITY FINANCIAL SERVICES, INC
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATE
(000's Omitted)
Loan Maturities Amount Over One Year With
----------------------------------------- --------------------------------------
After 1 After Predeter- Floating or
1 Year Through Five mined Adj. Interest
or Less 5 Years Years Total Rates Rates Total
----------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998
Comm'l and agricultural $ 17,727 $ 5,193 0 $ 22,920 $ 2,543 $ 2,650 $ 5,193
Real estate - constr. 595 217 0 812 217 0 217
-------- ------- ----- -------- ------- ------- -------
TOTAL $ 18,322 $ 5,410 0 $ 23,732 $ 2,760 $ 2,650 $ 5,410
======== ======= ===== ======== ======= ======= =======
December 31, 1997
Comm'l and agricultural $ 17,733 $ 4,666 0 $ 22,399 $ 2,886 $ 1,780 $ 4,666
Real estate - constr. 1,176 80 0 1,256 80 0 80
-------- ------- ----- -------- ------- ------- -------
TOTAL $ 18,909 $ 4,746 0 $ 23,655 $ 2,966 $ 1,780 $ 4,746
======== ======= ===== ======== ======= ======= =======
</TABLE>
33
<PAGE>
TABLE 9
MOUND CITY FINANCIAL SERVICES, INC.
TWO YEAR SUMMARY OF AVERAGE DEPOSITS
(000's Omitted)
--------------------- ---------------------
Rate Rate
1998 Paid 1997 Paid
--------------------- ---------------------
Deposit in domestic bank offices:
Non-interest bearing demand $ 9,776 $ 9,162
Interest-bearing demand 21,895 3.65% 17,260 3.29%
Money Market demand 10,092 4.47% 7,380 3.96%
Savings deposits 6,228 2.47% 6,492 2.60%
Time deposits 61,216 5.86% 63,294 5.95%
-------- ------ -------- ------
Total Deposits $109,207 4.57% $103,588 4.63%
======== ====== ======== ======
34
<PAGE>
TABLE 10
MOUND CITY FINANCIAL SERVICES, INC.
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
Time Remaining to Maturity:
Due within three months $ 725
Three to six months 1,078
Six to twelve months 2,137
After twelve months 4,478
-------
Total $ 8,418
=======
35
<PAGE>
TABLE 11
MOUND CITY FINANCIAL SERVICES, INC.
SHORT-TERM BORROWINGS
(000's Omitted)
Demand
Notes Federal
Bank Due US Funds
Notes Treasury Purchased
-----------------------------------
(000's omitted)
Data for December 31, 1998
Outstanding at December 31 1,848 240 0
Highest outstanding at any month-end
during the year 3,400 849 1,195
Average outstanding during the year 2,624 388 57
Weighted average yield for year 8.23% 5.36% 5.82%
Weighted average interest rate on
outstanding balances at December 31 6.75% 4.46% 0.00
Data for December 31, 1997
Outstanding at December 31 3,400 976 0
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 8.50% 4.90% 5.90%
Weighted average interest rate on
outstanding balances at December 31 8.50% 5.25% 0.00%
36
<PAGE>
<TABLE>
<CAPTION>
TABLE 12
MOUND CITY FINANCIAL SERVICES, INC.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(000's Omitted)
----------------------------------------------------
1998 1997
----------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural 769 60.06% 190 16.39%
Real estate-construction 11 0.82% 0 0.00%
Real estate - mortgage 431 33.61% 177 15.27%
Installment loans to individuals 71 5.51% 4 0.35%
Unallocated 0 0.00% 788 67.99%
-------- -------- -------- --------
Total 1,282 100.00% 1,159 100.00%
======== ======== ======== ========
</TABLE>
37
<PAGE>
TABLE 13
MOUND CITY FINANCIAL SERVICES, INC
NON-PERFORMING LOANS
(000's omitted)
1998 1997
------ ------
Nonaccrual Loans 822 78
Past Due 90 days + (1) 0 0
Restructured Loans (2) 0 0
Notes:
(1) Loans are generally placed in nonaccrual status when contractually past due
90 days or more. There were no loans past due 90 days+ not recorded as
nonaccrual loans for each of the presented years.
(2) There were no restructured loans for each of the presented years.
(3) Interest which would have been recorded had the loans been on an accrual
basis, would have amounted to 65,000 in 1998, and $2,000 in 1997. Interest
income on these loans, which is recorded only when received, amounted to
$1,000 in 1998 and $2,000 in 1997.
(4) Each of the loans which are contractually past due 90 days or more as to
principal or interest payments are reviewed by management and reported to
the Loan Committee of the Board of Directors of the Bank. These loans are
then placed on a nonaccrual basis.
(5) As of December 31, 1998, management, to the best of its knowledge, is not
aware of any significant loans, group of loans or segments of the loan
portfolio not included above, where there are serious doubts as to the
ability of the borrowers to comply with the present loan payment terms.
38
<PAGE>
TABLE 14
MOUND CITY FINANCIAL SERVICES, INC.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Average Balance Sheet
(000's omitted)
1998 1997
=========== ==========
Cash and due from banks $ 3,823 $ 3,560
Federal funds sold 2,371 2,334
Investment securities:
Taxable securities 11,116 11,346
Tax-exempt securities 8,124 8,552
Loans 93,539 84,847
Less allowance for loan losses (1,159) (1,142)
---------- ----------
Net loans 92,380 83,705
Office building and equipment 4,310 4,382
Other assets 2,621 2,477
---------- ----------
Total assets $ 124,745 $ 116,356
========== ==========
Interest bearing deposits:
Interest bearing demand and savings $ 38,215 $ 31,132
Time deposits 61,216 63,294
---------- ----------
Total interest bearing deposits 99,431 94,426
Demand deposits 9,776 9,162
---------- ----------
Total deposits 109,207 103,588
Short-term borrowings 3,069 2,412
Other liabilities 2,306 2,718
Other borrowings 2,984 0
---------- ----------
Total liabilities 117,566 108,718
Equity capital 7,179 7,638
---------- ----------
Total liabilities and capital $ 124,745 $ 116,356
========== ==========
39
<PAGE>
Item 7. Financial Statements
- -----------------------------
Index to Financial Statements Page
Consolidated balance sheets...........................................41
Consolidated statements of income.....................................42
Consolidated statements of changes in stockholders' equity............43
Consolidated statements of cash flows.................................44
Notes to consolidated financial statements............................46
Independent Auditor's Report..........................................66
40
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
ASSETS 1998 1997
- --------------------------------------------------------------------------------
Cash and due from banks (Note B) $ 4,682,460 $ 3,495,103
Federal funds sold 2,585,000 4,562,000
Available for sale securities stated
at fair value (Note C) 18,567,564 19,956,739
Loans, less allowance for loan losses of
$1,281,590 and $1,159,300 in 1998
and 1997 respectively (Notes D, E and N) 97,715,531 87,268,114
Office buildings and equipment, net (Note F) 4,250,851 4,343,474
Accrued interest receivable and other
assets (Note I) 2,645,051 2,489,203
----------------------------
Total assets $130,446,457 $122,114,633
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Liabilities:
Deposits: (Note G)
Demand $ 12,283,194 $ 10,029,112
Savings and NOW 40,069,440 34,400,049
Other Time 61,385,864 64,721,866
----------------------------
Total deposits $113,738,498 $109,151,027
Note payable and other borrowings (Note H) 6,088,249 4,376,625
Accrued interest payable and other liabilities
(Notes I and L) 1,865,321 1,771,702
----------------------------
Total liabilities $121,692,068 $115,299,354
----------------------------
Commitments and contingencies (Note M)
Stockholders' equity: (Notes P and Q)
Common stock, no par value, $1.00 stated value;
300,000 shares authorized, 31,494 and 26,940
shares issued in 1998 and 1997 respectively 31,494 26,940
Surplus 7,618,010 6,270,446
Retained earnings (Note O) 948,829 362,546
----------------------------
8,598,333 6,659,932
----------------------------
Treasury stock, 30 and 20 shares in 1998 and
1997 respectively, at cost (8,066) (5,056)
Accumulated other comprehensive income 164,122 160,403
----------------------------
Total stockholders' equity 8,754,389 6,815,279
Total liabilities and stockholders' equity $130,446,457 $122,114,633
============================
41
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans (Note D) $8,139,964 $7,509,603 $ 6,794,327
Interest on investment securities:
Taxable 686,498 740,450 877,008
Tax-exempt 421,953 452,480 442,715
Interest on federal funds sold 126,866 130,688 95,507
-----------------------------------------------
Total interest income 9,375,281 8,833,221 8,209,557
-----------------------------------------------
Interest expense:
Interest on deposits (Note G) 4,980,085 4,794,625 4,292,758
Interest on notes payable and other
borrowings (Note H) 448,535 233,587 25,985
-----------------------------------------------
Total interest expense 5,428,620 5,028,212 4,318,743
-----------------------------------------------
Net interest income before
provision for loan losses 3,946,661 3,805,009 3,890,814
Provision for loan losses (Notes D and E) 270,649 130,000 183,851
-----------------------------------------------
Net interest income after
provision for loan losses 3,676,012 3,675,009 3,706,963
-----------------------------------------------
Noninterest income:
Service fees 369,619 364,164 295,259
Other income 395,857 313,018 199,975
Securities gains (losses) (Note C) 21,666 5,241 (649)
-----------------------------------------------
Total noninterest income 787,142 682,423 494,585
-----------------------------------------------
Noninterest expenses:
Salaries 1,355,743 1,250,802 1,161,158
Employee benefits (Notes J, K and L) 614,277 521,380 473,282
Occupancy expense 491,768 477,572 418,074
Computer services 174,983 163,706 145,551
FDIC assessment 15,074 12,144 31,699
Other expenses 767,947 811,368 779,008
-----------------------------------------------
Total noninterest expenses 3,419,792 3,236,972 3,008,772
-----------------------------------------------
Income before income taxes 1,043,362 1,120,460 1,192,776
Less applicable income taxes (Note I) 221,099 208,501 254,580
-----------------------------------------------
Net income $ 822,263 $ 911,959 $ 938,196
===============================================
Earnings per share $ 30.11 $ 30.49 $ 26.06
===============================================
Weighted average shares outstanding $ 27,313 $ 29,914 $ 36,000
===============================================
</TABLE>
42
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
other
Common Retained Treasury comprehensive
stock Surplus earnings stock income (loss) Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 $ 36,000 $6,964,000 $2,121,677 $ 0 $229,576 $ 9,351,253
Comprehensive income:
Net income - 1996 0 0 938,196 0 0 938,196
Change in unrealized gain (loss) on
available for sale securities, net
of reclassification adjustment and
tax effect 0 0 0 0 (78,340) (78,340)
------------
Total comprehensive income 10,211,109
------------
Dividends - $7.50 per share 0 0 (270,000) 0 0 (270,000)
Transfer from retained earnings 0 500,000 (500,000) 0 0 0
-------------------------------------------------------------------------------
Balances, December 31, 1996 36,000 7,464,000 2,289,873 0 151,236 9,941,109
------------
Comprehensive income:
Net income - 1997 0 0 911,959 0 0 911,959
Change in unrealized gain (loss) on
available for sale securities, net
of reclassification adjustment and
tax effect 0 0 0 0 9,167 9,167
------------
Total comprehensive income 921,126
------------
Dividends - $7.50 per share 0 0 (201,900) 0 0 (201,900)
Purchase 20 shares of Treasury stock 0 0 0 (5,056) 0 (5,056)
Purchase of 906 dissenter
shares of bank stock (9,060) (1,193,554) (2,637,386) 0 0 (3,840,000)
-------------------------------------------------------------------------------
Balances, December 31, 1997 26,940 6,270,446 362,546 (5,056) 160,403 6,815,279
------------
Comprehensive income:
Net income - 1998 0 0 822,263 0 0 822,263
Change in unrealized gain (loss) on
available for sale securities, net of
reclassification adjustment and
tax effect 0 0 0 0 3,719 3,719
------------
Total comprehensive income 825,982
------------
Dividends - $7.50 per share 0 0 (235,980) 0 0 (235,980)
Purchase 10 shares of Treasury stock 0 0 0 (3,010) 0 (3,010)
Proceeds from sale of 4,554 shares of
common stock net of stock
offering costs (Note P) 4,554 1,347,564 0 0 0 1,352,118
-------------------------------------------------------------------------------
Balances, December 31, 1998 $ 31,494 $7,618,010 $ 948,829 $(8,066) $164,122 $ 8,754,389
===============================================================================
</TABLE>
43
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 822,263 $ 911,959 $ 938,196
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 262,510 273,417 224,813
Loss on disposal of office building
and equipment 11,354 0 0
Provision for loan losses 270,649 130,000 183,851
Amortization and accretion of bond
premiums and discounts - net (38,614) (10,295) (44,456)
Provision (benefit) for deferred taxes (64,649) (25,472) (41,416)
Securities (gain) losses (21,666) (5,241) 649
(Increase) decrease in assets:
Interest receivable 26,346 (43,801) (27,554)
Other assets (89,561) (135,054) (111,292)
Increase (decrease) in liabilities:
Interest payable (199,476) 38,024 152,002
Other liabilities 263,148 66,948 78,224
----------------------------------------------
Total adjustments 420,041 288,526 414,821
----------------------------------------------
Net cash provided by operating activities 1,242,304 1,200,485 1,353,017
----------------------------------------------
Cash flows from investing activities:
Net (increase) decrease in federal funds sold 1,977,000 1,094,000 (228,000)
Proceeds from maturities of securities 13,618,026 10,494,251 5,620,360
Purchase of securities (20,912,920) (19,613,625) (11,440,576)
Proceeds from sale of securities 8,750,031 9,262,649 7,768,706
Net increase in loans (10,718,066) (6,846,731) (12,001,033)
Purchase of office buildings and equipment (181,241) (230,809) (1,210,441)
----------------------------------------------
Net cash used in investing activities $ (7,467,170) $(5,840,265) $(11,490,984)
----------------------------------------------
</TABLE>
44
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 4,587,471 $ 6,208,743 $ 9,204,656
Net increase (decrease) in demand
notes issued to U.S. Treasury (736,258) 507,291 (366,476)
Payment of dissenter shares 0 (3,840,000) 0
Proceeds from Federal Home Loan
Bank borrowings 4,000,000 0 0
Proceeds on note payable 0 3,840,000 0
Payment on note payable 1,552,118) (440,000) 0
Net proceeds from stock offering 1,352,118 0 0
Purchase treasury shares (3,010) (5,056) 0
Dividends paid (235,980) (201,900) (270,000)
---------------------------------------------
Net cash provided by financing activities 7,412,223 6,069,078 8,568,180
Increase (decrease) in cash
and cash equivalents 1,187,357 1,429,298 (1,569,787)
Cash and cash equivalents:
Beginning of year 3,495,103 2,065,805 3,635,592
---------------------------------------------
End of year $ 4,682,460 $ 3,495,103 $ 2,065,805
=============================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 5,190,448 $ 4,941,219 $ 4,178,178
================================================
Income taxes $ 188,994 $ 269,908 $ 299,824
================================================
Supplemental schedule for noncash
investing and financing activities:
Net change in unrealized gain (loss)
on available for sale securities, net $ 3,719 $ 9,167 $ (78,340)
===============================================
</TABLE>
45
<PAGE>
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
Investments, Inc. 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.
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 non-financial 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 estimate.
4. Cash and cash equivalents:
For the purpose of presentation in the consolidated statements of cash flows,
cash and cash equivalents are defined as those amounts included in the
balance-sheet caption "cash and due from banks."
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.
46
<PAGE>
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. 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. 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.
7. 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. The
allowance for loan losses is adequate to cover probable credit losses relating
to specifically identified loans, as well as probable credit losses inherent in
the balance of the loan portfolio. In accordance with FASB Statements 5 and 114,
the allowance is provided for losses that have been incurred as of the balance
sheet date. The allowance is based on past events and current economic
conditions, and does not include the effects of expected losses on specific
loans or groups of loans that are related to future events or expected changes
in economic conditions. While management uses the best information available to
make its evaluation, future 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
47
<PAGE>
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 banks 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.
8. 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.
9. Other real estate:
Other real estate acquired through partial or total satisfaction of a loan is
carried at the lower of cost or fair market value. At the date of acquisition,
losses are charged to the allowance for loan losses. Revenue and expenses from
operations and changes in the valuation allowance are included in loss on
foreclosed real estate.
10. 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.
11. 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.
12. Money purchase pension plan:
The subsidiary Bank has established a trusteed contributory money purchase
pension plan. The Plan provides for an annual contribution of 3% of eligible
compensation.
48
<PAGE>
13. 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.
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, non-accrual 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.
14. 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.
15. Earnings per share:
Earnings per share are based on the Bank's weighted average number of shares
outstanding during the year.
16. 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
49
<PAGE>
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:
Carrying amounts approximate fair values for the following instruments:
Cash and cash equivalents
Federal funds sold
Short-term borrowings
Variable rate borrowings
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
Available for sale 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
Notes payable and other borrowings
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
50
<PAGE>
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.
Note B. 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 $769,000 and $710,000 at December 31, 1998 and 1997
respectively.
Note C. Available for Sale Securities
- --------------------------------------
Amortized costs and fair values of available for sale securities as of December
31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 500,658 $ 2,942 $ -- $ 503,600
U.S. Government agency and
corporation obligations 6,923,800 26,936 968 6,949,768
Obligations of states and
political subdivisions 7,119,759 220,089 -- 7,339,848
-------------------------------------------------------------------
14,544,217 249,967 968 14,793,216
Mortgage backed securities 2,313,608 3,687 4,018 2,313,277
Bankers Bank Stock 24,765 -- -- 24,765
Federal Home Loan Bank 379,200 -- -- 379,200
Stock
Farmer Mac Stock 4,000 -- -- 4,000
Mutual Funds 1,053,106 -- -- 1,053,106
-------------------------------------------------------------------
$18,318,896 $253,654 $ 4,986 $18,567,564
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------------------------------------------------------------------
<S> <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
</TABLE>
The amortized costs and fair value of available for sale securities as of
December 31, 1998 by contractual maturity are shown below. Expected maturities
will differ from contractual maturities in mortgage-backed securities, equity
securities, and mutual funds since the anticipated maturities are not readily
determinable. Therefore, these securities are not included in the maturity
categories in the following maturity summary:
December 31, 1998
-----------------------------------
Amortized Fair
cost value
-----------------------------------
Due in one year or less $ 2,838,742 $ 2,849,797
Due after one year through five years 5,971,647 6,064,253
Due after five years 5,733,828 5,879,166
-----------------------------------
$ 14,544,217 $ 14,793,216
Realized gains and losses on sale of available for sale securities as of
December 31, 1998, 1997 and 1996 are as follows:
December 31,
--------------------------------------------
1998 1997 1996
--------------------------------------------
Gross gains $ 21,666 $ 6,555 $ 36,831
Gross losses -- (1,314) (37,480)
--------------------------------------------
$ 21,666 $ 5,241 $ (649)
============================================
Related income taxes (benefits) $ 8,558 $ 1,782 $ (221)
Available for sale securities with an amortized cost of $1,669,040 and
$1,498,152 as of December 31, 1998 and 1997 respectively were pledged as
collateral on public deposits and for other purposes as required or permitted by
law.
52
<PAGE>
Note D. Loans
- --------------
Major classifications of loans are as follows:
December 31, 1998
----------------------------------
1998 1997
----------------------------------
Commercial $ 13,063,024 $ 12,955,565
Agricultural production 9,856,605 9,442,645
Real estate:
Construction 812,136 1,256,125
Commercial 27,778,798 21,269,618
Agriculture 7,368,219 6,874,402
Residential 33,269,322 30,356,310
Installment and consumer 5,455,759 5,101,709
Municipal loans 1,393,258 1,171,040
----------------------------------
98,997,121 88,427,414
Allowance for loan losses 1,281,590 1,159,300
----------------------------------
Net loans $ 97,715,531 $ 87,268,114
Impairment of loans having recorded investment at December 31, 1998 of $822,772
and $78,726 at December 31, 1997 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 1998 and 1997 was $585,193 and $95,432
respectively. The total allowance for loan losses related to these loans was
$57,739 and $7,873 on December 31, 1998 and 1997 respectively. Interest income
on impaired loans of $924, $2,013 and $2,708 was recognized for cash payments
received in 1998, 1997 and 1996 respectively.
Certain directors, principal shareholders and executive officers of the Company,
and their related interests, had loans outstanding in the aggregate amounts of
$3,062,484 and $2,615,110 at December 31, 1998 and 1997 respectively. During
1998, $4,696,103 of new loans were made and repayments totaled $4,248,729. 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 E. 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:
53
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 1,159,300 $ 1,104,338 $ 971,722
Charge-offs (178,624) (97,753) (74,653)
Recoveries 30,265 22,715 23,418
Provision charged to operations 270,649 130,000 183,851
---------------------------------------------------
Balance, end of year $ 1,281,590 $ 1,159,300 $ 1,104,338
</TABLE>
Note F. Office Buildings And Equipment
- ---------------------------------------
Office buildings and equipment are stated at cost less accumulated depreciation
and are summarized as follows:
December 31, 1998
---------------------------------
1998 1997
---------------------------------
Land $ 566,446 $ 566,446
Buildings and improvements 3,587,042 3,516,015
Furniture and equipment 1,580,686 1,494,985
---------------------------------
5,734,174 5,577,446
Less accumulated depreciation 1,483,323 1,233,972
---------------------------------
Total office buildings and equipment $ 4,250,851 $ 4,343,474
Depreciation expense amounted to $262,510 in 1998, $273,417 in 1997 and $224,813
in 1996.
Note G. Deposits
- -----------------
The aggregate amount of other Time deposits (including CDs), each with a minimum
denomination of $100,000 was approximately $8,417,799 and $8,564,989 in 1998 and
1997 respectively.
At December 31, 1998, the scheduled maturities of other Time deposits are as
follows:
1999 $ 41,987,983
2000 5,919,245
2001 6,715,618
2002 3,698,753
2003 3,064,265
-------------
$ 61,385,864
54
<PAGE>
Interest expense on deposits is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Savings and NOW accounts $ 1,393,414 $ 1,027,593 $ 675,067
Time, $100,000 and over 238,287 567,878 405,736
Other Time 3,348,384 3,199,154 3,211,955
----------------------------------------------
Total interest expense on deposits $ 4,980,085 $ 4,794,625 $ 4,292,758
</TABLE>
Note H. Note Payable and Other Borrowings
- ------------------------------------------
During 1998, the Company entered into a master contract agreement with the
Federal Home Loan Bank (FHLB) which provides for borrowing up to the maximum of
60% of the book value of the Bank's one to four family real estate loans,
$19,061,649 at December 31, 1998. FHLB provides both fixed and floating rate
advances. Floating rates are tied to short-term market rates of interest, such
as Federal funds and Treasury Bill rates. Fixed rate advances are priced in
reference to market rates of interest at the time of the advance, namely the
rates that FHLB pays to borrowers at various maturities.
Various advances were obtained with total outstanding balances of $4,000,000 at
December 31, 1998 with applicable interest rates ranging from 5.15% to 5.77%.
There were no advances outstanding as of December 31, 1997. Interest is payable
monthly with principal payment due at maturity.
The advances are secured by a security agreement pledging a portion of the
subsidiary Banks' real estate mortgages with a carrying value of $6,666,667.
Future principal payments required to be made are as follows:
Years ending December 31:
1999 $ 1,500,000
2000 --
2001 --
2002 --
2003 2,500,000
------------
$ 4,000,000
55
<PAGE>
December 31, 1998
---------------------------------
1998 1997
---------------------------------
Demand notes issued to U.S. treasury $ 240,367 $ 976,625
Note payable bank 1,847,882 3,400,000
---------------------------------
Total $ 2,088,249 $ 4,376,625
Note payable bank is due May 1, 1999 with interest rate based on floating prime
less 1.0% (6.75% at December 31, 1998). The note is secured by 3,600 shares of
common stock of Mound City Bank.
Interest expense on note payable and other borrowings was as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Federal funds purchased $ 3,321 $ 21,977 $ 11,509
Demand notes issued to U.S. Treasury 19,246 16,837 14,476
Note payable bank 261,833 194,773 --
FHLB Advances 164,135 -- --
-------------------------------------------
$ 448,535 $ 233,587 $ 25,985
</TABLE>
Federal funds purchased and treasury tax and loan deposits are generally repaid
within one to 120 days from the transaction date.
Note I. Income Taxes
- ---------------------
The provision for income taxes included in the consolidated financial statements
consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $ 235,558 $ 194,971 $ 256,866
State 50,190 39,002 39,130
-------------------------------------------
Total current provision 285,748 233,973 295,996
Deferred income taxes (benefit) (64,649) (25,472) (41,416)
-------------------------------------------
Total provision for income taxes $ 221,099 $ 208,501 $ 254,580
</TABLE>
56
<PAGE>
The net deferred tax assets in the accompanying consolidated balance sheets
include the following amounts of deferred tax assets and liabilities:
December 31, 1998
-------------------------------
1998 1997
-------------------------------
Deferred tax assets:
Allowance for loan losses $ 344,840 $ 296,536
Nonaccrual loan income 365 833
Deferred compensation 127,198 111,999
Alternative minimum tax 34,701 25,230
Deferred tax liabilities:
Depreciation (80,843) (72,986)
Unrealized gain on available
for sale securities (84,547) (82,584)
-------------------------------
$ 341,714 $ 279,028
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, 1998 and 1997.
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>
December 31,
----------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reconciliation of statutory
to effective taxes:
Federal income taxes
at statutory rate $ 354,743 34.0% $ 380,956 34.0% $ 405,543 34.0%
Adjustments for:
Tax-exempt interest on
municipal obligations (171,452) (16.4) (178,097) (15.9) (170,136) (14.3)
Increases in taxes
resulting from state
income taxes 33,125 3.2 25,741 2.3 25,826 2.2
Officer life (16,741) (1.6) (15,745) (1.4) (19,560) (1.6)
Other - net 21,424 2.0 (4,354) (0.4) 12,907 1.0
----------------------------------------------------------------------
Effective income
taxes - operations $ 221,099 21.2% $ 208,501 18.6% $ 254,580 21.3%
</TABLE>
57
<PAGE>
Note J. 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 8% of the participant's annual
compensation. Contributions for the years ended December 31, 1998, 1997 and 1996
were $58,316, $87,893 and $74,008 respectively.
Note K. Money Purchase Pension Plan
- -----------------------------------
In 1998, the subsidiary Bank established a trusteed contributory Money Purchase
Pension Plan covering all eligible employees. The Bank contributes 3% of
eligible employee compensation. Contributions for the year ended December 31,
1998 were $39,666.
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 $62,411, $65,628 and $68,524 during
1998, 1997 and 1996 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 $1,056,839 and $1,007,602 of related cash
surrender value as of December 31, 1998 and 1997 respectively.
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
58
<PAGE>
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, 1998 and 1997 is as follows:
1998 1997
------------------------------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 15,536,550 $ 9,884,088
Credit card commitments $ 1,974,395 $ 1,487,855
Standby letters of credit $ 232,229 $ 80,000
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.
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 D.
59
<PAGE>
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 $1,123,235
may be paid without prior regulatory approval. Maintenance of adequate capital
at the subsidiary effectively restricts potential dividends to an amount less
than $1,123,235.
Note P. Equity
- ---------------
During 1998, the Company filed a registration statement with the U.S. Securities
and Exchange Commission to issue 12,000 shares of common stock at $310 per
share. Proceeds from the sale of 4,554 shares of common stock less associated
costs for professional fees and underwriting discounts and commissions of
$59,622 are reflected in the consolidated statement of changes in stockholder's
equity.
Note Q. 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, 1998, the
subsidiary Bank meets all capital adequacy requirements to which it is subject.
As of December 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
60
<PAGE>
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 1998 and 1997 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 December 31, 1998:
Total capital (to risk-weighted assets):
Mound City Financial Services, Inc. $ 9,787,142 10.2% $ 7,653,222 8.0% NA
Mound City Bank $11,436,002 12.0% $ 7,615,728 8.0% $ 9,519,659 10.0%
Tier I capital (to risk-weighted assets):
Mound City Financial Services, Inc. $ 8,590,267 9.0% $ 3,822,611 4.0% NA
Mound City Bank $10,244,913 10.8% $ 3,807,864 4.0% $ 5,711,796 6.0%
Tier I capital (to average assets):
Mound City Financial Services, Inc. $ 8,590,267 6.9% $ 4,987,730 4.0% NA
Mound City Bank $10,244,913 8.2% $ 4,969,214 4.0% $ 6,211,518 5.0%
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% NA
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% NA
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% NA
Mound City Bank $ 9,886,559 8.4% $ 4,697,604 4.0% $ 5,872,004 5.0%
</TABLE>
61
<PAGE>
Note R. Fair Value of Financial Instruments
- --------------------------------------------
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 4,682,460 $ 4,682,460 $ 3,495,103 $ 3,495,103
Federal funds sold $ 2,585,000 $ 2,585,000 $ 4,562,000 $ 4,562,000
Securities $ 18,567,564 $ 18,567,564 $ 19,956,739 $ 19,956,739
Net loans $ 97,715,531 $ 98,523,026 $ 87,268,114 $ 88,050,335
Accrued interest receivable $ 974,759 $ 974,759 $ 1,001,105 $ 1,001,105
Financial liabilities:
Deposits $ 113,738,498 $ 114,046,154 $ 109,151,027 $ 109,253,037
U.S. Treasury note account $ 240,367 $ 240,367 $ 976,625 $ 976,625
Note payable - bank $ 1,847,882 $ 1,847,882 $ 3,400,000 $ 3,400,000
Long term borrowings $ 4,000,000 $ 4,015,157 $ -- $ --
Accrued interest payable $ 1,043,591 $ 1,043,591 $ 1,243,067 $ 1,243,067
</TABLE>
The estimated fair value of fee income on letters of credit at December 31, 1998
and 1997 is insignificant. Loan commitments on which the committed interest rate
is less than the current market rate are also insignificant at December 31, 1998
and 1997.
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.
62
<PAGE>
Note S. Mound City Financial Services, Inc. and Subsidiary
(Parent Company only) Financial Information
- -----------------------------------------------------------
December 31,
CONDENSED BALANCE SHEETS 1998 1997
- --------------------------------------------------------------------------------
Assets:
Cash $ 312,633 $ 277,168
Investment in subsidiary 10,409,033 10,047,962
Other assets 150,263 141,018
--------------------------
Total assets 10,871,929 10,466,148
Liabilities:
Note payable 1,847,882 3,400,000
Other liabilities 269,658 250,869
--------------------------
Total liabilities 2,117,540 3,650,869
Stockholders' equity:
Common stock, no par value, $1.00 stated value;
300,000 shares authorized; 31,494 and 26,940
shares issued in 1998 and 1997 respectively 31,494 26,940
Surplus 7,618,010 6,270,446
Retained earnings 948,829 362,546
--------------------------
8,598,333 6,659,932
Treasury stock - 30 and 20 shares in 1998 (8,066) (5,056)
and 1997 respectively
Accumulated other comprehensive income 164,122 160,403
--------------------------
Total stockholders' equity $ 8,754,389 $ 6,815,279
Total liabilities and stockholders' equity $10,871,929 $10,466,148
63
<PAGE>
December 31,
CONDENSED STATEMENT OF INCOME 1998 1997
- --------------------------------------------------------------------------------
Income:
Dividends from subsidiary $ 650,000 $ 950,000
Interest 10,887 2,265
---------------------------
Total income $ 660,887 $ 952,265
Expenses
Interest $ 261,833 $ 194,774
Other expenses 29,466 13,138
---------------------------
Total expenses $ 291,299 $ 207,912
Income before income tax benefit and equity
in undistributed net income of subsidiary 369,588 744,353
Income tax benefit (95,323) (69,920)
---------------------------
Income before equity in undistributed
net income of subsidiary 464,911 814,273
Equity in undistributed net income of subsidiary 357,352 97,686
---------------------------
Net income $ 822,263 $ 911,959
64
<PAGE>
December 31,
CONDENSED STATEMENTS OF CASH FLOW 1998 1997
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 822,263 $ 911,959
------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in other assets (9,245) (141,018)
Increase in other liabilities 18,789 250,869
Equity in undistributed earnings (357,352) (97,686)
------------------------------
Total adjustments (347,808) 12,165
Net cash provided by operating activities 474,455 924,124
Cash flows from financing activities:
Purchase treasury stock (3,010) (5,056)
Payment dissenter shares -- (3,840,000)
Proceeds on note payable -- 3,840,000
Payments on payable (1,552,118) (440,000)
Net proceeds from stock offering 1,352,118 --
Dividends paid (235,980) (201,900)
------------------------------
Net cash used in financing activities (438,990) (646,956)
------------------------------
Increase in cash and cash equivalents 35,465 277,168
Cash and cash equivalents at beginning of year 277,168 --
------------------------------
Cash and cash equivalents at end of year $ 312,633 $ 277,168
65
<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, 1998 and 1997, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for the years ended December 31, 1998, 1997 and 1996. 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, 1998 and 1997, and the results
of its operations and its cash flows for the years ended December 31, 1998, 1997
and 1996, in conformity with generally accepted accounting principles.
VIRCHOW, KRAUSE & COMPANY, LLP
Brookfield, Wisconsin
January 20, 1999
66
<PAGE>
Item 8. Changes In and Disagreements with
Accountants on Accounting and Financial Disclosure
- --------------------------------------------------
There has been no occurrence requiring a response to this Item.
Item 9. Directors, Executive Officers, Promoters
and Control Persons, Compliance with Section 16(a)
of the Exchange Act
- --------------------------------------------------
Company Management
- ------------------
The articles of incorporation provide that the board of directors be
divided into three classes with terms of office of one class of directors
expiring each year. These are called staggered terms for the directors. On March
10, 1998, at the first annual meeting of the shareholders of the Company, three
directors were elected for a term of one year, three directors were elected for
a term of two years, and three directors were elected for a term of three years.
Beginning in March of 1999 and for each subsequent year, the term of office for
all directors and classes re-elected will be for three years. The term of office
for all executive officers is one year. The following table sets forth certain
information concerning the executive officers and directors of the Company:
Position with Year Term Principal
Name and Age Holding Company Expires Occupation
- --------------------------------------------------------------------------------
Wilson J. Boldt, 84 Director 2001 Auto Dealer
Barry J. Brodbeck, 42 Director 1999 Grocer
Keith R. Buchert, 53 Director 2000 Restaurant Owner
Donna J. Hoppenjan, 40 Secretary 1999 Banker
Robert J. Just, Jr., 51 President/CEO, 1999 Banker
Director
W. Phil Karrmann, 58 Director 2000 Attorney
Richard J. Kopp, 53 Director 1999 Insurance Agency Owner
Richard L. McWilliams, 61 Vice President, 2000 Retired Chiropractor
Director
James D. Soles, 74 Director 2001 Retired Retailer
Douglas W. Speth, 62 Director 2001 Farmer
67
<PAGE>
Wilson J. Boldt (Director) has been a Director of the Company since
September, 1996. Mr. Boldt has also been a director of the Bank since 1976. He
has been the owner/operator of the Pioneer Ford and Mercury dealership in
Platteville, Wisconsin since 1961.
Barry J. Brodbeck (Director) has been a Director of the Company since
September, 1996. Mr. Brodbeck was first elected to the Bank's Board of Directors
in January of 1996. He 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. He graduated
in 1979 from Hillsdale College in Hillsdale, Michigan.
Keith R. Buchert (Director) has been a Director of the Company since
September, 1996. - 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 has served on the Bank Board of Directors since June
of 1994.
Donna J. Hoppenjan (Secretary) has served as the Secretary of the Company
since September, 1996. 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 her
current position, Vice President--Retail Services, in January of 1995. She
currently serves as Cashier and Secretary to the Bank's Board of Directors.
Robert J. Just, Jr. (President, Chief Executive Officer, Director) has
served as the President, CEO, and a Director of the Company since September,
1996. Mr. Just has been employed with the Mound City Bank since August of 1971.
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 Bank
since November of 1986.
W. Phil Karrmann (Director) has been a Director of the Company since
September, 1996. A 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. He has served as a member of the Bank's Board of Directors since 1972.
Richard J. Kopp (Director) has been a Director of the Company since
September, 1996. A 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 been a director of the Bank since 1988.
Richard L. McWilliams (Vice President, Director) has served as the Vice
President and a Director of the Company since September, 1996.- Dr. McWilliams
received his Chiropractic Degree from Palmer Chiropractic College in 1959. Now
retired, he had been a partner in Chiropractic Associates in Platteville since
1960. 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.
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James D. Soles (Director) has been a Director of the Company since
September, 1996. Mr. Soles was the owner/operator of Dewey's Shoe Store, on Main
Street in Platteville, from 1949 until his retirement in 1987. He has served on
the Board of Directors for the Bank since 1959.
Douglas W. Speth (Director) has been a Director of the Company since
September, 1996. 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.
There are no arrangements or understandings between the Company and any
person pursuant to which any of the above persons have been or will be elected a
director. There are no family relationships between any of the directors of
executive officers of the Company.
Meetings of the Board of Directors
- ----------------------------------
The Board of Directors of the Company had 5 meetings during the fiscal year
ended December 31, 1998. Each director of the Company attended at least 80% of
the board meetings and committee meetings of which such director was a member.
The Board of Directors of the Bank had 12 meetings during the fiscal year ended
December 31, 1998. Each Director of the Bank attended at least 83% of the total
number of board meetings and committee meetings of which such director was a
member.
The Board of Directors of the Company has an Executive Committee. The Board
of Directors of the Bank has a Loan Committee, Audit and Exam Committee, Trust
Committee and a Long Range Planning Committee.
Bank Management
- ---------------
The following persons constitute the executive officers and directors of
the Bank:
Position with
Bank/Number of
Name and Age Years at Bank Served Since
- --------------------------------------------------------------------------------
John R. Arendt, 51 Vice President Commercial Lending, 1986
12 yrs
Wilson J. Boldt, 84 Director, 22 yrs 1976
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Position with
Bank/Number of
Name and Age Years at Bank Served Since
- --------------------------------------------------------------------------------
Barry J. Brodbeck, 42 Director, 2.5 yrs Jan. 1996
Keith Buchert, 53 Director, 4 yrs 1994
Donna J. Hoppenjan, 40 Cashier, Vice President Retail 1977
Services, 21 yrs
David D. Jones, 58 Vice President Marketing and Business 1960
Development, 38 yrs.
Robert J. Just, Jr., 51 Director, President/CEO, 27 yrs 1971
W. Phil Karrmann, 58 Director, 26 yrs 1972
Richard J. Kopp, 53 Director, 10 yrs 1988
Richard L. McWilliams, 61 Vice President, Director, Chairman, 1981
17 yrs
James D. Soles, 74 Director, 39 yrs 1959
Douglas W. Speth, 62 Director, 22 yrs 1976
Joseph L. Witmer, 41 Vice President/Sr. Loan Officer, 1985
13 yrs
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
The Company is not subject to the requirements of Section 16 of the
Securities Exchange Act of 1934, as amended.
Item 10. Executive Compensation
- --------------------------------
The following table outlines the annual compensation and estimated annual
benefits paid by the Bank to Mr. Just for services rendered in his capacity as
President and Chief Executive Officer of the Bank. None of the other executive
officers had total annual salary and bonus which exceeded $100,000 during the
last fiscal year.
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Summary Compensation Table
Name/Principal Position Year Salary ($)(1) Bonus ($) Other ($)(2)
- --------------------------------------------------------------------------------
Robert J. Just, Jr., 1998 $122,574.69 $16,100.00 $ 4,191.84
President/CEO
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
(1) "Salary" includes 401(k) and Money Purchase Plan 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 $4,191.84 in 1998, $4,114.80 in 1997, and
$3,253.92 in 1996. This item also includes meeting attendance fees of
$3,725.00 in 1996.
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.
Compensation for Directors
- --------------------------
The Company's directors 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 to Mr. Just over and above his regular
salary.
Employee Benefit Plans
- ----------------------
On January 19, 1988, the Bank implemented a contributory 401(k) employee
savings plan available to all eligible employees, subject to certain minimum age
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and service requirements. For the fiscal year ended December 31, 1998, the
Bank's contribution to the 401(k) plan was $48,189.37, of which $36,995.48 was
contributed for employees (other than executive officers) and the balance of
contributions made for all executive officers totaled $11,193.89.
On March 9, 1998, the Bank implemented a money purchase plan available to
all eligible employees, subject to certain minimum age and service requirements.
For the fiscal year ended December 31, 1998, the Bank's contribution to the
money purchase plan was $39,666.16, of which $27,743.76 was contributed for
employees other than executive officers and the balance of the contributions
made for all executive officers totaled $11,922.40.
The Bank also provides health insurance, dental insurance and group life
insurance for eligible employees. For the fiscal year ended December 31, 1998,
the cost of these coverages were $168,028.56, $22,466.61, $9,962.72
respectively.
Item 11. Security Ownership of Certain
Beneficial Owners and Management
- ---------------------------------------
The following table sets forth certain information as of December 31, 1998
with respect to ownership of the outstanding common stock of the Company by (1)
all persons known to the Company to beneficially own more than five percent (5%)
of the Company's outstanding stock; (2) each of the Company's Directors, (3)
each of the Company's executive officers; and (4) all Directors and executive
officers of the Company as a group. Beneficial ownership as reported in the
table below has been determined in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934 - shares owned of record individually and jointly, or by a
spouse or children residing at the same address, and the shares which any such
person controls the right to vote.
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<PAGE>
Number of
Shares Benefi- Percentage of
Name(1) cially Owned(2) Outstanding Shares
- --------------------------------------------------------------------------------
Wilson J. Boldt(3).................... 950 3.02%
Barry J. Brodbeck(4).................. 180 *
Keith R. Buchert...................... 160 *
Donna J. Hoppenjan(5)................. 40 *
Robert J. Just, Jr.(6)................ 655 2.08%
W. Phil Karrmann(7)................... 1,330 4.23%
Richard J. Kopp(8).................... 482 1.53%
Richard L. McWilliams(9).............. 690 2.19%
James D. Soles(10).................... 600 1.91%
Douglas W. Speth...................... 130 *
Directors and executive officers
as a group............................ 5,217 16.58%
- -----------------------------------
* 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 250 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.
Item 12. Certain Relationships and Related 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.
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<PAGE>
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 favorable features.
At no time during 1997 and 1998 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 arms
length and at competitive prices.
Item 13. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits. The following exhibits are filed with or incorporated by
reference into this report. The exhibits which are denominated by an asterisk
(*) were previously filed as a part of, and are hereby incorporated by reference
from a Registration Statement on Form SB-2 under the Securities Act of 1933 for
the Company, Registration Number 333-53797. The exhibit numbers correspond to
the exhibit numbers in the referenced document.
Exhibit No. Description of Exhibit
- --------------------------------------------------------------------------------
*3.1 Articles of Incorporation of the Company
*3.2 Bylaws of the Company
*4.1 Specimen Stock Certificate
*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.
**27.1 Financial Data Schedule (for SEC use only)
* Previously filed by the Company as exhibits (with the same exhibit number) to
a Registration Statement on Form SB-2 (File No. 333-53797), and each document is
incorporated herein by reference.
** Filed herewith.
(b) Reports on Form 8-K. No reports on Form 8-K were required to be filed
for the fourth quarter of 1998.
74
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Platteville, State of Wisconsin, on the 25th day of March, 1999.
MOUND CITY FINANCIAL SERVICES, INC.
By:
/s/ Robert J. Just, Jr.
Robert J. Just, Jr.
President, Chief Executive Office,
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title(s) Date
/s/ Robert J. Just, Jr. President/CEO, March 24, 1999
Robert J. Just, Jr. (Principal Executive
and Accounting Officer)
Director
_________________________ Vice President, ______________, 1999
Richard L. McWilliams Chairman/Director
/s/ Wilson J. Boldt Director March 24, 1999
Wilson J. Boldt
/s/ Barry J. Brodbeck Director March 24, 1999
Barry J. Brodbeck
/s/ Keigh R. Buchert Director March 24, 1999
Keith R. Buchert
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<PAGE>
/s/ Donna J. Hoppenjan Secretary March 25, 1999
Donna J. Hoppenjan
/s/ W. Phil Karrmann Director March 24, 1999
W. Phil Karrmann
_________________________ Director ______________, 1999
Richard J. Kopp
_________________________ Director ______________, 1999
James D. Soles
/s/ Douglas W. Speth Director March 25, 1999
Douglas W. Speth
Supplemental Information to be furnished with Reports filed pursuant to Section
15(d) of the Exchange Act by Non-Reporting Issuers. We have furnished the
Commission for its information, at the time of filing this report, four copies
of the annual report to security holders covering the Company's last fiscal
year.
76
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
27.1 Financial Data Schedule (for SEC use only)
77
<PAGE>
Mound City Financial Services
Financial Data Schedule
Year End 1998
- --------------------------------------------------------------------------------
Period Type...............................................................12 mos
Fiscal Year end.........................................................12/31/98
Period End..............................................................12/31/98
Cash...................................................................4,682,000
Interest Bearing Deposits......................................................0
Fed Funds Sold.........................................................2,585,000
Trading Assets.................................................................0
Investments Held For Sale.............................................18,568,000
Investments Carrying...........................................................0
Investments Market.............................................................0
Loans.................................................................98,997,000
Allowance..............................................................1,282,000
Total Assets.........................................................130,446,000
Deposits.............................................................113,738,000
Short Term.............................................................2,088,000
Liabilities Other......................................................1,865,000
Long Term..............................................................4,000,000
Preferred Mandatory............................................................0
Preferred......................................................................0
Common....................................................................31,000
Other SE...............................................................8,567,000
Total Liabilities and Equity.........................................130,446,000
Interest Loan..........................................................8,140,000
Interest Invest........................................................1,108,000
Interest Other...........................................................127,000
Interest Total.........................................................9,375,000
Interest Deposit.......................................................4,980,000
Interest Expense.......................................................5,429,000
Total Interest Income Net..............................................3,947,000
Loan Losses..............................................................271,000
Securities Gains..........................................................22,000
Expense Other..........................................................3,420,000
Income Pre-tax.........................................................1,043,000
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<PAGE>
Long Term..............................................................4,000,000
Income Pre-Extraordinary.................................................822,000
Extraordinary..................................................................0
Changes........................................................................0
Net Income...............................................................822,000
EPS Primary...................................................................30
EPS Diluted...................................................................30
Yield Actual................................................................8.39
Loans Non................................................................823,000
Loans Past.....................................................................0
Loans Troubled...........................................................823,000
Loans Problem............................................................823,000
Allowance Open.........................................................1,159,000
Charge Offs..............................................................179,000
Recoveries................................................................31,000
Allowance Close........................................................1,282,000
Allowance Domestic.....................................................1,282,000
Allowance Foreign..............................................................0
Allowance Unallocated..........................................................0
79
