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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
West Pointe Bancorp, Inc.
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(Exact name of Registrant as Specified in Its Charter)
Illinois 36-4149655
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5701 West Main Street, Belleville, Illinois 62226
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (618) 234-5700
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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None None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value per share
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(Title of Class)
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ITEM 1. BUSINESS
BUSINESS OF THE HOLDING COMPANY
West Pointe Bancorp, Inc., referred to in this Registration Statement as
"West Pointe", the "Company", "we", or "us", was incorporated in 1997 under the
Illinois Business Corporation Act of 1983, as amended. We are registered as a
bank holding company under the Illinois Bank Holding Company Act of 1957, as
amended, and the federal Bank Holding Company Act of 1956, as amended. We
function as the holder of the capital stock of West Pointe Bank And Trust
Company (the "Bank"), our wholly-owned subsidiary. Subject to constraints under
the 1956 Act, the Company may acquire or develop other financially oriented
businesses in the future, although it has no present commitments for any such
acquisition or development. Under Illinois and federal law, the Company may
acquire additional banks or engage in other permitted activities which are
closely related to banking; the Company has no present commitments for any such
bank acquisitions or for engaging in other banking related activities. Any such
acquisitions of banks or organizations engaged in permitted activities could be
made for stock, cash or debt obligations of the Company.
At the present time, West Pointe has no material assets, liabilities or
operations other than those of the Bank, does not own or lease any property and
has no paid employees. We utilize the premises and employees of the Bank. The
executive offices of West Pointe are located at 5701 West Main Street,
Belleville, Illinois 62226.
BANKING PRODUCTS AND SERVICES
The Bank was established in 1990 under the Illinois Banking Act, and
operates in the financial services segment. Since its establishment, it has
conducted a general banking business embracing the customary functions of
commercial banking, including residential real estate lending, commercial,
industrial, consumer lending, installment credit lending, collections, safe
deposit operations, and other services tailored to individual customer needs. On
April 8, 1997, the Bank became a wholly owned subsidiary of the Company pursuant
to the Plan of Reorganization and Exchange dated as of February 12, 1997. At
December 31, 1999, the Company had total assets of $311,754,405, total deposits
of $279,142,315 and total loans (net of allowance for loan losses of $1,687,021)
of $172,505,416. You should refer to our Consolidated Financial Statements,
beginning on page F-1, for information relating to our results of operations and
other financial data.
The Company's primary geographic market areas consist of St. Clair and
Monroe Counties in Illinois. The Company believes that the area is experiencing
growth in both the commercial and residential populations serviced by the
Company. The Company recently completed construction of and opened a new branch
office in Belleville, Illinois. Our strategy is to operate as an independent,
retail oriented financial institution dedicated to serving the needs of
customers in our market areas. Our commitment is to provide a broad range of
personalized products and services to meet the needs of our customers.
RISK FACTORS
An investment in the common stock of West Pointe involves a significant
degree of risk. Investors should consider the following risk factors before
deciding to invest in the common stock.
UNPREDICTABLE ECONOMIC CONDITIONS MAY HAVE AN ADVERSE EFFECT ON THE QUALITY OF
OUR LOAN PORTFOLIO AND OUR FINANCIAL PERFORMANCE
Economic recession over a prolonged period or other economic problems in
our market areas could have a material adverse impact on the quality of our loan
portfolio and the demand for our products and services generally. Our success
depends significantly on economic conditions. The banking industry in our
geographic area is affected by general conditions such as inflation, recession,
unemployment and other factors beyond our control.
WE COULD SUFFER LOAN LOSSES FROM A DECLINE IN CREDIT QUALITY
We could sustain losses if borrowers, guarantors and related parties fail
to perform in accordance with the terms of their loans.
CHANGES IN INTEREST RATES MAY DECREASE OUR NET INTEREST INCOME
If we cannot manage interest rate fluctuations, our net interest income
could decrease materially. Our operations depend substantially on our net
interest income, which is the difference between the interest income earned on
our interest-earning assets and the interest expense paid on our
interest-bearing liabilities. Like most depository institutions, our earnings
and net interest income are affected by changes in market interest rates and
other economic factors that are beyond our control. While we take measures to
guard against interest rate risk, these measures may not be effective in
minimizing our exposure to interest rate risk.
COMPETITION WITH OTHER FINANCIAL INSTITUTIONS COULD ADVERSELY AFFECT OUR
PROFITABILITY
We face substantial competition for loans and deposits. Competition for
loans comes principally from other banks, savings institutions, mortgage banking
companies and other lenders. Some of our competitors enjoy advantages over us,
including greater financial resources, a wider geographic presence or more
accessible branch office locations, the ability to offer a wider array of
services, or more favorable pricing alternatives and lower origination and
operating costs. This competition could decrease the number and size of loans
which we make and the interest rate which we receive on these loans.
We compete for deposits with other depository institutions such as banks,
savings institutions, and credit unions, as well as institutions offering
uninsured investment alternatives, such as money market funds and mutual funds.
These competitors may offer higher interest rates than we do, which could
decrease the deposits that we attract or require us to increase our rates to
attract new deposits. Increased deposit competition could increase our cost of
funds and adversely affect our ability to generate the funds necessary for our
lending operations.
A LOSS OF OUR SENIOR EXECUTIVES COULD ADVERSELY AFFECT US
We depend heavily on a few key executive officers. Many of our customers
bank with us because they have developed confidence in our senior executives
over many years. If we lost these individuals, a substantial loss of business
could occur.
GOVERNMENT REGULATION SIGNIFICANTLY AFFECTS OUR BUSINESS
The banking industry is extensively regulated. Banking regulations are
intended primarily to protect depositors and the federal deposit insurance
funds, not shareholders. West Pointe and the Bank are subject to regulations and
supervision by both state and federal banking regulatory agencies. Regulatory
requirements affect our lending practices, capital level, investment practices,
dividend policy and growth. Our failure to meet minimum capital requirements
could result in actions by our regulators that could adversely affect our
ability to pay dividends or otherwise adversely affect our operations.
ABSENCE OF A PUBLIC MARKET FOR OUR COMMON STOCK
There is no established public market for the common stock, and an active
trading market may not develop. Holders of the common stock may have difficulty
reselling their shares.
LENDING ACTIVITIES
The Bank makes and services both secured and unsecured loans to
individuals, firms and corporations. The Bank's loan portfolio is composed of
loans in the following categories: commercial, financial and agricultural;
commercial real estate; real estate construction; consumer residential real
estate; and other consumer loans. The percent of loans for the various areas of
business of the Bank as of December 31, 1999, based on principal amount, were
25.5% commercial, 27.0% residential real estate, 41.6% other real estate, 3.5%
automobile, and 2.4% other consumer loans. As of December 31, 1999, the Bank had
4,993 loans outstanding in the aggregate amount of $174,192,437.
The commercial, financial and agricultural loan portfolio is diversified
and includes loans secured by non-real estate collateral to manufacturers,
retailers, distributors, service providers and investors. Emphasis is generally
placed upon middle-market and community businesses with financial stability and
known local management. Underlying collateral for commercial, financial and
agricultural loans includes, but is not limited to, inventory, equipment,
vehicles and accounts receivable. In the case of corporations, the Bank may
obtain personal guarantees from principal shareholders and/or officers.
The commercial real estate loan portfolio consists largely of mortgage
loans secured by commercial properties located in the communities served by West
Pointe's banking centers. A significant portion of the commercial real estate
portfolio is comprised of traditional commercial loans with real estate taken as
additional collateral. These loans are made to fund the acquisition of buildings
and real estate for commercial, industrial, office and retail use. The maximum
loan-to-value ratio applicable to improved commercial properties is 85%. Prior
approval of the Bank's Loan and Discount Committee is required for new loans
with loan-to-value ratios exceeding this limit.
The real estate construction loan portfolio consists of loans made to
finance land development preparatory to erecting new structures or the on-site
construction of 1-4 family residences, commercial properties, retail centers,
medical and business offices, warehouse facilities and multi-family residential
developments. The maximum loan-to-value ratio applicable to loans made for the
purpose of land development activities is 75%. The maximum loan-to-value
ratios applicable to commercial/multi-family and 1-4 family residential
construction loans are 80% and 85% respectively.
The 1-4 family residential real estate portfolio is predominantly comprised
of loans extended for owner-occupied residential properties. These loans
typically are secured by first mortgages on the properties financed and
generally have a maximum loan-to-value ratio of 85%. The amortization periods
for these loans generally do not exceed twenty years with interest being
calculated on a fixed or floating rate basis. The 1-4 family residential real
estate category also includes home equity lines of credit and closed-end second
mortgage loans. Closed-end second mortgage loans generally bear a fixed rate of
interest over a three to five year term with a five to fifteen year
amortization, while home equity lines of credit generally have an interest rate
indexed to the prime rate. Home equity loans generally have a maximum
loan-to-value ratio of 85%. Generally, any portion of 1-4 family residential
real estate loans exceeding 80% of the loan-to-value ratio requires private
mortgage insurance.
The consumer loan portfolio consists of both secured and unsecured loans to
individuals for household, family, and other personal expenditures such as
automobile financing, home improvements and recreational and educational
purposes. Consumer loans are typically structured with fixed rates of interest
and full amortization of principal and interest within three to five years. The
maximum loan-to-value ratio applicable to consumer loans is generally 80%. This
category of loans also includes revolving credit products such as checking
overdraft protection and MasterCard and VISA credit cards. Consumer loans are
either unsecured or are secured with various forms of collateral, other than
real estate.
The Bank's asset quality management program, particularly with regard to
loans, is designed to analyze potential risk elements and to support the growth
of a profitable and high quality loan portfolio. The Bank employs the use of a
loan rating system to monitor the loan portfolio and to determine the adequacy
of the allowance for loan losses. The Bank's lending philosophy is to invest in
loans in the communities served by its banking centers so it can effectively
monitor and control credit risk. The majority of the loan portfolio is
comprised of retail loans and loans to small-to-midsized businesses. A periodic
review of selected credits (based on loan size) is conducted to identify loans
with heightened risks or inherent losses. Factors which could contribute to
increased risk in the loan portfolio include, but are not limited to, changes
in interest rates, general economic conditions and reduced collateral values.
The loan portfolio does not include any loans to foreign countries.
As of December 31, 1999, the statutory legal lending limit amount for the
Bank to loan to one customer was $4,073,191.
DEPOSIT ACTIVITIES
The Bank offers similar types of deposit accounts to those offered by other
financial institutions. The categories of deposit accounts within the Bank's
portfolio include non-interest bearing demand deposits, interest bearing demand
deposits, savings and money market deposits, time deposits of $100,000 and more,
and time deposits of less than $100,000. On December 31, 1999 the Bank had
approximately 28,300 deposit accounts representing $279,142,315 in deposits.
Core deposits originating within the communities served by the our banking
locations continue to be the Bank's most reliable and most important source of
funds. Deposit products are offered to individuals, partnerships, corporations,
public entities and not-for-profit organizations. Within each deposit category,
customers have a variety of product options to choose from, each of which may
have characteristics specifically suited their needs. These product options may
have variations in service fees, minimum balance requirements and interest
rates. In the case of time deposits, the Bank offers a wide variety of products
with varying maturity terms and rates. The Bank operates in a highly
competitive market place for deposits and strives to price its deposit products
accordingly. The Bank has no brokered deposits. No material portion of the
Bank's deposits has been obtained from a single customer or customers (including
federal, state, and local governments and agencies) the loss of any one or more
of which would have a materially adverse effect on the Bank, nor is a material
portion of the Bank's deposits concentrated within a single industry or group of
related industries.
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INVESTMENTS
The Bank invests a portion of its assets in U.S Treasury and U.S.
government corporation and agency obligations, mortgage-backed securities,
state, county and municipal obligations and equity securities. The Bank's
investments are managed in relation to loan demand and deposit growth, and are
generally used to provide for the investment of excess funds at yields and risks
relative to yields and risks of the loan portfolio, while providing liquidity to
fund increases in loan demand or to offset fluctuations in deposits. The Bank
does not engage in hedging activities.
The Bank classifies investment securities as available-for-sale or
held-to-maturity. Available-for-sale investment securities are held with the
option of their disposal in the foreseeable future to meet investment objectives
or for other operational needs. Held-to-maturity investment securities
generally provide a relatively stable source of income. All of the Bank's
held-to-maturity investment securities are Federal Home Loan Mortgage
Corporation and Federal National Mortgage Association mortgage-backed
securities. At December 31, 1999, the Bank's held-to-maturity portion of the
investment securities portfolio reflected a book value of $4,513,819 and a fair
value of $4,450,592.
Available-for-sale investment securities are recorded at fair value.
Approximately 96% of the investment securities held in the Bank's investment
portfolio are classified as available for sale. At December 31, 1999, the Bank's
available-for-sale portion of the investment securities portfolio reflected a
fair value of $104,112,092 and an amortized cost of $108,173,137. The U.S.
government corporations and agencies portion of the available-for-sale portfolio
is comprised primarily of securities issued by the Federal Home Loan Bank.
Available-for-sale mortgage-backed securities is comprised of securities issued
by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association and the Government National Mortgage Association. Over 80% of the
obligations of states and political subdivisions portion of the
available-for-sale portfolio is rated by either Moody's Rating Service or
Standard and Poor's Rating Service as "AAA". Holdings of the Federal Home Loan
Bank and the Federal National Mortgage Association comprise the equity portion
of the available-for-sale portfolio.
In the foreseeable future, the Bank intends to purchase investment
securities with characteristics similar to those currently held in the
portfolio.
SUPERVISION AND REGULATION
General
West Pointe and the Bank are subject to regulation and supervision by
various governmental regulatory authorities including, but not limited to, the
Board of Governors of the Federal Reserve System (the "FRB"), the Federal
Deposit Insurance Corporation (the "FDIC"), and the Illinois Office of Banks and
Real Estate ("OBRE"). Financial institutions and their holding companies are
extensively regulated under federal and state law. The effect of such statutes,
regulations and policies can be significant, and the timing and effect of
changes to these laws cannot always be predicted.
Federal and state laws and regulations generally applicable to
financial institutions, such as West Pointe and the Bank, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers and consolidations, and dividends. This
supervision and regulation is intended primarily for the protection of the
FDIC's Bank Insurance Fund ("BIF") and the depositors, rather than the
stockholders of a financial institution.
The following references to material statutes and regulations affecting
West Pointe and the Bank are brief summaries thereof and are qualified in their
entirety by reference to the full text of such statutes and regulations. Any
change in applicable law or regulations may have a material effect on the
business of West Pointe and the Bank.
Bank Holding Company Act Of 1956, As Amended
A bank holding company is subject to regulation under the Bank Holding
Company Act of 1956, as amended (the "Act"), and must register with the FRB
under that Act. A bank holding company is required by the Act to file an annual
report of its operations and such additional information as the FRB may require.
As a bank holding company, the Company and its bank subsidiary are subject to
examination by the FRB. The FRB has jurisdiction to regulate the terms of
certain debt issues of bank holding companies and the authority to impose
reserve requirements.
The Act currently prohibits a bank holding company, or any subsidiary
thereof other than a bank, from acquiring all or substantially all the assets of
any bank, or for a bank holding company or any subsidiary from acquiring more
than 5% of the voting shares of any bank, unless the acquiror receives prior
approval from the FRB.
The Act also prohibits, with certain exceptions, a bank holding company
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks, or
furnishing services to banks and their subsidiaries. Bank holding companies may
engage in, and may own shares of companies engaged in, certain businesses found
by the FRB to be so closely related to banking as to be a proper incident
thereto. Under current regulations of the FRB, a bank holding company and its
nonbank subsidiaries are permitted, among other activities, to engage in certain
banking-related business ventures, and the activities of the Company's non-bank
subsidiaries fall within these permitted activities. Federal law prohibits
acquisition of control of a bank or bank holding company without prior notice to
certain federal bank regulators. "Control" is defined in certain cases as
acquisition of as little as 10% of the outstanding shares of any such entity.
Additionally, under certain circumstances a bank holding company is restricted
from purchasing its own stock without obtaining approval of the FRB.
Capital Standards
The FRB, FDIC and other federal banking agencies have established
risk-based capital adequacy guidelines intended to provide a measure of capital
adequacy that reflects the degree of risk associated with a banking
organization's operations, both for transactions reported on the balance sheet
as assets, and transactions, such as letters of credit and recourse
arrangements, which are reported as off-balance sheet items. Under these
guidelines, nominal dollar amounts of
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assets and credit equivalent amounts of off-balance sheet items are multiplied
by one of several risk adjustment percentages which range from 0% for assets
with low credit risk, such as certain U.S. government securities, to 100% for
assets with relatively higher credit risk.
A banking organization's qualifying capital is categorized as Tier 1
and Tier 2 capital, as detailed below, and risk-based capital ratios are
obtained by dividing its qualifying capital by its total risk-adjusted assets
and off-balance sheet items. The regulators measure risk-adjusted assets and
off-balance sheet items against both Tier 1 capital and total qualifying
capital, which is the sum of Tier 1 capital and limited amounts of Tier 2
capital. Tier 1 capital consists of common stock, retained earnings,
noncumulative perpetual preferred stock and minority interests in certain
subsidiaries, less most intangible assets. Tier 2 capital may consist of a
limited amount of the allowance for loan losses and certain other instruments
with some characteristics of equity. The inclusion of elements of Tier 2 capital
is subject to certain other requirements and limitations of the federal banking
agencies. Since December 31, 1992, the federal banking agencies have required
that banks maintain a Total capital ratio of at least 8% and a Tier 1 capital
ratio of at least 4%.
In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
average total assets, referred to as the leverage ratio. The regulators also
have the discretion to set individual minimum capital requirements for specific
institutions at rates above the minimum guidelines and ratios.
Prompt Corrective Action And Other Enforcement Mechanisms
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires each federal banking agency to take prompt corrective action
to resolve the problems of insured depository institutions, including but not
limited to those that fall below one or more of the prescribed minimum capital
ratios. The law requires each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. In September of 1992, the
federal banking agencies issued uniform final regulations implementing the
prompt corrective action provisions of the FDICIA. An insured depository
institution generally will be classified in the following categories based on
capital measures indicated below:
"Well-Capitalized": Total risk-based capital of 10% or more; Tier 1
risk-based ratio capital of 6% or more; and a Leverage ratio of 5% or more.
"Adequately Capitalized": Total risk-based capital of at least 8%; Tier
1 risk-based capital of at least 4%; and a Leverage ratio of at least 4%.
"Undercapitalized": Total risk-based capital less than 8%; Tier 1
risk-based capital less than 4%; or a Leverage ratio less than 4%.
"Significantly Undercapitalized": Total risk-based capital less than
6%; Tier 1 risk-based capital less than 3%; or a Leverage ratio less than 3%.
"Critically Undercapitalized": Tangible equity to total assets less
than 2%.
An institution that, based upon its capital levels, is classified as
either well-capitalized, adequately capitalized, or undercapitalized may be
treated as though it were in the next lower capital category if the appropriate
federal banking agency, after notice and opportunity for hearing, determines
that an unsafe or unsound condition or an unsafe or unsound practice warrants
such treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
If an insured depository institution is undercapitalized, it will be
closely monitored by the appropriate federal banking agency. Undercapitalized
institutions must submit an acceptable capital restoration plan with a guarantee
of performance issued by the holding company. Further restrictions and sanctions
are required to be imposed on insured depository institutions that are
critically undercapitalized. The most important additional measure is that the
appropriate federal banking agency is required to either appoint a receiver for
the institution within 90 days or obtain the concurrence of the FDIC in another
form of action.
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In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease-and-desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a prima facie showing by the agency that such relief is
appropriate. Additionally, a holding company's inability to serve as a source of
strength to its subsidiary banking organizations could serve as further basis
for a regulatory action against the holding company.
As of December 31, 1999 and based on the guidelines set out above, the
Company's calculations showed that the Company and the Bank were classified as
"well capitalized" under the above guidelines. It is the practice of the Company
to comply with all applicable capitalization requirements.
Standards For Safety And Soundness
The FDICIA, as amended, and the Riegle Community Development and
Regulatory Improvement Act of 1994 require the FRB, together with the other
federal bank regulatory agencies, to prescribe standards of safety and soundness
by regulations or guidelines relating generally to operations and management,
asset growth, asset quality, earnings, stock valuation, and compensation.
Effective in August of 1995, the FRB and the other federal bank regulatory
agencies adopted a set of guidelines prescribing safety and soundness standards
pursuant to the FDICIA, as amended. The guidelines establish general standards
relating to internal controls and information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
and compensation, fees and benefits. In general, the guidelines require, among
other things, appropriate systems and practices to identify and manage the risks
and exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director or principal
shareholder.
In addition, the FRB adopted regulations that authorize, but do not
require, the FRB to order an institution that has been given notice that it is
not satisfying any of such safety and soundness standards to submit a compliance
plan. If, after being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an accepted
compliance plan, the FRB must issue an order directing action to correct the
deficiency and may also issue an order directing other actions of the types to
which an undercapitalized institution is subject under the "prompt corrective
action" provisions of the FDICIA. If an institution fails to comply with such an
order, the FRB may seek to enforce the order in judicial proceedings and to
impose civil money penalties. The FRB and the other federal bank regulatory
agencies have also adopted guidelines for asset quality and earnings standards.
A range of other provisions in the FDICIA include requirements
applicable to: closure of branches; additional disclosures to depositors with
respect to terms and interest rates applicable to deposit accounts; uniform
regulations for extensions of credit secured by real estate; restrictions on
activities of and investments by state-chartered banks; modification of
accounting standards to conform to generally accepted accounting principles,
including the reporting of off-balance sheet items and supplemental disclosure
of estimated fair market value of assets and liabilities in financial statements
filed with the banking regulators; penalties in making or failing to file
assessment reports with the FDIC; restrictions on extensions of credit to
directors, officers and principal stockholders; and reporting requirements on
agricultural loans and loans to small businesses.
In August of 1995 the FRB, FDIC and other federal banking agencies
published a final rule modifying their existing risk-based capital standards to
provide for consideration of interest rate risk when assessing the capital
adequacy of a bank. Under the final rule, the FRB and FDIC must explicitly
include a bank's exposure to declines in the economic value of its capital due
to changes in interest rates as a factor in evaluating a bank's capital
adequacy.
Dividend Restrictions
The FRB generally prohibits a bank holding company from declaring or
paying a cash dividend which would impose undue pressure on the capital of
subsidiary banks or would be funded only through borrowing or other arrangements
that might adversely affect a bank holding company's financial position. The
FRB's policy is that a bank holding company should not initiate or continue cash
dividends on its common stock unless its net income is sufficient to fully fund
each
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dividend and its prospective rate of earnings retention appears consistent with
its capital needs, asset quality and overall financial condition. A bank holding
company is expected to act as a source of financial strength for each of its
subsidiary banks and to commit resources to support its subsidiary banks in
circumstances when it might not do so absent such policy. Our ability to pay any
dividends in the future depends in large part on the ability of the Bank to pay
dividends to us. The ability of the Bank to pay dividends is subject to
restrictions set forth in the banking and corporate laws of each state and
regulations of the FDIC. Additionally, under the FDICIA a bank may not make any
capital distribution, including the payment of dividends, if, after making such
distribution, the bank would be in any of the "under-capitalized" categories
under the FDIC's Prompt Corrective Action regulations.
Under the Financial Institution's Supervisory Act, the FDIC also has
the authority to prohibit a bank from engaging in business practices which the
FDIC considers to be unsafe or unsound. It is also possible, depending upon the
financial condition of the bank and other factors, the FDIC could assert that
the payment of dividends or other payments in some circumstances might be an
unsafe or unsound practice and thereby prohibit such payments.
Federal Deposit Insurance
Under the FDICIA, the Bank, as an FDIC-insured institution, is required
to pay deposit insurance premiums based on the risk it poses to the insurance
fund. The FDIC has authority to raise or lower assessment rates on insured
deposits in order to achieve certain designated reserve ratios in the insurance
funds and to impose special additional assessments. The assessment rate schedule
for premium assessment provides for an assessment range of 0% to 0.27% of
deposits, depending on capital and supervisory factors. Each depository
institution is assigned to one of three capital groups: "well capitalized,"
"adequately capitalized" or "under capitalized." Within each capital group,
institutions are assigned to one of three supervisory subgroups: "Subgroup A,"
"Subgroup B" or "Subgroup C". Accordingly, there are nine combinations of
capital groups and supervisory subgroups to which varying assessment rates would
be applicable. An institution's assessment rate depends on the capital category
and supervisory category to which it is assigned. Deposit insurance may be
terminated by the FDIC upon a finding that an institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC. The management of the Bank does not know of any
practice, condition or violation that might lead to termination of deposit
insurance. During 1999, the Bank was assessed deposit insurance in the aggregate
amount of $26,083.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996,
enacted in September of 1996, provides that, for semi-annual periods, Bank
Insurance Fund ("BIF") deposits are also assessed to pay interest on the bonds
issued in the late 1980s by the Financing Corporation (the "FICO Bonds") to
recapitalize the now defunct Federal Savings & Loan Insurance Corporation. For
purposes of the assessments to pay interest on the FICO Bonds, BIF deposits were
assessed at a rate of 20% of the assessment rate applicable to Savings
Association Insurance Fund ("SAIF") deposits until December 31, 1999. After
December 31, 1999, there is full pro rata sharing of FICO assessments. The
payment of the assessment to pay interest on the FICO Bonds should not
materially affect the Bank.
Restrictions On Affiliate Transactions
Transactions between a bank holding company and its subsidiary banks
are subject to a number of other restrictions. FRB policies forbid the payment
by bank subsidiaries of management fees which are unreasonable in amount or
exceed the fair market value of the services rendered or, if no market exists,
actual costs plus a reasonable profit. Additionally, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit, sale or lease of property, or
furnishing of services. Subject to certain limitations, depository institution
subsidiaries of bank holding companies may extend credit to, invest in the
securities of, purchase assets from, or issue a guarantee, acceptance, or letter
of credit on behalf of, an affiliate, provided that the aggregate of such
transactions with affiliates may not exceed 10% of the capital stock and surplus
of the institution, and the aggregate of such transactions with all affiliates
may not exceed 20% of the capital stock and surplus of such institution. A bank
holding company may only borrow from depository institution subsidiaries if the
loan is secured by marketable obligations with a value of a designated amount in
excess of the loan. Further, the bank holding company may not sell a low-quality
asset to a depository institution subsidiary. Bank holding companies are also
restricted in the extent to which they and their subsidiaries can borrow or
otherwise obtain credit from one another or engage in certain other
transactions. The "covered transactions" that an insured depository institution
and its subsidiaries are permitted to engage in with their nondepository
affiliates are limited to the following amounts: (i) in the case of any one such
affiliate, the aggregate amount of covered transactions of the insured
depository institution and its subsidiaries cannot exceed 10% of the capital
stock and the surplus of the insured depository institution; and (ii) in the
case of all affiliates, the aggregate amount of covered transactions of the
insured depository institution and its subsidiaries cannot exceed 20% of the
capital stock and surplus of the insured depository institution. In
6
<PAGE> 7
addition, extensions of credit that constitute covered transactions must be
collateralized in prescribed amounts. "Covered transactions" are defined by
statute to include a loan or extension of credit to the affiliate, a purchase of
securities issued by an affiliate, a purchase of assets from the affiliate
(unless otherwise exempted by the FRB), the acceptance of securities issued by
the affiliate as collateral for a loan and the issuance of a guarantee,
acceptance, or letter of credit for the benefit of an affiliate.
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), a financial institution
has a continuing and affirmative obligation, consistent with the safe and sound
operation of such institution, to help meet the credit needs of its entire
community, including low-income and moderate-income neighborhoods. The CRA does
not establish specific lending requirements or programs for financial
institutions, nor does it limit an institution's discretion to develop the types
of products and services that it believes, consistent with the CRA, are best
suited to its particular community. The CRA requires each federal banking
agency, in connection with its examination of a financial institution, to assess
and assign one of four ratings to the institution's record of meeting the credit
needs of its community and to take such record into account in its evaluation of
certain applications by the institution, including applications for charters,
branches and other deposit facilities, relocations, mergers, consolidations,
acquisitions of assets or assumptions of liabilities, and savings and loan
holding company acquisitions. The CRA also requires that all institutions make
public disclosure of their CRA ratings.
In April of 1995, the FRB, the Office of the Comptroller of the
Currency and other federal banking agencies adopted amendments revising their
CRA regulations. Among other things, the amended CRA regulations substitute for
the prior process-based assessment factors a new evaluation system that rates an
institution based on its actual performance in meeting community needs. In
particular, the new system focuses on three tests: (i) a lending test, to
evaluate the institution's record of making loans in its assessment areas; (ii)
an investment test, to evaluate the institution's record of investing in
community development projects, affordable housing, and programs benefiting low
or moderate income individuals and businesses; and (iii) a service test, to
evaluate the institution's delivery of services through its branches, automated
teller machines and other offices. The amended CRA regulations also clarify how
an institution's CRA performance would be considered in the application process.
The Bank received a satisfactory rating on its most recent CRA performance
evaluation.
Financial Institutions Reform, Recovery And Enforcement Act Of 1988.
The Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA") reorganized and reformed the regulatory structure applicable to
financial institutions generally. Among other things, FIRREA enhanced the
supervisory and enforcement powers for the federal bank regulatory agencies;
required insured financial institutions to guaranty repayment of losses incurred
by the FDIC in connection with the failure of an affiliated financial
institution; required financial institutions to provide their primary federal
regulator with notice, under certain circumstances, of changes in senior
management and broadened authority for bank holding companies to acquire savings
institutions.
Under FIRREA, federal bank regulators were granted expanded enforcement
authority over "institution-affiliated parties" (i.e., officers, directors,
controlling stockholders, attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution). Federal banking regulators have power to bring enforcement
actions against insured institutions and institution-affiliated parties,
including cease-and-desist orders, prohibition orders, civil money penalties,
termination of insurance and the imposition of operating restrictions and
capital plan requirements. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Since the enactment of FIRREA, the federal bank regulators have
significantly increased the use of written agreements to correct compliance
deficiencies with respect to applicable laws and regulations and to ensure safe
and sound practices. Violations of such written agreements are grounds for
initiation of cease-and-desist proceedings. FIRREA granted the FDIC back-up
enforcement authority to recommend enforcement action to an appropriate federal
banking agency and to bring such enforcement action against a financial
institution or an institution-affiliated party if such federal banking agency
fails to follow the FDIC's recommendation. In addition, FIRREA generally
requires public disclosure of final enforcement actions by the federal banking
agencies.
FIRREA also established a cross-guarantee provision ("Cross-Guarantee")
pursuant to which the FDIC may recover from a depository institution losses that
the FDIC incurs in providing assistance to, or paying off the depositors of, any
of such depository institution's affiliated insured banks or thrifts. The
Cross-Guarantee thus enables the FDIC to assess a holding company's healthy Bank
Insurance Fund members and Savings Association Insurance Fund members for the
losses of any of such holding company's failed BIF and SAIF members.
Cross-Guarantee liabilities are generally superior in
7
<PAGE> 8
priority to obligations of the depository institution to its stockholders due
solely to their status as stockholders and obligations to other affiliates.
Cross-Guarantee liabilities are generally subordinated to deposit liabilities,
secured obligations or any other general or senior liabilities, and any
obligations subordinated to depositors or other general creditors.
Monetary Policy And Economic Conditions
The earnings of the Company are affected by general economic conditions
and by the policies of various governmental regulatory authorities. In
particular, the actions and policies of the FRB exert a major influence on
interest rates charged on loans and paid on deposits, credit conditions, the
growth of loans, and the price of assets such as securities. Some of the methods
used by the FRB to promote orderly economic growth by influencing interest rates
and the supply of money and credit include open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. In addition to
the actions of the FRB, the Company's earnings are also affected by FDIC
insurance premiums. The effect of the various measures used by the FRB and other
regulatory authorities on the future business and earnings of the Company cannot
be reasonably predicted.
Illinois Regulation
We are subject to additional regulation under the Illinois Bank Holding
Company Act of 1957, as amended. As an Illinois bank holding company, we are
subject to examination by OBRE. The Bank is organized under the laws of the
State of Illinois and as such is subject to OBRE supervision. The OBRE requires
all state banks to file a full and accurate statement of their affairs annually,
and OBRE examiners conduct periodic examinations of state banks.
The OBRE has the right to promulgate rules and regulations necessary
for the supervision and regulation of Illinois banks under its jurisdiction and
for the protection of the public investing in such institutions. The regulatory
authority of the OBRE includes, but is not limited to, the establishment of
reserve requirements; the regulation of the payment of dividends; the regulation
of stock repurchases; the regulation of incorporators, shareholders, directors,
officers and employees; the establishment of permitted types of withdrawable
accounts and types of contracts for savings programs, loans and investments; the
regulation of the conduct and management of banks, chartering and branching of
institutions, mergers, conversions; and, limitations on investments in and loans
to affiliates.
The OBRE generally conducts regular annual examinations of Illinois
banks to assure that these institutions are being operated in compliance with
applicable Illinois law and regulations and in a safe and sound manner, and the
banks are required to pay the fees for these supervisory operations. The OBRE
has the power to remove or impose civil or criminal fines upon any director,
officer, employee, or agent of a state bank if such person, in the conduct of
the business of the bank, has engaged in an unsafe or unsound practice. Further,
if the OBRE finds that a state bank's capital is impaired or in an otherwise
unsound condition, its business is being conducted in an unlawful, fraudulent or
unsafe manner, its operations are unable to continue, or the OBRE examination is
obstructed or impeded, the OBRE must notify the board of directors of its
findings. If such condition is not remedied within a prescribed time period, the
OBRE must take possession and control of the bank and its assets for the purpose
of examination, reorganization or liquidation through receivership.
Under Illinois law, a bank may pay dividends without OBRE approval so
long as the amount of the dividend does not exceed net profits then on hand,
after the bank's losses and bad debts, and subject to certain additional OBRE
requirements.
Recent Legislation
On November 12, 1999, President Clinton signed into law the Financial
Services Modernization Act of 1999. The Financial Services Modernization Act,
among other things (a) permits banks to underwrite insurance and securities, (b)
permits securities firms and insurers to buy banks, (c) authorizes the Treasury
Department's Office of the Comptroller of the Currency to regulate bank
subsidiaries that underwrite securities and (e) authorizes the FRB to regulate
bank holding company affiliates that engage in risky activities such as
insurance underwriting and real estate development.
The operations of regulated depository institutions will continue to be
subject to changes in applicable statutes and regulations from time to time
which could adversely affect West Pointe and the Bank. The effect of the
Financial Services Modernization Act on bank holding companies and their
subsidiary banks is uncertain at this time.
8
<PAGE> 9
COMPETITION
We encounter strong competition both in making loans and in attracting
deposits. The deregulation of the banking industry and the widespread enactment
of state laws permitting multi-bank holding companies, as well as an increasing
level of interstate banking have created a highly competitive environment for
commercial banking. In various aspects of its business, the Bank competes with
other commercial banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment banking
companies, and other financial intermediaries. Most of these competitors, some
of which are affiliated with bank holding companies, have substantially greater
resources and lending limits, and may offer certain services that the Bank does
not currently provide. In addition, many of the Bank's non-bank competitors are
not subject to the same extensive federal regulations that govern bank holding
companies and federally insured banks. Recent federal and state legislation,
including the Financial Services Modernization Act discussed above, has
heightened the competitive environment in which financial institutions must
conduct their business, and the potential for competition among financial
institutions of all types has increased significantly. We believe that we
compete with approximately 15 financial institutions in our geographic market.
To compete effectively, the Bank relies upon specialized services,
responsive handling of customer needs, and personal contacts by its officers,
directors, and employees. Large multi-branch banking competitors tend to compete
primarily by rate and the number and location of branches, while smaller,
independent institutions like the Bank tend to compete primarily by rate and
personal service.
RECENT DEVELOPMENTS
The Company anticipates that it will provide brokerage and insurance
services through Raymond James, a third party provider.
EMPLOYEES
As of December 31, 1999, the Bank employed 96 full-time employees and
11 part-time employees. The Company does not have any employees and uses the
employees retained by the Bank. No collective bargaining unit represents the
employees. The Company and the Bank consider relations with their employees to
be good.
ITEM 2. FINANCIAL INFORMATION.
INTRODUCTION
The following selected financial data should be read in conjunction
with the Company's Consolidated Financial Statements and the accompanying Notes
to Consolidated Financial Statements and with Management's Discussion and
Analysis of Financial Condition and Results of Operations, provided herein.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
3 MONTHS
ENDED
AS OF AND FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------------- ------------
SUMMARY OF OPERATIONS
1999 1998 1997 1996 1995 2000
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest and fee income $ 19,219,917 $ 15,641,934 $ 11,618,831 $ 8,489,285 $ 6,774,885 $ 5,539,554
Interest expense 10,876,712 8,796,864 6,025,607 4,562,969 3,453,184 3,314,333
Net interest income 8,343,205 6,845,070 5,593,224 3,926,316 3,321,701 2,225,221
Provision for loan losses 1,017,870 646,623 509,277 208,539 111,794 225,000
Net interest income after provision
for loan losses 7,325,335 6,198,447 5,083,947 3,717,777 3,209,907 1,970,221
Noninterest income 1,986,795 1,724,986 1,283,861 1,134,147 767,422 488,961
Noninterest expense 6,868,355 5,741,302 4,723,099 3,583,815 2,937,479 1,968,738
Net income 2,089,675 1,692,481 1,142,209 910,957 732,635 463,744
PER SHARE DATA
Earnings:
Basic $ 4.50 $ 3.83 $ 3.14 $ 2.60 $ 2.09 $ .95
Diluted 4.47 3.82 3.14 2.60 2.09 .94
Dividends declared .66 .60 .56 .56 .56 .17
Book value $ 34.66 $ 35.48 $ 31.46 $ 27.27 $ 25.35 $ 35.47
Average shares outstanding:
Basic 464,611 442,412 363,619 350,000 350,000 489,919
Diluted 467,610 442,681 363,619 350,000 350,000 493,586
SELECTED ACTUAL YEAR END BALANCES
Total assets $311,754,405 $250,582,295 $184,674,966 $134,151,437 $107,627,507 $319,731,052
Loans 174,192,437 140,582,015 118,456,941 86,002,954 66,389,485 178,019,065
Allowance for loan losses 1,687,021 1,342,000 976,000 728,000 606,000 1,694,062
Investment securities 108,625,911 83,526,358 45,100,551 33,538,312 25,278,931 114,370,670
Deposits 279,142,315 223,287,096 167,886,817 122,596,653 97,293,773 283,822,363
Borrowings 13,775,700 9,959,702 1,715,869 727,194 776,464 16,542,377
Stockholders' equity 16,980,222 15,707,510 13,826,704 9,543,474 8,871,975 17,379,992
SELECTED AVERAGE BALANCES
Assets $278,358,989 $214,117,251 $152,850,749 $119,109,261 $ 93,493,857 $315,049,481
Deposits 247,584,963 191,165,856 139,952,709 107,729,710 83,200,908 281,191,558
Stockholders' equity 16,504,164 14,673,436 10,259,939 9,132,982 8,476,466 17,263,274
FINANCIAL RATIOS
Return on average assets .75% .79% .75% .76% .78% .59%
Return on average equity 12.66 11.53 11.13 9.97 8.64 10.80
Average equity to average assets 5.93 6.85 6.71 7.67 9.07 5.48
Dividend payout ratio 14.67 15.67 17.83 21.54 26.79 17.90
</TABLE>
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion describes West Pointe's results of operations,
financial condition, asset quality, and capital resources and asset/liability
management during the three-year period ended December 31, 1999. This discussion
should be read in conjunction with the Consolidated Financial Statements of West
Pointe and the accompanying Notes to Consolidated Financial Statements, which
are included elsewhere in this report.
FORWARD-LOOKING STATEMENTS
This Form 10 and future filings made by West Pointe with the Securities
and Exchange Commission, as well as other filings, reports and press releases
made or issued by West Pointe, and oral statements made by executive officers or
directors of West Pointe may include forward-looking statements, which are based
on assumptions and describe future plans, strategies, projections and
expectations of West Pointe. These forward-looking statements are generally
identified by use of the terms "believe", "expect", "intend", "anticipate",
"estimate", "project", or similar words. West Pointe's ability to predict
results or the actual effect of future plans or strategies is uncertain. Factors
which could have a material adverse effect on West Pointe's operations include,
but are not limited to, changes in interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U. S.
Government, including policies of the U. S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
West Pointe's market areas and accounting principles and guidelines. All of
these uncertainties, as well as others, are present in a banking operation and
stockholders are cautioned that management's view of the future on which it
prices its products, evaluates collateral, sets loan reserves and estimates
costs of operation and regulation may prove to be other than as anticipated.
FINANCIAL OVERVIEW
Net income for the year ended December 31, 1999, was $2,089,675
compared with $1,692,481 in the year ended December 31, 1998, and $1,142,209 for
the year ended December 31, 1997, representing a 23.5% increase in net income
for 1999 as compared to 1998 and a 48.2% increase for 1998 compared to 1997.
Return on average assets was .75% for the year ended December 31, 1999, .79% for
the year ended December 31, 1998 and .75% for the year ended December 31, 1997.
Basic net income per share for the year ended December 31, 1999 increased to
$4.50 per share from $3.83 for the year ended December 31, 1998 and $3.14 for
the year ended December 31, 1997. Diluted net income per share for 1999
increased to $4.47 per share from $3.82 in 1998 and $3.14 in 1997.
A 21.9% increase in net interest income and a 15.2% increase in
noninterest income, partially offset by a 19.6% increase in noninterest expense
contributed to West Pointe's earnings in 1999 compared to 1998. West Pointe's
earnings in 1998 compared to 1997 reflected a 22.4% increase in net interest
income and a 34.4% increase in noninterest income, partially offset by a 21.6%
increase in noninterest expense. These increases were due to overall growth in
West Pointe's operations.
10
<PAGE> 11
Total assets at December 31, 1999 increased to $311,754,405 compared
with $250,582,295 at December 31, 1998 primarily from internal growth in the
volume of loans and investment securities. These increases were funded by an
increase in deposits, particularly time deposits, as well as a small increase in
securities sold under agreements to repurchase.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is comprised of interest income and loan-related
fees less interest expense. Net interest income is affected by a number of
factors including the level, pricing, mix and maturity of earning assets and
interest bearing liabilities; interest rate fluctuations; and asset quality. Net
interest income is presented on a "tax-equivalent" basis, which adjusts
tax-exempt income to an amount that would yield the same after-tax income had
the income been subject to taxation at the federal statutory rate, currently 34%
for West Pointe.
Net interest income for the period ended December 31, 1999, was
$8,872,059 compared to $7,127,861 for the period ended December 31, 1998, an
increase of 24.5%. Net interest income for the period ended December 31, 1997,
was $5,712,657.
During the year ended December 31, 1999, the average balance of
interest earning assets increased $61,868,948 compared with the year ended
December 31, 1998, resulting in an increase in tax-equivalent interest income of
$4,502,277. These increases were principally attributable to increases in the
volume of loans and investment securities. Changes in yields on interest earning
assets decreased tax-equivalent interest income by $678,231. The yield on the
loan portfolio decreased 47 basis points for the year ended December 31, 1999
compared to the year ended December 31, 1998 even though the prime lending rate
increased during the last two quarters of the year ended December 31, 1999.
While certain loans in the commercial and real estate loan portfolios reprice
upward or downward as the prime rate changes, the timing of this repricing does
not always occur simultaneously with the prime rate change. Loans that reprice
with changes in the prime rate generally reprice to the same extent. The yield
on taxable securities remained relatively stable while the yield on tax-exempt
securities decreased 16 basis points during the year ended December 31, 1999,
compared to the year ended December 31, 1998. The yield on tax-exempt securities
decreased as certain holdings either matured or were called for redemption.
Proceeds from these securities, along with other purchases, were generally
invested at lower yields associated with the interest rate environment that
existed at the time.
The increase in the average balance of interest earning assets of
$58,517,133 from December 31, 1997 to December 31, 1998, resulted in an increase
in tax-equivalent interest income of $4,271,623. These increases were
principally attributable to increases in the volume of loans and investment
securities, which were funded by an increase in deposits and borrowings. Changes
in yields on interest earning assets during the year ended December 31, 1998,
compared to the year ended December 31, 1997 decreased tax-equivalent interest
income by $85,162. The yield on the loan portfolio remained relatively stable
for the year ended December 31, 1998, compared to the year ended December 31,
1997. The yield on taxable securities remained relatively stable while the yield
on tax-exempt securities decreased 40 basis points during the year ended
December 31, 1998, compared to the year ended December 31, 1997. The reduced
yield on tax-exempt securities was reflective of lower rates earned on new
purchases.
The average balance of interest bearing liabilities increased
$56,576,128 during the year ended December 31, 1999 compared with the year ended
December 31, 1998, and included an increase of $50,786,545 in average interest
bearing deposits. Time deposits accounted for the majority of this increase. The
remainder of the increase in average interest bearing liabilities was
attributable to increases in short-term and long-term borrowings. The increases
in short-term and long-term borrowings are discussed under "--Borrowings" and
represent additional funding sources for the increased levels of loans and
investment securities. The average rate paid on total interest bearing
liabilities decreased 31 basis points in 1999, primarily due to the lower rate
environment that existed during the first nine months of 1999. Interest expense
increased $2,598,274 in 1999, as a result of the increased volume of interest
bearing liabilities. The lower rate environment in 1999 resulted in a decrease
in interest expense on interest bearing liabilities of $518,426. Increases in
rates paid on long-term borrowings and interest bearing demand deposits were
offset by decreased rates paid on savings and market rate deposits, time
deposits and short-term borrowings.
The average balance of interest bearing liabilities increased
$53,101,927 from December 31, 1997 to December 31, 1998. This increase included
an increase of $47,513,725 in average interest bearing deposits. The majority of
this increase was attributable to increases in the average balance of time
deposits, which resulted from expanded promotional activities
11
<PAGE> 12
involving certain time deposit products. The increase in the average balance of
interest bearing liabilities for the year ended December 31, 1998, compared to
the year ended December 31, 1997, resulted in an increase in interest expense of
$2,711,027. The average rate paid on total interest bearing liabilities
increased 12 basis points for the year ended December 31, 1998, compared to the
year ended December 31, 1997. This increase resulted in an increase in interest
expense of $60,230.
During 1999, West Pointe's net interest margin was 3.38% compared with
3.56% and 4.03% in 1998 and 1997, respectively. Interest rate trends had a
significant impact on West Pointe's yields and costs during the period from 1997
through 1999. The decrease in the net interest margin for the year ended
December 31, 1999 occurred as the decrease in yields on interest earning assets
exceeded the decrease in the average rate paid on interest bearing liabilities.
Continued competitive pricing for both loans and deposits directly affected the
reductions in net interest margin. The decrease in the net interest margin for
1998 compared to 1997 resulted from a decrease in yields on interest earnings
assets, coupled with an increase in the average rate paid on interest bearing
liabilities.
12
<PAGE> 13
The following table sets forth West Pointe's average balance sheets for
the last three years, the interest income and expense associated with such
categories of interest earning assets and interest bearing liabilities, and the
average yields and rates on such categories.
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY AND INTEREST RATE INFORMATION
<TABLE>
<CAPTION>
1999 1998
----------------------------------- -----------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- ----------- -------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Interest bearing due from
banks $ 1,739,598 $ 85,270 4.90% $ 884,212 $ 45,005 5.09%
Loans (1) 157,019,458 13,430,674 8.55 127,900,423 11,538,546 9.02
Taxable securities(2)(3) 62,297,528 3,856,155 6.19 45,885,969 2,823,683 6.15
Non-taxable securities(2)(3) 35,970,393 2,124,057 5.91 18,876,410 1,146,237 6.07
Federal funds sold 5,213,562 252,615 4.85 6,824,577 371,254 5.44
------------ ----------- ---- ------------ ------------ ----
Total interest earning assets 262,240,539 19,748,771 7.53 200,371,591 15,924,725 7.95
============ =========== ==== ============ ============ ====
Noninterest earning assets:
Cash and due from banks 7,983,101 6,096,868
Bank premises and
equipment 7,117,697 5,934,833
Other assets 2,504,162 2,878,790
Allowance for loan losses (1,486,510) (1,164,831)
------------ ------------
Total Assets $278,358,989 $214,117,251
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing demand
deposits $ 24,247,574 $ 576,521 2.38% $ 14,399,755 $ 268,396 1.86%
Savings and money market
deposits 55,278,355 1,967,897 3.56 47,741,939 1,779,666 3.73
Time deposits 142,688,540 7,744,850 5.43 109,286,230 6,420,434 5.87
Short-term borrowings 7,486,767 332,823 4.45 4,108,142 195,564 4.76
Federal Home Loan Bank
advances 5,095,890 254,621 5.00 2,684,932 132,804 4.95
------------ ------------ ---- ------------ ------------ ----
Total interest bearing
liabilities 234,797,126 10,876,712 4.63 178,220,998 8,796,864 4.94
------------ ------------ ---- ------------ ------------ ----
Noninterest bearing
liabilities:
Demand deposits 25,370,494 19,737,932
Other liabilities 1,687,205 1,484,885
------------ ------------
Total Liabilities 261,854,825 199,443,815
Stockholders' Equity 16,504,164 14,673,436
------------ ------------
Total Liabilities and
Stockholders' Equity $278,358,989 $214,117,251
============ ============
Net interest income $ 8,872,059 $ 7,127,861
============ ============
Interest rate spread 2.90% 3.01%
==== ====
Net interest margin 3.38% 3.56%
==== ====
<CAPTION>
1997
------------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST COST
---------- ----------- -------
<S> <C> <C> <C>
ASSETS
Interest earning assets:
Interest bearing due from
banks $ 239,173 $ 12,910 5.40%
Loans (1) 103,209,852 9,390,141 9.10
Taxable securities(2)(3) 28,347,902 1,711,971 6.04
Non-taxable securities(2)(3) 7,109,367 460,081 6.47
Federal funds sold 2,948,164 163,161 5.53
------------ ------------ ----
Total interest earning assets 141,854,458 11,738,264 8.27
============ ============ ====
Noninterest earning assets:
Cash and due from banks 4,696,596
Bank premises and
equipment 5,013,769
Other assets 2,118,228
Allowance for loan losses (832,302)
------------
Total Assets $152,850,749
============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Interest bearing demand
deposits $ 11,575,854 $ 214,695 1.85%
Savings and money market
deposits 36,612,859 1,335,116 3.65
Time deposits 75,725,486 4,416,948 5.83
Short-term borrowings 1,204,872 58,848 4.88
Federal Home Loan Bank
advances -- -- --
------------ ------------ ----
Total interest bearing
liabilities 125,119,071 6,025,607 4.82
------------ ------------ ----
Noninterest bearing
liabilities:
Demand deposits 16,038,510
Other liabilities 1,433,229
------------
Total Liabilities 142,590,810
Stockholders' Equity 10,259,939
------------
Total Liabilities and
Stockholders' Equity $152,850,749
============
Net interest income $ 5,712,657
===========
Interest rate spread 3.45%
====
Net interest margin 4.03%
====
</TABLE>
(1) For purposes of these computations, nonaccrual loans are included in the
daily average loan amounts outstanding; interest on nonaccrual loans is
recorded when received.
(2) Information presented on a tax-equivalent basis assuming a tax rate of 34%.
The tax-equivalent adjustment amounted to $528,854, $282,791 and $119,433
for 1999, 1998 and 1997, respectively.
(3) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.
13
<PAGE> 14
The following table sets forth the volume and rate variances that affected net
interest income.
<TABLE>
<CAPTION>
1999 COMPARED WITH 1998 1998 COMPARED WITH 1997
INCREASE (DECREASE) DUE TO (1) INCREASE (DECREASE) DUE TO (1)
-------------------------------------- ----------------------------------------
VOLUME RATE NET VOLUME RATE NET
---------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Interest bearing due from banks $ 42,009 $ (1,744) $ 40,265 $ 32,876 $ (781) $ 32,095
Loans 2,518,583 (626,455) 1,892,128 2,231,608 (83,203) 2,148,405
Taxable securities 1,014,022 18,450 1,032,472 1,079,892 31,820 1,111,712
Non-taxable securities (2) 1,008,909 (31,089) 977,820 716,464 (30,308) 686,156
Federal funds sold (81,246) (37,393) (118,639) 210,783 (2,690) 208,093
---------- ---------- ---------- ---------- --------- ----------
Total interest earning assets 4,502,277 (678,231) 3,824,046 4,271,623 (85,162) 4,186,461
---------- ---------- ---------- ---------- --------- ----------
Interest paid on:
Interest bearing demand deposits 218,724 89,401 308,125 52,537 1,164 53,701
Savings and money market deposits 271,970 (83,739) 188,231 414,626 29,924 444,550
Time deposits 1,836,364 (511,948) 1,324,416 1,972,863 30,623 2,003,486
Short-term borrowings 150,753 (13,494) 137,259 138,197 (1,481) 136,716
Federal Home Loan Bank advances 120,463 1,354 121,817 132,804 - 132,804
---------- ---------- ---------- ---------- --------- ----------
Total interest bearing liabilities 2,598,274 (518,426) 2,079,848 2,711,027 60,230 2,771,257
---------- ---------- ---------- ---------- --------- ----------
Net interest income $1,904,003 $(159,805) $1,744,198 $1,560,596 $(145,392) $1,415,204
========== ========== ========== ========== ========= ==========
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
rate and volume changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
(2) Presented on a tax-equivalent basis assuming a tax rate of 34%. The
tax-equivalent adjustment relating to the change in interest income was an
increase of $246,063 for 1999 compared with 1998 and an increase of
$163,358 for 1998 compared with 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents management's judgment of the
cost associated with credit risk inherent in the loan portfolio. Factors which
influenced management's determination of the provision for loan losses include,
among other things, size and quality of the loan portfolio measured against
prevailing economic conditions, regulatory guidelines, and historical loan loss
experience. The provision for loan losses charged to expense in the year ended
December 31, 1999 increased to $1,017,870 compared with $646,623 and $509,277 in
the year ended December 31, 1998 and the year ended December 31, 1997,
respectively. The increase in the provision in the year ended December 31, 1999
was primarily related to a higher level of net charge-offs coupled with overall
growth in the loan portfolio. The increase in the provision in the year ended
December 31, 1998 compared to the year ended December 31, 1997 was primarily
attributable to overall growth in the loan portfolio. Activity in the allowance
for loan losses and non performing loan data are discussed under "-- Asset
Quality."
NONINTEREST INCOME
Excluding net securities gains, noninterest income for the year ended
December 31, 1999 was $1,960,417 compared with $1,544,471 and $1,278,425 in the
year ended December 31, 1998 and the year ended December 31, 1997, respectively.
Total noninterest income as a percentage of average assets was .7l%, .81% and
.84% for 1999, 1998, and 1997, respectively.
14
<PAGE> 15
The following table sets forth information pertaining to the major
components of noninterest income.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Service charges on deposits $ 821,725 $ 626,351 $ 542,015
Mortgage banking 411,953 411,301 256,115
Trust fees 309,718 203,338 151,121
Credit card income 223,645 161,076 182,986
Gain on sale of securities, net 26,378 180,515 5,436
Other 193,376 142,405 146,188
---------- ---------- ----------
Total noninterest income $1,986,795 $1,724,986 $1,283,861
========== ========== ==========
</TABLE>
The largest component of noninterest income, service charges on
deposits, consists of fees on both interest bearing and noninterest bearing
accounts and charges for insufficient funds and overdrafts. Additional service
charges associated with the growth in the volume of deposits contributed to the
increases in service charges on deposits for 1999 compared to 1998 and 1998
compared to 1997.
Mortgage banking income remained stable in 1999 compared to 1998. The
level of income from this category increased $155,186 in 1998 compared to 1997.
This increase was due to the interest rate environment in 1998, which resulted
in a large number of refinancings.
The increase in income from trust fees during 1999 was primarily due to
additional one-time fees associated with the administration of certain estates
coupled with an increase in the market value of trust assets on which certain
fees are based and on new business development. The increase in income from
trust fees during 1998 compared to 1997 was primarily due to new business
development.
Credit card income primarily consists of fees charged to merchants for
processing credit card transactions and interchange fees received on
transactions of West Pointe's cardholders. The increase in credit card income
during 1999, compared to 1998 and 1997, partially resulted from additional
merchant related revenues as well as revenues associated with West Pointe's
"debit" card product.
Net securities gains in 1999 totaled $26,378 compared to $180,515 and
$5,436 in 1998 and 1997, respectively. Net securities gains in 1999 and 1997
remained at modest levels. The increase in net securities gains in 1998 was the
result of management's decision to reconfigure certain segments of the
available-for-sale portion of the investment portfolio.
Other noninterest income includes such items as interchange fees on
automated teller machine (ATM) transactions, safe deposit rental fees, check
printing fees and other miscellaneous fees. The increase in other noninterest
income during 1999, compared to 1998 and 1997, primarily resulted from growth in
fee income associated with ATM's.
NONINTEREST EXPENSE
Noninterest expense increased $1,127,053, or 19.6%, to $6,868,355 in
1999 compared with $5,741,302 and $4,723,099 in 1998 and 1997, respectively. The
increase in 1999 from 1998 was primarily attributable to increases in employee
compensation and other benefits coupled with an increase in other noninterest
expense, which includes such items as legal and professional fees, FDIC
insurance premiums, postage costs, and certain credit card program expenses. The
efficiency ratio, a key indicator of the control of noninterest expense,
improved throughout 1999. The efficiency ratio for the year ended December 31,
1999 improved to 63.4% from 66.2% and 67.6% for the years ended December 31,
1998 and 1997, respectively. Noninterest expense as a percentage of average
assets was 2.47%, 2.68% and 3.09% for 1999, 1998 and 1997, respectively.
15
<PAGE> 16
The following table sets forth information pertaining to the major components of
noninterest expense.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Employee compensation and other benefits $3,510,251 $2,966,405 $2,426,029
Occupancy, net 410,158 384,018 293,941
Furniture and equipment 365,957 301,569 227,072
Data processing 323,011 291,621 246,804
Advertising 280,948 253,325 157,936
Other 1,978,030 1,544,364 1,371,317
---------- ---------- ----------
Total noninterest expense $6,868,355 $5,741,302 $4,723,099
========== ========== ==========
</TABLE>
Employee compensation and other benefits are the largest components of
noninterest expense representing approximately 51% of total noninterest expense
during 1999. The increase in employee compensation and other benefits for 1999
compared to 1998 reflected the cost of normal merit increases and staff
additions associated with the addition of a banking location in Dupo, Illinois
and the overall growth in bank operations. The increase in employee compensation
and other benefits for 1998 compared to 1997 primarily related to normal merit
increases and the opening of a new branch location in Columbia, Illinois.
Net occupancy expense increased modestly in 1999 compared to 1998 and
increased $90,077 in 1998 compared to 1997. The increase in 1998 was primarily
associated with expenses connected with the opening of West Pointe's Columbia,
Illinois banking location and an overall increase in maintenance and other
occupancy costs.
Furniture and equipment expense increased to $365,957 in 1999 from
$301,569 and $227,072 in 1998 and 1997, respectively. These increases were
primarily related to expansion of West Pointe's operations and technology
upgrades, including upgrades related to the Year 2000.
Data processing expenses increased $31,390 in 1999 compared to 1998 and
increased $44,817 in 1998 compared to 1997. West Pointe currently employs the
services of an outside provider for its data processing needs. The increases
resulted from normal growth in operations.
Advertising expenses increased $27,623 in 1999 compared to 1998 and
increased $95,389 in 1998 compared to 1997. These increases resulted from
expanded advertising activities in areas served by West Pointe's banking centers
and new campaigns related to new branch openings.
Other noninterest expense includes such items as legal and professional
fees, FDIC insurance premiums, mortgage banking expenses, postage costs and
certain credit card program expenses. Other noninterest expense increased
$433,666 in 1999 compared to 1998 and increased $173,047 in 1998 compared to
1997. These increases related to numerous categories of other noninterest
expense.
West Pointe recorded income tax expense of $354,100 in 1999, compared
with $489,650 in 1998 and $502,500 in 1997, respectively. West Pointe's
effective tax rate was 14.5% in 1999, 22.4% in 1998 and 30.6% in 1997. The
decrease in income tax expense and the decrease in the effective tax rates for
1999 and 1998 resulted primarily from increased levels of tax-exempt income as a
percentage of income before income taxes.
FINANCIAL CONDITION
GENERAL
Total assets at December 31, 1999 increased $61,172,110 to $311,754,405
compared with $250,582,295 at December 31, 1998. This increase primarily
resulted from the increase in the volume of loans and investment securities.
16
<PAGE> 17
LOANS
Total average loans represented 59.9%, 63.8% and 72.8% of average
interest earning assets during 1999, 1998 and 1997, respectively. Loans
increased 23.9% to $174,192,437 at year-end 1999 from $140,582,015 at year-end
1998. The growth in 1999 was primarily attributable to more aggressive sales
effort in a highly competitive market environment.
The following table presents the composition of the loan portfolio by
type of borrower and major loan category and the percentage of each to the total
loan portfolio for the periods presented.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 (1) 1995 (1)
-------------------- ------------------- -------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ------- -------- ------- --------- ------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL
BORROWERS
Commercial
financial and
agricultural $ 44,469,418 25.5% $42,866,422 30.5% $33,108,224 28.0% $23,741,000 27.6% $10,893,000 16.4%
Commercial real
estate 61,284,167 35.2 44,266,850 31.5 35,214,464 29.7 23,299,000 27.1 22,862,000 34.4
Real estate
construction 11,074,257 6.4 9,308,269 6.6 7,935,751 6.7 5,192,000 6.0 4,350,000 6.6
------------ ---- ----------- ---- ----------- ---- ----------- ---- ----------- ----
Total commercial 116,827,842 67.1 96,441,541 68.6 76,258 439 64.4 52,232,000 60.7 38,105,000 57.4
------------ ---- ----------- ---- ----------- ---- ----------- ---- ----------- ----
CONSUMER BORROWERS
1-4 family
residential
real estate 47,136,881 27.0 34,783,754 24.7 33,232,449 28.1 25,934,000 30.2 21,893,000 33.0
Other consumer loans 10,227,714 5.9 9,356,720 6.7 8,966,053 7.5 7,837,000 9.1 6,391,000 9.6
------------ ---- ----------- ---- ----------- ---- ----------- ---- ----------- ----
Total consumer 57,364,595 32.9 44,140,474 31.4 42,198,502 35.6 33,771,000 39.3 28,284,000 42.6
------------ ---- ----------- ---- ----------- ---- ----------- ---- ----------- ----
Total loans $174,192,437 100.0% $140,582,015 100.0% $118,456,941 100.0% $86,003,000 100.0% $66,389,000 100.0%
============ ==== =========== ==== =========== ==== =========== ==== =========== ====
</TABLE>
(1) AMOUNTS ROUNDED TO NEAREST THOUSAND.
West Pointe's commercial, financial and agricultural loan portfolio is
diversified and includes loans secured by non-real estate collateral to
manufacturers, retailers, distributors, service providers and investors.
Emphasis is generally placed upon middle-market and community businesses with
financial stability and known local management. Underlying collateral for
commercial, financial and agricultural loans includes, but is not limited to,
inventory, equipment, vehicles and accounts receivable. In the case of
corporations, the Bank may obtain personal guarantees from principal
shareholders and/or officers.
The commercial real estate loan portfolio consists largely of mortgage
loans secured by commercial properties located in the communities served by West
Pointe's banking centers. A significant portion of the commercial real estate
loan portfolio is comprised of traditional commercial loans with real estate
taken as additional collateral. These loans are generally made to fund the
acquisition of buildings and real estate for commercial, industrial, office and
retail use. The maximum loan-to-value ratio applicable to improved commercial
properties is 85%. Prior approval of the Bank's Loan and Discount Committee is
required for new loans with loan-to-value ratios exceeding this limit.
The real estate construction loan portfolio consists of loans made to
finance land development preparatory to erecting new structures or the on-site
construction of 1-4 family residences, commercial properties, retail centers,
medical and business offices, warehouse facilities and multi-family residential
developments. The maximum loan-to-value ratio applicable to loans made for the
purpose of land development activities is 75%. The maximum loan-to-value ratios
applicable to commercial/multi-family and 1-4 family residential construction
loans are 80% and 85%, respectively.
The 1-4 family residential real estate portfolio is predominantly
comprised of loans extended for owner-occupied residential properties. These
loans typically are secured by first mortgages on the properties financed and
generally have a maximum loan-to-value ratio of 85%. The amortization periods
for these loans generally do not exceed twenty years with interest being
calculated on a fixed or floating rate basis. The 1-4 family residential real
estate category also includes home equity lines of credit and closed-end second
mortgage loans. Closed-end second mortgage loans generally bear a fixed rate of
interest over a three to five year term with a five to fifteen year
amortization, while home equity lines of credit generally have an interest rate
indexed to the prime rate. Home equity loans generally have a maximum
loan-to-value ratio of 85%. Generally, any portion of 1-4 family residential
real estate loans exceeding 80% of the loan-to-value ratio require private
mortgage insurance.
The consumer loan portfolio consists of both secured and unsecured
loans to individuals for household, family, and other personal expenditures such
as automobile financing, home improvements and recreational and educational
purposes. Consumer loans are typically structured with fixed rates of interest
and full amortization of principal and interest within three to five years. The
maximum loan-to-value ration applicable to consumer loans is generally 80%.
This category also includes revolving credit products such as checking overdraft
protection and MasterCard and VISA credit cards. Consumer loans are either
unsecured or are secured with various forms of collateral, other than real
estate.
The weighted average yield on the loan portfolio in 1999 was 8.55%
compared to 9.02% and 9.10% in 1998 and 1997, respectively. Overall yields on
the loan portfolio trended downward during the latter half of 1998 and the first
half of 1999. The general level of interest rates began to trend upward during
the last half of 1999. West Pointe's loan portfolio
17
<PAGE> 18
yields tend to follow trends in the prime lending rate, which increased slightly
during the last half of 1999. However, while loan yields tend to follow trends
in the prime lending rate, they may not follow simultaneously with such trends.
West Pointe's loan portfolio yields remained stable during 1998 compared to
1997. At December 31, 1999, 35.2% of West Pointe's total loan portfolio had
floating or adjustable interest rates.
The following table sets forth the amount of loans outstanding as of
December 31, 1999, which, based on remaining maturity, are due in the periods
indicated. In addition, the amounts due after one year are classified according
to sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
MATURING
---------------------------------------------------------------------
AFTER ONE
IN ONE THROUGH AFTER
YEAR OR LESS FIVE YEARS FIVE YEARS TOTAL
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $25,873,463 $16,835,324 $ 1,760,631 $ 44,469,418
Commercial real estate 13,219,128 44,110,501 3,954,538 61,284,167
Real estate construction 11,074,257 -- -- 11,074,257
1-4 family residential real estate 5,497,478 9,881,304 31,758,099 47,136,881
Other consumer loans 2,974,481 6,805,881 447,352 10,227,714
----------- ----------- ----------- ------------
Total loans $58,638,807 $77,633,010 $37,920,620 $174,192,437
=========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
INTEREST SENSITIVITY
---------------------------------------------------------------------
FLOATING OR
FIXED ADJUSTABLE
INTEREST RATES INTEREST RATES
-------------- ---------------
<S> <C> <C>
Due after one year $76,570,395 $38,983,235
=========== ===========
</TABLE>
The Bank's asset quality management program, particularly with regard
to loans, is designed to analyze potential risk elements and to support the
growth of a profitable and high quality loan portfolio. The Bank employs the
use of a loan rating system to monitor the loan portfolio and to determine the
adequacy of the allowance for loan losses. The Bank's lending philosophy is to
invest in loans in the communities served by its banking centers so it can
effectively monitor and control credit risk. The majority of the loan portfolio
is comprised of retail loans and loans to small-to-midsized businesses. A
periodic review of selected credits (based on loan size) is conducted to
identify loans with heightened risks or inherent losses. Factors which could
contribute to increased risk in the loan portfolio include, but are not limited
to, changes in interest rates, general economic conditions and reduced
collateral values. The loan portfolio does not include any loans to foreign
countries.
As of December 31, 1999, the statutory legal lending limit amount for
the Bank to loan to one customer was $4,073,191.
SECURITIES
Investment securities increased $25,099,553, or 30.0% at December 31,
1999, compared to year-end 1998. The increase in investment securities primarily
resulted from purchases, net of sales and maturities, in the available for sale
category. In addition, due to an increase in the amount of collateral required
for a new public fund deposit account, it was necessary to increase investment
securities. The investment securities portfolio provides a balance to interest
rate and credit risk in other categories of the balance sheet while providing a
vehicle for the investment of available funds not needed to satisfy loan demand.
The investment portfolio also supplies securities as required collateral for
certain deposits and for securities sold under agreements to repurchase.
Additional information regarding West Pointe's securities sold under agreements
to repurchase is presented and discussed under "--Borrowings."
West Pointe classifies investment securities as available-for-sale or
held-to-maturity. Available-for-sale securities are held with the option of
their disposal in the foreseeable future to meet investment objectives or for
other operational needs. Held-to-maturity securities generally provide a
relatively stable source of income. All of West Pointe's held-to-maturity
securities are Federal Home Loan Mortgage Corporation and Federal National
Mortgage Association mortgage-backed securities.
Available-for-sale investment securities are recorded at fair value.
Net unrealized losses on available for sale investment securities totaled
$4,061,045 at December 31, 1999, while net unrealized gains on
available-for-sale investment securities were $774,083 at December 31, 1998.
Included in stockholders' equity at December 31, 1999 and 1998 was accumulated
other comprehensive income (loss) associated with unrealized gains and losses on
available-for-sale investment securities of $(2,517,848) and $479,931,
respectively. The accumulated other comprehensive income (loss) amounts were
recorded net of deferred income tax credits of $1,543,197 in 1999 and deferred
income taxes of $294,152 in 1998.
Available-for-sale securities increased $26,352,984, or 33.9%, to
$104,112,092 at December 31, 1999 from $77,759,108 at December 31, 1998.
Approximately 96% of investment securities included in West Pointe's investment
securities portfolio are classified as available for sale. All investment
security purchases in 1999, 1998 and 1997 were classified as available for sale.
Held-to-maturity securities decreased $1,253,431, or 21.7%, at December 31, 1999
from year-end 1998. This reduction resulted from payments received on the
mortgage-backed securities that comprise this category of the investment
portfolio.
18
<PAGE> 19
The following tables set forth the composition of the held-to-maturity
and the available-for-sale securities portfolios, respectively, for the last
three years.
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
HELD-TO-MATURITY SECURITIES
Mortgage-backed securities $ 4,513,819 $ 5,767,250 $ 7,071,708
============ =========== ===========
DECEMBER 31
----------------------------------------------------------
1999 1998 1997
---- ---- ----
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasuries $ -- $ 2,625,406 $ 6,427,629
Obligations of U.S. government corporations
and agencies 61,089,388 34,285,875 21,404,562
Mortgage-backed securities 7,346,741 7,326,218 1,047,054
Obligations of states and political subdivisions 34,591,644 32,527,409 8,406,560
Equity securities 1,084,319 994,200 743,038
------------ ----------- -----------
Total available-for-sale $104,112,092 $77,759,108 $38,028,843
============ =========== ===========
</TABLE>
The following table sets forth the maturities and weighted average
yields of each category of held-to-maturity and available-for-sale securities at
December 31, 1999 based upon expected maturities of such securities.
<TABLE>
<CAPTION>
IN ONE YEAR AFTER ONE YEAR AFTER FIVE YEARS
OR LESS THROUGH THROUGH
FIVE YEARS TEN YEARS AFTER TEN YEARS
---------------------- ---------------------- ---------------------- ---------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
----------- ---------- ----------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
SECURITIES
Mortgage-backed securities $ 77,484 5.44% $ --- ---% $ 2,427,163 6.10% $ 2,009,172 6.00%
------- ---- --------- ----- ----------- ---- ----------- ----
AVAILABLE-FOR-SALE
SECURITIES
Obligations of U.S.
government
corporations and
agencies 14,865,900 5.40 18,224,633 6.43 27,998,855 6.43 --- ---
Mortgage-backed securities --- --- --- --- 354,660 6.37 6,992,081 6.20
Obligations of states and
political subdivisions(1) 306,408 6.93 2,076,020 6.75 31,667,401 5.83 541,815 6.05
Equity securities (2) --- --- --- --- --- --- 1,084,319 7.18
---------- ---- ----------- ----- ----------- ----- ----------- -----
Total available-for-sale 15,172,308 5.43 20,300,653 6.46 60,020,916 6.11 8,618,215 6.31
---------- ---- ----------- ----- ----------- ----- ----------- -----
Total securities $15,249,792 5.43% $20,300,653 6.46% $62,448,079 6.11% $10,627,387 6.25%
=========== ==== =========== ===== =========== ===== =========== =====
</TABLE>
(1) Yields presented on a tax-equivalent basis assuming a tax rate of 34%.
(2) Equity securities have no stated maturity and are, therefore, included in
the after 10 year category.
The weighted average yield on the taxable securities portfolio remained
relatively level at 6.19% for 1999, compared to 6.15% and 6.04% for 1998 and
1997, respectively. Average taxable securities totaled $62,297,528 in 1999
compared to $45,885,969 and $28,347,902 in 1998 and 1997, respectively.
Average non-taxable securities totaled $35,970,393 in 1999, compared to
$18,876,410 and $7,109,367 in 1998 and 1997, respectively. The weighted average
tax-equivalent yield on non-taxable securities was 5.91%, 6.07% and 6.47% during
1999, 1998 and 1997, respectively.
The remainder of West Pointe's interest earning assets consists of
federal funds sold and interest bearing due from bank balances. These two
categories comprised less than 4% of West Pointe's total interest earning assets
during 1999, 1998 and 1997, respectively. Federal funds sold consist of sales of
excess funds and generally have a maturity of one day.
19
<PAGE> 20
DEPOSITS
West Pointe's deposit base is its primary source of liquidity and
consists of deposits originating within the communities served by its banking
locations. Deposits are West Pointe's primary and most reliable funding source
for interest earning assets.
Total deposits increased 25.0%, or $55,855,219, to $279,142,315 at
December 31, 1999, from $223,287,096 at December 31, 1998. Approximately $22
million of this increase was associated with one new interest bearing demand
deposit relationship with a public entity. This public entity established the
relationship, in the third quarter of 1999, primarily because of West Pointe's
technological advancements and competitive pricing. West Pointe has focused on
expanding its overall banking relationships with public entities. All other
categories of deposits, particularly time deposits, increased from year-end 1998
to year-end 1999. West Pointe continues to feature its 12-month, 18-month and
24-month certificates of deposit. The increase in deposits was primarily due to
ongoing sales efforts and competitive pricing. Deposits generated from the new
banking location in Dupo, Illinois, also contributed to the increase in
deposits.
The following table sets forth the composition of the deposit portfolio
for the periods presented.
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------------------------
1999 1998
--------------------------------- ---------------------------------------
AMOUNT PERCENT AMOUNT PERCENT
----------------- --------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 27,350,618 9.8% $ 25,760,540 11.5%
Interest bearing demand deposits 41,872,811 15.0 16,436,189 7.4
Savings and money market deposits 55,650,057 19.9 53,254,968 23.9
Time deposits $100,000 or more 45,906,985 16.5 24,363,597 10.9
Time deposits less than $100,000 108,361,844 38.8 103,471,802 46.3
------------- ------ ----------- ------
Total deposits $279,142,315 100.0% $223,287,096 100.0%
============= ====== ============ ======
</TABLE>
Average total deposits increased $56,419,107 during 1999 and $51,213,147
during 1998. The increases for both years were primarily attributable to normal
growth in operations as West Pointe continues to expand its market territory. In
1998, West Pointe opened a banking location in Columbia, Illinois, followed by
the opening of a new banking location in Dupo, Illinois, in the fourth quarter
of 1999.
The following table sets forth the major categories of average deposits and
the weighted average interest rates paid on such categories for the last three
years.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------ ------ ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 25,370,494 ---% $ 19,737,932 ---% $ 16,038,510 ---%
Interest bearing demand deposits 24,247,574 2.38 14,399,755 1.86 11,575,854 1.85
Savings and money market deposits 55,278,355 3.56 47,741,939 3.73 36,612,859 3.65
Time deposits 142,688,540 5.43 109,286,230 5.87 75,725,486 5.83
------------ ---- ------------ ---- ------------ ----
Total deposits $247,584,963 4.16% $191,165,856 4.43% $139,952,709 4.26%
============ ==== ============ ==== ============ ====
</TABLE>
20
<PAGE> 21
The following table sets forth the amount and maturities of time
deposits of $100,000 or more for the years ended December 31, 1999 and December
31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1999 1998
----------- ----------
<S> <C> <C>
3 months or less $18,288,009 $ 7,509,304
Over 3 through 6 months 11,606,030 5,136,163
Over 6 through 12 months 12,183,793 9,069,760
Over 12 months 3,829,153 2,648,370
----------- ----------
Total $45,906,985 $24,363,597
=========== ===========
</TABLE>
BORROWINGS
Total borrowings amounted to $13,775,700 at year-end 1999, an increase
of $3,815,998 from $9,959,702 at year-end 1998.
Average Federal Home Loan Bank advances increased $2,410,958 from 1998.
During the fourth quarter of 1998, the Bank obtained a $5,000,000 Federal Home
Loan Bank advance, which was callable after one year and quarterly thereafter.
This advance was scheduled to mature on June 19, 2008, and reflected an interest
rate of 4.89%. The issue was called for redemption on December 20, 1999, and was
replaced with another $5,000,000 advance. The new advance, which reflects an
interest rate of 5.63%, has a final maturity date of December 13, 2004. This
advance is callable on December 13, 2000 and quarterly thereafter.
Average short-term borrowings, primarily consisting of securities sold
under agreements to repurchase (repurchase agreements), increased $3,378,625 and
$2,903,270 during 1999 and 1998, respectively. These borrowings serve as an
alternative source of funds to deposit funding sources. The majority of the
increase in average short-term borrowings was in the form of cash management
repurchase agreement accounts. Such accounts involve the daily transfer of
excess funds from noninterest bearing deposit accounts into interest bearing
cash management repurchase agreement accounts. West Pointe continues to market
its cash management product to commercial and individual deposit customers.
Although viewed as a borrowing, the cash management repurchase agreement
accounts are considered a stable source of funds. Repurchase agreements, other
than cash management repurchase agreements, generally represent an alternative
to short-term certificates of deposit offered to West Pointe's customers. The
weighted average rate of interest paid for short-term borrowings was 4.45%,
4.76% and 4.88% in 1999, 1998 and 1997, respectively.
In addition to securities sold under agreements to repurchase, West
Pointe also had, at December 31, 1999, another form of short-term borrowing in
the amount of $1,837,500. Late in the fourth quarter of 1999, West Pointe
entered into a line of credit with an unaffiliated bank, which provided for
borrowings by West Pointe of up to $2,500,000. The line of credit matures on
December 7, 2000 and bears interest at a rate of 50 basis points under the prime
lending rate of another unaffiliated bank. On December 30, 1999, West Pointe
borrowed $1,837,500 in connection with the line of credit. In order to increase
its capital base, $1,500,000 of the borrowing was contributed to the Bank as
additional paid in capital. The remaining proceeds from the borrowing were used
to buy back 6,250 shares of West Pointe's common stock from an individual
stockholder. The buy back of these shares is reflected as treasury stock in West
Pointe's consolidated financial statements.
21
<PAGE> 22
The following table sets forth a summary of information pertaining to
short-term borrowings for the periods presented.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
1999 1998 1997
---------------------- ------------------- ---------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
At December 31:
Repurchase agreements $6,938,200 4.58% $4,959,702 4.63% $1,715,869 5.26%
Other 1,837,500 8.00 --- --- --- ---
---------- ---- ---------- ---- ---------- ----
Total $8,775,700 5.30% $4,959,702 4.63% $1,715,869 5.26%
========== ==== ========== ==== ========== ====
For the year ended December 31:
Average daily balance:
Federal funds purchased $ 5,479 6.06% $ --- ---% $ 146,027 5.70%
Repurchase agreements 7,221,406 4.43 3,770,165 4.78 734,332 4.92
Other 259,882 4.71 337,977 4.49 324,513 4.44
---------- ---- ---------- ---- ---------- ----
Total $7,486,767 4.45% $4,108,142 4.76% $1,204,872 4.88%
========== ==== ========== ==== ========== ====
Maximum month-end balance:
Federal funds purchased $ --- $ --- $2,600,000
Repurchase agreements 8,439,673 5,616,642 1,763,576
Other 1,837,500 559,188 535,115
</TABLE>
ASSET QUALITY
West Pointe's asset quality management program, particularly with
regard to loans, is designed to analyze potential risk elements and to support
the growth of a profitable and high quality loan portfolio. The existing loan
portfolio is monitored via West Pointe's loan rating system. The loan rating
system is used to determine the adequacy of the allowance for loan losses. West
Pointe's loan analysis process proactively identifies, monitors and works with
borrowers for whom there are indications of future repayment difficulties.
West Pointe's lending philosophy is to invest in loans in the
communities served by its banking centers so that it can effectively monitor and
control credit risk. The majority of the loan portfolio is comprised of retail
loans and loans to small-to-midsize businesses. The loan portfolio does not
include any loans to foreign countries.
The following table sets forth a summary of nonperforming assets and
related ratios for the periods presented.
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------
1999 1998 1997 1996(1) 1995(1)
---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,552,319 $ 879,954 $268,284 $ 342,000 $100,000
Accruing loans past due 790,690 390,789 110,641 431,000 566,000
90 days or more
Troubled debt restructurings --- --- 512,476 411,000 ---
---------- ---------- -------- ---------- --------
Total nonperforming loans 2,343,009 1,270,743 891,401 1,184,000 666,000
Foreclosed property 348,792 151,922 --- 414,000 ---
---------- ---------- -------- ---------- --------
Total nonperforming assets $2,691,801 $1,422,665 $891,401 $1,598,000 $666,000
========== ========== ======== ========== ========
Nonperforming loans to total loans 1.35% .90% .75% 1.38% 1.00%
Nonperforming assets to total loans and
foreclosed property 1.54% 1.01% .75% 1.85% 1.00%
Nonperforming assets to total assets .86% .57% .48% 1.19% .62%
</TABLE>
(1) AMOUNTS ROUNDED TO NEAREST THOUSAND.
Nonperforming loans increased 84.4% and nonperforming assets increased
89.2% in 1999 compared to 1998. These increases are primarily due to the
addition of $1,149,000 in nonperforming loans related to three commercial
borrowers. Management is in varying stages of workout or liquidation of these
nonperforming loans. The level of
22
<PAGE> 23
foreclosed property increased $196,870 from year-end 1998 to year-end 1999.
Foreclosed property at December 31, 1998 consisted of one parcel of real estate,
which was sold during 1999 and resulted in a loss of $10,369. Foreclosed
property at December 31, 1999, consisted of properties relating to three
borrowers. Management does not anticipate any significant losses upon
disposition of the remaining foreclosed properties.
It is the policy of West Pointe to discontinue the accrual of interest
on loans when principal or interest is due and has remained unpaid for 90 days
or more, unless the loan is well secured and in the process of collection and
management has documented reasons why the accrual of interest should continue.
West Pointe would have recorded interest income of $145,410 for 1999 if the
loans accounted for as nonaccrual at year-end 1999 had been current in
accordance with their original terms and had been outstanding throughout the
period or since origination if held for part of the period. The amount of
interest included in interest income for 1999 relating to these loans was
$32,098.
Certain loans may require frequent management attention and are reviewed on
a monthly or more frequent basis. Although payments on these loans may be
current or less than 90 days past due, the borrowers presently have or have had
a history of financial difficulties and management has a concern as to the
borrowers' ability to comply with the present loan repayment terms. Management
believes such loans present more than the normal risk of collectibility. As
such, these loans may result in classification at some future point in time as
nonperforming. At December 31, 1999, such loans amounted to $4,814,805.
The following table sets forth information pertaining to West Pointe's
provision for loan losses charged to operations, the activity in and an analysis
of the allowance for loan losses for the last five years.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $1,342,000 $ 976,000 $728,000 $606,000 $553,000
Loans charged off:
Commercial, financial and
agricultural 484,565 187,236 127,700 71,758 25,000
Real Estate:
Commercial 74,541 768 71,370 --- ---
Residential 101,815 --- 9,145 --- 25,000
---------- -------- -------- -------- --------
Total real estate 176,356 768 80,515 --- 25,000
---------- -------- -------- -------- --------
Consumer 49,672 107,282 64,410 20,981 12,732
---------- -------- -------- -------- --------
Total charge-offs 710,593 295,286 272,625 92,739 62,732
---------- -------- -------- -------- --------
Recoveries of loans previously charged
off:
Commercial, financial and
agricultural 9,119 9,724 --- 6,200 ---
Real estate:
Commercial --- --- --- --- ---
Residential --- --- 7,385 --- ---
---------- -------- -------- -------- --------
Total real estate --- --- 7,385 --- ---
---------- -------- -------- -------- --------
Consumer 28,625 4,939 3,963 --- 3,938
---------- -------- -------- -------- --------
Total recoveries 37,744 14,663 11,348 6,200 3,938
---------- -------- -------- -------- --------
Net charge-offs 672,849 280,623 261,277 86,539 58,794
---------- -------- -------- -------- --------
Provision for loan losses 1,017,870 646,623 509,277 208,539 111,794
---------- -------- -------- -------- --------
Balance at end of year $1,687,021 $1,342,000 $976,000 $728,000 $606,000
========== ========== ======== ======== ========
Net loan charge-offs as a percent of
average total loans .43% .22% .25% .11% 0.10%
</TABLE>
During 1999, West Pointe recorded net charge-offs of $672,849 compared
to net charge-offs of $280,623 in 1998. This increase was primarily a result of
charge-offs taken on commercial loans to two borrowers and charge-offs taken on
several real estate loans, both commercial and residential. Net charge-offs in
the commercial, financial and agricultural category totaled $475,446 compared to
net charge-offs of $177,512 in 1998. Net charge-offs in the real estate category
totaled $176,356 in 1999 compared to negligible net charge-offs in 1998. Net
loan charge-offs as a percent of average total loans increased to .43% in 1999
compared to .22% in 1998.
West Pointe's allowance for loan losses at December 31, 1999, increased
25.7% to $1,687,021 from $1,342,000 at December 31, 1998. The increase is due to
the increased level of the provision for loan losses. At year-end 1999, West
Pointe's allowance for loan losses represented 72% of nonperforming loans
compared to 106% at year-end 1998. Management believes that the allowance for
loan losses at December 31, 1999 was adequate to absorb potential losses
inherent in the loan portfolio. However, past loan loss experience as it relates
to current portfolio mix, evaluation of potential losses in the portfolio,
subsequent changes in economic conditions and other factors may require changes
in the level of the reserve for loan losses.
23
<PAGE> 24
The following table sets forth the allocation of the allowance for loan
losses by loan category and the percent of loans in each category to total loans
for the last five years.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1999(1) 1998(1) 1997(1) 1996(1) 1995(1)
-------------------- ------------------ --------------------- -------------------- ---------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
--------- -------- --------- ------ --------- -------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 395,000 25.5% $ 527,000 30.5% $324,000 28.0% $237,000 27.6% $182,000 16.4%
Real estate:
Commercial 490,000 35.2 296,000 31.5 197,000 29.7 124,000 27.1 126,000 34.4
Residential 471,000 27.0 233,000 24.7 186,000 28.1 137,000 30.2 122.000 33.0
Construction 49,000 6.4 37,000 6.6 27,000 6.7 31,000 6.0 25,000 6.6
---------- ---- ---------- ---- -------- ---- -------- ---- -------- ----
Total real
estate 1,010,000 68.6 566,000 62.8 410,000 64.5 292,000 63.3 273,000 74.0
---------- ---- ---------- ---- -------- ---- -------- ---- -------- ----
Consumer 232,000 5.9 204,000 6.7 195,000 7.5 159,000 9.1 116,000 9.6
Not allocated 50,000 N/A 45,000 N/A 47,000 N/A 40,000 N/A 35,000 N/A
---------- ---- ---------- ---- -------- ---- -------- ---- -------- ----
Total $1,687,000 100.0% $1,342,000 100.0% $976,000 100.0% $728,000 100.0% $606,000 100.0%
========== ===== ========== ===== ======== ===== ======== ===== ======== =====
</TABLE>
N/A--Not applicable
(1) AMOUNTS ROUNDED TO NEAREST THOUSAND.
CAPITAL RESOURCES AND ASSET/LIABILITY MANAGEMENT
CAPITAL
Financial institutions are required to maintain ratios of capital to
assets in accordance with guidelines promulgated by the federal banking
regulators. The guidelines are commonly known as "Risk-Based Guidelines" as they
define the capital level requirements of a financial institution based upon the
level of credit risk associated with holding various categories of assets. The
Risk-Based Guidelines require minimum ratios of Tier 1 and Total capital to
risk-weighted assets of 4% and 8%, respectively. At December 31, 1999, West
Pointe's Tier 1 and Total capital ratios were 9.72% and 10.56%, respectively. In
addition to the Risk-Based Guidelines, the federal banking agencies have
established a minimum leverage ratio guideline for financial institutions (the
"Leverage Ratio Guideline"). The Leverage Ratio Guideline provides for a minimum
ratio of Tier 1 capital to average assets of 4%. West Pointe's leverage ratio at
December 31, 1999, was 6.29%. According to the regulatory guidelines, West
Pointe is considered to be "well capitalized." See "Notes to Consolidated
Financial Statements--Regulatory Matters" for additional information concerning
West Pointe's regulatory capital measures.
The Company has recently constructed a new branch office located in
Belleville, Illinois, which is approximately 18,020 sq. ft. As of March 31,
2000, the Company had expended $1,050,698 and anticipated that it will spend an
additional $1,249,302 to complete construction. The branch office was opened
for business in June, 2000.
ASSET/LIABILITY MANAGEMENT
West Pointe's asset/liability strategy is to minimize the sensitivity
of its net interest margin as a consequence of changes in interest rates. West
Pointe's asset/liability management committee reviews asset and liability
repricing in the context of current and possible future interest rate scenarios
affecting the economy in its market territory. The asset/liability committee is
comprised of executive officers of the Bank from all major functional areas of
West Pointe.
As assets and liabilities tend to become more rate sensitive, whether
due to customer demands or West Pointe's initiatives, it becomes more important
that rates earned are matched with rates paid and that repricing dates are
matched so the next earning interval will have both components at current rates.
Assets and liabilities that mature or are repriced in one year or less are
considered in the financial services industry to be "rate sensitive." This means
that as rates in the marketplace change, the rates on these assets or
liabilities will be impacted soon after. Assuming a reasonably balanced rate
sensitivity position, increasing rates will result in more interest income and
more interest expense. Conversely, declining rates will result in less interest
income and less interest expense.
The following table reflects an analysis of interest earning assets and
liabilities, all of which are held other than for trading purposes, at December
31, 1999, allocated over various time frames in which the instruments are
subject to repricing. Based on the Company's historical trends, interest bearing
demand deposits, money market deposits and savings deposits have been proven to
be a very stable source of funds, even through interest rate fluctuations.
Accordingly, Company management believes these deposits are not 100% rate
sensitive within the three months or less time frame. As a result, interest
bearing demand and savings deposits have been allocated between the four
repricing categories as follows: three months or less -- 20%, after three
through twelve months -- 20%, after one through five years -- 40%, and after
five years -- 20%. Money market deposits have been allocated between the
categories as follows: after three through twelve months -- 50% and after one
through five years -- 50%.
<TABLE>
<CAPTION>
AFTER AFTER
THREE THREE MONTHS ONE YEAR
MONTHS THROUGH THROUGH AFTER
OR LESS TWELVE MONTHS FIVE YEARS FIVE YEARS TOTAL
------- ------------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 3,600,000 $ -- $ -- $ -- $ 3,600,000
Interest bearing due from banks 408,261 -- -- -- 408,261
Time certificates of deposit -- 167,389 -- 99,781 267,170
Investment securities (1) 10,431,409 2,409,946 25,861,616 69,922,940 108,625,911
Loans (2) 48,417,264 22,770,261 96,081,081 6,923,831 174,192,437
----------- ------------- ------------ ------------ -------------
Total interest earning assets 62,856,934 25,347,596 121,942,697 76,946,552 287,093,779
----------- ------------- ------------ ------------ -------------
Cumulative interest earning assets 62,856,934 88,204,530 210,147,227 287,093,779 287,093,779
----------- ------------- ------------ ------------ -------------
Interest bearing liabilities:
Interest bearing demand deposits 8,374,562 8,374,562 16,749,125 8,374,562 41,872,811
Money market deposits -- 13,745,914 13,745,913 -- 27,491,827
Savings deposits 5,631,646 5,631,646 11,263,292 5,631,646 28,158,230
Time deposits $100,000 or more 19,261,459 22,816,373 3,829,153 -- 45,906,985
Time deposits less than $100,000 27,316,682 65,273,182 15,771,980 -- 108,361,844
Repurchase agreements 5,850,426 351,961 735,813 -- 6,938,200
Other borrowings 1,837,500 -- -- -- 1,837,500
Federal Home Loan Bank advances (3) -- 5,000,000 -- -- 5,000,000
----------- ------------- ------------ ------------ -------------
Total Interest bearing liabilities 68,272,275 121,193,638 62,095,276 14,006,208 265,567,397
----------- ------------- ------------ ------------ -------------
Cumulative interest bearing liabilities 68,272,275 189,465,913 251,561,189 265,567,397 265,567,397
----------- ------------- ------------ ------------ -------------
Gap analysis:
Interest sensitivity gap $(5,415,341) $ (95,846,042) $ 59,847,421 $ 62,940,344 $ 21,526,382
=========== ============= ============ ============ =============
Cumulative interest sensitivity gap $(5,415,341) $(101,261,383) $(41,413,962) $ 21,526,382 $ 21,526,382
=========== ============= ============ ============ =============
Cumulative gap ratio of interest earning assets
to interest bearing liabilities 92% 47% 84% 108% 108%
=========== ============= ============ ============ =============
</TABLE>
(1) Equity securities have no stated maturity and are, therefore, included in
the "after five years" column.
(2) Nonaccrual loans are reported in the "after one year through five years"
column.
(3) A FHLB advance, in the amount of $5,000,000, is included in the "after
three months through twelve months" column. This advance is callable in
December 2000 and on a quarterly basis thereafter and matures in 2004.
The Company measures and manages its interest rate risk sensitivity on
a regular basis to stabilize earnings in changing interest rate environments.
The Company evaluates its interest rate risk sensitivity position to determine
that the level of risk is commensurate with the rate of return. The methods,
used to provide insight into the level of risk exposure, indicate that the
Company is currently within interest rate risk guidelines set by management and
that such risk is at a manageable level. While the Company does have some
exposure to changing interest rates, management believes that the Company is
positioned to protect earnings throughout changing interest rate environments.
Because the interest rate sensitivity analysis does not encompass other
factors which affect interest rate risk, the Company employs the use of a
simulation model to measure exposure to changes in interest rates. Modeling
techniques encompass contractual maturity, prepayment assumptions covering
interest rate increases and decreases and index-driven repricing
characteristics. The model projects changes in net interest income over a
one-year period should interest rates rise, fall or remain constant. These
effects are analyzed assuming interest rate increases or decreases of 100, 150,
200 and 300 basis points. The model also incorporates key assumptions involving
West Pointe's ability to control and direct deposit rates, particularly on
non-maturity categories. As of December 31, 1999, the simulation model
indicates that, over a twelve month horizon, net interest income would not be
materially affected by increases or decreases in rates within these parameters.
The following table provides additional information about West Pointe's
financial instruments at December 31, 1999. The table categorizes certain
interest sensitive instruments by contractual maturity and by whether such items
are subject to fixed or variable rates. The amount and average interest rate is
presented for each item.
<TABLE>
<CAPTION>
YEAR OF CONTRACTUAL MATURITY
------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTALS
----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal funds sold $ 3,600,000 $ -- $ -- $ -- $ -- $ -- $ 3,600,000
Average interest rate 4.50% --% --% --% --% --% 4.50%
Interest bearing due
from banks $ 575,650 $ -- $ -- $ -- $ -- $ 99,781 $ 675,431
Average interest rate 4.42% --% --% --% --% 6.04% 4.66%
Fixed interest rate
securities (1)(2)(3) $ 15,249,792 $ 469,155 $ 2,418,850 $ 4,858,133 $13,096,365 $72,199,571 $108,291,866
Average interest rate 5.43% 6.79% 5.90% 6.35% 6.60% 6.09% 6.07%
Variable interest rate
securities $ 334,045 $ -- $ -- $ -- $ -- $ -- $ 334,045
Average interest rate 6.35% --% --% --% --% --% 6.35%
Fixed interest rate
loans (4) $ 36,276,919 $17,366,557 $22,789,453 $ 9,779,162 $19,698,521 $ 6,936,702 $112,847,314
Average interest rate 8.13% 8.60% 8.48% 8.34% 8.16% 7.54% 8.26%
Variable interest rate
loans (4) $ 22,361,888 $ 2,885,418 $ 3,577,381 $ 1,049,436 $ 487,082 $30,983,918 $ 61,345,123
Average interest rate 9.11% 8.98% 8.80% 8.64% 9.44% 8.43% 8.74%
INTEREST BEARING LIABILITIES:
Fixed interest bearing
deposits $127,271,238 $15,739,508 $ 2,767,669 $ 535,942 $ 558,015 $ -- $146,872,372
Average interest rate 5.39% 5.64% 5.97% 5.47% 5.71% --% 5.43%
Variable interest
bearing deposits (5) $ 49,154,788 $10,439,583 $10,439,582 $10,439,582 $10,439,582 $14,006,208 $104,919,325
Average interest rate 3.95% 3.56% 3.56% 3.56% 3.56% 3.03% 3.67%
Fixed interest rate
borrowings (6) $ 5,558,566 $ 735,813 $ -- $ -- $ -- $ -- $ 6,294,379
Average interest rate 5.57% 5.51% --% --% --% --% 5.56%
Variable interest rate
borrowings $ 7,481,321 $ -- $ -- $ -- $ -- $ -- $ 7,481,321
Average interest rate 5.29% --% --% --% --% --% 5.29%
</TABLE>
(1) Investment securities are scheduled according to their call dates when
valued at a premium to par.
(2) Information presented on a tax-equivalent basis assuming a tax rate of 34%.
(3) Equity securities have no stated maturity and are, therefore, included
in the "thereafter" column.
(4) Nonaccrual loans are scheduled based upon their contractual maturity dates.
(5) Interest bearing demand, savings and money market deposits that have no
contractual maturities are scheduled according to management's best
estimate of their repricing in response to changes in market rates. The
impact of changes in market rates would be expected to vary by product type
and market.
(6) A FHLB advance, in the amount of $5,000,000, is included in the "2000"
column. This advance is callable in December 2000 and on a quarterly basis
thereafter and matures in 2004.
The above tables do not fully reflect the net market risk exposures of
certain of the Company's interest sensitive instruments due to certain inherent
limitations. These limitations include, but are not limited to, the uncertainty
associated with categorizing many of the Company's instruments that are subject
to prepayment, have amortization or structured payment schedules or are
secured by collateral.
For additional information regarding the interest rates applicable to
certain of the Company's interest sensitive assets and liabilities, see the
discussion of "Results of Operation--Net Interest Income" including the table
entitled "Distribution of Average Assets, Liabilities and Stockholders' Equity
and Interest Rate Information" at page 13, the discussion of "Financial
Condition--Securities" including the table regarding the maturities and weighted
average yields of certain securities at page 19, the discussion of "Financial
Condition--Deposits" including the table regarding average deposits and the
weighted average interest rates paid on such deposits at page 20, the discussion
of "Financial Condition--Borrowings" including the table summarizing certain
information pertaining to short-term borrowings at page 22. For additional
information categorizing certain of the Company's loans as either fixed or
variable, see the discussion of "Financial Condition--Loans" including the table
regarding "Interest Sensitivity" at page 18. For additional information
regarding the fair value of certain of the Company's interest sensitive
instruments, see "Fair Value of Financial Instruments" at Note 16 to the
Consolidated Financial Statements at page F-26.
24
<PAGE> 25
YEAR 2000
West Pointe did not experience any significant problems relating to the
change to the year 2000. Efforts to make changes to systems and the
establishment of certain contingency plans were effective. In addition, external
parties supplying goods or services to West Pointe experienced no significant
problems. As of April 21, 2000, no significant losses were incurred related to
any customer as a direct result of the year 2000 issue. West Pointe intends to
continue to monitor computer date sensitive issues. It is possible, although
management does not consider it likely, that other dates in the year 2000 may
further affect computer software and systems or that a year 2000 problem has not
yet been detected by West Pointe, or third party vendors with which West Pointe
conducts business.
RESULTS OF OPERATIONS FOR INTERIM PERIOD MARCH 31, 2000 COMPARED TO MARCH 31,
1999
RESULTS OF OPERATIONS OVERVIEW
Net income for the three months ended March 31, 2000, was $463,744
compared with $455,646 for the three months ended March 31, 1999, representing a
1.8% increase. Return on average assets on an annualized basis was .59% and .71%
for the three months ended March 31, 2000 and March 31, 1999, respectively.
Return on average equity on an annualized basis was 10.80% and 11.64% for the
three months ended March 31, 2000 and March 31, 1999, respectively. Basic net
income per share for the three months ended March 31, 2000 was $.95 compared to
$1.03 for the three months ended March 31, 1999. Diluted net income per share
for the three months ended March 31, 2000 was $.94 compared to $1.02 for the
three months ended March 31, 1999.
25
<PAGE> 26
The following table reflects selected comparative segments of West Pointe's
results of operations for the interim period March 31, 2000 compared to March
31, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
2000 1999
---------- -----------
<S> <C> <C>
Total interest income (tax-equivalent) $5,668,468 $4,517,005
Total interest expense 3,314,333 2,570,455
---------- -----------
Net interest income 2,354,135 1,946,550
Provision for loan losses 255,000 131,694
Noninterest income:
Service charges on deposits 224,467 191,722
Mortgage banking 64,812 119,132
Trust fees 69,436 73,423
Credit card income 57,696 43,215
Gain on sale of securities, net --- 300
Other 72,550 33,434
---------- -----------
Total 488,961 461,226
---------- -----------
Noninterest expense:
Employee compensation and benefits 1,004,941 815,465
Occupancy, net 118,626 110,729
Furniture and equipment 105,942 76,602
Data processing 87,021 76,549
Advertising 75,593 73,274
Other 576,615 464,435
---------- -----------
Total 1,968,738 1,617,054
---------- -----------
Income before income taxes 619,358 659,028
Less: tax-equivalent adjustment 128,914 126,682
Income tax expense 26,700 76,700
---------- -----------
Net income $ 463,744 $ 455,646
========== ===========
Per share data:
Earnings per share - Basic $ .95 $ 1.03
Earnings per share - Diluted .94 1.02
Dividends paid .17 .16
Book value 35.47 35.54
</TABLE>
NET INTEREST INCOME
Tax-equivalent net interest income for the three months ended March 31,
2000 increased by $407,585 or 20.9% compared to the three months ended March 31,
1999. The increase in tax-equivalent net interest income was principally
attributable to increased volumes of loans and investment securities, partially
offset by the effects of an increase in the volume of interest bearing deposits.
The net interest margin was 3.18% for the three months ended March 31, 2000
compared to 3.25% for the three months ended March 31, 1999.
PROVISION FOR LOAN LOSSES
West Pointe recorded a provision for loan losses of $255,000 for the
three months ended March 31, 2000 compared to $131,694 for the three months
ended March 31, 1999. Net charge-offs for the first three months of 2000 were
$247,959 compared to $134,694 for the first three months of 1999. The increase
in the provision for loan losses for the three month periods compared was
partially the result of a charge-off associated with one specific commercial
credit coupled with overall growth in the loan portfolio.
The allowance for loan losses of $1,694,062 as of March 31, 2000
amounted to .96% of average loans.
26
<PAGE> 27
The following table sets forth information pertaining to West Pointe's
provision for loan losses charged to operations, the activity in and an analysis
of the allowance for loan losses for the three month periods ended March 31,
2000 and March 31, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------- ------------
<S> <C> <C>
Balance at beginning of year $1,687,021 $1,342,000
Loans charged off:
Commercial, financial and 235,686 150,983
agricultural
Real estate:
Commercial -- --
Residential -- 2,037
---------- ----------
Total real estate -- 2,037
---------- ----------
Consumer 12,970 496
Credit cards -- 8,109
---------- ----------
Total charge-offs 248,656 161,625
---------- ----------
Recoveries of loans previously charged off:
Commercial, financial and agricultural -- 5,023
Real estate:
Commercial -- --
Residential -- --
---------- ----------
Total real estate -- --
---------- ----------
Consumer 645 21,883
Credit cards 52 25
---------- ----------
Total recoveries 697 26,931
---------- ----------
Net charge-offs 247,959 134,694
Provision for loan losses 255,000 131,694
---------- ----------
Balance at end of year $1,694,062 $1,339,000
========== ==========
Net loan charge-offs as a percent of
average total loans .14% .09%
</TABLE>
NONINTEREST INCOME
Total noninterest income was $488,961 for the three months ended March
31, 2000 compared with $461,226 for the three months ended March 31, 1999. The
increase resulted primarily from increases in service charges on deposits and
other noninterest income, partially offset by a reduction in income from
mortgage banking operations. The increase in service charges on deposits was
attributable to an increase in the volume of deposit accounts on which service
charges are assessed. The increase in other noninterest income was primarily
attributable to an increase in fee income associated with automated teller
machines. Income from mortgage banking operations decreased primarily due to a
slow down in mortgage banking activities, which was partially the result of a
slightly higher interest rate environment.
NONINTEREST EXPENSE
Total noninterest expense was $1,968,738 for the three months ended
March 31, 2000 compared with $1,617,054 for the three months ended March 31,
1999. The increase was partially attributable to increases in employee
compensation and benefits, which resulted from normal merit increases and staff
additions that were necessary to support growth in West Pointe's operations. In
addition, increases in other noninterest expense, which includes such items as
FDIC insurance premiums, legal and professional fees, postage costs and certain
credit card program expenses also contributed to the increase.
The effective tax rate for the three months ended March 31, 2000 was
5.44% compared to 14.41% for the three months ended March 31, 1999. The decrease
in the effective tax rate was a result of a lower level of income before taxes
coupled with a higher level of tax-exempt income for both Federal and state
purposes.
FINANCIAL CONDITION
Total assets at March 31, 2000 increased to $319,731,952 compared with
$311,754,405 and $264,859,733 at December 31, 1999 and March 31, 1999,
respectively.
27
<PAGE> 28
Certain components of West Pointe's consolidated balance sheet at March
31, 2000 compared with December 31, 1999 and March 31, 1999 are presented in
summary form in the following table.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Total assets $319,731,952 $311,754,405 $264,859,733
Loans 178,019,065 174,192,437 145,173,626
Investments 114,370,670 108,625,911 94,004,480
Deposits 283,822,363 279,142,315 235,277,216
Repurchase agreements 9,704,877 6,938,200 7,077,580
Other borrowings 1,837,500 1,837,500 --
Federal Home Loan Bank advances 5,000,000 5,000,000 5,000,000
Stockholders' equity 17,379,992 16,980,222 15,773,942
</TABLE>
LOANS
Total loans, at March 31, 2000, increased $3,826,628 from December 31,
1999 and $32,845,439 from March 31, 1999. Increased loan demand, particularly in
the residential and commercial real estate categories accounted for the majority
of the increase in total loans at March 31, 2000 compared to March 31, 1999.
The following table presents the composition of the loan portfolio by
type of borrower and major loan category and its percentage of each to the total
portfolio as of March 31, 2000, December 31, 1999 and March 31, 1999.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
2000 1999 1999
------------------------- ------------------------ ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL BORROWERS
Commercial, financial and
agricultural $ 45,573,869 25.6% $ 44,469,418 25.5% $ 42,621,002 29.3%
Commercial real estate 63,487,554 35.7 61,284,167 35.2 47,324,592 32.6
Real estate
construction 10,403,815 5.8 11,074,257 6.4 10,993,427 7.6
------------ ------ ------------ ------ ------------ -------
Total commercial 119,465,238 67.1 116,827,842 67.1 100,939,021 69.5
------------ ------ ------------ ------ ------------ -------
CONSUMER BORROWERS
1-4 family residential
real estate 48,213,593 27.1 47,136,881 27.0 35,193,779 24.3
Other consumer loans 10,340,234 5.8 10,227,714 5.9 9,040,826 6.2
------------ ------ ------------ ------ ------------ -------
Total consumer 58,553,827 32.9 57,364,595 32.9 44,234,605 30.5
------------ ------ ------------ ------ ------------ -------
Total loans $178,019,065 100.0% $174,192,437 100.0% $145,173,626 100.0%
============ ====== ============ ====== ============ =======
</TABLE>
28
<PAGE> 29
SECURITIES
Investment securities at March 31, 2000 increased $5,744,759 from
December 31, 1999 and $20,366,190 from March 31, 1999. The increase in
investment securities at March 31, 2000 occurred as a result of increased
deposits and securities sold under agreements to repurchase.
The following table sets forth the composition of the investment
portfolio as of March 31, 2000, December 31, 1999 and March 31, 1999.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
2000 1999 1999
------------ ------------- -----------
<S> <C> <C> <C>
HELD-TO-MATURITY SECURITIES
Mortgage-backed securities $ 4,296,657 $ 4,513,819 $ 5,424,061
============ ============ ===========
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasuries $ --- $ --- $ 2,116,441
Obligations of U.S. government corporations and agencies 66,090,039 61,089,388 41,107,399
Mortgage-backed securities 7,116,607 7,346,741 7,513,809
Obligations of states and political subdivisions 35,803,361 34,591,644 36,842,070
Equity securities 1,064,006 1,084,319 1,000,700
------------ ------------ -----------
Total available-for sale $110,074,013 $104,112,092 $88,580,419
============ ============ ===========
</TABLE>
DEPOSITS
Total deposits at March 31, 2000, increased $4,680,048 from December
31, 1999 and $48,545,147 from March 31, 1999. The increase from March 31, 1999,
was partially attributable to the addition of a $21 million interest bearing
deposit relationship with a public entity coupled with additional deposits
resulting from West Pointe's continuing sales efforts and competitive pricing.
The following table sets forth the composition of the deposit portfolio
as of March 31, 2000, December 31, 1999 and March 31, 1999.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
2000 1999 1999
---------------------- ----------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ ------- ------------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 25,801,972 9.1% $ 27,350,618 9.8% $ 23,810,257 10.1%
Interest bearing demand deposits 39,962,707 14.1 41,872,811 15.0 17,919,777 7.6
Savings and money market deposits 58,004,815 20.4 55,650,057 19.9 54,690,156 23.3
Time deposits $100,000 or more 46,610,371 16.4 45,906,985 16.5 26,834,550 11.4
Time deposits less than $100,000 113,442,498 40.0 108,361,844 38.8 112,022,476 47.6
------------ ----- ------------ ----- ------------ -----
Total deposits $283,822,363 100.0% $279,142,315 100.0% $235,277,216 100.0%
============ ===== ============ ===== ============ =====
</TABLE>
ASSET QUALITY
At March 31, 2000, nonperforming assets totaled $2,448,210 or .77% of
total assets, compared with nonperforming assets of $2,691,801 or .86% of total
assets at December 31, 1999, and $1,399,672 or .53% of total assets at March 31,
1999. The increase at March 31, 2000 compared to March 31, 1999 is primarily due
to the addition of loans to three commercial borrowers. Management is in various
stages of workout or liquidation of these nonperforming assets.
29
<PAGE> 30
The following table sets forth a summary of nonperforming assets and
related ratios as of March 31, 2000, December 31, 1999 and March 31, 1999.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
2000 1999 1999
----------------- ------------ ------------
<S> <C> <C> <C>
Nonaccrual loans $1,308,949 $1,552,319 $1,131,484
Accruing loans past due
90 days or more 790,469 790,690 116,266
Troubled debt restructurings --- --- ---
----------------- ------------ ------------
Total nonperforming loans 2,099,418 2,343,009 1,247,750
Foreclosed property 348,792 348,792 151,922
----------------- ------------ ------------
Total nonperforming assets $2,448,210 $2,691,801 $1,399,672
================= ============ ============
Nonperforming loans to total loans 1.18% 1.35% .86%
Nonperforming assets to total loans and
foreclosed property 1.37% 1.54% .96%
Nonperforming assets to total assets .77% .86% .53%
</TABLE>
CAPITAL RESOURCES AND ASSET/LIABILITY MANAGEMENT
CAPITAL
Total stockholders' equity increased $399,770 from $16,980,222 at
December 31, 1999 to $17,379,992 at March 31, 2000. Net income for the first
three months of 2000 of $463,744, partially offset by the first quarter 2000
dividend to shareholders primarily contributed to the increase. Proceeds
of approximately $2,820,000 received in connection with a common stock offering
consummated during the last seven months of 1999 contributed to the increase in
stockholders' equity from March 31, 1999. As of March 31, 2000, West Pointe's
Tier 1 capital, Total capital and leverage ratios were 9.58%, 10.39% and 6.31%,
respectively.
ASSET/LIABILITY MANAGEMENT
There have been no material changes to West Pointe's asset/liability
management position or exposure to interest rate sensitivity risk at March 31,
2000 from that disclosed as of December 31, 1999.
RECENT DEVELOPMENTS
The Company anticipates that it will enter an agreement with Raymond
James for the provision of brokerage and insurance services to our customers.
ITEM 3. PROPERTIES.
The Company and the Bank both operate out of the Bank's headquarters
office and three branch offices, all of which are owned with the exception of
one branch office. The following is a brief description of the properties owned
and leased by the Company:
<TABLE>
<CAPTION>
Location Size Description Owned/Leased
-------- ----- ----------- ------------
<S> <C> <C> <C>
Belleville, Illinois 23,500 s.f. Headquarters Owned
Swansea, Illinois 7,200 s.f. Branch Office Owned
Columbia, Illinois 3,000 s.f. Branch Office Leased
Dupo, Illinois 2,900 s.f. Branch Office Owned
Belleville, Illinois 21,700 s.f. Office Space(1) Owned
Belleville, Illinois 18,020 s.f. Branch Office Owned
</TABLE>
(1) The Company intends to use this property for expansion of Bank operations
but is not using the property at this time; part of the property is
currently leased to third parties.
30
<PAGE> 31
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number of shares and percentage of
the Company's common stock held of record as of December 31, 1999 by each of the
directors, the executive officers named in the Summary Compensation Table, and
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------------ -------------------- ----------
<S> <C> <C>
Terry W. Schaefer(1) 7,849 1.59%
Harry E. Cruncleton(2) 27,576 5.57
William C. Allison(3) 6,475 1.31
David G. Embry(4) 28,420 5.74
Jack B. Haydon(5) 7,183 1.45
Charles G. Kurrus, III(6) 8,300 1.68
Edward J. Szewczyk(7) 11,200 2.26
Wayne W. Weeke(8) 17,464 3.53
All executive officers and directors
as a group (12 persons)(9) 116,267 23.49
</TABLE>
(1) Includes 5,224, shares over which Mr. Schaefer has sole beneficial
ownership, 2,125 shares over which Mr. Schaefer has shared beneficial
ownership and options to purchase 500 shares.
(2) Includes 19,563 shares over which Mr. Cruncleton has sole beneficial
ownership, 7,513 shares over which Mr. Cruncleton has shared beneficial
ownership and options to purchase 500 shares.
(3) Includes 3,385 shares over which Mr. Allison has sole beneficial
ownership, 2,890 shares over which Mr. Allison has shared beneficial
ownership and options to purchase 200 shares.
(4) Includes 28,220 shares over which Mr. Embry has sole beneficial
ownership, and options to purchase 200 shares.
(5) Includes 100 shares over which Mr. Haydon has sole beneficial
ownership, 6,883 shares over which Mr. Haydon has shared beneficial
ownership and options to purchase 200 shares.
(6) Includes 7,475 shares over which Mr. Kurrus has sole beneficial
ownership, 625 shares over which Mr. Kurrus has shared beneficial
ownership and options to purchase 200 shares.
(7) Includes 11,000 shares over which Dr. Szewczyk has sole beneficial
ownership and options to purchase 200 shares.
(8) Includes 14,307 shares over which Mr. Weeke has sole beneficial
ownership, 2,957 shares over which Mr. Weeke has shared beneficial
ownership and options to purchase 200 shares.
(9) Includes 90,474 shares over which the executive officers and directors
as a group have sole beneficial ownership, 23,293 shares over which the
executive officers and directors as a group have shared beneficial
ownership and options to purchase 2,500 shares.
31
<PAGE> 32
The following table sets forth certain information about shareholders
who beneficially own 5% or greater of our common stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP(1) CLASS
------------------- -------------------- ----------
<S> <C> <C>
Harry E. Cruncleton 27,576 5.57%
5701 West Main Street
Belleville, Illinois 62226
David G. Embry 28,420 5.74
5701 West Main Street
Belleville, Illinois 62226
</TABLE>
(1) See footnote 2 and 4 to the beneficial ownership table on page 31 for
information concerning the nature of ownership by Messrs. Cruncleton and Embry.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
Eight individuals serve on the Company's board of directors, each of
whom also serve as a director of the Bank.
William C. Allison, 57, has been a director of the Company and the Bank
since their respective formations. He is a certified public accountant and was a
managing partner for the accounting firm of Allison, Knapp and Siekmann located
in Belleville, Illinois. For three years, until 1990, Mr. Allison was a director
of Magna Bank of Belleville.
Harry E. Cruncleton, 75, the Chairman of the Board of Directors and a
director of the Company and the Bank since their respective formations, has been
in the banking business for more than forty years. From 1971 through December,
1989, Mr. Cruncleton was the Chief Executive Officer and a director of Magna
Bank of Belleville. At various times he also held the position of President and
Chairman of the Board of Magna Bank of Belleville. From 1982 until 1989, Mr.
Cruncleton was the Vice Chairman of Magna Group, Inc., a bank holding company.
David G. Embry, 40, has been a director of the Company since its
formation and a director of the Bank since 1993. From 1979 to 1982, Mr. Embry
was President of Embry Air, Inc., an air charter company. He has been involved
in the operations of McDonald's fast food restaurants in Illinois since 1982,
and became a part owner of a franchise in 1989. From 1985 to 1993, Mr. Embry
served as Vice President and Director of Operations of C-Mac, Inc., which owns
and operates McDonald's restaurants. Since 1993, Mr. Embry has held the position
of President of C-Mac, Inc.
Jack B. Haydon, 64, a director of the Company and the Bank since their
respective formations, has been engaged in the construction business for the
past 39 years. Currently, Mr. Haydon is the president of Reese Construction
Company which specializes in road paving. He was a member of the Board of
Directors of Magna Bank of Fairview Heights (1982-1986) and Magna Bank of
Belleville (1986-1990).
Charles G. Kurrus, III, 65, a director of the Company and the Bank
since their respective formations, is a lifetime resident of Belleville,
Illinois and has been President of Kurrus Funeral Home located in Belleville
since 1972. Mr. Kurrus was a director of Mark Twain Bank of Belleville until
1987, and from 1987 to March, 1990, he was a director of Magna Bank of
Belleville.
Terry W. Schaefer, 53, President, Chief Executive Officer and director
of the Company and the Bank since 1990, has been engaged in banking since 1971.
Prior to joining the Company, he was the president of Magna Bank of Belleville.
Mr. Schaefer previously worked for Magna Bank of Belleville in various other
capacities since 1971. He was a director of Magna Bank of Belleville from 1983
until March, 1990. Mr. Schaefer is the son-in-law of Mr. Cruncleton.
32
<PAGE> 33
Edward J. Szewczyk, 71, a director of the Company and the Bank since
their respective formations, is in the private practice of medicine,
specializing in ophthalmology. Dr. Szewczyk was a director of Magna Bank of
Belleville from 1975 to March, 1990.
Wayne W. Weeke, 64, a director of the Company and the Bank since their
respective formations, has been President of Weeke Wholesale Company since 1962.
The Company is a wholesale distributor of candies, tobacco and sundries. From
1975 until March, 1990, Mr. Weeke was a director of Magna Bank of Belleville.
Bruce A. Bone, 45, has been Chief Financial Officer of the Company
since 1999 and Senior Vice President since January 2000. Prior to joining the
Company in 1999, Mr. Bone served as Senior Vice President for Magna Group, Inc.,
subsequently acquired by Union Planters Corporation, from 1994 until 1999. Mr.
Bone served in other capacities for Magna Group, Inc. since 1977.
Robert G. Cady, 52, has served as Senior Vice President and Trust
Officer of the Bank since 1994.
James W. Kuehn, 42, has served as Senior Vice President and Senior
Lending Officer of the Company since 1994.
Albert A. Miller, 59, has served as the Senior Vice President of
Operations of the Bank since 1998. Prior to joining the Company, Mr. Miller was
employed by Boatman's National Bank since 1983.
There are no arrangements or understandings between any of the
directors, executive officers, or any other persons pursuant to which any of the
Company's directors or executive officers have been selected for their
respective positions. Directors of the Company are elected to staggered 3 year
terms. The term of Messrs. Schaefer, Szewczyk and Weeke expires in 2000; the
term of Messrs. Allison and Cruncleton expires in 2001, and the term of Messrs.
Embry, Haydon and Kurrus expires in 2002. Directors of the Bank are elected to
one year terms.
ITEM 6. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
the total remuneration paid to our President and Chief Executive Officer and the
only other executive officer whose compensation exceeded $100,000 in fiscal year
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
COMPENSATION
AWARDS
OTHER SECURITIES ALL
ANNUAL UNDER- OTHER
NAME AND COMPEN- LYING COMPEN-
PRINCIPAL FISCAL SATION OPTIONS SATION
POSITION YEAR SALARY($) BONUS(S) ($)(1) (#) ($)(2)
---------------------- ----------- ------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harry E. Cruncleton 1999 $117,000 $ 9,750 $12,382 2,500 $30,172
Chairman of the Board
Terry W. Schaefer
President and Chief
Executive Officer
and Director 1999 169,000 14,083 12,320 2,500 5,711
</TABLE>
(1) Includes director's fees for Mr. Cruncleton of $8,350 and Mr. Schaefer of
$8,300 and interest on deferred director's fees of $4,032 and $4,020,
respectively
(2) Includes the value of insurance premiums paid by the Company on behalf of
the named individuals.
33
<PAGE> 34
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE ($)(1)
----------------- ------------- -------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Harry E. Cruncleton 2,500 20 % $ 44 January 6, 2009 $31,575
Terry W. Schaefer 2,500 20 44 January 6, 2009 31,575
</TABLE>
(1) The per share fair value of stock options granted in 1999 was estimated
on the date of grant at $12.93 using the Black-Scholes option-pricing
model. The following assumptions were used to determine the per share fair
value of the stock options granted in 1999: dividend yield of 1.3%;
risk-free interest rate of 4.6%; and an estimated life of 7 years. The
Company did not consider the expected volatility of its common stock over
the estimated life of the options granted in 1999 since its common stock
is not traded publicly.
AGGREGATED OPTION EXERCISES IN 1999 AND OPTION VALUES ON DECEMBER 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FY-END (#)(2) FY-END ($)(2)
ACQUIRED ON VALUE
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE
----------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Harry E. Cruncleton -- -- 500/4500 $7,000/$53,000
Terry W. Schaefer -- -- 500/4500 $7,000/$53,000
</TABLE>
DIRECTOR COMPENSATION
The Directors are paid fees of $550 per month, which fees are held
under the Bank's optional fee deferral plan. Directors are also paid fees of
$100 per committee meeting attended, except for the committee meetings held on
the same day as the monthly Board meeting, in which case only a $50 fee per
meeting is paid. Committee fees are also held under the Bank's optional fee
deferral plan. In addition, directors electing to defer fees under the optional
plan are paid interest on such amounts at the rate of 8%, compounded bimonthly.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Terry W. Schaefer, the President and Chief Executive Officer of the
Company, is a member of the Compensation Committee.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Effective January 12, 2000, the Bank entered into an employment
agreement with Harry E. Cruncleton. The agreement provides that Mr. Cruncleton
will be paid an annual base salary to be mutually agreed upon by Mr. Cruncleton
and the Bank. In the event of Mr. Cruncleton's death, the Bank will pay 50% of
his annual base salary to his wife until her death.
The employment agreement also provides that during his employment and
for 15 years thereafter, Mr. Cruncleton will not engage in competition with the
Bank, divert any client from the Bank or solicit a Bank employee or otherwise
engage in conduct adverse to the Bank. In consideration, the Bank will pay Mr.
Cruncleton 50% of his annual base salary, for the calendar year ending prior to
termination of employment, for 15 years following termination of his employment.
34
<PAGE> 35
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
INDEBTEDNESS OF MANAGEMENT
Other than services provided by the Bank as a bank depository of funds
and loans set forth below as of December 31, 1999, all of which were made on
substantially the same terms including interest rates and collateral, as those
prevailing at the time for comparable transactions with other borrowers as
required by banking regulations, neither the Company nor the Bank has entered
into and is not currently engaged in any transactions with any director or
executive officer of the Company or Bank, or relative of the foregoing persons,
except for loans made in the ordinary course of business, on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, and did not involve more
than the normal risk of collectability or present other unfavorable features.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal proceedings
before any court, administrative agency or any tribunal, nor is the Company
aware of any litigation which is threatened against it in any court,
administrative agency, or other tribunal. The Bank is subject to various claims,
lawsuits and administrative proceedings arising in the ordinary course of
business from time to time. Based upon its evaluation of available information,
management does not believe that any pending claims, lawsuits or administrative
proceedings are likely, individually or in the aggregate, to have a material
adverse effect upon the Bank's financial position, results of operations or cash
flows.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Company's common
stock. Accordingly, there is no comprehensive record of trades or the prices of
any such trades. The following table reflects sales prices for the Company's
common stock to the extent such information is available to management of the
Company, and the dividends declared with respect thereto during the preceding
two years.
<TABLE>
<CAPTION>
Cash
2000 High Low Dividends
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter $54 $54 $.17
1999
-------------------------------------------------------------------------------------------------------------------
First Quarter $44 $44 $.16
Second Quarter 54 47 .16
Third Quarter 54 54 .17
Fourth Quarter 54 54 .17
1998
-------------------------------------------------------------------------------------------------------------------
First Quarter $39 $39 $.15
Second Quarter 40 40 .15
Third Quarter 41 41 .15
Fourth Quarter 44 44 .15
1997
-------------------------------------------------------------------------------------------------------------------
First Quarter $34 $34 $.14
Second Quarter 35 35 .14
Third Quarter 36 36 .14
Fourth Quarter 36 36 .14
</TABLE>
The stockholders of the Company's common stock are entitled to
dividends when, as and if declared by the Board of Directors, subject to the
restrictions imposed by law. The FRB generally prohibits a bank holding company
from declaring or paying a cash dividend that would impose undue pressure on the
capital of subsidiary banks or would be funded only through borrowing or other
arrangements that might adversely affect a bank holding company's financial
position. The FRB's policy is that a bank holding company should not initiate or
continue cash
35
<PAGE> 36
dividends on its common stock unless its net income is sufficient to fully fund
each dividend and its prospective rate of earnings retention appears consistent
with its capital needs, asset quality and overall financial condition. A bank
holding company is expected to act as a source of financial strength for each of
its subsidiary banks and to commit resources to support its banks in
circumstances when it might not do so absence such policy. There are no
contractual restrictions that currently limit the Company's ability to pay
dividends or that the Company reasonably believes are likely to limit materially
the future payment of dividends on the Company's common stock. See "Supervision
and Regulation--Dividend Restrictions"
There are currently options to purchase 39,000 shares of Company's
common stock outstanding.
As of April 11, 2000 we had 575 record holders of Company common stock.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On June 5, 1997, the Company submitted a Regulation A Offering
Statement on Form 1-A to the Securities and Exchange Commission, relating to the
offer and sale of 140,000 shares of the Company's common stock. The aggregate
offering price for such shares was $5,040,000. The offering was concluded on or
about December 31, 1997.
On April 29, 1999 the Company submitted a Regulation A Offering
Statement on Form 1-A to the Securities and Exchange Commission, relating to the
offer and sale of 80,000 shares of the Company's common stock. The aggregate
offering price for such shares was $4,320,000. The offering was concluded on or
about December 31, 1999.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
GENERAL
The authorized capital stock of the Company consists of 1,000,000
shares of common stock, par value $1.00 per share and 50,000 shares of preferred
stock, par value of $1.00 per share. At December 31, 1999, there were 496,169
shares of common stock issued and 489,919 shares of common stock outstanding.
All of the outstanding shares of common stock are validly issued, fully paid and
nonassessable.
COMMON STOCK
Dividends. The payment of dividends by the Company is subject to
limitations which are imposed by law and applicable regulation. The holders of
common stock of the Company will be entitled to receive and share equally in
such dividends as may be declared by the Board of Directors of the Company out
of funds legally available therefor. If the Company issues preferred stock, the
holders thereof may have a priority over the holders of the common stock with
respect to dividends.
Voting Rights. The holders of common stock of the Company possess
exclusive voting rights in the Company. They elect the Company's Board of
Directors and act on such other matters as are required to be presented to them
under Illinois law or as are otherwise presented to them by the Board of
Directors. Each holder of common stock is entitled to one vote per share and
does not have any right to accumulate votes in the election of directors. If the
Company issues preferred stock, holders of the Company preferred stock may also
possess voting rights greater than those of the common stock.
As an Illinois bank, corporate powers and control of the Bank are
vested in its Board of Directors, who elect the officers of the Bank and who
fill any vacancies on the Board of Directors. Voting rights are vested
exclusively in the owners of the shares of capital stock of the Bank, all of
which are owned by the Company, and voted at the direction of the Company's
Board of Directors. Consequently, the holders of the common stock do not have
direct control of the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Bank, the Company, as holder of the Bank's capital stock, would be
entitled to receive, after payment or provision for payment of all debts
36
<PAGE> 37
and liabilities of the Bank, all assets of the Bank available for distribution.
In the event of liquidation, dissolution or winding up of the Company, the
holders of its common stock would be entitled to receive, after payment or
provision for payment of all its debts and liabilities, all of the assets of the
Company available for distribution. If Company preferred stock is issued, the
holders thereof may have a priority over the holders of the common stock in the
event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of the
Company are not entitled to preemptive rights with respect to any shares which
may be issued. The common stock is not subject to redemption.
PREFERRED STOCK
None of the shares of the authorized Company preferred stock are
outstanding and there are no plans to issue the preferred stock. Such stock may
be issued with such designations, powers, preferences and rights as the Board of
Directors may from time to time determine. The Board of Directors can, without
shareholder approval, issue preferred stock with voting, dividend, liquidation
and conversion rights which could dilute the voting strength of the holders of
the common stock and may assist management in impeding an unfriendly takeover or
attempted change in control.
CERTAIN ANTI-TAKEOVER PROVISIONS IN THE COMPANY'S ARTICLES
OF INCORPORATION AND BYLAWS
A number of provisions of the Company's Articles of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
shareholders. The following discussion is a general summary of certain
provisions of the Company's Articles of Incorporation and Bylaws and regulatory
provisions relating to stock ownership and transfers, the Board of Directors and
business combinations, which might be deemed to have a potential "anti-takeover"
effect. These provisions may have the effect of discouraging a future takeover
attempt which is not approved by the Board of Directors but which individual
Company shareholders may deem to be in their best interests or in which
shareholders may receive a substantial premium for their shares over then
current market prices. As a result, shareholders who might desire to participate
in such a transaction may not have an opportunity to do so. Such provisions will
also render the removal of incumbent Board of Directors or management of the
Company more difficult. The following description of certain of the provisions
of the Articles of Incorporation and Bylaws of the Company is necessarily
general, and reference should be made in each case to such Articles of
Incorporation and Bylaws, which are incorporated herein by reference.
BOARD OF DIRECTORS
The Board of Directors of the Company is divided into three classes,
each of which shall contain approximately one-third of the whole number of the
members of the Board. The members of each class shall be elected for a term of
three years, with the terms of office of all members of one class expiring each
year so that approximately one-third of the total number of directors are
elected each year. The Company's Articles of Incorporation provide that the size
of the Board shall be as set forth in the Bylaws. The Bylaws currently set the
number of directors at between six and fifteen. The Articles of Incorporation
provide that any vacancy occurring in the Board, including a vacancy created by
an increase in the number of directors, shall be filled by a vote of two-thirds
of the directors then in office and any director so chosen shall hold office for
a term expiring at the annual meeting of shareholders at which the term of the
class to which the director has been chosen expires. The classified Board is
intended to provide for continuity of the Board of Directors and to make it more
difficult and time consuming for a shareholder group to fully use its voting
power to gain control of the Board of Directors without the consent of the
incumbent Board of Directors of the Company. The Articles of Incorporation of
the Company provide that a director may be removed from the Board of Directors
prior to the expiration of his term only for cause, which is defined as (i)
commission of fraud or dishonesty against the Company, (ii) breach of the duty
of loyalty to the Company, (iii) entering a plea of guilty or nolo contendre in
a criminal proceeding, or (iv) willful conduct involving a third party which
significantly impairs the reputation of, or harms, the Company, and only upon
the vote of 80% of the outstanding shares of voting stock. In the absence of
this provision, the vote of the holders of a majority of the shares could remove
the entire Board, but only with cause, and replace it with persons of such
holders' choice.
37
<PAGE> 38
CUMULATIVE VOTING, SPECIAL MEETINGS AND ACTION BY WRITTEN CONSENT
The Articles of Incorporation do not provide for cumulative voting for
any purpose. Moreover, the Articles of Incorporation provide that special
meetings of shareholders of the Company may be called only by the Board of
Directors of the Company and that shareholders may take action only at a meeting
and not by written consent.
AUTHORIZED SHARES
The Articles of Incorporation authorize the issuance of 1,000,000
shares of common stock and 50,000 shares of preferred stock. The authorized but
unissued shares of common stock and preferred stock provide the Company's Board
of Directors with flexibility to effect, among other transactions, financings,
acquisitions, stock dividends, and stock splits. However, these additional
authorized shares may also be used by the Board of Directors consistent with its
fiduciary duty to deter future attempts to gain control of the Company. The
Board of Directors also has sole authority to determine the terms of any one or
more series of preferred stock, including voting rights, conversion rates, and
liquidation preferences. As a result of the ability to fix voting rights for a
series of preferred stock, the Board has the power to the extent consistent with
its fiduciary duty to issue a series of preferred stock to persons friendly to
management in order to attempt to block a tender offer, merger or other
transaction by which a third party seeks control of the Company, and thereby
assist members of management to retain their positions. The Company's Board
currently has no plans for the issuance of additional shares of preferred stock.
SHAREHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
SHAREHOLDERS
The Articles of Incorporation require the approval of the holders of at
least 80% of the Company's outstanding shares of voting stock to approve certain
"Business Combinations" (as defined therein) involving a "Related Person" (as
defined therein) except in cases where the proposed transaction has been
approved in advance by a majority of those members of the Company's Board of
Directors who are unaffiliated with the Related Person and were directors prior
to the time when the Related Person became a Related Person. The term "Related
Person" is defined to include any individual, corporation, partnership or other
entity (other than the Company or its subsidiary) which owns beneficially or
controls, directly or indirectly, 10% or more of the outstanding shares of
voting stock of the Company or an affiliate of such person or entity. This
provision of the Articles of Incorporation applies to any "Business
Combination," which is defined to include: (i) any merger or consolidation of
the Company with or into any Related Person; (ii) any sale, lease, exchange,
mortgage, transfer, or other disposition of 25% or more of the assets of the
Company or combined assets of the Company and its subsidiaries to a Related
Person; (iii) any merger or consolidation of a Related Person with or into the
Company or a subsidiary of the Company; (iv) any sale, lease, exchange,
transfer, or other disposition of 25% or more of the assets of a Related Person
to the Company or a subsidiary of the Company; (v) the issuance of any
securities of the Company or a subsidiary of the Company to a Related Person;
(vi) the acquisition by the Company or a subsidiary of the Company of any
securities of a Related Person; (vii) any reclassification of common stock of
the Company or any recapitalization involving the common stock of the Company;
or (viii) any agreement or other arrangement providing for any of the foregoing.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
Amendments to the Company's Articles of Incorporation must be approved
by a majority vote of its Board of Directors and also by a majority of the
outstanding shares of its voting stock, provided, however, that an affirmative
vote of at least 80% of the outstanding voting stock entitled to vote (after
giving effect to the provision limiting voting rights) is required to amend or
repeal certain provisions of the Articles of Incorporation, including the
provision limiting voting rights, the provisions relating to approval of certain
business combinations, calling special meetings, the number and classification
of directors, director and officer indemnification by the Company and amendment
of the Company's Bylaws and Articles of Incorporation. The Company's Bylaws may
be amended by its Board of Directors, or by a vote of 80% of the total votes
eligible to be voted at a duly constituted meeting of shareholders.
SHAREHOLDER NOMINATIONS AND PROPOSALS
The Articles of Incorporation of the Company require a shareholder who
intends to nominate a candidate for election to the Board of Directors or to
raise new business at a shareholder meeting to give notice of not less
38
<PAGE> 39
than 30 nor more than 60 days' prior to such meeting to the Secretary of the
Company. The notice provision requires a shareholder who desires to raise new
business to provide certain information to the Company concerning the nature of
the new business, the shareholder and the shareholder's interest in the business
matter. Similarly, a shareholder wishing to nominate any person for election as
a director must provide the Company with certain information concerning the
nominee and the proposing shareholder.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
The Board of Directors of the Company believes that the provisions
described above are prudent and will reduce the Company's vulnerability to
takeover attempts and certain other transactions which have not been negotiated
with and approved by its Board of Directors. The Board of Directors believes
these provisions are in the best interest of the Bank and the Company and its
shareholders. In the judgment of the Board of Directors, the Company's Board
will be in the best position to determine the true value of the Company and to
negotiate more effectively for what may be in the best interest of its
shareholders. Accordingly, the Board of Directors believes that it is in the
best interest of the Company and its shareholders to encourage potential
acquirors to negotiate directly with the Board of Directors of the Company and
that these provisions will encourage such negotiations and discourage hostile
takeover attempts. It is also the view of the Board of Directors that these
provisions should not discourage persons from proposing a merger or other
transaction at a price reflective of the true value of the Company and which is
in the best interest of all shareholders.
Any takeover attempts which have not been negotiated with and approved
by the Board of Directors present to shareholders the risk of a takeover on
terms which may be less favorable than might otherwise be available. A
transaction which is negotiated and approved by the Board of Directors, on the
other hand, can be carefully planned and undertaken at an opportune time in
order to obtain maximum value of the Company for its shareholders, with due
consideration given to matters such as the management and business of the
acquiring corporation and maximum strategic development of the Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at an attractive price, such offers are
sometimes made for less than all of the outstanding shares of a target company.
As a result, shareholders may be presented with the alternative of partially
liquidating their investment at a time that may be disadvantageous, or retaining
their investment in an enterprise which is under different management and whose
objective may not be similar to those of the remaining shareholders.
Despite the belief of the Company as to the benefits to shareholders of
these provisions of the Company's Articles of Incorporation and Bylaws, these
provisions may also have the effect of discouraging a future takeover attempt
which would not be approved by the Company's Board, but pursuant to which
shareholders may receive a substantial premium for their shares. As a result,
shareholders who might desire to participate in such a transaction may not have
any opportunity to do so. Such provisions will also render the removal of the
Company's Board of Directors and of management more difficult. The Board of
Directors of the Company, however, has concluded that the potential benefits
outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
shareholders, the Company may adopt additional charter provisions regarding the
acquisition of its equity securities that would be permitted for an Illinois
business corporation. The Company does not presently intend to propose the
adoption of further restrictions on the acquisition of the Company's equity
securities.
The cumulative effect of the restrictions on acquisition of stock of
the Company contained in the Articles of Incorporation and Bylaws of the
Company, federal law and Illinois law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain shareholders
of the Company may deem a potential acquisition to be in their best interests,
or deem existing management not to be acting in their best interests.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 5/8.75 of the Illinois Business Corporation Act, the
Company may indemnify any person who was or is a party, or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal or administrative or investigative (other than an action
by or in the right of the corporation) by reasons of the fact the he or she is
or was a director or officer of the Company incurred in
39
<PAGE> 40
connection with such action, suit or proceeding, if such officer of director
acted in good faith and in a manner he or she reasonably believed to be in the
best interests of the Company, and, with respect to any criminal action, had no
reasonable cause to believe his or her conduct was unlawful, except that no
indemnification shall be made with respect to any claim as to which such persons
has been adjudged to have been liable to the Company.
In addition, the Company's Articles of Incorporation provide that a
director of the Company shall not be personally liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except: (i) for any breach of the director's duty of loyalty to the Corporation
or its shareholders, (ii) for acts or omissions not made in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 8.65 of the Illinois Business Corporation Act, or (iv) for any
transaction from which a director derived an improper personal benefit. If the
Illinois Business Corporation Act is amended after the date of filing of these
Articles to further eliminate or limit the personal liability of directors, then
the liability of a director of the Company shall be eliminated or limited to the
fullest extent permitted by the Illinois Business Corporation Act, as so
amended.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the Consolidated Financial Statements, the report
thereon, and the notes thereto, commencing at Page F-1 of this Form 10, which
financial statements, report and notes and data are incorporated herein by
reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
40
<PAGE> 41
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
Independent Auditors' Report
<TABLE>
<CAPTION>
CONTENTS
-------------------------------------------------------------------------------------------------
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT..................................................................F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets...............................................................F-2
Consolidated Statements Of Income.........................................................F-3
Consolidated Statements Of Comprehensive Income...........................................F-4
Consolidated Statements Of Stockholders' Equity...........................................F-5
Consolidated Statements Of Cash Flows..... ..............................................F-6
Notes To Consolidated Financial Statements...........................................F-7 - 31
Interim Consolidated Balance Sheets......................................................F-32
Interim Consolidated Statements of Income................................................F-33
Interim Consolidated Statements of Comprehensive Income..................................F-34
Interim Consolidated Statements of Stockholders Equity...................................F-35
Interim Consolidated Statements of Cash Flows............................................F-36
</TABLE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C> <C>
3.1 Articles of Incorporation of the Company. . . . . .. . . . . . . . . A-1*
3.2 Bylaws of the Company . . . . . . . . . . . . . . . . . . . . . . . . A-15*
10.1 West Pointe Bancorp, Inc. 1998 Stock Option Plan. . . . . . . . . . . A-23*
10.2 Split Dollar Agreement. . . . . . . . . . . . . . . . . . . . . . . . A-31*
10.3 Employment Agreement between the Bank and Harry E. Cruncleton . . . . A-42*
10.4 Deferred Directors' Fee Program . . . . . . . . . . . . . . . . . . . A-49*
11 Statement re: Computation of Per Share Earnings . . . . . . . . . . . A-63*
21.1 Subsidiary of the Company . . . . . . . . . . . . . . . . . . . . . . A-65*
27.1 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . A-66*
27.2 Financial Data Schedule. . . . . . . . . . . . . . . . . . . . . . . A-67*
</TABLE>
*Previously filed
41
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
West Pointe Bancorp, Inc.
By /s/ Terry W. Schaefer
-----------------------------
Terry W. Schaefer,
June 26, 2000 Director, President
42
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C> <C>
3.1 Articles of Incorporation of the Company. . . . . . . . . . . . . . . A-1*
3.2 Bylaws of the Company . . . . . . . . . . . . . . . . . . . . . . . . A-15*
10.1 West Pointe Bancorp, Inc. 1998 Stock Option Plan. . . . . . . . . . . A-23*
10.2 Split Dollar Agreement. . . . . . . . . . . . . . . . . . . . . . . . A-31*
10.3 Employment Agreement between the Bank and Harry E. Cruncleton . . . . A-42*
10.4 Deferred Directors' Fee Program . . . . . . . . . . . . . . . . . . . A-49*
11 Statement re: Computation of Per Share Earnings . . . . . . . . . . . A-63*
21.1 Subsidiary of the Company . . . . . . . . . . . . . . . . . . . . . . A-65*
27.1 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . A-66*
27.2 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . A-67*
</TABLE>
*Previously filed
<PAGE> 44
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
Board of Directors
West Pointe Bancorp, Inc.
Belleville, Illinois
We have audited the accompanying consolidated balance sheets of West Pointe
Bancorp, Inc. and subsidiary ("the Company") as of December 31, 1999 and 1998,
and the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for the three years ended December 31, 1999.
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of West Pointe Bancorp,
Inc. and subsidiary as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the three year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
RUBIN, BROWN, GORNSTEIN & CO. LLP
St. Louis, Missouri
January 20, 2000
<PAGE> 46
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
-----------------------------------
1999 1998
-----------------------------------
<S> <C> <C>
Cash and due from banks $ 12,065,796 $ 7,992,521
Federal funds sold 3,600,000 9,500,000
Interest bearing due from banks 408,261 1,046,741
Time certificates of deposit 267,170 357,951
Investment securities:
Held-to-maturity (fair value of $4,450,592 and $5,788,703
at December 31, 1999 and 1998, respectively) 4,513,819 5,767,250
Available-for-sale, at fair value (cost of $108,173,137 and
$76,985,025 at December 31, 1999 and 1998, respectively) 104,112,092 77,759,108
Loans 174,192,437 140,582,015
Allowance for loan losses (1,687,021) (1,342,000)
----------------------------------
Net loans 172,505,416 139,240,015
Accrued interest receivable 2,102,319 1,696,527
Real estate acquired by foreclosure 348,792 151,922
Bank premises and equipment 8,862,171 6,319,178
Income taxes receivable 124,753 --
Deferred tax asset, net 2,038,178 102,156
Other assets 805,638 648,926
------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 311,754,405 $ 250,582,295
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing $ 27,350,618 $ 25,760,540
Interest bearing 251,791,697 197,526,556
-----------------------------------
Total deposits 279,142,315 223,287,096
Securities sold under agreements to repurchase 6,938,200 4,959,702
Other borrowings 1,837,500 --
Federal Home Loan Bank advances 5,000,000 5,000,000
Accrued interest payable 1,137,399 1,007,106
Income taxes payable -- 25,505
Other liabilities 718,769 595,376
------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 294,774,183 234,874,785
------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value - 50,000 shares authorized;
none issued or outstanding at December 31, 1999 or 1998 -- --
Common stock, $1 par value - 1,000,000 shares authorized; 496,169 and
442,768 shares issued at December 31, 1999 and 1998, respectively 496,169 442,768
Surplus 12,749,474 9,974,682
Retained earnings 6,589,927 4,810,129
Treasury stock, 6,250 shares at cost (337,500) --
Accumulated other comprehensive income (loss) (2,517,848) 479,931
------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 16,980,222 15,707,510
------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 311,754,405 $ 250,582,295
========================================================================================================================
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F 2
<PAGE> 47
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
INTEREST AND FEE INCOME
Interest and fees on loans $ 13,430,674 $ 11,538,546 $ 9,390,141
Interest on U.S. Treasuries and agencies 3,856,155 2,823,683 1,711,971
Interest on state and municipal obligations 1,595,203 863,446 340,648
Interest on federal funds sold 252,615 371,254 163,161
Interest on deposits with banks 85,270 45,005 12,910
------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST AND FEE INCOME 19,219,917 15,641,934 11,618,831
------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
NOW, money market and savings deposits 2,544,418 2,048,062 1,549,811
Certificates of deposit 7,744,850 6,420,434 4,416,948
Securities sold under agreements to repurchase 320,261 180,395 36,097
Other borrowings 12,562 15,169 22,751
Federal Home Loan Bank advances 254,621 132,804 --
------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 10,876,712 8,796,864 6,025,607
------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 8,343,205 6,845,070 5,593,224
PROVISION FOR LOAN LOSSES 1,017,870 646,623 509,277
------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,325,335 6,198,447 5,083,947
------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposits 821,725 626,351 542,015
Mortgage banking 411,953 411,301 256,115
Trust fees 309,718 203,338 151,121
Credit card income 223,645 161,076 182,986
Gain on sale of securities, net 26,378 180,515 5,436
Other 193,376 142,405 146,188
------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 1,986,795 1,724,986 1,283,861
------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Employee compensation and other benefits 3,510,251 2,966,405 2,426,029
Occupancy, net 410,158 384,018 293,941
Furniture and equipment 365,957 301,569 227,072
Data processing 323,011 291,621 246,804
Advertising 280,948 253,325 157,936
Other 1,978,030 1,544,364 1,371,317
------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSES 6,868,355 5,741,302 4,723,099
------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,443,775 2,182,131 1,644,709
INCOME TAX EXPENSE 354,100 489,650 502,500
------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,089,675 $ 1,692,481 $ 1,142,209
========================================================================================================================
EARNINGS PER SHARE - BASIC $ 4.50 $ 3.83 $ 3.14
========================================================================================================================
EARNINGS PER SHARE - DILUTED $ 4.47 $ 3.82 $ 3.14
========================================================================================================================
</TABLE>
--------------------------------------------------------------------------------
See the accompanying notes to consolidated financial statements. F 3
<PAGE> 48
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 2,089,675 $ 1,692,481 $ 1,142,209
--------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains (losses) on securities
available for sale (net of income tax credits of
$1,833,524 for 1999 and income taxes of $292,262
and $77,967 for 1998 and 1997, respectively) (2,975,226) 476,848 127,214
Less adjustment for realized gains
included in net income (net of income
taxes of $3,825, $40,435 and $1,663 for
1999, 1998 and 1997, respectively) (22,553) (140,080) (3,773)
--------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME(LOSS) (2,997,779) 336,768 123,441
--------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ (908,104) $ 2,029,249 $ 1,265,650
==========================================================================================================================
</TABLE>
--------------------------------------------------------------------------------
See the accompanying notes to consolidated financial statements. F 4
<PAGE> 49
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------------------------------
SHARES AMOUNT SHARES AMOUNT SURPLUS
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1997 -- $ -- 350,000 $ 2,800,000 $ 4,276,118
POOLING OF INTERESTS -- -- -- (2,450,000) 2,450,000
ISSUANCE OF COMMON STOCK -- -- 89,560 89,560 3,134,621
DIVIDENDS PAID -- -- -- -- --
NET INCOME -- -- -- -- --
OTHER COMPREHENSIVE INCOME -- -- -- -- --
-----------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1997 -- -- 439,560 439,560 9,860,739
ISSUANCE OF COMMON STOCK -- -- 3,208 3,208 113,943
DIVIDENDS PAID -- -- -- -- --
NET INCOME -- -- -- -- --
OTHER COMPREHENSIVE INCOME -- -- -- -- --
-----------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1998 -- -- 442,768 442,768 9,974,682
ISSUANCE OF COMMON STOCK -- -- 53,401 53,401 2,774,792
DIVIDENDS PAID -- -- -- -- --
PURCHASE OF TREASURY STOCK -- -- -- -- --
NET INCOME -- -- -- -- --
OTHER COMPREHENSIVE LOSS -- -- -- -- --
-----------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1999 -- $ -- 496,169 $ 496,169 $ 12,749,474
=====================================================================================================
<CAPTION>
ACCUMULATED
TREASURY STOCK 0THER TOTAL
RETAINED ----------------------- COMPREHENSIVE STOCKHOLDERS'
EARNINGS SHARES AMOUNT INCOME (LOSS) EQUITY
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1997 $ 2,447,634 -- $ -- $ 19,722 $ 9,543,474
POOLING OF INTERESTS -- -- -- -- --
ISSUANCE OF COMMON STOCK -- -- -- -- 3,224,181
DIVIDENDS PAID (206,601) -- -- -- (206,601)
NET INCOME 1,142,209 -- -- -- 1,142,209
OTHER COMPREHENSIVE INCOME -- -- -- 123,441 123,441
----------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1997 3,383,242 -- -- 143,163 13,826,704
ISSUANCE OF COMMON STOCK -- -- -- -- 117,151
DIVIDENDS PAID (265,594) -- -- -- (265,594)
NET INCOME 1,692,481 -- -- -- 1,692,481
OTHER COMPREHENSIVE INCOME -- -- -- 336,768 336,768
----------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1998 4,810,129 -- -- 479,931 15,707,510
ISSUANCE OF COMMON STOCK -- -- -- -- 2,828,193
DIVIDENDS PAID (309,877) -- -- -- (309,877)
PURCHASE OF TREASURY STOCK -- 6,250 (337,500) -- (337,500)
NET INCOME 2,089,675 -- -- -- 2,089,675
OTHER COMPREHENSIVE LOSS -- -- -- (2,997,779) (2,997,779)
----------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1999 $ 6,589,927 6,250 $(337,500) $ (2,517,848) $16,980,222
================================================================================================================
</TABLE>
--------------------------------------------------------------------------------
See the accompanying notes to consolidated financial statements. F 5
<PAGE> 50
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,089,675 $ 1,692,481 $ 1,142,209
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization:
Bank premises and equipment 346,182 301,183 248,801
Discounts and premiums (251,776) 11,392 (80,984)
Increase in accrued interest receivable (405,792) (501,274) (187,144)
Increase in accrued interest payable 130,293 300,081 63,675
Increase (decrease) in income taxes, net (248,931) 37,650 (231,213)
Gain on sale of investment securities, net (26,378) (180,515) (5,436)
Provision for loan losses 1,017,870 646,623 509,277
Net change in other assets and other liabilities (33,319) 114,575 (249,835)
-------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,617,824 2,422,196 1,209,350
-------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in time certificates of deposit 90,781 (49,897) (158,054)
Principal repayments on investment securities 2,342,463 1,440,914 782,372
Sales of investment securities available for sale 7,442,659 10,906,445 8,975,651
Maturities of investment securities available for sale 13,627,000 27,679,545 12,766,500
Maturities of investment securities held to maturity -- -- 1,750,000
Purchases of investment securities available for sale (53,068,649) (77,740,414) (35,701,243)
Net increase in loans (34,683,694) (22,557,619) (32,710,124)
Sales of real estate acquired by foreclosure 203,553 -- 409,282
Purchases of bank premises and equipment (2,889,175) (1,171,092) (902,715)
-------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (66,935,062) (61,492,118) (44,788,331)
-------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in noninterest bearing deposits 1,590,078 3,097,621 7,050,420
Net increase in interest bearing deposits 54,265,141 52,302,658 38,239,744
Net increase in securities sold under agreements to repurchase 1,978,498 3,243,833 988,675
Increase in other borrowings 1,837,500 -- --
Proceeds from FHLB advances 5,000,000 5,000,000 --
Repayments of FHLB advances (5,000,000) -- --
Proceeds from issuance of common stock 2,828,193 117,151 3,224,181
Purchase of treasury stock (337,500) -- --
Dividends paid (309,877) (265,594) (206,601)
-------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 61,852,033 63,495,669 49,296,419
-------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,465,205) 4,425,747 5,717,438
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 18,539,262 14,113,515 8,396,077
-------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 16,074,057 $ 18,539,262 $ 14,113,515
=========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 10,746,419 $ 8,496,784 $ 5,961,932
Income taxes paid 601,183 452,000 733,711
Noncash investing and financing activities:
Noncash transfer of loans to real estate acquired by foreclosure 408,883 148,369 12,385
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
See the accompanying notes to consolidated financial statements. F 6
<PAGE> 51
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
West Pointe Bancorp, Inc. ("the Parent Company"), an Illinois
corporation, was organized in 1997 under the Illinois Business
Corporation Act of 1983, as amended, to be a bank holding company under
the Illinois Bank Holding Company Act of 1957, as amended, and the
federal Bank Holding Company Act of 1956, as amended. During 1997, the
Parent Company acquired West Pointe Bank And Trust Company (the "Bank")
in a business combination accounted for as a pooling of interests. The
Bank became a wholly-owned subsidiary of the Parent Company through the
exchange of 350,000 shares of the Parent Company's common stock for all
of the outstanding stock of the Bank. The pooling of interests resulted
in a transfer of $2,450,000 from common stock to surplus which
represents the $7.00 difference between the Parent Company's par value
of its common stock and that of the Bank's par value. The accompanying
consolidated financial statements for 1997 are based on the assumption
that the companies were combined for the full year.
The Bank is an Illinois banking organization which operates from four
community banking locations in Illinois. The Bank provides a full range
of banking services to individual and corporate customers in the St.
Louis, Missouri metropolitan area. The Bank is subject to intense
competition from other financial institutions. The Bank also is subject
to the regulations of certain federal and state agencies and undergoes
periodic examination by those regulatory authorities.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures About Segments of an Enterprise and Related Information",
which requires business segments to be reported based on the way
management organizes segments within an organization for making
operating decisions and assessing performance. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997.
Management has not included disclosures regarding specific segments
since management makes operating decisions and assesses performance
based on West Pointe Bancorp, Inc. and subsidiary ("the Company") as a
whole.
--------------------------------------------------------------------------------
F 7
<PAGE> 52
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
GENERAL
The accounting policies of the Company conform to general industry
practices and are based on generally accepted accounting principles.
The Company reports its income on the accrual basis for both financial
statement and income tax purposes.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Parent Company and its 100%-owned subsidiary, the Bank. All
intercompany balances have been eliminated in consolidation.
ACCOUNTING RECLASSIFICATIONS
Certain 1998 and 1997 amounts have been reclassified where appropriate
to conform to the consolidated financial statement presentation used in
1999.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. SFAS No.
130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements, and requires an enterprise to (a) classify
items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a balance sheet. The Company
adopted the provisions of SFAS No. 130 as of December 31, 1998 and now
reports comprehensive income on a separate statement. Application of
SFAS No. 130 did not impact amounts previously reported for net income
or affect the comparability of previously issued financial statements.
--------------------------------------------------------------------------------
F 8
<PAGE> 53
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, noninterest
earning and interest earning demand amounts due from banks and federal
funds sold are considered to be cash equivalents
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires that the estimated fair value of the Company's financial
instruments be disclosed. Fair value estimates of financial instruments
are made at a specific point in time, based on relevant market
information and information about the financial instruments. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the entire holdings or a significant
portion of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, some
fair value estimates are subjective in nature and involve uncertainties
and matters of significant judgment. Changes in assumptions could
significantly affect these estimates. Fair value estimates are
presented for existing on-balance-sheet and off-balance-sheet financial
instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have
a significant effect on fair value estimates and have not been
considered in any of the estimates.
INVESTMENT SECURITIES
The Company classifies its investment securities as either available
for sale or held to maturity.
Held-to-maturity securities are those debt securities in which the
Company has the ability and intent to hold until maturity. All other
debt securities not included in held-to-maturity and all equity
securities are classified as available for sale.
Available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization of premiums or discounts. Unrealized gains and
losses, net of the related tax effect, on available-for-sale securities
are excluded from earnings and reported as other comprehensive income.
A decline in the market value of any security below cost that is deemed
to be "other than temporary" results in a charge to earnings and the
establishment of a new cost basis for the security.
--------------------------------------------------------------------------------
F 9
<PAGE> 54
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Premiums and discounts are amortized over the lives of the respective
securities as an adjustment to yield using a method which approximates
level yield. Dividend and interest income are recognized when earned.
Realized gains and losses are included in earnings and are derived
using the specific-identification method for determining the cost of
securities sold.
MORTGAGE LOANS HELD FOR SALE
The Company originates certain loans which are to be sold in the
secondary mortgage market. Mortgage loans held for sale are carried at
the lower of aggregate cost or market value.
LOANS HELD FOR INVESTMENT
Loans held for investment are carried at cost, as management has
determined the Company has the ability to hold them to maturity and
because it is management's intention to hold loans receivable for the
foreseeable future. Interest is credited to income as earned; however,
interest receivable is accrued only if deemed collectible. Loans are
placed on nonaccrual status when management believes that the
borrower's financial condition, after consideration of economic
conditions and collection efforts, is such that collection of principal
and/or interest is doubtful. Payments received on nonaccrual loans are
recorded as principal reductions. A loan remains on nonaccrual status
until the loan is current as to payment of both principal and interest
and management determines that the financial condition of the borrower
has improved to the extent that both principal and interest are deemed
collectible.
A loan is considered impaired when it is probable the Company will be
unable to collect all amounts due, both principal and interest,
according to the contractual terms of the loan agreement. When
measuring impairment, the expected future cash flows of an impaired
loan are discounted at the loan's effective interest rate.
Alternatively, impairment can be measured by reference to an observable
market price, if one exists, or the fair value of the collateral for a
collateral-dependent loan. Regardless of the historical measurement
method used, the Company measures impairment based on the fair value of
the collateral when it determines foreclosure is probable.
Additionally, impairment of loans for which terms have been modified in
a troubled-debt restructuring is measured by discounting the total
expected future cash flows at the loan's effective rate of interest as
stated in the original loan agreement.
--------------------------------------------------------------------------------
F 10
<PAGE> 55
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
The Company applies the recognition criteria for impaired loans to
restructured loans and all non-accrual multi-family residential loans,
commercial real estate loans and commercial loans. Smaller balance,
homogeneous loans, including one-to-four family residential loans and
consumer loans, are collectively evaluated for impairment. Interest
income on impaired loans is recognized on a cash basis.
ALLOWANCE FOR LOAN LOSSES
The balance in the allowance is at a level considered adequate to
provide for potential loan losses based on management's evaluation of
the anticipated impact on the loan portfolio of current economic
conditions, changes in the character and size of the portfolio, past
and expected future loss experience of similar banks and other
pertinent factors. Credits deemed uncollectible are charged to the
allowance. Provisions for credit losses and recoveries on loans
previously charged off are added to the allowance. Regulatory agencies,
as a regular and integral part of their examination process,
periodically review the Company's allowance for loan losses. Such
agencies may require the Company to recognize additions to the
allowance based on their judgment of information available to them at
the time of their examination.
REAL ESTATE ACQUIRED BY FORECLOSURE
Real estate acquired by foreclosure is initially recorded on an
individual property basis at estimated fair value, less cost to sell,
on the date of foreclosure, thus establishing a new cost basis.
Subsequent to foreclosure, real estate is periodically evaluated by
management and a valuation allowance is established if the estimated
fair value, less costs to sell, of the property declines. Subsequent
increases in fair value are recorded through a reversal of the
valuation allowance, but not below zero. Costs incurred in maintaining
the properties are charged to expense.
Profit on sales of foreclosed real estate is recognized when title has
passed, minimum down payment requirements have been met, the terms of
any notes received by the Company are such to satisfy continuing
payment requirements and the Company is relieved of any requirement for
continued involvement in the real estate. Otherwise, recognition of
profit is deferred until such criteria are met.
--------------------------------------------------------------------------------
F 11
<PAGE> 56
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less accumulated
depreciation and amortization computed using straight-line and
accelerated methods. The assets are depreciated over the following
periods:
Building and leasehold improvements 39 years
Furniture and equipment 5 - 10 years
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company enters into sales of securities under agreements to
repurchase (repurchase agreements) at a specified date. Such repurchase
agreements are considered financing arrangements, and, accordingly, the
obligation to repurchase securities sold is reflected as a liability in
the consolidated balance sheets. Repurchase agreements are
collateralized by investment securities.
INCOME TAXES
The Company and its subsidiary file a consolidated federal income tax
return. Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
STOCK OPTION PLAN
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense is recorded on the date
of grant only if the current market price of the underlying stock
exceeds the exercise price. The Company has also adopted SFAS 123,
"Accounting for Stock-Based Compensation", which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123 allows
entities to apply the provisions of APB Opinion No. 25 and provide pro
forma net income and earnings per share for employee stock option
grants made in 1996 and future years as if the fair-value-based method
defined in SFAS 123 had been applied. The Company has elected to apply
the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS 123.
--------------------------------------------------------------------------------
F 12
<PAGE> 57
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share". SFAS 128 supersedes APB Opinion No. 15, "Earnings
Per Share" and specifies the computation, presentation and disclosure
requirements for earnings per share (EPS) for entities with publicly
held common stock or potential common stock. It replaces the
presentation of primary EPS with a presentation of basic EPS and fully
diluted EPS with diluted EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation (See Note 2).
Basic EPS, unlike primary EPS, excludes dilution and is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in
the earnings of the entity.
2. EARNINGS PER SHARE
The computation of EPS is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
BASIC EPS:
Net income $ 2,089,675 $ 1,692,481 $ 1,142,209
=====================================================================================================
Average common shares outstanding 464,611 442,412 363,619
=====================================================================================================
Basic EPS $ 4.50 $ 3.83 $ 3.14
=====================================================================================================
DILUTED EPS:
Net income $ 2,089,675 $ 1,692,481 $ 1,142,209
=====================================================================================================
Average common shares outstanding 464,611 442,412 363,619
Dilutive potential due to stock options 2,999 269 --
-----------------------------------------------------------------------------------------------------
Average number of common shares
and dilutive potential common
shares outstanding 467,610 442,681 363,619
=====================================================================================================
Diluted EPS $ 4.47 $ 3.82 $ 3.14
=====================================================================================================
</TABLE>
--------------------------------------------------------------------------------
F 13
<PAGE> 58
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
3. INVESTMENT SECURITIES
AVAILABLE FOR SALE
The amortized cost and fair value of available-for-sale investments in
debt and equity securities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of U.S. government
corporations and agencies $ 63,312,008 $ -- $ (2,222,620) $ 61,089,388
Mortgage-backed securities 7,712,919 -- (366,178) 7,346,741
Obligations of states and
political subdivisions 36,071,610 21,297 (1,501,263) 34,591,644
--------------------------------------------------------------------------------------------------------------
Total Debt Securities 107,096,537 21,297 (4,090,061) 103,027,773
Equity securities 1,076,600 7,719 -- 1,084,319
--------------------------------------------------------------------------------------------------------------
$ 108,173,137 $ 29,016 $ (4,090,061) $ 104,112,092
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 2,605,288 $ 20,118 $ -- $ 2,625,406
Obligations of U.S. government
corporations and agencies 34,244,259 117,336 (75,720) 34,285,875
Mortgage-backed securities 7,334,418 4,410 (12,610) 7,326,218
Obligations of states and
political subdivisions 31,819,860 737,516 (29,967) 32,527,409
--------------------------------------------------------------------------------------------------------------
Total Debt Securities 76,003,825 879,380 (118,297) 76,764,908
Equity securities 981,200 13,000 -- 994,200
--------------------------------------------------------------------------------------------------------------
$ 76,985,025 $ 892,380 $ (118,297) $77,759,108
==============================================================================================================
</TABLE>
--------------------------------------------------------------------------------
F 14
<PAGE> 59
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Available-for-sale securities carried at approximately $50,077,000 and
$16,625,000 at December 31, 1999 and 1998, respectively, were pledged
to secure public deposits and for other purposes required or permitted
by law.
The amortized cost and fair value of available-for-sale debt securities
by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties. The equity securities have no maturity dates and therefore,
have been excluded below.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------
AMORTIZED FAIR
COST VALUE
-----------------------------------
<S> <C> <C>
Due in one year or less $ 15,200,509 $ 15,172,308
Due after one year through five years 20,689,550 20,300,653
Due after five years through ten years 62,927,332 59,666,256
Due after ten years 566,227 541,815
Mortgage-backed securities 7,712,919 7,346,741
------------------------------------------------------------------------------------------------
$ 107,096,537 $ 103,027,773
================================================================================================
</TABLE>
Proceeds from sales of available-for-sale debt securities were
$7,442,659, $10,906,445 and $8,975,651 in 1999, 1998 and 1997,
respectively.
Gross realized gains and gross realized losses on sales of
available-for-sale debt securities are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Gross realized gains $ 43,253 $ 180,515 $ 10,365
Gross realized losses (16,875) -- (4,929)
-------------------------------------------------------------------------------------------------------
$ 26,378 $ 180,515 $ 5,436
=======================================================================================================
</TABLE>
--------------------------------------------------------------------------------
F 15
<PAGE> 60
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
HELD TO MATURITY
The amortized cost and fair value of held-to-maturity investments in
debt securities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 4,513,819 $ -- $ (63,227) $ 4,450,592
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 5,767,250 $ 28,587 $ (7,134) $ 5,788,703
=============================================================================================================
</TABLE>
Held-to-maturity securities carried at approximately $4,037,000 and
$5,233,000 at December 31, 1999 and 1998, respectively, were pledged to
secure public deposits and for other purposes required or permitted by
law.
4. LOANS
Loans consist of:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Commercial loans $ 44,469,418 $ 42,866,422
Commercial real estate loans 61,284,167 44,266,850
Real estate construction loans 11,074,257 9,308,269
Residential real estate loans 46,597,185 33,657,756
Consumer loans 10,227,714 9,356,720
Mortgage loans held for sale 539,696 1,125,998
------------------------------------------------------------------------------------------------
Total Loans 174,192,437 140,582,015
Less: Allowance for loan losses 1,687,021 1,342,000
------------------------------------------------------------------------------------------------
$ 172,505,416 $ 139,240,015
================================================================================================
</TABLE>
--------------------------------------------------------------------------------
F 16
<PAGE> 61
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
A summary of activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Balance - beginning of year $ 1,342,000 $ 976,000 $ 728,000
Provision charged to operations 1,017,870 646,623 509,277
Charge-offs (710,593) (295,286) (272,625)
Recoveries 37,744 14,663 11,348
--------------------------------------------------------------------------------------------------------
Balance - end of year $ 1,687,021 $ 1,342,000 $ 976,000
========================================================================================================
</TABLE>
The following table lists information related to nonperforming loans:
<TABLE>
<CAPTION>
1999 1998
--------------------------------
<S> <C> <C>
Loans on nonaccrual status $ 1,552,319 $ 879,954
Accruing loans past due 90 days or more 790,690 390,789
------------------------------------------------------------------------------------------------
$ 2,343,009 $ 1,270,743
================================================================================================
Interest that would have been recognized
on nonaccrual loans in accordance
with their original terms $ 145,410 $ 109,834
Actual interest recorded for nonaccrual
loans 32,098 25,000
================================================================================================
</TABLE>
A portion of the allowance for loan losses is allocated to loans deemed
impaired. All impaired loans are included in nonperforming loans.
Information on these loans and their related allowance for loan losses
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------------
RECORDED VALUATION Recorded Valuation Recorded Valuation
INVESTMENT ALLOWANCE Investment Allowance Investment Allowance
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Impaired loans:
Valuation allowance required $ 858,600 $ 218,600 $ 147,731 $ 56,904 $ 195,154 $ 85,000
No valuation allowance required 468,737 -- 752,279 -- 498,886 --
-----------------------------------------------------------------------------------------------------------
Total impaired loans $ 1,327,337 $ 218,600 $ 900,010 $ 56,904 $ 694,040 $ 85,000
===========================================================================================================
Average balance of impaired loans
during the year $ 1,113,124 $ 635,752 $ 608,681
Interest income recognized on
impaired loans during the year 34,677 49,491 46,154
===========================================================================================================
</TABLE>
--------------------------------------------------------------------------------
F 17
<PAGE> 62
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
<S> <C> <C>
Land $ 1,545,496 $ 920,736
Buildings 4,956,736 4,290,921
Leasehold improvements 683,198 500,905
Furniture and equipment 2,213,790 1,675,225
Automobiles 67,877 67,878
Construction in progress 877,331 --
-----------------------------------------------------------------------------------------
10,344,428 7,455,665
Less: Accumulated depreciation and
amortization 1,482,257 1,136,487
-----------------------------------------------------------------------------------------
$ 8,862,171 $ 6,319,178
=========================================================================================
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1999, 1998 and 1997 amounted to $346,182, $301,183 and $248,801,
respectively.
The Company is obligated under a long-term lease agreement for the Bank's
branch location in Columbia, Illinois through November 2007. The lease
provides that the Company may use and occupy the premises only for the
purpose of maintaining and operating a branch bank. The lease calls for
monthly rental payments totaling $3,960.
Minimum lease payments at December 31, 1999 are due as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------------
<S> <C>
2000 $ 47,520
2001 47,520
2002 47,520
2003 47,520
2004 47,520
Thereafter 138,600
-------------------------------------------------
$ 376,200
=================================================
</TABLE>
Rent expense for the years ended December 31, 1999, 1998 and 1997 amounted
to $82,136, $67,582 and $38,654, respectively.
--------------------------------------------------------------------------------
F 18
<PAGE> 63
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
6. DEPOSITS
Deposits consist of:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
<S> <C> <C>
Noninterest bearing deposits:
Demand deposit accounts $ 27,350,618 $ 25,760,540
--------------------------------------------------------------------------------------
Interest bearing deposits:
Demand deposit accounts (NOW) 41,872,811 16,436,189
Money market accounts 27,491,827 25,513,150
Savings 28,158,230 27,741,818
Certificates of deposit, $100,000 and over 45,906,985 24,363,597
Other certificates of deposit 108,361,844 103,471,802
--------------------------------------------------------------------------------------
Total interest bearing deposits 251,791,697 197,526,556
--------------------------------------------------------------------------------------
Total Deposits $ 279,142,315 $ 223,287,096
======================================================================================
</TABLE>
The scheduled maturities of certificates of deposit, $100,000 and over and other
certificates of deposit, were as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---------------------------------------------------------
<S> <C>
2000 $ 134,667,696
2001 15,739,507
2002 2,767,669
2003 535,942
2004 558,015
---------------------------------------------------------
$ 154,268,829
=========================================================
</TABLE>
--------------------------------------------------------------------------------
F 19
<PAGE> 64
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase (repurchase agreements)
are treated as financing arrangements and other obligations to
repurchase securities sold are reflected as a liability. The repurchase
agreements generally mature within one year. The investment securities
underlying the repurchase agreements were held by a designated
safekeeping agent.
The average balance and maximum amount outstanding at any month-end of
repurchase agreements for the years ended December 31, 1999, 1998 and
1997 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Average balance outstanding $ 7,221,406 $ 3,770,165 $ 734,332
=====================================================================================================
Maximum month-end balance
outstanding $ 8,439,673 $ 5,616,642 $ 1,763,576
=====================================================================================================
</TABLE>
8. OTHER BORROWINGS
On December 7, 1999, the Company entered into a revolving line of
credit with an unaffiliated bank which provides for financing of up to
$2,500,000. The line of credit has a variable rate of interest and is
payable on demand. If no demand for payment is made, any outstanding
principal balance is due on December 7, 2000. The line of credit is
secured by 350,000 shares of Bank common stock. At December 31, 1999,
advances on the line of credit totaled $1,837,500 and the interest rate
was 8%.
9. FEDERAL HOME LOAN BANK ADVANCES
Advances from the Federal Home Loan Bank of Chicago (FHLB) totaled
$5,000,000 at both December 31, 1999 and 1998. The FHLB advance
outstanding at December 31, 1998 had an interest rate of 4.89% and was
scheduled to mature in June 2008. In December 1999, this advance was
called for redemption by the FHLB. Also, in December 1999, the Company
entered into another advance agreement with the FHLB for $5,000,000.
The FHLB advance outstanding at December 31, 1999 has an interest rate
of 5.63% and matures in December 2004. Beginning in December 2000, the
FHLB can call the advance on a quarterly basis until it matures.
Advances from the FHLB are secured by a blanket lien on
--------------------------------------------------------------------------------
F 20
<PAGE> 65
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
qualifying first mortgage loans.
10. INCOME TAXES
The composition of income tax expense is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
CURRENT
Federal $ 465,273 $ 615,319 $ 421,749
State (12,500) 7,500 63,150
-----------------------------------------------------------------------------------------------
452,773 622,819 484,899
DEFERRED
Federal (98,673) (133,169) 17,601
-----------------------------------------------------------------------------------------------
$ 354,100 $ 489,650 $ 502,500
===============================================================================================
</TABLE>
The components of deferred tax assets and deferred tax liabilities are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 501,524 $ 421,149
Alternative minimum tax credits 54,291 --
Deferred compensation 165,320 122,904
Available-for-sale securities market
valuation 1,543,197 --
-----------------------------------------------------------------------------------------------
Total deferred tax assets 2,264,332 544,053
-----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation on bank premises and
equipment (182,577) (114,264)
Available-for-sale securities market
valuation -- (294,152)
Accumulated market discount (29,013) (33,481)
Other (14,564) --
-----------------------------------------------------------------------------------------------
Total deferred tax liabilities (226,154) (441,897)
-----------------------------------------------------------------------------------------------
$ 2,038,178 $ 102,156
===============================================================================================
</TABLE>
A valuation allowance is provided on deferred tax assets when it is
more likely than not that some portion of the assets will not be
realized. The Company has not established a valuation allowance as of
December 31, 1999 or 1998 due to management's belief that all criteria
for recognition have been met, including the
--------------------------------------------------------------------------------
F 21
<PAGE> 66
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
existence of a history of taxes paid sufficient to support the
realization of the deferred tax assets.
The following is a reconciliation of income tax expense to the amount
computed at the federal statutory rate of 34%:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------
AMOUNT % Amount % Amount %
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense $ 830,884 34.0 $ 741,925 34.0 $ 559,201 34.0
Items affecting federal income
tax rate:
State income taxes (8,250) (0.3) 4,950 0.2 41,679 2.6
Tax-exempt interest (469,262) (19.2) (254,258) (11.7) (113,028) (6.9)
Other 728 -- (2,967) (0.1) 14,648 0.9
---------------------------------------------------------------------------------------------------------------
$ 354,100 14.5 $ 489,650 22.4 $ 502,500 30.6
===============================================================================================================
</TABLE>
11. DEFERRED COMPENSATION PLANS
During 1992, the Company established a qualified, noncontributory,
trusteed Retirement Savings Plan covering eligible full-time employees.
The plan provides for contributions by the Company in such amounts as
the Board of Directors may annually determine. The Company is under no
obligation to make contributions to the plan. The employees may make
voluntary contributions subject to certain limitations.
The Board of Directors approved the accrual of a contribution to the
Retirement Savings Plan in the amount of $55,267, $49,192 and $33,004
in 1999, 1998 and 1997, respectively.
In 1992, the Company established a deferred compensation plan for the
Company's Board of Directors. The plan is being funded through life
insurance policies purchased and owned by the Company. The expense
related to the deferred compensation plan totaled $95,489, $87,586 and
$68,993 in 1999, 1998 and 1997, respectively. The deferred compensation
accrual is included in other liabilities in the consolidated balance
sheets and amounted to $435,053 and $339,564 at December 31, 1999 and
1998, respectively.
--------------------------------------------------------------------------------
F 22
<PAGE> 67
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
12. STOCK OPTION PLAN
During 1998, the Company adopted the 1998 Stock Option Plan (the Plan).
The Plan provides that the Company may grant options for up to 50,000
shares of common stock to directors and employees in key management
positions to encourage such directors and key employees to remain with
the Company. Interest in the Plan for each participant vests in five
equal installments from the date options are granted. The maximum term
of the options is 10 years. On April 15, 1998 and again on January 6,
1999, 13,500 shares were granted at an exercise price of $40 and $44,
respectively. Activity within the Plan is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
------------------------------
<S> <C> <C>
Outstanding at January 1, 1999 13,500 $ 40.00
Granted 13,500 44.00
Exercised -- --
Forfeited (2,000) 42.00
------------------------------------------------------------------------------------------
Outstanding at December 31, 1999 25,000 $ 42.00
==========================================================================================
</TABLE>
At December 31, 1999, 2,500 stock options were exercisable. No stock
options were exercisable as of December 31, 1998.
The Company applies APB opinion No. 25 in accounting for stock options
and, accordingly, no compensation cost has been recognized in the
consolidated financial statements. Had the Company determined
compensation cost for stock options granted in 1999 and 1998 based on
the fair value at the grant date under SFAS No. 123, the Company's net
income in 1999 and 1998 would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Net income:
As reported $ 2,089,675 $ 1,692,481
Pro forma 2,049,254 1,676,552
Earnings per share - basic:
As reported $ 4.50 $ 3.83
Pro forma 4.41 3.79
Earnings per share - diluted:
As reported $ 4.47 $ 3.82
Pro forma 4.38 3.79
</TABLE>
--------------------------------------------------------------------------------
F 23
<PAGE> 68
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
The per share fair values of stock options granted in
1999 and 1998 were estimated on the date of grant at $12.93 and $13.36,
respectively, using the Black-Scholes option-pricing model. The
following assumptions were used to determine the per share fair value
of the stock options granted in 1999: dividend yield of 1.3%; risk-free
interest rate of 4.6%; and an estimated life of 7 years. The following
assumptions were used to determine the per share fair value of the
stock options granted in 1998: dividend yield of 1.3%; risk-free
interest rate of 5.6%; and an estimated life of 7 years. The Company
did not consider the expected volatility of its common stock over the
estimated life of the options granted in 1999 or 1998 since its common
stock is not traded publicly.
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit and financial guarantees. These instruments involve, to
varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the consolidated balance sheets. Interest rate
risk on commitments to extend credit results from the possibility that
interest rates may have moved unfavorably, from the position of the
Company, since the time the commitment was made. The contract or
notional amounts of these instruments reflect the extent of the
Company's involvement in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and financial guarantees written is represented by the
contractual amount of these instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. 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 certain of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension
of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include commercial real
estate, accounts receivable, inventory, equipment and residential real
estate.
Standby letters of credit and financial guarantees written are
conditional
--------------------------------------------------------------------------------
F 24
<PAGE> 69
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
commitments issued by the Company to guarantee the performance of a
customer to a third party. These guarantees are primarily issued to
support contractual obligations of Bank customers. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
At December 31, 1999 and 1998, the Company had outstanding commitments
to extend credit of approximately $31,446,000 and $25,617,000,
respectively. In addition, the Company had commitments on standby
letters of credit of approximately $3,756,000 and $2,308,000 at
December 31, 1999 and 1998, respectively.
14. CONCENTRATIONS OF CREDIT
Substantially all of the Bank's loans, commitments, and standby letters
of credit have been granted to customers in the Bank's market area. The
concentrations of credit by type of loan are set forth in Note 4. The
distribution of commitments to extend credit approximates the
distribution of the loans outstanding. Standby letters of credit were
granted primarily to commercial borrowers.
15. RELATED PARTY TRANSACTIONS
Certain executive officers and directors were indebted to the Company
for loans in the aggregate amount of approximately $4,929,000 and
$5,423,000 at December 31, 1999 and 1998, respectively. Following is a
summary of activity for 1999 of loans made by the Company to executive
officers and directors or to entities in which such individuals had
beneficial interest. Such loans were made in the normal course of
business on substantially the same terms, including interest and
collateral requirements, as those prevailing at the same time for
comparable transactions with unrelated parties and did not involve more
than the normal risk of collectibility or present unfavorable features.
<TABLE>
<S> <C>
Balance at January 1, 1999 $ 5,843,023
New loans 7,452,702
Payments received (8,368,051)
Impact of changes in director and executive
officer status, net 1,222
--------------------
Balance at December 31, 1999 $ 4,928,896
====================
</TABLE>
--------------------------------------------------------------------------------
F 25
<PAGE> 70
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments were
as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest earning assets:
Cash and due from banks $ 12,065,796 $ 12,065,796 $ 7,992,521 $ 7,992,521
Federal funds sold 3,600,000 3,600,000 9,500,000 9,500,000
Interest bearing due from banks 408,261 408,261 1,046,741 1,046,741
Time certificates of deposit 267,170 267,170 357,951 357,951
Available-for-sale securities 104,112,092 104,112,092 77,759,108 77,759,108
Held-to-maturity securities 4,513,819 4,450,592 5,767,250 5,788,703
Loans 172,505,416 173,718,074 139,240,015 140,911,207
Interest bearing liabilities:
Deposits 279,142,315 279,250,976 223,287,096 223,319,530
Securities sold under agreements
to repurchase 6,938,200 6,938,200 4,959,702 4,959,702
Other borrowings 1,837,500 1,837,500 -- --
FHLB advances 5,000,000 4,946,103 5,000,000 5,091,195
</TABLE>
The following methods and assumptions were used to estimate fair value
of each class of financial instrument listed above:
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and due from banks, interest
bearing due from banks, and federal funds sold. The carrying value is
considered a reasonable estimate of fair value of these financial
instruments due to their short-term nature.
TIME CERTIFICATES OF DEPOSIT
The carrying value is considered a reasonable estimate of fair value of
the financial instrument due to original maturities generally not
exceeding one year.
INVESTMENT SECURITIES
Fair values are based on quoted market prices or dealer quotes.
LOANS
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type, such as
residential real estate, commercial real estate, and consumer loans.
Each loan category is further
--------------------------------------------------------------------------------
F 26
<PAGE> 71
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
segmented into fixed and adjustable rate interest terms and by
performing and nonperforming categories. The fair value of loans is
calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the credit
and interest rate risk inherent in the loan. The estimate of maturity
is based on the Company's historical experience, with repayments for
each loan classification modified, as required, by an estimate of the
effect of current economic and lending conditions.
DEPOSITS
The fair value of deposits with no stated maturity, such as noninterest
bearing checking accounts, NOW accounts, money market deposit accounts,
and savings accounts, is equal to the amount payable on demand at the
reporting date. The fair value of certificates of deposit, all of which
have stated maturities, is based on the discounted value of contractual
cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWINGS
The carrying value is considered a reasonable estimate of fair value of
these financial instruments due to original maturities generally not
exceeding one year.
FHLB ADVANCES
The fair value of FHLB advances is based on the discounted value of
contractual cash flows. The discount rate is estimated using rates
currently available to the Company for similar terms to maturity.
17. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory--and
possibly additional discretionary--actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of
the Company's and the Bank's assets, liabilities, and certain
offbalance-sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
--------------------------------------------------------------------------------
F 27
<PAGE> 72
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios (set forth in the following table) of Total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital to average assets (as defined).
Management believes, as of December 31, 1999, that the Company and the
Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1999, the most recent financial report filed with
the FDIC categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum Total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the following
table. There are no conditions or events since that most recent filing
that management believes have changed the institution's category.
F 28
<PAGE> 73
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
The capital amounts and ratios for the Company and the Bank are
presented in the table below.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------------- ------------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------------------------- ------------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total capital (to risk-
weighted assets):
Company $ 21,188,564 10.56% > $16,050,356 > 8.00% NA NA
- -
Bank 22,770,529 11.35 > 16,047,297 > 8.00 > $20,059,122 > 10.00%
- - - -
Tier 1 capital (to
risk- weighted assets):
Company 19,498,070 9.72 > 8,025,178 > 4.00 NA NA
- -
Bank 21,080,035 10.51 > 8,023,649 > 4.00 > 12,035,473 > 6.00
- - - -
Tier 1 capital (to
average assets):
Company 19,498,070 6.29 > 12,402,593 > 4.00 NA NA
- -
Bank 21,080,035 6.80 > 12,402,593 > 4.00 > 15,503,241 > 5.00
- - - -
As of December 31, 1998
Total capital (to risk-
weighted assets):
Company 16,522,735 10.60 > 12,534,793 > 8.00 NA NA
- -
Bank 16,275,739 10.51 > 12,534,099 > 8.00 > 15,667,624 > 10.00
- - - -
Tier 1 capital (to risk-
weighted assets):
Company 15,174,885 9.89 > 6,267,396 > 4.00 NA NA
- -
Bank 14,927,889 9.72 > 6,267,049 > 4.00 > 9,400,574 > 6.00
- - - -
Tier 1 capital (to
average assets):
Company 15,174,885 6.44 > 9,429,945 > 4.00 NA NA
- -
Bank 14,927,889 6.33 > 9,429,945 > 4.00 > 11,787,431 > 5.00
- - - -
</TABLE>
18. CONTINGENT LIABILITIES
The Company is involved in various litigations arising in the ordinary
course of business. In the opinion of management, at the present time,
disposition of the suits and claims will not have a material effect on
the financial position of the Company.
F 29
<PAGE> 74
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
19. PARENT COMPANY FINANCIAL INFORMATION
The following are condensed balance sheets as of December 31, 1999 and
1998 and condensed statements of income and cash flows for the years
ended December 31, 1999, 1998 and 1997 for West Pointe Bancorp, Inc.
(parent company only):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1999 1998
----------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 218,111 $ 238,324
Investment in subsidiary 18,562,187 15,407,820
Other assets 38,229 61,366
-----------------------------------------------------------------------------------------------
TOTAL ASSETS $ 18,818,527 $ 15,707,510
===============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Other borrowings $ 1,837,500 $ --
Other liabilities 805 --
Stockholders' equity 16,980,222 15,707,510
-----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $ 18,818,527 $ 15,707,510
===============================================================================================
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Distributed income from subsidiary $ 309,877 $ 265,593 $ 157,601
Interest expense (805) -- --
Other expense (84,743) (62,155) (8,686)
-----------------------------------------------------------------------------------------------
Income before income tax benefit
and equity in undistributed
income of subsidiary 224,329 203,438 148,915
Income tax benefit 33,200 25,600 3,600
-----------------------------------------------------------------------------------------------
Income before equity in
undistributed income of
subsidiary 257,529 229,038 152,515
Equity in undistributed income of
subsidiary 1,832,146 1,463,443 989,694
-----------------------------------------------------------------------------------------------
Net income $ 2,089,675 $ 1,692,481 $ 1,142,209
===============================================================================================
</TABLE>
F 30
<PAGE> 75
WEST POINTE BANCORP, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 2,089,675 $ 1,692,481 $ 1,142,209
Equity in undistributed income
of subsidiary (1,832,146) (1,463,443) (989,694)
Other, net 23,942 16,504 (77,870)
------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 281,471 245,542 74,645
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital contributions to
subsidiary (4,320,000) -- (3,000,000)
------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of
common stock 2,828,193 117,151 3,224,181
Purchase of treasury stock (337,500) -- --
Dividends paid (309,877) (265,594) (157,601)
Increase in other borrowings 1,837,500 -- --
------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 4,018,316 (148,443) 3,066,580
------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (20,213) 97,099 141,225
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 238,324 141,225 --
------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 218,111 $ 238,324 $ 141,225
======================================================================================================
</TABLE>
F 31
<PAGE> 76
WEST POINTE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31 MARCH 31,
2000 1999 1999
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 9,501,638 $ 12,065,796 $ 7,131,103
Federal funds sold 2,900,000 3,600,000 6,500,000
Interest bearing due from banks 356,013 408,261 3,027,824
Time certificates of deposit 267,177 267,170 357,951
Investment securities:
Held-to-maturity (fair value of $4,229,618,
$4,450,592 and $5,440,537 at March 31, 2000, December 31, 4,296,657 4,513,819 5,424,061
1999 and March 31, 1999, respectively)
Available-for-sale, at fair value (cost of $114,105,086,
$108,173,137 and $88,395,516 at March 31, 2000, December 110,074,013 104,112,092 88,580,419
31, 1999 and March 31, 1999, respectively)
Loans 178,019,065 174,192,437 145,173,626
Allowance for loan losses (1,694,062) (1,687,021) (1,339,000)
----------------------------------------------------
Net Loans 176,325,003 172,505,416 143,834,626
Accrued interest receivable 2,548,486 2,102,319 2,011,432
Real estate acquired by foreclosure 348,792 348,792 151,922
Bank premises and equipment 10,211,313 8,862,171 6,756,607
Income taxes receivable 20,958 124,753 6,978
Deferred tax asset, net 2,021,547 2,038,178 327,653
Other assets 860,355 805,638 749,157
----------------------------------------------------
Total Assets $ 319,731,952 $ 311,754,405 $ 264,859,733
====================================================
LIABILITIES
Deposits:
Noninterest bearing $ 25,801,972 $ 27,350,618 $ 23,810,257
Interest bearing 258,020,391 251,791,697 211,466,959
----------------------------------------------------
Total deposits 283,822,363 279,142,315 235,277,216
Securities sold under agreements to repurchase 9,704,877 6,938,200 7,077,580
Other borrowings 1,837,500 1,837,500 ---
Federal Home Loan Bank advances 5,000,000 5,000,000 5,000,000
Accrued interest payable 1,151,159 1,137,399 1,083,992
Other liabilities 836,061 718,769 647,003
----------------------------------------------------
Total Liabilities 302,351,960 294,774,183 249,085,791
----------------------------------------------------
COMMITMENTS AND CINTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value--50,000 shares authorized; none --- --- ---
issued or outstanding at March 31, 2000, December 31, 1999 or
March 31, 1999, respectively
Common stock, $1 par value--1,000,000 shares authorized; 496,183 496,169 443,848
496,183, 496,169 and 443,848 shares issued at March 31,
2000, December 31, 1999 and March 31, 1999, respectively
Surplus 12,750,189 12,749,474 10,023,319
Retained earnings 6,970,384 6,589,927 5,194,761
Treasury stock at cost: 6,250 shares at March 31, 2000 and
December 31, 1999 (337,500) (337,500) ---
Accumulated other comprehensive income (loss) (2,499,264) (2,517,848) 112,014
----------------------------------------------------
Total Stockholders' Equity 17,379,992 16,980,222 15,773,942
----------------------------------------------------
Total Liabilities and Stockholders' Equity $ 319,731,952 $ 311,754,405 $ 264,859,733
====================================================
</TABLE>
F-32
<PAGE> 77
WEST POINTE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------------
2000 1999
-----------------------------------------------
<S> <C> <C>
INTEREST AND FEE INCOME
Interest and fees on loans $ 3,795,703 $ 3,046,094
Interest on U.S. Treasuries and agencies 1,245,567 837,827
Interest on state and municipal obligations 412,724 385,677
Interest on federal funds sold 76,746 79,608
Interest on deposits with banks 8,814 41,117
-----------------------------------------------
TOTAL INTEREST AND FEE INCOME 5,539,554 4,390,323
-----------------------------------------------
INTEREST EXPENSE
NOW, money market and savings deposits 899,744 535,315
Certificates of deposit 2,209,498 1,907,502
Securities sold under agreements to repurchase 95,499 63,159
Other borrowings 37,616 2,715
Federal Home Loan Bank advances 71,976 61,764
-----------------------------------------------
TOTAL INTEREST EXPENSE 3,314,333 2,570,455
-----------------------------------------------
NET INTEREST INCOME 2,225,221 1,819,868
PROVISION FOR LOAN LOSSES 255,000 131,694
-----------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,970,221 1,688,174
-----------------------------------------------
NONINTEREST INCOME
Service charges on deposits 224,467 191,722
Mortgage banking 64,812 119,132
Trust fees 69,436 73,423
Credit card income 57,696 43,215
Gain on sale of securities, net --- 300
Other 72,550 33,434
-----------------------------------------------
TOTAL NONINTEREST INCOME 488,961 461,226
-----------------------------------------------
NONINTEREST EXPENSE
Employee compensation and other benefits 1,004,941 815,465
Occupancy, net 118,626 110,729
Furniture and equipment 105,942 76,602
Data processing 87,021 76,549
Advertising 75,593 73,274
Other 576,615 464,435
-----------------------------------------------
TOTAL NONINTEREST EXPENSE 1,968,738 1,617,054
-----------------------------------------------
INCOME BEFORE INCOME TAXES 490,444 532,346
INCOME TAX EXPENSE 26,700 76,700
-----------------------------------------------
NET INCOME $ 463,744 $ 455,646
===============================================
EARNINGS PER SHARE - BASIC $ .95 $ 1.03
===============================================
EARNINGS PER SHARE - DILUTED $ .94 $ 1.02
===============================================
</TABLE>
F-33
<PAGE> 78
WEST POINTE BANCORP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------------
2000 1999
-----------------------------------------------
<S> <C> <C>
NET INCOME $ 463,744 $ 455,646
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gain (loss) on securities available for sale (net of 18,584 (367,660)
income taxes of $11,389 and $(225,454) for 2000 and 1999, respectively)
Less adjustment for realized gains included in net income (net of income --- (257)
taxes of $43 in 1999.
-----------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) 18,584 (367,917)
-----------------------------------------------
COMPREHENSIVE INCOME $ 482,328 $ 87,729
===============================================
</TABLE>
F-34
<PAGE> 79
WEST POINTE BANCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- --------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT SURPLUS EARNINGS
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 2000 --- --- 496,169 $496,169 $12,749,474 $6,589,927
Issuance Of Common Stock --- --- 14 14 715 ---
Dividends Paid --- --- --- --- --- (83,287)
Net Income --- --- --- --- --- 463,744
Other Comprehensive Income --- --- --- --- --- ---
--------- -------- --------- -------- ----------- ----------
BALANCE - MARCH 31, 2000 --- --- 496,183 $496,183 $12,750,189 $6,970,384
========= ======== ========= ======== =========== ==========
<CAPTION>
ACCUMULATED
TREASURY STOCK OTHER TOTAL
--------------------- COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT INCOME (LOSS) EQUITY
------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE - JANUARY 1, 2000 6,250 $ (337,500) $ (2,517,848) $16,980,222
Issuance Of Common Stock --- --- --- 729
Dividends Paid --- --- --- (83,287)
Net Income --- --- --- 463,744
Other Comprehensive Income --- --- 18,584 18,584
----------------------------------------------------
BALANCE - MARCH 31, 2000 6,250 $ (337,500) $ (2,499,264) $17,379,992
====================================================
</TABLE>
F-35
<PAGE> 80
WEST POINTE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------------
2000 1999
-----------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 463,744 $ 455,646
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization:
Bank premises and equipment 105,070 93,091
Discounts and premiums (137,275) 14,354
Increase in accrued interest receivable (446,167) (314,905)
Increase in accrued interest payable 13,760 76,886
Increase (decrease) in income taxes, net 109,037 (32,483)
Gain on sale of investment securities, net ----- (300)
Provision for loan losses 255,000 131,694
Net change in other assets and other liabilities 62,575 (48,604)
-----------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 425,744 375,379
-----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal repayments on investment securities 407,907 582,067
Sales of investment securities available for sale ----- 1,577,899
Maturities of investment securities available for sale 24,040,000 4,800,000
Purchases of investment securities available for sale (30,025,425) (18,045,556)
Net increase in loans (4,074,587) (4,726,305)
Purchases of bank premises and equipment (1,454,212) (530,520)
-----------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (11,106,317) (16,342,415)
-----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in non-interest bearing deposits (1,548,646) (1,950,283)
Net increase in interest bearing deposits 6,228,694 13,940,403
Net increase in securities sold under agreements to repurchase 2,766,677 2,117,878
Proceeds from issuance of common stock 729 49,717
Dividends paid (83,287) (71,014)
-----------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,364,167 14,086,701
-----------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,316,406) (1,880,335)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 16,074,057 18,539,262
-----------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 12,757,651 $ 16,658,927
===============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 3,300,573 $ 2,493,569
Income taxes paid ------ 109,183
</TABLE>
F-36
