FORM 10KSB FOR CGB&L FINANCIAL GROUP, INC. FILED ON JUNE 29, 1999 12:00 PM
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Year ended March 31, 1999
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Commission file number 000-24793
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CGB&L FINANCIAL GROUP, INC.
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(Name of small business issuer in its charter)
Delaware 37-1374123
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
229 E. SOUTH ST. -P.O. Box 680, Cerro Gordo, Illinois 61818-0680
----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (217) 763-2911
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Securities registered under Section 12(b)
of the Exchange Act: None
----
Securities registered under Section 12(g)
of the Exchange Act:
Common Stock: par value $0.01 per share
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation SB contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
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State issuer's revenues for its most recent fiscal year.
$581,123
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The aggregate market value of the voting stock held by non-affiliates of the
Registrant, i.e., persons other than directors and executive officers of the
Registrant, at May 31, 1999 was $830,775. For purposes of this determination
only, directors and executive officers of the Registrant have been presumed to
be affiliates. The market value is based upon $11.00 per share, the last sales
price as quoted on the Over The Counter Market for March 31, 1999.
The Registrant had 99,000 shares of Common Stock outstanding, for ownership
purposes, at March 31, 1999.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
The Exhibit Index is located at pages 52-53.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-KSB.
TABLE OF CONTENTS
PART I
PAGE
Item 1. Description of Business . . . . . . . . . . . . . . . . . . 3
Item 2. Description of Property . . . . . . . . . . . . . . . . . . 30
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 30
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . . . . . . 30
PART II
Item 5. Market for Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . . 30
Item 6. Management's Discussion
and Analysis or Plan of Operation. . . . . . . . . . . . . 31
Item 7. Financial Statements. . . . . . . . . . . . . . . . . . . . 34
Item 8. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure . . . . . . . . . . 52
2
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PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section
16(a) of the Exchange Act. . . . . . . . . . . . . . . . . 52
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . 52
Item 11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . 52
Item 12. Certain Relationships and Related Transactions. . . . . . . 52
Item 13. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 52
SIGNATURES
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
CGB&L Financial Group, Inc. ("CGB&L") was incorporated on May 21, 1998 and on
September 22, 1998 acquired all of the outstanding shares of common stock of
Cerro Gordo Building and Loan, s.b., Cerro Gordo, Illinois, (the "Building &
Loan") upon the Building & Loan's conversion from a state chartered mutual
savings bank to a state chartered stock savings bank (the "Conversion"). CGB&L
purchased 100% of the outstanding capital stock of the Building & Loan using 50%
of the net proceeds from CGB&L's initial stock offering which was completed on
September 22, 1998. CGB&L sold 99,000 shares of common stock in the initial
offering at $10 per share, including 7,919 shares purchased by the Building &
Loan's Employee Stock Ownership Plan ("ESOP"). The Building & Loan acquired the
ESOP shares with proceeds from a CGB&L loan totaling $79,190. The net proceeds
of the offering totaled $699,293: $990,000 less $290,707 in underwriting costs
and other conversion expenses. CGB&L began trading on the Over The Counter
Bulletin Board on September 23, 1998 under the symbol "CGBL".
The acquisition of the Building & Loan by CGB&L was accounted for as a
"pooling-of-interests" under generally accepted accounting principles. The
application of the pooling-of-interests method records the assets and
liabilities of the merged companies on a historical cost basis with no goodwill
or other intangible assets being recorded.
CGB&L's assets at March 31, 1999 consist primarily of the investment in the
Building & Loan of $1,252,506, cash and cash equivalents of $249,966 and
interest bearing time deposits of $100,000. CGB&L does not transact any other
material business except through its subsidiary, the Building & Loan.
BUSINESS OF THE BUILDING & LOAN
The Building & Loan was originally chartered as a state-chartered savings and
loan association in 1886 and converted to a state-chartered savings bank in
1992. Prior to changing its name to Cerro Gordo Building and Loan, s.b on
January 1, 1993 the institution operated as Cerro Gordo Building and Loan
Association.
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The Building & Loan's primary market area consists of a ten-mile radius of
Cerro Gordo, Illinois, which includes portions of the counties of Piatt, Macon,
and Moultrie. Cerro Gordo has a population of approximately 1,500. The primary
employers located in and around Cerro Gordo include the Cerro Gordo School
District, Bridgestone/Firestone, Inc., Caterpillar, Inc., Archer Daniels
Midland, and agriculture.
The Building & Loan maintains one office in Cerro Gordo and provides savings
accounts, certificates of deposit and mortgage loans with emphasis on one- to
four-family residential mortgage loans. At March 31, 1999, the Building & Loan
had total assets, liabilities, and stockholders' equity of $7,032,766,
$5,780,260, and $1,252,505 respectively.
The Building & Loan's principal business consists of the acceptance of retail
deposits from the residents and small businesses surrounding its office and the
investment of those deposits, together with funds generated from operations,
primarily in one- to four-family residential mortgage loans. The Building & Loan
also invests, to a lesser extent, in multi-family mortgage loans, commercial
real estate loans, construction loans, and consumer (share) loans.
The Building & Loan's revenues are derived principally from interest on its
mortgage and share loans, and, to a lesser extent, interest and dividends on its
interest bearing deposits and securities. The Building & Loan's primary sources
of funds are deposits, principal and interest payments and principal prepayments
on loans, and proceeds from Federal Home Loan Bank ("FHLB") advances.
SELECTED FINANCIAL INFORMATION OF CGB&L
The following table sets forth certain selected financial data for CGB&L on a
consolidated basis. This summary has been derived from, and should be read in
conjunction with, the financial statements of CGB&L and the related notes
thereto and management's discussion included elsewhere in this report.
FINANCIAL DATA:
At March 31
-----------------------------
1999 1998(2)
---------- ---------
Total assets............................... $7,382,732 6,934,981
Cash and cash equivalents.................. 775,314 524,845
Interest-bearing time deposits............. 891,000 590,000
Investment securities available for sale... 211,827 175,329
Loans, net................................. 5,390,273 5,526,189
Federal Home Loan Bank stock............... 55,100 46,200
Deposits................................... 4,995,294 5,250,307
Long-term debt............................. 600,000 600,000
Total Stockholders' equity (3)............. 1,667,578 986,014
4
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OPERATING DATA: For the Fiscal Year Ended March 31,
-----------------------------------
1999 1998
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Total interest income ......................... $ 573,930 $ 541,984
Total interest expense ........................ 315,124 309,763
---------- ----------
Net interest income ........................... 258,806 232,221
Provision for loan losses ..................... -- 26,500
---------- ----------
Net interest income after
provision for loan loss ...................... 258,608 205,721
Other income .................................. 7,193 6,708
Other expenses ................................ 218,003 159,855
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Income before income tax ...................... 47,996 52,574
Income tax expense ............................ 10,625 10,702
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Net income .................................... $ 37,371 $ 41,872
========== ==========
OTHER DATA:
Number of real estate loans outstanding ....... 193 197
Number of deposit accounts .................... 611 638
KEY OPERATING RATIOS:
The table below sets forth certain
performance ratios of CGB&L. For the Fiscal Year Ended March 31,
-----------------------------------
1999 1998
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Return on assets (net income divided
by average total assets) .................... 0.52% 0.63%
Return on average equity (net income
divided by average equity) .................. 2.75% 4.60%
Average equity to average assets .............. 18.81% 13.62%
Interest rate spread (difference
between average yield on interest
earning assets and average cost of
interest bearing liabilities) ............... 2.82% 2.67%
Net interest margin (net interest
income as a percentage of average
interest earning assets) .................... 3.76% 3.47%
Non-interest expense to average assets ........ 3.05% 2.38%
Average interest-earning assets to
interest bearing liabilities ................ 120.37% 117.29%
Allowance for loan losses to
total loans at end of period ................ 0.60% 0.58%
Net charge offs to average outstanding
loans during the period ..................... N/A N/A
Ratio of nonperforming assets
To total assets (1) ......................... 0.78% 0.16%
- -----------------------------
(1) Nonperforming assets include non-accrual loans, accruing loans delinquent
90 days or more and real estate owned.
(2) On September 22, 1998, the Building & Loan converted from a state chartered
mutual savings bank to a state chartered stock savings bank, therefore,
1998 reflects the Building & Loan operations only.
(3) Prior to conversion on September 22, 1998, data relates to total equity
capital.
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AVERAGE BALANCE SHEET
The following table presents the average balance sheet for CGB&L for the
years ended March 31, 1999 and 1998, the interest on interest-earning assets and
interest-bearing liabilities and the related average yield or cost. The average
balances are derived from average monthly balances. The yields or costs are
calculated by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown except where noted otherwise.
The yields and costs include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
AT MARCH 31, YEAR ENDED MARCH 31,
------------ -------------------------------------------------------------------------
1999 1999 1998
------- ---------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
RATE BALANCE INT. RATE BALANCE INT. RATE
------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
LOANS, NET (1) ........................... 9.00% $ 5,615 $ 507 9.03%(5) $ 5,289 $ 466 8.81%(5)
INT-BEARING DEPOSITS WITH
FINANCIAL INSTITUTIONS ................ 4.85 1,081 62 5.74 1,205 71 5.89
SECURITIES .............................. 2.58 194 5 2.58 189 5 2.65
-------- -------- -------- --------
TOTAL INTEREST-EARNING ASSETS ............. 7.99 6,890 574 8.33 6,683 542 8.11
-------- --------
NON-INTEREST-EARNING ASSETS ............ 267 29
-------- --------
TOTAL ASSETS .............................. $ 7,157 $ 6,712
======== ========
INTEREST-BEARING LIABILITIES:
DEPOSITS:
SAVINGS ............................... 2.50 $ 474 14 2.96 $ 462 15 3.25
CERTIFICATES .......................... 5.57 4,650 262 5.64 4,885 274 5.61
-------- -------- -------- --------
TOTAL DEPOSITS ........................ 5.33 5,124 276 5.39 5,347 289 5.40
FHLB ADVANCES ........................... 6.36 600 39 6.50 351 21 5.98
-------- -------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES ............................. 5.44 5,724 315 5.51 5,698 310 5.44
-------- -------- -------- --------
NON-INTEREST-BEARING LIABILITIES .......... 87 100
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TOTAL LIABILITIES ....................... 5,811 5,798
STOCKHOLDERS' EQUITY (4) ................ 1,346 914
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY .. $ 7,157 $ 6,712
======== ========
NET INTEREST INCOME;
INTEREST RATE SPREAD (2) ................ 2.55% $ 259 2.82% $ 232 2.67%
======= ======== ======= ======== =======
NET INTEREST MARGIN (3) ................... 3.57% 3.76% 3.47%
======= ======= =======
RATIO OF AVERAGE INT-EARNING
ASSETS TO INT-BEARING LIABILITIES ........ 124.77% 120.37% 117.29%
======= ======= =======
</TABLE>
- ----------------------------
(1) Amount is net of deferred loan fees, loan discounts and premiums,
loans in process, allowance for loan losses and nonperforming loans.
(2) Net interest rate spread represents the difference between the yield
on average interest-earning assets and the cost of average
interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
(4) Prior to conversion on September 22, 1998, data relates to total
equity capital.
(5) Loan fees included in interest income were $26,013 and $29,842 for
1999 and 1998, respectively.
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RATE/VOLUME ANALYSIS - The following table describes the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected CGB&L's interest
income and expense during the periods indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (change in volume
multiplied by prior rate), (ii) changes in rate (change in rate multiplied by
prior volume); and (iii) the total change in rate and volume. The combined
effect of changes in both rate and volume has been allocated proportionately to
the change due to volume and the change due to rate, based on the absolute value
of each to the total.
---------------------------------
Year Ended March 31,
---------------------------------
1999 vs. 1998
---------------------------------
Increase
(Decrease)
Due to
----------------- Net Increase
Volume Rate (Decrease)
------ ----- ------------
(In Thousands)
Interest-earning assets:
Loans, net ............................ $ 29 $ 12 $ 41
Interest-bearing deposits with
Financial institutions .............. (7) (2) (9)
Securities ............................ -- -- --
---- ---- ----
Total change in interest income ....... $ 17 $ 15 $ 32
---- ---- ----
Interest-bearing liabilities:
Deposits:
Savings ............................... -- (1) (1)
Certificates .......................... (13) 1 (12)
FHLB advances ......................... 16 2 18
---- ---- ----
Total change in interest expense ...... 1 4 5
---- ---- ----
Net change in net interest income ....... $ 16 $ 11 $ 27
==== ==== ====
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INVESTMENT ACTIVITIES
Under applicable regulations of the Commissioner, the Building & Loan has the
authority to invest in various types of liquid assets, including United States
Treasury obligations, obligations of various Federal agencies and corporations
and of state and municipal governments, Federal Home Loan Bank of Chicago stock,
and certificates of deposit, demand or savings accounts or other insured
obligations of federally insured financial institutions. Subject to various
restrictions, the Building & Loan may also invest a portion of its assets in
investment grade commercial paper and debt securities.
Investment decisions are made by the C.E.O. of CGB&L in accordance with an
investment policy adopted by the Board of Directors of CGB&L. Under the
investment policy in effect as of the date hereof, CGB&L is permitted to invest
in U.S. treasury bills, notes and bonds, securities backed by the full faith and
credit of the federal government or federal agencies, state, county and
municipal securities that meet specified credit standards and certificates of
deposit, demand or savings accounts or other insured obligations of federally
insured financial institutions. Under CGB&L's investment policy, CGB&L may
invest in certain other forms of bank-eligible securities if such investment is
approved by the Board of Directors.
At March 31, 1999 CGB&L held $211,827 in investments securities, compared
with $175,329 at March 31, 1998.
The following table sets forth CGB&L's investment securities portfolio at
carrying value at the dates indicated.
March 31,
-------------------------------------------
1999 1998
------------------- --------------------
Book Percent of Book Percent of
Value Portfolio Value Portfolio
-------- ---------- -------- ----------
FHLMC common stock.......... $211,827 100% $175,329 100%
======== ==== ======== ====
The FHLMC common stock had a book value and market value of $211,827 as of March
31, 1999 which was in excess of 10% of CGB&L's retained earnings at that date.
LENDING ACTIVITIES
GENERAL. Historically, the principal lending activity of the Building & Loan
has been the origination of long-term fixed-rate mortgage loans for the purpose
of constructing, financing or refinancing one- to four-family residential
properties. The Building & Loan also originates, from time to time, multi-family
and commercial real estate loans, and consumer share loans, although such loans
presently constitute a relatively small percentage of the Building & Loan's
total loan portfolio.
8
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LOAN PORTFOLIO COMPOSITION. Virtually all of the loan portfolio is secured
by properties located in Piatt, Macon, and Moultrie counties in Central
Illinois. All loans are fixed rate loans with maximum maturities of 20 years or
less. The Building & Loan has historically not sold loans in the secondary
mortgage market, including transactions with FHLMC or mortgage brokers. The
following table sets forth the composition of the consolidated loan portfolio in
dollar amounts and in percentages of the respective portfolios at the dates
indicated:
Amount of Loans Outstanding at
------------------------------
March March
31, 1999 31, 1998
---------- ---------
Real estate
One- to four-family residential $5,272,294 $5,303,917
Multi-family residential 78,901 87,348
Commercial 174,524 185,060
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Total Real Estate Mortgage Loans 5,525,719 5,576,325
Consumer (Share loans) 67,892 79,534
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5,593,611 5,655,859
Less:
Undisbursed portion of loans (1) (100,291) (23,555)
Deferred loan fees (70,347) (73,415)
---------- ---------
Total loans, gross 5,422,973 5,558,889
Allowance for loan losses (32,700) (32,700)
---------- ----------
Total loans, net $5,390,273 $5,526,189
========== ==========
(1) The undisbursed portion of loans represents amounts included in gross loans
that have approved, but not disbursed to the borrower.
Percentage of Loans Outstanding at
----------------------------------
March March
31, 1999 31, 1998
-------- --------
Real estate:
One- to four-family 94.3% 93.8%
Multi-family residential 1.4 1.5
Commercial 3.1 3.3
Consumer (Share loans) 1.2 1.4
------- -------
Total loans 100.0% 100.0%
======= =======
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ONE- TO FOUR-FAMILY RESIDENTIAL LOANS. The primary lending activity of the
Building & Loan is the extension of fixed rate first mortgage residential loans
ranging in terms from 15 to 20 years to enable borrowers to purchase existing
one- to four-family homes or to construct new one- to four-family homes.
Management believes that its policy of focusing on one- to four-family
residential mortgage loans has been successful in contributing to interest
income while keeping delinquencies and losses to a minimum.
The average outstanding balance of the loans included in the Building &
Loan's one- to four-family residential loan portfolio as of March 31, 1999 was
approximately $27,000. Management estimates that the average size of a new
single family residential first mortgage loan in its market area is
approximately $45,000.
The loan-to-value ratio of most single family first mortgage loans made by
the Building & Loan is 80%. Under the Building & Loan's lending policies, the
maximum loan-to-value ratio on a loan for the construction of a new single
family residential home is 80%, and the maximum loan-to-value ratio on loans on
two- to four-family dwellings is 80%.
The Building & Loan requires title insurance, or an attorney's opinion as to
title, and fire and casualty insurance coverage of the property securing any
mortgage loan originated by the Building & Loan. All of the Building & Loan's
real estate loans contain due-on-sale clauses which provide that if the
mortgagor sells, conveys or alienates the property underlying the mortgage note,
the Building & Loan has the right at its option to declare the note immediately
due and payable without notice. The Building & Loan's practice is to enforce
such due-on-sales clauses.
MULTI-FAMILY RESIDENTIAL LENDING. Under the Building & Loan's current lending
policies, multi-family real estate loans are generally limited to 80% of the
appraised value of the property or the selling price, whichever is less. Loans
secured by multi-family real estate are generally larger and, like commercial
real estate loans, involve a greater degree of risk than one- to four-family
residential loans. The number of multi-family residential dwellings in the
Building & Loan's market area is limited, and mortgage loans on such dwellings
have historically represented a relatively small percentage of the Building &
Loan's loan portfolio. The Building & Loan does not anticipate that the
origination of such loans will constitute a significant part of its future
lending business.
COMMERCIAL REAL ESTATE LOANS. The Building & Loan has historically made
commercial real estate loans on a limited basis. Such loans are currently
secured by office and retail buildings. Borrowers are always established
businesses with ties to the Cerro Gordo community.
Loans secured by commercial real estate are generally larger and involve a
greater degree of risk than one- to four-family residential loans. Because
payments on loans secured by commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be subject to adverse conditions in the real estate market or
the economy. The Building & Loan's practice has been to underwrite such loans
based on its analysis of the amount of cash flow generated by the business in
which the real estate is used and the resulting ability of the borrower to meet
its payment obligations. Although such loans
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are secured by a first mortgage on the underlying property, the Building & Loan
also generally seeks to obtain a personal guarantee of the loan by the owner of
the business in which the property is used. The Building & Loan does not
anticipate that the origination of such loans will constitute a significant part
of its future lending business.
SHARES LOANS. Share Loans are loans to depositors of the Building & Loan
which are secured by the borrowers' deposits. Under the Building & Loan's
current lending policies, share loans are limited to 90% of the borrower's
savings on deposit with the Building & Loan. The borrower's passbook account or
certificate of deposit is flagged by the Building & Loan. These accounts are
monitored to insure that the loan principal and interest balance is not more
than 90% of the borrower's passbook account or certificate of deposit. The rate
of interest charged on share loans is the greater of (i) the rate on direct
reduction mortgage loans on personal residences, or (ii) one and one-half
percent over the interest rate paid on the passbook account or certificate of
deposit which is pledged as collateral.
DELINQUENCIES. The Building & Loan's collection procedures with respect to
delinquent loans include written notice of delinquency and contact by letter or
telephone by Building & Loan personnel. Most loan delinquencies are cured within
90 days and no legal action is taken. With respect to mortgage loans, if the
delinquency exceeds 90 days, the Building & Loan institutes measures to enforce
its remedies resulting from the default, including the commencement of
foreclosure action or the repossession of collateral.
NON-PERFORMING ASSETS. Non-performing assets include loans placed on
non-accrual status, loans that are 90 or more days past due, troubled debt
restructurings and foreclosed properties. The Building & Loan places loans that
are 90 days or more past due on non-accrual status unless such loans are
adequately collateralized and in the process of collection. Accrual of interest
on a non-accrual loan is resumed only when all contractually past due payments
are brought current and management believes that the outstanding loan principal
and contractually due interest are no longer doubtful of collection. As of March
31, 1999, no loans had been placed on non-accrual status.
Property acquired by the Building & Loan as a result of a foreclosure,
property upon which a judgement of foreclosure has been entered but for which no
foreclosure sale has yet taken place and property which is in substance
foreclosed are classified as foreclosed property or real estate owned.
Foreclosed properties are recorded at the lower of the unpaid principal balance
of the related loan or fair market value. The amount by which the recorded loan
balance exceeds the fair market value at the time the property is classified as
foreclosed property is charged against the allowance for loans losses. Any
subsequent reduction in the carrying value of a foreclosed property, along with
expenses to maintain or dispose of a foreclosed property, is charged against
current earnings. As of March 31, 1999, the Building & Loan had no foreclosed
properties or "real estate owned."
The following table sets forth information with respect to the Building &
Loan's non-performing assets for the periods indicated. During the periods
shown, the Building & Loan had no troubled debt restructured loans within the
meaning of Statement of SFAS 15.
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At March 31,
--------------------
1999 1998
-------- --------
Loans accounted for on
a non-accrual basis: .................................. $ -- $ --
Accruing loans which are contractually
Past due 90 days or more:
Real estate -
One- to four-family ................................. 57,415 11,116
Multi-family ........................................ -- --
Commercial .......................................... -- --
Share ................................................ -- --
-------- --------
TOTAL ............................................... $ 57,415 $ 11,116
-------- --------
Total of Nonaccrual and 90 days past due loans .......... $ 57,415 $ 11,116
Real estate owned ....................................... -- --
Other Non-Performing Assets ............................. $ -- --
-------- --------
Total nonperforming assets ............................ $ 57,415 $ 11,116
======== ========
Total loans delinquent 90 days or more net loans ........ 1.07% .20%
Total loans delinquent 90 days or more to total assets .. .78% .16%
Total nonperforming assets
To total assets ....................................... .78% .16%
As of and during years ended March 31, 1999 and 1998 there were no impaired
loans. As of March 31, 1999 the Building & Loan has no loans which are not
described above, but where known information about possible credit problems of
borrowers causes management to have serious doubts as to the ability of such
borrowers to comply with the present repayment terms.
CLASSIFIED ASSETS. FDIC policies require that each insured depository
institution review and classify its assets on a regular basis. In addition, in
connection with examinations of insured institutions, regulatory examiners have
the authority to identify problem assets and, if appropriate, require them to be
classified. The Building & Loan reviews and classifies its assets at least
quarterly. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets must have one or more defined weaknesses
and are characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. Doubtful assets
have the weaknesses of substandard assets, with the additional characteristic
that the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions and values, questionable, and there is a
high possibility of loss. An asset classified as loss is considered unable to
collect and of such little value that continued treatment of the asset as an
asset on the books of the institution is not warranted.
An insured institution is required to establish prudent general allowances
for loan losses with respect to assets classified as substandard or doubtful.
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<PAGE>
The institution is required either to charge off assets classified as loss or to
establish a specific allowance for 100% of the portion of the asset classified
as loss.
At March 31, 1999 and 1998 the aggregate amounts of the Building & Loan's
classified assets, and of Building & Loan's general loss allowances for the
period then ended, were as follows:
At March 31,
------------------------
1999 1998
------- -------
Substandard assets.................... $57,415 $11,116
General loss allowances............... $32,700 $32,700
The classified assets identified in the table above at March 31, 1999 relate
to two residential mortgage loans.
ALLOWANCE FOR LOAN LOSSES. Under applicable federal policies and general
accepted accounting principles the Building & Loan is required to establish
general allowances for loan losses. In addition to such general valuation
allowances, the Building & Loan may establish specific assets with respect to
which a loss may be realized. General allowances represent loss allowances which
have been established to recognize the inherent risks associated with lending
activities, but which, unlike specific allowances, have not been allocated to
recognize probable losses on particular problem assets.
The Building & Loan's management evaluates the amount of its allowance for
loan losses quarterly. Such evaluation includes a review of all loans for which
full ability to collect may not be reasonably assured and considers among other
matters, the estimated market value of the underlying collateral of problem
loans, prior loss experience, economic conditions and overall portfolio quality.
The Building & Loan's determination as to its classi- fication of assets and the
amount of its specific and general valuation allowances are subject to review by
the Commissioner and the FDIC, either of which can require the Building & Loan
to establish additional general or specific loan loss allowances. Provisions for
losses are charged against earnings in the year they are established and added
to the allowance. Loan losses are charged against the allowance.
The Building & Loan established provisions for loan losses for the years
ended March 31, 1999 and March 31, 1998 of $0 and $27,000, respectively. At
March 31, 1999, the Building & Loan had an allowance for loan losses of $32,700,
or, .60%, of total loans, and 56.96% of non-performing assets.
Management believes that the Building & Loan's loan loss reserves were
adequate at March 31, 1999. There can be no assurance, however, that the
allowance for loan losses will be adequate to cover losses which may in fact be
realized in the future and that additional provisions for loan losses will not
be required. Any material increase in reserves or material loss for which an
adequate reserve has not been established may adversely affect the Building &
Loan's financial condition and earnings.
The following table sets forth an analysis of the Building & Loan's gross
allowance for possible loan losses for the periods indicated. Where specific
loan loss reserves have been established, any difference between the loss
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reserve and the amount of loss realized has been charged or credited to current
income.
Period Ended March 31,
-------------------------
1999 1998
------- -------
Allowance at beginning of period........ $32,700 $ 6,200
Provision for loan losses............... -- 26,500
Total recoveries...................... -- --
Total charge offs..................... -- --
------- -------
Balance at end of period.............. $32,700 $32,700
======= =======
Ratio of allowance to total loans
Outstanding at the end of the period .60% .58%
Ratio of net charge offs to average
Loans outstanding during the period N/A N/A
The following table sets forth the breakdown of the allowance for loan losses
by loan category for the periods indicated.
<TABLE>
<CAPTION>
At March 31,
-----------------------------------------------------
1999 1998
-------------------------- -------------------------
As % of As % of
Outstanding Loans Outstanding Loans
Amount in Category Amount in Category
------- ----------------- ------- -----------------
<S> <C> <C> <C> <C>
Real estate - mortgage:
One- to four- family.................... $30,850 94% $30,850 94%
Multi-family............................ -- -- -- --
Commercial.............................. 1,850 6% 1,850 6%
Share..................................... -- -- -- --
Unallocated............................... -- -- -- --
------- ---- ------- ----
Total allowance for
Loan losses.............................. $32,700 100% $32,700 100%
======= ==== ======= ====
</TABLE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. The Building & Loan's primary sources of funds for use in lending
and investing and for other general purposes are deposits and proceeds from
principal and interest payments on loans, investment securities and interest
bearing time deposits. Contractual loan repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources.
DEPOSIT ACCOUNTS. The Building & Loan attracts deposits within its primary
market area by offering a variety of deposit accounts, including passbook
savings accounts and certificates of deposit. The flow of deposits is influenced
significantly by general economic conditions, changes in money market and
prevailing interest rates, and competition. Management generally
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reviews at least on a monthly basis the interest rates set for its deposit
accounts. The Building & Loan has historically paid deposit rates at the higher
end of the range offered by its competitors, in order to retain existing and
attract new deposits, although there are no assurances that management will
continue the practice in the future. Such practice is also subject to regulation
by the FDIC. The Building & Loan also relies on customer service and
long-standing relationships with customers to attract and retain deposits.
At March 31, 1999, the Building & Loan had one $100,000 deposit invested in a
certificate account in the amount of $100,000 with a remaining maturity of 3
months or less.
The following table shows the average amount of deposits and average rate of
interest paid thereon for the years indicated.
March 31, 1999 March 31, 1998
----------------- -----------------
Amount Rate Amount Rate
---------- ----- ---------- -----
Regular Savings Accounts $ 473,674 2.50% $ 488,812 3.10%
Fixed Rate Certificate of Deposit 4,649,831 5.57% 4,855,689 5.64%
---------- ----- ---------- -----
Total Deposits $5,123,505 5.33% $5,344,501 5.41%
========== ===== ========== =====
RETURN ON EQUITY AND ASSETS 1999 1998
------ ------
Return on assets (net income divided by
average total assets) 0.52% 0.63%
Return on equity (net income divided by
average total equity) (1) 2.75% 4.60%
Dividend payout ratio (dividends per
share divided by net income per share) 0.0 % 0.0 %
Equity to assets ratio (average equity
divided by average total assets) (1) 18.81% 13.62%
(1) Prior to Conversion on September 22, 1998, data relates to total equity
capital.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES, LITIGATION REFORM ACT OF
1995
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. CGB&L intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995, and is
including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of CGB&L, are generally identifiable
by use of the words "believe," "expect," "intend," "anticipate," "estimate,"
"project" or similar expressions. CGB&L's ability to predict results or the
actual effect of future plans or strategies is inherently uncertain. Factors
which could have a material adverse affect on the operations and future
prospects of CGB&L and the subsidiaries include, but are not limited to, changes
in: interest rates, general economic conditions,
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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
CGB&L's market area and accounting principles, policies and guidelines. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Such
statements speak only of CGB&L's views as of the date this statement was made,
and they are not a guarantee of future performance. Certain factors concerning
CGB&L and its business, including additional factors that could materially
affect CGB&L's financial results, are listed below.
The substantial increase in stockholder's equity due to the conversion may
result in a reduction of the Building & Loan's return on average equity (net
income divided by average equity) compared with historical levels, absent a
corresponding increase in net income. It is not expected that the Building and
Loan will be able to increase net income in future periods commensurate with the
increase in equity.
The Building & Loan depends to a considerable degree on a limited number of
key management personnel, in particular, the C.E.O., Maralyn F. Heckman. The
loss of such personnel could adversely effect the Building and Loan's
operations. CGB&L and the Building & Loan have entered into Employment
Agreements with Mrs. Heckman. Management believes that the future success of
CGB&L will depend in large part upon its abilities to attract and retain
qualified personnel.
The ESOP and MRP expenses planned for employee incentive, will increase
employee compensation expense in the future and could effect the future earnings
of the Building & Loan.
Potential impact of changes in real estate property values could have a
material effect on the Building and Loan's operations. At March 31, 1999,
approximately 98.8% of the Building & Loan's net loan portfolio consisted of
loans secured by real estate properties located in central Illinois. There is no
assurance as to the future performance of the central Illinois real estate
markets.
Potential effects of changes in interest rates could effect the Building &
Loan's future earnings. The operations of the Building and Loan are
substantially dependent on its net interest income, which is the difference
between the interest income earned on its interest-earning assets and the
interest expense paid on its interest-bearing liabilities. "See Business of the
Building & Loan."
Significant competition both in attracting deposits and in originating loans
could be a factor to the Building & Loan's future earnings due to the low growth
primary market area.
The factors discussed above, among others, could cause our actual results to
differ. Though CGB&L has attempted to list the important factors above, CGB&L
cautions you that other factors may in the future prove to be important in
affecting CGB&L's results. New factors emerge from time to time, and it is not
possible for management to predict all of such factors, nor can it
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assess the impact of each such factor on the business or the extent to which any
factor or combination of factors may cause actual results to differ materially
from those contained in any forward looking statement.
ASSET AND LIABILITY MANAGEMENT
Asset and liability management is used to maintain an appropriate balance
between liquidity for the Building and Loan, on the one hand, and
interest-earning assets and interest-bearing liabilities, on the other, in order
to produce stable net income during changing market interest-rate cycles. The
Building and Loan's Board of Directors monitors its interest rate sensitivity
through the use of the net portfolio value model produced by the Commissioner
which generates estimates of the change in the Savings Bank's net portfolio
value ("NPV") over a range of interest rate scenarios. NPV is the present value
of expected cash flows from assets, liabilities, and off-balance sheet
contracts. The NPV ratio, under any interest rate scenario, is defined as the
NPV in that scenario divided by the market value of assets in the same scenario.
The Commissioner produces such estimates utilizing its own model, based upon
data submitted on the Building and Loan's Call Report on a quarterly basis. The
Commissioner's model assumes estimated loan prepayment rates, reinvestment rates
and deposit decay rates. The following table sets forth the Building and Loan's
NPV as of March 31, 1999 as calculated by the Commissioner.
NPV as % of Portfolio
Net Portfolio Value Value of Assets
-------------------------- ---------------------
Change (In Basis Points)
In Interest Rates (1) Amount Change % Change NPV Ratio Change(1)
- ------------------------ ------ ------ -------- --------- ---------
(Dollars in Thousands)
+ 400 $1,144 $(293) (26) 17.30 (234)
+ 300 1,256 (181) (15) 18.42 (122)
+ 200 1,369 (68) (5) 19.46 (18)
+ 100 1,465 28 2 20.25 61
0 1,437 -- -- 19.64 --
- 100 1,470 33 2 19.69 6
- 200 1,454 17 1 19.22 (42)
- 300 1,452 15 1 18.90 (74)
- 400 1,454 17 1 18.61 (103)
(1) Assumes an instantaneous and permanent uniform change in interest rates at
all maturities.
Management believes that the assumptions used by it to evaluate the
vulnerability of the Building and Loan's operations to changes in interest
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rates approximate actual experience and considers them reasonable; however, the
interest rate sensitivity of the Building and Loan's assets and liabilities and
the estimated effects of changes in interest rates on the Building and Loan's
net income and NPV indicated in the above table could vary substantially if
different assumptions were used or actual experience differs from the historical
experience on which they are based. In addition, the interest rate
characteristics of certain of the Building and Loan's asset and liabilities
impact the results of the above table.
COMPETITION
The Building & Loan faces strong competition both in attracting deposits and
making real estate loans. Its most direct competition for deposits has
historically come from other savings institutions, credit unions and commercial
banks located in its market area including many large financial institutions
that have greater financial and marketing resources available to them. As of
March 31, 1999, the Building & Loan's total deposits ranked eighth out of eight
commercial banks and savings associations operating in Piatt County, Illinois.
In addition, during times of high interest rates, the Building & Loan has faced
significant competition for investors' funds from short-term money market
securities, mutual funds and other corporate and government securities. The
ability of the Building & Loan to attract and retain savings deposits depends on
its ability to generally provide a rate of return, liquidity and risk comparable
to that offered by competing investment opportunities.
The Building & Loan experiences strong competition for real estate loans
principally from other savings institutions, and commercial banks. The Building
& Loan competes for loans principally through the interest rates and loan fees
it charges, the efficiency and quality of services it provides borrowers and the
convenient location of its office. Competition may increase as a result of the
continuing reduction of restrictions on the interstate operations of financial
institutions.
LIQUIDITY
The Building and Loan's primary sources of funds are deposits, principal and
interest payments on loans and FHLB advances. While maturities and scheduled
amortizations of loans are predictable sources of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions, and competition. CGB&L's initial stock offering, which was completed
on September 22, 1998, contributed substantially to the CGB&L's overall
liquidity levels. The Federal Deposit Insurance Corporation ("FDIC"), CGB&L's
and the Building and Loan's primary regulator, requires the Building and Loan to
maintain minimum levels of liquid assets. Currently, the required ratio is 5%.
The Building and Loan's liquidity ratio was 29.63% at March 31, 1999, well above
the required minimum.
As of March 31, 1999, the Building and Loan had outstanding commitments
(including undisbursed loan proceeds) of $100,291. The Building and Loan
anticipates that it will have sufficient funds available to meet its current
loan origination commitments. Certificates of deposit, which are scheduled to
mature in one year or less from March 31, 1999, total approximately $3 million.
Based upon the Building and Loan's experience, management believes that a
significant portion of such deposits will remain with the Building and Loan.
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PERSONNEL
As of March 31, 1999, the Building & Loan had a total of 4 full-time
employees. The Building & Loan's employees are not represented by a union or
collective bargaining group. The Building & Loan considers its relationship with
its employees to be satisfactory.
REGULATION AND SUPERVISION
GENERAL
Financial institutions and their holding companies are extensively regulated
under federal and state law by various regulatory authorities including the
Federal Reserve Board, the Federal Deposit Insurance Corporation "FDIC" and the
Illinois Office of Banks and Real Estate "Commissioner". The financial
performance of the CGB&L and the Building & Loan may be affected by such
regulation, although the extent to which they may be affected cannot be
predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions and their holding companies regulate, among other things, the scope
of business, investments, reserves against deposits, capital levels relative to
operations, the nature and amount of collateral for loans, the establishment of
branches, mergers, consolidations and dividends. The system of supervision and
regulation applicable to the CGB&L and the Building & Loan established a
comprehensive framework for their operations and is intended primarily for the
protection of the FDIC's deposit insurance funds and the depositors of the
Building & Loan, rather than the stockholders of the CGB&L.
The following references to material statutes and regulations affecting the
CGB&L and the Building & Loan are brief summaries thereof and are qualified in
their entirety by reference to such statutes and regulations. Any change in
applicable law or regulations may have a material effect on the business of the
CGB&L and the Building & Loan.
THE BUILDING & LOAN
GENERAL. The Building & Loan is an Illinois-chartered savings bank, with
deposit accounts which are insured by the Saving Association Insurance Fund
"SAIF" of the FDIC. The Building & Loan is subject to the examination,
supervision, reporting and enforcement requirements of the Commissioner, as the
chartering authority for Illinois savings banks, and the FDIC, as administrator
of the SAIF, and to the statutes and regulations administered by the
Commissioner and the FDIC governing such matters as capital standards, mergers,
establishment of branch offices, subsidiary investments and activities and
general investment authority. The Building & Loan is required to file reports
with the Commissioner and the FDIC concerning its activities and financial
condition and will be required to obtain regulatory approvals prior to entering
into certain transactions, including mergers with, or acquisitions of, other
financial institutions.
The Commissioner and the FDIC have extensive enforcement authority over
Illinois-chartered saving banks, such as the Building & Loan. This enforcement
authority includes, among other things, the ability to issue cease-and-desist or
removal orders, to assess civil money penalties and to
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<PAGE>
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe and unsound
practices.
The Commissioner has established a schedule for the assessment of
"supervisory fees" upon all Illinois savings banks to fund the operations of the
Commissioner. These supervisory fees are computed on the basis of each saving
bank's total assets (including consolidated subsidiaries) and are payable at the
end of each calendar quarter. A schedule of fees has also been established for
certain filings made by Illinois savings banks with the Commissioner. The
Commissioner also assesses fees for examinations conducted by the Commissioner's
staff, based upon the number of hours spent by the Commissioner's staff
performing the examination. During the fiscal year ended March 31, 1999, the
Building & Loan paid approximately $3,000 in supervisory fees and expenses.
CAPITAL REQUIREMENTS. Under the Illinois Savings Bank Act "ISBA" and the
regulations of the Commissioner, an Illinois savings bank must maintain a
minimum level of total capital equal to the higher of 3% of total assets or the
amount required to maintain insurance of deposits by the FDIC. The Commissioner
has the authority to require an Illinois savings bank to maintain a higher level
of capital if the Commissioner deems such higher level necessary based on the
savings bank's financial condition, history, management or earnings prospects.
FDIC-insured institutions are required to follow certain capital adequacy
guidelines which prescribe minimum levels of capital and require that
institutions meet certain risk-based and leverage capital requirements.
FDIC-insured institutions in the strongest financial and managerial condition
(those not experiencing significant growth, with well-diversified risks,
excellent asset quality, gross earnings and a composite rating of "1" under the
Uniform Financial Institutions Rating System) are required to maintain "Tier 1
capital" to total assets of 3% (the "leverage capital requirement). For all
other FDIC-insured institutions, the minimum leverage limit requirement is a
ratio of tier 1 capital to total assets of 4%. Tier 1 capital is defined to
include the sum of common stockholders' equity, noncumulative perpetual stock
(including any related surplus), and minority interests in consolidated
subsidiaries, minus all intangible assets (other than qualifying servicing
rights, qualifying purchased credit-card relation- ships and qualifying
supervisory goodwill), certain identified losses (as defined in the FDIC's
regulations) and investments in certain subsidiaries.
FDIC-insured institutions also are required to adhere to certain risk-based
capital guidelines which are designed to provide a measure of capital more
sensitive to the risk profiles of individual banks. Under the risk-based capital
guidelines, capital is divided into two tiers: core (Tier 1)capital, as defined
above, and supplementary (Tier 2) capital. Tier 2 capital that may be recognized
for risk-based capital purposes is limited to 100% of core capital and includes
cumulative perpetual preferred stock, perpetual preferred stock for which the
dividend rate is reset periodically based on current credit standing, regardless
of whether dividends are cumulative or noncumulative, mandatory convertible
securities, subordinated debt, intermediate preferred stock and the allowance
for possible loan and lease losses. The allowance for possible loan and lease
losses includable in Tier 2 capital is limited to a maximum of 1.25% of
risk-weighted assets.
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Total capital is the sum of Tier 1 and Tier 2 capital. The risk-based capital
framework assigns balance sheet assets to one of four broad risk categories
which are assigned risk weighs ranging from 0% to 100% based primarily on the
degree of credit risk associated with the obligor. Off-balance sheet items are
converted on an on-balance sheet "credit equivalent" amount utilizing certain
conversion factors. The sum of the four risk-weighted categories equals risk
weighted assets.
FDIC insured institutions must maintain Tier 1 capital of not less than 4% of
risk-weighted assets and total capital of not less than 8% of risk-weighted
assets. At March 31, 1999, the Building and Loan was in compliance with
applicable regulatory capital requirements as follows:
Tier 1 Capital to Average Assets 15.74%
Tier 1 Capital to Risk Weighted Assets 35.62%
Risk Based Capital to Risk Weighted Assets 36.67%
DIVIDENDS. Under the ISBA, dividends may only be declared when the total
capital of the Building & Loan is greater that that required by Illinois law.
Dividends may be paid by the Building & Loan out of its net profits (i.e.,
earnings from current operations, plus actual recoveries on loans, investments
and other assets, after deducting all current expenses, including dividends or
interest on deposits, additions to reserves as required by the Commissioner,
actual losses, accrued dividends on preferred stock, if any, and all state and
federal taxes). The written approval of the Commissioner must be obtained,
however, before a savings bank having total capital of less than 6% of total
assets may declare dividends in any calendar year in an amount in excess of 50%
of its net profits for that calendar year. A Building & Loan may not declare
dividends in excess of its net profits in any year without the approval of the
Commissioner. In addition, before declaring a dividend on its capital stock, the
Building & Loan must transfer no less than 10% of its net profits of the
preceding half year in the case of quarterly of semi-annual dividends, or not
less than 10% of the net profits for the preceding two half periods in the case
of annual dividends to its paid-in surplus until it shall have paid in surplus
equal to its capital stock. Finally, the Building & Loan will be unable to pay
dividends in an amount which would reduce its capital below the greater (i) the
amount required by the FDIC, (ii) the amount required by the Commissioner or
(iii) the amount required for the liquidation account established by the
Building & Loan in connection with the Conversion. The Commissioner and the FDIC
also have the authority to prohibit the payment of any dividends by the Building
& Loan if the Commissioner or the FDIC determines that the distribution would
constitute an unsafe or unsound practice. For the calendar year ended March 31,
1999, the Building & Loan's net profits were $42,761, and the Building & Loan
could have paid dividends totaling $42,761 without the written approval of the
Commissioner and continued to maintain compliance with its capital requirements.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies adopted
Interagency Guidelines Establishing Standards for Safety and Soundness (the
"Guidelines"). The Guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The Guidelines address
internal controls and information systems, internal audit system, credit
underwriting, loan documentation, interest rate risk exposure,
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asset growth, asset quality, earnings and compensation, and fees and benefits.
If FDIC determines that an insured institution fails to meet any standard
prescribed by the Guidelines, the FDIC may require the institution to submit an
acceptable plan to achieve compliance with the standard.
BROKERED DEPOSITS. FDIC regulations govern the acceptance of brokered
deposits by insured financial institutions. Well-capitalized insured financial
institutions that are not troubled are not subject to brokered deposit
limitations. Adequately-capitalized insured financial institutions are able to
accept, renew or roll over brokered deposits but only (i) with a waiver from the
FDIC and (ii) subject to the limitation that they do not pay an effective yield
on any such deposit that exceeds by more than 75 basis points (a) the effective
yield paid on deposits of comparable size and maturity in such association's
normal market area for deposits accepted in it normal market area or (b) the
national prime rate paid on deposits of comparable size and maturity for
deposits accepted outside the institution's normal market area. Undercapitalized
insured financial institutions are not permitted to accept brokered deposits and
may not solicit deposits by offering an effective yield that exceeds by more
than 75 basis points the prevailing effective yields on insured deposits of
comparable maturity in the institution's normal market area or the market area
in which such deposits are being solicited. The Building & Loan is not presently
soliciting brokered deposits.
LENDING RESTRICTIONS. Under the ISBA, the Building & Loan is prohibited from
making secured or unsecured loans for business, corporate, commercial or
agricultural purposes representing in the aggregate an amount in excess of 15%
of its total assets, unless a greater amount is authorized in writing by the
Commissioner.
The Building & Loan is also subject to a loans-to-one borrower limitation.
Under the ISBA, the total loans and extensions of credit, both direct and
indirect, by the Building & Loan to any person (other than the United States or
its agencies, the State of Illinois or its agencies, and any municipal
corporation for money borrowed) outstanding at one time must not exceed the
greater of $500,000 or 20% of the Building & Loan's total capital plus general
loan loss reserves. In addition, the Building & Loan may make loans in an amount
equal to an additional 10% of the Building & Loan's capital plus general loan
loss reserves if the loans are 100% secured by readily marketable collateral.
The FDIC and the other federal banking agencies have adopted regulations that
prescribe standards for extensions of credit that (i) are secured by real estate
or (ii) are made for the purpose of financing the construction or improvements
on real estate. The FDIC regulations require each institution to establish and
maintain written internal real estate lending standards that are consistent with
safe and sound banking practices and appropriate to the size of the institution
and the nature and scope of its real estate lending activities. The standards
also must be consistent with FDIC guidelines, which include loan-to-value
limitations for the different types of real estate loans. Institutions are also
permitted to make a limited amount of loans that do not conform to the proposed
loan-to-value limitations so long as such exceptions are reviewed and justified
appropriately. The guidelines also list a number of lending situations in which
exceptions to the loan-to-value standard are justified.
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PROMPT CORRECTIVE REGULATORY ACTION. Federal law requires, among other
things, that federal regulatory authorities take "prompt corrective action" with
respect to savings banks that do not meet minimum capital requirements. For
these purposes, the law establishes five capital categories: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective action
legislation. Among other things, regulations define the relevant capital
measures for the five capital categories. An institution is deemed to be "well
capitalized" if it has a total risk-based capital ratio of 10% or greater, a
Tier I risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or
greater, and is not subject to a regulatory order, agreement or directive to
meet and maintain a specific capital level for any capital measure. An
institution is deemed to be "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, a Tier I risk-based capital ratio of
4% or greater, and generally a leverage ratio of 4% or greater. An institution
is deemed to be "undercapitalized" if it has a total risk-based capital ration
of less than 8%, a Tier I risk-based capital ratio of less than 4%, or generally
a leverage ratio of less than 4%. An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it has
a ratio of tangible equity (as defined in the regulations) to total assets that
is equal to or less than 2%.
"Undercapitalized" institutions are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. An institution's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institutions in an
amount equal to the lesser of 5.0% of the institution's total assets when deemed
undercapitalized or the amount necessary to achieve the status of adequately
capitalized. If an "undercapitalized" institution fails to submit an acceptable
plan, it is treated as if it is "significantly undercapitalized." "Significantly
undercapitalized" institutions are subject to one or more of a number of
additional restrictions, including but not limited to an order by the FDIC to
sell sufficient voting stock to become adequately capitalized, requirements to
reduce total assets and cease receipt of deposits from correspondent banks or
dismiss directors or officers, and restrictions on interest rates paid on
deposits, compensation of executive officers and capital distributions by the
parent holding company. "Critically undercapitalized" institutions also may not,
beginning 60 days after becoming "critically undercapitalized," make any payment
of principal or interest on certain subordinated debt or extend credit for a
highly leveraged transaction or enter into any material transaction outside the
ordinary course of business. In addition, "critically undercapitalized"
institutions are subject to appointment of a receiver or conservator. Generally,
subject to a narrow exception, the appointment of a receiver or conservator is
required for a "critically undercapitalized" institution within 270 days after
it obtains such status.
TRANSACTIONS WITH AFFILIATES. Under current federal law, transactions between
depository institutions and their affiliates are governed by Sections 23A and
23B of the Federal Reserve Act. An affiliate of a savings bank is any company or
entity that controls, is controlled by, or is under common
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control with the savings bank, other than a subsidiary. In a holding company
context, at a minimum, the parent holding company of a savings bank and any
companies which are controlled by such parent holding companies are affiliates
of the savings bank. Generally, Section 23A limits the extent to which the
Building & Loan or its subsidiaries may engage in "covered transactions" with
any one affiliate to an amount equal to 10% of the Building and Loan's capital
stock and surplus, and contains an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus. The
term "covered transactions" includes the making of loans or other extensions of
credit to an affiliate; the purchase of assets from an affiliate; the purchase
of, or an investment in, the securities of an affiliate; the acceptance of
securities of an affiliate as collateral for a loan or extension of credit to
any person; or issuance of a guarantee, acceptance, or letter of credit on
behalf of an affiliate. Section 23A also establishes specific collateral
requirements for loans or extensions of credit to, or guarantees, acceptances on
letters of credit issued on behalf of an affiliate. Section 23B requires that
covered transactions and a broad list of other specified transactions be on
terms substantially the same, or no less favorable, to the savings bank or its
subsidiary as similar transactions with nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings bank
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and shareholders who
control 10% of more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person and their related interests) as to which
such prior board of director approval is required, is greater of $25,000 or 5%
of capital and surplus or any loans over $500,000. Further, pursuant to Section
22(h), loans to directors, executive officers and principal shareholders must be
made on terms substantially the same as offered in comparable transactions to
other persons, except that such insiders may receive preferential loans made
pursuant to a benefit or compensation program that is widely available to the
institution's employees and does not give preference to the insider over other
employees. Section 22(g) of the Federal Reserve Act places additional
limitations on loans to executive officers.
INSURANCE OF DEPOSIT ACCOUNTS. Deposits of the Building & Loan are presently
insured by the SAIF. The SAIF and the Bank Insurance Fund (the "BIF") are
required by law to achieve and maintain a ratio of insurance reserves to total
insured deposits equal to 1.25% percent. The BIF reached this required reserve
ratio during 1995, while some predictions indicated the SAIF would not reach
this target until the year 2002. The SAIF had not grown as quickly as the BIF
for many reasons, but in large part because almost half of SAIF premiums had to
be used to retire bonds issued by the Financing Corporation ("FICO Bonds") in
the late 1980s to recapitalize the Federal Savings and Loan Insurance
Corporation.
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Until 1995, the SAIF and BIF deposit insurance premium rate schedules had
been identical. But in mid-1995, the FDIC issued final rules modifying its
assessment rate schedules for SAIF and BIF member institutions. Under the
revised schedule, SAIF members continued to pay assessments ranging from $0.23
to $0.31 per $100 of deposits, while BIF members paid assessments ranging from
zero to $0.27 per $100 of deposits, but the majority of BIF members paid only
the minimum annual premium. Thrift industry representatives argued that this
significant premium differential caused savings associations to operate at a
competitive disadvantage to their BIF insured bank counterparts.
On September 30, 1996, President Clinton signed the Deposit Insurance Funds
Act of 1996 ("DIFA") which among other things, imposed a special assessment of
65.7 basis points on SAIF assessable deposits held as of March 31, 1995, payable
November 27, 1996. As a result of the DIFA and the special assessment, the FDIC
has lowered the SAIF assessment to the current rate of 0 to 27 basis points.
The amount each insured depository institution pays for FDIC deposit
insurance coverage is determined in accordance with a risk-based assessment
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. SAIF member institutions classified as
well-capitalized and considered healthy pay the lowest premium (currently 0% of
deposits) while SAIF member institutions that are undercapitalized and of
substantial supervisory concern pay the highest premium (currently up to .27% of
deposits).
FICO BOND PAYMENTS. The DIFA also amended the Federal Home Loan Bank Act to
impose the assessment for the payment of the FICO Bonds against both SAIF and
BIF deposits beginning in 1997. As of January 1, 1997, BIF deposits are assessed
for FICO payments at a rate that is 20% of the rate assessed on SAIF deposits.
The FICO assessment rate on BIF and SAIF deposits will be the same beginning on
the earlier of January 1, 2000 or the date the BIF and SAIF are merged.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board regulations require
depository institutions to maintain non-interest-earning reserves against their
transaction accounts (primarily NOW and regular checking accounts). The Federal
Reserve Board regulations currently require that reserves be maintained against
aggregate transaction accounts as follows: for that portion of transaction
accounts aggregating $46.5 million or less (subject to adjustment by the Federal
Reserve Board) the reserve requirement is 3%; and for accounts greater than
$46.5 million, the reserve requirement is $1.46.5 million plus 10% (subject to
adjustment by the Federal Reserve Board between 8% and 14%) against that portion
of total transaction accounts in excess of $46.5 million. The first $4.9 million
of otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. Because required reserves
must be maintained in the form of either vault cash, a non-interest-bearing
account at a Federal Reserve Bank or a pass-through account as defined by the
Federal Reserve Board, the effect of this reserve requirement is to reduce the
Building and Loan's interest-earning assets. Federal Home Loan Bank ("FHLB")
System members are also authorized to borrow from the Federal Reserve "discount
window," but Federal Reserve Board regulations require institutions to exhaust
all FHLB sources before borrowing from a Federal Reserve Bank.
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<PAGE>
COMMUNITY REINVESTMENT ACT. Under the Community Reinvestment Act, as amended
("CRA"), as implemented by FDIC regulations, a savings bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low 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 are
best suited to its particular community, consistent with the CRA. The CRA
requires the FDIC, in connection with its examination of a savings institution,
to assess 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 such institution. The FDIC is required to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
and an institution's rating is subject to public disclosure. The Building &
Loan's latest CRA rating, received from the FDIC was "Satisfactory."
FEDERAL HOME LOAN BANK SYSTEM. The Building & Loan is a member of the FHLB
System, which consists of 12 regional FHLBs. The FHLB provides a central credit
facility primarily for member institutions. The Building & Loan, as a member of
the FHLB of Chicago, is required to acquire and hold shares of capital stock in
that FHLB in an amount at least equal to 1% of the aggregate principal amount of
its unpaid residential mortgage loans and similar obligations at the beginning
of each year, or 1/20 of its advances (borrowings) for the FHLB of Chicago,
whichever is greater. The Building & Loan was in compliance with this
requirement with an investment in FHLB of Chicago stock at March 31, 1999, of
$55,100. FHLB advances must be secured by specified types of collateral and all
long-term advances may only be obtained for the purpose of providing funds for
residential housing financing. At March 31, 1999, the Building & Loan had
$600,000 in FHLB advances.
CGB&L
GENERAL. CGB&L is a bank holding company and is the sole stockholder of the
Building & Loan. As a bank holding company, the CGB&L is required to register
with, and is subject to regulation by, the Federal Reserve Board under the Bank
Holding Company Act ("BHCA"). In accordance with Federal Reserve Board policy,
CGB&L is expected to act as a source of financial strength to the Building &
Loan and to commit resources to support the Building & Loan in circumstances
where CGB&L might not do so absent such policy. Under the BHCA, CGB&L is subject
to periodic examination by the Federal Reserve Board and is required to file
periodic reports of its operations and such additional information as the
Federal Reserve Board may require. Because the Building & Loan is chartered
under Illinois law, CGB&L is also subject to registration with, and regulation
by, the Commissioner under the ISBA.
The BHCA requires prior Federal Reserve Board approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than five percent of the voting shares or
substantially all the assets of any bank or bank holding company, or for a
merger or consolidation of a bank holding company with another bank holding
company. With certain exceptions, the BHCA prohibits a bank holding company from
acquiring direct or indirect ownership or control of voting shares of any
company which is not a bank or a bank holding company and from engaging
26
<PAGE>
directly or indirectly in any activity other than banking or managing or
controlling banks or performing services for its authorized subsidiaries. A bank
holding company may, however, engage in or acquire an interest in a company that
engages in activities which the Federal Reserve Board has determined by
regulation or order to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
A bank holding company is a legal entity separate and distinct from its
subsidiary bank or banks. Normally, the major source of a holding company's
revenue is dividends a holding company receives from its subsidiary banks. The
right of a bank holding company to participate as a stockholder in any
distribution of assets of its subsidiary banks upon their liquidation or
reorganization or otherwise is subject to the prior claims of creditors of such
subsidiary banks. The subsidiary banks are subject to claims by creditors for
long-term and short-term debt obligations, including substantial obligations for
federal funds purchased and securities sold under repurchase agreements, as well
as deposit liabilities. Under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, in the event of a loss suffered by the FDIC in
connection with a banking subsidiary of a bank holding company (whether due to a
default or the provision of FDIC assistance), other banking subsidiaries of the
holding company could be assessed for such loss.
Federal laws limit the transfer of funds by a subsidiary bank to its holding
company in the form of loans or extensions of credit, investments or purchase of
assets. "See The Building & Loan - Transactions with Affiliates".
INTERSTATE BANKING AND BRANCHING
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act"), since September 29, 1995, the Federal Reserve Board is
permitted, under specified circumstances to approve the acquisition by a bank
holding company located in one state of a bank or a bank holding company located
in another state, without regard to any prohibition contained in state law.
The Riegle-Neal Act permits states to require that a target bank have been in
operation for a minimum period, up to five years, and to impose
non-discriminatory limits on the percentage of the total amount of deposits with
insured depository institutions in the state which may be controlled by a single
bank or bank holding company. In addition, the Riegle-Neal Act imposed federal
deposit concentration limits (10% of nationwide total deposits, and 30% of total
deposits in the host state on applications subsequent to the applicant's initial
entry to the host state).
The Riegle-Neal Act also authorized, effective June 1, 1997, the responsible
federal banking agency to approve applications for mergers of banks across state
lines without regard to whether such activity is contrary to state law. Any
state could, however, by adoption of a non-discriminatory law after September
29, 1994 and before June 1, 1997, either elect to have this provision take
effect before June 1, 1997 or opt-out of the provision. The effect of opting out
is to prevent banks chartered by, or having their main office located in, such
state from participating in any interstate branch merger. Each state is
permitted to retain a minimum age requirement of up to five years, a
non-discriminatory deposit cap, and non-discriminatory
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<PAGE>
notice or filing requirements. The responsible federal agency will apply the
same federal concentration limits and capital management adequacy requirements
noted above with respect to BHCA applications. Only Texas opted-out of the
interstate merger provision.
While Illinois adopted legislation to opt-in to the interstate merger
provision, unlike some states and as permitted by federal law, Illinois law does
not authorize the establishment of de novo branches or the purchase by an
out-of-state bank of one or more branches of a bank with its main office in
Illinois. Since the laws of the various states which do authorize de novo
branches or branch purchases normally have reciprocity provisions, Illinois
state-chartered banks generally are not able to establish or acquire branches in
other states except through the merger with a bank in another state.
Branches acquired in a host state by both out-of-state state-chartered and
national banks will be subject to community reinvestment, consumer protection,
fair lending and interstate branching laws of the host state to the same extent
as branches of a national bank having it main office in the host state. Among
other things, the Riegle-Neal Act also preserves state taxation authority,
prohibits the operation by out-of-state banks of interstate branches as deposit
production offices, imposes additional notice requirements upon interstate banks
proposing to close branch offices in a low or moderate-income area, and creates
new Community Reinvestment Act evaluation requirements for interstate depository
institutions.
IMPACT OF NEW ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement requires companies to record derivatives on the
balance sheet at their fair value. Statement No. 133 also acknowledges that
the method of recording a gain or loss depends on the use of the derivative.
The new Statement applies to all entities. If hedge accounting is elected by
the entity, the method of assessing the effectiveness of the hedging derivative
and the measurement approach of determining the hedge's ineffectiveness must be
established at the inception of the hedge.
Statement No. 133 amends Statement No. 52 and supercedes Statements No. 80,
105 and 119. Statement No. 107 is amended to include the disclosure provisions
about the concentrations of credit risk from Statement No. 105. Several Emerging
Issues Task Force consensuses's are also changed or modified by the provisions
of Statement No. 133.
Statement No. 133 will be effective for all fiscal years beginning after June
15, 1999. The Statement may not be applied retroactively to financial statements
of prior periods. The adoption of the Statement will have no material impact on
the Corporation's financial condition or result of operations.
Also in 1998, the FASB issued Statement No. 134, "Accounting for Mortgage-
Backed Securities Retained After the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise." It establishes accounting standards for
certain activities of mortgage banking enterprises and for other enterprises
with similar mortgage operations. This Statement amends Statement No. 65.
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Statement No. 65, as previously amended by Statements No. 115 and 125,
required a mortgage banking enterprise to classify a mortgage-backed security as
a trading security following the securitization of the mortgage loan held for
sale. This Statement further amends Statement No. 65 to require that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities must classify the resulting mortgage-backed security or other
retained interests based on the entity's ability and intent to sell or hold
those investments.
The determination of the appropriate classification for securities retained
after the securitization of mortgage loans by a mortgage banking enterprise now
conforms to Statement No. 115. The only new requirement is that if an entity has
a sales commitment in place, the security must be classified into trading.
This Statement is effective for the first fiscal quarter beginning after
December 15, 1998. On the date the Statement is initially applied, an entity may
reclassify mortgage-backed securities and other beneficial interests retained
after the securitization of mortgage loans held for sale from the trading
category, except for those with sales commitments in place. Those securities and
other interests shall be classified based on the entity's present ability and
intent to hold the investments. The adoption of this Statement will have no
material impact on CGB&L's financial condition and results of operations.
REPORTING ON THE COSTS OF START-UP ACTIVITIES
During 1998, the Accounting Standards Executive Committee, ("AcSEC") issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities."
Statement of Position 98-5 will affect all non-government entities, including
not-for-profits, reporting start-up costs in their financial statements.
Some existing industry practices result in the capitalization and
amortization of start-up costs. This Statement of Position requires that
start-up costs be expensed when incurred. The Statement of Position applies to
start-up activities and organizational costs associated with both development
stage and established operating entities.
According to Statement of Position 98-5, start-up activities are "those
one-time activities related to opening a new facility, introducing a new product
or service, conducting business in a new territory, conducting
business with a new class of customer or beneficiary, initiating a new process
in an existing facility, or commencing some new operation. Start-up activities
include activities related to organizing a new entity commonly referred to as
organizational costs."
Statement of Position 98-5 is effective for fiscal years beginning on or
after December 15, 1998. Earlier application is encouraged in fiscal years
during which annual financial statements have not yet been issued. The adoption
of this Statement will not have a material impact on CGB&L's financial condition
or results of operation.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Building & Loan conducts its business through its sole office at 229 E.
South Street, Cerro Gordo, Illinois 61818. The institution moved to this office
in 1963. It consists of the first floor of a two-story, brick building. At March
31, 1999, the net book value of the Building & Loan's premises and equipment was
$16,000. The Building & Loan believes that its facilities are adequate for its
current needs and those of the foreseeable future. The property is not subject
to any encumbrances and is adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS.
CGB&L and the Building & Loan are, from time to time, a party to legal
proceedings arising in the ordinary course of its business, including legal
proceedings to enforce its rights against borrowers. CGB&L and the Building &
Loan are not currently a party to any legal proceedings which could reasonably
be expected to have a material adverse effect on the financial condition or
operations of CGB&L and the Building & Loan.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the quarter ended March 31, 1999, no matters were submitted to a vote
of security holders through a solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The following table shows, for the indicated periods, the range of prices per
share of CGB&L's common stock in the over-the-counter market of which CGB&L is
aware. This information was obtained from Trident Securities, Inc.
These quotations represent inter-dealer prices without retail mark-ups,
mark-downs or commissions and do not necessarily represent actual stock
transactions. CGB&L's common stock was first issued on September 28, 1998 at a
price to the public of $10 per share.
Bid price Dividend paid
High Low
---- ---- -------------
09/28/98 - 12/31/98 11 10 --
01/01/99 - 03/31/99 11 11 --
At March 31, 1999, there were approximately 90 holders of record of CGB&L's
common stock.
The Board of Directors has the authority to declare dividends, subject to
statutory and regulatory requirements. The Board of Directors currently
anticipates it will pay semi-annual cash dividends in and accordingly, declared
a semi-annual dividend of $.10 per share, payable on May 11, 1999 to
stockholders of record as of April 27, 1999. However, declarations of dividends
and the amount of any declared dividends are subject to the discretion of the
Board of Directors, and depend upon a number of factors, including, without
limitation, investment opportunities available to CGB&L,
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capital requirements, regulatory limitations, CGB&L's financial condition and
results of operations. When dividends are declared, CGB&L will probably be
largely dependent upon dividends from the Building & Loan for funds to pay
dividends on the common stock.
The Federal Reserve Board has issued a policy statement on the payment of
cash dividends by Building & Loan holding companies. In the policy statement,
the Federal Reserve Board expressed its view that a bank holding company
experiencing earnings weaknesses should not pay cash dividends exceeding its net
income or which could only be funded in ways that weakened the bank holding
company's financial health, such as by borrowing. Additionally, the Federal
Reserve Board possesses enforcement powers over bank holding companies and their
non-bank subsidiaries to prevent or remedy actions that represent unsafe or
unsound practices or violations of applicable statutes and regulations.
Among these powers is the ability to prescribe the payment of dividends by
banks and bank holding companies. In addition to the restrictions on dividends
imposed by the Federal Reserve Board, the Delaware General Corporation Law would
allow CGB&L to pay dividends only out of its surplus, or if CGB&L has no such
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the ISBA and the regulations of
the Commissioner, dividends may be paid by the Building & Loan out of its net
profits (1.e., earnings from current operations, investments and other assets
plus actual recoveries on loan, net or current expenses including dividends or
interest on deposits, additions to reserves as required by the Commissioner,
actual losses, accrued dividends on preferred stock, if any and all state and
federal taxes). The written approval of the Commissioner must be obtained,
however, before the Building & Loan may declare dividends in any calendar year
in an amount in excess of 50% of its net profits for that calendar year.
Additionally, the Building & Loan will be unable to pay dividends in an amount
which would reduce its capital below the greater of (i) the amount required by
the FDIC or (ii) the amount required for the liquidation account established by
the Building & Loan in connection with its conversion to the stock form of
organization. The Commissioner and the FDIC also have the authority to prohibit
the payment of any dividends by the Building & Loan if the Commissioner of the
FDIC determines that the distribution would constitute an unsafe or unsound
practice.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND MARCH 31, 1998.
Total assets increased $447,751 from March 31, 1998 to March 31, 1999 or
6.5%. This increase was attributable primarily to increases in cash/cash
equivalents, investments in interest-bearing deposits, one investment security
and Federal Home Loan Bank("FHLB") stock. Cash and cash equivalents increased
$250,469 and interest-bearing time deposits increased $301,000 due to cash
generated from CGB&L's stock offering.
The $36,498 increase in investment securities from March 31, 1998 to March
31, 1999 was the result of an increase in the market value of the Federal Home
Loan Mortgage Corporation ("FHLMC") stock. The FHLMC stock is the sole
investment security held by the Building & Loan.
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The $135,916 decrease in net loans from March 31, 1998 to December 31, 1998
was the result of prepayments of one- to four-family residential mortgage loans
in excess of new loan originations.
FHLB Stock held by the Building & Loan increased $8,900 from March 1998 to
March 31, 1999 to meet the capital stock required by statute and regulation.
The decline in total deposits from March 31, 1998 to March 31, 1999 of
$255,013 or 4.9% was primarily due to depositors withdrawing funds to purchase
CGB&L's stock. The Building & Loan's depositors funded approximately 24% of
CGB&L's stock purchased with amounts previously on deposit.
Other liabilities increased $12,825 from March 31, 1998 to March 31, 1999,
primarily due to an increase in the deferred income tax liability relating to
the unrealized gain on the FHLMC stock.
Equity received from contributions to the Employee Stock Ownership Plan
(ESOP) was $8,375. This increase was due to the creation of the ESOP as a result
of the stock conversion and represents the fair value of shares released during
the year.
Total stockholders' equity increased $681,564 from March 31, 1998 to March
31, 1999; the increase summarized as follows:
Stockholders' equity, March 31, 1998........................... $ 986,014
Gross proceeds of stock offering............................... 990,000
Underwriting commissions & other conversion expenses........... (290,706)
Net income..................................................... 37,371
Increase in unrealized gain on securities available for sale... 24,089
Total shares purchased by ESOP................................. (79,190)
----------
Total Stockholder's equity, March 31, 1999 ...................... $1,667,578
==========
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED MARCH 31, 1999 AND
MARCH 31, 1998.
CGB&L's net income was $37,371 for the fiscal year ended March 31, 1999
compared to $41,872 for the comparative period ending March 31, 1998. The 10.75%
decrease in earnings is primarily attributable to additional expenses related to
reporting as a public company and higher salaries and employee benefit expense
offset by higher net interest income.
Net interest income increased $26,585 in the fiscal year ended March 31, 1999
compared to the same period in 1998, due to an increase in average loans that
were financed by borrowings from the Federal Home Loan Bank and slightly higher
average rates on loans during the fiscal year ending March 31, 1999. Interest
expense on deposits decreased due to a decrease in average deposits during the
fiscal year ending March 31, 1999. Interest expense on Federal Home Loan Bank
borrowings increased due to the higher average balance of Federal Home Loan Bank
long term borrowings during the fiscal year ended March 31, 1999.
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The provision for loan loss expense decreased by $26,500 for the fiscal year
compared to the same period in 1998. Management of the Building & Loan believes
that the allowance for loan losses is sufficient based on information currently
available. No assurances can be made that future events or conditions or
regulatory directives will not result in increased provisions for loan losses or
additions to the Building & Loan's allowance for loan losses which may adversely
affect net income.
Total other expense increased $58,148 or 36.4% for the fiscal year ending
March 31, 1999 compared to the same period of 1998, due to an increase in
employee compensation and other expenses. Employee compensation expense
increased due to increasing employees to 4 full time from 3 full time and one
part time. Employee compensation expense also increased due to ESOP expense of
$8,375 for the fiscal year ending March 31, 1999 compared to $0 during the same
period of 1998. Other expenses increased due to additional expenses related to
reporting as a public company.
Total income tax expense was $10,625 for the year ended March 31, 1999
compared to $10,702 for the same period in 1998, reflecting the decrease in
earnings. The effective tax rate was 22.1% for 1999 as compared to 23.9% in
1998.
YEAR 2000 COMPLIANCE
The Building & Loan has completed phase I & phase II of its Year 2000
preparedness assessment and business resumption contingency planning process.
During these phases, the Building & Loan identified those computer applications
used to process information within the Building & Loan including accounting
software used for loans and deposits. Each of the companies providing these
software programs has assured the Building & Loan in writing that its programs
are Year 2000 compliant. In addition, the Building & Loan has contacted its
principal external vendors and asked for assurance that they are adequately
addressing system and software issues related to Year 2000. Each vendor
responded that either they are or expect to be Year 2000 compliant prior to
December 31, 1999. The Building & Loan has procedures in place to confirm
compliance by vendors who expect to be compliant prior to December 31, 1999. The
Building & Loan has also completed a review of its loan portfolio and determined
that the Building & Loan has no significant loss exposure in the event a
borrower's business is interrupted as a result of a Year 2000 compliance
problem. The Building & Loan developed a testing schedule and completed this
schedule prior to March 31, 1999. The Building & Loan has incurred costs of less
than $1,000 to date with respect to the Year 2000 and based on the results of
its assessment does not anticipate that the costs to complete its Year 2000
testing schedule will be material. The Building & Loan has taken steps to
educate the public about their Year 2000 preparedness. Although the Building &
Loan believes it is taking the necessary actions to address Year 2000, no
assurances can be given that some problems will not occur.
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ITEM 7. FINANCIAL STATEMENTS
CGB&L FINANCIAL GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
Independent Auditor's Report ................................................ 35
Consolidated Balance Sheet ................................................. 36
Consolidated Statement of Income ............................................ 37
Consolidated Statement of Stockholders' Equity .............................. 38
Consolidated Statement of Cash Flows ........................................ 39
Notes to Consolidated Financial Statements .................................. 40
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INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
CGB&L Financial Group, Inc. and Subsidiary
Cerro Gordo, Illinois
We have audited the accompanying consolidated balance sheet of CGB&L Financial
Group, Inc. and subsidiary as of March 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. 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 described above present
fairly, in all material respects, the consolidated financial position of CGB&L
Financial Group, Inc. and subsidiary as of March 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/S/ Olive LLP
Decatur, Illinois
April 12, 1999
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CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 287,458 $ 13,721
Interest-bearing demand deposits 487,856 511,124
-----------------------------
Cash and cash equivalents 775,314 524,845
Interest-bearing deposits 891,000 590,000
Investment securities available for sale 211,827 175,329
Loans, net of allowance for loan losses of $32,700 for each year 5,390,273 5,526,189
Premises and equipment 16,193 15,726
Federal Home Loan Bank stock 55,100 46,200
Other assets 43,025 56,692
-----------------------------
Total assets $ 7,382,732 $ 6,934,981
=============================
LIABILITIES
Interest-bearing deposits $ 4,995,294 $ 5,250,307
Long-term debt 600,000 600,000
Other liabilities 111,485 98,660
-----------------------------
Total liabilities 5,706,779 5,948,967
-----------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
EQUITY RECEIVED FROM CONTRIBUTIONS TO THE ESOP 8,375
-----------------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value
Authorized and unissued -- 100,000
Common stock, $.01 par value
Authorized -- 900,000 shares
Issued -- 99,000 shares, less ESOP shares of 7,127 911
Additional paid-in capital 619,193
Retained earnings 910,056 872,685
Accumulated other comprehensive income 137,418 113,329
-----------------------------
Total stockholders' equity 1,667,578 986,014
-----------------------------
Total liabilities and stockholders' equity $ 7,382,732 $ 6,934,981
=============================
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans receivable $ 507,134 $ 466,389
Investment securities 5,386 4,680
Interest bearing deposits 61,410 70,915
--------------------------
Total interest income 573,930 541,984
INTEREST EXPENSE
Deposits 276,434 289,130
FHLB borrowing 38,690 20,633
--------------------------
Total interest expense 315,124 309,763
--------------------------
NET INTEREST INCOME 258,806 232,221
Provision for loan losses 26,500
--------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 258,806 205,721
--------------------------
OTHER INCOME 7,193 6,708
--------------------------
OTHER EXPENSE
Salaries and employee benefits 160,010 115,617
Net occupancy and equipment expenses 4,321 4,922
Deposit insurance expense 3,172 3,436
Insurance expense 4,965 4,936
Other expenses 45,535 30,944
--------------------------
Total other expense 218,003 159,855
--------------------------
INCOME BEFORE INCOME TAX 47,996 52,574
Income tax expense 10,625 10,702
--------------------------
NET INCOME $ 37,371 $ 41,872
==========================
</TABLE>
See notes to consolidated financial statements.
37
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE
STOCK CAPITAL INCOME EARNINGS INCOME TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, APRIL 1, 1997 $ 830,813 $ 64,084 $ 894,897
Comprehensive income
Net income $ 41,872 41,872 41,872
Other comprehensive income, net of tax
Unrealized gains on securities 49,245 49,245 49,245
------------
Comprehensive income $ 91,117
============
------------------------ ---------------------------------------
BALANCES, MARCH 31, 1998 872,685 113,329 986,014
Comprehensive income
Net income $ 37,371 37,371 37,371
Other comprehensive income, net of tax
Unrealized gains on securities 24,089 24,089 24,089
------------
Comprehensive income $ 61,460
============
Issuance of common stock $ 990 $ 698,304 699,294
Employee stock ownership plan shares acquired (79) (79,111) (79,190)
------------------------ ---------------------------------------
BALANCES, MARCH 31, 1999 $ 911 $ 619,193 $ 910,056 $ 137,418 $ 1,667,578
======================== =======================================
</TABLE>
See notes to consolidated financial statements.
38
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 37,371 $ 41,872
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan loss 26,500
Depreciation 1,344 1,344
Deferred income tax expense (benefit) 1,546 (12,780)
Compensation expense related to employee stock ownership plan 8,375
Change in
Other liabilities (1,130) 789
Other assets 13,667 (15,399)
---------------------------
Net cash provided by operating activities 61,173 42,326
---------------------------
INVESTING ACTIVITIES
Net change in interest-bearing deposits (301,000) 689,000
Net change in loans 135,916 (847,404)
Purchase of premises and equipment (1,811) (7,632)
Purchase of FHLB stock (8,900) (3,200)
---------------------------
Net cash used by investing activities (175,795) (169,236)
---------------------------
FINANCING ACTIVITIES
Net change in
Savings deposits (81,190) (6,239)
Certificates of deposit (173,823) (51,918)
Proceeds from long-term debt 600,000
Issuance of common stock, net of offering costs 620,104
---------------------------
Net cash provided by financing activities 365,091 541,843
---------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 250,469 414,933
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 524,845 109,912
---------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 775,314 $ 524,845
===========================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 317,301 $ 306,925
Income tax paid 6,631 25,500
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of CGB&L Financial Group, Inc. ("Company")
and its wholly owned subsidiary Cerro Gordo Building and Loan, s.b. ("Bank")
conform to generally accepted accounting principles and reporting practices
followed by the thrift industry. The more significant of the policies are
described below.
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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a state thrift
charter and provides full banking services. As a state-chartered thrift, the
Bank is subject to regulation by the Illinois Office of Banks and Real Estate
and the Federal Deposit Insurance Corporation.
The Bank generates mortgage and share loans and receives deposits from customers
located primarily in Piatt County. The Bank's loans are generally secured by
specific items of collateral including real property and consumer assets.
Although the Bank has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent upon economic conditions
in Piatt County and the surrounding communities.
CONSOLIDATION -- The consolidated financial statements include the accounts of
the Company and Bank after the elimination of all material intercompany
transactions.
INVESTMENT SECURITIES -- Marketable equity securities are classified as
available for sale. Securities available for sale are carried at fair value with
unrealized gains and losses reported separately as accumulated other
comprehensive income in equity capital, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed when considered uncollectible. Interest
income is subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans. Escrow accounts for borrowers are not
maintained, but rather tax and insurance payments are charged to the mortgage
loan balance. Monthly payments are allocated first to interest income with the
remainder credited to the unpaid balance of the loan.
40
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLOWANCE FOR LOAN LOSSES is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of March
31, 1999, the allowance for loan losses is adequate based on information
currently available. A worsening or protracted economic decline in the area
within which the Bank operates would increase the likelihood of additional
losses due to credit and market risks and could create the need for additional
loss reserves.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred
while major additions and improvements are capitalized. Gains and losses on
dispositions are included in current operations.
FEDERAL HOME LOAN BANK STOCK is a required investment for institutions that are
members of the Federal Home Loan Bank (FHLB) system. The required investment in
the common stock is based on a predetermined formula.
INCOME TAX in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiary.
EMPLOYEE STOCK OWNERSHIP PLAN -- The Company accounts for its employee stock
ownership plan ("ESOP") in accordance with American Institute of Certified
Public Accountants ("AICPA") Statement of Position 93-6. The cost of shares
issued to the ESOP but not yet committed to be released to participants is
presented in the consolidated balance sheet. Compensation expense is recorded
based on the fair value of the shares as they are committed to be released for
allocation to participant accounts. The difference between the fair value and
the cost of shares committed to be released is recorded as an adjustment to
paid-in capital.
EARNINGS PER SHARE -- Basic earnings per share will be computed based upon the
weighted average common shares outstanding for periods subsequent to the Bank's
conversion to a stock savings bank on September 22, 1998. Earnings per share for
1999 are not meaningful.
RECLASSIFICATIONS of certain amounts in the 1998 financial statements have been
made to conform to the 1999 presentation.
41
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- CONVERSION TO STOCK OWNERSHIP
On September 22, 1998, the Bank consummated its conversion from a state
chartered mutual savings bank to a state chartered stock savings bank pursuant
to the Bank's plan of conversion. Concurrent with the formation of the Company,
the Company acquired 100% of the stock of the Bank and issued 99,000 shares of
Company common stock, with $.01 par value, at $10 per share. Net proceeds of the
Company's stock issuance, after costs and Employee Stock Ownership Plan shares,
were $620,104.
NOTE 3 -- INVESTMENT SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
1999
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
MARCH 31 COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation common stock $ 3,619 $ 208,208 $ 0 $ 211,827
=====================================================
<CAPTION>
1998
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
MARCH 31 COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation common stock $ 3,619 $ 171,710 $ 0 $ 175,329
=====================================================
</TABLE>
There were no pledged securities at March 31, 1999 or 1998.
There were no sales of securities available for sale during 1999 or 1998.
The Company's investment in the Federal Home Loan Mortgage Corporation Common
Stock exceeded 10% of stockholders' equity at March 31, 1999. The Company did
not hold any other securities of a single issuer, payable from and secured by
the same source of revenue of taxing authority, the book value of which exceeded
10% of stockholders' equity at March 31, 1999.
42
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- LOANS AND ALLOWANCE
MARCH 31 1999 1998
- ------------------------------------------------------------------------------
Real estate mortgage loans
One-to-four family $ 5,272,294 $ 5,303,917
Multi-family 78,901 87,348
Commercial 174,524 185,060
Share loans 67,892 79,534
------------------------------
5,593,611 5,655,859
Less
Undisbursed portion of loans (100,291) (23,555)
Deferred loan fees (70,347) (73,415)
Allowance for loan losses (32,700) (32,700)
------------------------------
Total loans $ 5,390,273 $ 5,526,189
==============================
MARCH 31 1999 1998
- ------------------------------------------------------------------------------
Allowance for loan losses
Balances, April 1 $ 32,700 $ 6,200
Provision for losses 26,500
Recoveries on loans
Loans charged off
------------------------------
Balances, March 31 $ 32,700 $ 32,700
==============================
The amount of impaired loans as of or during the periods ending March 31, 1999
and 1998 was immaterial.
NOTE 5 -- PREMISES AND EQUIPMENT
MARCH 31 1999 1998
- ------------------------------------------------------------------------------
Land $ 500 $ 500
Buildings and land improvements 21,382 21,382
Furniture and equipment 54,269 52,458
------------------------------
Total cost 76,151 74,340
Accumulated depreciation (59,958) (58,614)
------------------------------
Net $ 16,193 $ 15,726
==============================
43
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -- OTHER ASSETS AND OTHER LIABILITIES
MARCH 31 1999 1998
- ------------------------------------------------------------------------------
Other assets
Interest receivable
Investment securities $ 2,521 $ 2,855
Loans 13,569 16,594
Prepaid expenses and other 26,935 37,243
------------------------------
Total $ 43,025 $ 56,692
==============================
Other liabilities
Interest payable
Deposits $ 49,042 $ 51,219
Long-term debt 3,286 3,286
Accrued expenses payable 11,548 10,501
Deferred tax liability 47,609 33,654
------------------------------
Total $ 111,485 $ 98,660
==============================
NOTE 7 -- DEPOSITS
MARCH 31 1999 1998
- ------------------------------------------------------------------------------
Savings deposits $ 380,194 $ 461,384
Certificates of deposit of $100,000 or more 100,000 100,000
Other certificates of deposits 4,515,100 4,688,923
------------------------------
Total deposits $ 4,995,294 $ 5,250,307
==============================
CERTIFICATES MATURING IN YEARS ENDING MARCH 31,
- ------------------------------------------------------------------------------
2000 $ 3,049,267
2001 465,487
2002 279,874
2003 433,680
2004 313,127
Thereafter 73,665
-------------
$ 4,615,100
=============
44
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -- LONG-TERM DEBT
At March 31, 1999, long-term debt consisted of a Federal Home Loan Bank (FHLB)
advance, 6.36%, due December 2007. The FHLB borrowing is secured by all stock in
the FHLB and first mortgage loans. The borrowing is subject to restrictions or
penalties in the event of prepayment.
NOTE 9 -- INCOME TAX
YEAR ENDED MARCH 31 1999 1998
- -------------------------------------------------------------------------------
Income tax expense
Currently payable
Federal $ 5,843 $ 19,885
State 3,236 3,597
Deferred
Federal 1,546 (12,780)
-------------------------
Total income tax expense $ 10,625 $ 10,702
=========================
Reconciliation of federal statutory to actual tax
expense
Federal statutory income tax at 34% $ 16,319 $ 17,875
Graduated tax rates (9,517) (11,610)
Effect of state income taxes 2,136 2,374
Other 1,687 2,063
-------------------------
Actual tax expense $ 10,625 $ 10,702
=========================
A cumulative net deferred tax liability is included in other liabilities. The
components of the liability are as follows:
MARCH 31 1999 1998
- -------------------------------------------------------------------------------
ASSETS
Loan fees $ 20,401 $ 21,290
Allowance for loan losses 6,742 5,828
-------------------------
Total assets 27,143 27,118
-------------------------
LIABILITIES
Accrual to cash adjustment (2,385) (814)
Depreciation (274) (274)
Net unrealized gains on securities available
for sale (70,788) (58,379)
FHLB stock dividends (1,305) (1,305)
-------------------------
Total liabilities (74,752) (60,772)
-------------------------
$ (47,609) $ (33,654)
=========================
45
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retained earnings include approximately $125,000 for which no deferred income
tax liability has been recognized. This amount represents an allocation of
income to bad debt deductions as of April 30, 1988, for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments arising from carryback of net operating losses would create income
for tax purposes only, which income would be subject to the then-current
corporate income tax rate. The unrecorded deferred income tax liability on the
above amount was approximately $43,000.
NOTE 10 -- OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
1999
----------------------------------------
BEFORE-TAX TAX NET-OF-TAX
YEAR ENDED MARCH 31 AMOUNT EXPENSE AMOUNT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during the year $ 36,498 $ (12,409) $ 24,089
========================================
<CAPTION>
1998
----------------------------------------
BEFORE-TAX TAX NET-OF-TAX
YEAR ENDED MARCH 31 AMOUNT EXPENSE AMOUNT
- ------------------------------------------------------------------------------------------------
Unrealized gains on securities:
Unrealized holding gains arising during the year $ 74,613 $ (25,368) $ 49,245
========================================
</TABLE>
NOTE 11 -- COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit, which are not
included in the accompanying financial statements. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instruments for commitments to extend credit is represented by the contractual
or notional amount of those instruments. The Bank uses the same credit policies
in making such commitments as it does for instruments that are included in the
balance sheet.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include residential real estate,
income-producing commercial properties, or other assets of the borrower. The
Bank had no commitments as of March 31, 1999 or 1998.
46
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company and Subsidiary are subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the financial position of the Company.
NOTE 12 -- YEAR 2000
Like all entities, the Company and subsidiary are exposed to risks associated
with the Year 2000 Issue, which affects computer software and hardware;
transactions with customers, vendors, and other entities; and equipment
dependent upon microchips. The Company has begun, but not yet completed, the
process of identifying and remediating potential Year 2000 problems. It is not
possible for any entity to guarantee the results of its own remediation efforts
or to accurately predict the impact of the Year 2000 Issue on third parties with
which the Company and subsidiary does business. If remediation efforts of the
Company or third parties with which the Company and subsidiary does business are
not successful, the Year 2000 Issue could have negative effects on the Company's
financial condition and results of operations in the near term.
NOTE 13 -- DIVIDEND AND CAPITAL RESTRICTIONS
Without prior approval, the Bank is restricted by Illinois law and regulations
of the Commissioner of Bank and Trust Companies, State of Illinois
(Commissioner), and the Federal Deposit Insurance Corporation as to the maximum
amount of dividends it can pay to the Company. The Bank is permitted to pay
dividends to the Company in an amount equal to its net profits in any fiscal
year. The Bank could have paid dividends of approximately $43,000, the Bank's
earnings, without the written approval of the Commissioner.
At the time of conversion, a liquidation account was established in an amount
equal to the Bank's net worth as reflected in the latest statement of condition
used in its final conversion offering circular. The liquidation account is
maintained for the benefit of eligible deposit account holders who maintain
their deposit account in the Bank after conversion. In the event of a complete
liquidation, and only in such event, each eligible deposit account holder will
be entitled to receive a liquidation distribution from the liquidation account
in the amount of the then current adjusted subaccount balance for deposit
accounts then held, before any liquidation distribution may be made to
stockholders. Except for the repurchase of stock and payment of dividends, the
existence of the liquidation account will not restrict the use or application of
net worth. The initial balance of the liquidation account was $898,939.
NOTE 14 -- REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies and is assigned to a capital category. The assigned
capital category is largely determined by three ratios that are calculated
according to the regulations: total risk adjusted capital, Tier 1 capital, and
Tier 1 leverage ratios. The ratios are intended to measure capital relative to
assets and credit risk associated with those assets and off-balance sheet
exposures of the entity. The capital category assigned to an entity can also be
affected by qualitative judgments made by regulatory agencies about the risk
inherent in the entity's activities that are not part of the calculated ratios.
47
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At December 31, 1998 and 1997,
the Bank is categorized as well capitalized and met all subject capital adequacy
requirements. There are not conditions or events since December 31, 1998 that
management believes have changed the Bank's classification.
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL(1) CAPITALIZED(1)
----------------------------------------------------------------------
MARCH 31 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital(1) (to risk-weighted
assets) $ 1,149,000 36.67% $ 251,000 8.0% $ 313,000 10.0%
Core capital(1) (to adjusted tangible assets) 1,116,000 35.62 125,000 4.0% 188,000 6.0
Core capital(1) (to adjusted total assets) 1,116,000 15.74 284,000 4.0% 354,000 5.0
<CAPTION>
1998
----------------------------------------------------------------------
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL(1) CAPITALIZED(1)
----------------------------------------------------------------------
MARCH 31 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ---------------------------------------------------------------------------------------------------------------------
Total risk-based capital(1) (to risk-weighted
assets) $ 906,000 28.58% $ 254,000 8.0% $ 317,000 10.0%
Tier 1 capital(1) (to risk-weighted assets) 873,000 27.54 127,000 4.0 190,000 6.0
Tier 1 capital(1) (to average assets) 873,000 12.55 278,000 4.0 349,000 5.0
</TABLE>
(1) As defined by regulatory agencies
NOTE 15 -- EMPLOYEE BENEFITS
The Company maintains a Simplified Employee Pension Plan for the benefit of
eligible employees. Contributions to the Plan are based on 15% of the eligible
participant's salary and were $13,923 and $12,753 during 1999 and 1998,
respectively.
In connection with the conversion, the Company established an employee stock
ownership plan ("ESOP") covering substantially all of its employees. The ESOP
borrowed $79,190 from the Company and used those funds to acquire 7,919 shares
of the Company's common stock at $10 per share. The ESOP covers employees who
complete at least twelve consecutive months of service for the Bank during which
the employee performs at least 1,000 hours of service. A participant is 100%
vested after seven years of credited service.
48
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The ESOP shares are held in trust and allocated to the ESOP participants based
on the interest and principal payments made by the ESOP on the loan from the
Company. The loan is secured by shares purchased with the loan proceeds and is
being repaid by the ESOP with funds from the Company's discretionary
contributions to the ESOP and earnings on ESOP assets. Dividends on unallocated
ESOP shares will be applied to reduce the loan. Principal payments are scheduled
to occur in even annual amounts over a seven year period. However, in the event
Company's contributions exceed the minimum debt service requirements, additional
principal payments will be made.
Below are the transactions affecting the ESOP equity accounts:
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN UNALLOCATED
STOCK CAPITAL ESOP SHARES TOTAL
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances, March 31, 1998
Employee stock ownership
Plan shares acquired $ 79 $ 79,111 $ (79,190) $ 0
Market value increase in
Employee stock ownership
Plan shares released 455 455
Loan repayments 7,920 7,920
---------------------------------------------------
Balances, March 31, 1999 $ 79 $ 79,566 $ (71,270) $ 8,375
===================================================
</TABLE>
During the year ended March 31, 1999, 792 shares of stock with an average fair
value of $10.58 were committed to be released, resulting in ESOP compensation
expense of $8,375. The following table reflects the shares held by the plan:
<TABLE>
<CAPTION>
MARCH 31 1999
- ------------------------------------------------------------------------------------
<S> <C>
Allocated shares 792
Unallocated shares 7,127
------------
Total ESOP shares 7,919
============
Fair value of unallocated shares at March 31 $ 78,397
============
</TABLE>
NOTE 16 -- RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with certain directors, executive
officers, significant stockholders and their affiliates or associates (related
parties). Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. The aggregate
amount of loans to such related parties at March 31, 1999 and 1998 was $229,439
and $272,079.
49
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deposits from related parties held by the Bank at March 31, 1999 and 1998
totaled $389,997 and $402,491.
The aggregate amount of loans, as defined, to such related parties were as
follows:
1999
- --------------------------------------------------------------------------------
Balances, April 1, 1998 $ 272,079
Changes in composition of related parties 6,735
New loans, including renewals 37,155
Payments, etc., including renewals (86,530)
--------------
Balances, March 31, 1999 $ 229,439
==============
NOTE 17 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS -- The fair value of cash and cash equivalents
approximates carrying value.
INTEREST-BEARING DEPOSITS -- The fair value of interest-bearing deposits
approximates carrying value.
SECURITIES -- Fair values are based on quoted market prices.
LOANS -- For short-term loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for mortgage loans, including one-to-four family residential, are based on
quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics.
INTEREST RECEIVABLE/PAYABLE -- The fair values of interest receivable/payable
approximate carrying values.
FHLB STOCK -- Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
DEPOSITS -- The fair values of interest-bearing savings accounts are equal to
the amount payable on demand at the balance sheet date. The carrying amounts for
variable rate, fixed-term certificates of deposit approximate their fair values
at the balance sheet date. Fair values for fixed-rate certificates of deposit
are estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on such time deposits.
LONG-TERM DEBT -- The fair value of these borrowings are estimated using a
discounted cash flow calculation, based on current rates for similar debt.
OFF-BALANCE SHEET COMMITMENTS -- Commitments include commitments to originate
mortgage loans, and are generally of a short-term nature. The fair value of such
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.
50
<PAGE>
CGB&L FINANCIAL GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------
CARRYING FAIR Carrying Fair
MARCH 31 AMOUNT VALUE Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 775,314 $ 775,314 $ 524,845 $ 524,845
Interest-bearing deposits 891,000 891,000 590,000 590,000
Investment securities available for sale 211,827 211,827 175,329 175,329
Loans, net 5,390,273 5,597,000 5,526,189 5,576,000
Interest receivable 16,090 16,090 19,449 19,449
Stock in FHLB 55,100 55,100 46,200 46,200
LIABILITIES
Deposits 4,995,294 5,007,000 5,250,307 5,271,000
Long-term debt 600,000 606,000 600,000 603,000
Interest payable 52,328 52,328 54,505 54,505
OFF-BALANCE SHEET ASSETS (LIABILITIES)
Commitments to extend credit 0 0 0 0
</TABLE>
51
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information relating to directors and executive officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on August 11, 1999
at pages 5 through 6 and at page 20.
ITEM 10. EXECUTIVE COMPENSATION
The information relating to executive and director compensation is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on August 11, 1999 at pages 9 through
12.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on August 11, 1999
at pages 8 through 9.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on August 11, 1999 at pages 7 through
8.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
(1) FINANCIAL STATEMENTS
Consolidated Financial Statements of CGB&L are included in this report
and its Index is located at Item 7, page 34 of this report.
(2) SCHEDULES
All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial
statements or the notes thereto.
52
<PAGE>
(3) EXHIBITS
The following exhibits are filed as part of this report:
3.1 Certificate of Incorporation of CGB&L Financial Group, Inc.*
3.2 Bylaws of CGB&L Financial Group, Inc.
4.0 Stock Certificate of CGB&L Financial Group, Inc.*
10.1 Cerro Gordo Building and Loan, s.b. Employee Stock
Ownership Plan*
10.2 Employment Agreement between Cerro Gordo Building
and Loan, s.b. and Maralyn Heckman
10.3 Employment Agreement between CGB&L Financial Group, Inc. and
Maralyn Heckman (This Employment Agreement is not being filed as
it is virtually identical to the Employment Agreement filed as
Exhibit 10.2 except that CGB&L Financial Group, Inc. is the
party acting as the employer instead of Cerro Gordo Building and
Loan, s.b.)
11.0 Statement of Computation of per Share Earnings
21.0 Subsidiary information is incorporated herein by reference to
"Part I - General"
27.0 Financial Data Schedule for fiscal year ended March 31, 1999
* Incorporated herein by reference to the Exhibits to Form SB-2
Registration Statement, filed on June 3, 1998 and any amendments
thereto, Registration No. 333-55953.
(b) REPORTS ON FORM 8-K
There were no Reports filed on Form 8-K for the period.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CGB&L FINANCIAL GROUP, INC.
Date: , 1999 By: /s/ Maralyn F. Heckman
----------------------- -----------------------------
Maralyn F. Heckman
President, Chief Executive
Officer, Chief Financial Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
Date: , 1999 By: /s/ Maralyn F. Heckman
----------------------- ---------------------------------------
Maralyn F. Heckman
President, Chief Executive Officer,
C.F.O., C.A.O. and Director
(principal executive officer, principal
financial officer, principal accounting
officer and director)
Date: , 1999 By: /s/ John A. Sochor, DDS
----------------------- ---------------------------------------
John A. Sochor, DDS
Chairman of the Board of Directors
Date: , 1999 By: /s/ C. Russell York
----------------------- ---------------------------------------
C. Russell York
Vice-Chairman of the Board of Directors
Date: , 1999 By: /s/ Dale C. Born
----------------------- ---------------------------------------
Dale C. Born, Director
Date: , 1999 By: /s/ Noel R. Buckley
----------------------- ---------------------------------------
Noel R. Buckley, Director
Date: , 1999 By: /s/ Lester W. Crandall
----------------------- ---------------------------------------
Lester W. Crandall, Director
Date: , 1999 By: /s/ Larry D. Gaitros
----------------------- --------------------------------------
Larry D. Gaitros, Director
54
<PAGE>
================================================================================
CGB&L FINANCIAL GROUP, INC.
================================================================================
July 6, 1999
Dear Shareholder,
Greetings from CGB&L Financial Group, Inc. ("CGB&L") and Cerro Gordo Building
and Loan, s.b. ("Building & Loan"). I am pleased and proud to present you with
our first Annual Report. This report reflects our operations and financial
condition for the year ended March 31, 1999. The report reflects the earnings of
the Building & Loan for the 12 month period and for CGB&L since conversion on
September 22, 1998.
The Board of Directors of CGB&L declared our first stock dividend payable May
ll, 1999 of $.20 a share for the semi-annual period. This was a good year for
CGB&L with net income of $37,371. We are happy to report at the end of our
fiscal year, the book value of a share of stock stood at $16.84.
As a cost controlling measure, this annual report consists of Form 10-KSB, which
is a required annual filing with the U.S. Securities and Exchange Commission.
Please stop by or call me if you ever have questions or comments regarding CGB&L
or the Building & Loan.
We have a unique opportunity as a locally owned and operated community Building
& Loan to personally know our customers and stockholders. Our goals are
continued service to the good people of our community while pursuing every
avenue available in achieving what is in the best interest of our investor.
I want to join the board of directors in thanking you for your interest and
investment in CGB&L Financial Group, Inc. A special thank you goes to those of
you who are valued customers of Cerro Gordo Building and Loan, s.b. We will
continually strive to improve CGB&L for the benefit of all of us.
Sincerely,
Maralyn F. Heckman
President
229 EAST SOUTH STREET - P.O. BOX 680 CERRO GORDO, IL. 61818-0680
PHONE (217)763-2911 FAX (217)763-4711
<PAGE>
BOARDS OF DIRECTORS
JOHN A. SOCHOR, DDS C. RUSSELL YORK MARALYN F. HECKMAN
Chairman of the Board of Assistant Chairman of the President and Chief
Directors Board of Directors Executive Officer of
CGB&L Financial Group,
Inc. and Cerro Gordo
Dentist Technician; Building and Loan,
Phil Flaugher Electric s.b.
Corporation
DALE C. BORN NOEL R. BUCKLEY LARRY D. GAITROS
Farmer Retired; Firestone Tire Millwright; Archer
Retired; A. E. Staley and Rubber Company Daniels Midland
Manufacturing Company
LESTER W. CRANDALL
Meat Manager;
Wal-Mart
EXECUTIVE OFFICER
MARALYN F. HECKMAN
President, Secretary and
Treasurer
OFFICE LOCATION
229 East South Street
P.O. Box 680
Cerro Gordo, IL 61818-0680
(217)763-2911
GENERAL INFORMATION
INDEPENDENT AUDITORS ANNUAL MEETING STOCKHOLDER
Olive The Annual Meeting of INQUIRIES AND
225 North Water Street Stockholders will be held on AVAILABILITY OF
Suite 400 August 11, 1999 at 7:00 p.m. 10-KSB REPORT
Decatur, Illinois 62525 in the meeting room of
Hope Welty Public Library THE ANNUAL REPORT
100 South Madison Street, CONTAINED HEREIN
Cerro Gordo, Illinois IS THE REPORT 10-KSB
FOR THE FISCAL YEAR
SPECIAL COUNSEL ENDED MARCH 31, 1999
Howard & Howard AS FILED WITH
Attorneys, P.C. TRANSFER AGENT AND REGISTRAR THE SECURITIES AND
321 Liberty Street Illinois Stock Transfer EXCHANGE COMMISSION.
Suite 200 Company
Peoria, Illinois 61602 Chicago, Illinois
EXHIBIT 3.2
RESTATED BYLAWS
OF
CGB&L FINANCIAL GROUP, INC.
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be located at 1209 Orange Street in the City of
Wilmington, County of New Castle, and the name of the Corporation's registered
agent, located at such address, is The Corporation Trust Company.
SECTION 1.2 OTHER OFFICES. The Corporation may also have offices at
such other places both within or without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the stockholders
shall be held at such time as the Board of Directors shall set on the second
Wednesday in August in each year, beginning in 1999, if not a legal holiday, or,
if a legal holiday, then on the next succeeding business day, for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the election of directors shall not be held on the day
hereinbefore designated for the annual meeting, or at any adjournment thereof,
the Board of Directors shall cause such election to be held at a special meeting
of stockholders as soon thereafter as convenient.
SECTION 2.2 SPECIAL MEETINGS. Except as otherwise prescribed by
statute, special meetings of the stockholders for any purpose or purposes may be
called and the location thereof designated by the Chairman of the Board or the
President, and shall be called and the location thereof designated by the
Secretary at the direction of a majority of the entire Board of Directors.
SECTION 2.3 PLACE OF MEETING. Each meeting of the stockholders for the
election of directors shall be held at the office of the Corporation in Cerro
Gordo, Illinois, unless the Board of Directors shall, by resolution, designate
any other place, within or without the State of Delaware, as the place of such
meeting. Meetings of stockholders for any other purpose may be held at such
place, within or without the State of Delaware, and at such time as shall be
determined pursuant to Section 2.2, Special Meetings, and stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
<PAGE>
SECTION 2.4 NOTICE OF MEETINGS. Written or printed notice stating the
place, date and hour of each annual or special meeting of the stockholders and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be given not less than ten (10) days nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at such
meeting.
When a meeting is adjourned to another time or place, no notice of the
adjourned meeting other than an announcement at the meeting as to the time and
place of the adjourned meeting need be given unless the adjournment is for more
than thirty (30) days or a new record date is fixed for the adjourned meeting
after such adjournment.
SECTION 2.5 STOCKHOLDER LIST. At least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
such meeting, arranged in alphabetical order, and showing the address of each
such stockholder and the number of shares registered in the name of each such
stockholder, shall be prepared by the Secretary. Such list shall be open to
examination of any stockholder of the Corporation during ordinary business
hours, for any purpose germane to the meeting, for a period of at least ten (10)
days prior to the meeting, at a place within the city where the meeting is to be
held, which place shall be specified in the notice of meeting, and the list
shall be produced and kept at the time and place of meeting during the whole
time thereof, and subject to the inspection for any purpose germane to the
meeting of any stockholder who is present.
SECTION 2.6 QUORUM. A majority of the shares entitled to vote, present
in person or represented by proxy, shall be requisite for, and shall constitute,
a quorum at all meetings of the stockholders of the Corporation for the
transaction of business, except as otherwise provided by statute, the
Certificate of Incorporation or these Bylaws. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat present in person or represented by proxy shall have
power to adjourn the meeting from time to time until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
SECTION 2.7 PROXIES. At every meeting of the stockholders, each
stockholder having the right to vote thereat shall be entitled to vote in person
or by proxy. Such proxy shall be appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three (3) years
prior to such meeting, unless such proxy provides for a longer period; and it
shall be filed with the Secretary of the Corporation before, or at the time of,
the meeting.
SECTION 2.8 VOTING. Unless the Certificate of Incorporation provides
otherwise, at every meeting of stockholders, each stockholder shall be entitled
to one (1) vote for each share of stock of the Corporation entitled to vote
thereat and registered in the name of such stockholder on the books of the
Corporation on the corresponding record date. When a quorum is present at any
meeting of the stockholders, the vote of the holders of a majority of the stock
having voting power which is present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one upon
which, by provision of the statutes, the Certificate of Incorporation or these
Bylaws, a different vote is required, in
-2-
<PAGE>
which case such provision shall govern and control the decision of such
question. If the Certificate of Incorporation provides for more or less than one
vote for any share on any matter, every reference in these Bylaws to a majority
or other proportion of stock shall refer to such majority or other proportion of
the votes of such stock.
SECTION 2.9 VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. If
shares or other securities having voting power stand of record in the names of
two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety or otherwise, or if two or
more persons have the same fiduciary relationship respecting the same shares,
unless the secretary of the Corporation is given written notice to the contrary
and is furnished with a copy of the instrument or order appointing them or
creating the relationship wherein it is so provided, their acts with respect to
voting shall have the following effect:
(1) If only one votes, his or her act binds all;
(2) If more than one votes, the act of the majority so voting
binds all;
(3) If more than one votes, but the vote is evenly split on any
particular matter, each faction may vote the securities in
question proportionally, or any person voting the shares, or a
beneficiary, if any, may apply to the Court of Chancery or
such other court as may have jurisdiction to appoint an
additional person to act with the persons so voting the
shares, which shall then be voted as determined by a majority
of such persons and the person appointed by the Court. If the
instrument so filed shows that any such tenancy is held in
unequal interests, a majority or even split for the purpose of
this subsection shall be a majority or even split in interest.
SECTION 2.10 VOTING OF CERTAIN SHARES. Shares standing in the name of
another corporation, domestic or foreign, and entitled to vote may be voted by
such officer, agent, or proxy as the bylaws of such corporation may prescribe
or, in the absence of such provisions, as the board of directors of such
corporation may determine. Shares standing in the name of a deceased person, a
minor or an incompetent and entitled to vote may be voted by the administrator,
executor, guardian or conservator, as the case may be, either in person or by
proxy. Shares standing in the name of a trustee, receiver or pledgee and
entitled to vote may be voted by such trustee, receiver or pledgee either in
person or by proxy as provided by Delaware law.
SECTION 2.11 INSPECTORS. (a) The Corporation shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take
-3-
<PAGE>
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability.
(b) The inspectors shall:
(i) ascertain the number of shares outstanding and the
voting power of each;
(ii) determine the shares represented at a meeting and the
validity of proxies and ballots;
(iii) count all votes and ballots;
(iv) determine and retain for a reasonable period a record
of the disposition of any challenges made to any
determination by the inspectors; and
(v) certify their determination of the number of shares
represented at the meeting, and their count of all
votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
SECTION 2.12 ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the stockholders of the Corporation must be effected at an annual
or special meeting of stockholders and may not be effected without a meeting by
a consent in writing by such stockholders.
SECTION 2.13 TREASURY STOCK. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall not be voted at any meeting and shall not
be counted in determining the total number of outstanding shares for the purpose
of determining whether a quorum is present. Nothing in this Section 2.13 shall
be construed to limit the right of the Corporation to vote shares of its own
stock held by it in a fiduciary capacity.
SECTION 2.14 BUSINESS TO BE CONSIDERED BY STOCKHOLDERS. (a) Business to
be considered by the stockholders shall be brought before an annual meeting (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the direction of
the Board of Directors or (iii) by any stockholder of the Corporation who was a
stockholder of record at the time of giving of notice provided in subsection (a)
of this Section 2.14, who is entitled to vote with respect thereto and who
complies with the notice procedures set forth in subsection (a) of this Section
2.14. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such proposed business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice must
be delivered to or mailed to and received by the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting. In no event shall the
public or other announcement of an adjournment of an annual meeting or the
adjournment thereof commence a new time period for
-4-
<PAGE>
the giving of a stockholder's notice as described above. Such stockholder's
notice to the Secretary shall set forth (i) as to any business the stockholder
proposes to bring before the annual meeting, (A) a brief description of the
business desired to be brought before the annual meeting, (B) the reasons for
conducting such business at the annual meeting, (C) any material interest in
such business to such stockholder and (D) the beneficial owner, if any, on whose
behalf the proposed business is made, and (ii) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the proposed business
is to be brought, (A) the name and address of such stockholder, as they appear
on the Corporation's books, and the name and address of such beneficial owner
and (B) the class and number of shares of the Corporation's capital stock that
are owned beneficially and of record by such stockholder and such beneficial
owner.
(b) At any special meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting.
(c) Notwithstanding anything in the Bylaws of the Corporation to the
contrary, only such business shall be brought before or conducted at a meeting
of stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.14. The officer of the Corporation or
other person presiding over the meeting shall, if the facts so warrant,
determine and declare to the meeting that business was not brought before the
meeting in accordance with the provisions of this Section 2.14 and, if such
person should so determine, such person shall so declare to the meeting and any
such business so determined not to be properly before the meeting shall be
disregarded.
(d) Notwithstanding the foregoing provisions of this Section 2.14, if
applicable, a stockholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder with respect to the matters set forth in this Section
2.14. Nothing in this Section 2.14 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act, if applicable.
ARTICLE III
DIRECTORS
SECTION 3.1 NUMBER AND ELECTION. Except for vacancies filled pursuant
to Section 3.2, Resignations and Vacancies, the directors shall be elected by
the stockholders of the Corporation, and at each election the persons receiving
the greatest number of votes, up to the number of directors then to be elected,
shall be the persons then elected. The election of directors is subject to any
provisions contained in the Certificate of Incorporation relating thereto,
including any provisions for a classified board. Directors need not be residents
of the state of Delaware or the state of Illinois.
-5-
<PAGE>
SECTION 3.2 RESIGNATIONS AND VACANCIES. Any director may resign at any
time by giving written notice to the Board of Directors, to the Chairman or to
the President. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled by a majority vote of the directors then
in office, although less than a quorum, or by a sole remaining director.
Directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of the class to which they have been elected
expires. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director. Newly created
directorships shall be allocated among the classes of directors so that each
class of directors shall consist, as nearly as possible, of one-third of the
total number of directors.
Any director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least eighty percent (80%) of the outstanding shares of all
classes of stock of the Corporation generally entitled to vote in the election
of directors, considered for purposes of this paragraph of Section 3.2 as one
class.
SECTION 3.3 NOMINATIONS FOR DIRECTORS. Nominations for the election of
directors may be made by the Board of Directors or by any stockholder entitled
to vote for the election of directors who complies with the requirements
provided in the Certificate of Incorporation.
SECTION 3.4 MANAGEMENT OF AFFAIRS OF CORPORATION. The property,
business and affairs of the Corporation shall be managed by and under the
direction of its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by stockholders. In case the Corporation shall transact any
business or enter into any contract with a director or officer, or with any
organization in which one or more of its directors or officers, are directors or
officers, or have a financial interest, the officers of the Corporation and
directors in question shall be severally under the duty of disclosing all
material facts as to their interest to the remaining directors promptly if and
when such interested officers or such interested directors in question shall
become advised of the circumstances. In the case of continuing relationships in
the normal course of business such disclosure shall be deemed effective, when
once given, as to all transactions and contracts subsequently entered into.
SECTION 3.5 DIVIDENDS AND RESERVES. Dividends upon stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, in shares
of stock or otherwise in the form, and to
-6-
<PAGE>
the extent, permitted by law. The Board of Directors may set apart, out of any
funds of the Corporation available for dividends, a reserve or reserves for
working capital or for any other lawful purpose, and also may abolish any such
reserve in the manner in which it was created.
SECTION 3.6 REGULAR MEETINGS. An annual meeting of the Board of
Directors shall be held, without other notice than these bylaws, immediately
after, and at the same place as, the annual meeting of the stockholders. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of Delaware, for the holding of additional regular meetings
without other notice than such resolution.
SECTION 3.7 SPECIAL MEETING. Special meetings of the Board of Directors
may be called by the Chairman or the President and shall be called by the
Secretary at the request of any two (2) directors, to be held at such time and
place, either within or without the State of Delaware, as shall be designated by
the call and specified in the notice of such meeting; and notice thereof shall
be given as provided in Section 3.8, Notice of Special Meetings, of these
Bylaws.
SECTION 3.8 NOTICE OF SPECIAL MEETINGS. Except as otherwise prescribed
by statute, written or actual oral notice of the time and place of each special
meeting of the Board of Directors shall be given at least two (2) days prior to
the time of holding the meeting or within such shorter period before the meeting
as the person or persons calling such meeting deem appropriate in the
circumstance. Any director may waive notice of any meeting.
SECTION 3.9 QUORUM. At each meeting of the Board of Directors, the
presence of not less than a majority of the whole board shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, the Certificate of Incorporation or these
Bylaws. If a quorum shall not be present at any meeting of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any member of the Board of Directors or of any committee
designated by the Board may participate in a meeting of the directors or any
committee thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting by means of such equipment shall
constitute presence in person at such meeting.
SECTION 3.10 PRESUMPTION OF ASSENT. Unless otherwise provided by
statute, a director of the Corporation who is present at a meeting of the Board
of Directors at which action is taken on any corporate matter shall be presumed
to have assented to the action taken unless such director's dissent shall be
entered in the minutes of the meeting or unless such director shall, file a
written dissent to such action with the person acting as secretary of the
meeting before the
-7-
<PAGE>
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
SECTION 3.11 ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if a written consent thereto is signed
by all members of the Board or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board or
committee.
SECTION 3.12 PRESIDING OFFICER. The presiding officer at any meeting of
the Board of Directors shall be the Chairman of the Board or, in the Chairman's
absence, the President or, in the President's absence, any other director
elected chairman by vote of a majority of the directors present at the meeting.
SECTION 3.13 EXECUTIVE COMMITTEE. The Board of Directors may, by
resolution passed by two-thirds of the total number of directors, designate two
or more directors of the Corporation to constitute an executive committee,
which, to the extent provided in the resolution and by Delaware law, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers which may require it.
SECTION 3.14 OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the number of directors fixed by these
Bylaws, designate such other committees as it may from time to time determine.
Each such committee shall consist of such number of directors, shall serve for
such term and shall have and may exercise, during intervals between meetings of
the Board of Directors, such duties, functions and powers as the Board of
Directors may from time to time prescribe.
SECTION 3.15 ALTERNATES. The Board of Directors may from time to time
designate from among the directors alternates to serve on one or more committees
as occasion may require. Whenever a quorum cannot be secured for any meeting of
any committee from among the regular members thereof and designated alternates,
the member or members of such committee present at such meeting and not
disqualified from voting, whether or not the member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of such absent or disqualified member.
SECTION 3.16 QUORUM AND MANNER OF ACTING-COMMITTEES. The presence of a
majority of members of any committee shall constitute a quorum for the
transaction of business at any meeting of such committee, and the act of a
majority of those present shall be necessary for the taking of any action
thereat, provided that no action may be taken by any such committee without the
favorable vote of members of the committee who are not officers or full-time
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employees of the Corporation at least equal to the favorable vote of members of
such committee who are officers or full-time employees of the Corporation.
SECTION 3.17 COMMITTEE CHAIRMAN, BOOKS AND RECORDS, ETC. The chairman
of each committee shall be selected from among the members of the committee by a
majority of the committee. Each committee shall keep a record of its acts and
proceedings, and all actions of each committee shall be reported to the Board of
Directors at its next meeting. Each committee shall fix its own rules of
procedure not inconsistent with these Bylaws or the resolution of the Board of
Directors designating such committee and shall meet at such times and places and
upon such call or notice as shall be provided by such rules.
SECTION 3.18 FEES AND COMPENSATION OF DIRECTORS. Directors shall not
receive any stated salary for their services as such; but, by resolution of the
Board of Directors, a fixed fee, with or without expenses of attendance, may be
allowed for attendance at each regular or special meeting of the Board. Members
of the Board shall be allowed their reasonable traveling expenses when actually
engaged in the business of the Corporation. Members of any committee may be
allowed like fees and expenses for attending committee meetings. Nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 3.19 RELIANCE UPON RECORDS. Every director of the Corporation,
or member of any committee designated by the Board of Directors, shall, in the
performance of such person's duties, be fully protected in relying in good faith
upon the records of the Corporation and upon such information, opinions, reports
or statements presented to the Corporation by any of the Corporation's officers
or employees, or committees of the Board of Directors, or by any other person as
to matters the director or member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
ARTICLE IV
NOTICES
SECTION 4.1 MANNER OF NOTICE. Whenever under the provisions of the
statutes, the Certificate of Incorporation or these Bylaws notice is required to
be given to any stockholder, director or member of any committee designated by
the Board of Directors, it shall not be construed to require personal delivery
and such notice may be given in writing by depositing it, in a sealed envelope,
in the United States mails, air mail or first class, postage prepaid, addressed
(or by delivering it to a telegraph company, charges prepaid, for transmission
or by facsimile) to such stockholder, director or member either at the address
of such stockholder, director or member as it appears on the books of the
Corporation or, in the case of such a director or member, at such person's
business address; and such notice shall be deemed to be given at the time when
it is thus deposited in the United States mails (or delivered to the telegraph
company or the facsimile transmission is acknowledged). Such requirement for
notice
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shall be deemed satisfied, except in the case of stockholder meetings with
respect to which written notice is mandatorily required by law, if actual notice
is received orally or in writing by the person entitled thereto as far in
advance of the event with respect to which notice is given as the minimum notice
period required by law, the Certificate of Incorporation or these Bylaws.
SECTION 4.2 WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the statutes, the Certificate of Incorporation, or
these Bylaws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before, at or after the time stated therein,
shall be deemed equivalent thereto. Attendance by a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or committee of
directors need be specified in any written waiver of notice unless so required
by statute, the Certificate of Incorporation or these Bylaws.
ARTICLE V
OFFICERS
SECTION 5.1 OFFICES AND OFFICIAL POSITIONS. The officers of the
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary, a Treasurer, and such Assistant Secretaries, Assistant
Treasurers, and other officers as the Board of Directors shall determine. Any
two or more offices may be held by the same person. Except for the Chairman of
the Board, none of the officers need be a director, a stockholder of the
Corporation or a resident of the State of Delaware. The Board of Directors may
from time to time establish, and abolish, official positions within the
divisions into which the business and operations of the Corporation may be
divided, pursuant to Section 6.1, Divisions of the Corporation, of these Bylaws,
and assign titles and duties to such positions. Those appointed to official
positions within divisions may, but need not, be officers of the Corporation.
The Board of Directors shall appoint officers to official positions within a
division and may with or without cause remove from such a position any person
appointed to it. In any event, the authority incident to an official position
within a division shall be limited to acts and transactions within the scope of
the business and operations of such division.
SECTION 5.2 ELECTION AND TERM OF OFFICE. The officers of the
Corporation shall be elected annually by the Board of Directors at their first
meeting held after each regular annual meeting of the stockholders. If the
election of officers shall not be held at such meeting of the Board, such
election shall be held at a regular or special meeting of the Board of Directors
as soon thereafter as may be convenient. Each officer shall hold office until
such officer's successor is elected and qualified or until such officer's death
or resignation or until such officer shall have been removed in the manner
hereinafter provided.
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SECTION 5.3 REMOVAL AND RESIGNATION. Any officer may be removed, either
with or without cause, by a majority of the directors then in office at any
regular or special meeting of the Board; but such removal shall be without
prejudice to the contract rights, if any, of such person so removed. Any officer
may resign at any time by giving written notice to the Board of Directors, to
the Chairman, to the President or to the Secretary of the Corporation. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 5.4 VACANCIES. A vacancy in any office because of death,
resignation, removal, or any other cause may be filled by the Board of
Directors.
SECTION 5.5 CHAIRMAN OF THE BOARD. The Board of Directors shall elect a
Chairman of the Board from among the directors. The Chairman of the Board shall
preside at all meetings of the stockholders and directors, and shall have such
other powers and duties as the Board of Directors may from time to time
prescribe.
SECTION 5.6 PRESIDENT. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board, the
President shall preside at all meetings of the stockholders and, if a member, at
all meetings of the Board of Directors. The President shall have the overall
supervision of the business of the Corporation and shall direct the affairs and
policies of the Corporation, subject to such policies and directions as may be
provided by the Board of Directors. The President shall have authority to
designate the duties and powers of other officers and delegate special powers
and duties to specified officers, so long as such designation shall not be
inconsistent with the statutes, these Bylaws or action of the Board of
Directors. The President shall also have power to execute, and shall execute,
deeds, mortgages, bonds, contracts or other instruments of the Corporation
except where required or permitted by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the Board of Directors or by the President to some other officer or agent of
the Corporation. The President may sign with the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, certificates for shares of
stock of the Corporation the issuance of which shall have been duly authorized
by the Board of Directors, and shall vote, or give a proxy to any other person
to vote, all shares of the stock of any other Corporation standing in the name
of the Corporation. The President in general shall have all other powers and
shall perform all other duties which are incident to the chief executive office
of a Corporation or as may be prescribed by the Board of Directors from time to
time.
SECTION 5.7 VICE PRESIDENTS. In the absence of the President, or in the
event of the President's inability or refusal to act, the Vice Presidents in
order of their rank as fixed by the Board of Directors or, if not ranked, the
Vice President designated by the Board of Directors or the President, shall
perform all duties of the President and, when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties, not
inconsistent with the statutes, these Bylaws, or action of the Board of
Directors, as from time to time may be prescribed for them,
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respectively, by the Board of Directors or the President. Any Vice President may
sign, with the Secretary or an Assistant Secretary, or the Treasurer or an
Assistant Treasurer, certificates for shares of stock of the Corporation the
issuance of which shall have been duly authorized by the Board of Directors.
SECTION 5.8 SECRETARY. The Secretary shall: (i) keep the minutes of the
meetings of the stockholders, the Board of Directors and committees of
directors, in one or more books provided for that purpose; (ii) see that all
notices are fully given in accordance with the provisions of these Bylaws or as
required by law; (iii) have charge of the corporate records and of the seal of
the Corporation; (iv) affix the seal of the Corporation or a facsimile thereof,
or cause it to be affixed, to all certificates for shares prior to the issuance
thereof and to all documents the execution of which on behalf of the Corporation
under its seal is duly authorized by the Board of Directors or otherwise in
accordance with the provisions of these Bylaws; (v) keep a register of the post
office address of each stockholder, director and committee member which shall
from time to time be furnished to the Secretary by such stockholder, director or
member; (vi) sign with the President, or a Vice President, certificates for
shares of stock of the Corporation, the issuance of which shall have been duly
authorized by resolution of the Board of Directors; (vii) have general charge of
the stock transfer books of the Corporation; and (viii) in general, perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned by the President or by the Board of Directors. The
Secretary may delegate such details of the performance of duties of the office
as may be appropriate in the exercise of reasonable care to one or more persons
in his or her stead, but shall not thereby be relieved of responsibility for the
performance of such duties.
SECTION 5.9 TREASURER. The Treasurer shall: (i) be responsible to the
Board of Directors for the receipt, custody and disbursements of all funds and
securities of the Corporation; (ii) receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever and deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositories as shall from time to time be selected in accordance with the
provisions of Section 7.4, Deposits, of these Bylaws; (iii) disburse the funds
of the Corporation as ordered by the Board of Directors or the President or as
otherwise required in the conduct of the business of the Corporation; (iv)
render to the President or Board of Directors, upon request, an account of all
transactions as Treasurer and on the financial condition of the Corporation; and
(v) in general, perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned by the President, by the
Board of Directors or these Bylaws. The Treasurer may sign, with the President,
or a Vice President, certificates for shares of stock of the Corporation, the
issuance of which shall have been duly authorized by resolution of the Board of
Directors. The Treasurer may delegate such details of the performance of duties
of the office as may be appropriate in the exercise of reasonable care to one or
more persons in his or her stead, but shall not thereby be relieved of
responsibility for the performance of such duties. If required by the Board of
Directors, the Treasurer shall give a bond for the faithful discharge of his or
her duties in such sum, and with such surety or sureties, as the Board of
Directors shall determine.
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SECTION 5.10 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
Assistant Treasurers and Assistant Secretaries shall perform all functions and
duties which the Secretary or Treasurer, as the case may be, may assign or
delegate; but such assignment or delegation shall not relieve the principal
officer from the responsibilities and liabilities of his or her office. In
addition, an Assistant Secretary or an Assistant Treasurer, as thereto
authorized by the Board of Directors, may sign with the President, or a Vice
President, certificates for shares of the Corporation, the issuance of which
shall have been duly authorized by resolution of the Board of Directors; and the
Assistant Secretaries and Assistant Treasurers shall, in general, perform such
duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President or by the Board of Directors. The Assistant
Treasurers shall, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums, and with such surety or
sureties, as the Board of Directors shall determine.
SECTION 5.11 SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors or by such officer as the Board of
Directors may designate for such purpose or as the Board of Directors may
otherwise direct. No officer shall be prevented from receiving a salary or other
compensation by reason of the fact that he or she is also a director of the
Corporation.
ARTICLE VI
DIVISIONS
SECTION 6.1 DIVISIONS OF THE CORPORATION. The Board of Directors shall
have the power to create and establish such operating divisions of the
Corporation as it may from time to time deem advisable.
SECTION 6.2 OFFICIAL POSITIONS WITHIN A DIVISION. The President may
appoint individuals, whether or not they are officers of the Corporation, to,
and may, with or without cause, remove them from, official positions established
within a division, but not filled by the Board of Directors. (See also Section
5.1, Offices and Official Positions, of these Bylaws.)
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 7.1 CONTRACTS AND OTHER INSTRUMENTS. The Board of Directors may
authorize any officer or officers, agent or agents, to enter into any contract
or execute and deliver any instrument in the name of and on behalf of the
Corporation, or of any division thereof, and such authority may be general or
confined to specific instances.
SECTION 7.2 LOANS. No loans shall be contracted on behalf of the
Corporation, or any division thereof, and no evidence of indebtedness shall be
issued in the name of the Corporation,
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or any division thereof, unless authorized by a resolution of the Board of
Directors. Such authority may be general or confined to specific instances.
SECTION 7.3 CHECKS, DRAFTS, ETC. All checks, demands, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation, or any division thereof, shall be signed by such
officer or officers, agent or agents of the Corporation; and in such manner, as
shall from time to time be authorized by the Board of Directors.
SECTION 7.4 DEPOSITS. All funds of the Corporation, or any division
thereof, not otherwise employed shall be deposited from time to time to the
credit of the Corporation in such banks, trust companies or other depositories
as the Board of Directors may select.
ARTICLE VIII
CERTIFICATES OF STOCK AND THEIR TRANSFER
SECTION 8.1 CERTIFICATES OF STOCK. The certificates of stock of the
Corporation shall be in such form as may be determined by the Board of
Directors, shall be numbered and shall be entered in the books of the
Corporation as they are issued. They shall exhibit the holder's name and number
of shares and shall be signed by the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary.
If any stock certificate is signed (i) by a transfer agent or an assistant
transfer agent or (ii) by a transfer clerk acting on behalf of the Corporation
and a registrar, the signature of any officer of the Corporation may be
facsimile. In case any such officer whose facsimile signature has thus been used
on any such certificate shall cease to be such officer, whether because of
death, resignation or otherwise, before such certificate has been delivered by
the Corporation, such certificate may nevertheless be delivered by the
Corporation, as though the person whose facsimile signature has been used
thereon had not ceased to be such officer. All certificates properly surrendered
to the Corporation for transfer shall be canceled and no new certificate shall
be issued to evidence transferred shares until the former certificate for at
least a like number of shares shall have been surrendered and canceled and the
Corporation reimbursed for any applicable taxes on the transfer, except that in
the case of a lost, destroyed or mutilated certificate a new certificate may be
issued therefor upon such terms, and with such indemnity (if any) to the
Corporation, as the Board of Directors may prescribe specifically or in general
terms or by delegation to a transfer agent for the Corporation.
SECTION 8.2 LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors in individual cases, or by general resolution or by delegation to the
transfer agent, may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the Corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the
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owner of such lost, stolen or destroyed certificates, or such owner's legal
representative, to advertise the same in such manner as it shall require and/or
to give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
SECTION 8.3 TRANSFERS OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, and upon payment of applicable taxes with respect to such transfer,
and in compliance with any restrictions on transfer applicable to the
certificate or shares represented thereby of which the Corporation shall have
notice and subject to such rules and regulations as the Board of Directors may
from time to time deem advisable concerning the transfer and registration of
certificates for shares of capital stock of the Corporation, the Corporation
shall issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books. Transfers of shares shall
be made only on the books of the Corporation by the registered holder thereof or
by such holder's attorney or successor duly authorized as evidenced by documents
filed with the Secretary or transfer agent of the Corporation.
SECTION 8.4 RESTRICTIONS ON TRANSFER. Any stockholder may enter into an
agreement with other stockholders or with the Corporation providing for
reasonable limitation or restriction on the right of such stockholder to
transfer shares of capital stock of the Corporation held by such stockholder,
including, without limiting the generality of the foregoing, agreements granting
to such other stockholders or to the Corporation the right to purchase for a
given period of time any of such shares on terms equal to terms offered such
stockholders by any third party. Any such limitation or restriction on the
transfer of shares of the Corporation may be set forth on certificates
representing shares of capital stock or notice thereof may be otherwise given to
the Corporation or the transfer agent, in which case the Corporation or the
transfer agent shall not be required to transfer such shares upon the books of
the Corporation without receipt of satisfactory evidence of compliance with the
terms of such limitation or restriction.
SECTION 8.5 NO FRACTIONAL SHARE CERTIFICATES. Certificates shall not be
issued representing fractional shares of stock.
SECTION 8.6 STOCKHOLDER OF RECORD. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
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ARTICLE IX
INDEMNIFICATION
(a) The Corporation shall 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, administrative or investigative
(other than an action by or in the right of the Corporation), by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contenders or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation, and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
(c) The Corporation may indemnify any person who is or was an employee
or agent of the Corporation, or is or was an employee or agent of the
Corporation serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust or
other enterprise to the extent and under the circumstances provided by
subsections (a) and (b) of this ARTICLE IX with respect to a person who is or
was a director or officer of the Corporation. To the extent that an employee or
agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred
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to in subsections (a) and (b) of this ARTICLE IX, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this ARTICLE
IX (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because such person has met
the applicable standard of conduct set forth in subsections (a) and (b) of this
ARTICLE IX. Such determination shall be made (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this ARTICLE IX. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this ARTICLE IX shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under this ARTICLE IX or
otherwise.
(h) For purposes of this ARTICLE IX, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint
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venture, trust or other enterprise, shall stand in the same position under this
ARTICLE IX with respect to the resulting or surviving corporation as such person
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this ARTICLE IX, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director or officer of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this ARTICLE IX.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this ARTICLE IX shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(k) The Delaware Court of Chancery is vested with exclusive
jurisdiction to hear and determine all actions for advancement of expenses or
indemnification brought under this ARTICLE IX. The Delaware Court of Chancery
may summarily determine the Corporation's obligation to advance expenses
(including attorneys' fees).
(l) Notwithstanding any other Section of these Bylaws, no amendment,
modification, restatement or repeal of the Bylaws shall limit or impair in any
manner the rights of any person to indemnification or advancement of expenses
under this ARTICLE IX in respect of any action or failure to act occurring prior
to such amendment, modification, restatement or repeal.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 FISCAL YEAR. The fiscal year of the Corporation shall
begin on April 1 of each year and end on March 31 of each year.
SECTION 10.2 SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, and the words "CORPORATE SEAL" and "DELAWARE;" and it
shall otherwise be in the form approved by the Board of Directors. Such seal may
be used by causing it, or a facsimile thereof, to be impressed or affixed or
otherwise reproduced.
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ARTICLE XI
AMENDMENTS
Subject to any contrary or limiting provisions contained in the
Certificate of Incorporation, these Bylaws may be amended or repealed, or new
Bylaws may be adopted (i) by the affirmative vote of the holders of at least
eighty percent (80%) of the outstanding shares of all classes of stock of the
Corporation generally entitled to vote in the election of directors, considered
for purposes of this ARTICLE XI as one class, or (ii) the affirmative vote of a
majority of the members of the Board of Directors then in office at any regular
or special meeting. Any Bylaws adopted or amended by the stockholders may be
amended or repealed by the Board of Directors or the stockholders.
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EXHIBIT 10.2
CERRO GORDO BUILDING AND LOAN, s.b.
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made effective as of June 7, 1999 by
and among Cerro Gordo Building and Loan, s.b. (the "Institution"), a state
chartered savings institution, with its principal administrative office at 229
East South Street, Cerro Gordo, Illinois 61818, CGB&L Financial Group, Inc., a
corporation organized under the laws of the State of Delaware, the holding
company for the Institution (the "Holding Company," and Maralyn F. Heckman
("Executive").
WHEREAS, the Institution wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the
Institution, full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES. During the period of her
employment hereunder, Executive agrees to serve as President of the Institution.
Executive shall render administrative and management services to the Institution
such as are customarily performed by persons situated in a similar executive
capacity. During said period, Executive also agrees to serve, if elected, as an
officer and director of the Holding Company or any subsidiary of the
Institution.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement
shall be deemed to have commenced as of the date first above written and shall
continue for a period of thirty-six (36) full calendar months thereafter.
Commencing on the effective date of this Agreement, the term of this Agreement
shall be extended for one day each day until such time as the disinterested
members of the board of directors of the Institution ("Board") or Executive
elects not to extend the term of this Agreement by giving written notice in
accordance with Section 8 of this Agreement. The Board will review the Agreement
and Executive's performance annually for purposes of determining whether to
extend the Agreement and the rationale and results thereof shall be included in
the minutes of the Board's meeting. The Board shall give notice to the Executive
as soon as possible after such review as to whether the Agreement is to be
extended.
(b) During the period of Executive's employment hereunder,
except for periods of absence occasioned by illness, reasonable vacation
periods, and reasonable leaves of
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absence, Executive shall devote substantially all business time, attention,
skill, and efforts to the faithful performance of her duties hereunder including
activities and services related to the organization, operation and management of
the Institution and participation in community and civic organizations;
provided, however, that, with the approval of the Board, as evidenced by a
resolution of such Board, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or positions
in, companies or organizations, which, in such Board's judgment, will not
present any conflict of interest with the Institution, or materially affect the
performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary,
Executive's employment with the Institution may be terminated by the Institution
or the Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Institution shall pay Executive as compensation a
salary of $ 43,160 per year ("Base Salary"). Base Salary shall include any
amounts of compensation deferred by Executive under any qualified or unqualified
plan maintained by the Institution. Such Base Salary shall be payable monthly.
Pursuant to Section 11.(b) of this Agreement, the Holding Company and the
Association may allocate Base Salary payments between the Holding Company and
its Subsidiaries based on the Executive's activities for each
organization.During the period of this Agreement, Executive's Base Salary shall
be reviewed at least annually; the first such review will be made no later than
one year from the date of this Agreement. Such review shall be conducted by the
Board or by a Committee of the Board, delegated such responsibility by the
Board. The Committee or the Board may increase Executive's Base Salary. Any
increase in Base Salary shall become the "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided in this Section 3.(a), the
Institution shall also provide Executive, at no premium cost to Executive, with
all such other benefits as are provided uniformly to full-time employees of the
Institution.
(b) The Executive shall be entitled to participate in any
employee benefit plans, arrangements and perquisites substantially equivalent to
those in which Executive was participating or otherwise deriving benefit from
immediately prior to the beginning of the term of this Agreement, and the
Institution will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder; except to the extent
such changes are made applicable to all Institution employees on a
non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection 3.(b), Executive shall be entitled to participate
in or receive benefits under any employee benefit plans, including, but not
limited to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, stock or option plans, health-and-accident plans, medical
coverage or any other employee benefit plan or arrangement made available by the
Institution in the future to its senior executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
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administration of such plans and arrangements. Executive shall be entitled to
incentive compensation and bonuses as provided in any plan or arrangement of the
Institution in which Executive is eligible to participate. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be ln lieu of
other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by Section
3.(a) and other compensation provided for by Section 3.(b), the Institution
shall pay or reimburse Executive for all reasonable travel and other reasonable
expenses incurred by Executive performing her obligations under this Agreement
and may provide such additional compensation in such form and such amounts as
the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during the Executive's term of employment under this Agreement, the
provisions of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Institution or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5.(a) hereof or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Institution's employ upon any of the following:
(A) unless consented to by the Executive, failure to elect or reelect or to
appoint or reappoint Executive as President or failure to nominate or
re-nominate Executive as a Director of the Institution or Holding Company to the
extent Executive was serving as a Director as of the effective date of this
Agreement, (B) a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, unless consented to by Executive, (C) a
reduction in the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement, unless consented to by the
Executive, (D) a relocation of Executive's principal peace of employment by more
than 25 miles from her location immediately prior to the Event of Termination,
(E) a liquidation or dissolution of the Institution or Holding Company, or (F)
breach of this Agreement by the Institution. Upon the occurrence of any event
described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have
the right to elect to terminate her employment under this Agreement by
resignation upon not less than sixty (60) days prior written notice given within
six full months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the
Date of Termination, as defined in Section 8, the Institution shall be obligated
to pay Executive, or, in the event of her subsequent death, her beneficiary or
beneficiaries, or her estate, as the case may be a sum equal to the sum of: (i)
the amount of the remaining payments that the Executive would have earned if she
had continued her employment with the Institution during the remaining term of
this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions or payments that would have
been made on
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Executive's behalf to any employee benefit plans of the Institution or the
Holding Company or for any benefit or perquisite which would have been provided
to Executive during the remaining term of this Agreement based on contributions
or payments made (on an annualized basis) at the Date of Termination; provided,
however, that any payments pursuant to this Section 4.(b) and Section below
shall not, in the aggregate, exceed three times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Institution or such lesser number of years in the event that
Executive shall have been employed by the Institution for less than five years.
In the event the Institution is not in compliance with its minimum capital
requirements or if such payments pursuant to this Section 4.(b) would cause the
Institution's capital to be reduced below its minimum regulatory capital
requirements, such payments shall be deferred until such time as the Institution
or successor thereto is in capital compliance. At the election of the Executive,
which elect on is to be made prior to an Event of Termination, such payments
shall be made (a) in a lump sum as of the Executive's Date of Termination, (b)
on a bi-weekly basis in approximately equal installments during the remaining
term of the Agreement or (c) on an annual basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall not
be reduced in the event the Executive obtains other employment following
termination of employment.
(c) Upon the occurrence of an Event of Termination, the
Institution will cause to be continued life, medical, dental and long-term or
other disability coverage substantially identical to the coverage maintained by
the Institution or the Holding Company for Executive prior to her termination at
no premium cost to the Executive, except to the extent such coverage may be
changed in its application to all Institution or Holding Company employees. Such
coverage shall cease upon the expiration of the remaining term of this
Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of
the Institution or Holding Company shall mean an event of a nature that: (i)
would be required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
Section 303.4(a), with respect to the Institution, and the Rules and Regulations
promulgated by the Board of Govenors for the Federal Reserve Board ("FRB"), with
respect to the Holding Company, as in effect on the date of this Agreement; or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Institution or the Holding Company representing 20% or more of
the Institution's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the
Institution purchased by the Holding Company and any voting securities purchased
by any employee benefit plan of the Institution or the Holding Company, or
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(B) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
she were member of the Incumbent Board, or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Institution or
the Holding Company or similar transaction occurs in which the Institution or
Holding Company is not the resulting entity, or (D) a proxy statement has been
distributed soliciting proxies from stockholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Institution or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Institution or
the Holding Company, or (E) a tender offer is made for 20% or more of the voting
securities of the Stock Institution or Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section
5.(a) or the Board has determined that a Change in Control has occurred,
Executive shall be entitled to the benefits provided in Sections 5.(c) and 5.(d)
upon her subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of her principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of her death disability, retirement or termination or
Cause.
(c) Upon Executive's entitlement to benefits pursuant to
Section 5.(b), the Institution shall pay Executive, or in the event of her
subsequent death, her beneficiary or beneficiaries, or her estate, as the case
may be, a sum equal to the greater of: (i) the payments due for the remaining
term of the Agreement; or (ii) three (3) times Executive's average annual
compensation for the five (5) most recent taxable years that Executive has been
employed by the Institution or such lesser number of years in the event that
Executive shall have been employed by the Institution for less than five (5)
years. Such average annual compensation shall include Base Salary, commissions,
bonuses, contributions on Executive's behalf to any pension and/or profit
sharing plan, severance payments, retirement payments, directors or committee
fees and fringe benefits paid or to be paid to the Executive in any such year
and payment of any expense items without accountability or business purpose or
that do not meet the Internal Revenue Service requirements for deductibility by
the Institution, provided, however, that any payment under this provision and
Section 5.(d) below shall not exceed three (3) times the Executive's average
annual compensation. In the event the Institution is not in compliance with its
minimum capital requirements or if such payments would cause the Institution's
capital to be reduced below its minimum regulatory capital requirements, such
payments shall be deferred until such
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time as the Institution or successor thereto is in capital compliance. At the
election of the Executive, which election is to be made prior to a Change in
Control, such payment shall be made: (a) in a lump sum as of the Executive's
Date of Termination, (b) on a bi-weekly basis in approximately equal
installments over a period of thirty-six (36) months following the Executive's
termination, or (c) on an annual basis in approximately equal installments over
a period of thirty-six (36) months following the Executive's termination. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to
Section 5.(b), the Institution will cause to be continued life, medical, dental
and long-term or other disability coverage substantially identical to the
coverage maintained by the Institution for Executive prior to her severance at
no premium cost to the Executive, except to the extent that such coverage may be
changed in its application for all Institution employees on a non-discriminatory
basis. Such coverage and payments shall cease upon the expiration of thirty-six
(36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount", as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE. The term "Termination for Cause" shall
mean termination because of: (1) Executive's personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, regulation
(other than traffic violations or similar offenses), final cease and desist
order or material breach of any provision of this Agreement which results in a
material loss to the Institution or the Holding Company, or (2) Executive's
conviction of a crime or act involving moral turpitude or a final judgement
rendered against Executive based upon actions of Executive which involve moral
turpitude. For the purposes of this Section 7, no act, or failure to act, on
Executive's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interests of the Institution or its affiliates. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for Cause
unless and until there shall have been delivered to her a Notice of Termination
which shall include a copy of a resolution duly adopted by the affirmative vote
of not less than a majority of the members of the Board at meeting of the Board
called and held for that purpose (after reasonable notice to Executive and an
opportunity for her,
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together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Institution, the Holding Company or any subsidiary or affiliate thereof,
vest. At the Date of Termination for Cause, such stock options and related
limited rights and any unvested awards shall become null and void and shall not
be exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution or by
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the
Notice of Termination (which, in the case of a Termination for Cause, shall not
be less than thirty days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8.(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of
Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and, provided further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, in the event the
Executive is terminated for reasons other than Termination for Cause, the
Institution will continue to pay Executive her Base Salary in effect when the
notice giving rise to the dispute was given until the earlier of: (1) the
resolution of the dispute in accordance with this Agreement or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination. Amounts paid under this Section are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
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9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a Party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder
pursuant to Section 4 hereof, Executive agrees not to compete with the
Institution for a period of one (1) year following such termination in any city,
town or county in which the Executive's normal business office is located and
the Institution has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of such
termination, except as agreed to pursuant to a resolution duly adopted by the
Board. Executive agrees that during such period and within said cities, towns
and counties, Executive shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the Institution. The
parties hereto, recognizing that irreparable injury will result to the
Institution, its business and property in the event of Executive's breach of
this Section 10.(a), agree that in the event of any such breach by Executive,
the Institution, will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employees and all persons acting for or
under the direction of Executive. Nothing herein will be construed as
prohibiting the Institution from pursuing any other remedies available to the
Institution for such breach or threatened breach, including the recovery of
damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge
of the business activities and plans for business activities of the Institution
and affiliates thereof, as it may exist from time to time, is a valuable,
special and unique asset of the business of the Institution. Executive will not,
during or after the term of her employment, disclose any knowledge of the past,
present, planned or considered business activities of the Institution or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Institution. Further, Executive may disclose
information regarding the business activities of the Institution to the
Commissioner of Banks and Real Estate of the State of Illinois ("Commissioner"),
FRB and the FDIC pursuant to a formal regulatory request. In the event of a
breach or threatened breach by Executive of the provisions of this Section, the
Institution will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Institution or affiliates thereof, or from
rendering any services to any person, firm,
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corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Institution from pursuing any other remedies available to the
Institution for such breach or threatened breach, including the recovery of
damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely
paid in cash or check from the general funds of the Institution. The Holding
Company, however, unconditionally guarantees payment and provision of all
amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Holding
Company.
(b) Notwithstanding any provision herein to the contrary, to
the extent that payments and benefits, as provided by this Agreement, are paid
to or received by Executive under the Employment Agreement effective as of June
7, 1999, between Executive and the Holding Company (the "Holding Company
Agreement"), such compensation payments and benefits paid by the Holding Company
will be subtracted from any amounts due simultaneously to Executive under
similar provisions of this Agreement. Payments pursuant to this Agreement and
the Holding Company Agreement shall be allocated in proportion to the services
rendered and time expended on such activities by Executive as determined by the
Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
The Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Institution or
any predecessor of the Institution and Executive, except for the provisions of
the Holding Company Agreement, and except that this Agreement shall not affect
or operate to reduce any benefit or compensation inuring to executive of a kind
elsewhere provided. No provision of this Agreement shall be interpreted to mean
that Executive is subject to receiving fewer benefits than those available to
her without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments
under her Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to affect any such action shall
be null, void, and of no effect.
(b) This Agreement shall be binding upon and inure to the
benefit of Executive and the Institution and their respective successors and
assigns.
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14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to
have been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
15. REQUIRED PROVISIONS.
(a) Any payments made to Executive pursuant to this Agreement,
or otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any rules and regulations promulgated thereunder, including
12 C.F.R. Part 359.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Illinois,
unless otherwise stated herein.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution, in accordance with the rules of
the American Arbitration Institution then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
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Executive shall be entitled to seek specific performance of her right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
21. INDEMNIFICATION.
(a) The Institution shall provide Executive (including her
heirs, executors and administrators) with coverage under a standard directors'
and officers' liability insurance policy at its expense and shall indemnify
Executive (and her heirs, executors and administrators) to the fullest extent
permitted under Illinois law against all expenses and liabilities reasonably
incurred by her in connection with or arising out of any action, suit or
proceeding in which she may be involved by reason of her having been a director
or officer of the Institution (whether or not she continues to be a director or
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
22. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Institution's obligations under this Agreement, in the same manner and to the
same extent that the Institution would be required to perform if no such
succession or assignment had taken place.
-11-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Cerro Gordo Building and Loan, s.b. and CGB&L
Financial Group, Inc., have caused this Agreement to be executed and their seals
to be affixed hereunto by their duly authorized officers and directors, and
Executive has signed this Agreement, on the 7th day of June, 1999.
CERRO GORDO BUILDING AND
LOAN, s.b.
By:/s/ John A. Sochor, D.D.S.
--------------------------------------
John A. Sochor, D.D.S.
Chairman, Board of Directors
[SEAL]
CGB&L FINANCIAL GROUP, INC.
(Guarantor)
By:/s/ John A. Sochor, D.D.S.
--------------------------------------
John A. Sochor, D.D.S.
Chairman, Board of Directors
[SEAL]
/s/ Maralyn F. Heckman
-----------------------------------------
Maralyn F. Heckman
-12-
Exhibit 11.0 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For the Twelve Months Ended March 31, 1999
Note: Basic earnings per share are computed based upon the weighted average
common shares outstanding for periods subsequent to the Building and Loan's
conversion to a stock savings bank on September 22, 1998. Earnings per share for
1999 are not meaningful.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 775,314
<INT-BEARING-DEPOSITS> 891,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 211,827
<INVESTMENTS-MARKET> 211,827
<LOANS> 5,422,973
<ALLOWANCE> 32,700
<TOTAL-ASSETS> 7,382,732
<DEPOSITS> 4,995,294
<SHORT-TERM> 0
<LIABILITIES-OTHER> 111,485
<LONG-TERM> 600,000
0
0
<COMMON> 911
<OTHER-SE> 1,666,667
<TOTAL-LIABILITIES-AND-EQUITY> 7,382,732
<INTEREST-LOAN> 507,134
<INTEREST-INVEST> 5,386
<INTEREST-OTHER> 61,410
<INTEREST-TOTAL> 573,930
<INTEREST-DEPOSIT> 276,434
<INTEREST-EXPENSE> 315,214
<INTEREST-INCOME-NET> 258,806
<SECURITIES-GAINS> 0
<LOAN-LOSSES> 0
<EXPENSE-OTHER> 218,003
<INCOME-PRETAX> 47,996
<EXTRAORDINARY> 0
<INCOME-PRE-EXTRAORDINARY> 47,996
<CHANGES> 0
<NET-INCOME> 37,371
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.99
<LOANS-NON> 0
<LOANS-PAST> 57,415
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 32,700
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 32,700
<ALLOWANCE-DOMESTIC> 32,700
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
