<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to __________________
Commission File Number 033-59399
LIBERTY BANCSHARES, INC.
(Exact Name of Registrant as specified in its charter)
Missouri 43-1716068
(State of Organization) (I.R.S. employer identification no.)
1414 East Primrose
Springfield, Missouri 65804
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (417)888-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES x NO __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __
The aggregate market value of the 439,359 shares of Common Stock held
by non-affiliates of the Registrant was approximately $12,987,452.04 based on
the $29.56 per share price at which shares of Common Stock were valued in the
merger of Sac River Valley Bank with Liberty Bank, the Registrant's wholly-owned
subsidiary.
Number of shares of the Registrant's Common Stock outstanding as of
March 1, 1999: 818,060
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. BUSINESS.
As used herein, the term "Company" or "Bancshares" means Liberty Bancshares,
Inc., a Missouri corporation and the term "Liberty" means Liberty Bank, a wholly
owned subsidiary of the Company.
GENERAL
The Company is a Missouri corporation formed in 1995 for the sole
purpose of becoming a single bank holding company. Liberty is the only
subsidiary of the Company.
Liberty is a commercial bank that opened for business in October 1995.
It offers a wide range of commercial banking services for customers located
principally in Christian, Green, Lawrence, Dade, Cedar, Polk, Barton, and Vernon
Counties, Missouri. On January 4, 1999, Sac River Valley Bank ("Sac River"), a
Missouri state bank organized in Missouri in 1912 and located in Stockton,
Missouri, merged with and into Liberty (the "Merger").
Liberty's principal sources of income are interest on loans,
investments and service fees. Its principal expenses are interest paid on
deposits and general operating expenses.
EMPLOYEES
At December 31, 1998, Liberty employed 48 full-time and 7 part-time
employees. After the Merger, Liberty added 22 full-time and 2 part-time
employees. Liberty's employees are not covered by a collective bargaining
agreement, and management believes that its employee relations are good.
COMPETITION
Liberty's principal market areas are Christian, Greene, Lawrence, Dade,
Cedar, Polk, Barton and Vernon Counties, Missouri. Greene County includes the
Springfield, Missouri market. The competition among depository institutions in
this area is strong. Liberty competes for deposits and loans with local,
regional, and national commercial banks and savings and loan associations that
have facilities in Liberty's market area and with a variety of other financial
intermediaries such as credit unions, mutual funds and brokerage firms.
REGULATION AND SUPERVISION OF BANCSHARES
Federal and state regulatory authorities, including the Missouri
Division of Finance (the "Division of Finance") and the Federal Reserve System
Board (the "FRS Board") regulate and supervise the Company. The Company files
semiannual and annual reports of its operations with the FRS Board. Under FRS
Board regulations, the Company can only conduct banking or bank management
activities or activities closely tied to banking, but cannot act as a land
developer, a real estate broker, an insurer or engage in any other activities
the FRS Board does not consider closely tied to banking.
REGULATION AND SUPERVISION OF LIBERTY
Federal and state regulatory authorities, including the Division of
Finance and the Federal Deposit Insurance Corporation (the "FDIC") regulate and
supervise Liberty. Almost every aspect of Liberty's day-to-day operations are
subject to numerous requirements and restrictions. Applicable laws and
regulations, among other things, regulate Liberty's investments, loans and other
extension of credit and capital requirements.
Liberty submits quarterly "Call Reports" to the Division of Finance and
the FDIC, including a balance sheet, an income statement, a statement of changes
in equity capital and a report of assets and liabilities that are unaudited. The
Division of Finance examines Liberty at least once every eighteen months to
ensure compliance with its regulations.
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LENDING POLICIES
Liberty makes commercial, consumer and real estate loans to individuals
and businesses. Loans are at both fixed and variable rates of interest. Variable
interest rate loans generally involve less risk for Liberty because the interest
rate adjusts with the market interest rate, thus lessening the risk that the
interest earned on a loan will be significantly lower than prevailing market
rates over the life of the loan. The majority of Liberty's commercial and real
estate loans are variable rate loans. The majority of Liberty's consumer loans
are fixed-rate loans, most of which reprice in less than five years.
Liberty funds commercial real estate, business and construction loans.
These loans involve significant risks compared with other types of lending.
Commercial real estate and business loans have larger loan balances to single
borrowers or groups of related borrowers than residential lending. Repayment of
such loans depends in part on the underlying business and financial condition of
the borrower and is susceptible to adverse future developments. Construction
loans involve risks due to uncertainties inherent in estimating construction
costs, delays arising from labor problems, shortages of material, uncertain
marketability of a completed project and other unpredictable contingencies.
Liberty requires collateral to secure most loans. Real estate loans,
both construction loans and mortgage loans, are secured by the real estate.
Liberty generally requires a loan-to-collateral value of not more than 80% of
the loan value. In the case of one-to-four family residential properties,
Liberty may increase the loan-to-collateral value to 85%. In certain instances
in which Liberty sells such residential mortgages in secondary market programs,
the loan-to-collateral value may be higher. Commercial loans are generally
secured by inventories and receivables, equipment, machinery, marketable
securities or other liquid financial instruments. On commercial loans Liberty
generally requires a loan-to-collateral value of not more than 85%of the loan
value. Consumer loans are both secured and unsecured. When secured, the security
for these loans consists of consumer goods, marketable securities, certificates
of deposit and similar items. In most cases, Liberty receives a first lien on
collateral securing loans. In the case of home equity loans, Liberty may receive
a second lien on the collateral instead.
ITEM 2. PROPERTIES.
The Company's executive offices are located at 1414 East Primrose,
Springfield, Missouri 65804, which is also Liberty's main branch. The facility
has 4,830 sq. ft., and Liberty owns the facility. Liberty is in the process of
expanding the size of its main branch.
Liberty operates four (4) branches at the following locations: 2809
East Sunshine, Springfield, Missouri (2,930 sq. ft.); Greenfield, Missouri
(2,940 sq. ft.) and Mount Vernon, Missouri (3,925 sq. ft.). Liberty owns the
building each branch occupies. In the Merger Liberty acquired Sac River's
8,000 square foot banking facility in Stockton, Missouri.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any litigation that, if decided adversely
to the Company, would have a material effect on the Company's financial
condition. To the Company's knowledge, there is no litigation threatened other
than routine litigation arising in the ordinary course of business which would
be covered by liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
At March 1, 1999, Bancshares had issued 819,835 shares of common stock,
par value $1.00, of which 818,060 were outstanding (the "Common Stock"). The
approximate number of record holders on March 1, 1999 was 135.
There is no established public trading market for the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth on an historical basis, certain selected
consolidated financial data for Bancshares. Shareholders should read this data
in conjunction with the audited consolidated financial statements of Bancshares
and the related notes for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31
-------------------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Thousands, except for per share data)
<S> <C> <C> <C>
Net Interest Income $3,489 $1,817 $709
Provision for Loan Losses 648 447 71
Noninterest Income 694 201 47
Noninterest Expense 2,720 1,288 552
Provision for Income Taxes 282 117 39
Net Income 533 166 94
Basic Earnings Per Common Share $1.06 $.42 $.27
Dividends Declared per Common Share -- -- --
Average Total Assets $112,001 $53,172 $20,072
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements of the Company. As used in the following discussion, the terms
"Company" and "Bancshares" refer to Liberty Bancshares and its subsidiary on a
consolidated basis; the terms "Liberty" and "Bank" refer to Liberty Bank; and
the term "Liberty Bancshares" refers to Liberty Bancshares, Inc., on a parent
company only basis.
The discussion set forth below, as well as other portions of this Form
10-K, may contain forward-looking comments. Such comments are based upon the
information currently available to management of the Company and management's
perception thereof as of the date of this Form 10-K. Actual results of the
Company's operations could materially differ from those forward-looking
comments. The differences could be caused by a number of factors or combination
of factors including, but not limited to; changes in the availability and/or
cost of capital; changes in demand for banking services; changes in the
portfolio composition; change in the interest rate yield on the Company's
investments; changes in management strategy; increased competition from both
bank and non-bank companies; changes in the economic, political or regulatory
environments in the United States; litigation involving the Company and/or its
subsidiaries; and changes in the availability of qualified labor. Readers should
take these factors into account in evaluating any such forward-looking comments.
Bancshares has enjoyed rapid growth since its commencement of
operations in late October 1995. Total assets have increased from $12,223,000 at
December 31, 1995, to $144,022,000 at December 31, 1998. This growth is
reflected in all aspects of changes in the Company's financial condition from
1997 to 1998, and in the results of the
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Company's operations in those periods. This growth is the result of a number of
factors, including the opening of new branches, hiring of experienced lending
officers seeking new positions after mergers of large banks that serve the
Springfield, Missouri area, the addition of depositors as a result of those bank
mergers, the economic vitality of the Springfield area, and the Bank's marketing
program.
The Bank's rapid growth has required the injection of additional
capital from time to time to ensure that the Bank remains well capitalized.
Bancshares has provided additional capital for the Bank by borrowing under its
borrowing arrangements and by issuing additional shares of capital stock to
Bancshares' existing shareholders. During 1998, Bancshares borrowed $1,701,000
under its borrowing arrangements and issued $750,400 of additional shares of
Bancshares Common Stock. Bancshares contributed $2,325,000 of this money to the
Bank's capital. At December 31, 1998, Bancshares' $8,500,000 of borrowing
capacity under its borrowing arrangements had $4,201,000 of outstanding
borrowings.
On June 18, 1998, Bancshares and Bank entered into an agreement to
merge Sac River with and into Bank. The Merger closed on January 4, 1999. Sac
River held approximately $97 million in assets at December 31, 1998. Pursuant to
the Merger all of the outstanding stock of Sac River was exchanged for $6.29
million in cash and 308,745 shares of Bancshares stock. Bancshares has
registered the stock issued in the Merger under the Securities Act of 1933.
Those shares are not registered under the Securities Exchange Act of 1934.
FINANCIAL CONDITION
TOTAL ASSETS
The Company's total assets increased from $80,025,000 at December 31,
1997, to $144,022,000 at December 31, 1998, or 80.0%. This increase was driven
by the growth of total deposits during the period.
NET LOANS
Loans net of loan allowances were the principal component of
Bancshares' asset growth. Net loans increased from $51,129,000 at December 31,
1997, to $108,088,000 at December 31, 1998, or 111.4%. This increase primarily
reflected deposit growth. Loan growth consisted principally of increases in all
major loan categories. Commercial loans increased $28,194,000 (86.6%), real
estate construction and development loans increased $5,392,000 (76.5%),
residential real estate loans increased $8,123,000 (86.4%) and consumer loans
increased $15,232,000 (587.2%). This substantial increase in consumer loans
resulted from the establishment of a consumer department in the latter part of
1997. Liberty saw an opportunity to expand its consumer loan base by hiring
three experienced retail loan personnel. During 1998, two additional employees
were added to this department to meet loan demand. Liberty also increased its
origination and sale into the secondary market of mortgage loans.
AVAILABLE-FOR-SALE SECURITIES
The growth in available-for-sale securities was a result of the rapid
growth in the Bank's deposits which was not fully absorbed by loan production.
The increase from December 31, 1997, to December 31, 1998, was $1,772,000, or
14.5%.
DEPOSITS
Deposits grew as a result of the Bank's opening new branches and its
marketing efforts as well as the addition of customer deposits of new borrowers
and individuals and businesses moving their accounts in the aftermath of bank
mergers that affected the Springfield market. Total deposits at December 31,
1998, were $122,267,000, a $57,682,000, or 89.3%, increase over $64,585,000 at
December 31, 1997.
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BORROWINGS
Short-term borrowings, in the form of repurchase agreements declined
from $7,200,000 at December 31, 1997, to $5,253,000 at December 31, 1998, a
27.0% decrease. This decrease resulted from fluctuations in normal business
activities of the Bank's customers.
Borrowings under Bancshares' notes payable increased $1,701,000 from
December 31, 1997 to $4,201,000 at December 31, 1998. The increase was used to
inject additional capital into the Bank during the first half of 1998.
The Bank began using Federal Home Loan Bank ("FHLB") advances during
1998 as an additional vehicle to fund loan growth. The Bank had borrowed
$5,000,000 from the FHLB at December 31, 1998.
STOCKHOLDERS EQUITY
As a result of both growth of retained earnings and sales of Bancshares
Common Stock to existing stockholders, Bancshares' stockholders' equity
increased by $1,379,000, or 26.1%, from $5,288,000 at December 31, 1997, to
$6,667,000 at December 31, 1998.
RESULTS OF OPERATIONS
NET INCOME
Since Bancshares' sole subsidiary is a newly formed bank that has
operated for less than four years, the Company's income and returns on average
assets and stockholders' equity have lagged those of longer established
comparably sized institutions.
Net income for the year ended December 31, 1998, was $533,000, compared
to $166,000 for the same period a year earlier, a 221.1% increase. Net income
for the year ended December 31, 1997 represented a 77.5% increase over net
income for the year ended December 31, 1996.
The Company's net income growth has been restrained by the need to
build the Bank's allowance for loan losses to an amount equal to 1% of the
Bank's total loans. Under agreement with its bank regulators, the Bank had three
years from inception to reach the 1% level. At December 31, 1998, the Bank's
allowance for loan losses exceeded that level slightly.
INTEREST INCOME
The Company's interest income has increased principally because of the
Bank's asset growth. Interest income for the year ended December 31, 1998, was
$8,256,000, a $4,308,000, or 109.1%, increase over the prior year. Interest
income for the year ended December 31, 1997, was $3,948,000, a 185.3% increase
over the prior year.
INTEREST EXPENSE
Interest expense primarily reflected the growth in the Bank's interest
bearing deposits and to a lesser extent increases in overall borrowings.
Interest expense for the year ended December 31, 1998 was $4,767,000, an
increase of $2,636,000, or 123.7%, over the prior year. Interest expense for the
year ended December 31, 1997 was $2,131,000, a 215.7% increase over the prior
year.
NET INTEREST INCOME
As a result of the above increases in interest income and interest
expense, net interest income increased $1,672,000 or 92.0%, to $3,489,000 in the
year ended December 31, 1998, over the prior year. Net interest income increased
156.3% to $1,817,000 in the year ended December 31, 1997 over the prior year.
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The following table sets forth the Company's average balance of assets,
liabilities and stockholders' equity as well as the amount of interest income or
interest expense and the average rate for each category of interest earning
assets and interest bearing liabilities. Included in the average balances are
non-accruing loans. Loan fees are included in interest income. Average balances
are computed on a daily basis.
<TABLE>
<CAPTION>
December 31
1998 1997 1996
---------------------------- -------------------------------- ------------------------------
Interest Interest Interest
Average and Average Average and Average Average and Average
Balance 'Fees Rate Balance Fees Rate Balance Fees Rate
------- -------- -------- ------- -------- ------- -------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and Due from
Banks $5,142 $0 0% $ 2,326 ______ _____% $ 922 $____ _____%
Federal Funds Sold
and Securities
Purchased under
Agreements to
Resell 5,251 301 5.73 9,284 534 5.75 5,853 324 5.54
Taxable Investment
Securities 11,829 720 6.09 4,585 282 6.15 1,134 64 5.64
Non-taxable
Investment
Securities 3,378 157 4.65 7 1 14.29 ___ ___ ___
Loans, Net (2) 79,763 7,078 8.87 34,801 3,131 9.00 10,993 996 9.06
------- -------- -------- ------- -------- ------- -------- --------- ---------
Total Interest
Earning Assets 105,363 8,256 7.84% 51,003 3,948 7.74% 18,902 1,384 7.32%
Bank Premises and
Equipment 2,911 1,875 1,075
Other Assets 1,354 294 95
------- ------- --------
Total Assets $109,628 $53,172 $20,072
======== ======= ========
Liabilities and
Shareholder's
Equity
Noninterest Bearing
Deposits $13,282 $0 0% $ 7,366 0 0% $2,765 $0 0%
Interest Bearing
Deposits 20,611 803 3.90 12,237 488 3.99 5,682 226 3.98
Time Deposits 55,679 3,185 5.72 25,754 1,438 5,58 7,459 414 5.55
Federal Funds
Purchased and
Securities sold
under
Agreements to 7,892 352 4.46 2,434 121 4.97 653 35 5.36
Repurchase
Federal Home Loan
Bank Advances 1,852 101 5.45 0 0 0 0 0 0
Notes Payable 3,771 326 8.64 990 84 8.48
------- -------- -------- ------- -------- ------- -------- --------- ---------
Total Interest
Bearing Liabilities 103,087 4,767 4.63 48,781 2,131 4.46 16,559 675 4.08
Other Liabilities 501 293 83
Stockholders' Equity 6,040 4,098 3,430
------- ------- --------
Total Liabilities
and Stockholders'
Equity $109,628 $53,172 $20,072
======== ======= ========
NET INTEREST
INCOME,
NET INTEREST
SPREAD 3,489 3.21% $1,817 3.27% $709 3.24%
NET INTEREST
YIELD (3) 3.31% 3.56% 3.75%
</TABLE>
(1) Includes non-interest bearing balances, cash and cash items.
(2) Loans, net of loan losses.
(3) Net interest yield is net interest earnings divided by total
interest-earning assets, with net interest earnings equal to the difference
between total interest earned and total interest paid.
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During 1998, average deposit growth was slightly greater than the
growth of loans. Total average interest bearing liabilities grew by 111% in 1998
over 1997, and total average interest earning assets grew at a less rapid 107%
in the same period. The increases reflected, in part, the opening of new
branches and the addition of new depository accounts as a result of large bank
mergers that affected the Springfield market area. The net interest spread over
that time period was virtually unchanged and the net interest yield declined by
7.0% to 3.31%.
The effect of changes in average balance and rate from the
corresponding prior period on interest income, interest expense and net interest
income is set forth below. The effect of a change in average balance has been
determined by applying the average rate for the earlier period to the change in
the average balance for the later period, as compared with the earlier period.
The effect of a change in the average rate has been determined by applying the
average balance for the earlier period to the change in the average rate for the
later period, as compared with the earlier period. The variances attributable to
simultaneous balance and rate changes have been allocated in proportion to the
relationship of the dollar amount of change in each category.
<TABLE>
<CAPTION>
1998 Compared with 1997 1997 Compared with 1996
Increase (decrease) Increase (decrease)
Due to a Change in Due to a Change in
-------------------------------------- --------------------------------------
Average Average Average Average
Balance Rate Total Balance Rate Total
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Federal Funds Sold and Securities
Purchased under Agreements to Resell $(232) $(1) $(233) $197 $13 $210
Taxable Investment Securities 441 (3) 438 210 8 218
Non-taxable Investment Securities 157 (1) 156 1 - 1
Loans, Net 4,052 (105) 3,947 2,143 (8) 2,135
------ ----- ----- ----- --- ------
Total Interest Income 4,418 (110) 4,308 $2,551 $13 $2,564
Interest Paid on:
Interest-bearing Deposits (NOW
accounts, MDA, savings and other) $326 $(11) $315 $261 $1 $262
Time Deposits 1,710 37 1,747 1,022 2 1,024
Federal Funds Purchased and
Securities Sold under Agreements 272 (41) 231 90 (4) 86
to Repurchase
Notes Payable 240 2 242 84 - 84
Federal Home Loan Bank advances 101 0 101 0 0 O
------ -------- ------- ------ --- ------
Total Interest Expense 2,649 (13) 2,636 1,457 (1) 1,456
Change in Net Interest Income $1,769 $ (97) $1,672 $1,094 $14 $1,108
====== ======= ======= ====== ==== ======
Percent Increase in Net Interest Income
over the Prior Period 92.05% 156.28%
</TABLE>
Investment Securities Portfolio Analysis
The Company invests a portion of its available funds in short-term and
longer-term instruments, including federal funds sold and investment securities.
Investment securities include obligations of the U.S. Government or its
agencies, and obligations of states and political subdivisions.
Federal funds sold are used primarily for daily cash management
purposes. The Company's investment securities portfolio is utilized to
collateralize certain of the Bank's public and fiduciary deposits. It also
provides
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liquidity through proceeds from scheduled maturities. The majority of
the Company's investment securities carry fixed interest rates, and at December
31, 1998 and December 31, 1997, the Company's investment portfolio reflected a
net unrealized (loss) gain of approximately and $151,105, and ($504)
respectively.
The following table presents the Company's investments in certain
securities accounted for as held to maturity ("HTM") or as available for sale
("AFS") on the dates indicated.
<TABLE>
<CAPTION>
December 31
----------------------------------------------
1998 1997 1996
-------- -------- -------
Book Value
(In Thousands)
<S> <C> <C> <C>
U.S. Government, HTM $ 0 $ 0 $ 0
U.S. Government, AFS 0 600 849
U.S. Agencies, HTM 0 0 0
U.S. Agencies, AFS 10,380 10,445 599
Mortgage Backed Bonds, HTM 0 0 0
Mortgage Backed Bonds, AFS 0 0 0
Municipal Securities, HTM 0 0 0
Municipal Securities, AFS 3,657 1,220 0
Corporates 0 0 0
------- ------- ------
Total Securities 14,037 12,265 1,448
Federal Funds Sold and Securities Purchased under
Agreements to Resell 4,839 8,373 6,450
------- ------- ------
Total Investments $18,876 $20,638 $7,898
======= ======= ======
</TABLE>
The following table sets forth the amounts by book value and weighted
average yields, as of December 31, 1998, of each category of investment listed
in the preceding table maturing during certain time periods.
<TABLE>
<CAPTION>
Maturing
After One Year After Five
But Within Years But
Within One Five Within Ten After Ten
Year Years Years Years Total
------------- ------------- -------------- ------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. Government $0 - $0 - $0 - 0 0 -
U.S. Agencies 0 - 0 - 0 - 0 - 0 -
Mortgaged Backed Bonds 0 - 0 - 0 - 0 - 0 -
Municipal Securities 0 - 0 - 0 - 0 - 0 -
Corporates 0 - 0 - 0 - 0 - 0 -
Available for Sale:
U.S. Government 0 - 0 - 0 - 0 - 0 -
U.S. Agencies $2,843 5.39% $7,435 6.07% $102 6.02% 0 - $10,380 5.88%
Mortgaged Backed Bonds 0 - 0 - 0 - 0 - 0 -
Municipal Securities 0 - $152 4.10% $1,021 4.45% $2,484 4.70% $3,657 4.60%
</TABLE>
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On December 31, 1998, the Company had no investments in the debt
securities of any issuer (excluding U.S. Government and U.S. Agencies and
corporations) with a book value of more than ten percent (10%) of the Company's
shareholders' equity. Yields on tax-exempt securities were not computed on a tax
equivalent basis.
LOAN PORTFOLIO
The following table presents the amount of loans outstanding at the
dates indicated, according to loan category:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Real Estate Loans; Construction $12,444 $ 7,052 $ 2,787
Real Estate Loans; Mortgage 57,947 32,159 12,556
Installment Loans 17,826 2,594 549
Commercial Loans and Other 20,400 9,848 3,470
------ ----- -----
Total Loans $108,617 $51,653 $19,362
======== ======= =======
</TABLE>
The 110.3% increase in total loans in 1998 over the prior year
generally reflects the rapid increase in the Bank's deposit base, the demand for
loans in the Bank's market area, and the Bank's marketing efforts, which were
enhanced by the addition of experienced lending officers hired from other area
banks.
Real estate construction loans consist primarily of residential and
commercial construction loans for properties located in Greene County, Missouri.
Real estate mortgage loans, including 1-4 family and multi-family loans, are
collateralized by residential properties that are principally located in Greene
County, Missouri. Real estate-non-farm, non-residential loans are secured by
commercial properties principally located in Greene County, Missouri.
Commercial and industrial loans are comprised primarily of loans to
customers in the southwest Missouri trade area and are diversified from an
industry and customer standpoint, which helps to minimize risk. As a result of
management's emphasis on relationship banking, most borrowing customers also
maintain deposit accounts and use other banking services.
The installment loan portfolio consists of both secured and unsecured
loans to individuals for various personal reasons such as automobile financing,
home improvements, education and recreational purposes.
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The following table presents the repricing frequency of certain loan
categories at December 31, 1998.
<TABLE>
<CAPTION>
Within 1-5 Over 5
One Year Years Years Total
-------- ------- ------ --------
(In Thousands)
<S> <C> <C> <C> <C>
Real Estate Loans; Construction $12,444 -- -- $12,444
Real Estate Loans; Mortgage 49,443 6,813 1,691 57,947
Installment Loans 5,197 12,309 320 17,826
Commercial Loans and Other 18,516 1,582 302 20,400
------- ------- ------ --------
Total Loans $85,600 $20,704 $2,313 $108,617
======= ======= ====== ========
</TABLE>
The table below presents the interest rate sensitivity at December 31,
1998, on loans contractually due after one year in the following categories.
<TABLE>
<CAPTION>
Fixed Adjustable
Interest Rate Interest Rate
------------- -------------
(In Thousands)
<S> <C> <C>
Real Estate Loans; Construction $ -- $1,621
Real Estate Loans; Mortgage 7,028 33,813
Installment Loans 16,149 44
Commercial Loans and Other 2,487 4,175
------ ------
Total loans $ 25,664 $39,653
====== ======
</TABLE>
The Company's loan portfolio is varied, with no undue concentration in
any single industry, although a majority of the loans in the Company's portfolio
have been made to borrowers in the Greene County area.
RISK ELEMENTS OF LOAN PORTFOLIO
Management reviews the Company's loan portfolio continuously for
problem loans. During the ordinary course of business, management becomes aware
of borrowers that may not be able to meet contractual requirements of loan
agreements. Such loans are placed under close supervision, with consideration
given to placing the loan on a nonaccrual status. Management then determines the
need for additions to the allowance for loan loss or, if appropriate, partial or
full charge-off. Those loans on which management does not expect to collect
interest in the normal course of business, or which are 90 days or more past due
as to principal or interest, are generally placed on nonaccrual status. After a
loan is placed on nonaccrual status, interest income is recognized only on a
cash basis so long as management is satisfied there is not impairment of the
book value of the loan. The loan is returned to accrual status only when the
borrower has brought all past due principal and interest payments current, and
in the opinion of management, the borrower has demonstrated the ability to make
future payments of principal and interest as scheduled.
11
<PAGE> 12
The following table presents the amount of non-performing loans
outstanding at the dates indicated, by category:
<TABLE>
<CAPTION>
December 31
------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Nonaccrual Loans $43 $0 $0
Loans 90 Days Past Due and Still 22 0 0
Accruing
Restructured Loans 0 0 0
-- -- --
Total Non-performing Loans $65 $0 $0
=== == ==
</TABLE>
It is the Bank's stated policy that when a loan becomes over 90 days
delinquent, it is automatically placed on nonaccrual status unless the loan is
in the process of collection. In addition, other loans showing a high apparent
risk and potential for deterioration in financial strength or collateral value
may be placed on a nonaccrual status.
As of December 31, 1998 and December 31, 1997, the gross interest
income on nonaccrual and past due accruing loans recorded for the year then
ended was $0. The amount of interest income on such loans accounted for in
nonaccrual status that would have been recorded during the year if the loans had
been current in accordance with their terms approximated $500 and $0 for the
respective periods.
The following table presents the book value of certain loans excluded
from the previous table but classified by the Bank as potential problem loans.
<TABLE>
<CAPTION>
Book Value
------------------------------------------
(In Thousands)
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Installment Loans $ 32 $ 0
Real Estate Loans; Construction 0 0
Real Estate Loans; Mortgage 642 0
Commercial Loans and Other 198 600
----- ----
Total Loans $ 872 $600
===== ====
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses represents management's determination of
the amount necessary to be charged against the current period's earnings, in
order to maintain the allowance for loan losses at a level which is considered
adequate, in relation to the estimated risk inherent in the loan portfolio.
Since the Bank was formed in 1995, it has been building its loan loss allowance
up to 1% of total loans. The loan loss allowance at December 31, 1998 slightly
exceeded the 1% level. Notwithstanding the process of building a loan loss
allowance, management believes its provision for loan losses has been sufficient
since 1995. See "Financial Condition - Allowances for Loan Losses."
12
<PAGE> 13
The following table presents an analysis of the Company's loss
experience for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at Beginning of Period $524 $ 77 $6
Charge-offs:
Real Estate Loans; Construction 0 0 0
Real Estate Loans; Mortgage (48) 0 0
Installment Loans (15) 0 0
Commercial Loans and Other 0 0 0
Recoveries:
Real Estate Loans; Construction 0 0 0
Real Estate Loans; Mortgage 0 0 0
Installment Loans 0 0 0
Commercial Loans and Other 0 0 0
------- ------- ------
Net Charge-offs (63) 0 0
Provision for Loan Losses 648 447 71
------- ------ ------
Balance at End of Period $1,109 $524 $77
====== ==== ===
Ratio of Net Charge-offs During the Period to Average Net
Loans Outstanding During the Period .08% 0% 0%
</TABLE>
The following table presents a breakdown of the allowance for loan
losses for the period indicated.
<TABLE>
<CAPTION>
December 31
1998 1997 1996
--------------------- -------------------- -----------------------
Percent Percent Percent
of of of
loans loans loans
in each in each in each
category category category
to total to total to total
Amount loans Amount loans Amount loans
------- -------- ------- ------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at End of
Period Applicable to:
Real Estate Loans: Construction $14 1.26% $___ ___% $___ ___%
Real Estate Loans: Mortgage 131 11.81 ____ ____ ____ ____
Installment Loans 11 0.99 ____ ____ ____ ____
Commercial Loans and Other 47 4.24 42 0.43 ____ ____
Unallocated Allowance 906 81.70 482 99.57 77 100.0
====== ====== ==== ======= === =====
Total $1,109 100.0% $524 100.00% $77 100%
====== ====== ==== ======= === =====
</TABLE>
13
<PAGE> 14
The following table presents an analysis of the activity in the
foreclosed assets held for sale account for the period indicated.
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at Beginning of Period $0 $0 $0
Foreclosures During the Year 28 0 0
Writedowns During the Year 0 0 0
Proceeds from Sales 0 0 0
Gain (Loss) on Sales (Net) 0 0 0
--- --- ---
Balance at End of Period $28 $0 $0
=== === ===
Ratio of Foreclosed Assets to Loans
Outstanding 0% 0% 0%
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for
loan losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. This evaluation, which includes a review of
all loans on which full collectibility may not be reasonably assured, considers
among other matters, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience, and other factors that
warrant recognition in providing for an adequate loan loss allowance. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses and valuation
of foreclosed assets held for sale. These agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
Management has established an allowance for loan losses which reduces
the total loans outstanding by an estimate of potential loan losses, plus an
excess margin for potential future uncertainties. Loans deemed uncollectible are
charged against and reduce the allowance. Provisions for loan losses are
expensed against current income. The provision replenishes the allowance for
loan losses and maintains the allowance at acceptable levels based upon the
judgment of management. The allowance for loan losses is based upon current
economic conditions, risks in the loan portfolio, historical loan loss
experience and other factors which, in management's opinion, deserve current
recognition.
DEPOSITS
The Bank's deposit base is its primary source of funds. The Bank offers
a broad range of deposit products, including noninterest demand deposits, NOW
accounts, saving deposits, individual retirement accounts and certificates of
deposit.
At December 31, 1998, 25.1% of total deposits were in noninterest
bearing accounts, 21.6 % in savings and interest bearing demand accounts and
53.3% in certificates of deposit.
14
<PAGE> 15
The following table presents the average balances of and the average
rate paid on certain categories of deposits for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
(1) (1) (1)
------- ------- ------- ------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest Bearing:
Demand Deposit Accounts $13,282 0% $7,366 ___% 2,765 ___%
Interest Bearing:
MMDA and NOW Accounts 19,465 3.97 11,894 4.02 5,628 3.99
Savings Deposits 1,146 2.93 343 2.92 54 3.00
IRA 3,427 6.04 852 5.87 205 5.85
CDS Under $100,000 33,631 5.67 12,016 5.47 3,116 5.36
CDS Over $100,000 18,621 5.76 12,886 5.70 4,138 5.68
------- ------- -------
Total Average Deposits $89,572 $45,357 $15,906
======= ======= =======
</TABLE>
- ------------------
(1) Averages are computed on a daily basis.
Overall total average deposits increased by 97.48% from 1997 to 1998,
with certificates of deposit accounting for 61.85% of the total growth.
The following table presents the amount outstanding as of December 31,
1998, of certain deposits in excess of $100,000 and the maturities thereof. The
Bank does not purchase brokered deposits, and the Bank's Board of Directors
reviews all deposits of $100,000 or more each month to monitor volatility,
which, historically, has been nominal.
<TABLE>
<CAPTION>
Maturing in
--------------------------------------------------------------------------------
3 Months 3 to 6 6 to 12 Over 12
or less Months Months Months Total
-------- ------ ------- ------- ------
(In Thousands)
<C> <C> <C> <C> <C> <C>
Time Deposits
Time Deposits of
$100,000 or more $7,250 $6,235 $8,157 $4,399 $26,041
Other Time Deposits 9,666 6,299 9,857 13,264 39,086
------- ------- ------- ------- -------
Total $16,916 $12,534 $18,014 $17,663 $65,127
======= ======= ======= ======= =======
</TABLE>
RETURN ON EQUITY AND ASSETS
The following table presents the Company's return on equity and assets
for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Return on Assets (net income divided by average total assets) .49% .31% .47%
Return on Equity (net income divided by average equity) 8.82% 3.63% 2.69%
Dividend Payout Ratio (dividends declared per share divided by net
income per share) - - -
Equity to Assets Ratio (average equity divided by average total 5.51% 8.62% 17.34%
assets)
</TABLE>
15
<PAGE> 16
SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under agreements to
repurchase. These amounted to $5,253,000 at December 31, 1998, and $7,200,000 at
December 31, 1997. The average yield on short-term borrowings was 4.46% and
4.96% during 1998 and 1997. The majority of these investments have terms ranging
from one to 30 days. The maximum amounts of short-term borrowings outstanding at
any month end during 1998 and 1997 were $13,748,000 and $10,645,000. Information
regarding the levels of short-term borrowings for 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------------------
1998 1997 1996
Federal Federal Federal
Funds Securities Funds Securities Funds Securities
Purchased Sold Purchased Sold Purchased Sold
--------- ---------- ---------- ---------- --------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at End of $0 $5,253 $0 $ 7,200 --- $600
Period
Maximum outstanding $0 $13,748 $865 $10,645 --- $950
during the period at
any month end
Average interest rate 0% 4.25% __ --- 5.52%
end of period 4.70%
Average outstanding $0 $8,724 $ 43 $ 2,391 --- $653
during period
Average interest rate 0% 4.46% 4.86% 4.97% --- 5.36%
for the period
</TABLE>
The average amount outstanding was computed from daily averages and the
average interest rates for the period were computed by dividing the respective
interest expense by the average balance outstanding.
REGULATORY CAPITAL
At December 31, 1998, the Bank exceeded all regulatory capital
requirements to which it is subject. The Bank had Tier 1 Capital of $10,379
(7.8% of average assets); Tier 1 Risk-Based Capital of $10,379 (9.4% of
risk-weighted assets) and Total Risk-Based Capital of $11,488 (10.5% of
risk-weighted assets). Under current regulatory guidelines, the Bank is
considered to be "well-capitalized."
YEAR 2000
Liberty relies upon computer hardware, software, and data processing
services to operate and maintain customer accounts, loan accounts, investments,
ATM systems, and other functions which are susceptible to the "Year 2000"
problem. This means that software and microprocessors could report January 1,
2000, and subsequent dates as January 1, 1900, or other incorrect twentieth
century dates. This incorrect dating could make it very difficult for Liberty to
conduct business electronically.
Liberty has formed a committee of bank employees to assess and
coordinate the Bank's Year 2000 compliance. On a quarterly basis the committee
reports to Liberty's Board of Directors on the status of the Bank's compliance
efforts. Since its formation in 1997, the committee has undertaken activities to
identify potential problems, arrange testing of systems, prepare contingency and
liquidity plans, install compliant versions of affected properties, and assess
customers readiness, among others.
As of January 1999, Liberty's core data processing system and teller
software have been extensively tested by their vendors. Liberty also intends to
conduct its own tests of these systems. In addition, the Bank's software for
communication with the Federal Reserve is believed to be compliant following
upgrades. Tests of the Bank's ATM software have occurred and the software is
believed to be Year 2000 compliant. All of the Bank's personal computer loan
processing software has been tested. Liberty intends to have all remaining
software and embedded technology fully tested by June 30, 1999.
16
<PAGE> 17
Third party vendors have borne most of the cost of Liberty's Year 2000
compliance efforts. Costs incurred by Liberty have largely been in the form of
the compensation and benefits provided existing bank employees who have
conducted the compliance activities. To date, Liberty has not incurred any
non-employee expenses in implementing its compliance program and expects that
its total non-employee costs through January 1, 2000, will be $15,000 or less.
While Liberty believes that its systems and technology will be
compliant on January 1, 2000, and thereafter, it faces an unquantifiable risk
that third parties such as customers will encounter Year 2000 problems that
cause them to reduce their use of bank services, default on loans, or reduce
levels of future borrowings. There is also a risk that other financial
organizations with which Liberty maintains relations could experience Year 2000
issues that would adversely affect Liberty. Finally, if other service providers,
such as public utilities or telephone companies, are not Year 2000 compliant,
Liberty could experience service interruptions that would make the conduct of
business difficult.
Liberty has developed a contingency plan to address some of these
uncertainties. It may employ back-up generators as needed to provide electric
power beginning January 1, 2000. It plans to have in place a cellular based
modern communication system to maintain communication with its data service
providers in the event that landline communications are disrupted. Immediately
before the change of the century, electronic trial balances with extended
information are to be downloaded for import into local database files. A
complete backup of all files before the century change, and critical information
is expected to be printed in hard copy. The Bank anticipates taking other steps
to assure both liquidity and security.
Liberty believes that it has completed the majority of the actions
necessary to achieve Year 2000 compliance for its core systems and over half of
the work necessary to achieve overall compliance. Liberty expects that it will
be Year 2000 compliant before the century date change. There remains, however,
the possibility that problems encountered by third parties, including customers,
financial organizations and other service providers, could adversely affect the
Bank.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following is a biographical summary of the experience of the
Company's and Liberty's executive officers and directors.
WILLIAM P. GAUT, 59, has served as Director of Bancshares and
Liberty since 1995. Mr. Gaut has been the President of William P. Gaut, Inc.,
a consulting company, for more than five years.
ROBERT P. GEPHARDT, 46, has been President of Liberty's Branch, Mount
Vernon's Community Bank since October, 1996. Prior to that, Mr. Gephardt was
employed as Vice President by First City National Bank.
LYLE D. GRAESSER, 53, has been a Director of Bancshares and Liberty
since 1995. Mr. Graesser is the President of Micrographics Services
Corporation, a bank services corporation, a position he has held for more
than five years.
17
<PAGE> 18
KENNETH E. HAMILTON, 58, has been a Director of Bancshares and
Liberty since 1995. Mr. Hamilton is the President of Hamilton Curtis
Corporation, a development company, Hamilton Properties, Inc., a property
management company, and Hamilton Contracting, Inc., a contracting company.
He is also involved in a number of apartment and real estate development
companies. Mr. Hamilton has held these positions for more than five years.
HOWARD JACKSON HOKE, 52, has been a Director of Bancshares and Liberty
since 1995. Mr. Hoke has been the President of Jack Hoke Companies, Inc., a real
estate business, for more than five years. He is also the principle of Jack
Hoke, P.C., a law firm.
HOWARD K. JOHNSON, 71, has been a Director of Liberty since the Merger.
Prior to the Merger, Mr. Johnson had been a Director of Sac River since 1969.
Mr. Johnson farms near Stockton, Missouri.
NEALE W. JOHNSON, 52, has been a Director of Liberty since the Merger.
Prior to the Merger, Dr. Johnson had been a Director of Sac River since 1985.
Dr. Johnson is a dentist and has been practicing since 1973 in Stockton,
Missouri.
DIXIE F. LETSCH, 57, has been a Director of Bancshares and Liberty
since 1997. Ms. Letsch has been the Secretary/Treasurer of Letsch Advertising,
Inc., an advertising company for more than five years.
GARY E. METZGER, 48, has served as President and Director of Bancshares
and Liberty since their formation in 1995. Prior to 1995, Mr. Metzger was
president of Southwest Bank, a Springfield, Missouri, area bank, and vice
president of Southwest Bancshares, Inc.
RONALD MCDOWELL, 38, has served as Senior Vice President of Liberty
since Liberty was founded in 1995.
CHARLES W. NEALE, 67, became a Director of Liberty at the time of the
Merger. Prior to the Merger, Dr. Neale had been a Director of Sac River since
1985. Dr. Neale, a dentist, is retired from his dental practice.
RONALD K. PENDER, 42, has been Senior Vice President at Liberty since
September 1997. Prior to joining Liberty, Mr. Pender served as Vice President at
Union Planters Bank (in 1997) and at Nations Bank (from 1985 to 1997), in both
instances in Springfield, Missouri.
RICHARD A. PENDLETON, 55, has been a Director of Bancshares and
Liberty since 1995. Mr. Pendleton has been a director and officer of Pendleton-
Talley Company, a restaurant management company, and Restaurant Systems, Inc.,
a KFC owner/operator, for more than five years. He is a partner or member in
various other real estate companies.
DAVID PETIFORD, 43, has served as Senior Vice President of Liberty
since 1997. Prior to 1997, Mr. Petiford was employed as Vice President by
Boatmen's Bank of Southern Missouri.
GARRY L. ROBINSON, 37, has served as Executive Vice President and
Director of Bancshares and Liberty since the Merger of Sac River with Liberty.
Prior to the Merger, Mr. Robinson was President and a Director of Sac River.
WAYNE A. SCHEER, 57, has been a Director of Bancshares and Liberty
since 1995. Mr. Scheer is the President of Liberty Car Rental, a Thrifty car
rental franchise, and Missouri Insulation, a building supply company,
positions that he has held for more than five years. Mr. Scheer is also
Chairman of the Board of Liberty Industries, Inc., a cultured marble
manufacturer.
PATRICIA L. SECHLER, 53, has served as Senior Vice President of
Liberty since 1995. Prior to 1995, she was vice president of Southwest Bank, a
Springfield area bank.
18
<PAGE> 19
CHARLES L. SKAGGS, 60, became a Director of Liberty at the time of
the Merger. Prior to the Merger, Mr. Skaggs had been a Director of Sac River.
Mr. Skaggs is retired. Prior to 1994, Mr. Skaggs was Merchandising Service
Manager for Mobil Oil Corporation.
FRANKLIN H. SMITH, 63, has been a Director of Liberty since the Merger.
Prior to the Merger, Mr. Smith had been a Director of Sac River since 1973.
Mr. Smith has owned and operated Sac River Lumber Company for more than five
years.
MAURICE L. STILES, 56, has been President of Liberty's Greenfield
Community Bank branch since August 31, 1997. From 1960 until joining Liberty,
Mr. Stiles was employed as community bank president at the Lockwood Boatmen's
Bank.
CHARLES TALBERT WOOTEN, JR., 56, has been a Director of Bancshares and
Liberty since 1995. Mr. Wooten owns Wooten Company, a commercial and residential
property management company, and is a partner in various residential and
commercial properties.
STEPHEN T. WRENN, 45, has served as Vice President of Liberty since
the Merger of Sac River with Liberty. Prior to the Merger, Mr. Wrenn was Vice
President of Sac River, where he had been employed since 1975.
Item 11. Executive Compensation.
The following table sets forth the compensation that Liberty paid to
its chief executive officer for services rendered in the fiscal year ended
December 31, 1998. Bancshares paid no compensation to Mr. Metzger. Mr. Metzger
is the only executive officer of the Company and Liberty whose salary and bonus
exceeded $100,000 during the 1998 fiscal year.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- ------ ----- ------------
<S> <C> <C> <C>
Gary Metzger, President and Chief Executive
Officer
1998 $115,000 $20,000
1997 $ 93,500 $ 18,700 (1)
1996 80,000 0 (2)
</TABLE>
- -----------------------
(1) On January 20, 1998, Mr. Metzger was granted an option to purchase
2,500 shares of Bancshares Common Stock at a price per share of $14.79
pursuant to the terms of the Incentive Stock Option Plan adopted by
Bancshares on October 27, 1995 (the "Option Plan").
(2) On January 21, 1997, Mr. Metzger was granted an option to purchase
2,500 shares of Bancshares Common Stock at a price per share of $12.90
under the Option Plan.
The salary and bonus of the President and Chief Executive Officer of
the Company and Liberty is set on an annual basis by the Compensation
Committee of Liberty's Board of Directors. The members of the Compensation
Committee in 1998 were Gary E. Metzger, Kenneth E. Hamilton, Richard A.
Pendleton, Charles Talbert Wooten, Jr. and William P. Gaut. The Compensation
Committee considers Liberty's financial performance as compared to budget goals,
non-financial goals, including level of expansion and recruitment of personnel,
and the salaries of chief executive officers at similar institutions in
Missouri in setting Mr. Metzger's salary.
19
<PAGE> 20
FISCAL YEAR END OPTIONS
The following table discusses stock options for shares of Bancshares
Common Stock held by certain officers of Liberty as of December 31, 1998. Each
option is exercisable for a period of ten years from the date such option was
granted, pursuant to the terms of the Option Plan adopted on October 27, 1995,
as amended and restated. All options granted are exercisable immediately after
grant of the options. However, an employee may not exercise options to purchase
more than One Hundred Thousand Dollars ($100,000) of stock, valued as of the
date of the grant of the option, in any one calendar year.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS OPTIONS AT
NAME AT FISCAL YEAR-END FISCAL YEAR-END(4)
- ---- ------------------- -------------------
<S> <C> <C>
Gary E. Metzger 10,000(1) $295,600
Robert P. Gephardt 1,000(2) 29,560
Ronald McDowell 2,000(3) 59,120
David Petiford 2,000(2) 59,120
Patricia L. Sechler 1,000(2) 29,560
</TABLE>
- -------------------
(1) Includes an option for 5000 shares granted on October 27, 1995, with an
exercise price of $10 per share, an option for 2,500 shares granted on
January 21, 1997, with an exercise price of $12.90 per share, and an
option for 2,500 shares granted on January 20, 1998, with an exercise
price of $14.79 per share.
(2) Option granted on January 20, 1998, with an exercise price of $14.79
per share.
(3) Includes an option for 1,000 shares granted on January 21, 1997, with
an exercise price of $12.90 per share and an option for 1,000 shares
granted on January 20, 1998, with an exercise price of $14.79 per
share.
(4) Based upon an assumed market value of $29.56, which was the value
assigned to Bancshares' stock in the Merger.
The exercise price of each option is the fair market value of
Bancshares Common Stock as of the option grant date, as determined by the
Incentive Stock Option Committee. The Incentive Stock Option Committee also
determines the number of options to grant each year based upon recommendations
from Liberty's Compensation Committee, which takes into account the performance
of each eligible employee in making its recommendations. The Incentive Stock
Option Committee's current members are Wayne A. Scheer, Richard A. Pendleton,
William P. Gaut, Howard Jackson Hoke and Lyle D. Graesser.
COMPENSATION OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
The directors of the Company and Liberty receive $200 per meeting for
serving as directors of Bancshares and Liberty. The members of the Loan
Committee of the Liberty Board of Directors receive an additional $200 per month
as members of the Loan Committee. In 1998, the Company and Liberty Boards of
Directors held twelve (12) meetings, and the Liberty Loan Committee held
twenty-four (24) meetings.
The Loan Committee consists of the President, three directors who serve
permanently and one director who rotates on a quarterly basis. The Loan
Committee has the power to discount and purchase bills, notes and other
evidences of debt, and to buy and sell bills of exchange. The Committee approves
all new loans over certain limits. The permanent members of the Loan Committee
are Gary E. Metzger, Wayne A. Scheer, Richard A. Pendleton and Charles Talbert
Wooten, Jr.
Liberty's Board of Directors also has an Audit Committee, consisting of
not less than three directors of Liberty, none of whom may be an officer of
Liberty. The Audit Committee examines Liberty's affairs and reports to the Board
of Directors regarding the status of Liberty's condition and internal audit
controls and procedures and
20
<PAGE> 21
recommends any changes in the manner of doing business or conducting the affairs
of Liberty that it deems advisable. The members of the Audit Committee during
1998 were Richard A. Pendleton, Lyle D. Graesser, Howard Jackson Hoke and
William P. Gaut. The Audit Committee met once during 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of February 10, 1999, the number of
shares of Common Stock owned beneficially by each director and executive officer
of Bancshares and Liberty, and all directors and executive officers of
Bancshares and Liberty as a group.
<TABLE>
<CAPTION>
Number of Shares Percent
Name Position Beneficially Owned Of Class
- ---- --------- ------------------ --------
<S> <C> <C> <C>
Gary E. Metzger Director, President,
Chairman of Board
of Directors 21,440(1) 2.59%
Garry L. Robinson Director, Executive Vice
President 1,137(2) 0.14%
Patricia L. Sechler Director, Secretary,
Senior Vice-President 31,510(3) 3.85%
William P. Gaut Director 15,260 1.87%
Robert P. Gephardt President, Mount Vernon
Community Bank 2,660(4) 0.32%
Lyle D. Graesser Director 15,251 1.86%
Kenneth E. Hamilton Director 33,560 4.10%
Howard Jackson Hoke Director 22,880 2.80%
Howard K. Johnson Director 2,545(5) 0.31%
Neale W. Johnson Director 22,516(6) 2.75%
Dixie F. Letsch Director 22,880(7) 2.80%
Ronald McDowell Senior Vice President 2,830(8) 0.35%
Charles W. ("Bill") Neale Director 14,679(9) 1.79%
Richard A. Pendleton Director 54,985(10) 6.72%
David Petiford Senior Vice President 5,930(11) 0.72%
Ronald K. Pender Senior Vice President 1,350(12) 0.16%
Wayne A. Scheer Director 45,770(13) 5.59%
Charles L. Skaggs Director 35(14) 0%
Franklin H. Smith Director 6,475(15) 0.79%
Maurice L. Stiles President, Greenfield
Community Bank --- 0%
Charles Talbert Wooten, Jr. Director 15,260(16) 1.87%
Stephen T. Wrenn Director, Vice President 2,592(17) 0.32%
All Directors and
Executive Officers
as of Group 341,545 41.75%
</TABLE>
- ----------------------
(1) Includes options to purchase 10,000 shares, 5,000 shares held by Mr.
Metzger and, 6440 shares held jointly with Susan Metzger, Mr. Metzger's
spouse.
(2) Does not include 9,076 shares held by the Sac River ESOP of which Mr.
Robinson is the sole trustee.
(3) Includes options to purchase 1,000 shares.
21
<PAGE> 22
(4) Includes options to purchase 1,000 shares.
(5) Held by Howard K. Johnson, Trustee of Revocable Trust U/T/A dated April
28, 1995.
(6) 35 shares held by Mr. Johnson, 3,942 shares held jointly with Frances
A. Johnson and 18,539 shares held by Neale W. Johnson and Piper Price
as Co-Trustees of the Darrell W. Johnson and Betty L. Johnson Family
Trust dated May 7, 1993.
(7) 22,880 shares held by Dixie F. Letsch, Trustee under the Dixie F.
Letsch Trust Agreement dated August 1992.
(8) Includes options to purchase 2,000 shares.
(9) Does not include an additional 11,720 shares held by Janet Neale, Mr.
Neale's wife, as Trustee of the Janet Neale Revocable Living Trust
dated May 28, 1992.
(10) 15,260 shares held by Anise C. Brasher and Richard A. Pendleton,
Co-Trustees, Anise C. Brasher Revocable Trust U/T/A dated August 1,
1995; 39,725 held by Mr. Pendleton.
(11) Includes options to purchase 2,000 shares and 3,930 shares held jointly
with Donna Petiford.
(12) 1,350 shares held jointly with Darohnn Pender.
(13) 15,770 shares held by Wayne A. Scheer, Trustee under the Revocable
Living Trust Agreement of Wayne A. Scheer dated August 23, 1993; 30,000
shares held by Liberty Properties, L.P.; a limited partnership of which
Mr. Scheer is general partner.
(14) Does not include 4,084 shares held by Charlotte Anne Skaggs, Mr.
Skagg's wife.
(15) Does not include 2,947 shares held by Mary Ruth Smith, Mr. Smith's
wife.
(16) 15,260 shares held by Mr. Wooten as Trustee of the Rosalie Wooten
Descendents Irrevocable Trust dated December 30, 1982.
(17) Does not include 71 shares held by Rhonda A. Wrenn, Mr. Wrenn's wife,
or 25,298 shares held by Thomas C. Wrenn and Leona M. Wrenn,
co-trustees of the Thomas C. Wrenn U/T/A dated April 26, 1996, of which
Stephan Wrenn is successor trustee.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of February 10, 1999, the persons
known by the Company to be beneficial owners of more than five percent (5%) of
the outstanding shares of the Company's Common Stock.
<TABLE>
<CAPTION>
Name and Address of Number of Shares
Beneficial Owner Beneficially Owned Percent of Class
------------------- ------------------ ----------------
<S> <C> <C>
Richard A. Pendleton 54,985(1) 6.72%
Wayne A. Scheer 45,770(2) 5.59%
</TABLE>
(1) 15,260 shares held by Anise C. Brasher and Richard A. Pendleton, Co-
Trustees, Anise C. Brasher Revocable Trust U/T/A dated August 1, 1995;
39,725 held by Mr. Pendleton.
(2) 5,770 shares held by Wayne A. Scheer, Trustee under Revocable Living
Trust Agreement of Wayne A. Scheer dated August 23, 1993, 30,000 shares
held by Liberty Properties, L.P., a limited partnership of which Mr.
Scheer is the general partner.
22
<PAGE> 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
At December 31, 1998 and 1997 Liberty had loans outstanding to
officers, directors, employees and companies in which the Bank's executive
officers or directors were principal owners, in the amount of $15,144,000 and
$11,862,000, respectively. Such loans and other extensions of credit and
deposits were made in the ordinary course of business and were made on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other persons. Further,
these loans did not involve more than normal risk of collectibility or present
other unfavorable features.
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K.
14(A)(1) FINANCIAL STATEMENTS
The Financial Statements required to be filed are attached
hereto as Appendix A.
14(A)(2) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the required information in
such schedules is not present in amounts sufficient to require submission of the
schedule or because the required information is included in the consolidated
financial statements or is not required.
14(A)(3) EXHIBITS
Exhibits required to be filed by Item 601 of Regulation S-K are listed
in the Exhibit Index attached hereto, which is incorporated by reference.
14(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the year ended December 31,
1998.
14(C) EXHIBITS
The list of Exhibits filed with this report is set forth in response to
Item 14(a)(3). The required exhibit index has been filed with the exhibits.
14(D) FINANCIAL STATEMENTS
None.
23
<PAGE> 24
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, in the City of
Springfield, Missouri, on the _____ day of March, 1999.
LIBERTY BANCSHARES, INC.
/s/ Gary E. Metzger
------------------------
Gary E. Metzger
President
24
<PAGE> 25
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
in the capacities at Liberty Bancshares, Inc. on March __, 1999.
Signature Title
/s/ Gary E. Metzger Director, President, Chairman of
- ------------------------------- Board of Directors
Gary E. Metzger
/s/ Garry L. Robinson Director, Executive Vice President
- -------------------------------
Garry L. Robinson
/s/ Ron McDowell Senior Vice President
- ------------------------------- (Principal Financial Officer)
Ron McDowell
/s/ William P. Gaut
- -------------------------------
William P. Gaut Director
/s/ Lyle D. Graesser
- -------------------------------
Lyle D. Graesser Director
/s/ Kenneth E. Hamilton
- -------------------------------
Kenneth E. Hamilton Director
/s/ Howard Jackson Hoke
- -------------------------------
Howard Jackson Hoke Director
/s/ Howard K. Johnson
- -------------------------------
Howard K. Johnson Director
/s/ Neale W. Johnson
- -------------------------------
Neale W. Johnson Director
/s/ Dixie F. Letsch
- -------------------------------
Dixie F. Letsch Director
/s/ Charles W. Neale
- -------------------------------
Charles W. ("Bill") Neale Director
/s/ Richard A. Pendleton
- -------------------------------
Richard A. Pendleton Director
/s/ Charles L. Skaggs
- -------------------------------
Charles L. Skaggs Director
/s/ Wayne A. Scheer
- -------------------------------
Wayne A. Scheer Director
/s/ Franklin H. Smith
- -------------------------------
Franklin H. Smith Director
/s/ Charles Talbert Wooten, Jr.
- -------------------------------
Charles Talbert Wooten, Jr. Director
/s/ Stephen T. Wrenn
- -------------------------------
Stephen T. Wrenn Director
25
<PAGE> 26
APPENDIX A
LIBERTY BANCSHARES, INC.
AND SUBSIDIARY
Accountants' Report and
Consolidated Financial Statements
December 31, 1998, 1997 and 1996
i
<PAGE> 27
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
DECEMBER 31, 1998, 1997 AND 1996
CONTENTS
Page
INDEPENDENT ACCOUNTANTS' REPORT..............................................1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets...........................................................2
Statements of Income.....................................................3
Statements of Changes in Stockholders' Equity............................4
Statements of Cash Flows.................................................5
Notes to Financial Statements............................................7
ii
<PAGE> 28
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Liberty Bancshares, Inc.
and Subsidiary
Springfield, Missouri
We have audited the accompanying consolidated balance sheets of LIBERTY
BANCSHARES, INC. AND SUBSIDIARY as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LIBERTY
BANCSHARES, INC. AND SUBSIDIARY as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
Springfield, Missouri
February 19, 1999
<PAGE> 29
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
------------ ------------
<S> <C> <C>
Cash $ 914,839 $ 362,519
Due from banks 8,653,420 4,410,937
Securities purchased under agreements to resell -- 7,600,000
Federal funds sold 4,839,087 772,710
------------- -------------
Cash and cash equivalents 14,407,346 13,146,166
Available-for-sale securities 14,037,078 12,264,610
Mortgage loans held for sale 1,672,018 625,000
Loans, net of allowance for loan losses of
$1,108,687 - 1998; $523,800 - 1997 108,088,021 51,129,119
Interest receivable 858,498 455,783
Premises and equipment, net 3,630,865 2,204,038
Deferred income taxes 80,921 53,869
Other 1,247,417 146,730
------------ ------------
Total Assets $144,022,164 $ 80,025,315
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE> 30
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES
Deposits
Demand deposits $ 30,711,089 $ 11,032,300
Savings, NOW and money market deposits 26,429,385 16,277,598
Time deposits 65,126,815 37,274,872
------------- -------------
Total Deposits 122,267,289 64,584,770
Securities sold under agreements to repurchase 5,252,773 7,200,361
Federal Home Loan Bank advances 5,000,000 --
Notes payable 4,201,000 2,500,000
Accrued interest payable 423,054 250,463
Accrued expenses and other liabilities 62,349 20,328
Income taxes payable 148,213 181,241
------------- -------------
Total Liabilities 137,354,678 74,737,163
------------- -------------
STOCKHOLDERS' EQUITY
Capital stock
Class A common, par value $1 a share; 1998 authorized 5,000,000 shares,
issued 511,090 shares; 1997 par value $5 a share, authorized 505,280
shares, issued
470,280 shares 511,090 2,351,400
Additional paid-in capital 5,256,480 2,773,600
Retained earnings 804,720 271,330
Accumulated other comprehensive income
Unrealized appreciation (depreciation) on available-for-
sale securities, net of income taxes of $56,113 and
($204) in 1998 and 1997, respectively 95,196 (348)
Treasury stock, at cost; 1997 - 1,000 shares -- (107,830)
Total Stockholders' Equity 6,667,486 5,288,152
------------- -------------
Total Liabilities and Stockholders' Equity $ 144,022,164 $ 80,025,315
============= =============
</TABLE>
-3-
<PAGE> 31
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 7,077,514 $ 3,130,609 $ 995,765
Available-for-sale securities 876,827 283,400 63,687
Federal funds sold and securities purchased
under agreements to resell 291,271 533,891 324,158
Deposits with banks 10,623 -- --
-------------- -------------- --------------
8,256,235 3,947,900 1,383,610
-------------- -------------- --------------
INTEREST EXPENSE
Deposits 3,988,162 1,926,555 639,642
Federal funds purchased and securities sold
under agreements to repurchase 351,561 120,640 35,464
Federal Home Loan Bank advances 100,665 -- --
Notes payable 326,487 83,756 --
-------------- -------------- --------------
4,766,875 2,130,951 675,106
-------------- -------------- --------------
NET INTEREST INCOME 3,489,360 1,816,949 708,504
PROVISION FOR LOAN LOSSES 647,945 447,000 70,800
-------------- -------------- --------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,841,415 1,369,949 637,704
-------------- -------------- --------------
NONINTEREST INCOME
Income on sale of loans 380,888 71,373 --
Service charges and fees 292,013 95,654 43,191
Other income 20,812 34,471 3,587
-------------- -------------- --------------
693,713 201,498 46,778
-------------- -------------- --------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,496,804 671,290 258,516
Net occupancy expense 258,190 148,623 90,242
Deposit assessments and fees 26,539 13,603 5,039
Other operating expenses 938,205 454,646 197,777
-------------- -------------- --------------
2,719,738 1,288,162 551,574
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES 815,390 283,285 132,908
PROVISION FOR INCOME TAXES 282,000 117,000 39,200
-------------- -------------- --------------
NET INCOME $ 533,390 $ 166,285 $ 93,708
-------------- -------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE> 32
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized appreciation (depreciation) on available-for-sale
securities, net of income taxes of $55,909, $(2,690) and
$2,484 for 1998, 1997 and 1996, respectively $ 95,544 $ (4,559) $ 4,211
Less reclassification adjustment for appreciation (depreciation)
included in net income -- -- --
----------- ----------- -----------
95,544 (4,559) 4,211
----------- ----------- -----------
COMPREHENSIVE INCOME $ 628,934 $ 161,726 $ 97,919
=========== =========== ===========
BASIC EARNINGS PER SHARE $ 1.06 $ .42 $ .27
=========== =========== ===========
DILUTED EARNINGS PER SHARE $ 1.04 $ .42 $ .27
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE> 33
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL
----------- -----------
<S> <C> <C>
BALANCE, JANUARY 1, 1996 $ 1,725,000 $ 1,725,000
Net income -- --
Change in unrealized appreciation
on available-for-sale securities,
net of income taxes -- --
----------- -----------
BALANCE, DECEMBER 31, 1996 1,725,000 1,725,000
Issuance of common stock for cash 626,400 1,048,600
Net income -- --
Treasury stock purchased -- --
Change in unrealized depreciation
on available-for-sale securities,
net of income taxes -- --
----------- -----------
BALANCE, DECEMBER 31, 1997 2,351,400 2,773,600
Issuance of common stock for cash 254,050 496,350
Net income
Change in par value of common stock (1,986,530) 1,986,530
Retirement of treasury stock (107,830) --
Change in unrealized appreciation
on available-for-sale securities,
net of income taxes -- --
----------- -----------
BALANCE, DECEMBER 31, 1998 $ 511,090 $ 5,256,480
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-6-
<PAGE> 34
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income
Unrealized
Appreciation
(Depreciation)
on Available-
Retained for-Sale Treasury
Earnings Securities, Net Stock Total
- -------- ---------------- --------- ----------
<C> <C> <C> <C>
$ 11,337 $ 0 $ 0 $3,461,337
93,708 -- -- 93,708
-- 4,211 -- 4,211
------- ------- -------- ---------
105,045 4,211 -- 3,559,256
-- -- -- 1,675,000
166,285 -- -- 166,285
-- -- (107,830) (107,830)
-- (4,559) -- (4,559)
------- ------- -------- ----------
271,330 (348) (107,830) 5,288,152
-- -- -- 750,400
533,390 -- -- 533,390
-- -- -- --
-- -- 107,830 --
-- 95,544 -- 95,544
- -------- ------- -------- ----------
$804,720 $95,196 $ 0 $6,667,486
======== ======= ======== ==========
</TABLE>
-7-
<PAGE> 35
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 533,390 $ 166,285 $ 93,708
Items not requiring (providing) cash:
Depreciation and amortization 153,588 78,660 42,940
Provision for loan losses 647,945 447,000 70,800
Amortization of premiums and discounts on securities 8,087 (2,864) (314)
Deferred income taxes (82,961) (71,713) 15,000
Origination of loans held for sale (23,815,385) (6,288,000) (1,074,000)
Proceeds from loans held for sale 22,983,853 6,250,000 487,000
Gain on sale of loans (380,888) (71,373) --
Gain on sale of premises and equipment -- (22,666) --
Changes in:
Interest receivable (402,715) (335,177) (98,691)
Other assets (896,154) (51,989) (20,778)
Accrued interest payable 172,591 160,992 68,117
Accrued expenses and other liabilities 42,021 8,746 (15,127)
Income taxes payable (33,028) 178,519 2,022
------------ ------------ ------------
Net cash provided by (used in) operating activities (1,069,656) 446,420 (429,323)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net originations of loans (57,636,597) (32,219,935) (14,927,187)
Purchase of premises and equipment (1,544,796) (822,583) (1,002,112)
Proceeds from sale of premises and equipment -- 165,826 --
Proceeds from maturities of available-for-sale securities 7,400,000 350,000 700,000
Proceeds from sales of available-for-sale securities -- 500,000 --
Purchases of available-for-sale securities (9,029,102) (11,668,409) (1,451,089)
Other (45,000) (5,000) --
------------ ------------ ------------
Net cash used in investing activities (60,855,495) (43,700,101) (16,680,388)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, money market, NOW and
savings deposits 29,830,576 14,431,868 7,853,403
Net increase in time deposits 27,851,943 22,844,195 11,245,232
Proceeds from notes payable 5,826,000 2,500,000 --
Repayment of notes payable (4,125,000) -- --
Proceeds from Federal Home Loan Bank advance 5,000,000 -- --
Proceeds from issuance of common stock 750,400 1,675,000 --
Purchase of treasury stock -- (107,830) --
Net increase (decrease) in securities sold under
agreements to repurchase (1,947,588) 6,600,361 100,008
------------ ------------ ------------
Net cash provided by financing activities 63,186,331 47,943,594 19,198,643
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,261,180 4,689,913 2,088,932
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 13,146,166 8,456,253 6,367,321
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 14,407,346 $ 13,146,166 $ 8,456,253
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
-8-
<PAGE> 36
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Operations
Liberty Bancshares, Inc. (the Company) operates as a one-bank holding
company. Liberty Bank (the Bank) opened for business on October 27, 1995, and is
primarily engaged in providing a full range of banking and mortgage services to
individual and corporate customers in southwest Missouri. This banking operation
is the Company's only operating segment. The Bank is subject to competition from
other financial institutions. The Bank also is subject to the regulation of
certain federal and state agencies and undergoes periodic examinations by those
regulatory authorities.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses and
the valuation of foreclosed assets held for sale, management obtains independent
appraisals for significant properties.
Management believes that the allowances for losses on loans are adequate.
While management uses available information to recognize losses on loans,
changes in economic conditions may necessitate revision of these estimates in
future years. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowances for losses
on loans. Such agencies may require the Bank to recognize additional losses
based on their judgments of information available to them at the time of their
examination.
Principles of Consolidation
The consolidated financial statements include the accounts of Liberty
Bancshares, Inc. and its 100%-owned subsidiary, Liberty Bank. Significant
inter-company accounts and transactions have been eliminated in consolidation.
-9-
<PAGE> 37
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Cash Equivalents
The Bank considers all liquid investments with original maturities of three
months or less to be cash equivalents. At December 31, 1998 and 1997, cash
equivalents consisted of federal funds sold and securities purchased under
agreements to resell.
Investments in Debt and Equity Securities
Available-for-sale securities, which include any security for which the Bank
has no immediate plan to sell but which may be sold in the future, are carried
at fair value. Realized gains and losses, based on specifically identified
amortized cost of the specific security, are included in other income.
Unrealized gains and losses are recorded, net of related income tax effects, in
stockholders' equity. Premiums and discounts are amortized and accreted,
respectively, to interest income using the level-yield method over the period to
maturity. The Bank has classified all of its investment securities as
available-for-sale.
Interest and dividends on investments in debt and equity securities are
included in income when earned.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of cost or fair value,
determined using an aggregate basis. Write-downs to fair value are recognized as
a charge to earnings at the time the decline in value occurs. Forward
commitments to sell mortgage loans are acquired to reduce market risk on
mortgage loans in the process of origination and mortgage loans held for sale.
Gains and losses resulting from sales of mortgage loans are recognized when the
respective loans are sold to investors. Gains and losses are determined by the
difference between the selling price and the carrying amount of the loans sold,
net of discounts collected or paid and considering a normal servicing rate. Fees
received from borrowers to guarantee the funding of mortgage loans held for sale
and fees paid to investors to ensure the ultimate sale of such mortgage loans
are recognized as income or expense when the loans are sold or when it becomes
evident that the commitment will not be used.
-10-
<PAGE> 38
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-offs are reported at their outstanding principal
adjusted for any charge-offs, the allowance for loan losses and any deferred
fees or costs on originated loans and unamortized premiums or discounts on
purchased loans.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to expense
and reduced by loans charged off, net of recoveries. The allowance is maintained
at a level considered adequate to provide for potential loan losses, based on
management's evaluation of the loan portfolio, as well as on prevailing and
anticipated economic conditions and historical losses by loan category. General
allowances have been established, based upon the aforementioned factors, and
allocated to the individual loan categories. Allowances are accrued on specific
loans evaluated for impairment for which the basis of each loan, including
accrued interest, exceeds the discounted amount of expected future collections
of interest and principal or, alternatively, the fair value of loan collateral.
A loan is considered impaired when it is probable that the Bank will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is
discontinued, and interest accrued and unpaid is removed, at the time such
amounts are delinquent 90 days. Interest is recognized for nonaccrual loans only
upon receipt, and only after all principal amounts are current according to the
terms of the contract.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to expense using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are capitalized and
amortized using the straight-line method over the terms of the respective leases
or the estimated useful lives of the improvements, whichever is shorter.
-11-
<PAGE> 39
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Fee Income
Loan origination fees, net of direct origination costs, are recognized as
income using the level-yield method over the term of the loans.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effect of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
Earnings Per Share
Effective December 15, 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share (EPS),
which requires dual presentation of basic and diluted EPS for all entities with
complex capital structures. Basic earnings per share is computed based on the
weighted average number of shares outstanding during each year. Diluted earnings
per share is computed using the weighted average common shares and all potential
dilutive common shares outstanding during the period.
The Computation of Per Share Earnings is as Follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income $533,390 $166,285 $ 93,708
======== ======== ========
Average common shares outstanding 502,369 393,900 345,000
Average common share stock
options outstanding 9,031 2,831 1,123
-------- -------- --------
Average diluted common shares 511,400 396,731 346,123
======== ======== ========
Basic earnings per share $ 1.06 $ .42 $ .27
======== ======== ========
Diluted earnings per share $ 1.04 $ .42 $ .27
======== ======== ========
</TABLE>
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
-12-
<PAGE> 40
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
Earnings Per Share (Continued)
Subsequent to December 31, 1997, the Company declared a 10 for 1 stock split
effective in the form of a dividend on the outstanding common stock of the
Company. Historical per share disclosures have been updated where applicable to
account for the stock split.
Reclassifications
Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
financial statement presentation. These reclassifications had no effect on net
income.
Adoption of New Accounting Standard
During the year ended December 31, 1998, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income by reclassification of all prior periods presented.
NOTE 2: INVESTMENTS IN DEBT SECURITIES
The amortized cost and approximate fair value of available-for-sale
securities are as follows:
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. government agencies $ 10,283,402 $ 97,224 $ 148 $ 10,380,478
States and political subdivisions 3,602,571 56,598 2,569 3,656,600
------------ ---------- ---------- ------------
$ 13,885,973 $ 153,822 $ 2,717 $ 14,037,078
============ ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 599,949 $ -- $ 75 $ 599,874
U.S. government agencies 10,437,349 18,200 10,339 10,445,210
States and political subdivisions 1,227,816 -- 8,290 1,219,526
------------- ------------- ------------- ------------
$ 12,265,114 $ 18,200 $ 18,704 $ 12,264,610
============= ============= ============= ============
</TABLE>
-13-
<PAGE> 41
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 2: INVESTMENTS IN DEBT SECURITIES (Continued)
Maturities of available-for-sale debt instruments at December 31, 1998 are:
<TABLE>
<CAPTION>
Amortized Approximate
Cost Fair Value
------------ --------------
<S> <C> <C>
One year or less $ 2,803,068 $ 2,842,972
After one through five years 7,530,333 7,587,461
After five through ten years 1,104,437 1,123,132
After ten years 2,448,135 2,483,513
------------ --------------
$ 13,885,973 $ 14,037,078
============ ==============
</TABLE>
The book value of securities pledged as collateral to secure public deposits
amounted to $4,608,000 and $3,988,000 at December 31, 1998 and 1997,
respectively. The approximate fair value of pledged securities amounted to
$4,634,000 at December 31, 1998, and $3,989,000 at December 31, 1997.
The book value of securities sold under agreements to repurchase amounted
to $8,082,000 and $7,586,000 at December 31, 1998 and 1997, respectively (see
Note 8).
There were no gains or losses realized from sales of available-for-sale
securities for 1998, 1997 or 1996.
NOTE 3: SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Securities purchased under agreements to resell at December 31, 1998 and
1997, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
U.S. government securities with an estimated
fair value of $0 and $7,589,000, respectively $ -- $ 7,600,000
========== ===========
</TABLE>
-14-
<PAGE> 42
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 3: SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
(Continued)
The Bank occasionally enters into purchases of securities under agreements
to resell. The amounts advanced under these agreements represent short-term
loans and are reflected as a receivable in the balance sheet. The securities
underlying the agreements are book-entry securities. During the period, the
securities were delivered by appropriate entry into a third-party custodian's
account designated by the Bank under a written custodial agreement that
explicitly recognizes the Bank's interest in the securities. These agreements
mature on demand. At December 31, 1997, all agreements to resell securities
purchased were with one correspondent bank. Securities purchased under
agreements to resell averaged $2,011,000 and $8,010,000 during 1998 and 1997,
and the maximum amount outstanding at any month end during 1998 and 1997 was
$6,475,000 and $12,520,000, respectively.
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 1998 and 1997, include:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Commercial $ 20,333,740 $ 9,803,933
Real estate construction and development 12,443,924 7,052,362
Commercial real estate and agricultural 40,426,832 22,762,215
Residential real estate 17,520,359 9,397,159
Consumer 17,826,047 2,594,039
Other 66,164 43,211
------------ -----------
Total loans 108,617,066 51,652,919
Plus: Premium on dealer loans 579,642 --
Less: Allowance for loan losses 1,108,687 523,800
------------ -----------
Net loans $108,088,021 $51,129,119
============ ===========
</TABLE>
Impaired loans totaled $64,900 and $0 at December 31, 1998 and 1997,
respectively. An allowance for loan losses of $650 and $0 relates to impaired
loans of $64,900 and $0 at December 31, 1998 and 1997, respectively. No interest
was collected on average impaired loans of $5,400 for 1998. The Bank did not
have any loans considered impaired during 1997 or 1996.
-15-
<PAGE> 43
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 523,800 $ 76,800 $ 6,000
Provision charged to expense 647,945 447,000 70,800
Net charge-offs (63,058) -- --
---------- -------- -------
Balance, end of year $1,108,687 $523,800 $76,800
========== ======== =======
</TABLE>
NOTE 5: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, at December
31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $1,020,340 $632,340
Buildings and improvements 1,638,079 956,629
Vehicles 171,037 101,415
Equipment 1,025,456 629,949
---------- ----------
3,854,912 2,320,333
Less accumulated depreciation 224,047 116,295
---------- ----------
Net premises and equipment $3,630,865 $2,204,038
========== ==========
</TABLE>
Depreciation expense totaled $117,969, $74,969 and $38,182 for the years
ended December 31, 1998, 1997 and 1996, respectively.
NOTE 6: LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others was $18,967,000 and $5,213,000 at December 31, 1998 and
1997, respectively.
-16-
<PAGE> 44
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTE 6: LOAN SERVICING (Continued)
Mortgage servicing rights of $175,412 and $0 were capitalized in 1998 and
1997, respectively. Amortization of mortgage servicing rights was $10,010 and $0
in 1998 and 1997, respectively.
NOTE 7: INTEREST BEARING TIME DEPOSITS
Interest bearing time deposits in denominations of $100,000 or more were
$26,041,000 and $18,946,000 at December 31, 1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 47,464,000
2000 15,208,000
2001 1,781,000
Thereafter 673,815
------------
$ 65,126,815
============
</TABLE>
NOTE 8: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Bank enters into sales of securities under agreements to repurchase
(reverse repurchase agreements). Reverse repurchase agreements are treated as
financings, and the obligations to repurchase securities sold are reflected as a
liability in the balance sheet. The dollar amount of securities underlying the
agreements remains in the asset accounts. Securities sold under agreements to
repurchase totaled $5,252,773 and $7,200,361 at December 31, 1998 and 1997,
respectively. At December 31, 1998 and 1997, no material amount of agreements to
repurchase securities sold was outstanding with any individual dealer.
Securities sold under agreements to repurchase averaged $8,724,000 and
$3,195,000 during 1998 and 1997, and the maximum amount outstanding at any
month-end during 1998 and 1997, was $13,748,000 and $10,645,000, respectively.
-17-
<PAGE> 45
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 9: NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Term note payable to bank $ 4,125,000 $2,500,000
Line of credit 76,000 --
----------- ----------
$ 4,201,000 $2,500,000
=========== ==========
</TABLE>
The term note payable to bank, secured by 34,000 shares of Liberty Bank, is
due December 29, 2003, with principal of $125,000 plus interest of 7.0% payable
quarterly. The total amount of the loan is $5,500,000. The remaining $1,375,000
was drawn subsequent to December 31, 1998.
In addition to the term note payable above, the Bank has a $3 million
revolving line of credit loan with interest payable quarterly. The Bank has the
option of an interest rate equal to the prime rate offered by Mercantile Bank in
St. Louis, or a rate equal to 2.0% above the current Federal Funds rate as
established by the Federal Reserve Bank.
The loan agreement for the term note and the revolving line of credit
requires the Company to maintain certain financial ratios and restricts its
ability to incur additional debt or issue additional equity securities without
the creditor's consent.
Aggregate annual maturities of notes payable at December 31, 1998, are:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 500,000
2000 500,000
2001 500,000
2002 500,000
2003 2,201,000
----------
$4,201,000
==========
</TABLE>
-18-
<PAGE> 46
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 10: ADVANCES FROM FEDERAL HOME LOAN BANK
During 1998, Liberty Bank entered into two advance agreements with the
Federal Home Loan Bank (FHLB). Each advance has a ten-year term with a call
option. The first advance, dated August 18, 1998, in the amount of $2,000,000,
is callable in three years. The second advance, dated August 20, 1998, in the
amount of $3,000,000, is callable in five years. Both advances require monthly
interest payments with the principal paid at maturity. The weighted average rate
of FHLB advances at December 31, 1998, is 5.4%.
NOTE 11: INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Taxes currently payable $364,961 $188,713 $24,200
Deferred income taxes (82,961) (71,713) 15,000
-------- -------- -------
$282,000 $117,000 $39,200
======== ======== =======
</TABLE>
The tax effects of temporary differences related to deferred taxes shown on
the balance sheets were:
<TABLE>
<CAPTION>
1998 1997
---- ----
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses $325,998 $121,500
Unrealized depreciation on available-for-sale securities -- 156
Vacation accrual 16,375 --
-------- --------
342,373 121,656
-------- --------
Deferred tax liabilities:
Mortgage servicing rights 61,198 --
Accumulated depreciation 120,636 67,787
Unrealized appreciation on available-for-sale securities 55,909 --
Other 23,709 --
-------- --------
261,452 67,787
-------- --------
Net deferred tax asset $ 80,921 $ 53,869
======== ========
</TABLE>
-19-
<PAGE> 47
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 199
NOTE 11: INCOME TAXES (Continued)
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed at the statutory rate (34%) $277,200 $96,300 $45,200
Increase (decrease) resulting from:
Tax-exempt interest (43,500) -- --
Nondeductible expenses 16,400 4,900 2,300
State income taxes - net of federal tax benefit 32,000 19,500 6,800
Graduated rates -- -- (14,900)
Other (100) (3,700) (200)
-------- -------- -------
Actual tax provision $282,000 $117,000 $39,200
======== ======== =======
</TABLE>
NOTE 12: REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory-and possible additional discretionary-actions by
regulators that, if undertaken, could have a direct and material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
-20-
<PAGE> 48
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 12: REGULATORY MATTERS (Continued)
As of December 31, 1998, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
There was no deduction from capital for interest-rate risk.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- -------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- --------- ------ ------- -----
(Dollar Amounts In Thousands)
As of December 31, 1998:
Total Risk Based Capital
<S> <C> <C> <C> <C> <C> <C>
(to Risk Weighted Assets) $11,488 10.5% $8,791 8.0% $10,989 10.0%
Tier I Capital
(to Risk Weighted Assets) $10,379 9.4% $4,395 4.0% $6,593 6.0%
Tier I Capital
(to Average Assets) $10,379 7.8% $5,321 4.0% $6,651 5.0%
As of December 31, 1997:
Total Risk Based Capital
(to Risk Weighted Assets) $8,114 15.8% $4,109 8.0% $5,136 10.0%
Tier I Capital
(to Risk Weighted Assets) $7,590 14.8% $2,055 4.0% $3,082 6.0%
Tier I Capital
(to Average Assets) $7,590 10.4% $2,920 4.0% $3,650 5.0%
</TABLE>
-21-
<PAGE> 49
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 12: REGULATORY MATTERS (Continued)
Additionally, the Bank is subject to certain restrictions on the amount of
dividends that it may declare without prior regulatory approval. The Bank may
not pay dividends which would reduce capital below the minimum requirements
shown above.
NOTE 13: STOCK OPTION PLAN
Under the Company's stock option plan, 45,000 shares of common stock were
reserved for issuance upon exercise of options granted to officers and key
employees. The plan basically provides that the option price will be no less
than fair market value of the stock at the date of the grant. Options granted
are exercisable immediately after the date of grant and expire October 27, 2006.
A summary of the status of the plan and changes during the periods then
ended is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ --------- ----- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
Beginning of Year 8,500 $ 11.19 5,000 $ 10.00 5,000 $ 10.00
Granted 7,500 14.79 3,500 12.90 -- --
------ -------- ----- -------- ----- --------
Outstanding,
End of Year 16,000 $ 12.88 8,500 $ 11.19 5,000 $ 10.00
====== ======== ===== ======== ===== ========
Options Exercisable,
End of Year 16,000 $ 12.88 8,500 $ 11.19 5,000 $ 10.00
====== ======== ===== ======== ===== ========
</TABLE>
-22-
<PAGE> 50
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 13: STOCK OPTION PLAN (Continued)
The fair value of each option granted is estimated on the date of the grant
using the minimum value method with the following weighted-average assumptions.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Dividends Per Share -- -- --
Risk-Free Interest Rate 6% 6% --
Expected Life of Options 10 years 10 years --
Weighted Average Fair Value of
Options Granted During the Year $8.26 $5.15 --
</TABLE>
The following table summarizes information about stock options under the plan
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted-
Average
Number Remaining Number
Exercise Prices Outstanding Contractual Life Exercisable
--------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$10.00 5,000 6.8 years 5,000
$12.90 3,500 8.1 years 3,500
$14.79 7,500 9.1 years 7,500
</TABLE>
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for the plan, and no compensation cost has been
recognized. Had compensation cost for the Company's Plan been determined based
on the fair value at the grant dates using Statement of Financial Accounting
Standards No. 123, the Company's net income would have decreased by $32,300,
$13,600 and $0 and basic earnings per share would have decreased by $.08, $.03
and $.04 for 1998, 1997 and 1996, respectively. The effects of applying this
Statement for either recognizing compensation cost or providing pro forma
disclosures are not likely to be representative of the effects on reported net
income for future years because options vest over several years and additional
awards generally are made each year.
-23-
<PAGE> 51
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 14: TRANSACTIONS WITH RELATED PARTIES
At December 31, 1998 and 1997, the Bank had loans outstanding to executive
officers, directors and companies in which the Bank's executive officers or
directors were principal owners, in the amount of $15,144,000 and $11,862,000,
respectively.
A reconciliation of the activity in these loans for the year ended December
31, 1998, is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year $ 11,862,000
Loans originated 15,503,000
Loans paid (12,221,000)
------------
Balance, end of year $ 15,144,000
============
</TABLE>
In management's opinion, such loans and other extensions of credit and
deposits were made in the ordinary course of business and were made on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other persons. Further,
in management's opinion, these loans did not involve more than normal risk of
collectibility or present other unfavorable features.
NOTE 15: ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Additional Cash Payment Information
Interest paid $4,594,284 $1,969,959 $607,354
Income taxes paid $397,929 $13,468 $21,832
Noncash Investing and Financing Activities
Real estate acquired in settlement of loans $29,750 -- --
</TABLE>
-24-
<PAGE> 52
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 16: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Estimates related to the allowance for loan losses are reflected in the footnote
regarding loans. Current vulnerabilities due to certain concentrations of credit
risk are discussed in the footnote on commitments and credit risk.
NOTE 17: COMMITMENTS AND CREDIT RISK
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 a portion of the commitments may expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. Each customer's credit worthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty. Collateral held
varies, but may include accounts receivable, inventory, property, plant and
equipment, commercial real estate and residential real estate.
At December 31, 1998 and 1997, the Bank had outstanding commitments to
originate loans aggregating approximately $10,487,000 and $3,927,000,
respectively. The commitments extended over varying periods of time with the
majority being disbursed within a one-year period.
Letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
The Bank had total outstanding letters of credit amounting to $414,000 and
$218,000 at December 31, 1998 and 1997, with terms ranging from 30 days to 24
months.
-25-
<PAGE> 53
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 17: COMMITMENTS AND CREDIT RISK (Continued)
Lines of credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements. Each customer's credit worthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant and
equipment, commercial real estate and residential real estate. Management uses
the same credit policies in granting lines of credit as it does for on balance
sheet instruments.
At December 31, 1998 and 1997, the Bank had granted unused lines of credit to
borrowers aggregating approximately $6,430,000 and $2,927,000, respectively, for
commercial lines and open-end consumer lines.
NOTE 18: EMPLOYEE BENEFIT PLAN
In 1998, the Bank adopted a defined contribution 401(k) retirement plan
covering all employees who meet the eligibility requirements. The Bank's
contributions to the plan are determined according to the matching provisions of
the plan. Contributions to the plan were $27,756 for 1998.
NOTE 19: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and Cash Equivalents
For these short-term instruments, the carrying amount approximates fair
value.
Available-for-Sale Securities
Fair values for investment securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.
-26-
<PAGE> 54
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 19: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
Loans
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The carrying
amount of accrued interest receivable approximates its fair value.
Deposits
The fair value of demand deposits, savings accounts, NOW accounts and certain
money market deposits is the amount payable on demand at the reporting date
(i.e., their carrying amount). The fair value of fixed-maturity time deposits is
estimated using a discounted cash flow calculation that applies the rates
currently offered for deposits of similar remaining maturities. The carrying
amount of accrued interest payable approximates its fair value.
Securities Sold Under Agreements to Repurchase
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Federal Home Loan Bank Advances and Notes Payable
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of the existing debt.
Letters of Credit, Lines of Credit and Loan Commitments
The fair value of letters of credit, lines of credit and loan commitments is
based on fees currently charged for similar agreements or on the estimated cost
to terminate or otherwise settle the obligations with the counterparties at the
reporting date.
-27-
<PAGE> 55
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 19: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
The following table presents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows, which method involves significant
judgments by management and uncertainties. Fair value is the estimated amount at
which financial assets or liabilities could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
Because no market exists for certain of these financial instruments and because
management does not intend to sell these financial instruments, the Company does
not know whether the fair values shown below represent values at which the
respective financial instruments could be sold individually or in the aggregate.
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Carrying
Amount Fair Value
------------ ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $14,407,346 $14,407,346
Available-for-sale securities 14,037,078 14,037,078
Interest receivable 858,498 858,498
Loans held for sale 1,672,018 1,672,018
Loans, net of allowance for loan losses 108,088,021 107,899,000
Financial liabilities:
Deposits 122,267,289 122,757,000
Securities sold under agreements to repurchase 5,252,773 5,252,773
Federal Home Loan Bank advances and notes payable 9,201,000 9,201,000
Interest payable 423,054 423,054
Unrecognized financial instruments
(net of contract amount):
Letters of credit -- --
Lines of credit -- --
Loan commitments -- --
</TABLE>
28
<PAGE> 56
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 20: SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
The following is a summary of unaudited quarterly operating results for the
year ended December 31, 1998:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Interest income $ 1,624,223 $ 1,919,658 $ 2,262,295 $ 2,450,059
Interest expense 884,168 1,068,591 1,307,137 1,506,979
Provision for loan losses 50,000 176,800 128,000 293,145
Net realized gains on available-for-
sale securities -- -- -- --
Net income 153,434 139,173 157,840 82,943
Earnings per common share diluted .32 .28 .30 .15
</TABLE>
NOTE 21: CONDENSED PARENT COMPANY STATEMENTS
The condensed balance sheets at December 31, 1998 and 1997, and
statements of income and cash flows for the years ended December 31, 1998, 1997
and 1996, for the parent company, Liberty Bancshares, Inc., are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
BALANCE SHEETS
Assets
Cash $ 27,252 $ 129,602
Investment in subsidiary bank 10,473,730 7,589,931
Other 367,504 68,619
----------- ----------
Total Assets $ 10,868,486 $ 7,788,152
=========== ==========
</TABLE>
-28-
<PAGE> 57
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 21: CONDENSED PARENT COMPANY STATEMENTS (Continued)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Notes payable $ 4,201,000 $ 2,500,000
Common stock 511,090 2,351,400
Additional paid-in capital 5,256,480 2,773,600
Retained earnings 804,720 271,330
Treasury stock -- (107,830)
Accumulated other comprehensive
income - unrealized appreciation
(depreciation) on available-for-sale
securities, net of income taxes 95,196 (348)
------------ ------------
Total Liabilities and
Stockholders' Equity $ 10,868,486 $ 7,788,152
============ ============
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
STATEMENTS OF INCOME
Income
Dividends from subsidiary bank $ 338,000 $ -- $ --
Interest income 3,238 2,236 948
--------- --------- ---------
Total income 341,238 2,236 948
--------- --------- ---------
Expense
Operating expenses 60,616 13,395 12,258
Interest expense 326,487 83,756 --
--------- --------- ---------
Total expenses 387,103 97,151 12,258
--------- --------- ---------
Loss before income taxes and
equity in undistributed earnings of
subsidiary (45,865) (94,915) (11,310)
Provision (credit) for income taxes (116,000) (33,000) 300
--------- --------- ---------
Income (loss) before equity in earnings
of subsidiary 70,135 (61,915) (11,610)
Equity in undistributed earnings of
Subsidiary 463,255 228,200 105,318
--------- --------- ---------
Net Income 533,390 166,285 93,708
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized appreciation (depreciation) on
available-for-sale securities, net of
income taxes of $55,909, $(2,690) and
$2,484 for 1998, 1997 and 1996, respectively 94,544 (4,559) 4,211
Less reclassification adjustment for appreciation
(depreciation) included in net income -- -- --
--------- --------- ---------
94,544 (4,559) 4,211
--------- --------- ---------
COMPREHENSIVE INCOME $628,934 $161,726 $ 97,919
========= ========= =========
</TABLE>
-29-
<PAGE> 58
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 21: CONDENSED PARENT COMPANY STATEMENTS (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- ----------
<S> <C> <C> <C>
STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities
Net income $ 533,390 $ 166,285 $ 93,708
Items not requiring (providing) cash
Amortization 35,619 3,691 4,758
Equity in undistributed earnings of (463,255) (228,200) (105,317)
Subsidiary
Changes in:
Other assets (251,504) (33,000) (6,191)
Refundable income taxes (83,000) -- (700)
------------ ----------- ----------
Net cash used in operating
Activities (228,750) (91,224) (13,742)
------------ ----------- ----------
Cash Flows from Investing Activities
Investment in subsidiary (2,325,000) (3,864,000) --
------------ ----------- ----------
Net cash used in investing
Activities (2,325,000) (3,864,000) --
------------ ----------- ----------
Cash Flows from Financing Activities
Proceeds from notes payable 5,826,000 2,500,000 --
Repayment of notes payable (4,125,000) -- --
Purchase of treasury stock -- (107,830) --
Proceeds from issuance of common
Stock 750,400 1,675,000 --
------------ ----------- ----------
Net cash provided by financing
Activities 2,451,400 4,067,170 --
------------ ----------- ----------
Increase (decrease) in cash (102,350) 111,946 (13,742)
Cash, Beginning of Year 129,602 17,656 31,398
------------ ----------- ----------
Cash, End of Year $ 27,252 $ 129,602 $ 17,656
============ =========== ==========
</TABLE>
-30-
<PAGE> 59
LIBERTY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 22: SUBSEQUENT EVENT
On June 18, 1998, the Company and the Bank entered into an agreement to merge
Sac River Valley Bank ("Sac River") of Stockton, Missouri, with and into the
Bank. Sac River held approximately $97 million in assets at December 31, 1998.
The merger was effected on January 4, 1999, and was accounted for by the
purchase method. All of the stock of Sac River was exchanged for either cash,
Company stock or a combination of the two. Approximately $6.29 million in cash
was paid to Sac River shareholders. In addition the Company issued 308,745
shares of its stock to Sac River shareholders.
-31-
<PAGE> 60
EXHIBIT INDEX
No. Title
2.1* Agreement and Plan of Merger
3.1 and 4.1* Articles of Incorporation, Liberty Bancshares, Inc.
3.2 and 4.2* By-Laws, Liberty Bancshares, Inc.
10.1* Garry Robinson Employment Agreement
10.2* Restated Liberty Bank
Incentive Stock Option Plan
10.3* Amendment to Restatement of Incentive Stock Option Plan
10.4* Second Amendment to Restatement of
Incentive Stock Option Plan
10.5 Loan Agreement between Liberty Bancshares, Inc. and
Mercantile Bank National Association dated December 29,
1998
11.1 Statement re Computation of per share earnings
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule
99.1* Articles of Association, Liberty Bank
99.2* By-Laws, Liberty Bank
* Incorporated by Reference to the Company's Registration Statement or Form S-4,
No. 333-59399
-32-
<PAGE> 1
EXHIBIT 10.5
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made and entered into as of
December 29, 1998 by and between LIBERTY BANCSHARES, INC., a Missouri
corporation ("Borrower"), and MERCANTILE BANK NATIONAL ASSOCIATION, a national
banking association ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower has applied for: a term loan from Lender in the
original principal amount of $5,500,000.00; a thirty day loan in the amount of
$4,857,000.00; and a revolving line of credit in the amount of $3,000,000.00;
and
WHEREAS, Lender is willing to make said loans to Borrower upon, and
subject to, the terms, provisions and conditions hereinafter set forth;;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby mutually agree and promise as follows:
SECTION 1. TERM.
The "Term" of this Agreement shall commence on the date hereof and
shall end on December 29, 2003, or when Borrower's Obligations shall be paid in
full, unless earlier terminated upon the occurrence of an Event of Default under
this Agreement. All representations and warranties made herein shall survive
termination and termination shall not affect a party's rights with respect to
any prior breach of any term, agreement, covenant, representation or warranty
contained herein.
SECTION 2. DEFINITIONS.
In addition to the terms defined elsewhere in this Agreement or in any
Exhibit or Schedule hereto, when used in this Agreement, the following terms
shall have the following meanings (such meanings shall be equally applicable to
the singular and plural forms of the terms used, as the context requires):
Attorneys' Fees means the reasonable value of the services (and costs,
charges and expenses related thereto) of the attorneys employed by Lender
(including, without limitation, attorneys who are employees of Lender) from time
to time to represent Lender in any litigation, contest or proceeding or to take
any other action in or with respect to any litigation, contest, or proceeding
(whether instituted by Lender, Borrower or any other Person and whether in
bankruptcy or otherwise) in any way or respect relating to the Collateral, any
Third Party Collateral, this Agreement or any of the other Transaction
Documents, Borrower, any Subsidiary Bank or any other Obligor, (iii) to protect,
collect, lease, sell, take possession of or liquidate any of the collateral or
any Third Party Collateral and (iv) to enforce any of Lender's rights to collect
any of Borrower's Obligations.
Business Day shall mean any day except a Saturday, Sunday or legal
holiday observed by Lender.
Capitalized Lease shall mean any lease which, in accordance with
generally accepted accounting principles consistently applied, is required to be
capitalized on the balance sheet of the lessee.
Code shall mean the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, together with the regulations thereunder,
in each case as in effect from time to time. References to sections of the Code
shall be construed to also refer to any successor sections.
Collateral shall have the meaning ascribed to such term in the Pledge
Agreement.
<PAGE> 2
Consolidated Subsidiary shall mean with respect to any Person at any
date, any Subsidiary or other entity the assets and liabilities of which are or
should be consolidated with those of such Person in its consolidated financial
statements as of such date in accordance with generally accepted accounting
principles consistently applied.
Controlled Bank shall mean any state or federally chartered bank and/or
any bank holding company which Borrower controls. For purposes of this
definition, "control" shall have the meaning ascribed thereto in Section
225.2(e) of Regulation Y of The Board of Governors of The Federal Reserve
System, as from time to time amended.
Default shall mean an event or condition the occurrence of which would,
with the lapse of time, the giving of notice, or both, become or constitute an
Event of Default as defined in Section 8 hereof.
Distribution in respect of any corporation shall mean:
(a) dividends or other distributions on capital stock of
the corporation; and
(b) the redemption, repurchase or other acquisition of such
stock or of warrants, rights or other options to purchase such stock (except
when solely in exchange for such stock).
Equity Capital shall mean, with respect to any Person, the sum of the
common stock, perpetual preferred stock (meaning preferred stock with no
maturity date and which may not be redeemed at the option of the holder),
paid-in surplus and retained earnings of such Person, all determined in
accordance with generally accepted accounting principles consistently applied,
less the sum of the total of goodwill and other tangible assets of such Person,
if any.
ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer to any successor sections.
ERISA Affiliate shall mean any corporation, trade or business that is,
along with Borrower, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in Sections 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
Event of Default shall have the meaning ascribed thereto in Section 8.
Fed Funds Rate shall mean the interest rate quoted by Lender as its
daily "Operating Fed Funds Rate," which interest shall fluctuate as and when
said "Operating Fed Funds Rate" shall change.
Indebtedness of any Person shall mean and include all obligations of
such Person which in accordance with generally accepted accounting principles
consistently applied are or should be classified upon a balance sheet of such
Person as liabilities of such Person, any and all contingent obligations,
indebtedness and/or liabilities of such Person, whether or not reflected on the
balance sheet of such Person and any and all obligations of such Person under
any Capitalized Lease.
Insider shall mean any Person to whom, with respect to Borrower and/or
Subsidiary Bank the provisions of Regulation O of The Board of Governors of the
Federal Reserve System, as from time to time amended, apply.
Lien shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the Owner of the Property, whether such
interest is based on common law, statute or contract, including, without
limitation, any security interest, mortgage, deed of trust, pledge, lien or
other encumbrance of any kind or nature whatsoever, any conditional sale or
trust receipt and any lease, consignment or bailment for security purposes.
Loans shall mean collectively the Term Loan, Thirty Day Loan and
Revolving Loan described in Section 3.
Multiemployer Plan shall mean a "multiemployer plan" as defined in
Section 4001(a) (3) of ERISA which is maintained for employees of Borrower, any
other Obligor, any ERISA Affiliate or Subsidiary Bank.
2
<PAGE> 3
Net Income shall mean, with respect to any Person for any period, the
aggregate net income (or net loss) of such Person for such period equal to net
revenues and other proper income less the aggregate amount of any and all items
which are treated as expenses under generally accepted accounting principles
consistently applied, and less Federal, state and local income taxes, but
excluding the definition of Net Income any extraordinary gains or losses or any
gains or losses from the sale or disposition of assets other than in the
ordinary course of business, all determined in accordance with generally
accepted accounting principles consistently applied.
Non-Performing Assets shall mean, with respect to Subsidiary Bank,
assets which: (a constitute or are classified as other real estate owned (as
such term is defined in the guidelines, rules and regulations of The Board of
Governors of the Federal Reserve Board pertaining to capital adequacy in effect
from time to time) or (b) in the case of a particular asset, is (at the time of
such calculation) classified as a loan or other extension of credit (1) which
has been placed on nonaccrual status or has been required to be so placed by any
Regulatory Agency, (2) which has been classified as renegotiated pursuant to
guidelines now or hereafter established by the Federal Financial Institutions
Examination Council or (3) with respect to which any payment of any principal or
interest is past due for a period of ninety (90) days or more.
Notes shall mean collectively, the Term Loan Note, Thirty Day Loan Note
and Revolving Loan Note of Borrower to be executed and delivered to Lender
pursuant to Section 3, as the same may from time to time be amended modified,
extended or renewed.
Obligations shall mean any and all indebtedness, liabilities and
obligations of Borrower to Lender under the Notes, this Agreement, the Pledge
Agreement, any of the other Transaction Documents or any other agreement,
instrument or document heretofore, now or hereafter executed and delivered by
Borrower to Lender, in each case whether now existing or hereafter arising,
absolute or contingent, joint and/or several, secured or unsecured, direct or
indirect, expressed or implied in law, contractual or tortious, liquidated or
unliquidated, at law or in equity, or otherwise, and whether created directly or
acquired by Lender by assignment or otherwise, and any and all costs of
collection and/or Attorneys' Fees incurred or to be incurred in connection
therewith.
Obligor shall mean Borrower and each other Person who is or shall
become primarily or secondarily liable on any of Borrower's Obligations or who
grants Lender a Lien upon any Property or assets of such Person as collateral
for any of Borrower's Obligations.
PBGC shall mean the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
Pension Plan shall mean any "pension plan" as such term is defined in
Section 3(2) of ERISA which is subject to the provisions of Title IV of ERISA
and which is established or maintained by Borrower, any other Obligor, any ERISA
Affiliate or Subsidiary Bank, other than a Multiemployer Plan.
Pension shall mean an individual, partnership, corporation, limited
liability company, trust, unincorporated organization or association, and a
government or agency or political subdivision thereof.
Pledge Agreement shall mean the General Pledge and Security Agreement
to be executed by Borrower and delivered to Lender pursuant to Section 4 hereof
as the same may from time to time be amended.
Primary Capital shall mean, with respect to any Person, the Equity
Capital of such Person plus the total allowance for possible loan and lease
losses of such Person, all as determined in accordance with generally accepted
accounting principles consistently applied.
Prime Rate shall mean the interest rate announced from time to time by
Lender as its "prime rate" on commercial loans, which rate shall fluctuate as
and when said prime rate shall change.
Property shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
3
<PAGE> 4
Properties shall mean the plural of Property. For purposes of this
Agreement, Borrower and Subsidiary Bank, as the case may be, shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, financing lease or other arrangement pursuant to
which title to the Property has been retained by or vested in some other Person
for security purposes.
Regulatory Agency shall mean any Federal, state or local governmental
or regulatory agency, authority, entity or official having jurisdiction over the
banking or other related activities of Borrower and/or Subsidiary Bank,
including, without limitation (to the extent applicable), The Board of Governors
of the Federal Reserve System, the Office of the Comptroller of the Currency,
the Federal Deposit Insurance Corporation and the Missouri Director of Finance.
Related Party shall mean any Person which directly or indirectly
through one or more intermediaries controls, or is controlled by or is under
common control with, Borrower or Subsidiary Bank. The term "control" shall mean
the possession, directly or indirectly, of the power to vote ten percent (10%)
or more of the capital stock of any Person or the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership or voting securities, by contract or otherwise.
Reportable Events shall have the meaning given to such term in ERISA.
Subsidiary shall mean, with respect to any Person, any corporation of
which ten percent (10%) or more of the issued and outstanding capital stock
entitled to vote for the election of directors (other than by reason of default
in the payment of dividends) is at the time owned directly or indirectly by such
Person.
Subsidiary Bank shall mean Liberty Bank, a Missouri banking
corporation, Springfield, Missouri.
Term shall have the meaning ascribed thereto in Section 1.
Third Party Collateral shall mean any Property or assets of any Obligor
other than Borrower which secure the payment or performance of any of Borrower's
Obligations.
Transaction Documents shall mean this Agreement, the Note, the Pledge
Agreement and all other agreements, documents, instruments, and certificates
connected with or otherwise relating to this Agreement or the Loan made
hereunder, all as the same may from time to time be amended, modified, extended
or renewed.
SECTION 3. THE LOANS.
3.01 Commitments of Lender.
(a) Term Loan. Lender hereby agrees to make Borrower a term
loan in the original principal amount of Five Million Five Hundred Thousand and
00/100 Dollars ($5,500,000.00) (the "Term Loan"), which Term Loan shall be
funded in two advances: one advance in the amount of $4,125,000.00 on or about
December 29, 1998; and one advance in the amount of $1,375,000.00 on January 4,
1999. The Term Loan shall be evidenced by a Term Loan Promissory Note of
Borrower dated the date hereof and payable to the order of Lender in the
original principal amount of Five Million Five Hundred Thousand and 00/100
Dollars ($5,500,000.00) (as the same may from time to time be amended, modified,
extended or renewed, the "Term Loan Note"). The Term Loan Note shall mature on
December 29, 2003, (on which date all unpaid principal and all accrued and
unpaid interest thereon shall become due and payable). Principal and interest on
the Term Loan Note shall be payable as set forth in the Term Loan Note.
(b) Thirty Day Loan. Lender hereby agrees to make Borrower a
thirty day term loan in the original principal amount of Four Million Eight
Hundred Fifty-Seven Thousand and 00/100 Dollars ($4,857,000.00) (the "Thirty Day
Loan"), which Thirty Day Loan is being funded on the date hereof. The Thirty Day
Loan shall be evidenced by a Thirty Day Loan Promissory Note of Borrower dated
the date hereof and payable to the order of Lender in the original principal
amount of Four Million Eight Hundred Fifty-Seven Thousand and 00/100 Dollars
($4,857,000.00) (as the same may from time to time be amended, modified,
extended or renewed, the "Thirty Day
4
<PAGE> 5
Loan Note"). The Thirty Day Loan Note shall mature on January 28, 1999 (on which
date all unpaid principal and all accrued and unpaid interest thereon shall
become due and payable).
(c) Revolving Loan. Lender hereby agrees to make Borrower a
revolving loan in the original principal amount of Three Million and 00/100
Dollars ($3,000,000.00), (the "Revolving Loan"), which Revolving Loan may be
repaid and, subject to the terms and conditions hereof (and as long as no Event
of Default exists), reborrowed to, but not including December 28, 1999. Borrower
may not obtain any advances under the Revolving Loan until the Thirty Day Loan
has been repaid in full. The Revolving Loan shall be evidenced by a Revolving
Loan Promissory Note of Borrower dated the date hereof and payable to the order
of Lender in the principal amount of Three Million and 00/100 Dollars
($3,000,000.00), or, if less, the aggregate unpaid principal amount of all
advances made by Lender (as the same may from time to time be amended, modified,
extended or renewed, the "Revolving Note"). The Revolving Note shall mature on
December 28, 1999 (on which date all unpaid principal and all accrued and unpaid
interest thereon shall become due and payable). Interest shall be due and
payable on the Revolving Note on the 24th day of each January, April, July and
October, and at maturity.
3.02 Interest Rates. The Term Note shall bear interest prior to
maturity at the rate of Seven Percent (7%) per annum. The Thirty Day Note and
Revolving Note shall each bear interest prior to maturity at the rate per annum
equal to, at Borrower's option: (a) the Prime Rate; or (b) Two Percent (2%)
above the Fed Funds Rate. From and after the maturity of the Notes, whether by
reason of acceleration or otherwise, the entire unpaid principal balance of the
Notes shall bear interest until paid at a rate per annum equal to Two Percent
(2%) over and above the then existing rate(s). Interest shall be computed with
respect to the Notes on an actual day, 360-day year basis.
3.03 Prepayment. Borrower shall be privileged to prepay all at any time
or any portion from time to time of the unpaid principal of the Notes prior to
maturity, without penalty or premium, provided that: (a) partial prepayments
shall be applied to the installments of principal of the Note in the inverse
order of their stated maturities; (b) on each prepayment date, Borrower shall
pay to Lender all accrued interest on the principal portion of the Note being
prepaid to and including the date of such prepayment; (c) no Default or Event of
Default under this Agreement shall have occurred and be continuing; and (d) with
respect to any prepayment of the Term Note, Borrower shall pay to Lender a
prepayment premium equal to the sum of (1) the amount of principal of each
installment so prepaid, each respectively multiplied by (2) a rate per annum
equal to the difference between the rate of interest applicable under the Term
Note and the yield-to-maturity on U.S. Treasury Securities, as reported in The
Wall Street Journal or similar publication on the business day before the date
of such prepayment, having original maturities closer to, but not later then the
maturities of each such installment so prepaid. All determinations, estimates,
assumptions, allocations and like required for the determination of such
prepayment premiums shall be made by lender in good faith and Lender's
determination shall be final, binding and conclusive upon Borrower.
3.04 Payments Not on a Business Day. In case any installment of
principal or interest under the Notes shall become due on a day which is not a
Business Day, such principal and interest shall be payable on the next
succeeding Business Day.
3.05 Place of Payment. Both principal and interest under the Notes are
payable to Lender in lawful currency of the United States in Federal or other
immediately available funds at Lender's banking office at One Mercantile Center,
7th & Washington Streets, St. Louis, Missouri 63101.
SECTION 4. PRECONDITIONS TO LOAN.
Notwithstanding any provision contained herein to the contrary, Lender
shall have no obligation to make the Loans hereunder unless the following
conditions shall have first been met:
1. Lender shall have received this Agreement and the Notes, each
executed by a duly authorized officer of Borrower;
2. Lender shall have received the duly executed Pledge Agreement,
collateral schedules, stock powers and such other documents as Lender may
require in connection with the Pledge Agreement;
5
<PAGE> 6
3. Lender shall have received from Borrower 34,000 shares of the common
stock of Subsidiary Bank representing 100% of the issued and outstanding common
stock of Subsidiary Bank (as verified by the Secretary of Subsidiary Bank), said
shares to be issued in Borrower's name and accompanied by stock powers duly
executed in blank by an authorized officer of Borrower;
4. Lender shall have received a Federal Reserve Form U-1, executed by a
duly authorized officer of Borrower;
5. Lender shall have received an original life insurance policy on the
life of Gary Metzger ($3,000,000), and an Assignment of Life Insurance Policy as
Collateral for such life insurance policy;
6. Lender shall have received from Borrower, a Secretary's Certificate
as to Officers, Directors' Resolutions and Miscellaneous Matters;
7. Lender shall have received a copy of the Certificate or Articles of
Incorporation of Borrower, including any amendments thereto;
8. Lender shall have received a copy of the By-Laws of Borrower,
including any amendments thereto;
9. Lender shall have received a Certificate of Corporate Good Standing
of Borrower issued by the Secretary of the State of Missouri;
10. Lender shall have received the opinion of Husch & Eppenberger, LLC,
counsel for Borrower, substantially in the form of that attached hereto and made
a part hereof as Exhibit A (with appropriate insertions);
11. No material adverse change in the financial condition of Borrower
or Subsidiary Bank shall have occurred sine December 31, 1997;
12. No pending or threatened litigation or other proceeding or
investigation shall exist which might materially and adversely affect the
prospects, operation or condition (financial or otherwise) of Borrower or
Subsidiary Bank;
13. Neither Borrower nor Subsidiary Bank shall have defaulted, or shall
have taken or failed to take any action which, unless corrected, would give rise
to a default, on any of their Indebtedness; and
14 Lender shall have first received such other agreements, documents,
instruments, certificates and assurances as Lender may reasonably request.
SECTION 5. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any of its Obligations
are outstanding, it will:
5.01 Insurance. Keep adequately insured, and cause each of the
Subsidiary Banks to keep adequately insured, by financially sound and reputable
insurers acceptable to Lender and in amounts reasonably acceptable to Lender,
all Property of Borrower and Subsidiary Bank of the character usually insured by
corporations engaged in the same or similar businesses similarly situated,
against loss or damage of the kind customarily insured against by such
corporations and acceptable to Lender, and (b) cause Subsidiary Bank to maintain
coverage under a banker's blanket bond in an amount equal to the greater of the
amount of coverage currently maintained by Subsidiary Bank or the minimum
coverage recommended by the Missouri Division of Finance, plus such excess
fidelity coverage as Lender may reasonably request from time to time. Promptly
after Lender's request there for, Borrower shall provide Lender with evidence
that Borrower maintains, and that Subsidiary Bank maintain, the insurance
required under this Section 5.01, and evidence of the payment of all premiums
therefor.
5.02 Payment of Taxes. Duly file, and cause Subsidiary Bank to duly
file, all Federal, state and local income tax returns and all other tax returns
and reports of Borrower or Subsidiary Bank, as the case may be, which are
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required to be filed; and pay, and cause Subsidiary Bank to pay, when due, all
taxes and governmental charges assessed against or upon Borrower or Subsidiary
Bank, as the case may be, or upon their respective Properties, assets, income or
franchises.
5.03 Financial Data. Deliver to Lender:
(a) As soon as practicable and in any event within thirty (30)
days after the end of each fiscal quarter of Borrower (other than the last
fiscal quarter of each fiscal year of Borrower) an unaudited consolidated
statement of earnings and retained earnings of Borrower and its Consolidated
Subsidiaries for the period from the beginning of the current fiscal year to the
end of such fiscal quarter, and an unaudited consolidated balance sheet of
Borrower and its Consolidated Subsidiaries as at the end of such fiscal quarter,
setting forth in each case in comparative form figures for the corresponding
period in the preceding fiscal year, all in reasonable detail and certified to
Lender by the principal financial officer of Borrower, subject to changes
resulting from normal year-end adjustments; all such statements to be prepared
in accordance with generally accepted accounting principles consistently
applied;
(b) As soon as practicable and in any event within ninety (90)
days after the end of each fiscal year of Borrower, unaudited consolidated
statements of earnings and retained earnings of Borrower and its Consolidated
Subsidiaries for such year, and consolidated balance sheets of Borrower and its
Consolidated Subsidiaries as at the end of such year, setting forth in each case
in comparative form corresponding figures from the preceding fiscal year, all
such statements to be prepared in accordance with generally accepted accounting
principles consistently applied;
(c) Contemporaneously with the delivery of the financial
statements pursuant to Sections 5.03(a) and (b) hereof, a certificate in
substantially the form of that attached hereto and made a part hereof as Exhibit
B (with appropriate insertions), executed by the principal financial officer of
Borrower;
(d) Promptly after filing with any Regulatory Agency, and in
any event within ten (10) days after the filing thereof, copies of all financial
statements, reports, filings and other documents which Borrower or Subsidiary
Bank shall file with any Regulatory Agency; and
(e) With reasonable promptness, such other financial
information and data as Lender may from time to time reasonably request.
Lender is hereby authorized to deliver a copy of any financial
statements or other information made available by Borrower or Subsidiary Bank to
any regulatory authority having jurisdiction over Lender, pursuant to any
request there for.
5.04 Maintenance of Property. Maintain, and cause Subsidiary Bank to
maintain, all Property, plants and equipment (except obsolete equipment) of
Borrower and Subsidiary Bank in good operating order, and from time to time make
, and cause Subsidiary Bank to make, all needful and proper repairs, renewals,
replacements, additions, betterments and improvements thereto so that at all
times the efficiency thereof shall be fully preserved and maintained.
5.05 Inspection. Permit, and cause Subsidiary Bank to permit, any
person designated by lender to visit, inspect and audit any of the Properties,
corporate books, loan documentation, loan portfolios, loan files and financial
records of Borrower and Subsidiary Bank and to discuss the affairs, finances and
accounts of Borrower and Subsidiary Bank with the principal officers of Borrower
and Subsidiary Bank, all at such reasonable times and as often as Lender may
reasonably request.
5.06. Corporate Existence. Do or cause to be done all things necessary
to (a) preserve and keep in full force and effect the corporate existence,
rights and franchises of itself and Subsidiary Bank, (b) duly quality itself and
Subsidiary Bank to do business in all jurisdictions where the nature of Property
owned or leased by Borrower or Subsidiary Bank or the nature of the business of
Borrower or Subsidiary Bank requires such qualification, (c) maintain its status
as a "bank holding company" under and within the meaning of 12 U.S.C. section
1841 et seq., (d) cause Subsidiary Bank to preserve and keep in full force and
effect its existence, franchise and right to do business as a state bank or
national bank, as the case may be, under the laws of the jurisdiction of its
incorporation, and (e) maintain Subsidiary
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Bank's status as an "insured bank" as defined in, or within the meaning of, 12
U.S.C. section 1813, and to otherwise maintain Subsidiary Bank's eligibility for
federal deposit insurance.
5.07 Compliance with Law. Comply to the best of Borrower's knowledge in
all material respects with, and cause Subsidiary Bank to comply in all material
respects with, any and all laws, ordinances and governmental and regulatory
rules and regulations to which it or Subsidiary Bank is subject; and obtain, and
cause Subsidiary Bank to obtain, any and all licenses, permits, franchises and
other governmental and regulatory authorizations necessary to do the ownership
of the Properties of itself or Subsidiary Bank, or to the conduct of the
business of itself or Subsidiary Bank, which violation or failure to obtain
might materially adversely affect the business, prospects, profits, Properties
or condition (financial or otherwise) of Borrower or Subsidiary Bank.
5.08 ERISA Compliance. If Borrower or Subsidiary Bank shall have, or in
the future create, any Pension Plan, Borrower shall comply with, and shall cause
Subsidiary Bank to comply with, all requirements of ERISA relating to such plan.
Without limiting the generality of the foregoing, Borrower will not: (a) permit,
or cause or allow Subsidiary Bank to permit, any Pension Plan maintained by it
or Subsidiary Bank, as the case may be, to engage in any nonexempt "prohibited
transaction," as such term is defined in Section 4975 of the Internal Revenue
Code of 1986, as amended; (b) permit, or cause or allow Subsidiary Bank to
permit, any Pension Plan maintained by it or Subsidiary Bank, as such term is
defined in Section 302 of ERISA, 29 U.S.C. section 1082, whether or not waived;
(c) terminate, or cause or allow Subsidiary Bank to terminate, any such Pension
Plan in a manner which could result in the imposition of a Lien on the Property
of Borrower or Subsidiary Bank, as the case may be, pursuant to Section 4068 of
ERISA, 29 U.S.C. section 1368; or (d) take, or case or allow Subsidiary Bank to
take, any action which would constitute or give rise to a complete or partial
withdrawal from a multi-employer plan within the meaning of Sections 4203 and
4205 of Title IV of ERISA.
Notwithstanding any provision contained in this Section 5.08 to the
contrary, an act by the Borrower or Subsidiary Bank shall not be deemed to
constitute a violation of subparagraphs (a) through (d) hereof unless Lender
determines in good faith that said action, individually or cumulatively with
other acts of the Borrower and the Subsidiary Banks, does have or is likely to
cause a significant adverse financial effect upon Borrower or Subsidiary Bank.
Borrower shall have the affirmative obligation hereunder to report to
Lender any of those acts identified in subparagraphs (a) through (d) hereof,
regardless of whether said act does or is likely to cause a significant adverse
financial effect upon the Borrower or Subsidiary Bank, and failure by Borrower
to report such act promptly upon Borrower's becoming aware of the existence
thereof shall constitute an Event of Default hereunder.
5.10 Ratio of Total Equity Capital to Total Tangible Assets. Cause
Subsidiary Bank to maintain at all times during the Term of this Agreement a
ratio of total Equity Capital divided by total tangible assets, determined in
accordance with generally accepted accounting principles consistently applied,
which equals or exceeds the greater of: (a) Five Percent (5%) or (b) the
percentage required to be maintained by Subsidiary Bank by or by reason of any
law, regulation, rule or order of any Regulatory Agency having jurisdiction over
Borrower or Subsidiary Bank. If any Regulatory Agency having jurisdiction over
Borrower or Subsidiary Bank hereafter employ at any time or from time to time
measurements of capital other than Equity Capital as a percentage of total
tangible assets, then Borrower will, and will cause Subsidiary Bank to, comply
with such capital guidelines or requirements that in effect in addition to, and
not in lieu of, the Equity Capital to total tangible assets ratio described
above and the other covenants in this Agreement.
5.11 Risk-Based Capital Adequacy Guidelines. Cause Subsidiary Bank to:
maintain at all times during the Term of this Agreement a total risk-based
capital ratio of at least Eight Percent (8%); maintain at all times during the
Term of this Agreement a Tier 1 risk-based capital ratio of at least Six Percent
(6%); and comply with, and cause Subsidiary Bank to comply with, the risk-based
capital adequacy guidelines set forth in Appendix A to Regulation Y of The Board
of Governors of the Federal Reserve System, as from time to time amended, or in
any successor law, rule or regulation of similar import.
5.12 Total Loan and Lease Loss Reserve. Cause Subsidiary Bank to
maintain at all times during the Term of this Agreement an allowance for
possible loan and lease losses in an amount which equals or exceeds the greater
of: (a) One Percent (1%) of the then aggregate principal amount of all
outstanding loans of Subsidiary Bank; (b) One
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Hundred Percent (100%) of the then aggregate principal amount of all outstanding
Non-Performing Assets of Subsidiary Bank; (c) the amount determined under
generally accepted accounting principles consistently applied; or (d) the amount
required by or by reason of any law, regulation, rule or other of any Regulatory
Agency having jurisdiction over Borrower or Subsidiary Bank.
5.13 Ratio of Net Income to Total Assets. Cause Subsidiary Bank to
maintain for each calendar year ending during the Term of This Agreement a ratio
of Net Income for such calendar year to average total assets during such
calendar year of: at least 75/100 of One Percent (.75%) during fiscal year 1999;
at least 9/10 of One Percent (.9%) during fiscal year 2000; and at least One
Percent (1%) during fiscal year 2001 and thereafter.
5.14 Notices. Notify Lender in writing of any of the following
immediately upon learning of the occurrence thereof, describing the same and, if
applicable, the steps being taken by the Person(s) affected with respect
thereto:
(a) Default. The occurrence of any Default or Event of Default
under this Agreement or any default or event of default by Borrower, any other
Obligor or Subsidiary Bank under any note, indenture, loan agreement, mortgage,
deed of trust, security agreement, lease or other similar agreement, document or
instrument to which Borrower, any other Obligor or Subsidiary Bank, as the case
may be, is a party or by which it is bound or to which it is subject;
(b) Litigation. The institution of any material litigation,
arbitration proceeding or governmental or regulatory proceeding affecting
Borrower, any other Obligor, Subsidiary Bank, any Collateral or any Third Party
Collateral, whether or not considered to be covered by insurance;
(c) Judgment. The entry of any material judgment or
decree against Borrower, any other Obligor or Subsidiary Bank;
(d) Pension Plans. The occurrence of a Reportable Event with
respect to any Pension Plan; the filing of a notice of intent to terminate a
Pension Plan by Borrower, any ERISA Affiliate, any other Obligor or Subsidiary
Bank; the institution of proceedings to terminate a Pension Plan by the PBGC or
any other Person to terminate any Pension Plan; the withdrawal in a "complete
withdrawal" or a "partial withdrawal" as defined in Sections 4203 and 4205,
respectively, of ERISA by Borrower, any ERISA Affiliate, any other Obligor or
Subsidiary Bank from any Multiemployer Plan; or the incurrence of any material
increase in the contingent liability of Borrower, any other Obligor or
Subsidiary Bank with respect to any "employee welfare benefit plan" as defined
in Section 3(1) of ERISA which covers retired employees and their beneficiaries;
(e) Change of Name. Any change in the name of Borrower, any
other Obligor or Subsidiary Bank;
(f) Change in Place(s) of Business. Any proposed opening,
closing or other change of any place of business of Borrower or Subsidiary Bank;
(g) Environmental Matters. Receipt of an notice that the
operations of Borrower, any other Obligor or Subsidiary Bank are not in full
compliance with any of the requirements of any applicable Federal, state or
local environmental, health or safety law, rule or regulation; receipt of notice
that Borrower, any other Obligor or Subsidiary Bank is subject ot any Federal,
state or local investigation evaluating whether any remedial action is needed to
respond to the release of any hazardous or toxic waste, substance or constituent
or other substance into the environment; or receipt of notice that any of the
Properties or assets of Borrower, any other Obligor or Subsidiary Bank are
subject to an "Environmental Lien.5 for purposes of this Section 6.15,
"Environmental Lien" shall mean a Lien in favor of any governmental or
regulatory agency, entity, authority or official for (1) any liability under
Federal, state or local environmental laws, rules or regulations or (2) damages
arising from or costs incurred by any such governmental or regulatory agency,
entity, authority or official in response to a release of a hazardous or toxic
waste, substance or constituent or other substance into the environment;
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(h) Material Adverse Change. The occurrence of any material
adverse change in the business, operations or condition, financial or otherwise,
of Borrower, any other Obligor or Subsidiary Bank; and
(i) Regulatory Matters. The issuance of any cease and desist
order against Borrower or Subsidiary Bank by any Regulatory Agency and/or the
entry of any memorandum of understanding or other agreement between Borrower or
Subsidiary Bank and any Regulatory Agency regardless of whether the same is
voluntary or involuntary.
5.15 Utilization of Loan Proceeds. Utilize the proceeds of the Term
Loan immediately upon advancement thereof solely to refinance Borrower's
outstanding term debt and to partially fund the purchase of Sac River Valley
Bank; utilize the proceed of the Thirty Day Loan immediately upon advancement
thereof solely to partially fund the purchase of Sac River Valley Bank; and
utilize the proceeds of any advance made under the Revolving Loan (none of which
shall be made prior to the repayment of the Thirty Day Loan in full) solely to
repurchase shares of the common stock of Borrower.
5.16 Year 2000 Compliance. Promptly notify Lender in the event Borrower
discovers or determines that any computer application (including those of its
suppliers and vendors) that is material to the business and operations of
Borrower or any Subsidiary that will not be Year 2000 compliant except to the
extent that such failure could not reasonably be expected to have a material
adverse effect.
SECTION 6. NEGATIVE COVENANTS.
Borrower covenants and agrees that, as long as any of its Obligations
are outstanding, it will not, and it will not cause or permit Subsidiary Bank
to, without the prior written consent of Lender:
6.01 Indebtedness. Create or incur any indebtedness except (a) to
Lender and (b) Indebtedness of Subsidiary Bank to creditors in the ordinary
course of its banking business.
6.02 Merger or Consolidation, etc. Merge into or consolidate with any
other entity, or cause or permit any material change in the ownership of
Borrower or Subsidiary Bank, or in the identity of the Borrower's executive
officers or directors (except for changes necessitated by death, incapacity,
natural retirement or similar causes).
6.03 Sale of Property. Sell, lease, transfer or otherwise dispose of
any Property or assets of Borrower or Subsidiary Bank, as the case may be,
except in the ordinary course of business; provided, however, that the foregoing
shall not preclude Borrower or Subsidiary Bank from selling, leasing,
transferring or otherwise disposing of less than substantially all of its assets
so long as the purchase price for said assets shall be equal to or greater than
the depreciated book value of said assets.
6.04 Distributions. Declare or incur any liability to make any
Distribution in respect of the capital stock of Borrower or the capital stock of
Subsidiary Bank, except that: (a) Subsidiary Bank shall be permitted to pay cash
dividends to Borrower to the extent necessary to (i) pay Borrower's Obligations
then due and payable to Lender and which are actually applied toward payment of
the Borrower's Obligations, and (ii) repurchase stock of Borrower; and (b) so
long as no Default or Event of Default under this Agreement has occurred and is
continuing or is created thereby, Borrower shall be permitted to declare and pay
cash dividends on its capital stock in an aggregate amount of up $ -0- during
each calendar year ending during the Term of this Agreement.
6.05 Issuance of Stock, etc. Authorize or issues any new types,
varieties or classes of capital stock of Subsidiary Bank, either preferred or
common, voting or nonvoting, or any bonds or debentures, subordinated or
otherwise, or any stock warrants or options, or authorize or issue any
additional shares of stock of any existing class of stock of Subsidiary Bank, or
grant any person other than Lender any proxy for existing shares, or cause or
allow or declare any stock splits or take any other action which could, directly
or indirectly, decrease Borrower's ownership interest in Subsidiary Bank.
6.06 Default. Allow to occur, or to continue unremedied, any act, event
or condition which constitutes an event of default, or which, with the passage
of time or giving of notice, or both, would constitute an event of default
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under, any agreement, document or instrument to which Borrower or Subsidiary
Bank is a party or by which Borrower or Subsidiary Bank may be bound.
6.07 Investments. Make any advances or loans or extensions of credit
to, purchase any stock (except for the stock of Borrower contemplated in this
Agreement), bonds, notes, debentures or other securities of, make any
expenditures on behalf of or in any manner assume liability (direct, contingent
or otherwise) for the Indebtedness of, any Person, except (a) such guarantees,
loans, advances and/or investments made by Subsidiary Bank in the ordinary
course of their banking business, (b) loans or advances from Borrower to
Subsidiary Bank, and (c) shares of stock, obligations and/or other securities
received in settlement of claims arising in the ordinary course of business.
6.08 Liens. Create, incur, assume, permit the imposition of or allow
the continuance of any Lien on any of the Property of Borrower or Subsidiary
Bank, except for (a) Liens securing government deposits at Subsidiary Bank, (b)
Liens on Property or assets which secure loans or other extensions of credit
made by Subsidiary Bank, (c) Liens on Property or assets acquired by Subsidiary
Bank by foreclosure or by deed in lieu of foreclosure and (d) the Liens listed
on schedule 7.11 attached hereto.
6.09 Subsidiaries and Related Companies. (a) Transfer any Property to
any Related Party, (b) purchase or sign any agreement to purchase any securities
of any Related Party (whether debt, equity or otherwise), underwrite or
guarantee the same, or otherwise become obligated with respect thereto, or (c)
take any other action or permit any action to be taken with respect to any
Related Party which would jeopardize either Borrower's ability to repay the
Loan, or any portion thereof, as the same becomes due and payable, or the
security given to Lender with respect to the Loan.
6.10 Use of Proceeds. Use or permit any proceeds of the Loan to be used
either directly or indirectly for the purpose (whether immediate, incidental or
ultimate) of "purchasing or carrying any margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, as from
time to time amended.
6.11 Non-Performing Assets. Permit the aggregate amount of
Non-Performing Assets of any of the Subsidiary Banks to equal or exceed Fifteen
Percent (15%) of the then Primary Capital of Subsidiary Bank at any time during
the Term of this Agreement.
6.12 Nature of Business. Conduct or engage in any business if, as a
result thereof, the general nature of the business which would thereafter be
engaged in by Borrower or Subsidiary Bank, as the case may be, would be
substantially changed from the general nature of the business engaged in on the
date of this Agreement by Borrower or Subsidiary Bank, as the case may be.
6.13 Other Agreements. Enter into any agreement containing any
provision which would be violated or breached by the performance of its
obligations hereunder or under any instrument or document delivered or to be
delivered by it hereunder or in connection herewith.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
To induce Lender to make the Loan, Borrower hereby represents and
warrants to Lender that:
7.01 Corporate Existence and Power. Borrower and Subsidiary Bank: (a)
is duly incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation; (b) has all requisite corporate powers
and all governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted; and (c) is duly qualified to do
business in all jurisdictions in which the nature of the business conducted by
it makes such qualification necessary and where failure to so qualify would have
a material adverse effect on its business, financial condition or operations.
Borrower is a "bank holding company" as defined in and within the meaning of 12
U.S.C. section 1841 et seq., and as such Borrower has filed all necessary
reports with and received all necessary approvals from the Board of Governors of
the Federal Reserve System. Each of Subsidiary Bank is an "insured bank" as
defined in and within the meaning of 12 U.S.C. section 1813.
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7.02 Corporate Authorization. The execution, delivery and performance
by Borrower of this Agreement, the Note, the Pledge Agreement and the other
Transaction Documents are within the corporate powers of Borrower and have been
duly authorized by all necessary corporate action.
7.03 Binding Effect. This Agreement, the Note the Pledge Agreement and
the other Transaction Documents have been duly authorized, executed and
delivered and constitute the legal, valid and binding obligations of Borrower
enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights in general.
7.04 Financial Statements. Borrower has furnished Lender with the
following financial statements, identified by the principal financial officer of
Borrower: (a) consolidated and consolidating balance sheets and profit and loss
statements of Borrower and its Consolidated Subsidiaries as of December 31,
1997, all certified by Borrower's independent certified public accountants,
which financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied; and (b) an unaudited
consolidated balance sheet and profit and loss statement of Borrower and its
Consolidated Subsidiaries as of September 30, 1998, certified by the principal
financial officer of Borrower as being true and correct to the best of his
knowledge and as being prepared in accordance with Borrower's normal accounting
procedures. Borrower further represents that: (1) said balance sheets and their
accompanying notes fairly present the condition of Borrower and its Consolidated
Subsidiaries as of the dates thereof, (2) there has been no material adverse
change in the condition or operation, financial or otherwise, of Borrower or any
of its Consolidated Subsidiaries since December 31, 1997, and (3) neither
Borrower nor any of its Consolidated subsidiaries has any direct or contingent
liabilities which are not disclosed on said financial statements.
7.05 Litigation. Except as disclosed in Schedule 7.05, there is no
action or proceeding pending or, to the knowledge of Borrower, threatened
against or affecting Borrower or Subsidiary Bank before any court, arbitrator or
governmental, regulatory or administrative body, agency or official which could
result in any material adverse change in the condition or operation, financial
or otherwise, of Borrower or Subsidiary Bank, and neither Borrower nor
Subsidiary Bank is in default with respect to an order, writ, injunction,
decision or decree of any court, arbitrator or governmental, regulatory or
administrative body, agency or official which could have a material adverse
effect on Borrower or Subsidiary Bank.
7.06 Pension and Welfare Plans. Each Pension Plan complies with all
applicable statutes and governmental rules and regulations; no Reportable Event
has occurred and is continuing with respect to any Pension Plan; neither the
Borrower nor any ERISA Affiliate nor Subsidiary Bank has withdrawn from any
Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal" as
defined in sections 4203 or 4205 of ERISA, respectively; no steps have been
instituted by Borrower, any ERISA Affiliate or Subsidiary Bank to terminate any
Pension Plan; no condition exists or event or transaction has occurred in
connection with any Pension Plan or Multiemployer Plan which could result in the
incurrence by Borrower, any ERISA Affiliate or Subsidiary Bank of any material
liability, fine or penalty; and neither the Borrower nor any ERISA Affiliate nor
Subsidiary Bank is a "contributing sponsor" as defined in Section 4001(a) (13)
of ERISA of a "single-employer plan" as defined in Section 4001(a) (15) of ERISA
which has two or more contributing sponsors at least two of whom are not under
common control. Neither the Borrower nor Subsidiary Bank has any contingent
liability with respect to any ""employee welfare benefit plans", as such term is
defined in Section 3 (a) of ERISA, which covers retired employees and their
beneficiaries.
7.07 Tax Returns and Parent. Borrower and Subsidiary Bank has filed all
Federal, state and local income tax returns and all other tax returns which are
required to be filed and has paid all taxes due pursuant to such returns or
pursuant to any assessment received by Borrower or Subsidiary Bank, except for
the filing of such returns, if any, in respect of which an extension of time for
filing is in effect.
7.08 Subsidiaries. Subsidiary Bank is the only Subsidiary of
Borrower.
7.09 Compliance With Other Instruments; None Burdensome. None of the
execution and delivery by Borrower of the Transaction Documents, the
consummation of the transactions therein contemplated or the compliance with the
provisions thereof will violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on the Borrower or Subsidiary
Bank, or any of the provisions of Borrower's Articles or Certificate of
incorporation or By-laws or any of the provisions of any indenture, agreement,
document, instrument or undertaking to
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which Borrower or Subsidiary Bank is a party or subject, or by which it or its
Property is bound. No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, the exemption by, any
governmental, regulatory, administrative or public body or authority, or any
subdivision thereof, is required to authorize, or is otherwise required in
connection with, the execution, delivery or performance of, or the legality,
validity, binding effect or enforceability of, any of the Transaction Documents.
7.10 Other Loans and Guarantees. Except as disclosed on Schedule 7.10
attached hereto, neither Borrower nor Subsidiary Bank (except in the ordinary
course of the banking business) is borrower, guarantor or obligor with respect
to any loan transaction, guarantee or other indebtedness for borrowed money.
7.11 Title to Property. Borrower and Subsidiary Bank is the sole and
absolute owner of, or has the legal right to use and occupy, all Property it
claims to own or which is necessary for Borrower or Subsidiary Bank to conduct
its business. Neither Borrower nor Subsidiary Bank has signed any financing
statements, security agreements or chattel mortgages with respect to any of its
Property, has granted or permitted any Liens with respect to any of its Property
or has any knowledge of any Liens with respect to any of its Property, except as
disclosed on Schedule 7.11 attached hereto.
7.12 Regulation U. No part of the proceeds of the Loan will be used,
whether directly or indirectly, and whether immediately, incidentally or
ultimately (a) to purchase or carry margin stock or to extend credit to others
for the purpose of purchasing or carrying margin stock, or to refund or repay
indebtedness originally incurred for such purpose or (b) for any purpose which
entails a violation of, or which is inconsistent with, the provisions of the
Regulations of The Board of Governors of the Federal Reserve System, including,
without limitation, Regulations G, U, T, or X thereof, as amended. If requested
by Lender, Borrower shall furnish to Lender a statement in conformity with the
requirements of Federal Reserve Form U1 referred to in Regulation U.
7.13 Environmental Matters. There are no disputes pending (nor, to the
knowledge of Borrower, are there any disputes threatened nor, to the knowledge
of Borrower, is there any basis therefor) affecting Borrower or Subsidiary Bank,
whether or not in or before any court or arbitrator of any kind or involving any
governmental or regulatory body, which, if adversely determined could, singly or
in the aggregate, have a material adverse effect on the business, Properties,
assets, liabilities, financial condition, results of operations or business
prospects of Borrower or Subsidiary Bank or on the ability of Borrower to
perform its obligations hereunder or under the Note or any of the other
Transaction Documents, relating to environmental matters, including, without
limitation, any notice from any agency, state or Federal, that Borrower or
Subsidiary Bank is a potentially responsible party for the cleanup of any
environmental waste site, that Borrower or Subsidiary Bank is in violation of
any environmental permit or regulation, that Borrower or Subsidiary Bank has
been placed on any registry of solid or hazardous waste disposal sites, or of
the expiration, revocation or denial of any environmental permit or other loss
of interim status or other current authorization to operate any unit or portion
of the facilities of Borrower or Subsidiary Bank.
7.14 Shares of Subsidiary Bank. The authorized capital of Subsidiary
Bank consists solely of thirty-four thousand (34,000) shares of common stock,
$50.00 par value. As of the date hereof, Borrower is the sole legal and
beneficial owner of thirty-four thousand (34,000) shares of common stock, $50.00
par value, of Subsidiary Bank, representing One Hundred Percent (100%) of all of
the outstanding and issued shares of common stock of Subsidiary Bank, subject to
no Liens, warrants, options, proxies, restrictions on transfer, resale or other
disposition (except those in favor of Lender); that all of such shares are all
validly issued, fully paid and nonassessable; and that Borrower has the
unqualified right and power to grant a security interest in such shares without
the consent of any other Person being required therefor. As of the date hereof,
there are no warrants or options, or any agreements to issue any warrants or
options, outstanding with respect to any class of capital stock of Subsidiary
Bank.
7.16 Year 2000 Compliance. Borrower has: (a) initiated a review and
assessment of all areas within the business and operations (including those
affected by suppliers and vendors) of Borrower and each Subsidiary that could be
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by Borrower or any Subsidiary [or suppliers or vendors] may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to, on and any date after December 31, 1999); (b) developed
a plan and timeline for addressing the Year 2000 Problem on a timely basis; and
(iii) to date implemented that plan in accordance with that timetable. Borrower
represents that all computer applications (including those of its suppliers and
vendors) that are
13
<PAGE> 14
material to the business and operations of Borrower or any
Subsidiary will on a timely basis, be able to perform date sensitive functions
for all dates before, on and after January 1, 2000, except to the extent that a
failure to do so could not reasonably be expected to have a material adverse
effect.
SECTION 8. EVENTS OF DEFAULT
If any of the following ("Events of Default") shall occur and be
continuing:
8.01 Borrower shall fail to pay any of Borrower's Obligations as and
when the same shall become due and payable, whether by reason of demand,
acceleration or otherwise and such failure remains unremedied for five (5) days
after written notice thereof shall have been given to Borrower by Lender;
8.02 Any representation or warranty of Borrower made in this Agreement
or in any of the other Transaction Documents or in any certificate, agreement,
instrument or statement furnished or made or delivered pursuant hereto or
thereto or in connection herewith or therewith, shall prove to have been untrue
or incorrect in any material respect when made or effected;
8.03 Borrower shall fail to perform or observe any term, covenant or
provision contained in sections 5.10, 5.11, 5.12, 5.13, 5.16 or Section 6
hereof;
8.04 Borrower shall fail to perform or observe any other term, covenant
or provision contained in this Agreement and any such failure remains unremedied
for thirty (30) days after written notice thereof shall have been given to
Borrower by Lender;
8.05 This Agreement or any of the other Transaction Documents shall at
any time for any reason cease to be in full force and effect or shall be
declared to be null and void by a court of competent jurisdiction, or if the
validity or enforceability hereof or thereof shall be contested or denied by
Borrower, or if Borrower shall deny that it has any further liability or
obligation hereunder or thereunder or if Borrower shall fail to comply with or
observe any of the terms, provisions or conditions contained in any of the
Transaction Documents (other than this Agreement);
8.06 An "Event of Default" (as defined therein) shall occur under
or within the meaning of the Pledge Agreement;
8.07 Borrower, Subsidiary Bank or any other Obligor shall (a)
voluntarily commence any proceeding or file any petition seeking relief under
Title 11 of the United States Code or any other Federal, state or foreign
bankruptcy, insolvency, receivership, liquidation or similar law, (b) consent to
the institution of, or fail to contravene in a timely and appropriate manner,
any such proceeding or the filing of any such petition, (c) apply for or consent
to the appointment of a receiver, trustee, custodian, sequestrator or similar
official of itself, himself or herself or a substantial part of its, his or her
Property or assets, (d) file an answer admitting the material allegations or a
petition filed against itself, himself or herself in any such proceeding, (e)
make a general assignment for the benefit of creditors, (f) become unable, admit
in writing its, his or her inability or fail generally to pay its, his or her
debts as they become due, (g) become insolvent in either the equity or
bankruptcy sense of the term or (h) take any corporate or other action for the
purpose of effecting any of the foregoing;
8.08 An involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (a) relief
in respect of Borrower, Subsidiary Bank or any other Obligor, or of a
substantial part of the Property or assets of Borrower, Subsidiary Bank or any
other Obligor, under Title 11 of the United States Code or any other Federal,
state or foreign bankruptcy, insolvency, receivership, liquidation or similar
law, (b) the appointment of a receiver, trustee, custodian, sequestrator or
similar official of Borrower, Subsidiary Bank or any other Obligor or of a
substantial part of the Property or assets of Borrower, Subsidiary Bank or any
other Obligor or (c) the winding-up or liquidation of Borrower, Subsidiary Bank
or any other Obligor; and any such proceeding or petition shall continue
undismissed for ninety (90) consecutive days or an order or decree approving or
ordering any of the foregoing shall continue unstayed and in effect for ninety
(90) consecutive days;
8.09 Subsidiary bank shall be placed in receivership by any
Regulatory Agency;
14
<PAGE> 15
8.10 Any Regulatory Agency shall notify Subsidiary Bank that its
capital has been impaired and such impairment is not corrected within thirty
(30) days after said notice;
8.11 Subsidiary Bank shall cease to be an "insured bank" under or
within the meaning of the Federal Deposit Insurance Act of 1959, as amended, or
a cease and desist order, memorandum of understanding or other agreement shall
be issued by any Regulatory Authority against or affecting Borrower or
Subsidiary Bank which (in Lender's opinion) has or could have a material adverse
affect on the business, operation or condition, financial or otherwise, of
Borrower or Subsidiary Bank;
8.12 Any litigation or governmental or regulatory proceeding is
instituted against Borrower, Subsidiary Bank or any other Obligor which in
Lender's reasonable opinion, will have a material adverse effect on the
financial condition of Borrower, Subsidiary Bank or any other Obligor or on the
continued operation of Borrower, Subsidiary bank or any other Obligor, after
taking into account insurance coverage and reserves therefor (in any);
8.13 Any property of Borrower, Subsidiary Bank or any other Obligor
shall be seized, attached or levied upon, unless released within thirty (30)
days after being seized, attached or levied upon;
8.14 Borrower, Subsidiary Bank or any other Obligor shall have a
judgment in excess of Two Hundred Fifty Thousand and 00/100 Dollars
($250,000.00) entered against it by a court having jurisdiction in the premises,
and such judgment shall not be appealed in good faith or satisfied by Borrower,
Subsidiary Bank or such Obligor, as the case may be, within thirty (30) days
after the entry of such judgment;
8.15 Borrower, Subsidiary Bank or any other Obligor shall fail (and
such failure shall not have been cured or waived) to perform or observe any
term, provision or condition of, or any other default or event of default shall
occur under, any agreement, document or instrument evidencing or securing any
outstanding indebtedness of Borrower, such Subsidiary Bank or such Obligor, as
the case may be, for borrowed money (other than Borrower's Obligations), if the
effect of such failure or default is to cause or permit such indebtedness to be
declared to be due and payable or otherwise accelerated, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to the
stated maturity thereof;
8.16 The institution by Borrower, any ERISA Affiliate or Subsidiary
Bank of steps to terminate any Pension Plan if, in order to effectuate such
termination, Borrower, any ERISA Affiliate or Subsidiary Bank would be required
to make a contribution to such Pension Plan or would incur a liability or
obligation to such Pension Plan in excess of One Hundred Thousand and 00/100
Dollars ($100,000.00); or the institution by the PBGC of steps to terminate any
Pension Plan; or
8.17 Borrower, Subsidiary Bank or any other Obligor shall be declared
by Lender to be in default on, or pursuant to the terms of, (a) any other
present or future obligation to Lender, including, without limitation, any other
loan, line of credit, revolving credit, guaranty or letter of credit
reimbursement obligation, or (b) any other present or future agreement
purporting to convey to Lender a Lien upon any of the Property or assets of
Borrower, Subsidiary Bank or such Obligor;
THEN, and in such event (other than an event described in Section 8.07,
8.08 or 8.09), Lender may declare the entire outstanding principal balance of
and all accrued and unpaid interest on the Notes issued under this Agreement and
all other amounts payable by Borrower hereunder to be immediately due and
payable, whereupon all of such outstanding principal balance and accrued and
unpaid interest and all such other amounts shall become and be immediately due
and payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by Borrower, and Lender may exercise
any and all other rights and remedies which it may have under any of the other
Transaction Documents or under applicable law; provided, however, that upon the
occurrence of any event described in Sections 8.07, 8.08 or 8.09, the entire
outstanding principal balance of and all accrued and unpaid interest on the
Notes issued under this Agreement and all other amounts payable by Borrower
hereunder shall automatically become immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by Borrower, and Lender may exercise any and all other
rights and remedies which it may have under any of the other Transaction
Documents or under applicable law.
15
<PAGE> 16
SECTION 9. GENERAL.
9.01 No Waiver. No failure or delay by Lender or the holder of the
Notes in exercising any right, remedy, power or privilege hereunder or under any
other Transaction Document shall operate as a waiver thereof; nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
remedies provided herein and in the other Transaction Documents are cumulative
and not exclusive of any remedies provided by law. Nothing herein contained
shall in any way affect the right of Lender to exercise any statutory or common
law right of banker's lien or set-off.
9.02 Right of Set-Off. Upon the occurrence and during the continuance
of any Event of Default under this Agreement, lender is hereby authorized at any
time and from time to time to set-off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and any and all
other indebtedness at any time owing by Lender to or for the credit or the
account of Borrower against any and all of Borrower's Obligations irrespective
of whether or not Lender shall have made any demand hereunder or thereunder.
Lender agrees promptly to notify Borrower after any such set-off and application
made by lender, provided, however, that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of Lender
under this Section 9.02 are in addition to any other rights and remedies
(including, without limitation, other rights of set-off) which Lender may have.
Nothing contained in this Agreement or any other Transaction Document shall
impair the right of lender to exercise any right of setoff or counterclaim it
may have against Borrower and to apply the amount subject to such exercise to
the payment of indebtedness of Borrower unrelated to this Agreement or the other
Transaction Documents.
9.03 Cost and Expenses. Borrower agrees to pay (a) all recording and
filing fees incurred in connection with this Agreement and the other Transaction
Documents, in an amount not to exceed $1,000.00, (b) if an Event of Default
occurs, all out-of-pocket costs and expenses incurred by Lender, including,
without limitation, reasonable Attorneys' Fees, in connection with such Event of
Default and collection and other enforcement proceedings resulting therefrom and
(c) all other reasonable Attorneys' Fees incurred by Lender relating to or
arising out of or in connection with this Agreement or any of the other
Transaction Documents.
9.04 Environmental Indemnity. Borrower hereby agrees to indemnify
Lender and hold Lender harmless from and against any and all losses,
liabilities, damages, injuries, cost, expenses and claims of any and every kind
whatsoever (including, without limitation, court costs and Attorneys' Fees)
which at any time or from time to time may be paid, incurred or suffered by, or
asserted against, Lender for, with respect to or as a direct or indirect result
of the violation by Borrower or Subsidiary Bank of any laws or regulations
relating to solid waste and/or hazardous waste treatment, storage, disposal,
generation and transportation, air, water and/or noise pollution, soil or ground
or water contamination, the handling, storage or release into the environment of
hazardous materials or hazardous substances, and the transportation of hazardous
materials ("Environmental Laws"); or with respect to, or as a direct or indirect
result of the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission or release from, properties utilized by Borrower and/or
Subsidiary Bank in the conduct of their respective businesses into or upon any
land, the atmosphere or any watercourse, body of water or wetland, of any
hazardous material or substances (including, without limitation, any losses,
liabilities, damages, injuries, costs expenses or claims asserted or arising
under the Environmental Laws); and the provisions of and undertakings and
indemnification set out in this Section 9.04 shall survive the satisfaction and
payment of Borrower's Obligations and termination of this Agreement.
9.05 General Indemnity. In addition to the payment of expenses pursuant
to Section 9.03, whether or not the transactions contemplated hereby shall be
consummated, Borrower hereby agrees to indemnify, pay and hold Lender and any
holder of any of the Notes, and the officers, directors, employees, agents and
affiliates of Lender and such holder(s) (collectively called the "indemnities")
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
the reasonable fees and disbursements of counsel for such indemnities in
connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such indemnities shall be designated a
party thereto), that may be imposed on, incurred by or asserted against the
Indemnities, in any manner relating to or arising out of this Agreement or other
agreements executed and delivered by Borrower or any other Obligor in connection
herewith, the statements contained in any commitment letters delivered by
Lender, Lender's agreement to make the Loan hereunder or the use or intended use
of the proceeds of the Loan
16
<PAGE> 17
hereunder (the "indemnified liabilities"); that Borrower shall have no
obligation to an Indemnitee hereunder with respect to indemnified liabilities
arising from the negligence or willful misconduct of that Indemnitee as
determined by a court of competent jurisdiction. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, Borrower shall contribute the maximum portion that it is permitted to
pay and satisfy under applicable law to the payment and satisfaction of all
indemnified liabilities incurred by the Indemnities or any of them. The
provisions of the undertakings and indemnification set out in this Section 9.05
shall survive satisfaction and payment of Borrower's Obligations and termination
of this Agreement.
9.06 Authority to Act. Lender shall be entitled to act on any notices
and instructions (telephonic or written) reasonably believed by Lender to have
been delivered by any Person authorized to act on behalf of Borrower pursuant
hereto, regardless of whether such notice or instruction was in fact delivered
by a Person authorized to act on behalf of Borrower, and Borrower hereby agrees
to indemnify Lender and hold Lender harmless from and against any and all losses
and expenses, if any, ensuing from any such action.
9.07 Notices. Any notice, request, demand, consent, confirmation or
other communication hereunder shall be in writing and delivered in person or
sent by telegram, telex or registered or certified mail, return receipt
requested and postage prepaid, if to Borrower at 1414 East Primrose,
Springfield, Missouri 65804, Attention: Gary E. Metzger, President, or if to
Lender at One Mercantile Center, 7th & Washington Streets, St. Louis, Missouri
63101-1643, Attention: Correspondent Banking Department, or at such other
address as either party may designate as its address for communications
hereunder by notice so given. Such notices shall be deemed effective on the day
on which delivered or sent if delivered or sent in person or sent by telegram or
telex, or on the third (3rd) Business Day after the day on which mailed, if sent
by registered or certified mail.
9.08 CONSENT TO JURISDICTION. BORROWER IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY MISSOURI STATE COURT OR ANY UNITED STATES OF
AMERICA COURT SITTING IN THE EASTERN DISTRICT OF MISSOURI, AS LENDER MAY EFFECT,
IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OTHER TRANSACTION DOCUMENT. BORROWER HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT TO SUCH SUIT, ACTION OR PROCEEDING MAY BE HELD AND DETERMINED
IN ANY OF SUCH COURTS. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH BORROWER MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT, AND BORROWER FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT SUCH SUIT, ACTION
OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. BORROWER HEREBY EXPRESSLY WAIVES ALL RIGHTS OF ANY OTHER JURISDICTION
WHICH BORROWER MAY NOW OR HEREAFTER HAVE BY REASON OF ITS PRESENT OR SUBSEQUENT
DOMICILES. BORROWER AUTHORIZED THE SERVICE OF PROCESS UPON BORROWER BY
REGISTERED MAIL SENT TO BORROWER AT ITS ADDRESS SET FORTH IN SECTION 9.07.
BORROWER AND LENDER IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO
ANY ACTION IN WHICH BORROWER AND LENDER ARE PARTIES.
9.09 Lender's Books and Records. Lender's books and records showing the
account between Borrower and Lender shall be admissible in evidence in any
action or proceeding and shall constitute prima facie proof thereof.
9.10 Governing Law; Amendments. This Agreement, the Note, the Pledge
Agreement and all of the other Transaction Documents shall be governed by and
construed in accordance with the internal laws of the State of Missouri, and
this Agreement and the other Transaction Documents may not be changed, nor may
any term, condition or Event of Default be waived, modified or discharged orally
but only by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought,
9.11 References; Headings for Convenience. Unless otherwise specified
herein, all references herein to Section numbers refer to section numbers of
this Agreement, and all references herein to Exhibits A and B refer to annexed
Exhibits A and B which are hereby incorporated herein by reference. The section
headings are furnished for the convenience of the parties and are not to be
considered in the construction or interpretation of this Agreement.
17
<PAGE> 18
9.12 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of Borrower and its successors and Lender and its successors and
assigns. Borrower may not assign or delegate any of its rights or obligations
under this Agreement.
9.13 Severability. In the event any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
9.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.15 Resurrection of Borrower's Obligations. To the extent that Lender
receives any payment on account of any of Borrower's Obligations, and any such
payment(s) or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, subordinated and/or required to be repaid
to a trustee, receiver or any other Person under any bankruptcy act, state or
Federal law, common law or equitable cause, then, to the extent of such
payment(s) received, Borrower's Obligations or part thereof intended to be
satisfied and any and all liens, security interests, mortgages, deeds of trust
and/or other encumbrances upon or pertaining to any assets of Borrower and
theretofore created and/or existing in favor of Lender as security for the
payment of such Borrower's Obligations shall be revived and continue in full
force and effect, as if such payment(s) had not been received by Lender and
applied on account of Borrower's Obligations.
9.16 Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understanding (oral or written) relating to the subject matter hereof.
9.17 Notice Required by Section 432.045 R.S. Mo. ORAL AGREEMENTS OR
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE.
TO PROTECT BORROWER AND LENDER FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS BORROWER AND LENDER REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS
WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN
BORROWER AND LENDER, EXCEPT AS BORROWER AND LENDER MAY LATER AGREE IN WRITING TO
MODIFY IT.
IN WITNESS WHEREOF, the parties have executed this Term Loan
Agreement as of the day and year first above written.
BORROWER:
LIBERTY BANCSHARES, INC.
By: /s/ Gary E. Metzger
-----------------------
Title: President
LENDER:
MERCANTILE BANK
NATIONAL ASSOCIATION
By: /s/ David C. Buettner
-----------------------
David C. Buettner,
Vice President
18
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------
1998 1997
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Basic:
Average shares outstanding 502,369 393,900
Net income 533,390 166,285
Per share amount 1.06 0.42
Diluted:
Average shares outstanding 502,369 393,900
Net effect of dilutive stock options
9,031 2,831
-------- --------
Diluted shares 511,400 396,731
Net income 533,390 166,285
Per share amount
1.04 0.42
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF LIBERTY BANCSHARES, INC.
Liberty Bank
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMERY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 915
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4839
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14037
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 109197
<ALLOWANCE> 1109
<TOTAL-ASSETS> 144022
<DEPOSITS> 122267
<SHORT-TERM> 5753
<LIABILITIES-OTHER> 634
<LONG-TERM> 8701
0
0
<COMMON> 511
<OTHER-SE> 6156
<TOTAL-LIABILITIES-AND-EQUITY> 144022
<INTEREST-LOAN> 7078
<INTEREST-INVEST> 877
<INTEREST-OTHER> 302
<INTEREST-TOTAL> 8256
<INTEREST-DEPOSIT> 3988
<INTEREST-EXPENSE> 4767
<INTEREST-INCOME-NET> 3489
<LOAN-LOSSES> 648
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2720
<INCOME-PRETAX> 815
<INCOME-PRE-EXTRAORDINARY> 815
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 533
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
