<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CASTLE BANCGROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
CASTLE BANCGROUP, INC.
NOTICE
OF
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 22, 1998
NOTICE IS HEREBY GIVEN, that the Annual Meeting of Stockholders (the
"Meeting") of Castle BancGroup, Inc., a Delaware corporation (the
"Corporation"), will be held in the community room of First National Bank in
DeKalb/Sycamore, 511 West State Street, Sycamore, Illinois, 60178, on
Wednesday, April 22, 1998 at 2:00 p.m.
The Meeting is for the purpose of considering and acting upon:
(1) The election of two directors of the Corporation; and
(2) Such other matters as may properly come before the Meeting
or any adjournments thereof.
Stockholders of record at the close of business on March 13, 1998 are
entitled to notice of and to vote at the Meeting or any adjournments thereof.
By Order of the Board of Directors
/s/ David B. Castle
David B. Castle
SECRETARY
DeKalb, Illinois
March 20, 1998
IMPORTANT! TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING,
PLEASE SIGN, DATE, AND RETURN PROMPTLY THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED. NO POSTAGE IS REQUIRED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
OF
CASTLE BANCGROUP, INC.
121 WEST LINCOLN HIGHWAY
DEKALB, ILLINOIS 60115
(815) 758-7007
ANNUAL MEETING OF STOCKHOLDERS
APRIL 22, 1998
- -------------------------------------------------------------------------------
GENERAL INFORMATION
- -------------------------------------------------------------------------------
This Proxy Statement and the accompanying proxy card are being furnished
in connection with the solicitation of proxies by the Board of Directors of
Castle BancGroup, Inc. (the "Corporation") from holders of the Corporation's
outstanding shares of common stock, par value $.33 1/3 per share ("Common
Stock"), for use at the 1998 Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Wednesday, April 22, 1998 at 2:00 p.m. in the
community room of First National Bank in DeKalb/Sycamore, 511 West State
Street, Sycamore, Illinois 60178, or at any adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting and in this
Proxy Statement.
The Corporation will bear the costs of soliciting proxies from its
stockholders. In addition to soliciting proxies by mail, directors, officers
and employees of the Corporation and its subsidiaries, without receiving
additional compensation therefor, may solicit proxies in person, by telephone
or by facsimile. The Corporation may also reimburse brokers, nominees and
other fiduciaries for their reasonable expenses in forwarding proxy
solicitation materials to beneficial owners. The accompanying Notice of
Annual Meeting, this Proxy Statement and the Proxy Card are first being
mailed to the Corporation's stockholders on or about March 20, 1998.
- -------------------------------------------------------------------------------
VOTING AT THE ANNUAL MEETING
- -------------------------------------------------------------------------------
The close of business on March 13, 1998 has been fixed as the record date
(the "Record Date") for the determination of stockholders of the Corporation
entitled to notice of and to vote at the Annual Meeting. As of the Record Date,
the Corporation had 2,156,084 shares of Common Stock issued and outstanding.
Each proxy that is properly signed and received prior to the Annual Meeting
and not subsequently revoked will be voted in accordance with the instructions
on such proxy. IF NO INSTRUCTIONS ARE INDICATED, PROXIES WILL BE VOTED "FOR"
THE ELECTION OF ALL NOMINEES NAMED IN THE PROXY AND IN THE DISCRETION OF THE
PERSONS NAMED IN THE PROXY ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING. Any stockholder has the right to revoke a proxy at any time
prior to its exercise at the Annual Meeting. A proxy may be revoked by properly
executing and submitting to the Corporation a later-dated proxy or by mailing
written notice of revocation to Castle BancGroup, Inc., 121 West Lincoln
Highway, DeKalb, Illinois 60115, Attention: David B. Castle, Secretary. A
stockholder may also revoke a proxy by appearing at the Annual Meeting and
voting
<PAGE>
in person. Proxies are valid only for the meeting specified therein or any
adjournments of such meeting.
A quorum of stockholders is necessary to take action at the Annual Meeting.
A majority of the outstanding shares of Common Stock, represented in person or
by proxy, shall constitute a quorum for the transaction of business at the
Annual Meeting. Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the inspectors of election appointed for the Annual Meeting. The
inspectors will determine whether a quorum is present and will treat abstentions
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum. If a broker indicates on a proxy that it does not have
discretionary authority as to certain shares of Common Stock to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter even though such shares will be considered
present for the purpose of determining the presence of a quorum.
Stockholders have the right to cumulative voting in the election of
directors. Under cumulative voting, each stockholder is entitled to a number of
votes equal to the number of his or her shares multiplied by the number of
directors to be elected. Each stockholder may cast all of those votes for a
single nominee or may distribute the votes among as many of the nominees as such
stockholder deems appropriate. Cumulative votes for which a proxy is given will
be divided equally among all director nominees for whom authority has been
given. NOTWITHSTANDING THE FOREGOING, THE PROXY HOLDERS RESERVE THE RIGHT,
EXERCISABLE IN THEIR SOLE DISCRETION, TO VOTE PROXIES CUMULATIVELY SO AS TO
ELECT ALL OR AS MANY AS POSSIBLE OF SUCH DIRECTOR NOMINEES DEPENDING UPON THE
CIRCUMSTANCES AT THE ANNUAL MEETING. In voting on all other matters that may
properly come before the Annual Meeting, each stockholder is entitled to one
vote for each share of Common Stock held.
The two individuals receiving the highest number of votes cast will be
elected as directors of the Corporation. In all other matters, the affirmative
vote of the majority of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting is required for approval.
- -------------------------------------------------------------------------------
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
- -------------------------------------------------------------------------------
The Corporation's Board of Directors is currently comprised of nine
directors. Three of the current directors, John B. Hiatt, James N. McInnes and
William R. Monat, have resigned as directors of the Corporation effective
immediately prior to the convening of the Annual Meeting. At such time the
number of directors constituting the entire Board of Directors shall be reduced
to seven, comprised of two Class I directors, two Class II directors and three
Class III directors. The Corporation's Certificate of Incorporation provides
that directors are elected for terms of three years, approximately one-third of
whom are elected annually. Two directors will be elected as Class I directors
at the Annual Meeting to serve for a three-year period, or until their
respective successors have been elected and qualified. The Board of Directors
has nominated for election as directors Richard C. McGinity and Kathleen L.
Halloran. Mr. McGinity became a director of the Corporation on October 16,
1997. Ms. Halloran has not previously served as a director of the Corporation
or any of its subsidiaries.
2
<PAGE>
Each of the nominees has agreed to serve as a director if elected, and the
Corporation has no reason to believe that any nominee will be unable to serve.
In the event of the refusal or inability of any nominee for director of the
Corporation to serve as director, the persons named in the accompanying form of
proxy shall vote such proxies for such other person or persons as may be
nominated as directors by the Board of Directors of the Corporation, unless the
number of directors shall have been reduced by the Board.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE ELECTION OF RICHARD C. MCGINITY AND KATHLEEN L. HALLORAN AS DIRECTORS OF THE
CORPORATION.
The following table sets forth information with respect to the director
nominees, continuing directors, resigning directors and executive officers of
the Corporation.
<TABLE>
<CAPTION>
YEAR TERM
DIRECTOR OR AS A DIRECTOR
NAME AGE(1) OFFICER SINCE EXPIRES POSITION(2)
- ---------------------------- ------ ------------- ------------- ---------------------------
<S> <C> <C> <C> <C>
DIRECTOR NOMINEES
Kathleen L. Halloran 45 (3) (3) (3)
Richard C. McGinity 53 1997 1998 Director
CONTINUING DIRECTORS
Robert T. Boey 58 1992 1999 Director
Donald E. Kieso 61 1993 1999 Director
Bruce P. Bickner 54 1991 2000 Director
John W. Castle 64 1984 2000 Director, Chairman of the
Board and Chief Executive
Officer
Peter H. Henning 50 1988 2000 Director
RESIGNING DIRECTORS
John B. Hiatt 76 1990 Director
James N. McInnes 72 1984 Director
William R. Monat 73 1983 Director
OTHER EXECUTIVE OFFICERS(4)
Dewey R. Yaeger 57 1997 President and Chief
Operating Officer
Ronald L. Hovermale 58 1997 Senior Vice President-
Operations, Information
Systems and Human Resources
Thomas D. Young 52 1995 Senior Vice President-
Marketing, Planning and
Retail Services Delivery
Victoria S. Maher 31 1997 Vice President-Controller
David B. Castle 30 1996 Secretary
James V. Bowers 60 1992 President of First National
Bank in DeKalb
Lawrence M. Budnik 38 1995 President of CasBanc
Mortgage, Inc.
Craig Carlson 33 1997 President of Castle Finance
Company
Michael J. Fogle 49 1997 President of Castle Bank
Harvard, N.A.
Stan J. Free 37 1993 President of The Bank of
Yorkville
James H. Hall
56 1993 Chairman of the Board of
The Bank of Yorkville
A. Gene Shumway 50 1996 President of The Sandwich
State Bank
</TABLE>
3
<PAGE>
_________________________
(1) At January 1, 1998.
(2) Position with the Corporation unless indicated otherwise.
(3) Ms. Halloran has not previously served as a director of the Corporation or
any of its subsidiaries.
(4) John W. Castle, Chairman of the Board and Chief Executive Officer of the
Corporation, is listed above under Continuing Directors.
DIRECTOR NOMINEES:
KATHLEEN L. HALLORAN is the Senior Vice President Information Services, Rates
and Human Resources of Nicor Gas and has held such position or similar positions
with Nicor Gas for more than the past five years.
RICHARD C. MCGINITY is the President of School Street Capital Group, Inc., a
boutique investment banking firm in Boston, Massachusetts and has held such
position for more than the past five years.
CONTINUING DIRECTORS:
ROBERT T. BOEY is the President of American Bare Conductor, Inc., a manufacturer
of electrical copper wire and cable products. He has held such position since
1985. Mr. Boey also has been a director of First National Bank in DeKalb since
1988.
DONALD E. KIESO is the KPMG Peat Marwick Emeritus Professor of Accountancy at
Northern Illinois University. He has been a director of The Sandwich State Bank
since 1993.
BRUCE P. BICKNER is the Chairman and Chief Executive Officer of DeKalb Genetics
Corp., an agricultural genetics company. Mr. Bickner has held such position
since 1988. Mr. Bickner is also a director of DeKalb Genetics Corp.
JOHN W. CASTLE is the Chairman of the Board and Chief Executive Officer of the
Corporation and has held such offices since 1984. Mr. Castle has been a
director of First National Bank in DeKalb, The Sandwich State Bank and Castle
Finance Company since 1984, a director of Castle Bank Harvard, N.A. since 1990,
a director of The Bank of Yorkville since 1993 and a director of CasBanc
Mortgage, Inc. since 1995. Mr. Castle is also the owner, director and an
officer of Castle Communications, Inc. a commercial printer. He is the father
of David B. Castle.
PETER H. HENNING is the Chairman and Chief Executive Officer of Plano Molding
Co., a manufacturer of proprietary and custom plastic injection molded products.
Mr. Henning has been a director of The Sandwich State Bank since 1988.
RESIGNING DIRECTORS:
JOHN B. HIATT is retired from Hiatt Brothers, a commercial construction company.
Mr. Hiatt has been a director of First National Bank in DeKalb since 1984.
4
<PAGE>
JAMES N. MCINNES served as the President and Chief Operating Officer of the
Corporation through December 31, 1997 and had held such positions since 1984 and
1992, respectively. Mr. McInnes has been Chairman of the Board of The Sandwich
State Bank since 1992, director of First National Bank in DeKalb since 1984,
director of Castle Bank Harvard, N.A. since 1990, director of Castle Finance
Company since 1985, director of The Bank of Yorkville since 1993 and director of
CasBanc Mortgage, Inc. since 1995. He is also a director of Plano Molding Co.
WILLIAM R. MONAT is a Regency Professor Emeritus at Northern Illinois
University. Mr. Monat has been a director of First National Bank in DeKalb
since 1982, Secretary and director of CasBanc Mortgage, Inc. since 1995 and
director of Castle Finance Company since 1996.
EXECUTIVE OFFICERS:
DEWEY R. YAEGER is the President and Chief Operating Officer of the
Corporation. He is a director at The Bank of Yorkville, Castle Bank Harvard,
N.A., Castle Finance Company, First National Bank in DeKalb and The Sandwich
State Bank. From 1993 to 1997 he was President of Central National Bank of
Mattoon, Mattoon, Illinois, and from 1985 to 1993 he was Chairman, President and
Chief Executive Officer of First of America Bank DeKalb, N.A.
RONALD L. HOVERMALE is the Senior Vice President - Operations, Information
Systems and Human Resources of the Corporation. From 1986 to 1994 he was Senior
Vice President of Human Resources and Operations for Bank One, Springfield,
Illinois, and from 1991 to 1994 he was Director of Human Resources of Banc One
Illinois Corporation.
THOMAS D. YOUNG is the Senior Vice President - Marketing, Planning and Retail
Services Delivery of the Corporation. From 1992 to 1995 he was a mortgage
banker for Premier Home Financing, Inc., and from 1989 to 1992 he was Vice
President of First Nationwide Bank.
VICTORIA S. MAHER is the Vice President-Controller of the Corporation. Ms.
Maher has served in various capacities with the Corporation and First National
Bank in DeKalb since 1992.
DAVID B. CASTLE is the Secretary of the Corporation. He is Vice President of
Operations of Castle Communications, Inc., a commercial printer. He is the son
of John W. Castle.
JAMES V. BOWERS is the President of First National Bank in DeKalb. He was
President of Castle Bank Harvard, N.A. from 1990 to 1992.
LAWRENCE M. BUDNIK is the President of CasBanc Mortgage, Inc. He was President
of Premier Home Financing, Inc. prior to its acquisition by the Corporation in
1995.
CRAIG CARLSON is the President of Castle Finance Company. From 1991 to June
1997 he was Manager of Operations of American General Finance, Inc.
5
<PAGE>
MICHAEL J. FOGLE is the President of Castle Bank Harvard, N.A. Mr. Fogle has
served in various capacities at Castle Bank Harvard, N.A. since 1994. From 1991
to 1994 he was Vice President of First of America Rockford and First of America
North Central Illinois.
STAN J. FREE is the President of The Bank of Yorkville. During 1993 he was Vice
President of First National Bank in DeKalb, and from 1987 to 1993 he was Vice
President of 1st National Bank of St. Charles.
JAMES H. HALL is the Chairman of the Board of The Bank of Yorkville. He was
President of The Bank of Yorkville from 1971 to 1994.
A. GENE SHUMWAY is the President of The Sandwich State Bank. From 1994 to 1996
he was Senior Vice President of The Sandwich State Bank, and from 1982 to 1994
he was Vice President of The Sandwich State Bank.
- -------------------------------------------------------------------------------
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
- -------------------------------------------------------------------------------
The Board of Directors of the Corporation conducts its business through
meetings of the full Board and through meetings of committees of the Board. The
Board of Directors maintains an Audit, Compensation and Nominating Committee.
The Board of Directors held six meetings during 1997. No director of the
Corporation attended fewer than 75% of the total meetings of the Board and
committee meetings on which such Board member served during this period.
The Audit Committee is comprised of Robert T. Boey, William R. Monat and
Donald E. Kieso. Donald E. Kieso is Chairman of the Committee. The Audit
Committee's duties include reviewing the scope of internal and external
accounting controls and audit procedures, the Corporation's accounting
principles, policies and practices and financial reporting, and the results of
internal and external audits conducted with respect to the Corporation and its
subsidiaries. The Committee also recommends to the Board of Directors the
selection of the Corporation's independent auditors. The Audit Committee met
six times during 1997.
The Compensation Committee is comprised of John B. Hiatt, Bruce P. Bickner
and Peter H. Henning. John B. Hiatt is Chairman of the Committee. The
Compensation Committee annually reviews all aspects of the compensation for the
Chief Executive Officer and for the Chief Operating Officer of the Corporation,
including the appropriateness of executive compensation and benefit programs.
The Compensation Committee also recommends salary levels for subsidiary senior
management which are adopted by the subsidiary Boards of Directors. The
Committee is also responsible for recommending to the Board of Directors, the
specific individual annual goals and objectives of the Chairman of the Board
(Chief Executive Officer) and the President (Chief Operating Officer). The
Compensation Committee met five times during 1997
The Nominating Committee is comprised of Bruce P. Bickner, Peter H.
Henning, Robert T. Boey and John B. Hiatt. Peter H. Henning is Chairman of the
Committee. John W. Castle, as Chairman of the Board of the Corporation, serves
as an ex-officio member of the Committee. The Nominating Committee reviews the
requirements for service as a director of the Corporation,
6
<PAGE>
reviews potential candidates for director, proposes nominees for director and
recommends the successor to the Chairman when a vacancy occurs in that
position. The Nominating Committee met four times during 1997.
- -------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- -------------------------------------------------------------------------------
The following table summarizes compensation for services to the Corporation
and the Corporation's subsidiaries for the years ended December 31, 1997, 1996
and 1995 paid to or earned by the Chief Executive Officer of the Corporation and
the four most highly compensated executive officers of the Corporation whose
salary and bonus exceeded $100,000 for the year ended December 31, 1997. These
individuals are sometimes hereinafter referred to as the "named executive
officers."
<TABLE>
<CAPTION>
` ANNUAL COMPENSATION(1) SECURITIES ALL OTHER
NAME AND ---------------------- UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY Bonus OPTIONS(#) SATION(2)
- --------------------------- ---- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
John W. Castle 1997 $ 223,500 $ 34,556 -- $ 31,706
Chairman of the Board 1996 $ 223,500 $ 27,938 -- $ 38,058
and Chief Executive 1995 $ 216,000 $ 93,124 30,000 $ 49,709
Officer
James V. Bowers 1997 $ 150,000 $ 47,250 -- $ 26,515
President of First 1996 $ 146,000 $ 33,247 -- $ 28,617
National Bank in DeKalb 1995 $ 141,500 $ 49,502 8,000 $ 28,060
Lawrence M. Budnik 1997 $ 112,500 $ 33,100 -- $ 1,030
President of CasBanc 1996 $ 110,000 -- -- --
Mortgage, Inc. 1995 $ 97,802 -- -- --
Stan J. Free 1997 $ 88,000 $ 26,488 1,500 $ 15,593
President of The Bank 1996 $ 85,000 $ 21,569 3,000 $ 12,401
of Yorkville 1995 $ 70,000 $ 16,879 2,000 $ 10,434
A. Gene Shumway 1997 $ 90,000 $ 29,925 2,000 $ 16,747
President of The 1996 $ 80,000 $ 26,600 -- $ 14,454
Sandwich State Bank 1995 $ 72,000 $ 19,054 500 $ 13,133
</TABLE>
____________________________
(1) None of the named executive officers received any perquisites or other
personal benefits, securities, or property in an amount exceeding 10% of
his salary and bonus during 1995, 1996 and 1997.
(2) For each of the named executive officers, this amount consists entirely of
contributions by the Corporation under its Profit Sharing Plan and
Supplemental Profit Sharing Plan.
7
<PAGE>
The following table sets forth information regarding individual grants of
stock options made during 1997 to Stan J. Free and A. Gene Shumway. No stock
option grants were made during 1997 to the other named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR PER SHARE DATE 5% 10%
- -------------------- ---------- -------------- ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stan J. Free 1,500(1) 8.5% $ 22.00 12/18/07 $20,760 $52,590
A. Gene Shumway 2,000(1) 11.3% $ 22.00 12/18/07 $27,680 $70,120
</TABLE>
_________________________
(1) The options become exercisable with respect to 25% of the shares covered
thereby on each of the first four anniversaries of the date of grant.
The following table sets forth information regarding the year-end values of
unexercised stock options held by the named executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY STOCK
STOCK OPTIONS AT FISCAL OPTIONS AT
YEAR END (#) FISCAL YEAR END(1)
SHARES --------------------------- ---------------------
ACQUIRED VALUE EXER- UNEXER-
NAME ON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE CISABLE CISABLE
------------------ ---------------- --------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John W. Castle -- -- 15,000 15,000 $120,000 $120,000
James V. Bowers -- -- 4,000 4,000 $ 32,000 $ 32,000
Lawrence M. Budnik -- -- -- -- -- --
Stan J. Free -- -- 1,750 4,750 $ 10,000 $ 16,000
A. Gene Shumway -- -- 250 2,250 $ 1,750 $ 1,750
</TABLE>
_______________________
(1) This amount represents the difference between the market value of one share
of the Corporation's Common Stock on December 31, 1997 ($22.00) and the
option exercise price times the total number of shares subject to
exercisable or unexercisable options.
- -------------------------------------------------------------------------------
DIRECTORS' COMPENSATION
- -------------------------------------------------------------------------------
Each non-employee director of the Corporation received an annual
retainer of $7,200. In addition, each non-employee director received a fee
of $200 for each Board or committee meeting attended as a member or $300 for
each committee meeting attended as chairman of the committee. If a
non-employee director is also a director of any bank subsidiary of the
Corporation, such non-employee director receives an identical annual retainer
and identical fees for meetings attended as a director of the bank
subsidiary. If a non-employee director is also a director of a non-bank
subsidiary of the Corporation, such non-employee director receives a $250 fee
for meetings attended as a director of the non-bank subsidiary. Pursuant to
the Corporation's Stock Benefit Plan, when a non-employee becomes a new
director of the Corporation, such new non-employee director is
8
<PAGE>
automatically granted an option to purchase 1,500 shares of Common Stock. As
a result, in 1997 Richard C. McGinity received an option to purchase 1,500
shares of Common Stock. Directors who are employees of the Corporation or
its subsidiaries do not receive additional compensation for serving as
directors of the Corporation or any of its subsidiaries.
- -------------------------------------------------------------------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- -------------------------------------------------------------------------------
The members of the Compensation Committee of the Corporation during the
fiscal year ended December 31, 1997 were John B. Hiatt (Chairman), Bruce P.
Bickner and Peter H. Henning. No member of the Compensation Committee is a
former or current officer or employee of the Corporation or any of its
subsidiaries.
James N. McInnes, President and Chief Operating Officer of the Corporation
during 1997, served as a member of the Board of Directors and Compensation
Committee of Plano Molding Company, Plano, Illinois during 1997. As a member of
the Compensation Committee of Plano Molding Company, Mr. McInnes was actively
involved in the determination of compensation awards to Plano Molding's
management, including Peter H. Henning. Mr. Henning, who is Chairman of the
Board and Chief Executive Officer of Plano Molding Company, is a member of the
Corporation's Compensation Committee. As a member of such Committee, Mr.
Henning was actively involved during 1997 in the determination of compensation
awards to the members of senior management of the Corporation, including Mr.
McInnes.
- -------------------------------------------------------------------------------
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
- -------------------------------------------------------------------------------
The Compensation Committee's goal in setting executive compensation is
to attract, retain, motivate and reward highly qualified executive officers
to achieve the Corporation's business objectives. This executive
compensation program is integrated with the Corporation's annual and
long-term business plans in order to provide a strategic link between
corporate performance and attainment of corporate goals and executive
compensation. The components of the corporate compensation program are base
salary, performance incentives (bonus), the Profit Sharing Plan, the
Supplemental Profit Sharing Plan and the Stock Benefit Plan.
The Compensation Committee annually reviews all aspects of compensation for
the Chief Executive Officer and the Chief Operating Officer of the Corporation
including the appropriateness of executive compensation and benefit programs.
The Compensation Committee also recommends salary levels for subsidiary senior
management which are adopted by the subsidiary Boards of Directors. The
Committee is also responsible for recommending to the Board of Directors the
specific individual annual goals and objectives of the Chairman of the Board
(Chief Executive Officer) and the President (Chief Operating Officer).
The Compensation Committee's approach in setting compensation for executive
officers is to review their compensation relative to the Corporation's financial
results, including growth in earnings, increase in share value, the rate of
return on assets and equity, and various measures of
9
<PAGE>
productivity and efficiency. Additionally, the Committee reviews performance
relative to attainment of specific corporate and individual objectives that
are set prior to each year. The Committee also considers the Corporation's
and the subsidiary's standing in the community it serves, ratings by
regulatory authorities and views of the Corporation's independent auditors.
In determining the reasonableness of each executive officer's total
compensation, the Compensation Committee reviews studies and reports including,
among others, the Illinois Bankers Association 1997 Midwest Bank Holding Company
Executive Compensation Report and the Crowe Chizek 1997 Bank Compensation
Survey. These surveys compile total compensation data based on asset size and
geographic region including salary ranges by position. In the past, the
Committee has additionally employed the services of a nationally recognized
consulting firm to review the Corporation's total compensation programs. The
Committee has found these studies to be useful in setting corporate and
individual bank subsidiary salary ranges. The Committee has generally used a
range of the 50th to 75th percentile in setting base salaries for subsidiary
executives depending upon experience and performance.
The Compensation Committee has also established a peer group for each bank
and for the Corporation for purposes of establishing financial objectives and
comparison thereto. The financial objectives are return on average assets and
return on average equity. The peer groups include companies of similar size in
appropriate geographic areas. The Corporation's peer group includes 44 bank
holding companies between $350 million and $1.5 billion in size, located in 29
counties in an area generally running from Milwaukee, Wisconsin on the west side
of Lake Michigan around the lake to Kalamazoo, Michigan on the eastern side of
Lake Michigan.
The base salaries and annual incentive objectives for the current year are
established prior to the beginning of the fiscal year. The level of incentive
compensation is determined by the Committee after year-end based upon a review
of performance against predetermined objectives. The 1997 return on average
assets and return on average equity objectives were established for the
Corporation and each subsidiary based on fifty, sixty, and seventy-five percent
of the appropriate peer group.
Mr. Castle's 1997 base salary was unchanged from his 1996 base salary. Mr.
McInnes's base salary was reduced by $32,100 from his 1996 base salary to
$92,100 for his 1997 services as a part-time employee. Mr. McInnes retired as a
senior executive of the Company effective December 31, 1997. Dewey R. Yaeger
joined the Company on April 24, 1997 as a consultant at a per diem rate based on
$125,000 per annum. Mr. Yaeger was employed on June 10, 1997 as Senior Vice
President at an annual base salary of $125,000 prorated to year-end which was
subsequently increased on July 15, 1997 to an annual base salary of $135,000.
The Committee considered several factors in setting base salaries: (i) relative
base salary as compared to others; (ii) increased responsibilities of corporate
governance; (iii) continued improvement in share value relative to prior years;
(iv) favorable perception by the local community, regulators and professional
consultants; (v) progress attained consolidating and streamlining EDP
operations, accounting, and marketing;(vi) progress developing company wide
marketing strategies to introduce labeled services and promotions such as
"Castle Kids" and "Castle Club"; (vii) continued consolidation and
standardization of the human resources function at the corporate level; (viii)
improved investor relations; (ix) improved
10
<PAGE>
communication of strategic corporate goals to staff; and (x) consultation
with other members of the Board of Directors.
The Committee granted incentive compensation (cash bonus) in the amount of
$34,556.00 to Mr. Castle, and $14,175.00 to Mr. Yaeger. Incentive compensation
is awarded according to the written corporate incentive compensation policy in
effect on January 1 of the year in which the award is made. Eligibility for
incentive compensation (cash bonus) is determined by attainment of corporate
annual financial objectives and attainment of individual non-financial
objectives. Evaluation of non-financial objectives is subjective in nature. In
1997, the bonuses paid to Mr. Castle and Mr. Yaeger were solely for the
attainment of their non-financial objectives.
Submitted by the Compensation Committee of the Board of Directors:
John B. Hiatt, Chairman
Bruce P. Bickner
Peter H. Henning
- -------------------------------------------------------------------------------
COMMON STOCK PRICE PERFORMANCE GRAPH
- -------------------------------------------------------------------------------
The following graph compares on a cumulative basis the percentage changes
since May 6, 1995 (the date on which the Common Stock was registered under
Section 12 of the Securities Exchange Act of 1934) in (a) the total stockholder
return on the Common Stock, (b) the total return of companies in the NASDAQ
Market Index ("NASDAQ Index"), and (c) the total return of all banking
organizations traded on the NASDAQ Market ("Bank Group"). The total return
information presented assumes the reinvestment of dividends.
[GPRAPH]
<TABLE>
<CAPTION>
5/31/95 12/31/95 12/31/96 12/31/97
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
NASDAQ Index 1.000 1.211 1.434 1.611
Bank Group 1.000 1.255 1.541 2.087
Castle BancGroup, Inc. 1.000 1.121 1.411 1.436
</TABLE>
11
<PAGE>
- -------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
- -------------------------------------------------------------------------------
The following table sets forth, as of the Record Date, the number of shares
of Common Stock beneficially owned by each person known by the Corporation to be
the beneficial owner of more than five percent of the outstanding shares of
Common Stock, each director of the Corporation, each director nominee, the named
executive officers and all directors, director nominees and executive officers
of the Corporation as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF COMMON
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) STOCK OUTSTANDING
- ----------------------------------- ------------------------ -------------------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS:
John W. Castle 249,925(2) 11.47%(13)
208 Miller Avenue
DeKalb, Illinois 60115
David B. Castle 195,877(3) 9.08%
2851 Country Club Lane
DeKalb, Illinois 60115
Amy W. Castle 187,344(3) 8.69%
329 Lower Flat Creek Road
Alexander, North Carolina 28701
Harry D. Castle 187,344(3) 8.69%
4435 Noble Drive
San Diego, California 92122
John L. Castle 187,344(3) 8.69%
920 South 10th Avenue
St. Charles, Illinois 60174
James N. McInnes 146,270(2) 6.72%(13)
79 Edgebrook Drive
Sandwich, Illinois 60548
Ernest A. Basler 143,513(2)(4) 6.63%(13)
515 East 4th Street
Sandwich, Illinois 60548
Shirley M. Basler 118,025(5) 5.47%
515 East 4th Street
Sandwich, Illinois 60548
DIRECTORS, DIRECTOR NOMINEES
AND NAMED EXECUTIVE OFFICERS:(6)
Robert T. Boey 11,674(2)(7) *
Donald E. Kieso 19,876(2)(8) *
Bruce P. Bickner 31,417(2) 1.46%(13)
Peter H. Henning 3,120(2)(9) *
John B. Hiatt 7,800(2) *
12
<PAGE>
William R. Monat 14,792(2)(10) *
Kathleen L. Halloran -- --
Richard C. McGinity -- --
James V. Bowers 39,249(2)(11) 1.82%(13)
Lawrence M. Budnik 46,120 2.14%
Stan J. Free 4,871(2) *
A. Gene Shumway 13,828(2)(12) *
All directors, director 830,469(2) 37.42%(14)
nominees and executive
officers as a group (22 persons)
</TABLE>
___________________________
(1) Unless otherwise indicated, the nature of beneficial ownership for shares
shown in this column is sole voting and investment power.
(2) Includes the following shares which the beneficial owner has the right to
acquire within 60 days through exercise of stock options: J. Castle -
22,500 shares; J. McInnes - 20,000 shares; E. Basler - 8,000 shares; R.
Boey - 1,125 shares; D. Kieso - 1,125 shares; B. Bickner - 1,125 shares; P.
Henning - 1,125 shares; J. Hiatt - 1,500 shares; W. Monat - 1,500 shares;
J. Bowers - 6,000 shares; S. Free - 2,500 shares; A. G. Shumway - 250
shares; and all directors, director nominees and executive officers as a
group - 63,050 shares.
(3) Includes 45,000 shares held in the David B. Castle 1992 Trust, 45,000
shares held in the Amy W. Castle 1992 Trust, 45,000 shares held in the
Harry D. Castle 1992 Trust and 45,000 shares held in the John L. Castle
1992 Trust (180,000 shares in the aggregate). David B. Castle, Amy W.
Castle, Harry D. Castle and John L. Castle act collectively as trustee for
each of these trusts with shared voting and investment power. The 180,000
shares held by the trusts are reported in the table above in the beneficial
ownership totals for each of David B. Castle, Amy W. Castle, Harry D.
Castle and John L. Castle.
(4) Based on Schedule 13D dated November 4, 1997. Includes 106,025 shares
owned jointly with Shirley M. Basler, Mr. Basler's wife, which are also
reported as beneficially owned by Shirley M. Basler.
(5) Based on Schedule 13D dated November 4, 1997. Includes 106,025 shares
owned jointly with Ernest A. Basler, Ms. Basler's husband, which are also
reported as beneficially owned by Ernest A. Basler.
(6) Information with respect to John W. Castle, Director, Chairman of the Board
and Chief Executive Officer, and with respect to James N. McInnes,
Director, is included above under Principal Stockholders.
(7) Includes 1,965 shares owned jointly with Mr. Boey's wife.
(8) Includes 3,000 shares owned by Mr. Kieso's wife.
(9) Includes 120 shares owned jointly with Mr. Henning's wife.
(10) Includes 5,200 shares owned jointly with Dr. Monat's wife.
(11) Includes 4,076 shares owned in a joint individual retirement account with
Mr. Bowers's wife.
(12) Includes 8,651 shares owned jointly with Mr. Shumway's wife and 2,540
shares owned by Mr. Shumway's wife.
13
<PAGE>
(13) Percentage is calculated on a partially diluted basis, assuming only the
exercise of stock options by such individual which are exercisable within
60 days.
(14) Percentage is calculated on a fully diluted basis, assuming the exercise of
all stock options which are exercisable within 60 days.
* Less than 1%.
- -------------------------------------------------------------------------------
TRANSACTIONS WITH MANAGEMENT
- -------------------------------------------------------------------------------
Several of the Corporation's directors and their affiliates, including
corporations and firms of which they are officers or in which they or members of
their families have an ownership interest, are customers of the banking
subsidiaries of the Corporation. These persons, corporations and firms have had
transactions in the ordinary course of business with the banking subsidiaries of
the Corporation, including borrowings of material amounts, all of which, in the
opinion of management, were on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons and did not involve more than the normal
risk of collectibility or present other unfavorable features.
- -------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- -------------------------------------------------------------------------------
Based solely upon its review of Forms 3, 4 and 5 and any amendment thereto
furnished to the Corporation pursuant to Rule 16a-3(e) of the Securities
Exchange Act of 1934, as amended, and written representations from the directors
and executive officers that no other reports were required, the Corporation is
not aware of any director, officer or beneficial holder of 10% of its Common
Stock that failed to file any such reports on a timely basis during 1997, except
that a Form 3 for Richard C. McGinity, a director of the Corporation, was filed
late.
- -------------------------------------------------------------------------------
INDEPENDENT PUBLIC ACCOUNTANTS
- -------------------------------------------------------------------------------
The Board of Directors has selected KPMG Peat Marwick LLP, independent
certified public accountants, to serve as the independent auditors of the
Corporation and its subsidiaries for the fiscal year ending December 31, 1998.
KPMG Peat Marwick LLP has served as the Corporation's independent auditors since
its inception in 1984. A representative from KPMG Peat Marwick LLP is expected
to be present at the Annual Meeting, will have the opportunity to make a
statement and will be available to respond to appropriate questions.
- -------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- -------------------------------------------------------------------------------
In order to be eligible for inclusion in the Corporation's proxy materials
for next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Corporation's main office no
later than November 20, 1998. Any such proposal shall be subject to the
requirements of the proxy rules adopted under the Securities Exchange Act of
1934.
14
<PAGE>
- -------------------------------------------------------------------------------
OTHER MATTERS
- -------------------------------------------------------------------------------
The Board of Directors of the Corporation does not intend to present any
other matters for action at the Annual Meeting, and the Board has not been
informed that other persons intend to present any other matters for action at
the Annual Meeting. However, if any other matters should properly come before
the Annual Meeting, the persons named in the accompanying proxy intend to vote
thereon, pursuant to the proxy, in accordance with the recommendation of the
Board of Directors of the Corporation.
15
<PAGE>
CASTLE BANCGROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 22, 1998
The undersigned hereby appoints John W. Castle and Dewey R. Yaeger, each
with the power to act without the other and with full power of substitution,
as the attorneys and Proxies of the undersigned to represent and vote all
shares of common stock of Castle BancGroup, Inc. (the "Corporation"),
standing in the name of the undersigned at the close of business on March 13,
1998, at the Annual Meeting of Stockholders of the Corporation to be held in
the community room of First National Bank in DeKalb/Sycamore on April 22,
1998 or at any adjournments or postponements thereof, with all the powers
that the undersigned would possess if personally present on all matters
coming before said meeting, as follows:
(CONTINUED, AND TO BE SIGNED AND DATED, ON THE REVERSE SIDE)
<PAGE>
A /X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR all nominees WITHHOLD
listed at right AUTHORITY
(except as indicated to to vote for one or more
the contrary below) nominees as listed at right
1. Election as / / / /
directors of all
the nominees
listed at right.
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below.
_________________________________________________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES.
NOMINEES: Kathleen L. Halloran
Richard C. McGinity
2. In their discretion, on such other matter that may properly come before
the meeting and any adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. WHERE NO
DIRECTION IS GIVEN, THE SHARES WILL BE VOTED "FOR" THE ELECTION OF ALL NOMINEES
LISTED HEREON.
THIS PROXY MAY BE REVOKED PRIOR TO THE EXERCISE OF THE POWERS CONFERRED BY THE
PROXY.
PLEASE SIGN BELOW, DATE AND RETURN PROMPTLY.
PLEASE CHECK BOX IF YOU PLAN TO ATTEND. / /
Signature___________________ ____________________________ Dated:_________, 1998
SIGNATURE IF HELD JOINTLY
IMPORTANT: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. When signing on behalf
of a corporation, partnership, estate, trust or in other
representative capacity, please sign name and title. If executed
by a corporation, the proxy should be signed by a duly authorized
officer. If executed by a partnership, please sign in the
partnership name by an authorized person.
