SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 1999
---------------------------------------------------
Commission File No. 0-25914
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CASTLE BANCGROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3238190
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
121 West Lincoln Highway 60115-3609
DeKalb, Illinois (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (815) 758-7007
---------------------------------------
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
The registrant had 4,363,302 shares of Common Stock outstanding as of July 31,
1999.
1
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS June 30, December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 12,685 12,270
Investment securities (note 2) 127,375 132,060
Mortgage loans held for sale, lower of cost or market 29,123 67,354
Loans (note 3) 338,960 329,197
Less:
Allowance for possible loan losses (note 3) 4,688 4,775
Unearned income and deferred loan fees, net 454 2,388
- -----------------------------------------------------------------------------------------------------
Net loans 333,818 322,034
Premises and equipment 12,563 11,554
Goodwill, net of amortization 3,750 3,967
Other assets 6,136 6,216
- -----------------------------------------------------------------------------------------------------
$525,450 555,455
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 47,154 50,371
Interest-bearing 398,623 401,794
- -----------------------------------------------------------------------------------------------------
Total deposits 445,777 452,165
Short-term borrowings 27,374 44,197
Long-term debt 9,050 10,300
Other liabilities 3,129 7,248
Total liabilities 485,330 513,910
- -----------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.33 1/3 par value; 5,000,000 shares authorized, 4,362,048 and
4,343,710 shares issued and outstanding in 1999 and 1998, respectively 1,454 1,448
Additional paid-in capital 6,725 6,439
Accumulated other comprehensive (loss) earnings (2,061) 935
Retained earnings 34,002 32,723
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 40,120 41,545
Commitments and contingent liabilities
- -----------------------------------------------------------------------------------------------------
$525,450 555,455
=====================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
3 Months Ended
June 30, 1999 June 30, 1998
- ---------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C>
Interest and fees on loans $ 6,889 7,154
Interest and dividends on investment securities:
Taxable 1,653 2,112
Nontaxable 277 157
Interest on excess funds sold 11 9
Interest on mortgage loans held for sale 440 540
- ---------------------------------------------------------------------------------------------
Total interest income 9,270 9,972
- ---------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 4,131 4,360
Interest on short-term borrowings 168 420
Interest on long-term debt 231 176
- ---------------------------------------------------------------------------------------------
Total interest expense 4,530 4,956
- ---------------------------------------------------------------------------------------------
Net interest income before provision
for possible loan losses 4,740 5,016
Provision for possible loan losses 359 147
- ---------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 4,381 4,869
- ---------------------------------------------------------------------------------------------
Other operating income
Trust fees 212 191
Deposit service charges 93 90
Other service charges 364 316
Investment securities gains, net 4 72
Mortgage loan origination income, net 3,220 2,954
Other income 262 282
- ---------------------------------------------------------------------------------------------
Total other operating income 4,155 3,905
- ---------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 5,167 4,470
Net occupancy expense of premises 487 424
Furniture and fixtures 407 366
Office supplies 161 135
Outside services 261 223
Advertising expense 193 188
FDIC insurance assessment 13 13
Postage and courier 154 137
Telephone expense 142 123
Amortization expense - goodwill 109 88
Other expenses 557 617
- ---------------------------------------------------------------------------------------------
Total other operating expenses 7,651 6,784
- ---------------------------------------------------------------------------------------------
Earnings before income taxes 885 1,990
Income tax expense 214 704
- ---------------------------------------------------------------------------------------------
Net earnings $ 671 1,286
=============================================================================================
Net earnings applicable to common stock $ 671 1,281
=============================================================================================
Basic earnings per common share $ .15 .30
=============================================================================================
Diluted earnings per common share $ .15 .29
=============================================================================================
</TABLE>
3
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
==============================================================================================
6 Months Ended
June 30, 1999 June 30, 1998
- ----------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C>
Interest and fees on loans $ 14,036 14,281
Interest and dividends on investment securities:
Taxable 3,349 4,172
Nontaxable 518 305
Interest on excess funds sold 11 16
Interest on mortgage loans held for sale 1,159 1,074
- ----------------------------------------------------------------------------------------------
Total interest income 19,073 19,848
- ----------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 8,247 8,730
Interest on short-term borrowings 590 816
Interest on long-term debt 394 352
- ----------------------------------------------------------------------------------------------
Total interest expense 9,231 9,898
- ----------------------------------------------------------------------------------------------
Net interest income before provision
for possible loan losses 9,842 9,950
Provision for possible loan losses 518 274
- ----------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 9,324 9,676
- ----------------------------------------------------------------------------------------------
Other operating income
Trust fees 410 374
Deposit service charges 176 176
Other service charges 664 597
Investment securities gains, net (note 2) 249 72
Mortgage loan origination income, net 6,203 5,441
Other income 662 576
- ----------------------------------------------------------------------------------------------
Total other operating income 8,364 7,236
- ----------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 10,070 8,520
Net occupancy expense of premises 1,008 859
Furniture and fixtures 804 714
Office supplies 312 267
Outside services 588 474
Advertising expense 339 314
FDIC insurance assessment 26 29
Postage and courier 292 279
Telephone expense 280 211
Amortization expense - goodwill 218 218
Loss on sale of loans 513 0
Other expenses 1,137 1,044
- ----------------------------------------------------------------------------------------------
Total other operating expenses 15,587 12,929
- ----------------------------------------------------------------------------------------------
Earnings before income taxes 2,101 3,983
Income tax expense 517 1,368
- ----------------------------------------------------------------------------------------------
Net earnings $ 1,584 2,615
==============================================================================================
Net earnings applicable to common stock $ 1,584 2,603
==============================================================================================
Basic earnings per common share $ .36 .60
==============================================================================================
Diluted earnings per common share $ .36 .60
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN
THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ACCUMULATED
OTHER
COMPREHENSIVE
COMMON RETAINED EARNINGS
STOCK SURPLUS EARNINGS (LOSS) TOTAL
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1999 1,448 6,439 32,723 935 41,545
Comprehensive Earnings
Net Earnings - - 1,584 - 1,584
Unrealized loss on investment
securities - - - (4,632) (4,632)
Reclassification adjustments for
gains included in net earnings - - - (249) (249)
Income tax effect - - - 1,885 1,885
-------
Total comprehensive earnings - - - - (1,412)
Issuance of 18,338 shares of common stock 6 286 - - 292
Cash dividends on common stock - - (305) - (305)
-------------------------------------------
Balance as of June 30, 1999 1,454 6,725 34,002 (2,061) 40,120
===========================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
(UNAUDITED)
6 Months Ended
June 30, 1999 June 30, 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 17,682 19,859
Fees received 8,532 7,903
Net decrease in mortgage loans held for sale 38,230 18,058
Interest paid (9,639) (10,094)
Cash paid to suppliers and employees (17,305) (13,665)
Income taxes paid (382) (1,154)
- ---------------------------------------------------------------------------------------
Net cash provided by operating activities 37,118 20,907
- ---------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from:
Maturities and calls of investment securities 13,338 19,187
Sales of investment securities 20,264 21,979
Purchases of investment securities (33,701) (46,478)
Net (increase) / decrease in loans (10,400) 1,079
Premises and equipment expenditures (1,730) (1,065)
Other real estate owned 0 (532)
- ---------------------------------------------------------------------------------------
Net cash used in investing activities (12,229) (5,830)
- ---------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand deposits,
NOW accounts, and savings accounts 4,772 11,265
Net (decrease) / increase in certificates of deposit (11,160) 5,458
Dividends paid on preferred stock 0 (12)
Dividends paid on common stock (305) (260)
Net change in short-term debt (16,823) (27,004)
roceeds from issuance of common stock 292 348
Issuance of long-term debt 0 1,000
Repayment of long-term debt (1,250) (475)
- ---------------------------------------------------------------------------------------
Net cash (used in) financing activities (24,474) (9,680)
- ---------------------------------------------------------------------------------------
Net change in cash and cash equivalents 415 5,397
Cash and cash equivalents at beginning of year 12,270 11,377
- ---------------------------------------------------------------------------------------
Cash and cash equivalents at end of the period $ 12,685 16,774
=======================================================================================
Reconciliation of net earnings to net cash provided by
operating activities:
Net earnings $ 1,584 2,615
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,008 994
Provision for possible loan losses 518 274
Gains on sale of investment securities (249) (72)
Increase (decrease) in:
Income taxes payable 135 214
Interest payable (409) (195)
Unearned income (1,934) 156
Other liabilities (1,808) (915)
Decrease (increase) in:
Interest receivable 545 26
Other assets (502) (76)
Decrease in mortgage loans held for sale 38,230 18,058
Discount accretion recorded as income (180) (327)
Premium amortization charged against income 180 155
- ---------------------------------------------------------------------------------------
$ 37,118 20,907
=======================================================================================
</TABLE>
6
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements of Castle BancGroup, Inc.
(Company) and subsidiaries are prepared in conformity with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These consolidated
financial statements should be read in conjunction with the Company's 1998
Annual Report on Form 10-K. In the opinion of management, all normal recurring
adjustments necessary for a fair presentation of the financial position and the
results of operations for the periods presented have been included. Results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the year.
(2) INVESTMENT SECURITIES
Investments in debt and equity securities have been classified as available
for sale and reported at fair value. The amortized value is adjusted for
amortization of premiums and accretion of discounts using a method that
approximates level yield. Unrealized gains and losses, net of related deferred
income taxes, are reported as a component of accumulated other comprehensive
earnings (loss).
A comparison of amortized cost and fair value of investment securities
available-for-sale at June 30, 1999 and December 31, 1998 follows
(dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1999
-----------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency
obligations $ 63,165 67 (1,342) 61,890
Obligations of state and political
subdivisions 22,648 82 (639) 22,091
Mortgage-backed securities 42,337 14 (1,584) 40,767
- --------------------------------------------------------------------------------
Total debt securities 128,150 163 (3,565) 124,748
- --------------------------------------------------------------------------------
Federal Home Loan Bank stock 2,052 5 2,057
Other Equity securities 571 (1) 570
- --------------------------------------------------------------------------------
Total securities $ 130,773 168 (3,566) 127,375
</TABLE>
7
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<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency
obligations $ 66,082 1,008 (17) 67,073
Obligations of state and political
subdivisions 15,329 277 (36) 15,570
Mortgage-backed securities 47,050 381 (130) 47,301
Total debt securities 128,461 1,666 (183) 129,944
- --------------------------------------------------------------------------------
Federal Home Loan Bank stock 1,673 0 0 1,673
Other Equity securities 443 0 0 443
- --------------------------------------------------------------------------------
Total securities $ 130,577 1,666 (183) 132,060
================================================================================
</TABLE>
The amortized cost and fair value of securities available for sale at June
30, 1999 by contractual maturity, are shown below (dollars in thousands).
Actual maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
June 30, 1999
-------------------
Amortized Fair
cost value
- -----------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 4,548 4,571
Due after one year through five years 34,298 33,696
Due after five years through ten years 33,153 32,455
Due after ten years 13,814 13,259
- -----------------------------------------------------------
85,813 83,981
Mortgage-backed securities 42,337 40,767
- -----------------------------------------------------------
Total debt securities 128,150 124,748
- -----------------------------------------------------------
Federal Home Loan Bank stock 2,052 2,057
Other Equity securities 571 570
- -----------------------------------------------------------
Total securities $130,773 127,375
===========================================================
</TABLE>
Gross losses of approximately $4,980 and $3,950 occurred from security
activity during the six months ended June 30, 1999 and 1998, respectively.
Gross gains of $253,855 and $76,158 occurred from security activity during the
six month period ended June 30, 1999 and 1998, respectively. All security gains
and losses that occurred during 1999 and 1998 were as a result of transactions
involving available for sale securities.
Investment securities carried at approximately $77,732,000 and
$83,062,000 at June 30, 1999 and December 31, 1998, respectively, were pledged
to secure deposits and for other purposes as permitted or required by law.
8
<PAGE>
(3) LOANS
The composition of the loan portfolio at the dates shown is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1999 Dec. 31, 1998
==================================================================================================
<S> <C> <C>
Commercial, financial, and agricultural $ 97,872 85,790
Real estate mortgage 221,196 213,761
Consumer 19,598 29,168
Lease financing receivables 294 478
- --------------------------------------------------------------------------------------------------
Total loans, gross $ 338,960 329,197
==================================================================================================
At June 30, 1999 and December 31, 1998, the following items existed (dollars in thousands):
==================================================================================================
June 30, 1999 Dec. 31, 1998
- --------------------------------------------------------------------------------------------------
Non-accrual loans and leases $ 1,545 2,262
Loans past due 90 days or more and still accruing 412 544
Restructured loans still accruing and less than 90 days past due 197 208
- --------------------------------------------------------------------------------------------------
Total non-performing loans and leases $ 2,154 3,014
==================================================================================================
The following is a summary of activity in the allowance for possible loan losses
(dollars in thousands):
==================================================================================================
6 months ended 6 months ended
June 30, 1999 June 30, 1998
- --------------------------------------------------------------------------------------------------
Balance, beginning of period $ 4,775 4,646
Provision charged to expense 518 274
Recoveries on loans previously charged off 143 119
- --------------------------------------------------------------------------------------------------
5,436 5,039
Less loans charged off 277 549
Less allowance on loans sold 471 0
- --------------------------------------------------------------------------------------------------
Balance, end of period $ 4,688 4,490
==================================================================================================
</TABLE>
9
<PAGE>
The following is a summary of loan loss experience for the six months ended
June 30, 1999, including an allocation of the allowance, by loan category, at
period end: (dollars in thousands)
<TABLE>
<CAPTION>
====================================================================================================
Commercial Real
and Agricultural Estate Consumer Leases Unalloc. Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 1,811 1,173 1,586 5 200 4,775
Provision charged to expense 0 159 358 0 0 517
Recoveries on loans previously
charged off 98 3 43 0 0 144
- ----------------------------------------------------------------------------------------------------
1,909 1,335 1,987 5 200 5,436
Less loans charged off 4 179 94 0 0 277
Less allowance on loans sold 0 0 471 0 0 471
- ----------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $ 1,905 1,156 1,422 5 200 4,688
====================================================================================================
Ratios:
Loans in category to total loans 28.89% 65.25% 5.77% .09% N/A 100.00%
====================================================================================================
</TABLE>
The allocation of the allowance for loan losses is based on historical trends in
charge-offs, general economic conditions, peer comparisons and management
experience.
(4) OPERATING SEGMENTS
The Company's operations include two primary segments: banking and mortgage
banking. Through its banking subsidiaries' network of 11 retail banking
facilities in Northern Illinois, the Company provides traditional community
banking services such as accepting deposits and making loans. Mortgage banking
activities conducted through the Company's subsidiary, Casbanc Mortgage, Inc.
(CMI), include the origination and brokerage of primarily residential mortgage
loans for sale to various investors. The Company's two reportable segments are
strategic business units that are separately managed as they offer different
products and services and have different marketing strategies. Smaller
operating segments are combined and consist of consumer finance and holding
company operations. The Company's consumer finance subsidiary, Castle Finance
Company (CFC), has ceased all new lending activities.
10
<PAGE>
<TABLE>
<CAPTION>
Operating segment information is as follows:
(Dollars in thousands)
Mortgage Consolidated
Banking Banking Other Total
- ----------------------------------------------------------------------------------------------------
Three months ended June 30, 1999
- --------------------------------
<S> <C> <C> <C> <C>
Interest income $ 9,349 43 (122) 9,270
Interest expense 4,535 11 (16) 4,530
- ----------------------------------------------------------------------------------------------------
Net interest income before provision for possible loan losses 4,814 32 (106) 4,740
Provision for possible loan losses 112 22 225 359
- ----------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 4,702 10 (331) 4,381
Other operating income 1,261 2,965 (71) 4,155
Other operating expenses 3,665 3,144 842 7,651
- ----------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 2,298 (169) (1,244) 885
Income tax expense (benefit) 754 (66) (474) 214
- ----------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,544 (103) (770) 671
- ----------------------------------------------------------------------------------------------------
June 30, 1999
- -------------
Assets $524,322 4,794 (3,667) 525,450
====================================================================================================
Three months ended June 30, 1998
- --------------------------------
Interest income $ 9,580 63 329 9,972
Interest expense 4,817 1 138 4,956
- ----------------------------------------------------------------------------------------------------
Net interest income before provision for possible loan losses 4,763 62 191 5,016
Provision for possible loan losses 72 0 75 147
- ----------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 4,691 62 116 4,869
Other operating income 1,379 2,476 50 3,905
Other operating expenses 3,618 2,269 897 6,784
- ----------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 2,452 269 (731) 1,990
Income tax expense (benefit) 850 104 (250) 704
- ----------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,602 165 (481) 1,286
- ----------------------------------------------------------------------------------------------------
June 30, 1998
- -------------
Assets $504,561 4,726 (1,684) 507,603
====================================================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Operating segment information is as follows:
(Dollars in thousands)
Mortgage Consolidated
Banking Banking Other Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six months ended June 30,1999
- -----------------------------
Interest income $ 18,903 126 44 19,073
Interest expense 9,278 45 (92) 9,231
- ----------------------------------------------------------------------------------------------------
Net interest income before provision for possible loan losses 9,625 81 136 9,842
Provision for possible loan losses 184 22 312 518
- ----------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 9,441 59 (176) 9,324
Other operating income 2,983 5,402 (21) 8,364
Other operating expenses 7,370 5,818 2,399 15,587
- ----------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 5,054 (357) (2,596) 2,101
Income tax expense (benefit) 1,712 (139) (1,056) 517
- ----------------------------------------------------------------------------------------------------
Net earnings (loss) $ 3,342 (218) (1,540) 1,584
June 30, 1999
- -------------
Assets $524,322 4,794 (3,667) 525,450
====================================================================================================
Six months ended June 30, 1998
- ------------------------------
Interest income $ 19,023 109 716 19,848
Interest expense 9,570 0 328 9,898
- ----------------------------------------------------------------------------------------------------
Net interest income before provision for possible loan losses 9,453 109 388 9,950
Provision for possible loan losses 124 0 150 274
- ----------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 9,329 109 238 9,676
Other operating income 2,645 4,506 85 7,236
Other operating expenses 7,260 4,084 1,585 12,929
- ----------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 4,714 531 (1,262) 3,983
Income tax expense (benefit) 1,638 205 (475) 1,368
- -----------------------------------------------------------------------------------------------------
Net earnings (loss) $ 3,076 326 (787) 2,615
- ----------------------------------------------------------------------------------------------------
June 30, 1998
- -------------
Assets $504,561 4,726 (1,684) 507,603
====================================================================================================
</TABLE>
12
<PAGE>
(5) COMPREHENSIVE INCOME
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income," which is
effective for fiscal years beginning after December 15, 1997. This statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. This statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company adopted SFAS No.
130 in the first quarter of 1998.
The Company's comprehensive income for the six month periods ended June 30, 1999
and 1998, is as follows (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Net earnings $ 1,584 $2,615
Other comprehensive earnings
Unrealized (loss)/gain on investment securities (4,632) 112
Reclass adjustment for net gains included in net earnings (249) (72)
Income tax effect 1,885 (3)
-------- -------
Total comprehensive earnings (loss) $(1,412) $2,652
-------- -------
</TABLE>
13
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
--------------------------
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of Section 21E under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). For example,
forward-looking statements may be made with respect to the Company's pricing and
fee trends, credit quality and outlook, new business results, expansion plans,
anticipated expenses and planned schedules and projected costs for Year 2000
work. The Company intends these forward-looking statements to be subject to the
safe harbor created by the Exchange Act and is including this statement to avail
itself of these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company, are identified by statements containing words and
phrases such as "may," "project," "are confident," "should be," "will be,"
"predict," "believe," "plan," "expect," "estimate," "anticipate" and similar
expressions. These forward-looking statements reflect the Company's current
views with respect to future events and financial performance, but are subject
to many uncertainties and factors relating to the Company's operations and
business environment, which could change at any time and which could cause
actual results to differ materially from those expressed or implied by the
forward-looking statements.
There are inherent difficulties in predicting factors that may affect the
accuracy of forward-looking statements. Potential risks and uncertainties that
may affect the Company's operations, performance, development and business
results include the following:
- - the risk of adverse changes in business conditions in the banking industry
generally and in the specific Midwestern markets in which the Company's
subsidiary banks operate;
- - changes in the legislative and regulatory environment that result in
increased competition or operating expenses;
- - changes in the interest rates and changes in monetary and fiscal policies;
- - increased competition from other financial and non-financial institutions;
- - factors that may affect the Company's ability, or the ability of its
customer or suppliers, to achieve Year 2000 readiness in a timely manner,
including the ability of its vendors, clients, counter-parties and
customers to complete their Year 2000 renovation efforts on a timely basis
and in manner that allows them to continue normal business operations or
furnish products, services or data to the Company without disruption,
and the Company's ability to accurately evaluate the Year 2000 readiness
of its vendors, clients, counter-parties and customers in this regard
and, where necessary develop and implement effective contingency plans;
- - the competitive impact of technological advances in the conduct of the
banking business; and
- - other risks set forth from time to time in the Company's filings with the
Securities and Exchange Commission.
These risks and uncertainties should be considered in evaluating forward-looking
statements, and undue reliance should not be placed on such statements. The
Company does not assume any obligation to update or revise any forward-looking
statements subsequent to the date on which they are made.
14
<PAGE>
RESULTS OF OPERATIONS
---------------------
The Company posted year-to-date net earnings of $1,584,000 at June 30, 1999, a
decrease of $1,031,000, or 39% from year-to-date earnings of $2,615,000 at June
30, 1998. This decrease in earnings is primarily due to a loss in the first and
second quarter related to the sale of a substantial portion of the Castle
Finance Company (CFC) loan portfolio and related charges. CFC is a wholly-owned
subsidiary of the Company. In addition, losses have been recognized at Casbanc
Mortgage, Inc. (CMI) due to expenses associated with the expansion of retail
mortgage origination and lower than projected origination volume due to higher
interest rates. Quarter-to-date net earnings of $671,000 at June 30, 1999, a
decrease of $615,000 , or 49% from quarter-to-date earnings of $1,286,000 at
June 30, 1998.
Year-to-date basic earnings per common share were $.36 at June 30, 1999, down
$.24 per share from June 30, 1998 basic earnings per common share of $.60. The
decrease in basic earnings per share is due primarily to the losses at CFC and
CMI as described above. Diluted earnings per share were $.36. Quarter-to-date
basic earnings per common share were $.15 at June 30, 1999, down $.15 per share
from June 30, 1998 basic earnings per common share of $.30. Diluted earnings
per share were $.15.
Net earnings applicable to common stock of $1,584,000 year-to-date at June 30,
1999 compares to $2,603,000 at June 30, 1998. This represents a 39% decrease.
Net earnings applicable to common stock of $671,000 quarter-to-date at June 30,
1999 compares to $1,281,000 at June 30, 1998. This represents a 48% decrease.
Year-to-date preferred stock dividends were $0 at June 30, 1999 as compared to
$12,000 at June 30, 1998. The decrease was due to the preferred stock
redemption which occurred on December 31, 1998. Quarter-to-date- preferred
stock dividends were $0 at June 30, 1999 as compared to $5,000 at June 30, 1998.
The following discussion of performance for the three and six month periods
ending June 30, 1999 as compared to the corresponding periods in 1998 highlights
significant points of interest, trends in operations, and management's operating
philosophies. (Unless otherwise stated, all averages are simple daily
averages.)
INTEREST INCOME
---------------
Net interest income before provision for possible loan losses for the second
quarter of 1999 was $4,740,000 versus $5,016,000 for the second quarter of 1998
for a decrease of 5.5% or $276,000. Net interest income before provision for
possible loan losses for the first six months of 1999 decreased 1.1% to
$9,842,000 as compared to $9,950,000 for the first six months of 1998. This
decrease can primarily be attributed to a $610,000 decrease in interest on
investment securities offset by a decrease of $483,000 of interest on deposits.
The decrease in interest on investments is partially due to lower volumes
resulting from portfolio management strategies to maximize long-term total
return which resulted in first quarter security gains offset by reduced interest
income.
The average net interest margin, on a tax equivalent basis (including
non-accruing loans), decreased for the first six months of 1999 to 4.14% as
compared to 4.25% in 1998. This decrease can primarily be attributed to a
decrease in the average yield on earning assets due to repricing. The ratio of
average earning assets to average total assets was 94.2% for the first six
months of 1999 as compared to 94.5% for the first six months of 1998.
Competition from both financial institutions and non-traditional competitors, as
well as general economic trends, will continue to impact future earnings. The
earning asset mix, as well as the net interest margin, are monitored and
evaluated by management to develop strategies to help maintain and improve
earnings.
15
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES
--------------------------------------
The subsidiaries establish a provision for loan losses which management believes
is sufficient to maintain adequate reserve levels. The provision is a result of
credit analysis, historical trends in net charges to the allowance, loan
portfolio configuration and loan growth. Management closely monitors loan
quality to minimize loan losses. The Company's loan review program closely
monitors credit conditions of specific loans, historical trends in charge-offs
at the subsidiaries as well as companies within their peer group, experience and
quality of lending staff, and general economic conditions in the communities
that the subsidiaries serve. This system allows management to assess the
adequacy of the allowance for loan losses. The allowance for loan losses as a
percentage of net outstanding loans decreased to 1.38% at June 30, 1999 as
compared to 1.46% at December 31, 1998. The allowance level was at 1.48% of net
loans at December 31, 1997. The provision for loan losses recorded during the
first six months of 1999 was $518,000 as compared to $274,000 during the same
period in 1998. The provision for loan losses recorded during the three months
ended June 30, 1999 was $359,000 as compared to $147,000 at June 30, 1998. The
increase for both the three month and six month periods ending June 30, 1999, is
primarily due to an increase at CFC associated with the sale of the consumer
loan portfolio. Also, provision for loan losses increased due to growth in the
loan portfolio. The balance in the allowance for loan loss account is derived
from the quarterly assessment of adequacy performed in the ordinary course of
business by management. The allowance for loan loss balance reflects the
underlying credit risk in the loan and lease portfolio. As such, fluctuations
are expected in the allowance balance, however, as noted, the fluctuations have
not been material. The Company's allowance for loan losses is deemed to be
sufficient based on the evaluation of the above factors.
Management continues to closely monitor and control asset quality.
Non-performing assets, defined as loans 90 days or more past due and still
accruing, loans in non-accrual status, restructured loans, and other real estate
owned, represented .41% of total assets as of June 30, 1999, which has decreased
from .54% at December 31, 1998. The following table summarizes the components
of non-performing assets at June 30, 1999 and at December 31, 1998.
<TABLE>
<CAPTION>
JUNE 30,1999 DECEMBER 31, 1998
------------- ------------------
(dollars in thousands)
<S> <C> <C>
Non-accrual loans $ 1,545 $ 2,262
Loans past due 90+ days & still accruing 412 544
Restructured loans, performing according
to terms of restructure agreement 197 208
Other real estate owned 0 0
------------- ------------------
TOTAL NON-PERFORMING ASSETS $ 2,154 $ 3,014
============= ==================
</TABLE>
The decrease in non-accrual loans was primarily due to paydowns of non-accrual
loans, especially at Castle Bank Harvard, N.A. The reduction in loans 90+ days
past due and still accruing at June 30, 1999 is due to the sale of a substantial
portion of the CFC loan portfolio. The remainder of loans 90+ days past due
relate primarily to residential real estate loans at CMI for which foreclosure
proceedings have started. Based on the collateral value of the loans, complete
recovery of the principal, interest, and collection costs are anticipated and,
as a result, in accordance with Company policy, interest income is still being
accrued.
Year-to-date net charge-offs at June 30, 1999 totaled $134,000 as compared to
$430,000 at June 30, 1998. The allowance for loan losses was reduced $471,000
as a result of the sale of a portion of the CFC loan portfolio. Management
continues to closely monitor all past dues and to improve collection efforts.
16
<PAGE>
OTHER OPERATING INCOME
----------------------
Other operating income, excluding security gains and losses, totaled $8,115,000
for the first six months of 1999 as compared to $7,164,000 for the same period
in 1998. The $951,000 increase over the prior year period relates to increased
fee income of $762,000 earned on the origination of mortgages sold in the
secondary market due to an increase in the number of both retail offices and
loan originators at CMI. Despite the increase, higher interest rates for
fifteen and thirty year loan origination mortgages have caused lower than
projected mortgage origination volume. If interest rates for fifteen and thirty
year mortgages increase further, mortgage origination activities and earnings
may continue to be adversely impacted. For the three months ended June 30,
1999, other operating income, excluding security gains and losses, totaled
$4,151,000 as compared to $3,833,000 for the same period in 1998.
Securities gains of $249,000 were recognized during the first six months of 1999
as compared to $72,000 during the first six months of 1998. For 1999, all
recognized gains and losses related to the sale or call of securities classified
as available for sale. For the three months ended June 30, 1999 security gains
of $4,000 were recognized as compared to $72,000 during the same time period in
1998.
OTHER OPERATING EXPENSES
------------------------
Other operating expenses increased approximately $2,658,000 year to date at June
30, 1999 over the corresponding six month period in 1998. Increases in employee
salaries and benefit expense accounted for $1,550,000 of the increase. The
majority of the salary increase was due to additional staff and mortgage
originators added to CMI as a result of opening new offices and expanding
current business. Increased expenses at CMI are both fixed and variable in
nature. Efforts are being made to improve efficiency at CMI to reduce the costs
associated with the origination and sale of mortgage loans. Salary and employee
benefits expense also increased due to normal salary increases granted during
the year. Also, a $513,000 loss was recognized due to the sale of a substantial
portion of the CFC loan portfolio. For the quarter ended June 30, 1999, other
operating expenses increased $867,000 over the corresponding three month period
in 1998. Increases in employee salaries and benefit expense accounted for
$697,000 of the increase.
FINANCIAL CONDITION
--------------------
Total assets at June 30,1999, decreased $30,005,000 as compared to December 31,
1998. This decrease was primarily due to a decrease in mortgage loans held for
sale of $38,231,000. This decrease was offset by a decrease in short-term
borrowings of $16,823,000 and a decrease in deposits of $6,388,000. The
decrease in deposits was due to normal fluctuations. Average assets for the
first six months of 1999 increased by $25,793,000 or approximately 5.16% as
compared to the corresponding period in 1998. This increase is primarily
attributed to a $26,837,000 increase in the average net loan portfolio. This
increase was funded primarily with an increase in average total deposits of
$24,117,000 or approximately 5.75% over the corresponding period in 1998. While
deposit fluctuations are normal, the subsidiary banks are experiencing
competition for deposits which continues to put pressure on the overall cost of
funds. Management continues to view "core" deposits (individuals, partnerships
and corporate deposits) as the primary long term funding source for internal
growth of the Company. The Company had $693,000 of brokered deposits at June
30, 1999, with interest rates ranging from 6.20% to 6.75% and maturities ranging
from August 2000 through October 2002. Brokered deposits at December 31, 1998,
were also $693,000.
Accumulated other comprehensive earnings decreased $2,996,000 from $935,000 at
December 31, 1998 to a loss of $2,061,000 at June 30, 1999. This decrease is
primarily due to the change in the fair value of the investment portfolio caused
by the increase in the interest rates.
17
<PAGE>
CAPITAL
-------
The Company is committed to maintaining strong capital positions in each of its
subsidiaries and on a consolidated basis. Management monitors, analyzes and
forecasts capital positions for each entity to ensure that adequate capital is
available to support growth and maintain financial soundness. The Company's
Tier 1 leverage ratio as of June 30, 1999 was 7.47%, an increase from 6.31% at
December 31, 1998. The ratio exceeds the regulatory well capitalized levels,
and management believes the Company is maintaining a strong capital position.
The Company's June 30, 1999 total risk weighted capital ratio also increased to
11.65% from 11.08% at December 31, 1998. The Tier 1 capital ratio at June 30,
1999 increased to 10.40% from 9.83% at December 31, 1998. Both the total risk
weighted and Tier 1 Capital ratios also continue to exceed regulatory well
capitalized levels.
LIQUIDITY
---------
The Company ensures the subsidiary banks maintain appropriate liquidity and
provides access to secondary sources of liquidity in case of unusual or
unanticipated demand for funds. Primary bank sources of liquidity are
repayments of loans, high-quality marketable investment securities available for
sale, and the bank's federal funds position which, together, are more than
sufficient to satisfy liquidity needs arising in the normal course of business.
The Company is a secondary source of liquidity for its subsidiary banks through
its discretionary access to short-term funding in case of unanticipated demand
for funds.
As presented in the Consolidated Statement of Cash Flows, the Company has
experienced significant changes in the cash flows from operating, investing and
financing activities during the first six months of 1999 as compared to the same
period in 1998. These fluctuations primarily relate to the changes in the loan,
investment, and mortgage loans held for sale portfolios, as explained above.
INTEREST RATE SENSITIVITY
---------------------------
The Company's overall success is dependent upon its ability to manage interest
rate risk. Interest rate risk can be defined as the exposure of the Company's
net interest income to adverse movements in interest rates. Because the Company
has no trading portfolio, the Company is not exposed to significant market risk
from trading activities. Other types of market risk, such as foreign currency
exchange and commodity price risk, do not arise in the normal course of the
Company's business activities. The Company does not currently use derivatives
to manage market and interest rate risks. A derivative financial instrument
includes futures, forwards, interest rate swaps, option contracts, and other
financial instruments with similar characteristics.
The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
balance sheets. Commitments to extend credit are arrangements to lend to a
customer as long as there is no violation of any condition in the contract.
Commitments generally have fixed expiration dates and may require collateral
from the borrower if deemed necessary by the Company. Standby letters of credit
are conditional commitments issued by the Company to guarantee the performance
of a customer to a third party up to a stipulated amount and with specified
terms and conditions. Commitments to extend credit and standby letters of
credit are not recorded as an asset or liability by the Company until the
instrument is exercised.
The subsidiary bank's interest rate exposure is reviewed on a regular basis by
the Asset/Liability Committee (ALCO) for each bank. The principal objective of
the Company's interest rate risk management function is to evaluate the interest
rate risk included in certain balance sheet accounts, determine the level of
risk appropriate given the Company's business strategy, operating environment,
capital and liquidity requirements and performance objectives, and manage the
18
<PAGE>
risk consistent with the funds management policy of the Company. Through such
management, the Company seeks to monitor the vulnerability of its operations to
changes in interest rates. The extent of the movement of interest rates is an
uncertainty that could have a negative effect on the earnings of the Company.
YEAR 2000
---------
Like other businesses dependent upon computerized information processing,
the Company must deal with "Year 2000" issues, which stem from using two digits
to reflect the year in many computer programs and data. Computer programmers
and other designers of equipment that use microprocessors have long abbreviated
dates by eliminating the first two digits of the year. As the year 2000
approaches, many systems may be unable to distinguish years beginning with 20
from years beginning 19, and so may not accurately process certain date-based
information, which could cause a variety of operational problems for businesses.
The Year 2000 project has been a top priority for the Company. Failure of
a mission critical system used by the Company could have a materially adverse
effect on the Company's operations and financial performance, as could Year 2000
problems experienced by others with whom the Company does business. Because of
the range of possible issues and the large number of variables involved, it is
impossible to quantify the potential cost of problems should the Company's Year
2000 efforts or the efforts of those with whom it does business not be
successful.
The Company began its Year 2000 efforts in May 1997. A dedicated Year 2000
Project Team was formed and the team meets on a monthly basis. Each major
operational area of the Company is represented on the team, including internal
audit. The status of the project is reported to the Board of Directors at each
meeting. Results of all exams performed by all external agencies are reported
to the Board at the next available meeting. Status reports are also presented
to the Internal Audit Committee by the Internal Auditor. The Company partnered
with a major consulting firm beginning in February 1998 to assist the Company in
testing core mission critical systems (i.e. the loan and deposit systems). The
Company performs no programming in house and controls no source codes. All
software used by the Company is purchased from third parties including core
applications. The core application software is provided by a highly recognized
bank software provider with well over 1,000 banks using their software country
wide.
The Company completed the assessment phase of the project by June 1997.
The Company completed the inventory phases of the project by September 1997.
Testing and remediation efforts have been completed for all mission critical
applications. Some mission critical applications were discovered to be
non-compliant. These systems were replaced with new compliant systems by
December 31, 1998. The Company performed extensive core application testing in
July 1998 which was overseen by a major consulting firm. The project team has
had extensive contact with all mission critical vendors and continues to monitor
their progress as diligently as possible. Although the Company is attempting to
monitor and validate the efforts of other parties, it cannot control the success
of these efforts. Contingency plans have been developed where practical to
provide the Company with alternatives in situations where an entity furnishing a
critical product or service experiences significant Year 2000 difficulties that
will effect the Company. With respect to non-mission critical applications, the
Company's target for completion of Year 2000 work is September 1999.
The Year 2000 project team has also been working on issues that are not
directly related to data processing systems. The team is reviewing various
infrastructure issues, such as checking elevators and heating, ventilation and
air-conditioning equipment, some of which include embedded systems, to verify
that they will function in the Year 2000. The team is also reviewing the status
of power and telecommunications providers. Possible problems in these areas are
continuing to be addressed by the Company.
As part of the Company's credit analysis process, it has developed a plan
for assessing the Year 2000 readiness of its major credit customers. Year 2000
issues have also been included in the loan review process and in the adequacy of
the reserve analysis. In addition, as part of the Company's fiduciary
19
<PAGE>
responsibilities in the asset and trust management area, the Company has been
working very closely with the Company's third-party servicer to verify that
their product is Year 2000 compliant. The Company participated in proxy
testing of this servicer in the first quarter of 1999. The proxy testing was
coordinated by a major public accounting firm. The Company has also sent FDIC
prepared statement stuffers to all checking and savings account customers which
describes the Year 2000 problem in detail and provides guidance regarding FDIC
insurance.
The Company is also assessing liquidity risk in connection with the Year
2000 readiness of its major loan and deposit customers. Year 2000 problems of
the Company's major loan customers could affect their ability to make loan
payments when due to the Company and therefore negatively impact the Company's
short term liquidity. Similarly, Year 2000 problems could affect the cash flows
of some of the Company's major business depositors resulting in their inability
to maintain historical deposit balance levels in their accounts, also creating a
negative impact on short term liquidity. In addition, the Company may
experience other unusual deposit outflow before December 31, 1999 as a result of
increased currency demands of its customers. These potential negative effects
on short term liquidity have been considered by the Company in analyzing and
planning for its future liquidity needs.
The Company estimates the cost of the Year 2000 project to be $411,000.
This estimate does not include the cost of internal staff time; $305,000 of
costs have been incurred to date, $226,000 of which will be capitalized as a few
new systems were purchased to replace non-compliant mission critical systems.
It is expected that the remaining $106,000 will be incurred by September 30,
1999. It is anticipated that there may be various miscellaneous contingency
plan expenditures made in the fourth quarter of 1999 which cannot be estimated
at this time.
The discussion above incorporates the Company's best estimates of the costs
and completion date of the Year 2000 project. The Company derived these
estimates using numerous assumptions of future events, including the continued
availability of certain resources and other factors. There can be no guarantee
that the Company will achieve these estimates. Therefore, actual results could
differ materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
20
<PAGE>
ACCOUNTING STANDARDS
--------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivatives instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that any entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the effective date of Statement No. 133." This
statement defers the adoption of SFAS 133 to fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS 133 is not expected to have a material
impact on the Company's financial position, results of operations or liquidity.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." This statement amends SFAS No.
65, "Accounting for Certain Mortgage Banking Activities" to conform the
subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the subsequent accounting
for securities retained after the securitization of other types of assets by a
non-mortgage banking enterprise. The statement is effective for the first
quarter beginning after December 15, 1998 and enterprises may reclassify
mortgage-backed securities and other beneficial interests retained after the
securitization of mortgage loans held for sale from the trading category, except
for those with sales commitments in place. The reclassification is to be done
when the statement is initially applied. The adoption of this statement is not
expected to have a material impact on the Company's financial position, results
of operations or liquidity.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the market risks faced by the Company
since December 31, 1998. For information regarding the Company's market risk,
refer to its Annual Report on Form 10-K for the year ended December 31, 1998.
21
<PAGE>
PART II
ITEM 1--LEGAL PROCEEDINGS
Neither the Company nor any subsidiary is a party to, and none of their property
is subject to, any material legal proceeding at this time. However, the Company
and its subsidiaries are from time to time parties to routine litigation
incidental to their businesses.
ITEM 2--CHANGES IN SECURITIES
Not applicable.
ITEM 3--DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4-- SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The annual meeting of the Company was held on April 28, 1999 at which two
proposals were submitted to a vote of security holders:
Proposal 1: Election of two members to the board of directors of the
Company.
Votes For Votes Withheld
---------- ---------------
Robert T. Boey 1,332,740 13,415
Donald E. Kieso 1,341,940 4,215
Proposal 2: Amendment to the Certificate of Incorporation of the Company to
increase the number of authorized shares of common stock.
Votes Votes
For Against Abstain
--- ------- -------
1,290,595 50,360 5,200
ITEM 5-- OTHER INFORMATION
Not applicable.
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
----------------------
The Company filed a report on Form 8-K on April 29, 1999 with
Respect to the approval of a two-for-one stock split of its
outstanding common stock in the form of a 100% stock dividend.
The Company filed a report on Form 8-K on May 28, 1999 with respect
to the increase in the number of shares registered under certain
of the Company's '33 Act registration statements as a result
of the two-for-one stock split.
22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
/s/ John W. Castle
- ------------------------
By: John W. Castle, Chairman of the Board
Chief Executive Officer and Director
Castle BancGroup, Inc.
Date: August 6, 1999
/s/ Micah R. Bartlett
- --------------------------
By: Micah R. Bartlett, Chief Accounting Officer
and Controller
Castle BancGroup, Inc.
Date: August 6, 1999
23
<PAGE>
EXHIBIT INDEX
Exhibit 11 Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
CASTLE BANCGROUP, INC.
COMPUTATION OF PER SHARE EARNINGS
The components of basic and diluted EPS for the six month periods ended June 30, 1999
and 1998 were as follows: (Dollars in thousands, except share data)
1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Basic EPS:
Net Income 1,584 2,615
Less: preferred stock dividends: 0 (12)
--------- ----------
Income available to common stockholders 1,584 2,603
========= ==========
Average common shares 4,352,254 4,315,890
========= ==========
Basic EPS .36 .60
========= ==========
Diluted EPS:
Income available to common stockholders 1,584 2,603
Assumed conversion of preferred stock 0 12
--------- ----------
Income available to common stockholders after assumed conversion 1,584 2,615
========= ==========
Average common shares 4,352,254 4,315,890
Assumed conversion of preferred stock N/A 24,000
Assumed exercise of stock options
58,058 31,879
--------- ----------
Average common shares after assumed conversions 4,410,312 4,371,769
========= ==========
Diluted EPS .36 .60
========= ==========
===========================================================================================
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12685
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 127375
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 367629
<ALLOWANCE> 4688
<TOTAL-ASSETS> 525450
<DEPOSITS> 445777
<SHORT-TERM> 27374
<LIABILITIES-OTHER> 3129
<LONG-TERM> 9050
0
0
<COMMON> 1454
<OTHER-SE> 38666
<TOTAL-LIABILITIES-AND-EQUITY> 525450
<INTEREST-LOAN> 14036
<INTEREST-INVEST> 3867
<INTEREST-OTHER> 1170
<INTEREST-TOTAL> 19073
<INTEREST-DEPOSIT> 8247
<INTEREST-EXPENSE> 9231
<INTEREST-INCOME-NET> 9842
<LOAN-LOSSES> 518
<SECURITIES-GAINS> 249
<EXPENSE-OTHER> 15587
<INCOME-PRETAX> 2101
<INCOME-PRE-EXTRAORDINARY> 2101
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1584
<EPS-BASIC> .36
<EPS-DILUTED> .36
<YIELD-ACTUAL> 4.14
<LOANS-NON> 1545
<LOANS-PAST> 412
<LOANS-TROUBLED> 197
<LOANS-PROBLEM> 2154
<ALLOWANCE-OPEN> 4775
<CHARGE-OFFS> 277
<RECOVERIES> 143
<ALLOWANCE-CLOSE> 4688
<ALLOWANCE-DOMESTIC> 4688
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 200
</TABLE>
