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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-18599
BLACKHAWK BANCORP, INC.
WISCONSIN 39-1659424
(State of Incorporation) (IRS Employer ID No.)
400 Broad Street, Beloit, Wisconsin 53511
Telephone Number (608) 364-8911
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $ .01 PAR VALUE
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 requirement for the past 90 days. Yes X No .
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
---
Revenue for the year ended December 31, 1997 was $15,843,928
As of March 20, 1998, 2,287,136 shares of common stock were outstanding and the
aggregate market value (based on the bid price at March 20, 1998) of the shares
held by non-affiliates (excludes shares reported or beneficially owned by
directors and officers - does not constitute an admission to affiliate status)
was approximately $19,882,766.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated herein by reference in the
respective parts hereof indicated:
1. Proxy Statement and Annual Meeting of Stockholders, on May 14, 1997, dated
April 2, 1997.
Index of Exhibits on Page 63.Page 1 of 72
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BLACKHAWK BANCORP, INC.
FORM 10-KSB - TABLE OF CONTENTS
PART I PAGE
Item 1 Business................................................... 3
Item 2 Properties................................................. 10
Item 3 Legal Proceedings ......................................... 11
Item 4 Submission of Matters To a Vote of Security Holders........ 11
PART II
Item 5 Market for the Registrant's Common Stock and
Related Stockholder Matters................................. 11
Item 6 Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................................. 11
Item 7 Financial Statements and Supplemental Data............... 18
Item 8 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.................................................. 60
PART III
Item 9 Directors and Executive Officers of the
Registrant.................................................. 60
Item 10 Executive Compensation.................................. 60
Item 11 Security Ownership Of Certain Beneficial
Owners and Management...................................... 60
Item 12 Certain Relationships and Related
Transactions............................................... 60
PART IV
Item 13 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................ 60
Signatures........................................................ 61
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PART I
ITEM 1 BUSINESS
GENERAL. Blackhawk Bancorp, Inc., (the "Company"), was incorporated under the
laws of the state of Wisconsin in November 1989. The Company owns and operates
two subsidiariy finacial institutions (the "Bank's"), Blackhawk State Bank
("Beloit"), located in Beloit, Wisconsin, and Blackhawk State Bank, s.b.
("Rochelle"), located in Rochelle, Illinois.
Beloit is a Wisconsin - chartered commercial bank operating out of five
branches in the Greater Beloit Area, three conventional branches and two
in-store branches. Beloit has one subsidiary, Nevahawk Investments, Inc.
("Nevahawk") discussed below under "Investment Activities". Beloit's principal
business consists of attracting deposits from the general public and
originating loans. In addition, Beloit invests in various types of securities,
operates a trust department and maintains an office of Robert Thomas
Securities, Inc.
As of May 1, 1997, the Company acquried substantially all of the outstanding
shares of Rochelle Bancorp, Inc. ("Rochelle"), which wholly owned all of the
shares of Rochelle Savings Bank ("Savings Bank"). Subsequent to this purchase,
the Savings Bank's name was changed to Blackhawk State Bank, s.b. Rochelle
operates out of one branch in Rochelle, Illinois and one in Oregon, Illinois.
Rochelle has also received approval to open a branch in Roscoe, Illinois. This
branch opened March 9, 1998. Rochelle also wholly owns Midland Acceptance
Corp. ("Midland"). Midland is a finance company with office locations in
Rochelle and Rockford, Illinois. Rochelle's principal business consists of
attracting deposits from the general public and originating loans. Subsequent
to the Company's year-end, an application has been made to branch the
operations of Rochelle into those of Beloit. It is expected that this will
occurr March 31, 1998.
The principal sources of funds for the Bank's lending activities are deposit
accounts, amortization and prepayment of loans, short-term borrowings, and
funds provided from operations. The principal sources of income are interest
and fees on loans, interest on investments and non-interest income, consisting
of fees for services, service charges and trust department fees.
LENDING ACTIVITIES. A majority of the loans in the Bank's loan portfolios are
secured by residential or commercial real estate. Substantially all of the
real estate securing the mortgage loans is located within thirty minutes of the
Bank's main offices. Management of the Company has restructured the loan
portfolio of Beloit to decrease the concentration of mortgage loans and
increase commercial and installment loans. Management of the Company
ancticipates the same restructuring of the loan portfolio of Rochelle. The
Analysis of Loan Portfolio, Table 2 of Item 7, shows the changes in the types
of loans from 1995 through 1997.
Commercial loans are either collateralized by assets other than real estate or
are unsecured. Interest rates on commercial loans are generally tied to an
index adjustable monthly and therefore more rate sensitive than mortgage loans.
Consumer and installment loans are generally secured by junior liens on real
estate, automobiles or boats. A substantial percentage of automobile and boat
loans in Beloit's portfolio were purchased from area dealers. Beloit also
offers credit cards and home equity lines of credit.
Rochelle serivces approximately $42.0 million in single one-to-four family
loans in addition to the loans recorded on it's books. Substantially all of
these loans are 100% sold to the Federal Home Loan Mortgage Corporation
("Freddie Mac"). Rochelle is beginning the process of originating consumer and
installment loans. Prior to this, Midland was the source of the majority of
its consumer type loans. Midland generally is a sub-prime lender, and has
approximately $2.0 million in outstanding loans.
INVESTMENT ACTIVITIES. The investment policy under which the Company and its
subsidiaries operate normally limits investments to: 1) U.S. Treasury and
government agency securities with maturities of 5 years or less; 2)
mortgage-backed securities, limited to no more than 30% of the investment
portfolio, with an average life of 5 1/2 years or less; 3) municipal
securities rated "A" or better, unless they are tax-anticipation notes issued
by Wisconsin issuers whose long-term debt is rated at least "A" or if unrated,
are judged by management to possess investment characteristics comparable to
"A" rated debt securities; and 4) corporate bonds and notes rated "A" or better
with a maturity of 4 years or less.
Security investments made to a single entity are limited to 20% of its capital
and surplus. This limitation does not apply to investments in obligations of
the United States Treasury, Federal Land Banks, Federal Home Loan Banks,
Federal Farm Credit Banks, Federal National Mortgage Association,
Export-Import Bank of Washington or obligations fully and unconditionally
guaranteed by the United States. It is the Company's and its subsidiaries
intention to hold securities until maturity and are classified as such for
IRS purposes. The Financial Accounting Standards Board ("FASB") Statement 115
was adopted in 1994. Generally, the securities held by Beloit are
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classified as available-for-sale whereas the securities held by the
Company, Nevahawk and Rochelle are classified as held-to-maturity.
Beloit's portfolio, approximately $9.0 million, is managed at its main office.
Beloit may purchase the same types of securities under the same general
restrictions as are noted above. In addition, commercial paper, bankers
acceptances and bank certificates of deposit are authorized investments to
provide additional liquidity in the investment portfolio.
During 1991, Beloit transferred approximately $21.5 million worth of its
investment securities to Nevahawk, it's wholly-owned subsidiary located in Las
Vegas, Nevada. Currently, the portfolio under management by Nevahawk is
approximately $25.0 million.
Rochelle's portfolio, approximately $6.0 million, is managed at its main
office. Rochelle may purchase the same types of securities under the same
general restrictions as are noted above. The majority of Rochelle's portfolio
is in shorter-term maturities.
The Company can maintain an investment portfolio that consists of securities
similar to those mentioned above. At December 31, 1997 securities held by the
Company were minimal.
DEPOSIT ACTIVITIES. Deposits are divided between interest bearing and
non-interest bearing. Non-interest bearing deposits consist of checking
accounts of individuals and non-personal entities. The interest-bearing
deposits include savings accounts , money market deposit accounts, certificates
of deposit, individual retirement accounts, NOW accounts and check club
accounts. The Bank's have few depositors with account balances in excess of
$100,000, during 1997 Beloit acquired approximately $1.0 million in brokered
deposits. The Bank's attracts deposits by offering competitive interest rates
for interest-bearing accounts and services on a competitive basis for
non-interest bearing accounts.
TRUST SERVICES. Through a separate department Beloit provides personal trust
services, including acting as trustee for living and testamentary trusts, and
as an agent, custodian, guardian, conservator, personal representative or
administrator for individuals or their estates. Trust offices are maintained
at Blackhawk Beloits's main location.
OTHER SERVICES. The Bank's provide a wide range of other banking services for
both retail and commercial customers. Beloit also provides full-service
brokerage services through Robert Thomas Securities, Inc. and Rochelle
provides mutual fund and annuity sales through AON services.
COMPETITION. Banks experience intense competition in both attracting and
retaining deposits and in making loans. The Bank's direct competition for
deposits has come from other commercial banks, savings and loan associations,
credit unions, mutual funds and stock brokerage firms. In addition to
offering competitive types of accounts and interest rates, the principal
methods used by the Bank's to attract deposits included the offering of a
variety of services, convenient business hours, and branch locations.
Competition in making real estate loans comes principally from savings and loan
associations, mortgage companies and other commercial banks. Consumer loans
provided by credit unions, finance companies and other commercial banks provide
the competition in this area. Other commercial banks are the major competition
for commercial loans.
EMPLOYMENT. As of December 31, 1997, the Company and the Bank's had 126
employees, of which 103 were employed on a full time basis. The fringe
benefits generally provided to qualified employees include health insurance,
long-term disability insurance, a flexible compensation plan (cafeteria plan),
a defined non-contributory pension plan and an employee stock ownership
plan. Management considers its relations with employees to be excellent.
SUPERVISION AND REGULATION. The Company and the Bank's are extensively
regulated under federal and state law. Any descriptions of statutory and
regulatory provisions contained in the following discussion are qualified in
their entirety by reference to the particular statutory and regulatory
provisions. Any change in applicable law or regulations may have a material
effect on the Company.
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THE COMPANY. On March 27, 1990, the Company received approval from the Federal
Reserve Board (the "FRB") under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), to become a registered bank holding company by
acquiring all of the capital stock of. As a result, since consummation of the
Conversion on May 16, 1990, the Company's activities have been subject to
limitations imposed under the BHC Act. Transactions between the Company and
the Bank's and their affiliates are also subject to certain restrictions. As a
registered bank holding company, the Company is subject to various filing
requirements of the FRB and is also subject to examination by the FRB.
FRB approval must be obtained before a bank holding company acquires all or
substantially all of the assets of a bank or savings association or merges or
consolidates with another bank holding company or savings and loan holding
company. Wisconsin has also adopted legislation which allows bank holding
companies from states that have adopted reciprocal legislation (the "Reciprocal
States") to acquire banks in Wisconsin, and allows Wisconsin bank holding
companies to acquire banks in the Reciprocal States. The Reciprocal States
presently include Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, and
Ohio.
Under the BHC Act, bank holding companies are prohibited, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company. A bank holding company may, however, own shares of a company, the
activities of which the FRB has determined to be so closely related to banking,
managing or controlling banks as to be a proper incident thereto; the holding
company itself also can engage in such activities. With the acquisition of
Rochelle, the Company also acquired the outstanding stock of Midland, which is
a finance company, and as such is an activity closely related to banking
activities. The Company does not have any other current plans to seek approval
to acquire any of these bank related activities. However, it may determine to
do so in the future.
The FRB has adopted capital guidelines as to both minimum levels of core
capital and risk-based capital. The minimum core capital requirement ranges
from 3% to 5% of total assets depending upon the regulator's determination of
the holding company's strength. The guidelines assign risk weightings to
assets and off-balance sheet items, and have minimum risk-based capital ratios.
All bank holding companies are required to have total consolidated capital of
8% of risk-weighted assets. Core capital consists principally of stockholders'
equity less intangibles, while qualifying total capital consists of core
capital, certain debt instruments and a portion of the reserve for loan losses.
Table 12, filed elsewhere in this report, reflects various regulatory measures
of capital as of December 31, 1997. The Company's core and risk-based capital
ratios, as shown in the table are well above the minimum levels.
Under Wisconsin law, a bank holding company is deemed to be engaged in the
banking business and is subject to supervision and examination by the Wisconsin
Department of Financial Institutions (the "Commissioner"). The Commissioner is
also empowered to issue orders to a bank holding company to remedy any
condition or policy which, in the opinion of the Commissioner, endangers the
safety of deposits of any subsidiary state bank or trust company. In the event
of non-compliance with such an order, the Commissioner has the power to direct
the operations of the state bank or trust company and to restrict dividends
paid to the bank holding company.
THE BANK's. Wisconsin-chartered banks, including the Beloit, are regulated and
supervised by the Wisconsin Department of Financial Institutions. Each
Wisconsin-chartered bank is required to be examined at least once each year
by either the Commissioner or its primary federal regulator. The approval of
the Commissioner is required to establish or close branches, merge with other
banks and undertake many other activities.
Any Wisconsin bank that does not operate in accordance with the regulations,
policies and directives of the Commissioner may be subject to sanctions for
noncompliance. The Commissioner may, under certain circumstances, suspend or
remove directors, officers or employees who have violated the law, conducted
the bank's business in a manner which is unsafe, unsound or contrary to the
depositors' interests or been negligent in the performance of their duties.
Wisconsin state banks are authorized to accept deposits (including demand,
savings and time deposits and certificates of deposit). Banks may make a wide
variety of loans (including mortgage loans, loans to corporations and other
commercial loans and other personal consumer loans). Other federal and state
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regulations with respect to banks include required reserves, limitations as to
the nature and amount, by type and borrower, of lending, regulatory approval of
mergers and consolidations, issuance and retirement by a bank of its own
securities, and other aspects of banking operations.
Under Wisconsin law, the Commissioner has the authority, by rule or order, to
grant Wisconsin state banks the power to conduct any financial service which is
being offered by any other financial-related institution; under those
provisions, the Commissioner has approved banks engaging in general insurance
agency services and securities brokerage services. Each of the above services
is not a permitted activity of bank holding companies or bank holding company
subsidiaries. The FRB has generally not asserted jurisdiction over the powers
of state-chartered bank subsidiaries of bank holding companies.
PAYMENT OF DIVIDENDS. A Wisconsin bank may only pay dividends on its capital
stock if such payment would not impair the bank's capital stock and surplus
account (as defined under Wisconsin law). If, on the date of declaration of a
dividend on common stock, the ratio of capital stock and surplus to total
deposits is less than 10%, there must be a transfer from net profits to the
surplus account before the dividend may be paid. Based on the Bank's strong
financial position, its entire earnings each year could be paid out as
dividends.
Nevahawk can pay dividends to Beloit from retained earnings without any tax
consequences. There are no plans, at the present, for Nevahawk to pay
dividends in 1998. This status will be reviewed by Nevahawk at its regular
board meetings.
FEDERAL DEPOSIT INSURANCE CORPORATION. Both of the Bank's deposit accounts are
insured by the FDIC. FDIC insurance, at the present time, generally insures up
to a maximum of $100,000 per insured depositor. The FDIC imposes an annual
assessment on deposits. Effective January 1, 1993, premiums are assessed on
the basis of a risk rating assigned by the FDIC. Since that time the Bank's
premium has been at the lowest available rate. Beginning in 1997, financial
institutions insured by the FDIC are required to contribute to the FICO bond
refinancing. As a result, the Bank's will pay an assessment ranging from
$.0124 to $.0067 per hundred dollars of deposits. This is expected to occur
through the year 2003.
The FDIC issues regulations, conducts periodic examinations, requires the
filing of reports and generally supervises the operations of its insured banks.
The approval of the FDIC is required prior to any merger or consolidation, or
the establishment or relocation of any branch office. This supervision and
regulation is intended primarily for the protection of depositors.
As an FDIC-insured bank, the Bank is subject to certain FDIC requirements
designed to maintain the safety and soundness of individual banks and the
banking system. The FDIC, based upon appraisals during examinations, may
revalue assets of an insured institution and require establishment of specific
reserves in amounts equal to the difference between such revaluation and the
book value of the assets. In addition, the FDIC has adopted regulations
regarding capital adequacy requirements similar to those of the FRB.
OTHER ASPECTS OF FEDERAL AND STATE LAW. The Bank's are also subject to federal
and state statutory and regulatory provisions covering, among other things,
security procedures, currency reporting, insider and affiliated party
transactions, management interlocks, community reinvestment, truth-in-lending,
electronic funds transfers, truth-in-savings and equal credit opportunity.
Proposals for new legislation or rule making affecting the financial services
industry are continuously being advanced and considered at both the national
and state levels. Proposals are primarily focused upon restructuring and
strengthening regulation and supervision to reduce the risks to which assets of
banks and savings institutions are exposed.
Although further changes in the regulatory framework may be enacted, specific
provisions and their ultimate effect upon the business of the Bank and the
Company cannot be reliably.
GOVERNMENTAL MONETARY POLICIES AND ECONOMIC CONDITIONS. The earnings of the
Bank's and
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the Company are affected not only by general economic conditions but
also by the policies of various governmental regulatory authorities. In
particular, the FRB influences general economic conditions and interest rates
through the regulation of money and credit conditions. It does so primarily
through open-market operations in U.S. Government Securities, varying the
discount rate on member and nonmember bank borrowings, and setting reserve
requirements against bank deposits. FRB monetary policies have had a
significant effect on the operating results of banks in the past and are likely
to continue to do so in the future. The general effect, if any, of such
policies upon the future business and earnings of the subsidiary bank cannot be
accurately predicted. In addition, losses sustained by the federal insurance
funds and regulatory costs incurred in connection with failed or failing
insured depository institutions continue to be assessed to those within the
industry. As such, future earnings will be adversely affected by regulations
enacted to cover these losses and costs. Past increases in FDIC insurance
premiums are an example of this.
EXECUTIVE OFFICERS
NAME AND AGE PRINCIPAL OCCUPATION
Dennis M. Conerton, 47 President and Chief Executive Officer of the
Company and of the Bank. Prior thereto, Vice
President-Controller, Regal-Beloit Corporation.
James P. Kelley, 54 Executive Vice President and Secretary of the
Company and Executive Vice President of
the Bank and the Bank's predecessor, Beloit
Savings Bank.
Jesse L. Calkins, 57 Senior Vice President, Treasurer and Chief
Financial Officer of the Company and
Senior Vice President of the Bank, and the
Bank's predecessor, Beloit Savings Bank.
Richard J. Rusch, 53 Vice President Commercial Lending of the Bank
since August 1990. Prior thereto, Vice
President Commercial Loans, M & I Bank of
Beloit.
ITEM 2. PROPERTIES
On December 31, 1997, the Company had eleven locations, of which five were
leased. All of these offices are considered by management to be well
maintained and adequate for the purpose intended. See the Notes to
Consolidated Finacial Statements included under Item 7 of this document for
further information on properties.
ITEM 3. LEGAL PROCEEDINGS
To management's knowledge no material legal proceedings are contemplated or
pending to which it or its affiliates are or threatened to be a party, of which
any of their property would be subject, other than routine
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litigation incidental to its business.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATE STOCKHOLDERS MATTERS
As of March 20, 1998 there were 403 Registered Stockholders. Information in
response to this item is found on page of this report. A table listing the
declaration of dividends is found on page .
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion provides additional analysis of the financial
statements presented in the Company's annual report and should be read in
conjunction with this information. This discussion focuses on the significant
factors which affected the Company's earnings in 1997, with comparisons to 1996
and 1995 where applicable. As of December 31, 1997, Blackhawk State Bank
("Beloit") and Blackhawk State Bank, S.B. ("Rochelle") of Rochelle, IL., were
the direct subsidiaries of the Company and their operations contributed
nearly all of the revenue and expenses for the year. Rochelle has offices in
Rochelle and Oregon, IL. Beloit's wholly-owned subsidiary, Nevahawk
Investment, Inc. ("Nevahawk") is an investment subsidiary located in Nevada.
Rochelle has a subsidiary, RSL, Inc., which operates mutual fund and annuity
activities, and in turn owns Midland Acceptance Corp. ("MAC"), a consumer
finance company that has offices in Rochelle and Rockford, IL.
Overview
Rochelle was acquired on April 30, 1997 and was accounted for using the
purchase method of accounting. As a result of this, the financial information
prior to the acquisition date has not been restated to include Rochelle. As of
December 31, 1997, total assets of the Company were $202.0 million, an increase
of 33.3% from $151.5 million as of December 31, 1996. Net income for 1997 was
$1.96 million or $.86 per share, increasing 13.2% from $1.73 million or $.75
per share in 1996, which was 17.6% greater than the $1.47 million or $.64 per
share, in 1995. The diluted earnings per share were $.82, $.73, and $.63 for
1997, 1996, and 1995, respectively. The significant items resulting in the
above-mentioned results are discussed below.
Net Interest income
Net interest income is the difference between interest income and fees on loans
and interest expense, and is the largest contributing factor to net income for
the Company. All discussions of income amounts and rates are on a
tax-equivalent basis, which accounts for income earned on securities which are
not fully subject to federal taxes as if they were fully subject to federal
taxes. Net interest income in 1997 was a record $7.65 million, increasing 26.2%
over the 1996 level of $6.03 million which in turn was 8.2% over the 1995 net
interest income of $5.60 million. Net interest income as a percentage of
average earning assets was 4.5% in 1997, 4.3% in 1996, and 4.3% in 1995.
Higher interest income and fees on loans was the largest factor in the 32.1%
increase of net interest income in 1997 compared to 1996. The interest income
in each of the major loan categories increased in 1997 compared to 1996
primarily due to the Company's acquisition of Rochelle. Increased rates also
contributed to a lesser extent to an increase in consumer loan income. Total
loan volumes increased 38.5% for this same period. Although commercial and
consumer loans increased in 1997 overall, their percentage of the portfolio did
not increase. Real estate loans increased in total dollars and as a percentage
of the portfolio. The increase in real estate loans was significantly impacted
by the inclusion of the assets of Rochelle which is predominantly a mortgage
lender.
Investment income increased 8.2%, to $2.55 million in 1997 compared to $2.45
million in 1996. The increase in this area was primarily the result of
increased rates on taxable securities which offset the reduced income from tax
exempt securities. Income from tax exempt securities declined due to lower
volume. The average
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balance of total investments decreased by 3.0% in 1997 compared to 1996,
as the Company liquidated investment securities to purchase Rochelle.
The decline in volume of tax exempt securities was only partially offset
by the increase in volume of taxable securities. Since Rochelle was purchased
on April 30, 1997, first and second quarter comparisons and annual
comparisons of interest income in 1998 should continue to show significant
increases.
Increases in investment income, interest income, and fees on loans were the
largest factors in the increase of net interest income in 1996. Investment
income increased 11.9% and interest income and fees on loans increased 5.4%.
Nearly all of the increases in these areas were the result of increased
volumes. The average balance of investments increased by 9.6% in 1996 compared
to 1995. Total loans increased 3.3% for this same period. Commercial and
consumer loans continued to increase in their percentage of the total loan
portfolio during 1996 while real estate loans continued to decline as a
percent of the portfolio.
Total interest expense increased to $6.72 million in 1997 from $5.39 million in
1996, an increase of nearly 24.7%. The increased interest cost was primarily
the result of higher deposit volume acquired with the purchase of Rochelle.
The average rate of interest on deposits remained fairly static at 4.70% and
4.71% in 1997 and 1996, respectively. The variance in interest expense between
1997 and 1996 in other borrowings was the result of reduced volume. The
average cost of borrowings also declined in 1997 to 4.77% compared to 4.80% in
1996. The statement regarding the effect of the Rochelle purchase on interest
income comparisons in 1997 also applies to interest expense.
Interest expense on interest bearing liabilities increased 6.2% in 1996
compared to 1995. Approximately 84% of the increase was due to increased
volume in short-term borrowings. These borrowings were in the form of
repurchase agreements. The increased cost of interest bearing deposits was due
to increased rates. In order to fund loan demand and leverage its capital
base, the Company has taken advances from the Federal Home Loan Bank ("FHLB")
and accepted repurchase agreements from local municipalities. FHLB advances
have been taken to fund specific loans in the past. Because of the relatively
attractive rates being offered, FHLB advances have been, and may in the future,
be used to fund other cash needs. The repurchase agreements are acquired on a
bid basis with varying periods for rebid. Long-term loans are not funded with
repurchase agreements. Also, short-term borrowings include federal funds
purchased. As short-term liquidity needs arise, the Company may buy federal
funds, secure advances from the FHLB, or borrow from the Federal Reserve Bank.
OTHER OPERATING INCOME AND EXPENSE
Other operating income increased 52.7% to $1.5 million in 1997 from $1.0
million in 1996. Service charges and fees represented more than half of the
total in each year. They also represented $330,000 of the $530,000 increase in
other operating income. Most of the increase in service charges was from the
inclusion of the new Rochelle operations. Loan servicing fees accounted for
$95,000 of new income in 1997. Prior to the acquisition of Rochelle, the
Company did not have income from this activity. This income category is
expected to continue to increase in the future. Trust fees and investment
center commissions also experienced significant percentage gains in 1997
compared to 1996. Gains in both of these areas are expected in 1998 compared
to 1997.
Excluding security gains, other operating income increased by $246,000, or
32.3% in 1996 compared to 1995. The areas accounting for most of this increase
were trust fees, which increased $34,000 or 38.7%, service fees, which
increased $101,000 or 21.6%, gain on the sale of loans, which was higher by
$37,000 or 98.4%, credit card fees that were up by $15,000 or 23.3% and net
investment center commissions, which grew by $32,000 or 47.8%.
Operating expense increased 40.5% to $5.9 million in 1997 compared to 1996.
The most substantial portion of this increase was the result of the Rochelle
purchase. Also, the opening of a second in-store facility in a newly
constructed Wal-Mart contributed to some of the increase. Savings are expected
in 1998 in several areas of expense as a result of the consolidation of
activities of Beloit and Rochelle. Some of these savings will be offset by
additional expenses incurred in the opening of a branch facility in Roscoe,
Illinois in March, 1998.
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Other operating expense increased $185,000 or 4.6% in 1996 compared to 1995.
Increases in salaries, employee benefits, data processing and other expenses
were partially offset by decreases in equipment costs, FDIC insurance premiums,
professional fees and advertising expenses.
Salaries increased $127,000 or 7.8% in 1996 compared to 1995. This increase
was the result of additional new employees hired during 1995, normal salary
increases and an increase in the officer incentive compensation related to
improved financial performance. The increase in employee benefits of $79,000
or 22.2%, is primarily the result of increased health insurance costs. The
other major area of increase was other expenses which increased $121,000 or
20.3%. Two areas that accounted for approximately 54.0% of this increase were
office supplies and postage. A significant decrease in FDIC premiums of
$125,000 in 1996 was due to the elimination of premiums for banks that were
most highly rated. A $33,000, or 8.7%, reduction in equipment expenses was
primarily the result of reduced depreciation costs.
Management tracks three ratios related to other operating income and expense:
(1) Net other operating expense as a percentage of average assets, (2) standard
efficiency ratio and (3) gross efficiency ratio. Net other operating expense
as a percentage of average assets was 2.38% in 1997, 2.15% in 1996 and 2.31% in
1995. The standard efficiency ratio (other operating expense divided by net
operating income) was 64.8%, 60.8%, and 64.1% in 1997, 1996 and 1995,
respectively. The gross efficiency ratio (other operating expense divided by
gross income) was 37.3%, 34.2% and 35.5% in 1997, 1996 and 1995, respectively.
Management expects all three of these ratios to improve in 1998 from the 1997
levels as the new Rochelle operations become more fully integrated.
PROVISIONS FOR LOSSES
The provision for loan losses was $192,000, $145,000, and $180,000 for 1997,
1996, and 1995, respectively. In 1997, Beloit and Rochelle had net charge-offs
of $176,000, (total charge-offs of $215,000 less recoveries of $39,000). In
1996, Beloit experienced net recoveries of $112,000 compared to net charge-offs
of $65,000 in 1995. The net recovery in 1996 resulted from recoveries of
$221,000 off-setting charge-offs of $109,000. Most of the recovery was from a
loan that was originally charged off in 1994. Excluding the large recovery,
net charge-offs to average loans would have been .07% in 1996. Net charge-offs
to average loans was .14% in 1997 and .07% in 1995.
The allowance for loan losses as a percent of loans was 1.11% at December 31,
1997 compared to 1.19% and .98% at December 31, 1996 and 1995, respectively.
Management feels that the allowance for loan loss provision is adequate based
upon the current portfolio and market conditions. As the loan portfolio shifts
and market conditions warrant, the provision will be adjusted.
INCOME TAXES
The effective income tax rate increased to 35.3% in 1997 from 32.9% in 1996 and
29.0% in 1995. The most significant reason for the increase in 1997 was due to
the fact that goodwill amortization resulting from the acquisition of Rochelle
is not deductible for tax purposes. In addition, the Company has invested less
in municipal securities exempt from Federal taxes as yields on taxable
securities have become more favorable. Because Nevahawk is located in Nevada,
its income is not subject to state income tax. As a result, as a higher
proportion of income is earned outside of Nevada, the effective rate
increases. The income generated by Rochelle was subject to Illinois income tax
as well as federal income tax. The Illinois and Wisconsin effective tax rates
are approximately the same.
Balance Sheet Analysis
Total assets as of December 31, 1997 were $202.0 million versus $151.5 million
as of December 31, 1996 for an increase of 33.3%. Total average assets rose to
$183.1 million for the year ended December 31, 1997 versus $148.7 million in
1996, increasing 23.1%. Most of the increase in assets was the result of the
acquisition of Rochelle on April 30, 1997. All comments below are comparing
1997 to 1996, unless otherwise noted.
LOANS
Gross loans increased 38.2% to $137.3 million from $99.2 million. Rochelle
has most of its lending secured by real estate. As a result, real estate loans
increased substantially, to $87.4 million at December 31, 1997
10
<PAGE> 11
from $56.8 in 1996. This represents an increase of 53.7%. Consumer installment
loans increased $5.4 million, or 27.7%. As mentioned above, included in the
purchase of Rochelle was Midland Acceptance Corp. MAC accounted for one-third
of the consumer loan increase. The credit card program and the home equity
line of credit experienced solid growth at Beloit accounting for much of the
other increase. As of December 31, 1997, real estate loans represented 64.3%
of gross loans, commercial loans were 18.7% and consumer loans were 18.4%.
This compares to 57.8%, 23.4% and 19.9%, respectively, at December 31, 1996.
NON-PERFORMING LOANS
Non-performing loans as a percent of total loans decreased to .77% as of
December 31, 1997 versus 1.15% as of the same date in 1996. During 1997 the
loan department staff made a concerted effort to reduce the amount in
delinquent loans. It is the Company's policy to place a loan on non-accrual
once it has become 90 days delinquent or if it is determined that collection is
questionable. As the level of consumer and commercial loans increase, wider
fluctuations in the amount of non-performing loans may occur.
SECURITIES
Securities as a percent of total average assets decreased to 21.4% at December
31, 1997 from 27.1% at the prior year end. The average amount of securities
owned during 1997 was $39.2 million compared to $40.6 million in 1996. A
significant variance from the year end 1997 level is not anticipated for
1998. Tax exempt securities continue to make up a small percentage of the
investment portfolio. As the yield relationship between taxable and
tax-exempt securities changes, new investments will be made in the area
that best meets the objectives of the Company.
DEPOSITS
Total average interest bearing deposits increased 30.2%, to $126.3 million from
$97.0 million in 1996. This represents an increase as a percentage of average
assets to 69.0% in 1997 from 65.2% in 1996. Interest bearing demand deposits
increased to $10.8 million as compared to $4.9 million, and were 5.9% of
average assets in 1997 as compared to 3.3% in 1996. The majority of this
increase was the result of the Rochelle purchase, however, Beloit's club
checking account programs also experienced good growth. Average savings
account balances increased 16.3%. Average time deposits increased to $80.6
million in 1997 from $62.0 million in 1996, for a 29.1% increase. Average time
deposits increased to 44.0% of average assets compared to 41.7% in 1996.
Total average noninterest bearing demand deposits increased to $16.5 million in
1997 compared to $13.7 million in 1996. However, as a percentage of average
assets, average noninterest bearing demand deposits were 9.0% in 1997 versus
9.2% in 1996. The increase in dollar amounts was due to a combination of the
purchase of Rochelle and an increase in business customers at Beloit. As banks
continue to find it difficult to retain the more traditional type of savings
customers, the focus will be upon building relationships with customers and
offering alternative investment products around the core checking account.
BeloitOs mix of deposits is still undergoing change to that of a traditional
commercial bank which began in 1990. Thus it is expected that a higher
percentage of the Bank's growth will be seen in demand deposit accounts rather
than in traditional time deposit and savings accounts. With the purchase of
Rochelle, which had been a thrift institution, the shift to demand deposits may
be slowed for a time.
OTHER BORROWINGS
The dramatic growth in other borrowings that had been experienced in 1995 and
1996 did not continue in 1997. Average borrowings decreased to $14.7 million
from $15.2 million in 1996. Average borrowings in 1997 were 8.0% of average
assets compared to 10.2% of average assets in 1996. Beloit has used other
borrowings to fund specific loan requests by taking advances at the FHLB to
match the term and spread required. Beloit also utilized advances from the
FHLB to meet some short-term liquidity needs and it also utilized a
staggered-maturity advance to fund some consumer lending in 1995. The advances
taken for short-term liquidity needs and those used to fund the consumer loans
have been retired as they have matured. In late 1997 and early 1998,
additional amounts were borrowed from the FHLB to meet liquidity needs of loan
demand that exceeded internal deposit growth at a more favorable rate.
During 1995, the bank entered into depository relationships with four local
governmental agencies. As a
11
<PAGE> 12
result, excess funds deposited into their accounts are invested into
repurchase agreements ("repos") on a daily basis. These repo balances
will fluctuate during the year as tax dollars are collected and disbursed.
These relationships are bid on a two-year cycle, although one of the four
is on a three-year cycle. Two of the relationships that are on a two year
cycle expired at the end of June 1997. The other one expired at the end
of December 1997. Beloit retained one of the three accounts that were bid in
1997. This is expected to result in a reduction in the level of repurchase
agreements in 1998.
ASSET/LIABILITY MANAGEMENT
The Company, like other financial institutions, is subject to interest rate
risk to the degree that its interest bearing liabilities, with short and medium
term maturities, mature or reprice more rapidly, or on a different basis, than
its interest earning assets. Interest rate risk occurs when there is an
imbalance between the interest earning assets and the interest bearing
liabilities at a given maturity or repricing schedule. Such imbalance is
commonly referred to as interest rate gap ("gap"). A positive gap exists when
there are more assets than liabilities maturing or repricing within the same
time frame, and a negative gap is one in which there are more liabilities
than assets maturing or repricing within the same time frame. Accordingly,
in a negative gap position, the Company's net interest income is likely to
decline during periods of rising interest rates and increase during periods
of declining interest rates. The opposite is true in the case of a positive
gap position. The Company's cumulative one-year gap generally has been, and
currently is, negative.
The Asset Liability Committee meets regularly to monitor and determine the
Company's exposure to interest rate fluctuations. This is done by monitoring
the maturities and repricings of assets and liabilities, the flow of funds, and
the relationship of interest rate changes of loans and deposits to the general
market. Currently each subsidiary bank maintains their own asset/liability
position. The consolidated interest rate risk exposure is monitored by the
Company on a quarterly basis.
LIQUIDITY
Liquidity as it relates to the subsidiary banks is a measure of their ability
to fund loans and withdrawals of deposits in a cost-effective manner. The
subsidiary banks principal sources of funds are deposits, scheduled
amortization and prepayment of loan principal, maturities of securities, income
from operations, and short-term borrowings. Additional sources include
purchasing fed funds, sale of loans, sale of securities, borrowing from the
Federal Reserve Bank and the FHLB and capital loans. Current year earnings can
be paid to Beloit, from Nevahawk, to provide additional liquidity, without
incurring a tax liability under present law. During 1996 and 1997 Nevahawk did
not pay a dividend. A payment in 1998 is not anticipated.
Generally, the liquidity needs of the Company consists of payment of dividends
to its shareholders and a limited amount of expenses. The sources of funds to
provide this liquidity are income from securities, maturities of securities,
cash balances and dividends from Beloit. The payment of dividends from
Rochelle is not of concern because application has been made to merge Rochelle
into Beloit. Certain restrictions are imposed upon banks which could limit
their ability to pay dividends if they did not have net earnings in the future.
The Company maintains adequate liquidity to pay its expenses. In addition, the
Company may also borrow from external sources leveraging its strong capital
base.
CAPITAL
Total shareholders equity as of December 31, 1997 increased 5.0% to $23.1
million as compared to $22.0 million as of December 31, 1996. Internal growth
in the form of increased net income was the biggest factor for this increase.
Also contributing to the increase, to a lesser extent, was the exercising of
stock options by employees and an increase in the adjustment for Financial
Accounting Standard 115. Equity as a percent of assets, core capital as a
percent of assets, total capital as a percent of risk based assets and leverage
ratio were 12.40%, 10.56%, 18.67% and 11.79%, respectively, at December 31,
1997 compared to 14.54%, 14.37%, 23.47%, and 15.08%, respectively, at December
31, 1996. The Company significantly exceeds all regulatory requirements
regarding capital as the regulatory requirement for core capital as a percent
of assets is 5.50% and for total capital as a percent of risk based assets is
8.00%.
IMPACT OF INFLATION AND CHANGING PRICES
Unlike most industrial companies, virtually all of the assets and liabilities
of the banks are monetary in nature.
12
<PAGE> 13
As a result, interest rates have more significant impact on the Company's
performance and results of operations than the effect of general levels of
inflation. Interest rates do not necessarily move in the same direction or
in the same magnitude as the prices of goods and services as measured by the
Consumer Price Index. As discussed previously under Asset/Liability
Management, the bank's interest rate gap position in conjunction with the
direction of the movement in interest rates, is an important factor in
the Company's results of operations. The Company's financial statements
are prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and results of
operations in terms of historical dollars, without giving consideration to
changes in the relative purchasing power of money over time due to inflation.
ACCOUNTING DEVELOPMENTS
In 1995, the Financial Accounting Standards Board (FASB) issued Statement No.
123, Accounting for Stock-Based Compensation. This statement establishes
financial accounting and reporting standards for such plans including
arrangements by which employees or non-employees receive shares of stock or
other equity instruments or the company incurs liabilities to employees based
on the price of the stock such as stock options. Under this statement, the
stock or equity instruments issued must be accounted for based on the fair
value of the consideration received or the fair value of the equity instrument
issued, whichever is more reliably measured. As an alternative to valuing such
instruments at fair value, the employer can continue to account for these under
the previous method of accounting. If the previous method of accounting is
chosen in lieu of the fair value method, as the Company has done, the Company
must disclose the effects of the fair value for equity awards granted in fiscal
years beginning after December 31, 1994.
In an effort to simplify the current standards in the United States for
computing earnings per share ("EPS") and make them compatible with
international standards, the FASB issued Statement 128, Earnings Per Share.
Statement 128 applies to entities with publicly held common stock and is
effective for financial statements issued for periods ending after December 15,
1997. Statement 128 replaces APB Opinion 15, Earnings Per Share. Opinion 15
required that entities with simple capital structures present a single"earnings
per common share" on the face of the income statement. Those entities with
complex capital structures had to present both "primary" and "fully diluted"
EPS. Primary EPS shows the amount of income attributed to each share of common
stock if every common stock equivalent were converted into common stock. Fully
diluted EPS considers common stock equivalents and all other securities that
could be converted into common stock. Statement 128 simplifies the computation
of EPS by replacing the presentation of primary EPS with a presentation of
basic EPS. The Statement requires dual presentation of basic and diluted EPS
by entities with complex capital structures. Basic EPS includes no dilution
and is computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted EPS. Statement 128 has been
adopted for the reporting of earnings in this report.
Year 2000 ISSUES
At each of the Company's subsidiary banks, an individual has been assigned to
assess each of the bank's external systems that could be affected by the
upcoming year 2000 change. Most of the areas have been assessed. The
assessments which have not been completed are expected to be done in the first
half of 1998. The most critical areas of bank operations have software and
hardware upgrades scheduled during 1998 at both subsidiaries in conjunction
with our planned consolidation of operating systems for Beloit and Rochelle.
The cost of these upgrades is expected to be approximately $500,000, most of
which will be for depreciable equipment which requires periodic replacement.
At this time, the assessments do not indicate that there will be a substantial
impact on earnings in 1998 or subsequent years.
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
13
<PAGE> 14
BLACKHAWK BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
December 31, 1997
14
<PAGE> 15
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT ON THE
FINANCIAL STATEMENTS 2
FINANCIAL STATEMENTS
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7 - 28
</TABLE>
15
<PAGE> 16
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Blackhawk Bancorp, Inc. and Subsidiaries
Beloit, Wisconsin
We have audited the accompanying consolidated balance sheets of Blackhawk
Bancorp, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years ended December 31, 1997, 1996 and 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Blackhawk Bancorp,
Inc., and Subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the years ended December 31, 1997,
1996 and 1995, in conformity with generally accepted accounting principles.
/s/Lindgren, Callihan, Van Osdol & Co., Ltd.
Rockford, Illinois
February 20, 1998
<PAGE> 17
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
--------------- ---------------
<S> <C> <C>
Cash and cash equivalents $ 8,680,369 $ 7,966,929
Federal funds sold and other short-term investments 8,889,224 4,677,596
--------------- ---------------
Securities:
Held-to-maturity 28,919,711 24,864,640
Available-for-sale 9,487,614 10,701,911
Loans held for sale 1,023,584 240,400
--------------- ---------------
Loans, net of allowance for loan losses of $1,522,669 in
1997 and $1,185,672 in 1996 135,749,604 98,000,619
Bank premises and equipment, net 4,353,060 3,463,491
Accrued interest receivable 1,466,700 1,041,756
Deferred tax assets -0- 51,433
Other intangible assets 1,850,544 -0-
Other assets 1,555,185 475,230
--------------- ---------------
Total assets $201,975,595 $151,484,005
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non-interest bearing $ 19,571,450 $ 23,193,906
Interest bearing 139,479,005 95,116,941
--------------- ---------------
Total deposits 159,050,455 118,310,847
--------------- ---------------
Borrowed funds:
Short-term borrowings 12,231,205 7,405,451
Long-term borrowings 4,850,000 2,275,456
--------------- ---------------
Total borrowed funds 17,081,205 9,680,907
--------------- ---------------
Accrued interest payable 891,926 680,226
Deferred tax liabilities 466,965 -0-
Other liabilities 1,349,868 782,827
--------------- ---------------
Total liabilities 178,840,419 129,454,807
--------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value per share; authorized
1,000,000 shares; issued, none -0- -0-
Common stock, $.01 par value per share; authorized
10,000,000 shares; issued and outstanding 2,296,414
in 1997 and 2,285,864 in 1996 22,964 22,859
Additional paid in capital 7,001,965 6,960,550
Employee stock options earned 130,803 94,764
Retained earnings 16,045,371 15,072,129
Less treasury stock, at cost (104,174) (84,305)
Net unrealized gains (losses) on securities available-for-sale 38,247 (11,343)
--------------- ---------------
23,135,176 22,054,654
Less: Deferred compensation related to employee stock
ownership plan debt guarantee -0- (25,456)
--------------- ---------------
Total shareholders' equity 23,135,176 22,029,198
--------------- ---------------
Total liabilities and shareholders' equity $201,975,595 $151,484,005
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
- 3 -
<PAGE> 18
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $11,596,917 $8,777,209 $8,327,565
Interest on securities:
Taxable 2,432,713 2,122,793 1,895,205
Exempt from federal income taxes 151,662 221,105 199,168
Interest on federal funds sold and other short-term
investments 126,334 201,741 160,031
----------- ---------- ----------
Total interest income 14,307,626 11,322,848 10,581,969
----------- ---------- ----------
Interest expense:
Interest on deposits 5,931,156 4,578,120 4,485,677
Interest on short-term borrowings 612,193 642,894 379,219
Interest on long-term borrowings 177,025 173,090 214,223
----------- ---------- ----------
Total interest expense 6,720,374 5,394,104 5,079,119
----------- ---------- ----------
Net interest income 7,587,252 5,928,744 5,502,850
Provision for loan losses 191,777 145,000 180,000
----------- ---------- ----------
Net interest income after provision for loan losses 7,395,475 5,783,744 5,322,850
----------- ---------- ----------
Other operating income:
Trust department income 167,824 121,739 87,826
Service charges and fees 896,627 568,951 467,800
Loan servicing fees 94,812 -0- -0-
Realized gains on securities -0- -0- 17,785
Gain on sale of loans 65,443 75,372 37,996
Other income 311,596 239,735 166,496
----------- ---------- ----------
Total other operating income 1,536,302 1,005,797 777,903
----------- ---------- ----------
Other operating expenses:
Salaries and wages 2,436,229 1,767,328 1,640,139
Employee benefits 630,597 436,445 357,297
Occupancy expense, net 426,388 309,313 300,160
Furniture and equipment 329,038 349,928 383,072
Data processing 444,659 320,109 299,447
Federal deposit insurance premiums 32,121 2,000 127,272
Professional fees 342,257 199,373 207,417
Advertising and marketing 138,610 112,790 118,236
Amortization of intangible assets 137,272 -0- -0-
Other operating expenses 991,506 716,319 595,083
----------- ---------- ----------
Total other operating expenses 5,908,677 4,213,605 4,028,123
----------- ---------- ----------
Income before income taxes 3,023,100 2,575,936 2,072,630
Provision for income taxes 1,067,521 847,661 600,743
----------- ---------- ----------
Net income $1,955,579 $1,728,275 $1,471,887
=========== ========== ==========
Earnings per share $.86 $.76 $.65
=========== ========== ==========
Diluted earnings per share $.82 $.73 $.63
=========== ========== ==========
Dividends per share $.43 $.38 $.30
=========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
- 4 -
<PAGE> 19
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Net Unreal-
ized Gains
(Losses) on
Additional Securities
Common Paid in Stock Retained Treasury Available
Stock Capital Options Earnings Stock for Sale Other Total
------- ----------- ----------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $15,006 $6,791,012 $26,642 $13,421,900 $(159,701) $(132,599) $19,962,260
Net income 1,471,887 1,471,887
Principal payments on
ESOP loan 53,572 53,572
Cash dividends declared
on common stock, $.30 per share (676,140) (676,140)
Net change in unrealized
gains (losses) on securities
available-for-sale 196,815 196,815
Stock split 7,593 (7,611) (18)
Compensatory employee
stock options:
Recognized 33,697 33,697
Exercised or expired 227 155,358 (8,174) 147,411
------- ---------- ------- ----------- --------- ---------- -----------
BALANCE, DECEMBER 31, 1995 22,826 6,946,370 52,165 14,210,036 37,114 (79,027) 21,189,484
Net income 1,728,275 1,728,275
Principal payments on
ESOP loan 53,571 53,571
Cash dividends declared
on common stock, $.38 per share (866,182) (866,182)
Purchase of stock for
treasury, 7,578 shares at
$11.13 per share $(84,305) (84,305)
Net change in unrealized
gains (losses) on securities
available-for-sale (48,457) (48,457)
Compensatory employee
stock options:
Recognized 42,654 42,654
Exercised or expired 33 14,180 (55) 14,158
------- ---------- ------- ----------- -------- -------- ----------- -----------
</TABLE>
- 5 -
<PAGE> 20
<TABLE>
<CAPTION>
Net Unreal-
ized Gains
(Losses) on
Additional Securities
Common Paid in Stock Retained Treasury Available
Stock Capital Options Earnings Stock for Sale Other Total
------ ----------- ------- ----------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 22,859 6,960,550 94,764 15,072,129 (84,305) (11,343) (25,456) 22,029,198
Net income 1,955,579 1,955,579
Principal payments on
ESOP loan 25,456 25,456
Cash dividends declared
on common stock, $.43 per share (982,337) (982,337)
Purchase of stock for
treasury, 1,700 shares at
$11.69 per share (19,869) (19,869)
Net change in unrealized
gains (losses) on securities
available-for-sale 49,590 49,590
Compensatory employee stock
options:
Recognized 36,039 36,039
Exercised or expired 105 41,415 41,520
------- ---------- -------- ------------ ---------- --------- -------- -----------
BALANCE, DECEMBER 31, 1997 $22,964 $7,001,965 $130,803 $16,045,371 $(104,174) $ 38,247 $ -0- $23,135,176
======= ========== ======== =========== ========= ======== ======== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
- 6 -
<PAGE> 21
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996 1995
--------------- -------------------- ------
<S> <C> <C> <C> <C>
Net income $1,955,579 $ 1,728,275 $1,471,887
Adjustments to reconcile net income to net cash
provided by operating activities:
Compensatory employee stock options recognized 36,039 42,599 33,697
Provision for loan losses 191,777 145,000 180,000
Provision for depreciation and amortization 476,002 333,294 348,424
Amortization of premiums and accretion of discounts
on investment securities, net (112,169) (79,542) 47,621
Gain on sale of property and equipment -0- (2,655) -0-
Realized gains on securities -0- -0- (17,785)
Gain on sale of loans (65,443) (75,372) (37,996)
Loans originated for sale (11,371,993) (5,329,228) (3,232,399)
Proceeds from sale of loans 10,654,252 5,164,200 3,270,395
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable 2,300 175,805 (84,251)
(Increase) decrease in other assets 565,654 (183,415) 184,735
Increase in accrued interest and other liabilities 34,271 178,910 26,669
--------------- ----------- --------------
Net cash provided by operating activities 2,366,269 2,097,871 2,190,997
--------------- ----------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment -0- 11,600 -0-
Proceeds from maturity of securities held-for-maturity 20,722,531 11,814,812 6,800,362
Proceeds from maturity of securities available-for-sale 7,823,919 22,484,382 3,806,860
Purchase of securities held-to-maturity (21,138,970) (10,872,593) (6,991,719)
Purchase of securities available-for-sale (6,242,406) (21,628,410) (6,758,108)
Net cash used in acquisition of Rochelle, net of cash acquired of $3,874,884 (443,662) -0- -0-
(Increase) decrease in federal funds sold and other
short-term investments, net (4,211,628) 7,057,309 (4,683,512)
Loans originated, net of principal collected (1,077,529) (4,597,592) (5,013,115)
Purchase of bank premises and equipment (297,612) (73,312) (1,178,618)
--------------- ----------- --------------
Net cash provided by (used in) investing activities (4,865,357) 4,196,196 (11,990,037)
--------------- ----------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (3,252,540) (1,406,082) 4,978,624
Net increase (decrease) in short-term borrowings 4,825,754 (2,274,382) 6,932,833
Proceeds from long-term borrowings 3,500,000 -0- 850,000
Payments on long-term borrowings (900,000) (1,300,000) -0-
Dividends paid (982,337) (866,182) (676,140)
Proceeds from issuance of common stock 41,520 14,213 147,393
Purchase of common stock for treasury (19,869) (84,305) -0-
--------------- ----------- --------------
Net cash provided by (used in) financing activities 3,212,528 (5,916,738) 12,232,710
--------------- ----------- --------------
Increase in cash and cash equivalents 713,440 377,329 2,433,670
Cash and cash equivalents:
Beginning 7,966,929 7,589,600 5,155,930
--------------- ----------- --------------
Ending $8,680,369 $ 7,966,929 $7,589,600
=============== =========== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $7,264,326 $ 5,407,243 $4,964,373
Income taxes $341,282 $ 878,315 $710,876
</TABLE>
- 7 -
<PAGE> 22
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
(CONTINUED)
<TABLE>
<CAPTION>
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES 1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Other assets acquired in settlement of loans $ 291,980 $225,546 $193,200
Principal payments on ESOP loan $ 25,456 $ 53,571 $ 53,571
Common stock issued to effect stock split $ -0- $ -0- $ 7,593
Purchase of net assets of Rochelle:
Fair value of non cash assets $45,594,706
Liabilities assumed $45,451,489
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 23
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements conform to
generally accepted accounting principles and to general
practices within the banking industry. The following is a
description of the more significant accounting policies:
NATURE OF BANKING ACTIVITIES:
The Company provides a variety of banking services to
individuals and businesses through its facilities in Beloit,
Wisconsin and Rochelle, Illinois. Its primary deposit products
are demand deposits, savings, and certificates of deposit and
its primary lending products are commercial, real estate
mortgage and installment loans.
As of December 31, 1997 and 1996, 60% ($83,072,441) and 57%
($56,817,700), respectively, of the gross loan portfolio
consisted of real estate loans on real estate located in
Southcentral Wisconsin and Northcentral Illinois. Generally,
these loans are expected to be repaid from the cash flows of the
borrowers and are collateralized by the related property.
Credit losses arising from real estate lending transactions
compare favorably with Blackhawk's credit loss experience on its
loan portfolio as a whole. However, adverse changes in the
local economy would have a direct impact on the credit risk in
the loan portfolio.
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the
accounts of Blackhawk Bancorp, Inc. (Company) and its
wholly-owned subsidiaries, Blackhawk State Bank (Blackhawk) and
its wholly-owned subsidiaries, Nevahawk Investment, Inc. and
Rochelle Savings Bank (Rochelle). All significant intercompany
transactions and accounts have been eliminated in consolidation.
On April 30, 1997, the Corporation acquired for cash all of the
outstanding shares of Rochelle Bancorp, Inc. and its
wholly-owned subsidiaries. Also, the Corporation acquired 100%
of the stock of Midland Acceptance Corp., a 50% owned subsidiary
of Rochelle. The total acquisition cost was $4,318,546. The
excess of the total acquisition cost over the fair value of the
net assets acquired of $1,934,127 is being amortized over 10 to
20 years by the straight-line method. The acquisition has been
accounted for as a purchase and the results of operations of
Rochelle since the date of acquisition are included in the
consolidated financial statements. The assets of Rochelle
Bancorp, Inc were subsequently liquidated into the Corporation.
The unaudited proforma effect of the transaction had it occurred
prior to 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Net interest income (in thousands) $8,156 $7,577
====== ======
Net income (in thousands) $2,036 $1,795
====== ======
Earnings per share $ .89 $ .79
====== ======
</TABLE>
USE OF ESTIMATES:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS:
For purposes of reporting cash flows, cash and cash equivalents
includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from federal funds
sold and other short-term investments, with an original maturity
of less than three months, loans, deposits, and short-term
borrowings with an original maturity of less than three months,
are reported net under general practices within the banking
industry.
- 8 -
<PAGE> 24
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES HELD-TO-MATURITY:
Securities classified as held-to-maturity are those debt
securities the Company has both the intent and ability to
hold to maturity regardless of changes in market conditions,
liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed
by the interest method over their contractual lives.
SECURITIES AVAILABLE-FOR-SALE:
Securities classified as available-for-sale are those debt
securities that the Company intends to hold for an indefinite
period of time but not necessarily to maturity. Any decision
to sell a security classified as available-for-sale would be
based on various factors, including significant movements in
interest rates, changes in the maturity mix of the Company's
assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities
available-for-sale are carried at fair value. Unrealized
gains or losses are reported as increases or decreases in
shareholders' equity, net of the related deferred tax effect.
Realized gains or losses, determined on the basis of the
cost of specific securities sold, are included in earnings.
LOANS:
Loans are stated at unpaid principal balances, less the
allowance for loan losses and net of deferred loan fees.
Loan origination fees exceeding related costs are deferred
and amortized over the contracted life of the loan as a yield
adjustment.
Mortgage loans held for sale are recorded at the lower of
cost or fair market value. Gains and losses on the sale of
mortgage loans are included in other non-interest income.
The accrual of interest on impaired loans is discontinued
when, in management's opinion, the borrower may be unable to
meet payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent
it is received in cash.
The allowance for loan losses is maintained at a level which,
in management's judgment, is adequate to absorb credit losses
inherent in the loan portfolio. The amount of the allowance
is based on management's evaluation of the collectibility of
the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience,
specific impaired loans, and economic conditions. Allowances
for impaired loans are generally determined based on
collateral values (or the present value of estimated cash
flows). Because of uncertainties inherent in the estimation
process, management's estimate of credit losses inherent in
the loan portfolio and the related allowance may change
materially in the near term. The allowance is increased by a
provision for loan losses, which is charged to expense and
reduced by charge-offs, net of recoveries. Changes in the
allowance relating to impaired loans are charged or credited
to the provision for loan losses.
SALES OF FIRST MORTGAGE LOANS AND LOAN SERVICING:
The Company sells first mortgage loans with yield rates to
the buyer based upon the current market rates which may
differ from the contractual rate on the loans sold. At the
time that loans are sold, a gain or loss is recorded which
reflects the difference between the assumed cash flow to be
generated by the contractual interest rates of the loans sold
and the assumed cash flow resulting from the yield to be paid
to the purchaser, adjusted for servicing and discounted to
reflect present value. Loan servicing fees are recognized
over the lives of the related loans. Loans held for sale are
stated at the lower of aggregate cost or market. Real estate
loans serviced for others are not included in the
accompanying balance sheets.
- 9 -
<PAGE> 25
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MORTGAGE SERVICING RIGHTS:
In accordance with FASB Statement No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of
Liabilities" and FASB Statement No. 122 "Accounting for Mortgage
Servicing Rights", the Company capitalizes the estimated value of
mortgage servicing rights. The Company acquires servicing rights
through the origination and purchase of mortgage loans. Prior to
the adoption of FASB Statement No's. 125 and 122, only mortgage
servicing rights that were purchased were capitalized. When the
originated mortgage loans are sold or securitized into the
secondary market, the Company allocates the total cost of the
mortgage loans between mortgage servicing rights and the loans,
based on their relative fair values. The cost of mortgage servicing
rights is amortized in proportion to, and over the period of,
estimated net servicing revenues.
Mortgage servicing rights are periodically evaluated for
impairment. For purposes of measuring impairment, the servicing
rights are stratified into pools based on one or more predominant
risk characteristics of the underlying loans including loan type,
interest rate and term. Impairment represents the excess of
carrying value of a stratified pool over its fair value, and is
recognized through a valuation allowance. The fair value of each
servicing rights pool is evaluated based on the present value of
estimated future cash flows using a discount rate commensurate with
the risk associated with that pool, given current market
conditions. Estimates of fair value include assumptions about
prepayment speeds, interest rates, and other factors which are
subject to change over time. Changes in these underlying
assumptions could cause the fair value of mortgage servicing
rights, and the related valuation allowance, to change
significantly in the future.
BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally on a
straight-line basis over the estimated useful life of each asset.
Costs of major additions and improvements are capitalized.
Expenditures for maintenance and repairs are reflected as expense
when incurred.
OTHER REAL ESTATE:
Other real estate is carried in other assets at the lower of cost
or fair value less estimated disposal costs. When the property is
acquired through foreclosure, any excess of the related loan
balance over market value is charged to the allowance for loan
losses. It is Blackhawk's policy to account for collateral that
has been substantively repossessed in the same manner as collateral
that has been formally repossessed. Subsequent write-downs or
losses upon sale are charged to other operating expense. The Bank
had no other real estate at December 31, 1997 and 1996.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
The Bank enters into sales of securities under agreements to
repurchase (reverse-repurchase agreements). Reverse-repurchase
agreements are treated as financings, and the obligations to
repurchase securities sold are reflected as a liability in the
balance sheets. The securities underlying the agreements remain in
the asset accounts.
PENSION PLAN:
The Bank has a defined-contribution plan which covers substantially
all full-time employees. Costs of the plan are based on
participants' eligibility and compensation and are funded as
accrued.
- 10 -
<PAGE> 26
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRUST ASSETS:
Assets, other than deposits in Blackhawk, held in a fiduciary or
agency capacity are not included in the consolidated financial
statements as they are not assets of Blackhawk.
INCOME TAXES:
The Company and its Subsidiaries file a consolidated federal income
tax return and separate state income tax returns.
Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax basis. Deferred
tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
EARNINGS PER SHARE DATA:
The per share data is based on the weighted average number of
common stock and common stock equivalents outstanding during each
year.
NOTE 2. SECURITIES
Debt securities have been classified in the balance sheets according
to management's intent under held-to-maturity or available-for-sale.
The carrying amount of securities and their approximate fair values at
December 31, is as follows:
HELD-TO-MATURITY SECURITIES:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains (Losses) Fair Value
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $10,190,719 $97,072 $(1,829) $10,285,962
U.S. Government agencies 13,899,629 80,993 (12,957) 13,967,665
Obligations of states and
political subdivisions 4,340,570 23,523 (8,381) 4,355,712
Other securities 488,793 488,793
----------- ----------- ------------ -------------
$28,919,711 $201,588 $(23,167) $29,098,132
=========== =========== ============ =============
<CAPTION>
1996
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains (Losses) Fair Value
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $11,403,001 $135,417 $(26,855) $11,511,563
U.S. Government agencies 9,341,386 30,546 (46,076) 9,325,856
Obligations of states and
political subdivisions 3,117,794 4,098 (30,687) 3,091,205
Other securities 1,002,459 7,618 1,010,077
----------- ----------- ------------ -------------
$24,864,640 $177,679 $(103,618) $24,938,701
=========== =========== ============ =============
</TABLE>
- 11 -
<PAGE> 27
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 2. SECURITIES (CONTINUED)
AVAILABLE-FOR-SALE SECURITIES:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains (Losses) Fair Value
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $1,250,353 $2,226 $1,252,579
U.S. Government agencies 7,332,738 74,767 $(19,770) 7,387,735
Other securities 847,300 847,300
----------- ----------- ------------ -------------
$9,430,391 $76,993 $(19,770) $9,487,614
=========== =========== ============ =============
<CAPTION>
1997
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains (Losses) Fair Value
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $2,750,977 $6,601 $2,757,578
U.S. Government agencies 7,256,468 47,500 7,227,378
Other securities 716,286 669 $(76,590) 716,955
----------- ----------- ------------ -------------
$10,723,731 $54,770 $(76,590) $10,701,911
=========== =========== ============ =============
</TABLE>
The amortized cost and fair value of securities as of December 31,
1997, by contractual maturity, are shown below. Maturities may differ
from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without
any penalties. Therefore, these securities are not included in the
maturity categories in the following maturity summary:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
------------------------ ----------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 9,380,483 $9,395,440 $2,000,635 $2,000,688
Due after one year through five
years 10,713,554 10,796,231 3,757,088 3,778,323
Due after five years through ten
years 826,775 836,539 1,000,910 1,005,313
Mortgage-backed securities 7,998,899 8,069,922 1,824,458 1,855,990
Other securities 847,300 847,300
----------- ----------- ---------- ----------
$28,919,711 $29,098,132 $9,430,391 $9,487,614
=========== =========== ========== ==========
</TABLE>
The net unrealized gains (losses) on securities available-for-sale as
of December 31, 1997 and 1996 were $38,247 and $(11,343),
respectively, which is reflected net of deferred tax (benefits) of
$18,976 and $(10,477), respectively, in shareholders' equity.
There were $0, $0, $17,785 and in realized gains or losses on
securities for 1997, 1996 and 1995, respectively.
Securities available-for-sale with a carrying value of $6,333,527 and
$8,663,098 at December 31, 1997 and 1996, respectively, were pledged
to secure public deposits and for other purposes as required or
permitted by law. Securities held-to-maturity with a carrying value
of $10,740,441 and $5,911,482 at December 31, 1997 and 1996,
respectively were pledged to secure public deposits and for other
purposes as required or permitted by law.
- 12 -
<PAGE> 28
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 3. LOANS
The composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Real estate - mortgage $83,072,441 $55,475,000
Real estate - construction 3,955,615 1,342,700
Consumer 26,006,036 19,585,915
Commercial 26,681,765 23,023,076
------------ ------------
139,715,851 99,426,691
Less: Allowance for loan losses 1,522,669 1,185,672
Unearned discount 420,000
------------ ------------
Loans, net $136,773,188 $98,241,019
============ ============
</TABLE>
Nonperforming loans includes loans which have been categorized by
management as impaired and non-accruing because collection of interest
is not assured, non-accruing loans (not considered impaired loans) and
loans which are past-due ninety days or more as to interest and/or
principal payments. The following summarizes information concerning
nonperforming loans:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Impaired loans $ 325,066 $444,594
Non-accruing loans 663,973 442,897
Past due 90 days or more and still
accruing 89,841 252,163
---------- ----------
Total nonperforming loans $1,078,880 $1,139,654
========== ==========
</TABLE>
The average balance of loans classified as impaired totaled
approximately $405,253 and $601,615 for the years ended December 31,
1997 and 1996, respectively. The allowance for loan losses related to
impaired loans amounted to approximately $115,000 and $180,277 at
December 31, 1997 and 1996, respectively. Interest income on impaired
loans of $2,856 and $51,762 was recognized for cash payments received
in 1997 and 1996, respectively.
The Company has $133,417 in commitments to loan additional funds to
the borrowers of nonperforming loans.
- 13 -
<PAGE> 29
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 3. LOANS (CONTINUED)
The effect on interest income of the non-accruing loans is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Income recognized $30,710 $29,578 $12,952
========== ========== ========
Income that would have been
recognized in accordance with the
original loan terms $77,016 $52,194 $22,967
========== ========== ========
A summary of transactions in the
allowance for loan losses is as follows:
Balance at beginning of year $1,185,672 $928,817 $814,115
Acquired allowance for loan losses 321,096
---------- ---------- --------
Adjusted balance at beginning of year 1,506,768 928,817 814,115
Provision charged to expense 191,777 145,000 180,000
Loans charged off (216,176) (109,486) (77,042)
Recoveries 40,300 221,341 11,744
---------- ---------- --------
Balance at end of year $1,522,669 $1,185,672 $928,817
========== ========== ========
</TABLE>
Loans are made, in the normal course of business, to directors,
executive officers, their immediate families and affiliated companies
in which they are a principal shareholder (commonly referred to as
related parties). The terms of these loans, including interest rates
and collateral, are similar to those prevailing for comparable
transactions and management believes they do not involve more than a
normal risk of collectibility. Such direct and indirect loans are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Balance at beginning of year $1,909,522 $961,933
Loans acquired 167,878 -0-
----------- -----------
Adjusted balance at beginning of year 2,077,400 961,933
New loans 4,909,239 4,951,115
Principal repayments (4,771,642) (4,003,526)
----------- -----------
Balance at end of year $2,214,997 $1,909,522
=========== ===========
</TABLE>
In addition, the Company has loan commitments to the aforementioned
related parties of $1,683,261 and $1,253,787 in 1997 and 1996,
respectively.
- 14 -
<PAGE> 30
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 4. MORTGAGE SERVICING RIGHTS:
The unpaid principal balance of mortgage loans serviced for others,
which are not included on the consolidated balance sheets, was
$55,087,784 at December 31, 1997. Custodial escrow balances maintained
in connection with loan servicing were approximately $644,495 at
December 31, 1997. Management believes that the remaining book value
of mortgage servicing rights approximates the fair value at December
31, 1997.
The carrying value and fair value of capitalized mortgage servicing
rights consisted of the following:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Unamortized cost of mortgage servicing rights $545,412
Valuation allowance -0-
--------
Carrying value of mortgage servicing rights 545,412
========
Fair value of mortgage servicing rights $545,412
========
</TABLE>
The following is an analysis of the activity for mortgage servicing
rights and the related valuation allowance:
<TABLE>
<CAPTION>
Eight months ended
December 31, 1997
------------------
<S> <C>
UNAMORTIZED COST OF MORTGAGE SERVICING RIGHTS
Balance at beginning of year $-0-
Acquisition of originated mortgage servicing
rights (Rochelle) 226,944
Fair value of servicing rights acquired in
purchase of Rochelle 241,225
Additions of originated and acquired mortgae
servicing rights 135,366
Amortization (58,123)
--------
Balance at end of year $545,412
========
VALUATION ALLOWANCE
Balance at beginning of year $-0-
Impairment allowance charged to expense -0-
--------
Balance at end of year $-0-
========
</TABLE>
NOTE 5. BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land and improvements $395,254 $294,364
Buildings and improvements 5,328,522 4,155,979
Equipment 2,503,240 1,494,867
Vehicles 192,309 137,903
---------- ----------
8,419,325 6,083,113
Less accumulated depreciation 4,066,265 2,619,622
---------- ----------
Bank premises and equipment, net $4,353,060 $3,463,491
========== ==========
</TABLE>
Depreciation charged to operating expense was $335,691, $333,294, and
$348,424 for the years ended December 31, 1997, 1996 and 1995,
respectively.
- 15 -
<PAGE> 31
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 6. DEPOSITS
The aggregate amount of short-term jumbo CDs, each with a minimum
denomination of $100,000, was approximately $9,077,861 and $5,094,935
in 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities of CDs are as follows:
<TABLE>
<S> <C>
1998 $49,621,412
1999 26,282,822
2000 10,100,123
2001 1,383,760
2002 and thereafter 260,238
-----------
$87,648,355
===========
</TABLE>
NOTE 7. BORROWED FUNDS
A summary of borrowed funds is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Secured Advances from Federal Home Loan Bank of Chicago:
Fixed rate of 6.19%, due 6/16/97 $ -0- $ 300,000
Fixed rate of 6.74%, due 8/2/97 -0- 600,000
Fixed rate of 6.26%, due 6/16/98 400,000 400,000
Fixed rate of 5.44%, due 1/10/99 800,000 800,000
Fixed rate of 7.12%, due 4/17/00 150,000 150,000
Fixed rate of 5.71%, due 6/18/02 2,000,000 -0-
Fixed rate of 5.20%, due 12/11/02 1,500,000 -0-
Securities sold under an agreement to repurchase 10,256,205 7,405,451
Federal funds purchased 1,975,000 -0-
----------- ----------
$17,081,205 $9,655,451
=========== ==========
</TABLE>
Advances from the Federal Home Loan Bank of Chicago are collateralized by
substantially all one-to-four family real estate loans.
- 16 -
<PAGE> 32
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 8. EMPLOYEE BENEFIT PLANS
PENSION PLAN:
The Blackhawk has a noncontributory, defined contribution
money-purchase pension plan covering substantially all of its
employees. The Blackhawk contributes, on behalf of the eligible
employees, 4.2% of total annual compensation plus 4.2% of compensation
in excess of $13,200.
The total pension expense was $103,905, $77,568, and $74,347, for the
years ended December 31, 1997, 1996 and 1995, respectively.
EXECUTIVE BONUS PLAN:
Beginning January 1, 1991, the Company has adopted a revised incentive
bonus plan for officers providing cash bonuses based upon the
financial performance of the Company and performance of the respective
officers. Bonus compensation payable under this plan totaled $131,376
and $115,176 in 1997 and 1996, respectively.
Bonus compensation expense was $127,223, $159,410, and $112,417 for
the years 1997, 1996 and 1995, respectively.
STOCK OPTION PLANS:
The Company has reserved 240,000 shares of common stock for issuance
to directors and key employees under incentive stock option and
purchase plans. Options are granted at prices equal to the fair
market value and 90% of the fair market value on the dates of grant
for directors and key employees, respectively, and are exercisable in
cumulative installments over a three year period. Other pertinent
information related to the plans is as follows:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
1997 Price 1996 Price 1995 Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares under option,
beginning of year 275,776 $ 7.02 262,235 $ 6.72 196,701 $ 4.84
Granted during the year 31,350 11.40 17,300 11.20 108,350 9.40
Terminated and canceled
during the year (1,000) 11.25 (510) 5.85 (11,100) 5.40
Exercised during the year (10,550) 3.92 (3,249) 5.25 (31,716) 4.65
-------- -------- -------- -------- ------- --------
Shares under option, end of
year 295,576 $ 7.59 275,776 $ 7.02 262,235 $ 6.72
======== ======== ======== ======== ======= ========
Options exercisable, end of
year 217,592 $ 6.57 84,492 $ 5.73 113,543 $ 4.97
======== ======== ======== ======== ======= ========
Available to grant, end of
year 83,000 114,350 131,650
======== ======== =======
Weighted average fair value
of options granted during
the year $ 5.74 $ 4.58 $ 5.66
======== ======== ========
</TABLE>
- 17 -
<PAGE> 33
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 8. EMPLOYEE BENEFIT PLANS (CONTINUED)
STOCK OPTION PLANS: (CONTINUED)
Compensation expense related to granting compensatory employee stock
options totaled $36,039, $42,599, and $33,697 in 1997, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
Outstanding Options Vested Options
------------------------------------ -----------------------
Outstanding Weighted Weighted
Year of Shares Average Shares Average
Expiration Granted Price Vested Price
---------- ----------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
2000 4,200 $ 3.33 4,200 $ 3.33
2001 23,800 $ 3.29 23,800 $ 3.29
2002 5,250 $ 4.33 5,250 $ 4.33
2003 100,026 $ 5.25 100,026 $ 5.25
2004 7,350 $ 6.83 7,350 $ 6.83
2005 107,300 $ 9.40 71,433 $ 9.39
2006 16,300 $11.20 5,433 $11.20
2007 31,350 $11.40 -0- $ -0-
--------- ------ -------- ------
295,576 $ 7.59 217,592 $ 6.57
========= ====== ======== ======
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its stock
options. Had compensation costs been determined on the basis of fair
value pursuant to FASB Statement No. 123, net income and earnings per
share would have been reduced as follows:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Net income:
As reported $1,955,579 $1,728,275
========== ==========
Pro forma 1,862,286 $1,644,430
========== ==========
Earnings per share:
As reported:
Basic $ .86 $ .73
========== ==========
Diluted $ .81 $ .69
========== ==========
Pro forma:
Basic $ .82 $ .71
========== ==========
Diluted $ .78 $ .67
========== ==========
</TABLE>
The fair value of each stock option grant has been estimated on the
date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Risk-free interest rate 5% 5%
Expected life 10 years 10 years
Expected volatility 29% 33%
Expected dividend yield 3% 3%
</TABLE>
- 18 -
<PAGE> 34
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 8. EMPLOYEE BENEFIT PLANS (CONTINUED)
EMPLOYEE STOCK OWNERSHIP PLAN:
The Company has an Employee Stock Ownership Plan for the benefit of
employees who meet the eligibility requirements. The Plan was
established in 1990. The Plan holds 112,101 shares of the Company's
common stock in a trust established in Blackhawk. The stock was
acquired by the Plan by using the proceeds from a loan obtained from a
nonrelated commercial lender. The loan was collateralized by the
stock which has not been allocated to individual participant accounts.
In addition, the Company guaranteed this obligation. Cash payments
to the Plan consist of contributions and dividend payments, in amounts
sufficient for it to satisfy the debt service requirements.
Accordingly, the debt has been recorded in the accompanying
consolidated balance sheets together with the related deferred
compensation. The debt and deferred compensation are reduced as the
Plan makes principal payments.
The loan required principal payments of $13,393, plus interest each
quarter and was paid in full at December 31, 1997.
Cash payments to the Plan during the years ended December 31, 1997,
1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Contributions $ 36,000 $ 33,000 $ 33,250
Dividends 38,211 35,751 30,600
-------- -------- --------
$ 74,211 $ 68,751 $ 63,850
======== ======== ========
</TABLE>
For financial statement purposes, expense for the Plan is determined
based on the percentage of shares allocated to participants each
period (allocations are based on principal and interest payments)
times the original amount of the debt plus the interest incurred. The
components of the amount charged to expense for the years ended
December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Compensation $ 36,000 $ 32,545 $ 40,763
Interest -0- 5,022 10,008
--------- --------- ---------
$ 36,000 $ 37,567 $ 50,771
========= ========= =========
</TABLE>
In accordance with the applicable federal income tax regulations,
Blackhawk is expected to honor the rights of certain participants to
diversify their vested account balances or to liquidate their vested
ownership of the stock in the event of employment termination. The
purchase price of the stock is based on the market value. In
addition, the deferred compensation recorded in connection with the
debt incurred by the Plan has been offset against the stock.
401(K) PROFIT-SHARING PLAN:
Rochelle has a profit-sharing plan which meets the qualifications of
Section 401(k) of the Internal Revenue Code (Code). Under the plan,
employees 21 years of age or older with one year of service and 1,000
hours of service during that period may make pre-tax contributions up
to applicable limits under the Code. Employees are 100% vested in
their contributions. Discretionary employer contributions vest at a
rate of 20% per year beginning on the third year of service by an
employee. Rochelle made contributions totaling $10,094 during the year
ended December 31, 1997.
- 19 -
<PAGE> 35
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 8. EMPLOYEE BENEFIT PLANS (CONTINUED)
DEFERRED COMPENSATION PLAN:
In addition, Rochelle has deferred compensation agreements with
certain officers of Rochelle. Amounts are accumulated in an account
from which benefits will be paid to the officers at termination or
retirement. As of December 31, 1997 deferred compensation liability
totaled $269,338.
The agreements also provide for an acceleration of benefits upon the
deaths of these officers, payable to their beneficiaries. Rochelle has
purchased life insurance policies on the lives of the officers in
order to fund the acceleration of benefits at death. Rochelle is owner
and beneficiary of these policies which provide for death benefits
totaling $1,303,314. These policies have a cash surrender value of
$556,342 as of December 31, 1997.
NOTE 9. INCOME TAXES
Net deferred tax (assets) liabilities consist of the following
components as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment $ 225,578 $171,571
Unrealized gains on securities available-for-sale 18,976 -0-
Purchase accounting 574,694
Securities 69,039 41,227
Mortgage servicing rights 127,579 -0-
Other 6,199 -0-
---------- --------
Total deferred tax liabilities 1,022,065 212,798
---------- --------
Deferred tax assets:
Allowance for loan losses 451,046 228,134
Unrealized losses on securities available-for-sale -0- 10,477
Accrued expenses 104,054 25,630
---------- --------
Total deferred tax assets 555,100 264,241
---------- --------
Net deferred tax (assets) liabilities $ 466,965 $(51,443)
========== ========
</TABLE>
- 20 -
<PAGE> 36
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
No valuation allowance was necessary.
The provision for income taxes charged to operations for the years
ended December 31, 1997, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 957,385 $778,733 $ 768,641
State 128,951 95,127 27,869
---------- -------- ---------
Total current 1,086,336 873,860 796,510
========== ======== =========
Deferred:
Federal (12,437) (15,199) (195,767)
State (6,378) (11,000) -0-
---------- -------- ---------
Total deferred (18,815) (26,199) (195,767)
---------- -------- ---------
Total $1,067,521 $847,661 $ 600,743
========== ======== =========
</TABLE>
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax
income for the years ended December 31, 1997, 1996 and 1995 due to the
following:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- --------
<S> <C> <C> <C>
Income taxes at federal statutory rate $1,027,854 $875,818 $704,694
Increase (decrease) in income taxes
resulting from:
Tax exempt income (58,917) (75,175) (67,717)
State income taxes, net of federal
income tax benefit 75,552 55,524 24,224
Amortization of goodwill and other
intangibles 62,354 -0- -0-
Excess stock option compensation (18,147) (7,409) (59,062)
Other (20,175) (1,097) (1,396)
---------- -------- --------
$1,068,521 $847,661 $600,743
========== ======== ========
</TABLE>
The Company previously qualified under provisions of the Internal
Revenue Code which permit as a deduction from taxable income an
allowance for bad debts which differs from the provision for such
losses charged to income. Accordingly, retained earnings at
December 31, 1997 included approximately $3,952,661, representing
Blackhawk's federal bad debt deduction in excess of actual losses
for which no provision for federal income taxes had been made.
NOTE 10. DIVIDEND LIMITATIONS
Dividend distributions by Blackhawk are limited by state banking
regulations. Generally, the regulations provide that dividends are
limited to current year net income of Blackhawk provided that the
surplus of Blackhawk exceeds the capital stock. Accordingly,
Blackhawk will only be able to pay dividends to the Company derived
from income earned in 1997 unless prior consent is obtained from the
Wisconsin Commissioner of Banking.
Further, Blackhawk may not declare or pay a cash dividend, or
repurchase any of its stock, if the effect thereof would cause the net
worth of Blackhawk to be reduced below either the amount required for
the liquidation account (as detailed in Note 12) or the net worth
requirements imposed by the Commissioner and the Federal Deposit
Insurance Corporation (F.D.I.C.).
- 21 -
<PAGE> 37
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet
risk, acquired in the normal course of business to meet the financing
needs of its customers. These financial instruments include various
commitments to extend credit and standby letters of credit. These
instruments involve, to a varying degree, elements of credit risk in
excess of the amount recognized in the balance sheet. The contract
amounts of these instruments reflect the extent of involvement Company
has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Company uses the same
credit policies in making commitments as it does for on-balance-sheet
instruments.
A summary of the amount of Company's exposure to credit loss for loan
commitments (unfunded loans and unused lines of credit) and standby
letters of credit outstanding at December 31, 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
Loan commitments $20,883,266 $9,327,753
Standby letters of credit 582,588 355,991
----------- ----------
21,465,854 9,683,744
Commitments to sell 1,459,019 -0-
----------- ----------
$20,006,835 $9,683,744
=========== ==========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since the
commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by
Company upon extension of credit, is based on management's credit
evaluation. Collateral varies but may include accounts receivable,
inventory, property, plant and equipment, income-producing commercial
properties and real estate.
NOTE 12. LIQUIDATION ACCOUNT
In May 1990, Blackhawk was converted from a Wisconsin chartered mutual
savings bank to a Wisconsin chartered capital stock commercial bank
subsidiary of Blackhawk Bancorp, Inc. (Holding Company). Pursuant to
the Plan, shares of capital stock of the Holding Company were offered
at a predetermined price to eligible account holders and others as
provided in the Plan.
Subsequent to the conversion to a stock bank, a Special Liquidation
Account was established by restructuring a portion of retained
earnings for the purpose of granting deposit account holders prior to
the conversion a priority claim if Blackhawk were to liquidate in the
future. In the event of such a liquidation (and only in such event),
such deposit account holders who continue to maintain their deposit
account shall be entitled to receive a distribution from the
liquidation account after payment to creditors. The balance
attributable to the Special Liquidation Account is decreased by a
proportionate amount as each deposit account holder closes an account
or reduces the balance in such deposit account as of any future fiscal
year end. The balance of the Special Liquidation Account was
$2,608,584 on December 31, 1997.
- 22 -
<PAGE> 38
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 13. LEASE COMMITMENTS
Blackhawk leases two branch office locations in Beloit, Wisconsin
under leases expiring November 2014 and July 2012, respectively. The
leases can be terminated every five years, but Blackhawk could be
liable for remodeling or removal costs to the leased office spaces if
the leases are terminated before the 14th year of the agreements.
Because of the early termination costs, management does not intend to
exercise the termination prior to expiration of the leases.
Rochelle entered into a lease agreement in December 1997 for branch
office space in Roscoe, Illinois. The lease requires monthly payments
of $1,668 until occupancy then $2,604 thereafter subject to
inflationary adjustments after three years from occupancy. In
addition, Rochelle is obligated to pay a portion of the real estate
taxes, insurance, and common area maintenance. It is anticipated
occupancy will occur March 1998 and the branch will be operational at
that time.
The total minimum rental commitment under the leases at December 31,
1997 is as follows:
Year ending December 31:
<TABLE>
<S> <C>
1998 $ 88,938
1999 94,517
2000 108,350
2001 108,350
2002 and later 1,131,156
----------
$1,531,311
==========
</TABLE>
Total rent expense for the years ended December 31, 1997, 1996 and
1995 was $48,659, $35,500, and $32,083, respectively.
NOTE 14. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("SFAS 128"), "Earnings per Share" ("EPS"). SFAS 128
simplifies the standards for computing EPS previously found in APB
Opinion No. 15 ("APB 15"). SFAS 128 replaces the presentation of
"primary" EPS with the presentation of "basic" EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income
statement and a reconciliation of the numerator and denominator used
in the basic EPS calculation to the numerator and denominator used in
the diluted EPS calculation. Basic EPS excludes dilution and is
computed by dividing net income by the weighted-average common shares
outstanding. Diluted EPS reflects the dilution that would occur if
securities or other contracts to issue common stock were exercised or
converted to common stock.
- 23 -
<PAGE> 39
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 14. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
Per
Income Share Share
(Numerator) (Denominator) Amount
----------- ------------ ------
<S> <C> <C> <C>
Earnings per share:
Net income $1,955,579 2,283,428 $0.86
========== =====
Effect of dilutive stock options 101,160
---------
Diluted EPS:
Net income + assumed exercising of
options $1,955,579 2,384,588 $0.82
========== ========= =====
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
Per
Income Share Share
(Numerator) (Denominator) Amount
------------------ ------------- ------
<S> <C> <C> <C>
Earnings per share:
Net income $1,728,275 2,279,494 $0.76
========== =====
Effect of dilutive stock options 92,973
---------
Diluted EPS:
Net income + assumed exercising of
options $1,728,275 2,372,467 $0.73
========== ========= =====
FOR THE YEAR ENDED DECEMBER 31, 1995
<CAPTION>
Per
Income Share Share
(Numerator) (Denominator) Amount
------------------ ------------- ------
<S> <C> <C> <C>
Earnings per share:
Net income $1,471,887 2,273,309 $0.65
========== =====
Effect of dilutive stock options 57,112
----------
Diluted EPS:
Net income + assumed exercising of
options $1,471,887 2,330,421 $0.63
========== ========== =====
</TABLE>
- 24 -
<PAGE> 40
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 15. MERGER PLAN
Pursuant to a plan of merger adopted February 1998, Rochelle will be
merged into Blackhawk, thereby extinguishing all common shares of
Rochelle. The transaction is anticipated to be accounted for similar
to a pooling of interests with no goodwill recognized and all assets
and liabilities of Rochelle being transferred to Blackhawk at their
book value at the date of consummation of the merger. It is
anticipated that the merger will be completed in 1998.
NOTE 16. COMMON STOCK SPLIT
On March 31, 1995, the Company issued the 749,200 additional shares,
at $.01 per share par value, necessary to effect a 2 for 1 common
stock split.
On June 15, 1996, the Company issued the 759,301 additional shares, at
$.01 per share par value, necessary to effect a 3 for 2 common stock
split.
The dividends per common share and earnings per common share for the
year ended December 31, 1995 has been retroactively adjusted for these
splits.
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments", requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet,
for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instrument. Statement 107
excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. These fair value
disclosures are not intended to represent the market value of the
Company.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash, cash equivalents and federal funds sold: For these short-term
instruments, the carrying amount is a reasonable estimate of fair
value.
Securities: For securities, fair value equals quoted market price,
where available. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
Loans receivable: The fair value of loans is estimated by discounting
the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings for the same
remaining maturities.
Deposits: The fair value of demand deposits and savings accounts is
the amount payable at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
Short-term and long-term borrowings: The carrying amounts of
variable-rate borrowings and notes payable approximate their fair
values. The fair value of fixed rate borrowings is estimated using
rates currently available for debt with similar terms and remaining
maturities.
Off-balance sheet financial instruments: The fair value of
off-balance sheet instruments was estimated based on the amount the
Company would pay to terminate the contracts or agreements, using
current rates and, when appropriate, the current creditworthiness of
the customer.
- 25-
<PAGE> 41
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ---------- ----------- -------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 8,680 $ 8,680 $ 7,966 $ 7,966
Federal fund sold and other
short-term investments 8,889 8,889 4,678 4,678
Securities 38,407 38,586 35,567 35,641
Loans, net of allowance for
loan losses 135,750 136,219 98,241 97,979
Financial liabilities and other
off-balance sheet instruments:
Demand deposit and savings 71,402 71,402 56,233 56,233
Time deposits 87,648 87,923 62,077 62,367
Borrowings 17,081 17,114 9,681 9,674
Loan commitments -0- -0- -0- -0-
Standby letters of credit -0- 6 -0- 4
</TABLE>
NOTE 18. REGULATORY MATTERS
The Company, Blackhawk, and Rochelle are subject to various regulatory
capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect the
Company's, Blackhawk's, and Rochelle's financial statements. Under
capital adequacy guidelines and regulatory framework for prompt
corrective action, the Company, Blackhawk, and Rochelle must meet
specific capital guidelines that involve quantitative measures of the
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgements by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company, Blackhawk, and Rochelle to maintain
minimum amounts and ratios (set forth in the table below) of total
capital and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and the Tier I capital (as defined)
to average assets (as defined). Management believes, as of December
31, 1997, that the Company, Blackhawk, and Rochelle meets all capital
adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC
categorized Blackhawk as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Company, Blackhawk, and Rochelle must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the
Company's, Blackhawk's, and Rochelle's category.
- 26 -
<PAGE> 42
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 18. REGULATORY MATTERS (CONTINUED)
The actual capital amounts and ratios as of December 31, 1997 are also
presented in the table (in thousand's).
<TABLE>
<CAPTION>
To be Well Capitalized
Under prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
----------------- --------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------ --------------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Company
-------
Total Capital (To Risk
Weighted Assets) $22,895 18.67% $9,811 8.0% $12,264 10.0%
Tier I Capital (To Risk
Weighted Assets) $21,373 17.43% $4,905 4.0% $ 7,358 6.0%
Tier I Capital (To
Average Assets) $21,373 11.79% $5,439 3.0% $ 9,065 5.0%
Blackhawk
---------
Total Capital (To Risk
Weighted Assets) $19,253 18.22% $8,456 8.0% $10,570 10.0%
Tier I Capital (To Risk
Weighted Assets) $18,092 17.12% $4,228 4.0% $ 6,342 6.0%
Tier I Capital (To
Average Assets) $18,092 12.43% $5,822 4.0% $ 7,277 5.0%
Rochelle
--------
Total Capital (To Risk
Weighted Assets) $ 2,932 8.48% $2,765 8.0% $ 3,456 10.0%
Tier I Capital (To Risk
Weighted Assets) $ 2,621 7.58% $1,382 4.0% $ 1,728 6.0%
Tier I Capital (To
Average Assets) $ 2,621 5.29% $1,982 4.0% $ 2,479 5.0%
</TABLE>
NOTE 19. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
CONDENSED PARENT COMPANY BALANCE SHEETS:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 135,963 $ 1,326,460
Investment in subsidiaries 22,411,007 17,984,004
Investment securities held-to-maturity 110,051 2,197,449
Due from subsidiaries, net 696,731 742,459
Accrued interest receivable 1,251 14,165
Income tax receivable -0- 26,009
Other intangible assets 88,234 -0-
Other assets -0- 40,903
----------- -----------
Total assets $23,443,237 $22,331,449
=========== ===========
</TABLE>
- 27 -
<PAGE> 43
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
NOTE 19. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
CONDENSED PARENT COMPANY BALANCE SHEETS: (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Other borrowings $ -0- $ 25,456
Accrued tax payable 18,225 -0-
Other liabilities 289,836 276,795
----------- -----------
Total liabilities 308,061 302,251
----------- -----------
Shareholders' Equity:
Preferred stock -0- -0-
Common stock 22,964 22,859
Additional paid in capital 7,132,768 7,055,314
Retained earnings 16,045,371 15,072,129
Less treasury stock, at cost (104,174) (84,305)
Net unrealized gains (losses) on securities
available-for-sale 38,247 (11,343)
Less: Deferred compensation related to
employee stock ownership plan debt guarantee -0- (25,456)
----------- -----------
Total shareholders' equity 23,135,176 22,029,198
----------- -----------
Total liabilities and shareholders'
equity $23,443,237 $22,331,449
=========== ===========
CONDENSED PARENT COMPANY STATEMENTS OF INCOME:
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $1,750,000 $1,436,000 $1,200,000
Interest income 73,552 170,827 127,074
---------- ---------- ----------
Total income 1,823,552 1,606,827 1,327,074
---------- ---------- ----------
Expenses:
Professional fees 26,433 32,350 33,885
Other 45,361 31,001 21,990
---------- ---------- ----------
Total expenses 71,794 63,351 55,875
---------- ---------- ----------
Income before income tax benefits and
equity in undistributed net income of subsidiaries 1,751,758 1,543,476 1,271,199
Income tax expense (benefits) (798) 10,084 7,055
---------- ---------- ----------
Income before equity in undistributed
net income of subsidiaries 1,752,556 1,533,392 1,264,144
Equity in undistributed net income of
subsidiaries 203,023 194,883 207,743
---------- ---------- ----------
</TABLE>
- 28 -
<PAGE> 44
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
<TABLE>
<S> <C> <C> <C>
Net income $1,955,579 $1,728,275 $1,471,887
========== ========== ==========
</TABLE>
NOTE 19. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,955,579 $1,728,275 $1,471,887
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of intangible assets 13,333 -0- -0-
Equity in undistributed net income
of subsidiaries (203,023) (194,883) (207,743)
(Increase) decrease in due from
subsidiaries 43,998 (170,190) (572,269)
Accretion of discounts on invest-
ment securities, net (35,146) (46,324) (14,862)
(Increase) decrease in accrued
interest receivable 12,914 4,069 1,203
(Increase) decrease in income tax
receivable 26,009 36,047 87,379
Increase in other assets -0- (40,903) -0-
Increase in other liabilities 13,041 64,380 40,836
Increase in income tax payable 18,225 -0- -0-
Increase (decrease) in due to
subsidiaries -0- -0- (165,344)
----------- ----------- ----------
Net cash provided by operating
activities 1,844,930 1,380,471 641,087
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities (4,967,456) (5,334,005) (2,510,327)
Proceeds from maturity of securities 7,090,000 5,308,975 1,500,000
Purchase of Rochelle Bancorp, Inc. (4,233,324) -0- -0-
----------- ----------- ----------
Net cash used in investing
activities (2,110,780) (25,030) (1,010,327)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (982,337) (866,182) (676,140)
Proceeds from sale of common stock 77,559 56,811 181,090
Purchase of common stock for
treasury (19,869) (84,305) -0-
----------- ----------- ----------
Net cash used in financing
activities (924,647) (893,676) (495,050)
----------- ------------ ---------
Increase (decrease) in cash and
cash equivalents (1,190,497) 461,765 (864,290)
Cash and cash equivalents:
</TABLE>
- 29 -
<PAGE> 45
BLACKHAWK BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(CONTINUED)
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Beginning 1,326,460 864,695 1,728,985
========= ========== ==========
Ending $ 135,963 $1,326,460 $ 864,695
========= ========== ==========
</TABLE>
- 30 -
<PAGE> 46
GUIDE THREE DISCLOSURES
Table 1
ANAYLSIS OF NET INTEREST INCOME-TAX EQUIVALENT BASIS
Years Ended December 31,
<TABLE>
<CAPTION>
Average Balance Average Rate
Paid
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C>
35,778 35,510 32,117 6.52% 5.98% 5.90%
3,394 4,862 4,163 6.33% 6.66% 7.01%
- ---------------------------------------------
39,172 40,372 36,280 6.50% 6.06% 6.03%
125,403 95,042 92,020 9.25% 9.23% 9.05%
2,678 3,957 2,759 5.29% 5.05% 5.76%
2,103 43 34 4.09% 4.65% 5.88%
- ---------------------------------------------
169,356 139,414 131,093 8.49% 8.20% 8.14%
- ---------------------------------------------
10,786 4,933 4,111 1.40% 1.44% 1.53%
34,960 30,056 27,920 3.05% 3.05% 2.99%
80,557 62,005 64,257 5.85% 5.79% 5.58%
- ---------------------------------------------
126,303 96,994 96,288 4.70% 4.72% 4.66%
11,651 12,411 7,007 5.25% 5.18% 5.41%
2,999 2,754 3,444 5.90% 6.28% 6.21%
- ---------------------------------------------
140,953 112,159 106,739 4.77% 4.81% 4.76%
=============================================
3.72% 3.39% 3.39%
4.52% 4.33% 4.27%
</TABLE>
<TABLE>
<CAPTION>
Interest Earned or
1997 1996 1995
<S> <C> <C> <C>
Interest Earning Assets:
Taxable investment securities 2,331 2,123 1,895
Tax-exempt investment securities 215 324 292
============================
Total investments 2,546 2,447 2,187
Loans 11,597 8,777 8,328
Federal funds sold
and short term investments 142 200 159
Int. bearing deposits in banks 86 2 2
----------------------------
TOTAL EARNING ASSETS 11,371 11,426 10,676
----------------------------
Interest Bearing Liabilities:
Interest bearing demand deposits 151 71 63
Savings deposits 1,065 917 836
Time deposits 4,715 3,590 3,587
----------------------------
Total int. bearing deposits 5,931 4,578 4,486
Short-term borrowings 612 643 379
Long-term borrowings 177 173 214
-----------------------------
TOTAL INT.BEARING LIABILITIES 6,720 5,394 5,079
=============================
INTEREST RATE SPREAD
NET INTEREST MARGIN/
NET INTEREST INCOME 7,651 6,032 5,597
</TABLE>
- 31 -
<PAGE> 47
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Increase (Decrease)
Due to Due to
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Taxable 191 16 1 208 25 200 3 228
Tax-exempt securities (16) (98) 5 (109) (15) 49 (2) 32
-------------------------------------------------------------------------
Total 175 (82) 6 99 11 249 - 260
Loans 38 2,783 (2) 2,820 170 273 6 449
Federal funds sold and
other short-term investments 10 (65) (3) (58) (20) 69 (8) 41
Interest bearing deposits
in other banks (0) 96 (11) 84 (0) 1 (0) 0
-------------------------------------------------------------------------
TOTAL EARNING ASSETS 261 5,516 (12) 5,764 161 592 (3) 750
-------------------------------------------------------------------------
Interest Bearing Liabilities:
Interest bearing
demand deposits (2) 84 (3) 80 (4) 13 1 8
Savings deposits 1 150 (0) 148 16 64 1 81
Time deposits 39 1,074 12 1,125 133 (126) (5) 3
-------------------------------------------------------------------------
Total interest
bearing deposits 36 1,308 9 1,353 145 (49) (4) 92
Short-term borrowings 9 (39) (1) (31) (16) 292 12 264
Long-term borrowings (10) 15 (1) 4 2 (43) (0) (41)
-------------------------------------------------------------------------
TOTAL INTEREST BEARING
LIABILITIES 35 1,284 8 1,326 132 200 (17) 315
-------------------------------------------------------------------------
NET INTEREST MARGIN 226 4,232 (20) 4,438 29 392 14 435
=========================================================================
</TABLE>
- 32 -
<PAGE> 48
Table 2
ANALYSIS OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
(in thousands) December 31,
1997 1996 1995
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
<S> <C> <C> <C> <C> <C> <C>
Real estate-mortgage 82,046 60.98% 55,475 56.33% 54,819 58.60%
Real estate-construction 3,956 2.89% 1,343 1.36% 2,009 2.15%
Real estate-held-for-sale 1,024 0.75% 240 0.24% -- --
Consumer 25,006 18.28% 19,586 19.89% 17,325 18.52%
Commercial 26,682 18.52% 23,023 23.38% 20,324 21.73%
-------------------------------------------------------------------------
Gross loans 138,716 101.42% 99,427 101.20% 94,477 100.99%
Unearned income (420) (0.31%) -- -- -- 0.00%
Allowance for loan loss (1,523) (1.11%) (1,186) (1.20%) (929) (0.99%)
-------------------------------------------------------------------------
Net loans 136,773 100.00% 98,241 100.00% 93,548 100.00%
=========================================================================
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSS BY CATEGORY
<TABLE>
<CAPTION>
Percent Percent Percent
of Gross of Gross of Gross
Loans by Loans by Loans by
Amount Category Amount Category Amount Category
<S> <C> <C> <C> <C> <C> <C>
Real estate-mortgage 545 35.78% 540 45.53% 521 45.53%
Real estate-construction -- -- -- -- -- --
Consumer 353 23.18% 173 14.59% 181 14.59%
Commercial 625 41.04% 473 39.88% 227 39.88%
-----------------------------------------------------------------------
Total 1,523 100.00% 1,186 100.00% 929 100.00%
=======================================================================
</TABLE>
- 33 -
<PAGE> 49
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
<S> <C> <C> <C>
Allowance for loan losses, beginning 1,186 929 814
Amounts associated with acquisition 321 -- --
Amounts charged-off:
Real estate-mortgage 110 0 0
Consumer 104 98 40
Commercial 1 11 37
------------------------
Total charge-offs 215 109 77
------------------------
Recoveries on amounts previously charged-off:
Real estate-mortgage 2 0 0
Consumer 17 40 11
Commercial 20 181 1
------------------------
Total recoveries 39 221 12
------------------------
Net charge-offs 176 (112) 65
Provision charged to expense 192 145 180
------------------------
Allowance for loan losses, ending 1,523 1,186 929
========================
NON-PERFORMING LOANS AT PERIOD END
Impaired loans 325 445 134
Non-accrual 663 443 206
Past due 90 days or more
and still accruing 90 252 238
------------------------
Total non-performing loans 1,078 1,140 578
========================
RATIOS
Allowance for loan loss to
period-end loans 1.11% 1.19% 0.98%
Net charge-offs to average loans 0.14% (0.12%) 0.07%
Recoveries to charge-offs 18.14% 202.75% 15.58%
Non-performing loans to gross loans 0.77% 1.15% 0.61%
EFFECT ON INTEREST INCOME OF NON-ACCRUAL LOANS
Income recognized 34 30 13
Income that would have been recoginzed
in accordance with the original
loan terms 78 52 23
</TABLE>
- 34 -
<PAGE> 50
Table 3
OTHER INCOME AND EXPENSE
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
% of % of % of
Average Average Average
(in thousands) Amount Assets Amount Assets Amount Assets
<S> <C> <C> <C> <C> <C> <C>
Other operating expense 5,909 3.23% 4,214 2.83% 4,028 2.86%
Other operating income 1,536 0.84% 1,006 0.68% 778 0.55%
-----------------------------------------------------------
Net other operating exp. 4,373 2.38% 3,208 2.15% 3,250 2.31%
-----------------------------------------------------------
</TABLE>
Table 4
Three-Year Comparison of Average Balance Sheets
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
Percent of Percent of Percent of
(in thousands) Amount Total Amount Total Amount Total
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold
and short term investments 2,678 1.46% 3,957 2.66% 2,759 1.96%
Interest bearing deposits
in banks 2,103 1.15% 43 0.03% 34 0.02%
Taxable investment securities
securities 35,793 19.55% 35,475 23.85% 32,058 22.80%
Tax-exempt investment
securities 3,394 1.85% 4,862 3.27% 4,163 2.96%
Loans, net of unearned
income 124,008 67.74% 94,034 63.23% 91,141 64.83%
------------------------------------------------------------
Total earnings assets 167,976 91.76% 138,371 93.04% 130,155 92.58%
Cash and due from banks 6,426 3.51% 5,196 3.49% 5,128 3.65%
Bank premisis and equipme 4,305 2.35% 3,463 2.33% 3,762 2.68%
Other non-earning assets 4,361 2.38% 1,685 1.13% 1,548 1.10%
------------------------------------------------------------
Total non-earning assets 15,092 8.24% 10,344 6.96% 10,438 7.42%
------------------------------------------------------------
TOTAL ASSETS 183,068 100.00% 148,715 100.00% 140,593 100.00%
============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY/CAPITAL
LIABILITIES:
Interest bearing demand 10,786 5.89% 4,933 3.32% 4,111 2.92%
Savings accounts 34,960 19.10% 30,056 20.21% 27,920 19.86%
Time deposits 80,557 44.00% 62,005 41.69% 64,257 45.70%
</TABLE>
- 35 -
<PAGE> 51
<TABLE>
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total interest bearing
deposits 126,303 68.99% 96,994 65.22% 96,288 68.49%
Short-term borrowings 11,651 6.36% 12,411 8.35% 7,007 4.98%
Long-term borrowings 2,999 1.64% 2,754 1.85% 3,444 2.45%
-----------------------------------------------------------------------
Total interest bearing
liabilities 140,953 76.99% 112,159 75.42% 106,739 75.92%
Non-interest bearing
deposits 16,510 9.02% 13,725 9.23% 11,908 8.47%
Other liabilities 2,902 1.59% 957 0.64% 1,008 0.77%
-----------------------------------------------------------------------
Total liabilities 160,365 87.60% 126,841 85.29% 119,735 85.16%
Stockholders' Equity/
Capital 22,703 12.40% 21,874 14.71% 20,858 14.84%
-----------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY 183,068 100.00% 148,715 100.00% 140,593 100.00%
=======================================================================
</TABLE>
- 36 -
<PAGE> 52
Table 5
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
<S> <C> <C> <C>
Held-to-Maturity
US Treasury 10,191 11,403 15,399
US Government Agency 13,900 9,341 6,393
Tax-exempt obligations 4,341 3,118 3,902
Other securities 488 1,003 100
------------------------------
Total carrying value 28,920 24,865 25,794
------------------------------
Total market value 29,098 24,939 26,101
Available-for-Sale
US Treasury 1,252 2,758 4,777
US Government Agency 7,389 6,727 5,900
Tax-exempt obligations -- -- 109
Other securities 847 1,217 786
------------------------------
Total market value 9,488 10,702 11,572
------------------------------
Total Securities 38,408 35,567 37,366
==============================
</TABLE>
- 37 -
<PAGE> 53
Table 6
MATURITY OF INVESTMENT SECURITIES
December 31, 1997
<TABLE>
<CAPTION>
Within After One but After Five but
One Within Five Within Ten After Ten No Fixed
Year Years Years Years Maturity Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
US Treasury 4,974 5.88% 5,217 6.91% -- --% -- --% -- --% 10,191 6.41%
US Government Agency 2,998 5.68% 2,903 5.93% -- --% 7,999 7.17% -- --% 13,900 6.59%
Tax-exempt obligations 920 4.42% 2,594 4.48% 827 4.56% -- --% -- --% 4,341 4.48%
Other securities 488 5.61% -- --% -- --% -- --% -- --% 488 5.61%
---------------------------------------------------------------------------------------------------------------
Total 9,380 5.66% 10,714 6.06% 827 4.56% 7,999 7.17% -- --% 28,920 6.19%
---------------------------------------------------------------------------------------------------------------
Available-for-Sale
US Treasury 1,002 5.95% 250 5.98% -- --% -- --% -- --% 1,252 5.96%
US Government Agency 999 5.70% 3,528 6.12% 1,005 6.31% 1,857 6.98% -- --% 7,389 6.27%
Tax-exempt obligations -- --% -- --% -- --% -- --% -- --% -- --%
Other securities -- --% -- --% -- --% -- --% 847 6.99% 847 6.99%
---------------------------------------------------------------------------------------------------------------
Total 2,001 5.83% 3,778 6.11% 1,005 6.31% 1,857 6.98% 847 6.99% 9,488 6.29%
---------------------------------------------------------------------------------------------------------------
Grand Total 11,381 5.69% 14,492 6.07% 1,832 5.52% 9,856 7.13% 847 6.99% 38,408 6.22%
===============================================================================================================
</TABLE>
Table 7
MATURITY AND INTEREST SENSITIVITY OF LOANS
December 31, 1996
<TABLE>
<CAPTION>
Greater than
(in thousands) Time Remaining to Maturity one year
After one Fixed Floating
Due Within but Within After Five Interest Interest
One Year Five Years Years Total Rate Rate
<S> <C> <C> <C> <C> <C> <C>
Real estate-mortgage 35,092 40,435 6,521 82,046 46,956 --
Real estate-held-for-sale 1,024 -- -- 1,024 -- --
Real estate-construction 3,956 -- -- 3,956 -- --
Consumer 9,713 15,191 102 25,006 15,293 --
Commercial 16,682 9,271 729 26,682 10,000 --
-----------------------------------------------------------------------------
Gross Loans 65,443 64,897 7,352 138,716 72,250 --
=============================================================================
</TABLE>
Table 8
COMPOSITION OF DEPOSITS AND INTEREST RATES PAID
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
Average Percent of Average Average Percent of Average Average Percent of Average
<S> <C> <C>
</TABLE>
- 38 -
<PAGE> 54
<TABLE>
<CAPTION>
Balance Total Rate Balance Total Rate Balance Total Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand
deposits 16,510 11.56% -- 13,725 12.40% -- 11,908 11.01% --
Interest bearing demand
deposits 10,786 7.55% 1.40% 4,933 4.46% 1.44% 4,111 3.80% 1.53%
Savings deposits 34,960 24.48% 3.05% 30,056 27.15% 3.05% 27,920 25.81% 2.99%
Time deposits 80,557 56.41% 5.85% 62,005 56.00% 5.79% 64,257 59.39% 5.58%
--------------------------------------------------------------------------------------------------
Total 142,813 100.00% 4.70% 110,719 100.00% 4.72% 108,196 100.00% 4.66%
==================================================================================================
</TABLE>
Table 9
MATURITY OF TIME DEPOSITS
December 31, 1997 Time Remaining to Maturity
<TABLE>
<CAPTION>
Due Within Four to Seven to After
Three Months Six Months Twelve Months Twelve Months Total
<S> <C> <C> <C> <C> <C>
Certifiicates of Deposit
Less than $100,000 15,442 12,628 16,118 34,384 78,572
More than $100,000 1,783 1,465 2,185 3,645 9,078
-------------------------------------------------------------
Total 17,225 14,093 18,303 38,029 87,650
=============================================================
</TABLE>
<TABLE>
<CAPTION>
Table 10
Short-term Borrowings 1997 1996 1995
<S> <C> <C> <C>
Balance outstanding December 31,
Repurchase agreements 10,256 7,405 9,680
Fed funds purchased 1,975 -- --
-----------------------------
12,231 7,405 9,680
=============================
Weighted rate December 31,
Repurchase agreements 5.28% 5.01% 4.95%
Fed funds purchased 5.96% --% --%
-----------------------------
5.39% 5.01% 4.95%
=============================
Maximum month-end outstanding balance
Repurchase agreements 17,038 17,202 11,055
Fed funds purchased 4,150 6,000 5,100
Year-to-date average amount outstanding
Repurchase agreements 1,087 11,970 6,140
Fed funds purchased 10,564 441 867
-----------------------------
11,651 12,411 7,007
</TABLE>
- 39 -
<PAGE> 55
<TABLE>
<S> <C> <C> <C>
Year-to-date average weighted rate
Repurchase agreements 5.25% 5.16% 5.31%
Fed funds purchased 5.25% 5.71% 6.11%
-----------------------
5.25% 5.18% 5.41%
=======================
</TABLE>
Table 11
Interest Rate Risk Exposure
<TABLE>
<CAPTION>
Two- Four- Seven- Ten- Over
December 31, 1997 One three six nine twelve one
(in thous) Month months months months months year Total
<S> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold and
short-term investments 8,889 -- -- -- -- -- 8,889
Interest bearing deposits 1,418 -- -- -- -- -- 1,418
Taxable investment securities 2,747 500 3,491 3,084 1,486 22,759 34,067
Tax-exempt investment
securities -- -- 695 -- 225 3,420 4,340
Loans 18,901 8,424 12,837 13,215 12,066 72,250 137,693
------------------------------------------------------------------------------------------
Total interest-earning assets 31,955 8,924 17,023 16,299 13,777 98,429 186,407
------------------------------------------------------------------------------------------
Interest bearing demand depos 10,380 -- -- -- -- -- 10,380
Savings deposits 41,533 -- -- -- -- -- 41,533
Time deposits 5,547 11,678 14,093 9,187 9,116 38,029 87,650
Repurchase agreements 11,724 507 -- -- -- -- 12,231
Long-term borrowings -- -- 400 -- -- 4,450 4,850
------------------------------------------------------------------------------------------
Total interest-bearing liabil 69,184 12,185 14,493 9,187 9,116 42,479 156,644
------------------------------------------------------------------------------------------
Net gap (37,229) (3,261) 2,530 7,112 4,661 55,950 29,763
Cummualtive Gap (37,229) (40,490) (37,960) (30,848) (26,187) 29,763
% of total assets (18.43%) (20.05%) (18.79%) (15.27%) (12.97%) 14.74%
</TABLE>
- 40 -
<PAGE> 56
Table 12
<TABLE>
<CAPTION>
Capital Ratios
1997 1996 Regulatory
Ratio Ratio Requirement
<S> <C> <C> <C>
Equity as a percent of assets 12.40% 14.54% N/A
Core capital as a percent of assets 10.56% 14.37% 5.50%
Core capital as a percent of risk based 17.43% 22.27% 4.00%
Total capital as a percent of risk base 18.67% 23.47% 8.00%
Leverage ratio 11.79% 15.08% 3.00%
</TABLE>
Table 13
<TABLE>
<CAPTION>
Selected Financial Ratios
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Return on average assets 1.07% 1.16% 1.05% 0.70% 1.25%
Return on equity 8.61% 7.85% 7.06% 4.63% 8.24%
Average equity to average assets 12.40% 14.54% 13.62% 14.10% 15.15%
Dividend payout ratio 50.00% 50.67% 46.88% 65.57% 28.04%
Interest rate spread 3.72% 3.39% 3.39% 3.38% 3.79%
Net interest margin 4.52% 4.33% 4.27% 4.19% 4.58%
Other operating expense to assets 2.38% 2.15% 2.86% 3.15% 2.70%
Efficiency ratio 64.76 60.76% 64.13% 73.67% 58.38%
Allowance for loan losses to
total loans at end of period 1.11% 1.19% 0.98% 0.91% 1.08%
</TABLE>
Table 14
Quarterly Financial Information
<TABLE>
<CAPTION>
1997 1996
Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income 3,887 3,858 3,651 2,911 2,867 2,849 2,839 2,768
Interest expense 1,801 1,818 1,738 1,363 1,314 1,342 1,375 1,363
---------------------------------------------------------------------------------
Net interest income 2,086 2,040 1,913 1,548 1,553 1,507 1,464 1,405
Provision for
loan loss 64 54 44 30 25 35 40 45
Other income 425 460 407 244 267 249 255 235
Other expense 1,679 1,688 1,474 1,067 1,070 1,060 1,040 1,044
---------------------------------------------------------------------------------
Income before income
tax 768 758 802 695 725 661 639 551
Applicable income
taxes 275 263 286 243 238 221 210 179
---------------------------------------------------------------------------------
Net income 493 495 516 452 487 440 429 372
=================================================================================
Per share data
Basic Earnings 0.22 0.22 0.23 0.20 0.21 0.19 0.19 0.16
Dividends 0.11 0.11 0.11 0.10 0.10 0.10 0.10 0.08
Stock price ranges
-hi 15.70 13.25 12.00 13.50 13.50 11.50 11.75 12.00
-low 13.00 12.00 11.00 11.00 10.88 10.50 10.50 10.75
Book value
per share 10.12 9.99 9.89 9.76 9.64 9.50 9.39 9.35
</TABLE>
- 41 -
<PAGE> 57
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
(a) Directors of the registrant. The information that will appear under
"Election of Directors" in the definitive Proxy Statement to be prepared
and filed for the Company's Annual Meeting of Stockholders on May 13, 1998
is incorporated herein by this reference.
(b) Executive officers of the Registrant. The information presented in Item
1 of this report is incorporated herein by this reference.
ITEM 10 EXECUTIVE COMPENSATION
The information that will appear under "Director and Executive Compensation" in
the definitive Proxy Statement to be prepared and filed for the Company's
Annual Meeting of Stockholders on May 13, 1998 is incorporated herein by this
reference.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information that will appear under "Beneficial Ownership of Securities" in
the definitive Proxy Statement to be prepared and filed for the Company's
Annual Meeting of Stockholders on May 13, 1998 is incorporated herein by this
reference.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information that will appear under "Certain Transactions with Management
and Others" in the definitive Proxy Statement to be prepared and filed for the
Company's Annual Meeting of Stockholders on May 13, 1998 is incorporated herein
by this reference.
ITEM 13 EXHIBITS AND REPORTS FORM 8-K
(a) Documents Filed:
1 and 2. Financial Statements. See the following "Index to Financial
Statements," which is incorporated herein by this reference.
3. Exhibits. See "Exhibit Index" which is incorporated herein by this
reference.
(b) Reports On Form 8-K:
There were no reports filed on Form 8-K during the fourth quarter of 1997.
- 42 -
<PAGE> 58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 31, 1998.
Blackhawk Bancorp, Inc.
By /s/ James P. Kelley
-------------------
James P. Kelley
Executive Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on .
Principal Executive Officer and Director:
Director, President and /s/ Dennis M. Concerton
Chief Executive Officer -----------------------
Dennis M. Conerton, President and
Chief Executive Officer
Principal Financial Officer, Accounting
Officer and Director:
/s/ Jesse L. Calkins
-------------------- Director,,
Jesse L. Calkins, Senior Vice President
Treasurer and Chief Financial
Officer
Directors:
/s/ John B. Clark /s/ James P. Kelley
- -------------------------- ---------------------
John B. Clark James P. Kelley
/s/ H. Daniel Green D.D.S. /s/ Fred Klett
- -------------------------- ---------------------
Dr. H. Daniel Green Fred Klett
/s/ Charles Hart /s/ George Merchant
- -------------------------- ---------------------
Charles Hart George Merchant
/s/ Kenneth A. Hendricks /s/
- -------------------------- ----------------------
Kenneth A. Hendricks Roger Taylor
- 43 -
<PAGE> 59
Blackhawk Bancorp, Inc.
Index To Financial Statements And Financial Statement Schedules
The following Consolidated Financial Statements of the Blackhawk Bancorp, Inc.
are located in Item 7 of this 10-KSB. 10-KSB page as indicated:
Annual
Report Pages
Report of Independent Public Accountants.............................16
Consolidated Balance Sheets - December 31, 1997
and 1996.............................................................17
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995.....................................18
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995..................19-20
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995............................21-22
Notes to the Consolidated Financial Statements.................. 23-45
- 44 -
<PAGE> 60
Blackhawk Bancorp, Inc.
Exhibit Index To
1996 Annual Report on Form 10-KSB
<TABLE>
<CAPTION>
Filed
Exhibit Incorporated Herein Here-
Number Description By Reference To: with Page No.
- ------ ----------- ------------------- ---- ----------
<S> <C> <C> <C> <C>
3.1 Amended and Restated Exhibit 3.1 to X
Articles of Incorporation of Amendment No. 1 to
Blackhawk Bancorp, Inc. Registration Statement on Form
S-1 (Reg. No. 33.32351)
3.2 By-Laws of Blackhawk Bancorp, Exhibit 3.2 to Amendment No. 1 to X
Inc., as amended. Registration Statement on Form S-1
3.3 Amendments to By-Laws Exhibit 3.3 to 1994 Form 10-KSB dated X
of Blackhawk Bancorp, March 29, 1995
Inc., as amended.
3.4 Amendments to By-Laws of Exhibit 3.4 to 1994 Form 10-KSB dated X
Blackhawk Bancorp, Inc., as March 29, 1995.
amended.
4.1 Sections 15 and 19 of Plan of Exhibit 1.2 to Amendment No. 1
Conversion of Beloit Savings to Registration Statement on
Bank, as amended Form-1 (No. 33-32351) filed on
March 5, 1990.
10.12 Blackhawk State Bank Officer Exhibit 10.12 to 1996 Form 10-KSB,
Bonus Plan, as amended dated March 28, 1997
10.2 Written description of Plan Proxy Statement for its Annual
for Life Insurance of Meeting of Stockholders, on
Blackhawk State Bank May 8, 1991, dated April 4, 1991
10.3 Blackhawk Bancorp, Inc. Exhibit 10.3 to 1990 Form 10-K,
Employee Stock Ownership dated March 31, 1990
Plan
10.31 Amendment to Blackhawk Exhibit 10.31 to 1994 Form
Bancorp, Inc. Employee 10-KSB, dated March 29,
Stock Ownership Plan 1995
10.4 Blackhawk Bancorp, Inc. Exhibit 10.4 to Amendment
Employee Stock Ownership No. 1 to Registration
Trust Statement Form S-1
(No. 33-32351)
</TABLE>
- 45 -
<PAGE> 61
<TABLE>
<CAPTION> Filed
Incorporated Herein Here-
Exhibit Number Description By Reference To: with Page No.
- -------------- ----------- -------------------- -------------------
<S> <C> <C> <C> <C>
10.5 Blackhawk Bancorp, Inc. Exhibit 10.5 to
Directors' Stock Option Plan Amendment No. 1 to
Registration Statement Form S-1
(No. 33-32351)
10.6 Blackhawk Bancorp, Inc. Exhibit 10.6 to Amendment No. 1 to
Executive Stock Option Plan Registration
Statement Form S-1
(No. 33-32351)
10.7 Form of Severance Payment Exhibit 10.8 to Amendment No.
Agreement entered into 1 to Registration Statement
between Blackhawk State Bank Form S-1 (No. 33-32351)
and Messrs. Calkins, Kelley
and Rusch
10.71 Form of Severance Payment
Agreement entered into
between Blackhawk State Bank
and Mr. Conerton
10.8 Blackhawk Bancorp, Inc. Exhibit 10.8 to 1994 Form 10-
Directors' Stock Option Plan KSB, dated March 29, 1995
10.9 Blackhawk Bancorp, Inc. Exhibit 10.9 to 1994 Form 10-KSB,
Executive Stock Option Plan dated March 29, 1995
13 1997 Annual Report To Proxy Statement for its Annual Meeting
Stockholders of Stockholders on May 13, 1998, dated
April 2, 1998
22 Subsidiaries of Registrant
23 Proxy Statement for its Proxy Statement for
Annual Meeting of its Annual Meeting
Stockholders on May 13, 1998 of Stockholders on
May 13, 1998, dated
April 2, 1998
</TABLE>
- 46 -
<PAGE> 1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BLACKHAWK BANCORP, INC.
The following amended and restated articles of incorporation, duly adopted
pursuant to the authority and provisions of Chapter 180 of the Wisconsin
Statutes, supersede and take the place of the heretofore existing articles of
incorporation of this corporation and any Amendments thereto:
ARTICLE I
NAME
The name of the Corporation is: Blackhawk Bancorp, Inc.
ARTICLE II
PURPOSES
The Corporation may engage in any lawful activity within the purposes for
which corporations may be organized under the Wisconsin Business Corporation
Law; provided, however, that the Corporation shall not engage in any activities
prohibited by the United States Bank Holding Company Act of 1956.
ARTICLE III
CAPITAL STOCK
3.1 AUTHORIZED SHARES.
The aggregate number of shares which the Corporation shall have authority
to issue is Eleven Million (11,000,000) shares, consisting of Ten Million
(10,000,000) shares designated as "Common Stock," $0.01 par value per share,
and One Million (1,000,000) shares designated as "Preferred Stock," $0.01 par
value per share.
3.2 DIRECTORS' AUTHORITY TO ESTABLISH SERIES OF PREFERRED STOCK.
The Preferred Stock may be issued in series from time to time, with such
designations, preferences and other rights, qualifications, limitations or
restrictions thereof as shall be stated and expressed in a resolution providing
for the issuance of each series (herein called the "Resolution") which shall be
adopted by the Board of Directors as provided by the Wisconsin Business
Corporation Law and not inconsistent with the provisions hereof. Without
limiting such authority, each series shall have such (a) rate of dividends; (b)
price at and terms and conditions on which shares may be redeemed; (c) amount
payable upon shares in the event of voluntary or involuntary liquidation; (d)
sinking fund provisions for the redemption or purchase of shares; (e) terms and
conditions on which shares may be converted, if the shares of any series are
issued with the privilege of conversion; and (f) voting rights, if any,
including designation of the class of any directors to be elected solely by the
preferred shareholders, subject to the requirement of Section 5.2 hereof that
each class shall be as nearly equal in number as possible, as shall be stated
or expressed in the Resolution providing for the issuance thereof.
Except as to the matters expressly set forth above in this Section 3.2,
all series of the Preferred Stock of the Corporation shall have the same
preferences, limitations and relative rights and shall rank equally, share
ratably and be identical in all respects as to all matters. All shares of any
one series of Preferred Stock shall be alike in every particular.
Shares of Preferred Stock which have been redeemed or purchased or retired
through the operation of a purchase, retirement or sinking fund or which have
been converted into shares of any other class or classes of stock of the
Corporation shall be restored to the status of authorized but unissued shares
of Preferred Stock and may be reissued.
3.3 DIVIDENDS AND DISTRIBUTIONS ON PREFERRED STOCK.
- 48 -
<PAGE> 2
The holders of each series of Preferred Stock shall be entitled to receive
dividends at such rate, upon such conditions and at such times as shall be
stated in the Resolution.
Dividends shall accrue on Preferred Stock from such date, not earlier than
the date of issue, as is provided in the Resolution, shall be without priority
as between series, shall be paid out of unreserved and unrestricted earned
surplus of the Corporation, except as otherwise provided by law, in each fiscal
year as declared at any time by the Board of Directors at the rate fixed in the
Resolution and shall be paid or set apart before any dividends or other
distributions, other than dividends payable in Common Stock, shall be paid or
set apart for Common Stock. Dividends on the Preferred Stock shall be
cumulative, so if at any time the full amount of dividends accrued in arrears
on the Preferred Stock shall not be paid, the deficiency shall be payable
before any dividends or other distributions shall be paid or set apart on the
Common Stock, and before any sums shall be paid or set apart for the redemption
of less than all of the Preferred Stock then outstanding. Any dividends paid
upon the Preferred Stock in an amount less than full cumulative dividends
accrued and in arrears upon all Preferred Stock outstanding shall, if more than
one series be outstanding, be distributable among the different series in
proportion to the aggregate amounts which would be distributed to the Preferred
Stock of each series if full cumulative dividends were declared and paid
thereon. Whenever all dividends accrued and in arrears on Preferred Stock
shall have been declared and shall have been paid or set apart, the Board of
Directors may declare dividends on Common Stock out of the remaining net
earnings of the Corporation, or out of surplus applicable to the payment of
such dividends.
3.4 RIGHTS OF HOLDERS OF PREFERRED STOCK ON LIQUIDATION DISSOLUTION, OR WINDING
UP.
In the event of liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the holders of Preferred Stock
shall be entitled to receive in full the fixed voluntary liquidation amount
thereof, plus accrued dividends thereon, all as provided in the Resolution,
before any amount shall be paid to the holders of Common Stock. The holders of
all series of Preferred Stock shall be entitled to receive all such amounts out
of the assets of the Corporation whether from capital, surplus or earnings.
For such purpose, "accrued dividends" means, in respect of each share of
Preferred Stock, an amount equal to the fixed dividend rate per annum for each
share (without interest thereon) from the date from which cumulative dividends
commenced to accrue in respect of such share to the date as of which the
computation is to be made, less the aggregate amount (without interest) of all
dividends paid thereon or declared and set aside for payment in respect
thereof, whether or not any such dividends shall have been earned. If, upon
any such voluntary or involuntary liquidation, the assets of the Corporation
distributable as aforesaid among the holders of the Preferred Stock shall be
insufficient to permit payment to them of the full preferential amounts
aforesaid, then the entire assets of the Corporation available for distribution
to shareholders shall be distributed ratably among the holders of Preferred
Stock in proportion to the full preferential amounts to which they are
respectively entitled.
The holders of Preferred Stock shall not otherwise be entitled to
participate in any distribution of assets of the Corporation, which shall be
divided and distributed among the holders of Common Stock according to their
respective rights and preferences. No consolidation or merger of the
Corporation with or into another corporation or corporations and no sale by the
Corporation of all or substantially all of its assets shall be deemed a
liquidation, dissolution, or winding up of the Corporation within the meaning
of this Section 3.4.
3.5 AMENDMENTS AFFECTING PREFERRED STOCK.
Without the affirmative vote of the holders of at least a majority of the
shares of the then outstanding Preferred Stock, regardless of series, the
Corporation may not (a) change the provisions of these Articles of
Incorporation so as to alter materially any existing provisions of such
Preferred Stock, (b) create any class of stock having any rights or preferences
prior or superior to or on a parity with the Preferred Stock, or (c) increase
the number of authorized shares of Preferred Stock.
ARTICLE IV
PREEMPTIVE RIGHTS
No holder of any stock of the Corporation shall have any preemptive right
to purchase, subscribe for, or otherwise acquire any shares of stock of the
Corporation of any class now or hereafter authorized, or any securities
exchangeable for or convertible into such shares.
ARTICLE V
DIRECTORS
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<PAGE> 3
5.1 NUMBER.
The business, property and affairs of the Corporation shall be managed by,
or under the direction of, its Board of Directors. The number of directors of
the Corporation (exclusive of directors (the "Preferred Stock Directors") who
may be elected by a separate vote of the holders of then outstanding shares of
any class or series of Preferred Stock) shall be fixed from time to time by the
Bylaws of the Corporation, but shall in no event be less than three.
5.2 CLASSES OF DIRECTORS.
The Board of Directors shall be divided into three classes, as nearly
equal in number as possible. At the first annual meeting of shareholders, one
class shall be elected to hold office for a term expiring at the 1992 annual
meeting, one class shall be elected to hold office for a term expiring at the
1993 annual meeting and one class shall be elected to hold office for a term
expiring at the 1994 annual meeting. At each annual meeting of shareholders of
the Corporation, the date of which shall be fixed by or pursuant to the Bylaws
of the Corporation, the successors of the class of directors whose term shall
expire at that meeting shall be elected to hold office for a term expiring at
the annual meeting of shareholders held in the third year following their year
of election. Each director shall hold office until his successor shall have
been duly elected and qualified. The election of directors need not be by
ballot unless the Bylaws so provide. No decrease in the number of directors
shall shorten the term of any incumbent director.
5.3 FILLING OF VACANCIES.
Except as otherwise provided by law and subject to the rights of the
holders of any class or series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors from death, resignation,
retirement, disqualification, removal from office or other cause shall be
filled solely by the Board of Directors, acting by the affirmative vote of not
less than a majority of the directors then in office, even though less than a
quorum of the Board of Directors. Subject to the requirement of Section 5.2
hereof that each class of directors be as nearly equal in number as possible,
the Board of Directors shall designate the class of each director elected to
fill a vacancy on the Board resulting from an increase in the authorized number
of directors. Any director elected pursuant to this Section 5.3 shall hold
office until the next election of the class for which such director shall have
been chosen and until his successor shall be elected and qualified. Except as
otherwise provided by law, the shareholders of the Corporation shall have no
right to fill any vacancies, whether resulting from an increase in the
authorized number of directors or otherwise.
5.4 REMOVAL OF DIRECTORS.
Subject to the rights of holders of any class or series of Preferred Stock
then outstanding, any director or the entire Board of Directors of the
Corporation may be removed only for cause and only by affirmative vote of (a)
the Board of Directors, acting by not less than a majority of the directorships
or (b) the holders of 80% of the combined voting power of the then outstanding
shares of the stock of all classes and series of the Corporation entitled to
vote generally in the election of directors (the "Voting Stock") voting
together as a single class. For the purpose of this Section 5.4, (y) "cause"
shall exist only if a director (1) has been convicted of a felony in a final
adjudication or (2) has been adjudged in a final adjudication to have willfully
engaged in gross misconduct materially an demonstrably injurious to the
Corporation and (z) "final adjudication" shall mean a judgment by a court of
competent jurisdiction which becomes final (1) after completion of all
proceedings for direct review or (2) after expiration of the time to obtain
initial or further direct review, no such review having been taken.
5.5 AMENDMENT OF BYLAWS.
Notwithstanding any other provisions in these Articles of Incorporation or
the Bylaws of the Corporation (and notwithstanding the fact that a lesser
percentage may be expressly permitted by law or the Bylaws of the Corporation),
the Bylaws of the Corporation may be adopted, repealed or amended only upon the
affirmative vote of (a) the holders of 80% of the combined voting power of the
then outstanding shares of Voting Stock, voting together as a single class or
(b) the Board of Directors acting by not less than a majority of the entire
Board of Directors.
ARTICLE VI
ACQUISITION AND DISPOSITION OF OWN SHARES
The Corporation shall have the right to purchase, take, receive or
otherwise acquire, hold, own, pledge, transfer, or otherwise dispose of its own
shares; provided that no such acquisition, directly or indirectly, of its own
shares for a consideration other than its own shares of equal or subordinate
rank shall be made unless:
(a) At the time of such acquisition the Corporation is not and would not
thereby be rendered insolvent;
- 50 -
<PAGE> 4
and
(b) The net assets of the Corporation remaining after such acquisition
would not be less than the aggregate preferential amount payable in the event
of voluntary liquidation to the holders of shares having preferential rights to
the assets of the Corporation in the event of liquidation.
ARTICLE VII
SHAREHOLDER ACTION
7.1 MEETING REQUIREMENT.
Any action required or permitted to be taken by the shareholders of the
Corporation must be effected at a duly called annual or special meeting of
shareholders of the Corporation and may not be effected by any consent in
writing by less than all shareholders of the Corporation entitled to vote
thereon. Except as otherwise required by law and subject to the rights of the
holders of any class or series of Preferred Stock then outstanding, special
meetings of the shareholders may be called only by the Board of Directors
acting by not less than a majority of the entire Board of Directors or as
otherwise provided in the Bylaws. Notice of any special meeting of
shareholders shall be given as provided in the Bylaws.
7.2 NOTICE OF PROPOSED SHAREHOLDER ACTIONS.
Advance notice of nominations for the election of directors or any other
action proposed to be taken at an annual or special shareholders' meeting shall
be given in the manner and to the extent provided in the Bylaws of the
Corporation.
ARTICLE VIII
LIMITATION ON BENEFICIAL OWNERSHIP APPLICABLE
FOR FIVE YEARS
Notwithstanding anything contained in these Articles of Incorporation or
the Corporation's Bylaws to the contrary, for a period of five years from the
date of completion of the acquisition by this Corporation of all of the issued
and outstanding common stock of Blackhawk State Bank, no person shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10% of any class of an equity security of this Corporation. This limitation
shall not apply to the purchase of shares by underwriters in connection with a
public offering, or to the acquisition of up to 25% of any class of stock of
the Corporation by a tax-qualified employee stock benefit plan made available
by the Corporation or a subsidiary. In the event shares are acquired in
violation of this Article VIII, all shares beneficially owned by any person in
excess of the 10% limitation set forth in the foregoing shall be considered
"excess shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matters submitted to the shareholders for a vote; provided that, the Board of
Directors may, by the affirmative vote of two-thirds of the disinterested
directors, re-instate voting rights on such excess shares.
For purposes of this Article VIII, the following definitions apply:
(a) The term "person" includes an individual, group acting in concert,
corporation, partnership, association, joint venture, pool, joint stock
company, trust, unincorporated organization or similar company, syndicate or
any other group formed for the purpose of acquiring, holding or disposing of
the equity securities of the Corporation.
(b) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation
for tenders of, a security or interest in a security for value.
(c) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(d) The term "acting in concert" means (1) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or
not pursuant to an express agreement, or (2) a combination or pooling of voting
or other interest in the securities of an issuer for a common purpose pursuant
to any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
(e) The term "disinterested director" shall mean any member of the Board
of Directors of the Corporation who is unaffiliated with, and not a nominee of,
any person who acquired more than 10% of any class of an equity security of
this
- 51 -
<PAGE> 5
Corporation in violation of this Article VIII, and was a member of the
Board of Directors prior to the time that such person acquired such interest,
and any successor of a disinterested director who is unaffiliated with, and not
a nominee of, such person and who is recommended t succeed a disinterested
director by a majority of disinterested directors then on the Board of
Directors.
ARTICLE IX
STOCKHOLDER VOTE REQUIRED FOR CERTAIN ACTIONS
9.1 CERTAIN DEFINITIONS
9.1-1. For purposes of this Article IX, the following terms shall have the
indicated meanings:
(a) an "Interested Stockholder" is any person (other than the Corporation
or any Subsidiary) who or which: (i) is the beneficial owner, directly or
indirectly, of 10 percent or more of the voting power of the outstanding Voting
Stock; (ii) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the then
outstanding Voting Stock; or (iii) is an assignee of or has otherwise succeeded
to any shares of Voting Stock which were at any time within the two year period
immediately prior to the date in question beneficially owned by any Interested
Stockholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933;
(b) any specified person shall be deemed to be a "beneficial owner" of any
Voting Stock: (i) which such specified person or any of its Affiliates or
Associates (as such terms are hereinafter defined) beneficially owns, directly
or indirectly; or (ii) which such specified person or any of its Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (B) the right to vote or
to direct the vote of pursuant to any agreement, arrangement or understanding;
or (iii) which are beneficially owned, directly or indirectly (including shares
deemed owned through application of clauses (i) and (ii) above), by any other
person with which such specified person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any Voting Stock;
(c) a "Subsidiary" is any corporation of which a majority of any class of
equity security is owned,
directly or indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Interested Stockholder set forth in Section
9.1-1(a) and the definition of "Associate" in Section 9.1-1(f), the term
"Subsidiary" shall mean only a corporation of which a majority of each class of
equity security is owned, directly or indirectly, by the Corporation;
(d) a "person" is any individual, firm, corporation or other entity;
(e) an "Affiliate" of any specified person is any person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, the specified person;
(f) an "Associate" of a specified person is (i) any corporation or
organization (other than the Corporation or a Subsidiary) of which such
specified person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such specified person has a substantial
beneficial interest or as to which such specified person serves as trustee or
in a similar fiduciary capacity, and (iii) any relative or spouse of such
specified person, or any relative of such spouse, who has the same home as such
person or who is a director or officer of the Corporation or a Subsidiary;
(g) The "Requisite Vote" shall mean the affirmative vote of the holders of
either (i) 66 2/3% of the voting power of Voting Stock owned by persons other
than any Interested Stockholder, or (ii) such lesser percentage of the voting
power of the Voting Stock owned by such other persons as makes such "Requisite
Vote" equal to 80% of the voting power of all of the Voting Stock; such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or in any
agreement with any national securities exchange or otherwise;
(h) a "Continuing Director" means any member of the Board of Directors of
the Corporation (the "Board") who is not affiliated with the Interested
Stockholder and was a member of the Board prior to the time that the Interested
Stockholder became an Interested Stockholder, and any successor of a Continuing
Director who is not affiliated with the Interested Stockholder and is
recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board;
(i) the term "Business Combination" shall mean any transaction or action
which is referred to in any one
- 52 -
<PAGE> 6
or more of subsections (a) through (e) of Section 9.2;
(j) "Voting Stock" shall mean outstanding shares of capital stock of the
Corporation entitled to vote for the election of directors, considered as one
class (it being understood that each share of Voting Stock shall have the
number of votes granted to it by law or these Articles of Incorporation or the
Bylaws);
(k) "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or if such stock is not listed on such
Exchange, or the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or, if such
stock is not listed on any such exchange, the highest closing bid quotation
with respect to a share of such stock during the 30-day period preceding the
date in question on the National Corporation of Securities Dealers, Inc.
Automated Quotation System or any system then in use, or if no such quotations
are available, the fair market value on the date in question of a share of such
stock as determined by the Board in good faith; and (ii) in the case of
property other than cash or stock, the fair market value of such property on
the date in question as determined by the Board in good faith;
(l) "Institutional Voting Stock" shall mean any class of Voting Stock
which was issued to and continues to be held solely by one or more insurance
companies, pension funds, commercial banks, savings banks or similar financial
institutions or institutional investors;
(m) in the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used in
subsection (b) (i) and (ii) of Section 9.3-1 shall include the shares of common
stock and/or the shares of any other class of outstanding Voting Shares
retained by the holders of such shares.
9.1-2. For purposes of determining whether a person is an Interested
Stockholder pursuant to Section 9.1-1(a), the number of shares of Voting Stock
deemed to be outstanding shall include shares deemed owned through
application of Section 9.1-1(b) above, but shall not include any other shares
of Voting Stock which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
9.1-3. The directors of the Corporation shall have the power and duty to
determine for purposes of this Section and Section 9.2 and 9.3, on the basis of
information known to them after reasonable inquiry, (a) whether a person is an
Interested Stockholder, (b) the number of shares of Voting Stock beneficially
owned by any person, (c) whether a person is an Affiliate or Associate of
another, (d) whether a class of Voting Stock is Institutional Voting Stock, and
(e) whether the assets which are the subject of any Business Combination have,
or the consideration to be received for the issuance or transfer of securities
by the Corporation or any Subsidiary in any Business Combination has, an
aggregate Fair Market Value of $1,000,000 or more.
9.2 Requisite Vote Required.
9.2-1. In addition to any affirmative vote required by law or these articles of
incorporation or the bylaws, and except as otherwise provided in Section 9.3,
the "Requisite Vote" shall be required for the following transactions or
actions:
(a) any merger or consolidation of the Corporation or any Subsidiary with,
or any absorption by the Corporation of, or of the Corporation by, (i) any
Interested Stockholder, or (ii) any other corporation (whether or not itself an
Interested Stockholder) which is, or after such merger, absorption or
consolidation would be, an Affiliate of an Interested Stockholder;
(b) any sale, lease, transfer, exchange, mortgage, pledge or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an aggregate Fair Market
Value of $1,000,000 or more;
(c) the issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of transactions) of any voting securities of the
Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of $1,000,000
or more;
(d) the adoption of any plan or proposal for the dissolution or
liquidation of the Corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of any Interested Stockholder; or
(e) any reclassification of securities of the Corporation (including any
reverse stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an Interested
Stockholder) which has the effect, directly or
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indirectly, of increasing the proportionate share of the outstanding shares of
any class of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Interested Stockholder
or any Affiliate of any Interested Stockholder.
9.3 Exceptions to Requisite Vote Requirement.
9.3-1. The provisions of Section 9.2 of these Articles of Incorporation shall
not be applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by law and
any other provision of these Articles of Incorporation or the Bylaws, if all
the conditions specified in either of the following subsections (a) or (b) are
met:
(a) the Business Combination has been approved by a majority of the
Continuing Directors; provided, however, that if the Interested Stockholder
removes Continuing Directors prior to obtaining approval of the Business
Combination by a majority of the Continuing Directors, the Requisite Vote will
be required, notwithstanding such approval by the Continuing Directors; or
(b) all of the following conditions shall have been satisfied:
(i) The aggregate amount of the cash and the Fair Market Value as of the
date of the consummation of the Business Combination of consideration other
than cash to be received per share by holders of the common stock of the
Corporation ("Common Stock") in such Business Combination shall be at least
equal to the highest of the following:
(A) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Stockholder for any shares of Common Stock acquired by it (1) within
the two-year period immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested Stockholder, whichever is higher;
(B) the Fair Market Value per share of Common Stock on the Announcement
Date or on the date on which the Interested Stockholder became an Interested
Stockholder (such latter date is referred to in this Section as the
"Determination Date"), whichever is higher;
(C) (if applicable) the price per share equal to the Fair Market Value per
share of Common Stock determined pursuant to subsection (i)(B) above,
multiplied by the ratio of (1) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Stockholder for any shares of Common Stock acquired by it within the
two-year period immediately prior to the Announcement Date to (2) the Fair
Market Value per share of Common Stock on the first day in such two-year period
upon which the Interested Stockholder acquired any shares of Common Stock; and
(D) the amount of shareholders' equity in respect of each outstanding
share of Common Stock as determined in accordance with generally accepted
accounting principles and as reflected in any published report by the
Corporation as at the end of the fiscal year quarter ending immediately
preceding the Announcement Date.
(ii) The aggregate amount of the cash and the Fair Market Value as of the
date of the consummation of the Business Combination of consideration other
than cash to be received per share by holders of shares of any other class of
outstanding Voting Stock (other than Institutional Voting Stock) shall be at
least equal to the highest of the following (it being intended that the
requirements of this subsection (b)(ii) shall be required to be met with
respect to every class of outstanding Voting Stock (other than Institutional
Voting Stock), whether or not the Interested Stockholder has previously
acquired any shares of a particular class of Voting Stock):
(A) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the
Interested Stockholder for any shares of such class of Voting Stock acquired by
it (1) within the two year period immediately prior to the Announcement Date or
(2) in the transaction in which it became an Interested Stockholder, whichever
is higher;
(B) (if applicable) the highest preferential amount per share to which the
holders of shares of such class of Voting Stock are entitled in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(C) the Fair Market Value per share of such class of Voting Stock on the
Announcement Date or on the Determination Date, whichever is higher; and
(D) (if applicable) the price per share equal to the Fair Market Value per
share of such class of Voting Stock determined pursuant to subsection (ii)(C)
above, multiplied by the ratio of (1) the highest per share price (including
any
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<PAGE> 8
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by
the Interested Stockholder for any shares of such class of Voting Stock
acquired by it within the two-year period immediately prior to the Announcement
Date to (2) the Fair Market Value per share of such class of Voting Stock on
the first day in such two-year period upon which the Interested Stockholder
acquired any shares of such class of Voting Stock.
(iii) the consideration to be received by holders of a particular class of
outstanding Voting Stock (including Common Stock) shall be in cash or in the
same form as the Interested Stockholder has previously paid for shares of such
class of Voting Stock. If the Interested Stockholder has paid for shares of
any class of Voting Stock with varying forms of consideration, the form of
consideration for such class of Voting Stock shall be either cash or the form
used to acquire the largest number of shares of such class of Voting Stock
previously acquired by it.
(iv) after such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination:
(A) there shall have been (1) no reduction in the annual rate of dividends
paid on the Common Stock (except as necessary to reflect any subdivision of the
Common Stock), except as may have been approved by a majority
vote of the Continuing Directors, and (2) an increase in such annual rate of
dividends as necessary to reflect any reclassification (including any reverse
stock split), recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of the Common
Stock, unless the failure so to increase such annual rate is approved by a
majority of the Continuing Directors; and
(B) such Interested Stockholder shall not have become the beneficial owner
of any additional Voting Shares except as a part of the transaction which
results in such Interested Stockholder becoming an Interested Stockholder.
(v) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the benefit,
directly or indirectly (except proportionately as a stockholder), of any loans,
advances, guaranties, pledges or other financial assistance or any tax credits
or other tax advantages provided by the Corporation, whether in anticipation of
or in connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange Act
of 1934 and the rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed to all public
stockholders at least thirty (30) days prior to the consummation of such
Business Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
9.302. Nothing contained in this Article IX shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
ARTICLE X
AMENDMENTS
Notwithstanding any other provisions of these Articles of Incorporation
and the Bylaws of the Corporation (and notwithstanding the fact that a lesser
percentage may be expressly permitted by law or the Bylaws of the Corporation):
(a) The affirmative vote of the holders of 80% of the combined voting power
of the then outstanding shares of Voting Stock, voting together as a
single class, shall be required to amend or repeal or adopt any provision
inconsistent with Articles V, VII, VIII and IX of these Articles of
Incorporation; provided, however, that any such amendment, repeal or
adoption that has been recommended to the shareholders by the affirmative
vote of not less than two-thirds of the Disinterested Directors, as
defined in Subsection (c) below, shall require only the vote, if any,
required under the applicable provision of the Wisconsin Business
Corporation Law. For purposes of this Subsection (a) of this Article X
only, if at the time when any such amendment, repeal or adoption is under
consideration, there is no Interested Shareholder, as defined in
Subsection (c) below (in which event the definition of Disinterested
Director would be inapplicable), the Disinterested Directors shall be
deemed to be those persons who are then members of the Board of Directors
and who are not then and have not been affiliated with or nominees of any
person who is or has been an Interested Shareholder.
(b) The affirmative vote of the holders of 80% of the combined voting power
of the then outstanding shares of Voting Stock, voting together as a
single class, and the affirmative vote of the majority of the combined
voting power of the then outstanding shares of Voting Stock held by
Disinterested Shareholders, as defined
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<PAGE> 9
in Subsection (c) below, voting together as a single class, shall be
required to amend or repeal or adopt any provision inconsistent with this
Article X of these Articles of Incorporation; provided, however, that any
such amendment, repeal or adoption that has been recommended to
shareholders by the affirmative vote of not less than two-thirds of the
Disinterested Directors at a time when there is no Interested Shareholder
shall require only the vote, if any, required under the applicable
provision of the Wisconsin Business Corporation Law. For purposes of this
Subsection (b) of this Article X only, the Disinterested Directors shall
be deemed to be those persons who are then members of the Board of
Directors and who are not then and have not been affiliated with or
nominees of any person who has been an Interested Shareholder.
(c) For purposes of this Article X, the following terms shall have the
meanings stated:
(1) "Interested Shareholder" shall mean any person
(other than the Corporation or any subsidiary) who or which:
(A)is the beneficial owner, directly or indirectly, of 10% or more of the
combined voting power of the then outstanding shares of Voting Stock; or
(B)is an Affiliate of the Corporation and at any time within the two-year
period immediately prior to the date in question was the beneficial owner,
directly or indirectly, of 10% or more of the combined voting power of the then
outstanding shares of Voting Stock; or
(C)is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially owned by
an Interested Shareholder, if such assignment or succession shall have occurred
in the course of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(2) "Disinterested Shareholder" shall mean a
beneficial owner of the Corporation's Voting Stock who is not
an Interested Shareholder or an Affiliate or an Associate, as
those terms are defined elsewhere in this Subsection (c), or
an Interested Shareholder.
(3) A person shall be a "beneficial owner" of any
Voting Stock;
(A) which such person or any of its Affiliates or Associates beneficially
owns directly or indirectly; or
(B) which such person or any of its Affiliates or Associates has (i) the
right to acquire (whether such right is exercisable immediately or only after
the passage of time), pursuant to any agreement, arrangement or understanding
or upon the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (ii) the right to vote or to direct the vote pursuant
to any agreement, arrangement or understanding; or
(C) which is beneficially owned, directly or indirectly, by any person
with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares of Voting Stock.
(4) For the purposes of determining whether a person is an Interested
Shareholder pursuant to paragraph (1) of this Subsection (c), the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned by such person through application of paragraph (3) of this Subsection
(c) but shall not include any other shares of Voting Stock which may be
issuable to other persons pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, exchange rights, warrants
or options, or otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on the date of filing of
these Articles of Incorporation.
(6) "Disinterested Director" means any member of the Board of Directors of
the Corporation who is unaffiliated with, and not a nominee of, an Interested
Shareholder ans was a member of the Board of Directors prior to the time that
each Interested Shareholder became an Interested Shareholder, and any successor
of a Disinterested Director who is unaffiliated with, and not a nominee of, an
Interested Shareholder and who is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the Board of
Directors.
ARTICLE XI
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<PAGE> 10
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation is 400 Broad
Street, City of Beloit, Rock County, Wisconsin 53511 and the name of its
registered agent at such address is James P. Kelley.
* * * *
The undersigned officers of Blackhawk Bancorp, Inc. hereby certify that
the foregoing amendment and restatement of the Articles of Incorporation of
this Corporation was duly adopted by the sole shareholder of the Corporation on
February 14, 1990. The number of shares entitled to vote with respect to the
subject matter of said restatement is one. One vote was voted in favor of the
restatement, and zero votes were voted against the restatement.
Executed in duplicate this 20th day of February, 1990.
_____________________________
Dennis M. Conerton, President
_____________________________
James P. Kelley, Secretary
THIS DOCUMENT WAS DRAFTED BY:
Fredrick G. Lautz, Esq.
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202-4497
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<PAGE> 1
BYLAWS
OF
BLACKHAWK BANCORP, INC.
ADOPTED
NOVEMBER 22, 1989,
AS AMENDED
FEBRUARY 14, 1990
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<PAGE> 2
ARTICLE I. OFFICES
1.01 Principal and Business Offices. The corporation may have such
principal and other business offices, either within or without the State of
Wisconsin, as the Board of Directors may designate or as the business of the
corporation may require from time to time.
1.02 Registered Office. The registered office of the corporation required
by the Wisconsin Business Corporation Law to be maintained in the State of
Wisconsin may be, but need not be, identical with the principal office in the
State of Wisconsin, and the address of the registered office may be changed
from time to time by the Board of Directors. The business office of the
registered agent of the corporation shall be identical to such registered
office.
ARTICLE II. SHAREHOLDERS
2.01 Annual Meeting. The annual meeting of the shareholders shall be held
on the second Wednesday of May in each year at 10:00 o'clock, A.M., or at such
other time and date within thirty days before or after said date as may be
fixed by or under the authority of the Board of Directors, for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. The first annual meeting shall occur in 1991. If the day
fixed for the annual meeting shall be a legal holiday in the State of
Wisconsin, such meeting shall be held on the next succeeding business day. If
the election of directors shall not be held on the day designated herein, or
fixed as herein provided, for any annual meeting of the shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as conveniently may
be.
2.02 Special Meeting. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the Chairman of the Board or the President or the Board of Directors or by the
person designated in the written request of the holders of not less than
one-tenth of all shares of the corporation entitled to vote at the meeting.
2.03 Place of Meeting. The Board of Directors may designate any place,
either within or without the State of Wisconsin, as the place of meeting for
any annual meeting or for any special meeting called by the Board of Directors.
A waiver of notice signed by all shareholders entitled to vote at a meeting
may designate any place, either within or without the State of Wisconsin, as
the place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the
principal business office of the corporation in the State of Wisconsin or such
other suitable place in the county of such principal office as may be
designated by the person calling such meeting, but any meeting may be adjourned
to reconvene at any place designated by vote of a majority of the shares
represented thereat.
2.04(a) Notice of Meeting. A notice in writing of each meeting of the
shareholders, stating the place, day and hour thereof and, when such meeting is
a special meeting, the general purpose or purposes for which it is called,
shall be given by the Secretary or an Assistant Secretary or the officer or
person calling the meeting to each shareholder, by leaving such notice with him
or at his residence or usual place of abode, or by mailing a copy thereof
addressed to him at his last known post office address as last shown on the
stock records of the corporation, postage prepaid. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock record
books of the corporation, with postage thereon prepaid. Such notice shall be
given, in the case of an annual meeting of shareholders, not less than ten days
nor more than fifty days before the date
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<PAGE> 3
of the meeting and, in the case of a special meeting, shall be given
not less than twenty days nor more than fifty days before the date of the
meeting, unless the Board of Directors, acting by a majority of the directors
then in office, shall determine otherwise. No business shall be transacted at
any special meeting of shareholders which was not specified in the notice
thereof.
Whenever any notice is required to be given to any shareholder to whom
communication is made unlawful by any law of the United States, whenever
enacted, or by any rule, regulation, proclamation or executive order issued
under any such law, the giving of such notice to such shareholder shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such shareholder.
(b) Notice of Nominations and Proposed Action to be Taken at Shareholders'
Meetings. Subject to the rights of the holders of any class or series of
preferred stock then outstanding, nominations for the election of directors or
any other action proposed to be taken at a shareholders' meeting may be made or
proposed by the Board of Directors or by any shareholder entitled to vote for
the election of directors or for such proposed action. Except with respect to
nominations or proposals adopted or recommended by the Board of Directors, a
shareholder entitled to vote for the election of directors at a meeting may
nominate persons for election as directors or propose action to be taken at a
meeting only if written notice of such shareholder's intent to make such
nomination or proposal is given, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the corporation not later
than (i) with respect to an election to be held or a proposal to be considered
at an annual meeting of shareholders, 90 days in advance of such meeting, or
(ii) with respect to an election to be held or a proposal to be considered at
a special meeting of shareholders, the close of business on the seventh day
following the date on which notice of such meeting is first given to
shareholders. With respect to shareholder nominations for the election of
directors each such notice shall set forth: (a) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated; (b) a epresentation that the shareholder is a holder of record of
stock of the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements and under
standings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (d) such other information
regarding each nominee proposed by such shareholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the Board of Directors; and (e) the consent of each nominee
to serve as a director of the corporation if so elected. With respect to
shareholder proposals for action to be taken at a shareholders' meeting, each
such notice shall set forth: (w) a description of the proposal to be made by
the shareholder; (x) the name and address of the shareholder who intends to
make the proposal; (y) a representation that the shareholder is a holder of
record of stock of the corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to make the proposal specified
in the notice; and (z) a description of all arrangements or understandings
between the shareholder and each person or persons (naming such person or
persons) pursuant to which the proposal is to be made by the shareholder. The
chairman of the meeting may refuse to acknowledge the nomination or proposal of
any person made without compliance with the foregoing procedure.
2.05 Closing of Transfer Books or Fixing of Record Date. For the purpose
of determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or shareholders entitled to receive
payment of any dividend, or in order to make a determination of shareholders
for any other proper purpose, the Board of Directors may provide that the stock
transfer books shall be closed for a stated period but not to exceed, in any
case, fifty days. If the stock transfer books shall be closed for the purpose
of determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten days immediately
preceding such meeting. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders,
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<PAGE> 4
such date in any case to be not more than fifty days and, in case of a
meeting of shareholders, not less than ten days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken. If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the close of business on the date on which notice of the meeting is
mailed or on the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record
date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof except where the determination has been made through the closing of the
stock transfer books and the stated period of closing has expired.
2.06 Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the corporation shall, before each meeting of
shareholders, make a complete list of the shareholders entitled to vote at such
meeting, or any adjournment thereof, with the address of and the number of
shares held by each, which list shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders. Failure to comply with the requirements of this
section shall not affect the validity of any action taken at such meeting.
2.07 Quorum. Except as otherwise provided in the Articles of
Incorporation or these Bylaws, a majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. If a quorum is present, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote on the subject
matter shall be the act of the shareholders unless the vote of a greater number
or voting by classes is required by law, the Articles of Incorporation or these
Bylaws. Though less than a quorum of the outstanding shares is represented at
a meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
2.08 Conduct of Meetings. The Chairman of the Board, or if none or in his
absence, the President, and in his absence, the Executive Vice President, or if
none or in his absence, a Vice President in the order provided under Section
4.08, and in their absence, any person chosen by the
shareholders present shall call the meeting of the shareholders to order and
shall act as chairman of the meeting, and the Secretary of the corporation
shall act as secretary of all meetings of the shareholders, but, in the absence
of the Secretary, the presiding officer may appoint any other person to act as
secretary of the meeting.
2.09 Proxies. At all meetings of the shareholders, a shareholder entitled
to vote may vote in person or by proxy appointed in writing by the shareholder
or by his duly authorized attorney-in-fact. Such proxy shall be filed with the
Secretary of the corporation before or at the time of the meeting. Unless
otherwise provided in the proxy, a proxy may be revoked at any time before it
is voted, either by written notice filed with the Secretary or the acting
secretary of the meeting or by oral notice given by the shareholder to the
presiding officer during the meeting. The presence of a shareholder who has
filed his proxy shall not of itself constitute a revocation. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy. The Board of Directors shall have the power and
authority to make rules establishing presumptions as to the validity and
sufficiency of proxies.
2.10 Voting of Shares. Each outstanding share shall be entitled to one
vote upon each matter
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<PAGE> 5
submitted to a vote at a meeting of shareholders, except to the extent
that the voting rights of the shares of any class or classes are enlarged,
limited or denied by the Articles of Incorporation. If the Articles of
Incorporation provide for more or less than one vote for any share, on any
matter, every reference in these Bylaws to a majority or other proportion of
shares shall refer to such a majority or other proportion of votes entitled to
be cast.
2.11 Voting of Shares by Certain Holders.
(a) Other Corporations. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the president of such
corporation or any other officer appointed by such president. A proxy executed
by any principal officers of such other corporation or assistant thereto shall
be conclusive evidence of the signer's authority to act, in the absence of
express notice to this corporation, given in writing to the Secretary of this
corporation, of the designation of some other person by the board of directors
or the bylaws of such other corporation.
(b) Legal Representatives and Fiduciaries. Shares held by an
administrator, executor, guardian, conservator, trustee in bankruptcy,
receiver, or assignee for creditors may be voted by him, either in person or by
proxy, without a transfer of such shares into his name, provided that there is
filed with the Secretary before or at the time of meeting proper evidence of
his incumbency and the number of shares held. Shares standing in the name of a
fiduciary may be voted by him, either in person or by proxy. A proxy executed
by a fiduciary shall be conclusive evidence of the signer's authority to act,
in the absence of express notice to this corporation, given in writing to the
Secretary of this corporation, that such manner of voting is expressly
prohibited or otherwise directed by the documents creating the fiduciary
relationship.
(c) Pledgees. A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(d) Treasury Stock and Subsidiaries. Neither treasury shares, nor shares
held by another corporation if a majority of the shares entitled to vote for
the election of directors of such other corporation is held by this
corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares entitled to vote, but shares of its own issue
held by this corporation in a fiduciary capacity, or held by such other
corporation in a fiduciary capacity, may be voted and shall be counted in
determining the total number of outstanding shares entitled to vote.
(e) Minors. Shares held by a minor may be voted by such minor in person
or by proxy and no such vote shall be subject to disaffirmance or avoidance,
unless prior to such vote the Secretary of the corporation has received written
notice or has actual knowledge that such shareholder is a minor.
(f) Incompetents and Spendthrifts. Shares held by an incompetent or
spendthrift may be voted by such incompetent or spendthrift in person or by
proxy and no such vote shall be subject to disaffirmance or avoidance, unless
prior to such vote the Secretary of the corporation has actual knowledge that
such shareholder has been adjudicated an incompetent or spendthrift or actual
knowledge of filing of judicial proceedings for appointment of a guardian.
(g) Joint Tenants. Shares registered in the names of two or more
individuals who are named in the registration as joint tenants may be voted in
person or by proxy signed by any one or more of such individuals if either (i)
no other such individual or his legal representative is present and claims the
right to participate in the voting of such shares or prior to the vote files
with the Secretary of the corporation a contrary written voting authorization
or direction or written denial of authority of the individual present or
signing the
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proxy proposed to be voted or (ii) all such other individuals are
deceased and the Secretary of the corporation has no actual knowledge that the
survivor has been adjudicated not to be the successor to the interests of those
deceased.
2.12 Waiver of Notice by Shareholders. Whenever any notice whatever is
required to be given to any shareholder of the corporation under the Articles
of Incorporation or Bylaws or any provision of law, a waiver thereof in
writing, signed at any time, whether before or after the time of meeting, by
the shareholder entitled to such notice, shall be deemed equivalent to the
giving of such notice; provided that such waiver in respect to any matter of
which notice is required under any provision of the Wisconsin Business
Corporation Law, shall contain the same information as would have been required
to be included in such notice, except the time and place of meeting.
2.13 Unanimous Consent without Meeting. Any action required or permitted
by the Articles of Incorporation or Bylaws or any provision of law to be taken
at a meeting of the shareholders, may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III. BOARD OF DIRECTORS
3.01 Number and Election. The business, property and affairs of the
corporation shall be managed by, or under the direction of, its Board of
Directors. The number of the directors of the corporation (exclusive of
directors (the "Preferred Stock Directors") who may be elected by a separate
vote of the holders of then outstanding shares of any class or series of
preferred stock) shall be twelve. No decrease in the number of directors shall
have the effect of shortening the term of an incumbent director.
The Board of Directors shall be divided into three classes, as nearly
equal in number as possible. At the first annual meeting of shareholders, one
class shall be elected to hold office for a term expiring at the 1992 annual
meeting, one class shall be elected to hold office for a term expiring at the
1993 annual meeting, and one class shall be elected to hold office for a term
expiring at the 1994 annual meeting. Thereafter, at each annual meeting of
shareholders of the corporation, the date of which shall be fixed by or
pursuant to these Bylaws, the successors of the class of directors whose terms
shall expire at that meeting shall be elected for a term expiring at the annual
meeting of shareholders held in the third year following their year of
election. Each director shall hold office until his successor shall have been
duly elected and qualified. The election of directors need not be by ballot
unless the Bylaws so provide.
3.02 Tenure and Qualifications; Removal. Each director shall hold office
until the annual meeting of shareholders at which his term expires, and until
his successor shall have been elected, or until his prior death, resignation or
removal. A director may resign at any time by filing his written resignation
with the Secretary of the corporation. Directors need not be residents of the
State of Wisconsin or shareholders of the corporation.
Subject to the rights of the holders of any class or series of preferred
stock then outstanding, any director or the entire Board of Directors of the
corporation may be removed only for cause and only by the affirmative vote of
either (1) the Board of Directors, acting by not less than a majority of the
directorships or (2) the holders of 80% of the combined voting power of the
then outstanding shares of the stock of all classes and series of the
corporation entitled to vote generally in the election of directors (the
"Voting Stock"), voting together as a single class. For the purposes of this
Section, (1) "cause" shall exist only if a director (i) has been convicted of a
felony in a final adjudication or (ii) has been adjudged in a final
adjudication to have willfully
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engaged in gross misconduct materially and demonstrably injurious to
the corporation, and (2) "final adjudication" shall mean a judgment by a court
of competent jurisdiction which becomes final (I) after completion of all
proceedings for direct review or (II) after expiration of the time to obtain
initial or further direct review, no such review having been taken.
3.03 Regular Meetings. A regular meeting of the Board of Directors shall
be held without other notice than this Bylaw immediately after the annual
meeting of shareholders, and each adjourned session thereof. The place of such
regular meeting shall be the same as the place of the meeting of shareholders
which precedes it, or such other suitable place as may be announced at such
meeting of shareholders. The Board of Directors may provide, by resolution,
the time and place, either within or without the State of Wisconsin, for the
holding of additional regular meetings without other notice than such
resolution.
3.04 Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board (if there be one),
President, Secretary, or any two directors. The persons calling any special
meeting of the Board of Directors may fix any place, either within or without
the State of Wisconsin, as the place for holding any special meeting of the
Board of Directors called by them, and if no other place is fixed the place of
meeting shall be the principal business office of the corporation in the State
of Wisconsin.
3.05 Notice of Meetings; Waiver. Notice of each meeting of the Board
of Directors (unless otherwise provided in or pursuant to Section 3.03) shall
be given by written notice delivered personally or mailed or given by telegram
to each director at his business address or at such other address as such
director shall have designated in writing filed with the Secretary, in each
case not less than 48 hours prior thereto. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice
shall be deemed to be delivered when the telegram is delivered to the telegraph
company. Whenever any notice whatever is required to be given to any director
of the corporation under the Articles of Incorporation or Bylaws or any
provision of law, a waiver thereof in writing, signed at any time, whether
before or after the time of the meeting, by the director entitled to such
notice, shall be deemed equivalent to the giving of such notice. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting and objects thereat to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
3.06 Quorum. Except as otherwise provided by law or by the Articles of
Incorporation or these Bylaws, a majority of the number of directors set forth
in Section 3.01 shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, but a majority of the directors present
(though less than such quorum) may adjourn the meeting from time to time
without further notice.
3.07 Manner of Acting. The act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors, unless the act of a greater number is required by law or by the
Articles of Incorporation or these Bylaws.
3.08 Conduct of Meetings. The Chairman of the Board, if there be one and
he is present, or the President, and in his absence, any director chosen by the
directors present, shall call meetings of the Board of Directors to order and
shall act as chairman of the meeting. The Secretary of the corporation shall
act as secretary of all meetings of the Board of Directors, but in the absence
of the Secretary, the presiding officer may appoint any Assistant Secretary or
any director or other person present to act as secretary of the meeting.
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3.09 Vacancies. Except as otherwise provided by law and subject to the
rights of the holders of any class or series of preferred stock then
outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled solely by the Board of Directors, acting
by the affirmative vote of not less than a majority of the directors then in
office, even though less than a quorum of the Board of Directors. Subject to
the requirement of Section 3.01 hereof that each class of directors be as
nearly equal in number as possible, the Board of Directors shall designate the
class of each director elected to fill a vacancy on the Board resulting from an
increase in the authorized number of directors. Any director elected pursuant
to this Section 3.09 shall hold office until the next election of the class for
which such director shall have been chosen and until his successor shall be
elected and qualified. Except as otherwise provided by law the shareholders of
the corporation shall have no right to fill any vacancies, whether resulting
from an increase in the authorized number of directors or otherwise.
3.10 Compensation. The Board of Directors, by affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
directors for services to the corporation as directors, officers or
otherwise, or may delegate such authority to an appropriate committee. The
Board of Directors also shall have authority to provide for or to delegate
authority to an appropriate committee to provide for reasonable pensions,
disability or death benefits, and other benefits or payments, to directors,
officers and employees and to their estates, families, dependents or
beneficiaries on account of prior services rendered by such directors, officers
and employees to the corporation.
3.11 Presumption of Assent. A director of the corporation who is present
at a meeting of the Board of Directors or a committee thereof of which he is a
member at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
3.12 Executive Committee. During the interim between meetings of the
Board of Directors, the Executive Committee shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the corporation, except action in respect to dividends to shareholders,
election of the principal officers or the filling of vacancies on the Board of
Directors or committees of the Board, and except for powers expressly delegated
to other committees by or pursuant to these Bylaws.
3.13 Salary and Personnel Committee. The Salary and Personnel Committee
shall perform any functions of a committee of directors referred to in any
stock option plan or similar plan adopted by the corporation as to the
administration of such plan, including either making or recommending to the
Board of Directors determinations as to any persons to whom options are granted
and the number of shares subject to each option. However, any member of the
Committee who may be eligible to receive options under any option plan shall
not participate in any deliberations or decisions relating to such plan, and
for purposes of the plan shall be deemed not to be a member of the "committee"
referred to therein. The Committee shall include at least three directors who
are not so disqualified as to any such plan. The Committee shall make
recommendations to the Board of Directors with respect to the salary, incentive
compensation and other benefits for principal officers of the corporation and
such other officers and key employees of it and its subsidiaries as the Board
of Directors may request, or to the extent such powers are from time to time
delegated by the Board, the Committee shall determine the compensation and
benefits for certain officers or key employees.
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3.14 Audit Committee. The Audit Committee shall have and may exercise
such powers and duties with respect to accounting matters and the audit of the
corporation's financial statements as are customarily accorded similar
committees. It shall meet with representatives of the corporation's
independent accountants at or about the time the annual audit is completed and
at such other times as the Committee may determine or the accountants may
request.
3.15 Committees Generally. The President shall serve as chairman of
the Executive Committee. The Board of Directors may designate any member of
each other committee as its chairman. The chairman of each committee may call
and give notice of, and when present shall preside at, meetings of such
committees. The Board of Directors shall elect at least three directors to
serve on each committee, and may elect one or more of its members as alternate
members of any committee of directors, to take the place of any absent member
or members at any meeting of such committee, upon request of the President or
the chairman of such meeting. Consistent with this section and Sections 3.12,
3.13, and 3.14, each such committee shall fix its own rules governing the
conduct of its activities as the Board of Directors may request. The Board of
Directors by resolution adopted by the affirmative vote of a majority of the
number of directors may designate one or more additional committees which shall
perform such functions and have such powers, not inconsistent with these Bylaws
or the Wisconsin Business Corporation Law, as are provided in such resolution.
3.16 Unanimous Consent without Meeting. Any action required or permitted
by the Articles of Incorporation or Bylaws or any provision of law to be taken
by the Board of Directors or any committee thereof at a meeting or by
resolution may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the directors or members
of the committee then in office.
3.17 Advisory Directors. The Board of Directors shall have the power to
designate one or more individuals as Advisory Directors. Advisory Directors
shall be entitled to attend meetings of the Board but shall not vote nor be
counted in determining the presence of a quorum.
3.18 Retirement of Directors; Directors Emeriti.
(a) Retirement. No person shall be eligible for nomination or
renomination for election as a director at any annual meeting held after his
68th birthday. No person shall be eligible for election or appointment as a
director otherwise than at an annual meeting unless, on the date of his
election or appointment, he has not yet had his 68th birthday. Any member of
the Board of Directors who has been elected or appointed in accordance with the
foregoing provisions may continue to serve as a director for the remainder of
his term of office, without regard to his age.
(b) Selection of Directors Emeriti. In its discretion, the Board of
Directors may appoint any former director as a Director Emeritus for a
designated term or for life in recognition of his long and faithful service on
the Board of Directors.
(c) Status of Directors Emeriti. Directors Emeriti shall be entitled to
attend meetings of the Board of Directors, but shall not vote nor be counted in
determining the presence of quorum. Directors Emeriti shall be entitled to all
privileges and benefits they enjoyed as a director but shall not be paid for
attending meetings of the Board of Directors. A Director Emeritus shall be
paid, for as long as he serves in such capacity, at an annual rate of $3,000,
which shall be reduced by any amount received for serving as a Director
Emeritus of any subsidiary of the corporation.
ARTICLE IV. OFFICERS
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4.01 Number. The principal officers of the corporation shall be a
President, one or more Vice Presidents, a Secretary, and a Treasurer, each of
whom shall be elected by the Board of Directors. The Board of Directors may
designate one of the Vice Presidents as the Executive Vice President. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the Board of Directors. Any two or more offices may be held by
the same person, except the offices of President and Secretary and the offices
of President and Vice President.
4.02 Election and Term of Office. The officers of the corporation to be
elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the
Board of Directors held after each annual meeting of the shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Each officer shall hold office
until his successor shall have been duly elected or until his prior death,
resignation or removal.
4.03 Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment shall not of
itself create contract rights.
4.04 Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term.
4.05 Chairman of the Board. The Board of Directors may elect one of its
members the Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the shareholders and directors at which he is present. He
shall be ex officio a member of all standing committees and shall be Chairman
of such committees as is determined by the Board of Directors. He shall
consult with and advise the President of the corporation and exercise
supervision over the affairs of the corporation as its interest and security
may require, and shall perform such services as may be necessary or advisable
for the best interests of the corporation, but subject at all times and in all
matters to the control and direction of the Board of Directors and the
Executive Committee, and shall also perform such other duties as may be
designated by the Board of Directors or Executive Committee.
4.06 President. The President shall be the principal executive officer of
the corporation and, subject to the control of the Board of Directors, shall in
general supervise and control all of the business and affairs of the
corporation. He shall have authority, subject to such rules as may be
prescribed by the Board of Directors, to appoint such agents and employees of
the corporation as he shall deem necessary, to prescribe their powers, duties
and compensation, and to delegate authority to them. Such agents and employees
shall hold office at the discretion of the President. He shall have authority
to sign, execute and acknowledge, on behalf of the corporation, all deeds,
mortgages, bonds, stock certificates, contracts, leases, reports and all other
documents or instruments necessary or proper to be executed in the course of
the corporation's regular business, or which shall be authorized by resolution
of the Board of Directors; and, except as otherwise provided by law or the
Board of Directors, he may authorize any Vice President or other officer or
agent of the corporation to sign, execute and acknowledge such documents or
instruments in his place and stead. In general he shall perform all duties
incident to the office of President and such other duties as may be prescribed
by the Board of Directors from time to time.
4.07 The Executive Vice President. The Executive Vice President, if one
be designated, shall assist the President in the discharge of supervisory,
managerial and executive duties and functions. In the absence of the President
or in the event of his death, inability or refusal to act, the Executive Vice
President shall perform the duties of the President and when so acting shall
have all the powers and duties of the President. He shall
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perform such other duties as from time to time may be assigned to him by the
Board of Directors or the President.
4.08 The Vice Presidents. In absence of the President and the Executive
Vice President, or in the event of their death, inability or refusal to act, or
in the event or any reason it shall be impracticable for them to act personally,
the Vice President (or in the event there be more than one Vice President, the
Vice Presidents in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Any Vice President
may sign, with the Secretary or Assistant Secretary, certificates for shares of
the corporation; and shall perform such other duties and have such authority as
from time to time may be delegated or assigned to him by the President or by
the Board of Directors. The execution of any instrument of the corporation by
any Vice President shall be conclusive evidence, as to third parties, of his
authority to act in the stead of the President. Vice Presidents may be
designated as the Vice President of a specific division, department or portion
of the corporation's business.
4.09 The Secretary. The Secretary shall: (a) keep the minutes of the
meetings of the shareholders and of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep
or arrange for the keeping of a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder; (e)
sign with the President, or a Vice President, certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (f) have general charge of the stock transfer books of
the corporation; and (g) in general perform all duties incident to the office
of Secretary and have such other duties and exercise such authority as from
time to time may be delegated or assigned to him by the President or by the
Board of Directors.
4.10 The Treasurer. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and secur ities of the corporation; (b)
receive and give receipts for moneys due and payable to the corporation from
any source whatsoever, and deposit all such moneys in the name of the
corporation in such banks, trust companies or other depositaries as shall be
selected in accordance with the provisions of Section 5.05; and (c) in general
perform all of the duties incident to the office of Treasurer and have such
other duties and exercise such other authority as from time to time may be
delegated or assigned to him by the President or by the Board of Directors. If
required by the Board of Directors, the Treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties
as the Board of Directors shall determine.
4.11 Assistant Secretaries and Assistant Treasurers. There shall be such
number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors may from time to time authorize. The Assistant Secretaries may sign
with the President or a Vice President certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall respectively, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors
shall determine. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties and have such authority as shall from time
to time be delegated or assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
4.12 Other Assistants and Acting Officers. The Board of Directors
shall have the power to appoint any person to act as assistant to any officer,
or as agent for the corporation in his stead, or to perform the duties of such
officer whenever for any reason it is impracticable for such officer to act
personally, and such assistant or acting officer or other agent so appointed by
the Board of Directors shall have the power to perform
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all the duties of the office to which he is so appointed to be
assistant, or as to which he is so appointed to act, except as such power may
be otherwise defined or restricted by the Board of Directors.
4.13 Salaries. The salaries of the principal officers shall be fixed from
time to time by the Board of Directors or by a duly authorized committee
thereof, and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND
DEPOSITS; SPECIAL CORPORATE ACTS
5.01 Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages and instruments of assignment or
pledge made by the corporation shall be executed in the name of the corporation
by the President or one of the Vice-Presidents and by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or
an Assistant Secretary, when necessary or required, shall affix the corporate
seal thereto; and when so executed no other party to such instrument or any
third party shall be required to make any inquiry into the authority of the
signing officer or officers.
5.02 Contracts Between Corporation and Related Persons. Any contract or
other transaction between the corporation and one or more of its directors, or
between the corporation and any firm of which one or more of its directors are
members or employees, or in which he or they are interested, or between the
corporation and any corporation or association of which one or more of its
directors are shareholders, members, directors, officers or employees, or in
which he or they are interested, shall be valid for all purposes,
notwithstanding the presence of such director or directors at the meeting of
the Board of Directors of the corporation which acts upon, or in reference to,
such contract or transaction, and notwithstanding his or their participation in
such action, if the fact of such interest shall be disclosed or known to the
Board of Directors and the Board of Directors shall, nevertheless, authorize,
approve and ratify such contract or transaction by a vote of a majority of the
directors present, such interested director or directors to be counted in
determining whether a quorum is present, but not to be counted as voting upon
the matter or in calculating the majority of such quorum necessary to carry
such vote. This section shall not be construed to invalidate any contract or
other transaction which would otherwise be valid under the common and statutory
law applicable thereto.
5.03 Loans. No indebtedness for borrowed money shall be contracted on
behalf of the corporation and no evidences of such indebtedness shall be issued
in its name unless authorized by or under the authority of a resolution of the
Board of Directors. Such authorization may be general or confined to specific
instances.
5.04 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the corporation, shall be
signed by such officer or officers, agent or agents of the corporation and in
such manner as shall from time to time be determined by or under the authority
of a resolution of the Board of Directors.
5.05 Deposits. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositaries as may be selected by or under the
authority of a resolution of the Board of Directors.
5.06 Voting of Securities Owned by this Corporation. Subject always to
the specific directions
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of the Board of Directors, (a) any shares or other securities issued by
any other corporation and owned or controlled by this corporation may be voted
at any meeting of security holders of such other corporation by the President
of this corporation if he be present, or in his absence by the Executive Vice
President if there be one and he is present, or in his absence by any Vice
President of this corporation who may be present, and (b) whenever, in the
judgment of the President, or in his absence, the Executive Vice President if
there be one, or in his absence, any Vice President, it is desirable for this
corporation to execute a proxy or written consent in respect to any shares or
other securities issued by any other corporation and owned by this corporation,
such proxy or consent shall be executed in the name of this corporation by the
President, the Executive Vice President or one of the Vice Presidents of this
corporation, without necessity of any authorization by the Board of Directors,
affixation of corporate seal or countersignature or attestation by another
officer. Any person or persons designated in the manner above stated as the
proxy or proxies of this corporation shall have full right, power and authority
to vote the shares or other securities issued by such other corporation and
owned by this corporation the same as such shares or other securities might be
voted by the aforesaid officers of this corporation.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.01 Certificates for Shares. Certificates representing shares of the
corporation shall be in such form, consistent with law, as shall be determined
by the Board of Directors. Such certificates shall be signed by the President,
the Executive Vice President, or a Vice President and by the Secretary or an
Assistant Secretary. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the person to whom
the shares represented thereby are issued, with the number of shares and date
of issue, shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except as provided
in Section 6.06.
6.02 Facsimile Signatures and Seal. The seal of the corporation on any
certificates for shares may be a facsimile. The signatures of the officers
upon a certificate may be facsimiles if the certificate is countersigned by a
transfer agent, or registered by a registrar, other than the corporation itself
or an employee of the corporation.
6.03 Signature by Former Officers. In case any officer who has signed or
whose facsimile signature has been placed upon any certificate for shares,
shall have ceased to be such officer before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer at
the date of its issue.
6.04 Transfer of Shares. Prior to due presentment of a certificate for
shares for registration of transfer the corporation may treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to exercise all the rights and power of an owner.
Where a certificate for shares is presented to the corporation with a request
to register for transfer, the corporation shall not be liable to the owner or
any other person suffering loss as a result of such registration of transfer if
(a) there were on or with the certificate the necessary endorsements, and (b)
the corporation had no duty to inquire into adverse claims or has discharged
any such duty. The corporation may require reasonable assurance that said
endorsements are genuine and effective and in compliance with such other
regulations as may be prescribed under the authority of the Board of Directors.
6.05 Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
- 12 -
<PAGE> 14
6.06 Lost, Destroyed or Stolen Certificates. Where the owner claims that
his certificate for shares has been lost, destroyed or wrongfully taken, a new
certificate shall be issued in place thereof if the owner (a) so requests
before the corporation has notice that such shares have been acquired by a bona
fide purchaser, and (b) files with the corporation a sufficient indemnity bond,
and (c) satisfies such other reasonable requirements as the Board of Directors
may prescribe.
6.07 Consideration for Shares. The shares of the corporation may be
issued for such consideration as shall be fixed from time to time by the Board
of Directors, provided that any shares having a par value shall not be issued
for a consideration less than the par value thereof. The consideration to be
paid for shares may be paid in whole or in part, in money, in other property,
tangible or intangible, or in labor or services actually performed for the
corporation. When payment of the consideration for which shares are to be
issued shall have been received by the corporation, such shares shall be deemed
to be fully paid and nonassessable by the corporation. No certificate shall be
issued for any share until such share is fully paid.
6.08 Stock Regulations. The Board of Directors shall have the power and
authority to make all such rules and regulations not inconsistent with the
statutes of the State of Wiscon sin as it may deem expedient concerning the
issue, transfer and registration of certificates representing shares of the
corporation.
ARTICLE VII. INDEMNIFICATION
7.01 Indemnification for Successful Defense. Within 20 days after receipt
of a written request pursuant to Section 7.03, the corporation shall indemnify
a director or officer, to the extent he or she has been successful on the
merits or otherwise in the defense of a proceeding, for all reasonable expenses
incurred in the proceeding if the director or officer was a party because he or
she is a director or officer of the corporation.
7.02 Other Indemnification. (a) In cases not included under Section 7.01,
the corporation shall indemnify a director or officer against all liabilities
and expenses incurred by the director or officer in a proceeding to which the
director or officer was a party because he or she is a director or officer of
the corporation, unless liability was incurred because the director or officer
breached or failed to perform a duty he or she owes to the corporation and the
breach or failure to perform constitutes any of the following:
(1) A willful failure to deal fairly with the corporation or its
shareholders in connection with a matter in which the director or officer has a
material conflict of interest.
(2) A violation of criminal law, unless the director or officer had reasonable
cause to believe his or her conduct was lawful or no reasonable cause to
believe his or her conduct was unlawful.
(3) A transaction from which the director or officer derived an improper
personal profit.
(4) Willful misconduct.
(b) Determination of whether indemnification is required under this
Section shall be made pursuant to Section 7.05.
(c) The termination of a proceeding by judgment, order, settlement or
conviction, or upon a plea of no contest or an equivalent plea, does not, by
itself, create a presumption that indemnification of the director or officer is
not required under this Section.
- 13 -
<PAGE> 15
7.03 Written Request. A director or officer who seeks indemnification
under Sections 7.01 or 7.02 shall make a written request to the corporation.
7.04 Nonduplication. The corporation shall not indemnify a director or
officer under Sections 7.01 or 7.02 if the director or officer has previously
received indemnification or allowance of expenses from any person, including
the corporation, in connection with the same proceeding. However, the director
or officer has no duty to look to any other person for indemnification.
7.05 Determination of Right to Indemnification.
(a) Unless otherwise provided by the Articles of Incorporation or by
written agreement between the director or officer and the corporation, the
director or officer seeking indemnification under Section 7.02 shall select one
of the following means for determining his or her right to indemnification:
(1) By a majority vote of a quorum of the board of directors
consisting of directors not at the time parties to the same or
related proceedings. If a quorum of disinterested directors
cannot be obtained, by majority vote of a committee duly appointed
by the board of directors and consisting solely of two or more
directors not at the time parties to the same or related
proceedings. Directors who are parties to the same or related
proceedings may participate in the designation of members of the
committee.
(2) By independent legal counsel selected by a quorum of the board
of directors or its committee in the manner prescribed in sub. (1)
or, if unable to obtain such a quorum or committee, by a majority
vote of the full board of directors, including directors who are
parties to the same or related proceedings.
(3) By a panel of three arbitrators consisting of one arbitrator
selected by those directors entitled under sub. (2) to select
independent legal counsel, one arbitrator
selected by the director or officer seeking indemnification and
one arbitrator selected by the two arbitrators previously
selected.
(4) By an affirmative vote of the majority of shares represented
at a meeting of shareholders at which a quorum is present. Shares
owned by, or voted under the control of, persons who are at the
time parties to the same or related proceedings, whether as
plaintiffs or defendants or in any other capacity, may not be
voted in making the determination.
(5) By a court under Section 7.08.
(6) By any other method provided for in any additional right to
indemnification permitted under Section 7.07.
(b) In any determination under (a), the burden of proof is on the
corporation to prove by clear and convincing evidence that indemnification
under Section 7.02 should not be allowed.
(c) A written determination as to a director's or officer's
indemnification under Section 7.02 shall be submitted to both the corporation
and the director or officer within 60 days of the selection made under (a).
(d) If it is determined that indemnification is required under Section
7.02, the corporation
- 14 -
<PAGE> 16
shall pay all liabilities and expenses not prohibited by Section 7.04
within 10 days after receipt of the written determination under (c). The
corporation shall also pay all expenses incurred by the director or officer in
the determination process under (a).
7.06 Advance Expenses. Within 10 days after receipt of a written request
by a director or officer who is a party to a proceeding, the corporation shall
pay or reimburse his or her reasonable expenses as incurred if the director or
officer provides the corporation with all of the following:
(1) A written affirmation of his or her good faith belief that he
or she has not breached or failed to perform his or her duties to
the corporation.
(2) A written undertaking, executed personally or on his or her
behalf, to repay the allowance to the extent that it is ultimately
determined under Section 7.05 that indemnification under Section
7.02 is not required and that indemnification is not ordered by a
court under Section 7.08(b)(2). The undertaking under this
subsection shall be an unlimited general obligation of the
director or officer and may be accepted without reference to his
or her ability to repay the allowance. The undertaking may be
secured or unsecured.
7.07 Nonexclusivity. (a) Except as provided in (b), Sections 7.01, 7.02
and 7.06 do not preclude any additional right to indemnification or allowance
of expenses that a director or officer may have under any of the following:
(1) The Articles of Incorporation.
(2) A written agreement between the director or officer and the
corporation.
(3) A resolution of the board of directors.
(4) A resolution, after notice, adopted by a majority vote of all
of the corporation's voting shares then issued and outstanding.
(b) Regardless of the existence of an additional right under (a), the
corporation shall not indemnify a director or officer, or permit a director or
officer to retain any allowance of expenses unless it is determined by or on
behalf of the corporation that the director or officer did not breach or fail
to perform a duty he or she owes to the corporation which constitutes conduct
under Section 7.02(a)(1), (2), (3) or (4). A director or officer who is a
party to the same or related proceeding for which indemnification or an
allowance of expenses is sought may not participate in a determination under
this subsection.
(c) Sections 7.01 to 7.13 do not affect the corporation's power to pay or
reimburse expenses incurred by a director or officer in any of the following
circumstances.
(1) As a witness in a proceeding to which he or she is not a
party.
(2) As a plaintiff or petitioner in a proceeding because he or she
is or was an employee, agent, director or officer of the
corporation.
7.08 Court-Ordered Indemnification. (a) Except as provided otherwise by
written agreement between the director or officer and the corporation, a
director or officer who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction.
- 15 -
<PAGE> 17
Application may be made for an initial determination by the court under
Section 7.05(a)(5) or for review by the court of an adverse determination under
Section 7.05(a) (1), (2), (3), (4) or (6). After receipt of an application,
the court shall give any notice it considers necessary.
(b) The court shall order indemnification if it determines any of
the following:
(1) That the director or officer is entitled to indemnification
under Sections 7.01 or 7.02.
(2) That the director or officer is fairly and reasonably entitled
to indemnification in view of all the relevant circumstances,
regardless of whether indemnification is required under Section
7.02.
(c) If the court determines under (b) that the director or officer is
entitled to indemnification, the corporation shall pay the director's or
officer's expenses incurred to obtain the court-ordered indemnification.
7.09 Indemnification of Employees or Agents. The corporation may
indemnify and allow reasonable expenses of an employee or agent who is not a
director or officer to the extent provided by the Articles of Incorporation or
Bylaws, by general or specific action of the board of directors or by contract.
7.10 Insurance. The corporation may purchase and maintain insurance on
behalf of an individual who is an employee, agent, director or officer of the
corporation against liability asserted against or incurred by the individual in
his or her capacity as an employee, agent, director or officer, regardless of
whether the corporation is required or authorized to indemnify or allow
expenses to the individual against the same liability under Sections 7.01,
7.02, 7.06 and 7.07.
7.11 Securities Law Claims. (a) Pursuant to the public policy of the
State of Wisconsin, the corporation shall provide indemnification, allowance of
expenses and insurance for any liability incurred in connection with a
proceeding involving securities regulation described under (b) to the extent
required or permitted under Sections 7.01 to 7.10.
(b) Sections 7.01 to 7.10 apply, to the extent applicable to any other
proceeding, to any proceeding involving a federal or state statute, rule or
regulation regulating the offer, sale or purchase of securities, securities
brokers or dealers, or investment companies or investment advisers.
7.12 Liberal Construction. In order for the corporation to obtain and
retain qualified directors and officers, the foregoing provisions shall be
liberally administered in order to afford maximum indemnification of directors
and officers and, accordingly, the indemnification above provided for shall be
granted in all cases unless to do so would clearly contravene applicable law,
controlling precedent or public policy.
7.13 Definitions Applicable to This Article.
(a) "Affiliate" shall include, without limitation, any corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise
that directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the corporation.
(b) "Corporation" means this corporation and any domestic or foreign
predecessor of this corporation where the predecessor corporation's existence
ceased upon the consummation of a merger or other transaction.
- 18 -
<PAGE> 18
(c) "Director or Officer" means any of the following:
(1) A natural person who is or was a director or officer of this
corporation.
(2) A natural person who, while a director or officer of this
corporation, is or was serving at the corporation's request as a
director, officer, partner, trustee, member of any governing or
decisionmaking committee, employe or agent of another corporation
or foreign corporation, partnership, joint venture, trust or other
enterprise.
(3) A natural person who, while a director or officer of this corporation,
is or was serving an employe benefit plan because his or her duties to the
corporation also impose duties on, or otherwise involve services by, the person
to the plan or to participants or beneficiaries of the plan.
(4) Unless the context requires otherwise, the estate or personal
representative of a director or officer.
For purposes of this Article, it shall be conclusively presumed that any
Director or Officer serving as a director, officer, partner, trustee, member of
any governing or decision-making committee, employee or agent of an Affiliate
shall be so serving at the request of the corporation.
(d) "Expenses" include fees, costs, charges, disbursements, attorney fees
and other expenses incurred in connection with a proceeding.
(e) "Liability" includes the obligation to pay a judgment, settlement,
penalty, assessment, forfeiture or fine, including an excise tax assessed with
respect to an employe benefit plan, and reasonable expenses.
(f) "Party" includes a natural person who was or is, or who is threatened
to be made, a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending or completed civil,
criminal, administrative or investigative action, suit, arbitration or other
proceeding, whether formal or informal, which involves foreign, federal, state
or local law and which is brought by or in the right of the corporation or by
any other person.
ARTICLE VIII. SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal."
ARTICLE IX. AMENDMENTS
9.01 Amendments. Notwithstanding any other provisions in the Articles of
Incorporation of the corporation or these Bylaws of the corporation (and
notwithstanding the fact that a lesser percentage may be specified by law or
the Articles of Incorporation of the corporation), Bylaws may be adopted,
repealed or amended only upon the affirmative vote of either (i) the holders of
80% of the combined voting power of the then outstanding shares of Voting
Stock, voting together as a single class, or (ii) the Board of Directors acting
by not
- 17 -
<PAGE> 19
less than a majority of the entire Board of Directors.
9.02 Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
Bylaws then in effect but is taken or authorized by affirmative vote of not
less than the number of shares or the number of directors required to amend the
Bylaws so that the Bylaws would be consistent with such action, shall be given
the same effect as though the Bylaws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.
ARTICLE X. FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of January
and shall end on the thirty-first day of December.
ARTICLE XI. DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.
- 18 -
<PAGE> 20
BLACKHAWK BANCORP, INC.
RESOLUTIONS ADOPTED BY BOARD OF DIRECTORS ON
MARCH 9, 1994
WHEREAS, Mr. Lee Kubsh, a director of this Corporation, has determined for
health reasons that he will not stand for reelection as a director of the
Corporation following the expiration of his current term on May 11, 1994, and,
rather than name a new nominee for this position, the Board of Directors has
determined it is preferable to amend the Bylaws of the Corporation to reduce
the size of the Board of Directors from 12 members to 11 members;
WHEREAS, the Corporation's 1990 Directors' Stock Option Plan and its 1990
Executive Stock Option Plan will expire by their terms on January 24, 1995, and
all of the shares of the Corporation's common stock reserved for issuance under
the 1990 Executive Stock Option Plan and substantially all of the shares
reserved for issuance under the 1990 Directors' Stock Option Plan are subject
to presently outstanding options granted under those Plans;
WHEREAS, the Board of Directors believes it is in the best interests of
this Corporation to adopt replacement option plans for the directors and key
salaried employees of the Corporation or any of its direct or indirect
subsidiaries now or hereafter organized or acquired;
NOW, THEREFORE, BE IT RESOLVED, that the first paragraph of Section 3.01
of the Corporation's Bylaws, as adopted on November 22, 1989 and amended on
February 14, 1990, shall be, and hereby is, amended to read in its entirety as
follows:
"3.01 Number and Election. The business, property
and affairs of the corporation shall be managed
by, or under the direction of, its Board of
Directors. The number of directors of the
corporation (exclusive of directors (the
"Preferred Stock Directors") who may be elected by
a separate vote of the holders of then outstanding
shares of any class or series of preferred stock)
shall be determined from time to time by
resolution of the Board of Directors, but no
decrease shall have the effect of shortening the
term of an incumbent director."
The second paragraph of said Section 3.01 of the Corporation's Bylaws shall
remain in effect in its current form, unaffected by this amendment. This
amendment is adopted by the Board of Directors pursuant to the authority
provided to the Board in Section 9.01(ii) of the Corporation's Bylaws.
FURTHER RESOLVED, that, effective immediately following the Annual Meeting
of Shareholders of the Corporation to be held on May 11, 1994, or any
adjournment thereof, the size of the Board of Directors shall be reduced from
12 members to 11 members;
FURTHER RESOLVED, that the appropriate officers of this Corporation shall
be, and hereby are, authorized and directed to request legal counsel to prepare
a 1994 Directors' Stock Option Plan and a 1994 Executive Stock Option Plan with
substantially identical terms and provisions to those contained in the
Corporation's 1990 Directors' Stock Option Plan and 1990 Executive Stock
Option Plan, respectively, subject to such refinements and modifications as
such officers, on the advice of counsel, deem necessary and appropriate
- 19-
<PAGE> 21
to comport with applicable laws, rules and regulations now in effect or
expected to become effective in the future, including without limitation
changes necessary to comport with new provisions of the Internal Revenue Code
of 1986 and with revised Rule 16b-3 under the Securities and Exchange Act of
1934;
FURTHER RESOLVED, that the Secretary is hereby ordered to include a copy
of said 1994 Directors' Stock Option Plan and 1994 Executive Stock Option Plan,
when prepared in a form acceptable to such officers, in these minutes to be
made a part hereof and, subject to such act by the Secretary, said Stock Option
Plans are hereby adopted by the Board of Directors of this Corporation;
FURTHER RESOLVED, that there is hereby reserved for issuance under the
1994 Directors' Stock Option Plan and the 1994 Executive Stock Option Plan
20,000 shares and 60,000, respectively, of the authorized and unissued shares
of common stock of this Corporation, which represents 2.67% and 8.01%,
respectively, of the Corporation's presently outstanding shares of Common Stock
(or 2.22% and 6.65%, respectively, on a fully-diluted basis). The number of
these reserved shares shall be adjusted to reflect the pending 2-for-1 stock
split to be effected as a 100% stock dividend on March 31, 1994, as approved by
the Board of Directors of this Corporation at its meeting held on February 9,
1994, and to reflect any other future stock splits, stock dividends, stock
conversions, reorganizations or similar transactions affecting the
Corporation's common stock;
FURTHER RESOLVED, that the 1994 Directors' Stock Option Plan and the 1994
Executive Stock Option Plan shall be submitted to the Corporation's
shareholders for their approval at the Annual Meeting of Shareholders scheduled
for May 11, 1994, or any adjournment thereof, and the appropriate officers of
the corporation shall be, and hereby are, authorized and directed to take all
steps necessary to so submit the Plans to the shareholders and to solicit their
approval;
FURTHER RESOLVED, that the appropriate officers of this Corporation shall
be, and hereby are, authorized and directed to take any and all steps they deem
necessary or appropriate, on the advice of counsel, to provide for the
registration of the shares of the Corporation's common stock reserved by these
resolutions for issuance pursuant to the exercise of options granted under the
1994 Directors' Stock Option Plan and the 1994 Executive Stock Option Plan so
that, upon issuance, such shares will be registered in accordance with federal
securities laws and applicable state blue sky laws.
- 20 -
<PAGE> 1
Exhibit 22
Subsidiaries of Registrant
<TABLE>
<CAPTION>
Percent of Capital
Stock Owned At
Name Location December 31, 1997
- ---------------------- -------------------- -----------------
<S> <C> <C>
Blackhawk State Bank Beloit, Wisconsin 100%
(Wisconsin - chartered
Commercial Bank)
Blackhawk State Bank, s.b Rochelle, Illinois 100%
(Illinois-chartered
Savings Bank)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,680,000
<INT-BEARING-DEPOSITS> 1,133,000
<FED-FUNDS-SOLD> 7,756,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,488,000
<INVESTMENTS-CARRYING> 28,920,000
<INVESTMENTS-MARKET> 29,098,000
<LOANS> 138,296,000
<ALLOWANCE> 1,523,000
<TOTAL-ASSETS> 201,976,000
<DEPOSITS> 159,050,000
<SHORT-TERM> 12,231,000
<LIABILITIES-OTHER> 2,709,000
<LONG-TERM> 4,850,000
0
0
<COMMON> 23,000
<OTHER-SE> 23,111,000
<TOTAL-LIABILITIES-AND-EQUITY> 201,976,000
<INTEREST-LOAN> 11,597,000
<INTEREST-INVEST> 2,584,000
<INTEREST-OTHER> 126,000
<INTEREST-TOTAL> 14,308,000
<INTEREST-DEPOSIT> 5,931,000
<INTEREST-EXPENSE> 6,720,000
<INTEREST-INCOME-NET> 7,587,000
<LOAN-LOSSES> 192,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,909,000
<INCOME-PRETAX> 3,023,000
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,956,000
<EPS-PRIMARY> .86
<EPS-DILUTED> .82
<YIELD-ACTUAL> 4.52
<LOANS-NON> 663,000
<LOANS-PAST> 90,000
<LOANS-TROUBLED> 325,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,186,000
<CHARGE-OFFS> 215,000
<RECOVERIES> 39,000
<ALLOWANCE-CLOSE> 1,523,000
<ALLOWANCE-DOMESTIC> 1,523,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,523,000
</TABLE>
