<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant To Section 12(b) or (g) Of
The Securities Exchange Act Of 1934
---------------
CENTRAL ILLINOIS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Illinois 37-1203599
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2913 W. Kirby Avenue Champaign, Illinois 61821
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (217) 355-6200
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to Name of each exchange
be so registered on which each class is
to be registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON SHARES, $1.00 PAR VALUE PER SHARE
(Title of Class)
<PAGE> 2
ITEM 1. BUSINESS
GENERAL
Central Illinois Bancorp, Inc., an Illinois corporation (the "Company") is
a multi-bank holding company registered under the Bank Holding Company Act of
1956. The Company presently operates five banks under five separate charters in
three states. Three of the Company's bank subsidiaries are located in the State
of Illinois, with the other two located in the States of Wisconsin and Indiana.
The four banks located in Illinois and Indiana are commercial banks, and the
fifth bank located in Wisconsin is a savings bank. The Company also has three
Illinois corporate subsidiaries that provide banking support services. Set out
below is a summary of the organization of the Company and its subsidiaries:
CENTRAL ILLINOIS BANCORP, INC.
Banking Operations
Illinois
--------
Central Illinois Bank*
Central Illinois Bank MC*
Hillside Investors, Ltd.
CIB Bank*
Wisconsin
---------
First Ozaukee Capital Corp.
Marine Bank and Savings*
Indiana
-------
CIB Bank*
Banking Support Operations
Illinois
--------
Marine Trust and Investment Company
C.I.B. Data Processing Services, Inc.
Mortgage Services of Illinois, Inc.
* Indicates Operating Bank Subsidiaries
The Company was originally incorporated on November 26, 1985 as Sidney
Bancorporation, Inc., a one bank holding Company. The Company changed its name
to Central Illinois Bancorp., Inc. on November 24, 1987 in conjunction with the
change of control discussed below. The business affairs of the Company are
currently guided by a ten member Board of Directors. Each director serves for a
three year term and is elected on a staggered basis, with provision for three
directors to be elected in each of two consecutive years, and four directors to
<PAGE> 3
be elected in the following year. The Company's main office is presently located
at the Central Illinois Bank facility located at 2913 W. Kirby Avenue,
Champaign, Illinois 61821, and its telephone is 217-355-6200. The Company
anticipates that several of its corporate operations will be moved to the
permanent Pewaukee facility when that facility is opened. See, "Properties -
Marine Facilities, Permanent Pewaukee Facility."
On September 15, 1987, control of the Company changed when a group of
investors, most of whom remain as current stockholders of the Company, purchased
all of the outstanding common stock of the Company. Since the change in control,
the new management has placed more emphasis on market share and business growth
and development, and has initiated a program of having officers aggressively
call on potential commercial accounts. The Company has also followed a plan of
deliberate growth and expansion of its market areas. The Company's approach to
developing each new market area is to hire bank officers currently active in
that market area. In this manner the Company has endeavored to build its market
entry activities around the reputation and abilities of lenders already known
and successful within the intended market.
BANKING OPERATIONS
Through its subsidiaries the Company engages in a wide range of commercial
and personal banking activities, including accepting various types of demand
deposit accounts, accepting savings and time deposit accounts, making secured
and unsecured loans to corporations, individuals, and others, issuing letters of
credit, originating mortgage loans, providing personal and corporate trust
services, and providing various other personal and corporate banking services.
The Company's lending services include commercial, real estate, installment
(direct and indirect), and credit card loans. Revenues from the Company's
lending activities constitute the largest component of the Company's operating
revenues.
The loan portfolios of the Company's subsidiaries constitute the major
earning assets of the Company, and the interest spread between the interest rate
earned on these loans and the costs to these banks of obtaining the funds to
loan is the principal source of revenue to the banks. The Company's loan
personnel have the authority to extend credit under guidelines established and
approved by the Board of Directors of each bank. Any aggregate credit which
exceeds the authority of the loan officer is reviewed for approval by a loan
committee composed of various experienced loan officers and bank directors. The
loan committees act to ensure consistent application of each bank's loan
policies.
The general areas served by the Company's bank subsidiaries presently
include the metropolitan areas of Chicago, Illinois, Milwaukee, Wisconsin and
Indianapolis, Indiana and most of the central Illinois area. The Company extends
out-of-area credit on a limited basis to some borrowers who are considered to be
good credit risks. As of December 31, 1997 and solely with regard to its
holding company operations, the Company had 37 full-time employees and 6
part-time employees. The Company does not separately own any facilities, and
the administrative offices of the Company are located at the West Champaign
facility of Central Illinois Bank described in Item 3 below.
2
<PAGE> 4
At the time of the change of control of the Company in September of 1987
the Company owned one bank with total assets of approximately $9,400,000 and a
single banking location in Sidney, Illinois, a community with a population of
approximately 1,000. As of March 31, 1998, the Company owned and controlled
three commercial banks in Illinois, a savings bank in Wisconsin, and a
newly-formed commercial bank in Indiana, which in total have 27 locations now
operating in 11 counties in the State of Illinois, two counties in the State of
Wisconsin, and one county in the State of Indiana. The Company has applications
pending with, or conditionally approved by, the appropriate regulatory agencies
for relocation of two temporary facilities to permanent locations in Peoria,
Illinois and Pewaukee, Wisconsin, and for the establishment of three new
facilities in Elmhurst and Rantoul, Illinois, and Indianapolis, Indiana. Each of
the Company's bank subsidiaries and other subsidiaries are described below.
ILLINOIS
Central Illinois Bank ("CIB") is a state bank chartered under the laws of
Illinois that was originally authorized to commence business in 1958 in Sidney,
Illinois under the name of Sidney Community Bank. The name of the bank was
changed to Central Illinois Bank in January of 1988, and its main office is now
located in the Midtown Champaign facility, 302 W. Springfield Avenue, Champaign,
Illinois. As of December 31, 1997, the bank had 87 full-time employees, 41
part-time employees, total assets of approximately $348,000,000, and 9 branch
facilities currently operating and described below. See, "Properties".
The Company began its move into regional banking activities in 1991 through
the acquisition of its second bank subsidiary now known as Central Illinois Bank
MC ("CIBM"). CIBM is a state bank chartered under the laws of Illinois that was
originally authorized to commence business in 1920 in Arrowsmith, Illinois under
the name of Arrowsmith State Bank. In October, 1991, the Company acquired all of
the stock of Arrowsmith State Bank and changed the name of the bank in January,
1992 to Central Illinois Bank McLean County. The name was changed again in
September, 1995 to become Central Illinois Bank MC. The main office of the bank
is located at 1710 East College Avenue, Normal, Illinois. As of December 31,
1997, the bank had 44 full-time employees, 20 part-time employees, total assets
of approximately $164,000,000, and 7 branch facilities currently operating and
described below. See, "Properties".
In March of 1998 the Company's Board of Directors voted to merge CIB and
CIBM. Additional corporate action and regulatory approval will be required
before the merger can be consummated. The Company intends that CIBM will be the
surviving corporation after the merger, will change its name to Central Illinois
Bank, and thereafter all of the banking operations of both banks will be
conducted under the name Central Illinois
3
<PAGE> 5
Bank. If all required regulatory approval is timely received, the Company
believes the merger will be completed during 1998.
The Company continued its regional market development and growth in 1994 by
acquiring a banking operation in the metropolitan Chicago market through the
purchase of all of the stock of Hillside Investors, LTD ("HIL") and thereby
ownership of its subsidiary bank in Hillside, Illinois that is now known as CIB
Bank ("CIBH"). HIL is an Illinois corporation and a one bank holding company
that was originally incorporated March 23, 1983 and thereafter acquired majority
ownership of the stock of CIBH. HIL has no employees or separate facilities, and
its main office is located at Hillside facility of CIBH described below. See,
"Properties".
CIBH is a state bank chartered under the laws of Illinois that was
originally authorized to commence business in 1963 in Hillside, Illinois under
the name of Bank of Hillside. The name of the bank was changed to CIB Bank in
January of 1995. The main office of the bank is located at 101 N. Wolf Road,
Hillside, Illinois. As of December 31, 1997, CIBH had 59 full-time employees, 8
part-time employees, total assets of approximately $248,000,000, and 6 branch
facilities currently operating and described below. See, "Properties". On May
4, 1998 CIBH entered into an agreement with ARGO Federal Savings Bank, FSB to
purchase and assume certain deposit accounts and to purchase certain equipment
of its Gurnee, Illinois branch office and assume the lease for this facility.
This agreement is subject to regulatory approval and the Company anticipates
this transaction will close in July of 1998.
WISCONSIN
The Company's first move into the interstate banking arena occurred in
September of 1997 with its acquisition of First Ozaukee Capital Corp. ("FOCC")
and its subsidiary savings bank now operated as Marine Bank and Savings
("Marine"). FOCC is a Wisconsin corporation that was originally formed October
17, 1994 as a holding company to own all of the stock of Marine. FOCC has no
employees or separate facilities, and its home office is located at the
Cedarburg facility of Marine described below. See, "Properties". Prior to
acquisition by the Company, FOCC's subsidiary bank learned that one of its
properties was contaminated by petroleum. Although FOCC did not initially
believe this property was the source of the problem, FOCC had a professional
firm remediate the problem and the Company also required this work as a part of
its purchase agreement. Although monitoring will continue at the site for some
time, the Company believes this environmental problem has been resolved and is
not aware of any other matters that present environmental issues.
Marine is presently a Wisconsin state-chartered savings bank that was
originally incorporated in July of 1923 as Cedarburg Building and Loan
Association. In May of 1993 this institution was converted to a mutual savings
bank, and in October of 1994 this bank was subsequently converted to a stock
savings bank, which is its status at present. After a series of name changes
over the years of its operation, the name of this bank was changed by the
Company in September of 1997 to Marine Bank and Savings. The home office of the
bank is located at W61 N536 Washington Avenue, Cedarburg, Wisconsin. As of
December 31, 1997, Marine had 17 full-time employees, 4 part-time employees,
total assets of approximately $52,000,000, and 3 branch facilities currently
operating and described below. See, "Properties".
INDIANA
The Company's most recent step toward broader regional banking activities
involved the creation of a de novo bank in Indiana, also under the name CIB Bank
("CIB-IND"). CIB-IND is an Indiana state bank that received its charter
authorizing it to commence business in March of
4
<PAGE> 6
1998 in Indianapolis, Indiana. The main office of this bank is located at 11715
Fox Road, Indianapolis, Indiana. At the time this bank began operations it had 4
full time employees, 1 part time employee, $10,500,000 of initial capital and
operated one facility as described below. See, "Properties".
BANKING SUPPORT OPERATIONS
In addition to its banking and bank holding company subsidiaries, the
Company has also created or acquired three other subsidiaries to compliment and
facilitate its banking activities. The first of these subsidiaries, C.I.B. Data
Processing Services, Inc., an Illinois corporation ("Data"), was incorporated by
the Company in August of 1990 to perform data processing functions solely for
the Company and its subsidiaries. The principal office of Data is located at 826
West Champaign Avenue, Rantoul, Illinois. Data coordinates all of the computer
equipment leases and purchases on behalf of the Company and its subsidiaries.
Data also licenses banking software and coordinates the operation of this
software for the banks. Data has generally been operated from its inception as a
means to facilitate the operational needs of the Company and not as a profit
center. As of December 31, 1997 data had 13 full time employees and no part time
employees. Data does not separately own any facilities, and its principal office
is located in the Rantoul, Illinois facility of CIB.
In September of 1995 the Company acquired all of the stock of Mortgage
Services of Illinois, Inc., ("MSI") an Illinois corporation in the business of
originating and brokering mortgage loans. MSI is licensed by the Office of the
Commissioner of Banks and Real Estate of the State of Illinois and presently
provides mortgage origination and brokerage services. The head office of MSI is
located at 2407 East Washington Street, Bloomington, Illinois, and MSI has
employees located in several of the facilities of the Company's Illinois banks.
MSI has also received a license from the State of Wisconsin to provide mortgage
banking services in that state, and the Company anticipates that MSI will begin
operations in Wisconsin in 1998. As of December 31, 1997 MSI had 18 full time
employees and 2 part time employees. MSI does not separately own any facilities
and its principal office is located in the Bloomington facility of CIBM.
In February of 1998 the Company obtained authority from the Illinois Office
of Banks and Real Estate to incorporate Marine Trust and Investment Company
("Trust") as an Illinois corporation with trust powers. CIB had previously
obtained authority from the State of Illinois in August of 1991 to operate a
trust department and began providing trust services at that time. It is
anticipated that substantially all of the trust assets will be transferred to
Trust and that each of the Company's Illinois bank subsidiaries will utilize
the services of Trust in the future. The main office of Trust is located at 333
Quadrangle Drive, Bolingbrook, Illinois. At the time Trust began operations it
had 6 full time employees, 4 of which were hired from CIB's trust department,
and it had
5
<PAGE> 7
$2,100,000 of initial capital. Trust does not own any separate facilities, and
its principal office is located in the Bolingbrook facility of CIBH. In 1991,
CIB entered into an agreement for investment advisory services with Strategic
Capital Management, Inc. ("SCM"). In March of 1998 CIB assigned its rights and
obligations under that agreement to Trust. At the same time, Strategic Capital
Trust Company ("SCTC"), parent corporation of SCM, assumed SCM's rights and
obligations under that agreement.
Through MSI, the Company originates conventional mortgage loans and sells
them in the secondary market. MSI also offers VA, FHA, and other fixed rate and
first time home buyer loans. Through Trust, the Company provides a wide range of
personal and corporate trusts and trust-related services, including serving as
executor of estates, as trustee under testamentary and intervivos trusts, as
guardian of the estates of minors and incompetents, and as escrow agent under
various agreements. The Company's banks also offer credit card products and
electronic banking services to their customers.
In the aggregate, as of December 31, 1997 the Company and all of its
subsidiaries employed 275 full time employees and 81 part time employees.
Neither the Company nor any of its subsidiaries is a party to any collective
bargaining agreements, and the Company believes the Company and its
subsidiaries enjoy good employee relations.
SUPERVISION AND REGULATION
GENERAL
The Company and its subsidiaries are subject to regulation and supervision
by various governmental regulatory authorities including, but not limited to,
the Federal Reserve Board (the "FRB"), the Federal Deposit Insurance Corporation
(the "FDIC"), the Illinois Office of Banks and Real Estate, the Indiana
Department of Financial Institutions, and the Wisconsin Department of Financial
Institutions. Financial institutions and their holding companies are extensively
regulated under federal and state law. The effect of such statutes, regulations
and policies can be significant, and the timing and effect of changes to these
laws cannot always be predicted.
Federal and state laws and regulations generally applicable to financial
institutions such as the Company and its subsidiary banks regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers, consolidations and dividends. This
supervision and regulation is intended primarily for the protection of the
FDIC's Bank Insurance Fund ("BIF") and Savings Association Insurance Fund
("SAIF") and the depositors, rather than the stockholders of a financial
institution.
The following references to material statutes and regulations affecting the
Company and its subsidiaries are brief summaries thereof and are qualified in
their entirety by reference to the full text of such statutes and regulations.
Any change in applicable law or regulations may have a material effect on the
business of the Company and its subsidiaries.
6
<PAGE> 8
BANK HOLDING COMPANY ACT OF 1956, AS AMENDED
A bank holding company is subject to regulation under the Bank Holding
Company Act of 1956, as amended (the "Act"), and must register with the FRB
under that Act. A bank holding company is required by the Act to file an annual
report of its operations and such additional information as the FRB may require.
As a bank holding company, the Company and its bank subsidiaries are subject to
examination by the FRB. The FRB has jurisdiction to regulate the terms of
certain debt issues of bank holding companies and the authority to impose
reserve requirements.
The Act currently prohibits a bank holding company, or any subsidiary
thereof other than a bank, from acquiring all or substantially all the assets of
any bank, or for a bank holding company or any subsidiary from acquiring more
than 5% of the voting shares of any bank, unless the acquiror receives prior
approval from the FRB.
The Act also prohibits, with certain exceptions, a bank holding company
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks, or
furnishing services to banks and their subsidiaries. Bank holding companies may
engage in, and may own shares of companies engaged in, certain businesses found
by the FRB to be so closely related to banking as to be a proper incident
thereto. Under current regulations of the FRB, a bank holding company and its
nonbank subsidiaries are permitted, among other activities, to engage in certain
banking-related business ventures, and the activities of the Company's non-bank
subsidiaries fall within these permitted activities.
Federal law prohibits acquisition of control of a bank or bank holding
company without prior notice to certain federal bank regulators. "Control" is
defined in certain cases as acquisition of as little as 10% of the outstanding
shares of any such entity. Additionally, under certain circumstances a bank
holding company is restricted from purchasing its own stock without obtaining
approval of the FRB.
CAPITAL STANDARDS
The FRB, FDIC and other federal banking agencies have established
risk-based capital adequacy guidelines intended to provide a measure of capital
adequacy that reflects the degree of risk associated with a banking
organization's operations, both for transactions reported on the balance sheet
as assets, and transactions, such as letters of credit and recourse
arrangements, which are reported as off-balance sheet items. Under these
guidelines, nominal dollar amounts of assets and credit equivalent amounts of
off-balance sheet items are multiplied by one of several risk adjustment
percentage which range from 0% for assets with low credit risk, such as certain
U.S. government securities, to 100% for assets with relatively higher credit
risk.
A banking organization's qualifying capital is categorized as Tier 1 and
Tier 2 capital, as detailed below, and risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk-adjusted assets and
off-balance sheet items. The regulators measure risk-adjusted
7
<PAGE> 9
assets and off-balance sheet items against both Tier 1 capital and total
qualifying capital, which is the sum of Tier 1 capital and limited amounts of
Tier 2 capital. Tier 1 capital consists of common stock, retained earnings,
noncumulative perpetual preferred stock and minority interests in certain
subsidiaries, less most other intangible assets. Tier 2 capital may consist of a
limited amount of the allowance for loan losses and certain other instruments
with some characteristics of equity. The inclusion of elements of Tier 2 capital
is subject to certain other requirements and limitations of the federal banking
agencies. Since December 31, 1992, the federal banking agencies have required
that risk-adjusted assets and off-balance sheet items be not more than 8%, and
not more than 4% of Tier 1 capital.
In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%. It is improbable, however, that an institution with a 3% leverage ratio
would receive the highest rating by the regulators since a strong capital
position is a significant part of the regulators' rating. For all banking
organizations not rated in the highest category, the minimum leverage ratio is
at least 100 to 200 basis points above the 3% minimum. Thus, the effective
minimum operating leverage ratio, for all practical purposes, is at least 4% or
5%.
The following table presents the capital ratios for the Company and each
banking subsidiary operating as of December 31, 1997:
<TABLE>
<CAPTION>
Company CIB MC CIBH Marine
Ratios Ratios Ratios Ratios Ratios
<S> <C> <C> <C> <C> <C>
Risk-Based Capital Ratio:
Total Capital: 15.50% 9.85% 11.71% 14.78% 34.31%
Tier 1 Capital: 14.50% 8.86% 10.73% 13.75% 33.35%
Tier 1 Capital Leverage Ratio: 12.36% 7.37% 8.62% 11.56% 23.93%
</TABLE>
In addition to these uniform risk-based capital guidelines and leverage
ratios, the regulators have the discretion to set individual minimum capital
requirements for specific institutions at rates above the minimum guidelines and
ratios.
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires each federal banking agency to take prompt corrective action
to resolve the problems of insured depository institutions, including but not
limited to those that fall below one or more of the prescribed minimum capital
ratios. The law requires each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
8
<PAGE> 10
In September of 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of the FDICIA.
An insured depository institution generally will be classified in the following
categories based on capital measures indicated below:
"Well-Capitalized": Total risk-based capital of 10% or more; Tier 1
risk-based ratio capital of 6% or more; and a Leverage ratio of 5% or more.
"Adequately Capitalized": Total risk-based capital of at least 8%; Tier 1
risk-based capital of at least 4%; and a Leverage ratio of at least 4%.
"Undercapitalized": Total risk-based capital less than 8%; Tier 1
risk-based capital less than 4%; or a Leverage ratio less than 4%.
"Significantly Undercapitalized": Total risk-based capital less than 6%;
Tier 1 risk-based capital less than 3%; or a Leverage ratio less than 3%.
"Critically Undercapitalized": Tangible equity to total assets less than
2%.
An institution that, based upon its capital levels, is classified as either
well-capitalized, adequately capitalized, or undercapitalized may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
If an insured depository institution is undercapitalized, it will be
closely monitored by the appropriate federal banking agency. Undercapitalized
institutions must submit an acceptable capital restoration plan with a guarantee
of performance issued by the holding company. Further restrictions and sanctions
are required to be imposed on insured depository institutions that are
critically undercapitalized. The most important additional measure is that the
appropriate federal banking agency is required to either appoint a receiver for
the institution within 90 days or obtain the concurrence of the FDIC in another
form of action.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease-and-desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition
9
<PAGE> 11
of civil money penalties, the issuance of directives to increase capital, the
issuance of formal and informal agreements, the issuance of removal and
prohibition orders against institution-affiliated parties and the enforcement of
such actions through injunctions or restraining orders based upon a prima facie
showing by the agency that such relief is appropriate. Additionally, a holding
company's inability to serve as a source of strength to its subsidiary banking
organizations could serve as an further basis for a regulatory action against
the holding company.
As of December 31, 1997, and based on the guidelines set out above, the
Company's calculations showed that the Company and each of its subsidiary banks
except CIB were classified as "well capitalized" under the above guidelines. The
ratios for CIB dropped below the requirements to be classified as "well
capitalized" at the end of 1997, and the Company's calculations showed that CIB
was classified as "adequately capitalized" at year end. The Company has since
added capital to CIB and the Company's calculations show that bank would now be
classified as "well capitalized."
STANDARDS FOR SAFETY AND SOUNDNESS
The FDICIA, as amended, and the Riegle Community Development and Regulatory
Improvement Act of 1994 require the FRB, together with the other federal bank
regulatory agencies, to prescribe standards of safety and soundness by
regulations or guidelines relating generally to operations and management,
asset growth, asset quality, earnings, stock valuation, and compensation.
Effective in August of 1995 the FRB and the other federal bank regulatory
agencies adopted a set of guidelines prescribing safety and soundness standards
pursuant to the FDICIA, as amended. The guidelines establish general standards
relating to internal controls and information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
and compensation, fees and benefits. In general, the guidelines require, among
other things, appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director or principal shareholder.
In addition, the FRB adopted regulations that authorize, but do not
require, the FRB to order an institution that has been given notice that
it is not satisfying any of such safety and soundness standards to submit a
compliance plan. If, after being so notified, an institution fails to submit an
acceptable compliance plan or fails in any material respect to implement an
accepted compliance plan, the FRB must issue an order directing action to
correct the deficiency and may also issue an order directing other actions of
the types to which an undercapitalized institution is subject under the "prompt
corrective action" provisions of the FDICIA. If an institution fails to comply
with such an order, the FRB may seek to enforce the order in judicial
proceedings and to impose civil money penalties. The FRB and the other federal
bank regulatory agencies have also adopted guidelines for asset quality and
earnings standards.
10
<PAGE> 12
A range of other provisions in the FDICIA include requirements applicable
to: closure of branches; additional disclosures to depositors with respect to
terms and interest rates applicable to deposit accounts; uniform regulations for
extensions of credit secured by real estate; restrictions on activities of and
investments by state-chartered banks; modification of accounting standards to
conform to generally accepted accounting principles, including the reporting of
off-balance sheet items and supplemental disclosure of estimated fair market
value of assets and liabilities in financial statements filed with the banking
regulators; penalties in making or failing to file assessment reports with the
FDIC; restrictions on extensions of credit to directors, officers and principal
stockholders; and reporting requirements on agricultural loans and loans to
small businesses.
As required by the FDICIA, the federal financial institution agencies
solicited comments in September, 1993 on a proposed rule and method of
incorporating an interest rate risk component into the current risk-based
capital guidelines, with the goal of ensuring that institutions with high levels
of interest rate risk have sufficient capital to cover their exposures. Interest
rate risk is the risk that changes in market interest rates might adversely
affect a bank's financial condition or future profitability. In August of 1995
the FRB, FDIC and other federal banking agencies published a final rule
modifying their existing risk-based capital standards to provide for
consideration of interest rate risk when assessing the capital adequacy of a
bank. Under the final rule, the FRB and FDIC must explicitly include a
bank's exposure to declines in the economic value of its capital due to changes
in interest rates as a factor in evaluating a bank's capital adequacy. In June
of 1996 the FRB, FDIC and other federal banking agencies published a joint
agency policy statement providing guidance to banks for managing interest rate
risk. The policy statement emphasizes the importance of adequate oversight by
management and a sound risk management process. The assessment of interest rate
risk management made by bank examiners will be incorporated into each bank's
overall risk management rating and will be used to determine the effectiveness
of management.
DIVIDEND RESTRICTIONS
The FRB generally prohibits a bank holding company from declaring or paying
a cash dividend which would impose undue pressure on the capital of subsidiary
banks or would be funded only through borrowing or other arrangements that might
adversely affect a bank holding company's financial position. The FRB's policy
is that a bank holding company should not initiate or continue cash dividends on
its common stock unless its net income is sufficient to fully fund each dividend
and its prospective rate of earnings retention appears consistent with its
capital needs, asset quality and overall financial condition. A bank holding
company is expected to act as a source of financial strength for each of its
subsidiary banks and to commit resources to support its subsidiary banks in
circumstances when it might not do so absent such policy.
11
<PAGE> 13
The Company to date has not declared or paid any dividends. The Company's
ability to pay any dividends in the future depends in large part on the ability
of the subsidiary banks to pay dividends to the Company. The ability of the
subsidiary banks to pay dividends is subject to restrictions set forth in the
banking and corporate laws of each state and regulations of the FDIC.
Additionally, under the FDICIA a bank may not make any capital distribution,
including the payment of dividends, if after making such distribution the bank
would be in any of the "under-capitalized" categories under the FDIC's Prompt
Corrective Action regulations.
Under the Financial Institution's Supervisory Act, the FDIC also has the
authority to prohibit a bank from engaging in business practices which the FDIC
considers to be unsafe or unsound. It is also possible, depending upon the
financial condition of the bank and other factors, the FDIC could assert that
the payment of dividends or other payments in some circumstances might be an
unsafe or unsound practice and thereby prohibit such payments.
FEDERAL DEPOSIT INSURANCE
Under the FDICIA each of the Company's subsidiary banks, as FDIC-insured
institutions, are required to pay deposit insurance premiums based on the risk
each poses to the insurance fund. The FDIC has authority to raise or lower
assessment rates on insured deposits in order to achieve certain designated
reserve ratios in the insurance funds and to impose special additional
assessments. The FDIC recently amended the risk-based assessment system and
adopted a new assessment rate schedule for BIF-insured deposits. The new
assessment rate schedule for premium assessment provides for an assessment range
of 0% to 0.27% of deposits, depending on capital and supervisory factors. Each
depository institution is assigned to one of three capital groups: "well
capitalized," "adequately capitalized" or "under capitalized." Within each
capital group, institutions are assigned to one of three supervisory subgroups:
"Subgroup A," "Subgroup B" or "Subgroup C". Accordingly, there are nine
combinations of capital groups and supervisory subgroups to which varying
assessment rates would be applicable. An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned.
12
<PAGE> 14
Deposit insurance may be terminated by the FDIC upon a finding that an
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC. The management of each
of the Company's subsidiary banks does not know of any practice, condition or
violation that might lead to termination of deposit insurance. During 1997, the
Company's subsidiary banks were assessed deposit insurance in the aggregate
amount of $78,855.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 enacted
in September of 1996 provides that, for semi-annual periods beginning after
December 31, 1996, BIF deposits will also be assessed to pay interest on the
bonds issued in the late 1980s by the Financing Corporation (the "FICO Bonds")
to recapitalize the now defunct Federal Savings & Loan Insurance Corporation.
For purposes of the assessments to pay interest on the FICO Bonds, BIF deposits
will be assessed at a rate of 20% of the assessment rate applicable to SAIF
deposits until December 31, 1999. After the earlier of December 31, 1999 or the
date on which the last savings association ceases to exist, full pro rata
sharing of FICO assessments will begin. It has been estimated that the rates of
assessment for the payment of interest on the FICO Bonds will be approximately
1.3 basis points for BIF-assessable deposits and approximately 6.4 basis points
for SAIF-assessable deposits. The payment of the assessment to pay interest on
the FICO Bonds should not materially affect the Banks.
RESTRICTIONS ON AFFILIATE TRANSACTIONS
Transactions between a bank holding company, its subsidiary banks and other
subsidiaries of the bank holding company are subject to a number of other
restrictions. FRB policies forbid the payment by bank subsidiaries of management
fees which are unreasonable in amount or exceed the fair market value of the
services rendered or, if no market exists, actual costs plus a reasonable
profit. Additionally, a bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with the extension of
credit, sale or lease of property, or furnishing of services. Subject to certain
limitations, depository institution subsidiaries of bank holding companies may
extend credit to, invest in the securities of, purchase assets from, or issue a
guarantee, acceptance, or letter of credit on behalf of, an affiliate, provided
that the aggregate of such transactions with affiliates may not exceed 10% of
the capital stock and surplus of the institution, and the aggregate of such
transactions with all affiliates may not exceed 20% of the capital stock and
surplus of such institution. A bank holding company may only borrow from
depository institution subsidiaries if the loan is secured by marketable
obligations with a value of a designated amount in excess of the loan. Further,
the bank holding company may not sell a low-quality asset to a depository
institution subsidiary.
Bank holding companies are also restricted in the extent to which they and
their subsidiaries can borrow or otherwise obtain credit from one another or
engage in certain other transactions. The "covered transactions" that an insured
depository institution and its
13
<PAGE> 15
subsidiaries are permitted to engage in with their nondepository affiliates are
limited to the following amounts: (i) in the case of any one such affiliate, the
aggregate amount of covered transactions of the insured depository institution
and its subsidiaries cannot exceed 10% of the capital stock and the surplus of
the insured depository institution; and (ii) in the case of all affiliates, the
aggregate amount of covered transactions of the insured depository institution
and its subsidiaries cannot exceed 20% of the capital stock and surplus of the
insured depository institution. In addition, extensions of credit that
constitute covered transactions must be collateralized in prescribed amounts.
"Covered transactions" are defined by statute to include a loan or extension of
credit to the affiliate, a purchase of securities issued by an affiliate, a
purchase of assets from the affiliate (unless otherwise exempted by the FRB),
the acceptance of securities issued by the affiliate as collateral for a loan
and the issuance of a guarantee, acceptance, or letter of credit for the benefit
of an affiliate.
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act ("CRA"), a financial institution has a
continuing and affirmative obligation, consistent with the safe and sound
operation of such institution, to help meet the credit needs of its entire
community, including low-income and moderate-income neighborhoods. The CRA does
not establish specific lending requirements or programs for financial
institutions, nor does it limit an institution's discretion to develop the types
of products and services that it believes, consistent with the CRA, are best
suited to its particular community. The CRA requires each federal banking
agency, in connection with its examination of a financial institution, to assess
and assign one of four ratings to the institution's record of meeting the credit
needs of its community and to take such record into account in its evaluation of
certain applications by the institution, including applications for charters,
branches and other deposit facilities, relocations, mergers, consolidations,
acquisitions of assets or assumptions of liabilities, and savings and loan
holding company acquisitions. The CRA also requires that all institutions make
public disclosure of their CRA ratings.
In April of 1995, the FRB, OCC and other federal banking agencies adopted
amendments revising their CRA regulations. Among other things, the amended CRA
regulations substitute for the prior process-based assessment factors a new
evaluation system that rates an institution based on its actual performance in
meeting community needs. In particular, the new system focuses on three tests:
(i) a lending test, to evaluate the institution's record of making loans in its
assessment areas; (ii) an investment test, to evaluate the institution's record
of investing in community development projects, affordable housing, and programs
benefiting low or moderate income individuals and businesses; and (iii) a
service test, to evaluate the institution's delivery of services through its
branches, automated teller machines and other offices. The amended CRA
regulations also clarify how an institution's CRA performance would be
considered in the application process.
Each of the Company's subsidiary banks received "satisfactory" ratings on
its most recent CRA performance evaluation with the exception of Marine. At the
time the Company
14
<PAGE> 16
acquired control of Marine through its purchase of the stock of FOCC, Marine
was not in compliance with CRA guidelines and had entered into a memorandum
agreement with the FDIC requiring that certain actions be taken so that Marine
would come into compliance. Since the Company acquired control of Marine it has
worked towards resolving the CRA compliance issues. The Company believes
significant progress has been made toward resolving these outstanding CRA issues
and that Marine will soon be in compliance with CRA guidelines.
15
<PAGE> 17
FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989
The passage of the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") resulted in significant changes in the enforcement powers
of federal banking agencies, and more significantly, the manner in which the
thrift industry is regulated. While FIRREA's primary purpose was to address
public concern over the financial crises of the thrift industry through the
imposition of strict reforms on that industry, FIRREA grants bank holding
companies more expansive rights of entry into "the savings institution" market
through the acquisition of both healthy and failed savings institutions. Under
the provisions of FIRREA, a bank holding company can expand its geographic
market or increase its concentration in an existing market by acquiring a
savings institution, but it cannot expand its product market by acquiring a
savings institution.
MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings of the Company are affected by general economic conditions and
by the policies of various governmental regulatory authorities. In particular,
the actions and policies of the FRB exert a major influence on interest rates
charged on loans and paid on deposits, credit conditions, the growth of loans,
and the price of assets such as securities. Some of the methods used by the FRB
to promote orderly economic growth by influencing interest rates and the supply
of money and credit include open market operations in U.S. Government
securities, changes in the discount rate on member bank borrowings, and changes
in reserve requirements against member bank deposits. In addition to the actions
of the FRB, the Company's earnings are also affected by FDIC insurance premiums.
The effect of the various measures used by the FRB and other regulatory
authorities on the future business and earnings of the Company cannot be
reasonably predicted.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
allows for interstate banking and interstate branching without regard to whether
such activity is permissible under state law. Bank holding companies may acquire
banks anywhere in the United States subject to certain state restrictions.
Further, an insured bank in one state may merge with an insured bank in another
state without regard to whether such merger is prohibited by state law. Approval
of interstate bank mergers will be subject to certain conditions including:
adequate capitalization; adequate management; Community Reinvestment Act
compliance; deposit concentration limits and compliance with federal and state
antitrust laws. Following the consummation of an interstate transaction, the
resulting bank may establish additional branches at any location where any bank
involved in the transaction could have established a branch under applicable
federal or state law if such bank had not been a party to the merger
transaction. Additionally, an out-of-state bank may acquire branches of an
insured bank in another state without acquiring the entire bank, if the law of
the state where the branch is located permits such an acquisition. States may
permit interstate branching where
16
<PAGE> 18
both states involved with the bank merger expressly permit it by statute.
Further, bank holding companies may merge existing bank subsidiaries located in
different states into one bank.
An insured bank subsidiary may act as an agent for an affiliated bank or
thrift in offering limited banking services (receive deposits, renew time
deposits, close loans, service loans and receive payments on loan obligations)
both within the same state and across state lines. Under interstate banking
legislation, adequately capitalized and managed bank holding companies are
permitted to acquire control of a bank in any state. States may, however,
prohibit acquisitions of banks that have not been in existence for at least five
years. The FRB is prohibited from approving an application if the applicant
controls more than 10 percent of the total amount of deposits of insured
depository institutions nationwide. In addition, interstate acquisitions are
subject to statewide concentration limits.
The FRB is prohibited from approving an application if, prior to
consummation, the applicant controls any insured depository institution or
branch in the home state of the target bank and the applicant would, following
consummation, control 30 percent or more of the total amount of deposits of
insured depository institutions in the home state or any host state of the
target bank. This legislation also provides that the concentration limits do not
affect the authority of any state to limit the percentage of the total amount of
deposits in the state which would be held or controlled by any bank or bank
holding company to the extent the application of this limitation does not
discriminate against out-of-state institutions. States may waive the statewide
concentration limit. The FRB may approve an application without regard to the 30
percent state-wide concentration limit if the affected state allows a greater
percentage of total deposits to be so controlled, or the acquisition is approved
by the state bank regulator and the standard on which such approval is based
does not have the effect of discriminating against out-of-state institutions.
Interstate branches will be required to comply with host state community
reinvestment, consumer protection, fair lending, and intrastate branching laws
as if the branch were chartered by the host state. An exception is provided for
national bank branches if federal law preempts the state requirements or if the
OCC determines that the state law has a discriminatory effect on out-of-state
banks. All other laws of the host state will apply to the branch to the same
extent as if the branch were a bank with its main office located in the host
state.
The interstate branching by merger provisions became effective in June of
1997, and allowed each state, prior to the effective date, the opportunity to
"opt out", thereby prohibiting interstate branching within that state. Of those
states in which the Company's bank subsidiaries are located (Illinois, Indiana,
and Wisconsin), none have adopted legislation to "opt out" of the interstate
branching provisions. Furthermore, a bank is now able to add new branches in a
state in which it does not already have banking operations if such state enacts
a law permitting such de novo branching.
17
<PAGE> 19
The effects on the Company of the changes in interstate banking and
branching laws cannot be accurately predicted, but it is likely that there will
be increased competition from national and regional banking firms headquartered
in other states.
ILLINOIS REGULATION
The Company is subject to additional regulation under the Illinois Bank
Holding Company Act of 1957, as amended. As an Illinois bank holding company,
the Company is subject to examination by the Illinois Office of Banks and Real
Estate ("OBRE"). The Company's Illinois subsidiary banks, CIB, CIBM, CIBH, are
organized under the laws of the State of Illinois and as such are subject to
OBRE supervision. The OBRE requires all state banks to file a full and accurate
statement of their affairs annually, and OBRE examiners conduct periodic
examinations of state banks.
The OBRE has the right to promulgate rules and regulations necessary for
the supervision and regulation of Illinois banks under its jurisdiction and for
the protection of the public investing in such institutions. The regulatory
authority of the OBRE includes, but is not limited to, the establishment of
reserve requirements; the regulation of the payment of dividends; the regulation
of stock repurchases; the regulation of incorporators, shareholders, directors,
officers and employees; the establishment of permitted types of withdrawable
accounts and types of contracts for savings programs, loans and investments; the
regulation of the conduct and management of banks, chartering and branching of
institutions, mergers, conversions; and, limitations on investments in and loans
to affiliates.
The OBRE generally conducts regular annual examinations of Illinois banks
to assure these institutions are being operated in compliance with applicable
Illinois law and regulations and in a safe and sound manner, and the banks are
required to pay the fees for these supervisory operations. The OBRE has the
power to remove or impose civil or criminal fines upon any director, officer,
employee, or agent of a state bank if such person, in the conduct of the
business of the bank, has engaged in an unsafe or unsound practice. Further, if
the OBRE finds that a state bank's capital is impaired or in an otherwise
unsound condition, its business is being conducted in an unlawful, fraudulent or
unsafe manner, its operations are unable to continue, or the OBRE examination is
obstructed or impeded, the OBRE must notify the board of directors of its
findings. If such condition is not remedied within a prescribed time period, the
OBRE must take possession and control of the bank and its assets for the purpose
of examination, reorganization or liquidation through receivership.
Under Illinois law, a bank may pay dividends without OBRE approval so long
as the amount of the dividend does not exceed net profits then on hand,
deducting first therefrom the bank's losses and bad debts, and subject to
certain additional OBRE requirements.
18
<PAGE> 20
WISCONSIN REGULATION
The Company is an out-of-state bank holding company within the meaning of
Wisconsin law, and as such, the Company is subject to the laws of the State of
Wisconsin relating to the ownership and operation of banks in Wisconsin. The
Company's subsidiary, Marine, is a savings bank chartered under the laws of the
State of Wisconsin and is subject to regulation and supervision by the Wisconsin
Department of Financial Institutions, ("WDFI"). Marine is required to file
annual reports and is subject to examination by the WDFI at least every 18
months to assure that it is being operated in compliance with applicable
Wisconsin laws and regulations and in a safe and sound manner. Wisconsin savings
banks are required by WDFI regulations to pay examination fees and annual
assessments to fund the supervisory operations of the WDFI.
The WDFI has the authority to promulgate rules and regulations necessary
for the supervision and regulation of Wisconsin savings banks under its
jurisdiction and for the protection of the public investing in such
institutions. The regulatory authority of the WDFI includes, but is not limited
to, the establishment of capital maintenance requirements; the regulation of the
payment of dividends; the regulation of incorporators, shareholders, directors,
officers and employees; the establishment of permitted types of withdrawable
accounts and types of contracts for savings programs, loans and investments; the
regulation of the conduct and management of banks, chartering and branching of
institutions, mergers, conversions. The WDFI may take possession of the property
and business of savings banks if conditions so warrant.
As a Wisconsin-chartered savings bank, Marine must qualify for and maintain
a level of qualified thrift investments equal to 60% of its assets as prescribed
in Section 7701(a)(19) of the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"). As of December 31, 1997, Marine maintained 78.35% of
its assets in qualified thrift investments and therefore met the qualified
thrift requirement.
Wisconsin-chartered savings banks are required to maintain a minimum
capital to assets ratio of 6% and must maintain total capital necessary to
ensure the continuation of insurance of deposit accounts by the FDIC. As of
December 31, 1997, Marine's total capital, as calculated under Wisconsin law,
was in excess of the required amount. If the WDFI determines that the financial
condition, history, management or earning prospects of a savings bank are not
adequate, it may require a higher minimum capital level for the savings bank. If
a savings bank's capital ratio falls below the required level, the WDFI may
direct the savings bank to adhere to a specific written plan to correct the
capital deficiency, and may implement a number of other restrictions on the
savings bank's operations, including a prohibition on the declaration of
dividends.
Under Wisconsin law, a savings bank may pay dividends without WDFI approval
so long as the total capital of the savings bank meets the mandated capital
maintenance requirements described below, the amount of the dividend does not
exceed net profits then on hand, and unless the savings bank has transferred to
surplus at least 10% of its net profits of the preceding
19
<PAGE> 21
half year in the case of quarterly or semiannual dividends, or not less than
10% of the net profits for the preceding year in the case of annual dividends,
until the amount in surplus is at least equal to its capital stock.
Additionally, written approval of WDFI is required before a dividend is paid in
any calendar year that exceeds 50% of the saving bank's net profits of that
year.
INDIANA REGULATION
The Company is a foreign bank holding company within the meaning of Indiana
law, and as such, the Company is subject to the laws and regulations of the
State of Indiana relating to the ownership and operation of banks in Indiana.
The Company's subsidiary bank, CIB-IND, is organized under the laws of the State
of Indiana and is subject to the supervision of the Indiana Department of
Financial Institutions ("IDFI").
The IDFI has the authority to promulgate rules and regulations necessary
for the supervision and regulation of Indiana banks under its jurisdiction and
for the protection of the public investing in such institutions. The regulatory
authority of the IDFI includes, but is not limited to, the establishment of
reserve requirements; the regulation of the payment of dividends; the regulation
of stock repurchases; the regulation of incorporators, shareholders, directors,
officers and employees; the establishment of permitted types of withdrawable
accounts and types of contracts for savings programs, loans and investments; the
regulation of the conduct and management of banks, chartering and branching of
institutions, mergers, conversions and conflicts of interest.
The IDFI generally conducts regular annual examinations of Indiana banks to
assure that institutions are being operated in compliance with applicable
Indiana laws and regulations and in a safe and sound manner, and the banks are
required to pay the fees for these supervisory operations. The IDFI has the
power to issue cease and desist orders if any person or institution is engaging
in, or has engaged in, any unsafe or unsound practice in the conduct of its
business, has or is violating any other law, rule or regulation, or, as to
officers and directors of an Indiana bank, has breached a fiduciary duty as an
officer or director.
Under Indiana law, a Bank may pay dividends without IDFI approval so long
as its capital is unimpaired and those dividends in any calendar year do not
exceed the net profits of the bank for that year plus the retained net profits
of the Bank for the previous two years. Dividends may not exceed undivided
profits.
COMPETITION
The banking business is highly competitive. The Company competes with other
financial institutions in its market areas and in surrounding areas in obtaining
deposits and providing many types of financial services. The Company competes
for business in its market areas with larger banks that have both regional and
national markets.
20
<PAGE> 22
The Company's subsidiary banks also compete with savings and loan
associations, credit unions, production credit associations and federal land
banks and with finance companies, personal loan companies, money market funds
and other non-depository financial intermediaries. Many of these financial
institutions have resources many times greater than those of the Company. In
addition, new financial intermediaries such as money-market mutual funds and
large retailers are not subject to the same regulations and laws that govern the
operation of traditional depository institutions.
Recent changes in federal and state laws have resulted in and are expected
to continue to result in increased competition. The reductions in legal barriers
to the acquisition of banks by out-of-state bank holding companies resulting
from implementation of interstate banking laws and other recent and proposed
changes are expected to continue to further stimulate competition in the markets
in which the Company operates, although it is not possible to predict the extent
or timing of such increased competition.
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10 constitute "forward-looking statements"
within the meaning of Rule 3b-6 promulgated under the Securities Exchange
Act of 1934, as amended. The Company intends that such forward-looking
statements be subject to the safe harbor created thereby and is including this
statement to avail itself of these safe harbor provisions. Forward-looking
statements are identified by statements containing words and phrases such as
"projected," "we are confident," "should be," "will be," "predicted,"
"believed," "planned," "expect," "estimate," "anticipate," and similar
expressions. These forward-looking statements reflect the Company's current
views with respect to future events and financial performance, but are subject
to many uncertainties and factors relating to the operations of the Company and
its subsidiaries and the business environment which could change at any time
and which could cause actual results to differ materially from those expressed
or implied by such forward-looking statements. There are inherent difficulties
in predicting important factors that may affect the accuracy of such
statements. Potential risks and uncertainties that may affect the operations,
performance, development, and results of the business of the Company and its
subsidiaries include the following: (a) the risk of adverse changes in business
conditions in the banking industry generally and in the specific markets in
which the Company's subsidiary banks operate; (b) changes in the legislative
and regulatory environment that negatively impact the Company and its
subsidiaries through increased operating expenses; (c) interest rates, monetary
and fiscal policies; (d) increased competition from other financial and
non-financial institutions; (e) the impact of technological advances; and (f)
other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission. These risks and uncertainties should be
considered in evaluating forward-looking statements, and undue reliance should
not be placed on such statements. The Company and its subsidiaries do not
undertake any obligation to update or revise any forward-looking statements
subsequent to the date on which they are made.
21
<PAGE> 23
ITEM 2. FINANCIAL INFORMATION.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis is presented to facilitate the
understanding of the Company's financial condition as of December 31, 1997 and
1996 and the consolidated results of operations for 1997, 1996, and 1995 as
supplemented by the Company's unaudited financial statements as of March 31,
1998. References in the discussion below to the Company shall also refer to
its subsidiaries unless otherwise specified. This discussion and analysis
should be read in conjunction with the consolidated financial statements and
footnotes contained elsewhere within this document. Any material variances
reflected in the unaudited interim financial statements result from the same
factors that are discussed below with regard to the audited year end 1997
figures unless otherwise stated. Dollar amounts in tables are presented in
thousands except per share amounts.
INTRODUCTION AND OVERVIEW.
The Company has experienced significant growth since the change of control in
1987. Total assets at December 31, 1997 were $807,323,000 which represents a
46.6% increase from December 31, 1996 total assets of $550,578,000. Total assets
increased 55.2% during 1996, from $354,796,000 at December 31, 1995. This growth
has been achieved as a result of the Company's strategy to increase its market
share in the communities it currently serves and by expanding into new markets
which the Company feels represent good opportunities for profitable growth. The
expansion into new markets has been accomplished through acquisitions, including
CIBM, CIBH, and Marine, and the opening of additional branch facilities. The
most recent expansion occurred during the first quarter of 1998 with the
establishment of a de novo bank in Indianapolis, Indiana. Details regarding the
acquisitions and branches are contained in the Business and Properties sections
of this document. More importantly, the growth has been achieved by hiring
experienced professionals to staff each of these facilities and to manage the
growth of the Company. It is the Company's belief that experienced management
and staff are the key to the Company's success and will enable the Company to
continue to grow into the future while properly managing the risks associated
with the growth. These risks include over extending the Company's financial
and personnel resources as it continues to grow, which could result in reduced
asset quality and inadequate capital and liquidity levels.
During this growth, the Company has been able to improve its earnings, manage
the risks associated with lower quality assets, maintain adequate capital
levels, and provide the liquidity necessary to meet its obligations. The
following discussion and analysis provides information regarding each of these
items.
FIVE YEAR SUMMARY OF CONSOLIDATED FINANCIAL STATEMENTS AND RELATED STATISTICS.
The following table presents selected consolidated financial information for the
Company for each of the five years ended December 31, 1997. The selected
consolidated financial information should be read in conjunction with the
consolidated financial statements, including related notes, presented elsewhere
herein.
22
<PAGE> 24
TABLE 1 - SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income - tax equivalent $ 58,565 $ 38,118 $ 23,856 $ 13,661 $ 8,590
Interest expense 30,461 18,972 11,896 5,997 3,801
-------- -------- -------- -------- -------
Net interest income - tax equivalent 28,104 19,146 11,960 7,664 4,789
Tax equivalent adjustment (616) (261) (144) (112) (68)
-------- -------- -------- -------- -------
Net interest income 27,488 18,885 11,816 7,552 4,721
Provision for loan losses 3,992 2,044 977 376 391
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses 23,496 16,841 10,839 7,176 4,330
Noninterest income 1,694 1,592 1,677 913 1,070
Noninterest expenses 17,378 12,959 8,931 6,245 3,829
-------- -------- -------- -------- -------
Income before income taxes 7,812 5,474 3,585 1,844 1,571
Income tax expense 2,537 1,901 1,261 574 459
-------- -------- -------- -------- -------
NET INCOME $ 5,275 $ 3,573 $ 2,324 $ 1,270 $ 1,112
======== ======== ======== ======== =======
PER SHARE DATA (1)
Earnings per share - Basic $ 71.62 $ 60.91 $ 50.56 $ 36.32 $ 41.45
Earnings per share - Diluted 71.08 60.35 50.04 35.73 41.27
Cash dividends -- -- -- -- --
Book Value per share at end of year 1,110.18 863.99 730.87 547.33 421.78
SELECTED ACTUAL YEAR-END BALANCES
Total assets $ 807,323 $ 550,578 $ 354,796 $ 228,745 $ 140,741
Earning assets 777,444 519,518 334,197 214,339 133,583
Investment securities available-for-sale 54,319 29,004 27,214 5,781 --
Investment securities held-to-maturity 106,589 83,163 45,049 43,082 30,759
Loans 616,228 407,351 259,834 156,621 96,273
Allowance for loan losses (6,692) (4,058) (2,458) (1,539) (980)
Total deposits 682,830 467,942 302,782 202,276 125,330
Noninterest-bearing demand deposits 54,474 40,671 26,469 18,805 13,150
Interest-bearing demand deposits 31,875 21,369 15,203 14,657 9,625
Savings deposits 64,812 48,043 38,672 41,432 37,486
Time deposits 531,669 357,406 222,437 127,381 65,068
Other borrowings 18,320 21,561 6,981 1,500 540
Stockholders' equity 100,732 58,232 42,677 23,743 14,041
SELECTED AVERAGE BALANCES
Total assets $ 677,928 $ 440,160 $ 283,478 $ 182,750 $ 113,216
Earning assets 650,376 420,927 268,142 171,561 107,170
Securities 147,142 91,022 64,123 41,686 28,732
Loans 492,847 324,600 197,145 125,450 77,100
Allowance for loan losses (5,543) (3,333) (2,054) (1,377) (844)
Total deposits 592,952 382,893 249,115 161,715 108,164
Noninterest-bearing demand deposits 42,901 29,622 21,822 15,508 9,498
Interest-bearing demand deposits 27,503 18,213 14,315 11,697 8,125
Savings deposits 55,005 43,577 37,595 43,862 31,873
Time deposits 467,543 291,481 175,383 90,648 58,668
Other borrowings 10,904 8,396 4,971 2,981 823
Stockholders' equity 69,185 44,523 26,963 15,643 9,981
RATIOS BASED ON AVERAGE BALANCES
Loans to deposits 83.12% 84.78% 79.14% 77.57% 71.28%
Return on average assets 0.78% 0.81% 0.82% 0.69% 0.98%
Return on average equity 7.62% 8.03% 8.62% 8.12% 11.14%
Dividend payout ratio 0.00% 0.00% 0.00% 0.00% 0.00%
Leverage capital ratio 12.36% 10.90% 11.90% 9.60% 12.40%
Efficiency ratio (2) 58.59% 63.05% 67.06% 73.65% 69.94%
OTHER DATA
Number of employees (FTE) 316 251 177 129 80
Shares outstanding at end of year(1) 90,735 67,399 58,392 43,380 33,290
Weighted average shares outstanding - Basic (1) 73,658 58,660 45,968 34,952 26,820
Weighted average shares outstanding - Diluted (1) 74,222 59,201 46,446 35,532 26,882
Cash Dividends declared $ -- $ -- $ -- $ -- $ --
</TABLE>
(1) Data has been adjusted where applicable to show effect of 1995 5 for 1 stock
split
(2) Efficiency ratio is calculated as follows: noninterest expense divided by
the sum of net interest income (TE) and noninterest income excluding gains
and losses on securities.
23
<PAGE> 25
RESULTS OF OPERATIONS.
The Company earned $5,275,000 in 1997, $3,573,000 in 1996, and $2,324,000 in
1995, representing an increase of 47.6% from 1996 to 1997, and a 53.7% increase
from 1995 to 1996. The increase in earnings is primarily a result of an increase
in the average earning assets of the Company and the corresponding net interest
income earned on these earning assets.
Basic earnings per share was $71.62 in 1997, $60.91 in 1996, and $50.56 in 1995.
Diluted earnings per share was $71.08 in 1997, $60.35 in 1996, and $50.04 in
1995.
NET INTEREST INCOME.
Net interest income is the most significant component of the Company's earnings.
Net interest income is the difference between interest and fees earned on
earning assets, primarily loans and securities, and interest paid on deposits
and other borrowed funds. The net interest margin is this difference expressed
as a percentage of average earning assets. Net interest income is determined by
several factors, including the volume of earning assets and liabilities, the mix
of earning assets and liabilities, and interest rates. Although a certain number
of these factors can be controlled by management policies and actions, certain
other factors, such as the general level of credit demand, Federal Reserve Board
monetary policy, and changes in tax law are beyond the control of management.
The following table sets forth information regarding average balances, interest
income and interest expense, and average rates for the Company's major asset and
liability categories, and stockholders' equity. In order to properly compare the
effective yield on earning assets, interest income presented in the following
table is expressed on a fully taxable equivalent ("TE") basis. Interest income
on tax-exempt loans and tax-exempt investment securities has been adjusted to
reflect the income tax savings provided by these tax-exempt assets. The tax
equivalent adjustment is based on a federal income tax rate of 34%.
24
<PAGE> 26
TABLE 2 - SUMMARY OF AVERAGE BALANCES AND INTEREST RATES
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996
------------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE
------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS (TE)
Securities
Taxable $ 128,130 $ 7,692 6.00% $ 80,308 $ 4,741 5.90%
Tax-exempt 19,012 1,376 7.24% 10,714 685 6.39%
--------- --------- ----------- --------- --------- -----------
Total Securities 147,142 9,068 6.16% 91,022 5,426 5.96%
Loans (1)
Commercial and agricultural 433,705 43,719 10.08% 279,156 28,613 10.25%
Real estate 44,356 3,299 7.44% 32,460 2,318 7.14%
Installment and other consumer 14,785 1,899 12.84% 12,984 1,502 11.57%
--------- --------- ----------- --------- --------- -----------
Total loans 492,847 48,917 9.93% 324,600 32,433 9.99%
Federal funds sold 10,307 573 5.56% 5,305 259 4.88%
Other 80 7 8.75% -- -- 0.00%
--------- --------- ----------- --------- --------- -----------
TOTAL EARNING ASSETS (TE) 650,376 $ 58,565 9.00% 420,927 $ 38,118 9.06%
========= ========= ========= ===========
NONINTEREST EARNING ASSETS
Cash and due from banks 10,701 9,690
Premises and equipment 10,626 8,241
Allowance for loan loss (5,543) (3,333)
Accrued interest and other assets 11,768 4,635
--------- ---------
Total Noninterest Earning Assets 27,552 19,233
--------- ---------
TOTAL ASSETS $ 677,928 $ 440,160
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Deposits
Interest-bearing demand deposits $ 27,503 $ 638 2.32% $ 18,213 $ 413 2.27%
Savings deposits 55,005 2,230 4.05% 43,577 1,622 3.72%
Time deposits 467,543 26,878 5.75% 291,481 16,349 5.61%
--------- --------- ----------- --------- --------- -----------
Total interest-bearing deposits 550,051 29,746 5.41% 353,271 18,384 5.20%
Borrowed funds
Other borrowings 10,904 715 6.56% 8,396 588 7.00%
--------- --------- ----------- --------- --------- -----------
Total borrowed funds 10,904 715 6.56% 8,396 588 7.00%
--------- --------- ----------- --------- --------- -----------
TOTAL INTEREST BEARING LIABILITIES 560,955 $ 30,461 5.43% 361,667 $ 18,972 5.25%
========= =========== ========= ===========
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits 42,901 29,622
Accrued interest and other liabilities 4,887 4,348
Stockholders' equity 69,185 44,523
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 677,928 $ 440,160
========= =========
NET INTEREST INCOME AND
INTEREST RATE SPREAD (2) $ 28,104 3.57% $ 19,146 3.81%
========= =========== ========= ===========
NET INTEREST MARGIN (3) 4.32% 4.55%
=========== ===========
<CAPTION>
YEARS ENDED DECEMBER 31,
1995
-----------------------------------
AVERAGE AVERAGE
ASSETS BALANCE INTEREST RATE
-----------------------------------
<S> <C> <C> <C>
INTEREST EARNING ASSETS (TE)
Securities
Taxable $ 57,734 $ 3,391 5.87%
Tax-exempt 6,389 442 6.92%
--------- --------- -----------
Total Securities 64,123 3,833 5.98%
Loans (1)
Commercial and agricultural 167,573 17,238 10.29%
Real estate 23,657 1,721 7.27%
Installment and other consumer 5,914 672 11.36%
--------- --------- -----------
Total loans 197,145 19,631 9.96%
Federal funds sold 6,874 392 5.70%
Other -- -- 0.00%
--------- --------- -----------
TOTAL EARNING ASSETS (TE) 268,142 $ 23,856 8.90%
========= ===========
NONINTEREST EARNING ASSETS
Cash and due from banks 5,895
Premises and equipment 5,719
Allowance for loan loss (2,054)
Accrued interest and other assets 5,776
---------
Total Noninterest Earning Assets 15,336
---------
TOTAL ASSETS $ 283,478
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Deposits
Interest-bearing demand deposits $ 14,315 $ 308 2.15%
Savings deposits 37,595 1,346 3.58%
Time deposits 175,383 9,935 5.66%
--------- --------- -----------
Total interest-bearing deposits 227,293 11,589 5.10%
Borrowed funds
Other borrowings 4,971 307 6.18%
--------- --------- -----------
Total borrowed funds 4,971 307 6.18%
--------- --------- -----------
TOTAL INTEREST BEARING LIABILITIES 232,264 $ 11,896 5.12%
========= ===========
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits 21,822
Accrued interest and other liabilities 2,429
Stockholders' equity 26,963
---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 283,478
=========
NET INTEREST INCOME AND
INTEREST RATE SPREAD (2) $ 11,960 3.78%
========= ===========
NET INTEREST MARGIN (3) 4.46%
===========
</TABLE>
(TE) Tax Equivalent Basis
(1) Loan balance totals include non-accruals and loan interest totals include
fees
(2) Interest rate spread is the net of the average rate on interest earning
assets and interest bearing liabilities
(3) Net interest margin is the ratio of net interest income (TE) to average
earning assets
25
<PAGE> 27
Net interest income, on a fully taxable equivalent basis, was $28,104,000 in
1997, $19,146,000 in 1996, and $11,960,000 in 1995, representing a 46.8%
increase from 1996 to 1997, and a 60.1% increase from 1995 to 1996. The
increase in net interest income from 1996 to 1997 and from 1995 to 1996 was
primarily the result of the significant growth in the earning assets of the
Company and the corresponding interest earned on these assets, less the
interest paid on the deposits and other liabilities which were obtained to fund
the growth of these assets. The increase in the volume of earning assets, and
the liabilities to fund these assets, accounted for 108% of the increase in net
interest income. A decrease in the net interest spread reduced the increase in
net interest income by approximately 8%. The following discussion details the
components of net interest income and provides explanation of significant
variances for each item as appropriate.
26
<PAGE> 28
TABLE 3 - VOLUME / RATE ANALYSIS
(In thousands)
<TABLE>
<CAPTION>
1997 CHANGE FROM 1996 DUE TO 1996 CHANGE FROM 1995 DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME (TE)
Loans (including fees) $ 16,790 $ (306) $ 16,484 $ 12,680 $ 122 $ 12,802
Securities - Taxable 2,825 126 2,951 1,326 24 1,350
Securities Tax-exempt 539 152 691 300 (57) 243
-------- -------- -------- -------- -------- --------
Total Securities 3,364 278 3,642 1,626 (33) 1,593
Fed Funds Sold 246 68 314 (87) (46) (133)
Other Earning Assets 7 -- 7 -- -- --
-------- -------- -------- -------- -------- --------
TOTAL INTEREST INCOME (TE) 20,407 40 20,447 14,218 43 14,262
-------- -------- -------- -------- -------- --------
INTEREST EXPENSE
Interest-bearing demand deposits 211 14 225 85 20 105
Savings deposits 431 177 608 215 61 276
Time deposits 9,888 641 10,529 6,576 (161) 6,414
Other borrowings 175 (48) 127 220 61 281
-------- -------- -------- -------- -------- --------
TOTAL INTEREST EXPENSE 10,705 784 11,489 7,096 (20) 7,076
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME (TE) $ 9,702 $ (744) $ 8,958 $ 7,123 $ 63 $ 7,186
======== ======== ======== ======== ======== ========
</TABLE>
(TE) - Tax Equivalent Basis
27
<PAGE> 29
Interest income earned in 1997 increased 53.6% to $58,565,000, from $38,118,000
in 1996. Interest income for 1996 was 59.8% higher than interest income of
$23,856,000 earned in 1995. The primary reason for the increase in interest
income is the increase in the volume of all categories of average earning
assets. Average earning assets increased 54.5% to $650,376,000 in 1997, from
$420,927,000 in 1996, and 57.0% in 1996 from $268,142,000 in 1995. Volume
accounted for $20,407,000, or 99.8% of the change in interest income from 1996
to 1997, and $14,218,000, or 99.7% of the change in interest income from 1995 to
1996.
Interest earned on loans is the largest component of total interest earned and
represented 83.5%, 85.1%, and 82.3% of total interest earned in 1997, 1996, and
1995 respectively. Loan interest income includes loan fees of $3,478,000,
$2,597,000, and $1,000,000 for 1997, 1996, and 1995 respectively. The increase
in loan fees is also a direct result of the increase in the volume of loans.
Total interest expense increased 60.6%, or $11,489,000 from 1996 to 1997, and
59.5%, or $7,076,000 from 1995 to 1996. The majority of this increase was due to
an increase in the volume of interest bearing liabilities. Increased volume
accounted for $10,705,000 or 93.2% of the increase in total interest expense
from 1996 to 1997 and $7,096,000, or more than 100% of the variance from 1995 to
1996. Interest expense on time certificates of deposit represents the largest
component of total interest expense. The ratio of interest expense on time
certificates of deposit to total interest expense was 88.2%, 86.2%, and 83.5% in
1997, 1996, and 1995, respectively, and is due to the large percentage of time
certificates of deposit to total deposits and the fact that the rate paid on
certificates of deposit is higher than any other deposit product, as evidenced
by the average rate paid on these deposits.
The average rate paid on deposits has increased to 5.41% in 1997 from 5.20% in
1996 and 5.10% in 1995. The increase in the average rate paid is a result of an
overall increase in the rate paid on each type of deposit, an increase in the
percentage of interest-bearing deposits to total deposits, and an increase in
the percentage of time deposits.
The interest rate spread for the Company was 3.57% in 1997, 3.81% in 1996, and
3.78% in 1995. The net interest margin was 4.32%, 4.55%, and 4.46% in 1997,
1996, and 1995 respectively.
The following table presents, on a fully taxable equivalent basis, an analysis
of changes in net interest income resulting from changes in average volumes of
earning assets and interest bearing liabilities and average rates earned and
paid. Variances which were not specifically attributable to volume or rate have
been allocated proportionately between rate and volume using the absolute values
of each as a basis for the allocation. Nonaccruing loans were included in the
average loan balances used in determining the yields.
NONINTEREST INCOME AND EXPENSE.
A listing of noninterest income and expense from 1995 through 1997 and
percentage changes between years is included in the following table.
28
<PAGE> 30
TABLE 4 - NONINTEREST INCOME AND EXPENSE
(In thousands)
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1997 FROM '96 1996 FROM '95 1995
------- ----------- ------- ------------ -------
<S> <C> <C> <C> <C> <C>
NONINTEREST INCOME
Trust Department $ 248 - 7.81% $ 269 18.50% $ 227
Service Fees 1,220 39.59% 874 12.63% 776
Net realized gain on securities 136 -25.68% 183 -42.81% 320
Other operating income 90 -66.17% 266 -24.86% 354
------- ------ ------- ------ -------
TOTAL NONINTEREST INCOME $ 1,694 6.41% $ 1,592 -5.07% $ 1,677
======= ====== ======= ====== =======
NONINTEREST EXPENSE
Salaries and employee benefits $10,193 35.38% $ 7,529 46.17% $ 5,151
Occupancy expenses, net 2,943 43.28% 2,054 57.88% 1,301
Other operating expenses 4,242 25.65% 3,376 36.18% 2,479
------- ------ ------- ------ -------
TOTAL NONINTEREST EXPENSE $17,378 34.10% $12,959 45.10% $ 8,931
======= ====== ======= ====== =======
</TABLE>
29
<PAGE> 31
Noninterest Income
Noninterest income currently represents a relatively small percentage of the
Company's total income. In 1997, noninterest income represented only 2.8% of
total income, on a fully taxable equivalent basis. This percentage was 4.0% in
1996 and 6.6% in 1995. The primary source of noninterest income was service
charges and fees on deposit accounts, which represented 72.0% of total
noninterest income in 1997, 54.9% in 1996, and 46.3% in 1995. The increase in
service charges and fees on deposit accounts is a result of the deposit growth
of the Company and the corresponding increase in the number of deposit related
accounts and the services provided to these accounts.
Noninterest income decreased 5.1% from 1995 to 1996 as a result of a 42.8%
decrease in net realized gains on securities and a 24.9% decrease in other
operating income, which offset a 18.5% increase in trust department fees and a
12.6% increase in service fees. The decrease in securities gains was the result
of a decrease in the sales of securities. The decrease in other operating income
was primarily the result of a decrease in the sale of loans of Small Business
Administration ("SBA") guaranteed loans into the secondary market. The
reduction in the number of SBA guaranteed loans made and sold by the Company
was a result of both an increased fee imposed by the SBA and a determination by
the Company that the personnel involved in making and monitoring SBA loans
could be better utilized in other lending activities.
The Company believes that in order to continue to improve its earning
performance, the percentage of earnings from noninterest income must increase.
The Company has taken steps to increase its noninterest income, including the
acquisition of Mortgage Services of Illinois, Inc., the formation of Marine
Trust and Investment Company, and the development of additional fee based
products and services.
Noninterest Expense
Total noninterest expense increased $4,419,000, or 34.10%, to $17,378,000 in
1997 from $12,959,000 in 1996. The 1996 expense was an increase of $4,028,000,
or 45.10%, from 1995 noninterest expense of $8,931,000. The majority of the
increase in noninterest expense is a result of the Company's growth and the
corresponding opening of new branch facilities. Salaries and employee benefits
represent the largest component of noninterest expense. Salary and employee
benefits as a percentage of total noninterest expense was 58.7% in 1997, 58.1%
in 1996, and 57.7% in 1995. The increase in salary and employee benefits is a
result of hiring additional personnel to staff the new facilities, the hiring of
additional personnel to adequately manage the growth of the Company, and the
corresponding benefits for these new employees. As a result of the Company's
growth, the total number of employees (on a full-time equivalent basis)
increased to 316 in 1997 from 251 in 1996. The total number of employees for
1995 was 177.
Net occupancy expenses increased $889,000, or 43.28%, to $2,943,000 in 1997 from
$2,054,000 in 1996. The 1996 expense was an increase of $753,000, or 57.88%,
from 1995 net occupancy expenses of $1,301,000. The increase in net occupancy
expenses was mainly due to the initial and ongoing expenses incurred with the
opening of the additional branch facilities described elsewhere within this
document.
30
<PAGE> 32
Other operating expenses increased $866,000, or 25.65%, to $4,242,000 in 1997
from $3,376,000 in 1996. The 1996 expense was an increase of $897,000, or
36.18%, from 1995 other operating expenses of $2,479,000. Even though the total
noninterest expense of the Company has increased in terms of total dollars, the
overall operating efficiency of the Company has improved as measured by the
ratio of total noninterest expense as a percentage of average total assets.
Total noninterest expense as a percentage of average total assets decreased to
2.56% in 1997, from 2.94% in 1996 and 3.15% in 1995. In addition, the overhead
efficiency ratio has improved to 58.59% in 1997, from 63.05% in 1996, and 67.06%
in 1995. The efficiency ratio is calculated by dividing noninterest expense by
the total of net interest income, on a fully taxable equivalent basis, and other
noninterest income, excluding securities gains and losses.
INCOME TAXES.
The Company records a provision for income taxes currently payable, along with a
provision for income taxes payable in the future ("deferred taxes"). Deferred
taxes arise from temporary timing differences between financial statement and
income tax reporting. The increase in the income tax provision is primarily due
to increases in taxable income in each of the corresponding years. Additional
tax information regarding the Company can be found in Note 1 and Note 6 to the
consolidated financial statements contained within this document.
FINANCIAL CONDITION.
SECURITIES.
The Company has adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," and
accordingly has classified certain of its securities as available-for-sale and
certain of its securities as held-to-maturity. Securities which have been
classified as held-to-maturity are those which the Company has both the positive
intent and ability to hold to maturity, and are reported at amortized cost.
Securities classified as available-for-sale are those securities which the
Company has not classified as held-to-maturity or as trading securities. The
Company may sell these securities if needed for liquidity, asset/liability
management, or other reasons. Securities available-for-sale are reported at fair
value, with unrealized gains and losses, net of taxes, included as a separate
component of equity. The Company does not currently maintain any securities for
trading purposes.
As of December 31, 1997, 33.8% of the securities portfolio was classified as
available-for-sale and 66.2% of the portfolio as held-to-maturity. These ratios
were 25.8% and 74.2% for 1996, and 37.7% and 62.3% for 1995, respectively. The
Company's designation of securities between available-for-sale and
held-to-maturity is based on a number of factors including the current and
projected liquidity position and the current and projected loan to deposit ratio
of the Company.
31
<PAGE> 33
The unrealized gain (loss) on securities available-for-sale, net of tax effect,
was $357,000, ($106,000), and $196,000 at December 31, 1997, 1996, and 1995
respectively.
The carrying value of the Company's securities are contained in the following
table.
TABLE 5 - SECURITIES
(In thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
U.S. Government & Agencies (including mortgage-backed securities) $ 49,121 $ 25,755 $ 25,118
States and political subdivisions 1,618 -- --
Other notes and bonds 649 463 640
Federal Home Loan Bank stock 2,574 2,892 1,260
Market Value Adjustment - FAS 115 357 (106) 196
--------- --------- ---------
TOTAL SECURITIES AVAILABLE-FOR-SALE 54,319 29,004 27,214
--------- --------- ---------
SECURITIES HELD-TO-MATURITY
U.S. Government & Agencies (including mortgage-backed securities) 87,552 68,060 36,142
States and political subdivisions 18,587 13,751 7,060
Other notes and bonds 450 1,352 1,847
--------- --------- ---------
TOTAL SECURITIES HELD-TO-MATURITY 106,589 83,163 45,049
--------- --------- ---------
TOTAL SECURITIES $ 160,908 $ 112,167 $ 72,263
========= ========= =========
</TABLE>
All Securities balances listed at carrying value
32
<PAGE> 34
The average balance of total securities outstanding increased 61.7% in 1997 to
$147,142,000 from $91,022,000 in 1996, this increase was 41.9% in 1996, from a
1995 average balance of $64,123,000. The increase in the securities portfolio,
is directly related to the overall growth of the Company during this time
period. Because the securities portfolio is one of the primary sources of
liquidity for the Company, the size of the portfolio was increased to maintain a
relatively proportionate ratio of securities to assets. The ratio of average
total securities to average total assets was 21.7%, 20.7%, and 22.6% in 1997,
1996, and 1995 respectively. The majority of the securities portfolio is
composed of U. S. Treasury and government agency securities. As of December 31,
1997 these securities represented 85.0% of the securities portfolio. This
percentage was 83.6% and 84.8% as of December 31, 1996 and 1995 respectively.
The second largest component of the securities portfolio are obligations of
states and political subdivisions. Total obligations of states and political
subdivisions represented 12.6%, 12.2%, and 9.8% of the total securities
portfolio as of December 31, 1997, 1996 and 1995 respectively.
The following table presents the maturities and weighted average yields of
investment securities as December 31, 1997.
33
<PAGE> 35
TABLE 6 - SECURITIES MATURITY SCHEDULE
(In thousands)
<TABLE>
<CAPTION>
SECURITIES MATURITY SCHEDULE
1 YEAR AND LESS 1 TO 5 YEARS
----------------------------------------------------------------------
AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
-------- --------- -------- -------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Government & Agencies $ 7,676 5.64% $ 38,043 5.99%
States and political subdivisions 83 7.57% 40 7.60%
Other Notes and Bonds -- -- 499 7.23%
-------- --------- -------- ---------
TOTAL AVAILABLE-FOR-SALE 7,759 5.66% 38,582 6.01%
-------- --------- -------- ---------
HELD-TO-MATURITY
U.S. Government & Agencies 14,714 5.84% 60,057 6.20%
States and political subdivisions 1,625 8.24% 8,372 7.13%
Other Notes and Bonds -- -- -- --
-------- --------- -------- ---------
TOTAL HELD-TO-MATURITY 16,339 6.08% 68,429 6.31%
-------- --------- -------- ---------
TOTAL SECURITIES $ 24,098 5.94% $107,011 6.20%
======== ========= ======== =========
<CAPTION>
5 TO 10 YEARS OVER 10 YEARS
-------------------------------------------------------------------
AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Government & Agencies $ -- -- $ 6,334 6.47%
States and political subdivisions 1,453 8.54% 41 11.36%
Other Notes and Bonds 150 7.20% -- --
-------- --------- -------- ---------
TOTAL AVAILABLE-FOR-SALE 1,603 8.41% 6,375 6.50%
-------- --------- -------- ---------
HELD-TO-MATURITY
U.S. Government & Agencies 4,842 6.70% 7,940 6.90%
States and political subdivisions 7,095 7.70% 1,494 8.00%
Other Notes and Bonds 450 8.00% -- --
-------- --------- -------- ---------
TOTAL HELD-TO-MATURITY 12,387 7.32% 9,434 7.07%
-------- --------- -------- ---------
TOTAL SECURITIES $ 13,990 7.45% $ 15,809 6.84%
======== ========= ======== =========
</TABLE>
34
<PAGE> 36
LOANS.
The loan portfolio represents the primary earning assets of the Company. The
Company's overall lending strategy is to meet the credit needs of the
communities that it serves by making quality loans and earning a competitive
rate of return on these loans. The primary focus of the Company's lending
strategy is to meet the needs of small-to-medium sized businesses located in the
markets served by the Company through the extension of credit, including
commercial loans, commercial real estate loans, and letters of credit, and other
banking related services, including cash management. Due to the relative size
of the Company's loan portfolio in relation to total assets and the inherent
risk of the lending function, the loan portfolio represents the largest
component of credit risk to the Company. In order to adequately manage this
risk and the growth of the loan portfolio, the Company has developed and
implemented a comprehensive loan policy that establishes a loan committee,
underwriting standards, loan officer lending limits, loan pricing guidelines
and a comprehensive loan review and credit rating system. The responsibilities
of loan review include assessing the credit quality of the loan portfolio,
establishing and monitoring adherence to underwriting standards, promptly
identifying loans with potential credit weaknesses, and determining the
adequacy of the allowance for loan losses. It is the policy of the Company
that credit quality should not be sacrificed for growth and the Company has
established the loan policy and procedures to minimize the credit risk of the
loan portfolio.
Commercial loans represent the largest segment of the Company's loan portfolio
and are generally viewed as riskier than other segments of the loan portfolio.
The risk associated with commercial lending is generally credit risk and is
primarily influenced by prevailing economic conditions, their impact on the
borrower's operations, and by the competency of the borrower's management and
credit administration by the Company.
The Company's lending strategy also includes the origination of real estate and
consumer loans in the markets that it serves. The majority of long-term, fixed
rate real estate loans originated by the Company are sold into the secondary
market through the Company's mortgage banking subsidiary, MSI. The real estate
loans which are retained in the Company's loan portfolio generally have a
short-term maturity and/or an adjustable interest rate. The primary risks
associated with both commercial and residential real estate lending include
prevailing economic conditions, their resulting impact on land prices, and the
borrower's ability to repay the loan.
Consumer loans represent a relatively small proportion of the Company's loan
portfolio and are generally made to individuals living within the markets
served by the Company. The primary risk associated with consumer loans is the
borrower's inability to repay the loan as a result of unemployment, bankruptcy,
and other factors which may have a negative impact on the borrower's financial
condition.
The underwriting standards contained within the Company's loan policy address
aspects of the lending function, including the analysis of a borrower's
ability to repay, collateral requirements, loan to value ratios, appraisals,
and personal guarantees. It is the Company's philosophy that the primary
source of the repayment of a loan should generally be the regular operating
cash flows of the borrower. In order to determine the adequacy of the cash
flows a detailed cash flow analysis is performed. The second source of
repayment is generally the disposition of collateral, when required. The loan
policy and management's assessment of the creditworthiness of the borrower
determine the extent to which collateral is required for a loan. The amount
and type of collateral required varies, but may include real estate, marketable
securities, deposits held in financial institutions, accounts receivable,
equipment, and inventory. Collateral values are monitored on a regular basis
to ensure that they are maintained at an adequate level. The Company obtains
appraisals on collateral, and updates these appraisals, as required by
regulation and when deemed prudent by management. The Company also regularly
obtains and enforces personal guarantees as a further source of repayment.
Personal guarantees are generally obtained when the borrower is a closely-held
business and when deemed necessary by management as a result of the
underwriting process.
As of December 31, 1997 total loans outstanding were $616,228,000, which
represented an increase of $208,877,000, or 51.3%, from the December 31, 1996
balance of $407,351,000. Total loans increased $147,517,000, or 56.8%, during
1996, from $259,834,000 at December 31, 1995. Total loans as a percentage of
earning assets were 79.3%, 78.4%, and 77.7% at December 31, 1997, 1996, and
1995 respectively.
The growth in the loan portfolio has been managed growth and is a result of the
Company's commitment to provide credit and credit related services in the
communities its serves to those businesses and individuals which meet the
underwriting standards established by the Company. The Company has been able to
achieve this growth by hiring experienced lenders from within the markets that
it serves, expanding into new markets, and by instituting a formal calling
program.
The following table sets forth a summary of the Company's loan portfolio by
category for each of the periods indicated. The data for each category is
presented in terms of total dollars outstanding and as a percentage of the
total loans outstanding.
35
<PAGE> 37
TABLE 7 - LOAN PORTFOLIO SUMMARY
(In thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------------
1997 1996 1995
------------------------- ------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 470,040 76.3% $ 317,277 77.9% $ 191,865 73.8%
Real estate - construction 52,791 8.6% 27,953 6.9% 16,264 6.3%
Real estate - mortgage 61,115 9.9% 41,826 10.3% 32,252 12.4%
Installment 18,689 3.0% 14,008 3.4% 11,674 4.5%
Other 13,593 2.2% 6,287 1.5% 7,779 3.0%
--------- ---------- --------- ---------- --------- ----------
TOTAL LOANS 616,228 100.0% 407,351 100.0% 259,834 100.0%
========== ========== ==========
Allowance for loan loss (6,692) (4,058) (2,458)
--------- --------- ---------
Net loans $ 609,536 $ 403,293 $ 257,376
========= ========= =========
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------
1994 1993
-------------------------- --------------------------
Commercial $ 117,499 75.0% $ 75,004 77.9%
Real estate - construction 10,496 6.7% 2,670 2.8%
Real estate - mortgage 23,916 15.3% 15,881 16.5%
Installment 2,962 1.9% 1,555 1.6%
Other 1,748 1.1% 1,164 1.2%
--------- ---------- --------- ---------
TOTAL LOANS 156,621 100.0% 96,274 100.0%
========== =========
Allowance for loan loss (1,539) (980)
--------- ---------
Net loans $ 155,082 $ 95,294
========= =========
</TABLE>
36
<PAGE> 38
Commercial loans represent the largest component of the loan portfolio.
Commercial loans outstanding as of December 31, 1997 were $470,040,000, or 76.3%
of total loans outstanding. These numbers were $317,277,000 and 77.9%, and
$191,865,000 and 73.8% as of December 31, 1996 and 1995 respectively. The large
percentage of commercial loans represents the Company's focus on commercial
business.
The following table sets forth the maturity distribution and interest rate
sensitivity of selected loan categories as of December 31, 1997. Maturities are
based upon contractual terms of the underlying loans.
TABLE 8 - LOAN MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY
(In thousands)
<TABLE>
<CAPTION>
LOAN MATURITIES AT DECEMBER 31, 1997
-----------------------------------------------
1 YEAR 1 to 5 OVER 5
AND LESS YEARS YEARS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial loans $185,479 $241,968 $ 42,593 $470,040
Real estate - construction 32,234 17,738 2,819 52,791
-------- -------- -------- --------
$217,713 $259,706 $ 45,412 $522,831
======== ======== ======== ========
SENSITIVITY TO CHANGES IN INTEREST RATES
- -----------------------------------------------
Fixed rates $118,534 $ 6,688
Variable rates 141,172 38,724
-------- --------
Total selected loans $259,706 $ 45,412
======== ========
</TABLE>
37
<PAGE> 39
PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES
The provision for loan losses represents charges made to earnings in order to
maintain an adequate allowance for loan losses ("allowance"). The provision for
loan losses was $3,992,000 in 1997, $2,044,000 in 1996, and $977,000 in 1995.
A significant portion of the increase in the provision for each year is the
result of the growth in the loan portfolio, and the Company's desire to
maintain an adequate allowance commensurate with this growth and the inherent
risk associated with the lending function. Additional charge-offs during 1997,
which are discussed later, also had a significant impact on the increase in the
provision expense for 1997.
The Company maintains its allowance at a level that is considered sufficient to
absorb potential losses in the loan portfolio. The allowance is increased by the
provision for loan losses as well as recoveries of previously charged-off loans,
and is decreased by loan charge-offs. The provision provides for current loan
losses and maintains the allowance at an adequate level commensurate with
management's evaluation of the risks inherent in the loan portfolio. A
comprehensive analysis of the allowance is performed on a quarterly basis by the
Company's loan review department. Various factors are taken into consideration
when the Company determines the amount of the provision and the adequacy of the
allowance. Some of the factors include: past due and nonperforming assets;
specific internal analysis of loans requiring special attention; the current
level of regulatory classified and criticized assets and the associated risk
factors with each; changes in the type and volume of the loan portfolio; net
charge-offs; and examinations and review by the Company's independent
accountants and internal loan review personnel.
The data collected from these sources is evaluated with regard to current
national and local economic trends, prior loss history, underlying collateral
values, credit concentrations, and industry risks. An estimate of potential
future loss on specific loans is developed in conjunction with an overall risk
evaluation of the total loan portfolio.
The following table summarizes changes in the allowance for loan losses for each
of the past five years.
38
<PAGE> 40
TABLE 9 - ANALYSIS OF ALLOWANCE FOR LOAN LOSS
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 4,058 $ 2,458 $ 1,539 $ 980 $ 634
LOANS CHARGED OFF
Commercial and agricultural (1,661) (392) (75) (110) (26)
Real estate - Mortgage (56) (60) -- (162) (25)
Installment and consumer (120) (13) -- (29) (4)
--------- --------- --------- --------- ---------
TOTAL CHARGE-OFFS (1,837) (465) (75) (301) (55)
--------- --------- --------- --------- ---------
CHARGE-OFFS RECOVERED
Commercial and agricultural 325 20 13 27 --
Real estate - Mortgage 1 -- -- --
Installment and consumer 6 1 4 12 10
--------- --------- --------- --------- ---------
TOTAL RECOVERIES 332 21 17 39 10
--------- --------- --------- --------- ---------
Adjustment incident to acquisition 147 -- -- 446 --
Net loans charged-off (1,505) (444) (58) (262) (45)
Current year provision 3,992 2,044 977 375 391
--------- --------- --------- --------- ---------
BALANCE AT END OF YEAR $ 6,692 $ 4,058 $ 2,458 $ 1,539 $ 980
========= ========= ========= ========= =========
Loans at year end $ 616,228 $ 407,351 $ 259,834 $ 156,621 $ 96,273
Ratio of allowance to loans
at year end 1.09% 1.00% 0.95% 0.98% 1.02%
Average loans $ 492,847 $ 324,600 $ 197,145 $ 125,450 $ 77,100
Ratio of net loans charged-off
to average loans 0.37% 0.14% 0.04% 0.24% 0.07%
Ratio of recoveries to
loans charged-off 18.07% 4.52% 22.67% 12.96% 18.18%
</TABLE>
39
<PAGE> 41
The increase in the provision and the allowance is primarily related to the
increase in average loans between each period. Additional charge-offs during
1997 also had a significant impact on the increase in the provision during 1997.
Total charge-offs for 1997 were $1,837,000 as compared to $465,000 in 1996.
Total recoveries for 1997 were $332,000 and $21,000 in 1996, resulting in net
charge-offs of $1,505,000 in 1997 and $444,000 in 1996. The majority of net
charge-offs occurred in the commercial loan portfolio, and represented 88.8%,
83.8%, and 107.0% of total net charge-offs for 1997, 1996, and 1995,
respectively. Approximately two-thirds of the charge-offs were related to unique
circumstances and the Company does not believe evidence a trend. Approximately
one-half of those charge-offs and nearly all of the amounts recovered were
related to a single borrower, who presented improper documentation to the
Company. Approximately an additional one-half of those charge-offs were the
result of the lending activities of two lending officers the Company determined
were not following the Company's lending guidelines. These lenders are no
longer with the Company and the Company has modified its lending oversight
procedures accordingly. The remaining one-third of the charge-offs represent
the amount of charge-offs the Company would reasonably expect based on its loan
volume.
As a result of the Company's growth and the additional charge-offs in 1997,
the Company began the restructuring and implementation of a more comprehensive
loan review function during 1997. Items which have been, or are in the process
of being restructured include; a more detailed and comprehensive analysis for
calculating the adequacy of the allowance; a more aggressive approach regarding
the early identification and resolution of problem loans; revisions to the loan
policy, including a revised grading system; an increase in the scope of loans
reviewed; and the expansion of the loan review department's level of authority
and responsibility to include the credit administration areas of credit
analysis, loan documentation, and loan operations. In order to appropriately
implement these changes, the Company has, and continues to increase the
staffing level of the loan review department. It is anticipated that the
implementation of these changes will be completed during 1998, however, this
area will be monitored on an ongoing basis and additional changes will be made
as appropriate. The implementation of certain of these changes in 1997 resulted
in the identification of additional problem loans, which resulted in additional
provisions to the allowance and additional charge-offs during 1997.
Based on the most recent analysis conducted by the loan review department, the
Company has estimated the potential charge-offs for 1998 to be between
$1,523,000 and $1,743,000. The estimated charge-offs by loan type are as
follows; commercial, $1,547,000; real estate, $138,000; and consumer and
installment, $58,000.
The Company will continue to monitor the allowance and make future adjustments
to the allowance through the provision for loan losses as conditions dictate.
Although the Company maintains the allowance at a level that it considers to be
adequate to provide for the inherent risk of loss in the loan portfolio, there
can be no assurance that future losses will not exceed estimated amounts or that
additional provisions will not be required in the future. In addition, the
Company's determination as to the adequacy of the allowance is subject to review
by the FDIC and state banking agencies, as part of their examination process,
which may result in an additional provision to the allowance upon completion of
their examination.
NONPERFORMING ASSETS
The level of nonperforming assets is an important element in assessing asset
quality and the relevant risk in the loan portfolio. Nonperforming assets
include non-accrual loans, restructured loans, loans delinquent 90 or more days,
and other real estate owned ("OREO"). Loans are classified as nonaccrual when
management believes that collection of interest is doubtful. A loan is
classified as restructured when the interest rate is materially reduced or the
term is extended beyond the original maturity date because of the inability of
the borrower to service the loan under the original terms. OREO represents
properties acquired by the Company through loan defaults by customers.
The Company has adopted Statements of Financial Accounting Standards No. 114 and
118, "Accounting by Creditors for Impairment of a Loan." In general, these
require that the Company must value a loan using discounted expected future cash
flows when the loan becomes impaired. A loan is considered to be impaired when
it is probable that a creditor will not be able to collect all amounts due
according to the contractual terms of the loan agreement.
The following table summarizes the composition of the Company's nonperforming
assets and related asset quality ratios as of the dates indicated.
40
<PAGE> 42
TABLE 10 - NONPERFORMING ASSETS
(In thousands)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------
PRINCIPAL BALANCE 1997 1996 1995 1994 1993
- ----------------------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual $1,841 $2,395 $ 898 $ 277 $ 20
Restructured -- -- -- -- --
90 days or more past due 1,349 1,429 1,416 557 78
------ ------ ------ ------ ------
TOTAL NONPERFORMING LOANS $3,190 $3,824 $2,314 $ 834 $ 98
====== ====== ====== ====== ======
Nonperforming loans as a percent of total loans 0.52% 0.94% 0.89% 0.53% 0.10%
Other real estate owned $ 281 $ 114 $ 55 $ 162 $ --
OREO as a percent of loans 0.05% 0.03% 0.02% 0.10% 0.00%
Allowance as a percent of
nonperforming loans 209.78% 106.12% 106.22% 184.53% 1000.00%
FOR YEAR ENDED DECEMBER 31,
Interest income under original terms 509 342 144 N/A N/A
Interest income which was recorded 262 190 102 N/A N/A
</TABLE>
N/A - Information not available
41
<PAGE> 43
Total nonperforming loans at December 31, 1997 decreased to $3,190,000 from
$3,824,000 at December 31, 1996. The decrease in the nonperforming loans was
primarily the result of certain of the nonperforming loans being charged off
during this period. Total nonperforming loans at December 31, 1995 were
$2,314,000. The ratio of nonperforming loans to total loans was 0.52%, 0.94%,
and 0.89% at December 31, 1997, 1996, and 1995 respectively. At December 31,
1997, nonaccrual loans represented 57.7% of total nonperforming loans and loans
past due 90 day or more represented 42.3% of total nonperforming loans. These
ratios were 62.6% and 37.4%, and 38.8% and 61.2% at December 31, 1996 and 1995
respectively. The Company did not have any restructured loans as of December 31,
1997, 1996, or 1995.
If the nonaccrual loans had continued to accrue interest during the entire year,
interest income in 1997 would have been increased by an estimated $247,000. The
estimated increase in interest income would have been $152,000 in 1996 and
$42,000 in 1995.
There were no other interest earning assets which would be required to be
disclosed as nonperforming assets.
DEPOSITS.
The Company has experienced significant growth in deposits, as they represent
the major source of funding for the Company's earning assets. The ratio of
average deposits to average earning assets was 91.2% in 1997, 91.0% in 1996, and
92.9% in 1995. Average total deposits increased 54.9% to $592,952,000 in 1997,
and 53.7% to $382,893,000 in 1996, from $249,115,000 in 1995. Average
interest-bearing deposits as a percentage of average total deposits was 92.8% in
1997, 92.3% in 1996 and 91.2% in 1995. Time certificates of deposit represent
the largest component of interest-bearing deposit liabilities. The percentage of
average time certificates of deposit to average total interest bearing deposits
was 85.0% in 1997, 82.5% in 1996, and 77.2% in 1995. The growth in these
percentages reflects the Company's increased utilization of time deposits as a
source of funding. The following table sets forth the average amount of and
average rate paid on selected deposit categories.
TABLE 11 - DEPOSIT INFORMATION
(In thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing $ 42,901 0.00% $ 29,622 0.00% $ 21,822 0.00%
Interest-bearing demand 27,503 2.32% 18,213 2.27% 14,315 2.15%
Savings 55,005 4.05% 43,577 3.72% 37,595 3.58%
Time 467,543 5.75% 291,481 5.61% 175,383 5.66%
-------- ---- -------- ---- -------- ----
TOTAL DEPOSITS $592,952 5.41% $382,893 5.20% $249,115 5.10%
======== ==== ======== ==== ======== ====
</TABLE>
42
<PAGE> 44
The table below provides information on the maturity distribution of time
deposits of $100,000 and over as of December 31, 1997.
TABLE 12 - MATURITY DISTRIBUTION OF TIME CERTIFICATES OF DEPOSIT OF $100,000 AND
OVER
(In thousands)
<TABLE>
<CAPTION>
December 31,
1997
-----------
<S> <C>
3 months or less $ 69,235
Over 3 through 6 months 18,426
Over 6 through 12 months 26,795
Over 12 months 6,522
--------
$120,978
========
</TABLE>
43
<PAGE> 45
Total time certificates of deposit of $100,000 and over, as a percentage of
total time certificates of deposit, at December 31, 1997 was 22.7%. The level of
this ratio is due to the nature of the markets and customers served by the
Company. It is management's opinion that the majority of these deposits are no
more volatile than those generally considered to be core deposits.
OTHER BORROWINGS.
The Company also utilizes, on a limited basis, other types of borrowings to meet
its liquidity needs and to fund its asset growth. These borrowings include
federal funds purchased from correspondent banks, securities sold under
agreements to repurchase, Federal Home Loan Bank advances, and U.S. Treasury
demand notes. The following table sets forth information regarding selected
categories of other borrowings.
TABLE 13 - OTHER BORROWINGS
(In thousands)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Federal funds purchased $10,350 $11,900 $ 2,945
Repurchase agreements outstanding 2,536 2,058 1,536
Federal Home Loan Bank borrowing 5,150 7,150 2,500
Treasury, tax and loan note 284 453 --
------- ------- -------
Total other borrowings $18,320 $21,561 $ 6,981
======= ======= =======
</TABLE>
44
<PAGE> 46
Total other borrowings were $18,320,000, $21,561,000, and $6,981,000 at December
31, 1997, 1996, and 1995 respectively, representing 2.4%, 4.2%, and 2.1% of
earning assets. Notes 18 and 23 to the consolidated financial statements contain
additional information regarding other borrowings.
LIQUIDITY
Proper liquidity management ensures that the Company has adequate funds
available to fund various commitments, including loan demand, deposit
withdrawals, and other obligations and opportunities, in a timely manner. The
Company actively manages its liquidity position under the direction of the
Asset/Liability Management Committee which estimates, measures, and monitors the
sources and uses of funds and the Company's liquidity position. The Company's
sources of funding and liquidity includes both asset and liability components.
The Company's funding requirements are primarily met by the inflow of funds from
deposit growth and to a much lesser extent, by the inflow of funds from other
borrowings, as discussed in the previous section. Additional funding is provided
by the repayment and maturities of loans and investments. The statements of cash
flows contained in the consolidated financial statements provide an indication
of the sources and uses of cash as well as an indication of the ability of the
Company to meet its liquidity needs. A summary of the cash flow statements for
1997, 1996, and 1995 follows.
The Company's cash flows are classified into one of three types of activities:
cash flows from operating activities, cash flows from investing activities, and
cash flows from financing activities.
Net cash provided by operating activities was $9,241,000, $5,053,000, and
$2,806,000 for the years ended December 31, 1997, 1996, and 1995 respectively.
The increase in net cash provided by operating activities was primarily due to
higher net income over the three year period.
Net cash used in investing activities was $235,692,000, $193,668,000, and
$118,918,000 for the years ended December 31, 1997, 1996, and 1995 respectively.
The increase in cash used for investing activities was primarily due to the net
increase in loans which accounted for 80.0%, 76.4%, and 86.7% of net cash used
for investing activities for each of the respective years. Securities purchases
represented the second largest amount of cash used in investment activities for
each period.
Net cash provided by financing activities was $219,788,000, $195,441,000, and
$119,946,000 for the years ended December 31, 1997, 1996, and 1995 respectively.
The net increase in deposits represented the largest source of net cash provided
by financing activities and accounted for 84.8%, 84.5%, and 83.9% for each of
the respective years. Net increases in time deposits represented 83.6%, 81.5%,
and 94.6% of the net cash provided by total deposits for each of the respective
years. Additional sources of cash
45
<PAGE> 47
provided by financing activities include other borrowings and proceeds from
capital issuance. Additional details regarding the statements of cash flows are
contained within the consolidated financial statements.
Additional sources of liquidity include cash and cash equivalents, federal funds
sold, and investment securities.
Through proper management and the development of various sources of funding, the
Company has been able to adequately meet its liquidity needs and expects that
these needs will be met in the future.
CAPITAL
The Company and its subsidiary banks are subject to various regulatory capital
guidelines. In general these guidelines define the various components of core
capital and assign risk weights to various categories of assets. The risk-based
capital guidelines require financial institutions to maintain minimum levels of
capital as a percentage of risk-weighted assets. Details regarding the
risk-based capital guidelines and the risk-based capital ratios of the
subsidiary banks are contained in "Business-Supervision and Regulation, Capital
Standards" herein.
The Company's risk-based capital ratios at December 31, 1997 and 1996 are
contained in the following table. As contained within the table, the Company's
capital levels are, and have been, substantially in excess of the required
regulatory minimum. Further, it is the Company's intention to maintain capital
levels in excess of the regulatory minimums.
46
<PAGE> 48
TABLE 14 - CAPITAL RATIOS
(In thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996
---------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO
----------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
RISK WEIGHTED ASSETS $ 669,975 $ 439,096
========= =========
AVERAGE ASSETS (FOURTH QUARTER) $ 786,470 $ 515,332
========= =========
CAPITAL COMPONENTS
Stockholders' equity $ 100,732 $ 58,232
Less: Intangibles (3,340) (2,155)
Add/less: Unrealized loss/(gain) on securities (221) 71
--------- ---------
TIER 1 CAPITAL 97,171 56,148
Allowable allowance for loan losses 6,692 4,058
--------- ---------
TOTAL RISK BASED CAPITAL $ 103,863 $ 60,206
========= =========
TIER 1 CAPITAL
As of year ending $ 97,171 14.50% $ 56,148 12.79%
Minimum Required 26,799 4.00% 17,564 4.00%
--------- ----------- --------- -----------
Amount in Excess of Minimum $ 70,372 10.50% $ 38,584 8.79%
========= =========== ========= ===========
TOTAL RISK BASED CAPITAL
As of year ending $ 103,863 15.50% $ 60,206 13.71%
Minimum Required 53,598 8.00% 35,128 8.00%
--------- ----------- --------- -----------
Amount in Excess of Minimum $ 50,265 7.50% $ 25,078 5.71%
========= =========== ========= ===========
LEVERAGE RATIO
As of year ending $ 97,171 12.36% $ 56,148 10.90%
Minimum Required 31,459 4.00% 20,613 4.00%
--------- ----------- --------- -----------
Amount in Excess of Minimum $ 65,712 8.36% $ 35,535 6.90%
========= =========== ========= ===========
</TABLE>
47
<PAGE> 49
The primary source of capital for the Company has been the issuance of
additional common stock. The issuance of common stock, through private placement
offerings, provided $36,402,000, $12,178,000, and $16,288,000 in additional
capital in 1997, 1996, and 1995 respectively. Additional details regarding the
capital raised in these private placement offerings are contained in Item 10-
Recent Sales of Unregistered Securities, of this Form 10. Earnings were the
second largest source of additional capital for the Company. Additional
information regarding the capital of the Company is contained in the
Consolidated Statements of Changes in Stockholder's Equity of the consolidated
financial statements, and the notes thereto.
MARKET RISK SENSITIVITY
The Company's primary market risk exposure is from interest rate risk. The
Company's net interest income is vulnerable to changes in U.S. prime interest
rates. Other market risks, such as commodity price risk, foreign currency
exchange rate risk, and equity price risk, do not arise in the normal course of
the Company's business. The Company does not engage in trading activities.
The Board of Directors has overall responsibility for the Company's interest
rate risk management policies. The Company sets policy limits of interest rate
risk to be assumed in the normal course of business. The Company's policy is to
maximize earnings while maintaining a high quality balance sheet and carefully
controlling interest rate and other market risks. The Company utilizes the
following measurement techniques in the management of interest rate risk: gap
analysis and simulation of earnings. The Company's Asset/Liability Management
Committee monitors interest rate risk measurements for compliance with policy
limits at least quarterly.
If the interest rate risk measurements derived by these techniques are outside
of the policy limits, then management may implement one or more of a variety of
interest rate management strategies that would reduce the interest rate risk.
The Company strives to use the most effective instrument for implementing its
interest rate risk management strategies, considering the costs, liquidity and
capital requirements of the various alternatives. These alternatives include;
the purchases and sales of loans, investment securities, fed funds, and
repurchase agreements; the marketing of deposit accounts; borrowing funds; and
altering the terms and pricing of the products and services offered.
48
<PAGE> 50
<PAGE> 51
The gap analysis is shown in table 15, "Repricing Interest Rate Sensitivity
Analysis", as of December 31, 1997. The table shows the Company's interest rate
sensitive assets and liabilities and the resulting difference between them
within selected time intervals. In this analysis the repricing interest rate
sensitivity position is balanced when an equal amount of interest earning assets
and interest bearing liabilities reprice during a given time interval. Excess
interest rate sensitive assets or liabilities repricing in a given time period
results in the interest sensitivity gap ("gap") shown in the schedule. A
positive or asset sensitive gap indicates that more interest earning assets than
interest bearing liabilities will reprice in a given time period, while a
negative or liability sensitive gap indicates that more interest bearing
liabilities than interest earning assets will reprice in a given time period.
TABLE 15 - REPRICING INTEREST RATE SENSITIVITY ANALYSIS
DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
1-3 4-6 7-12 2-5 Over 5
Months Months Months Years Years Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 350,736 $ 36,797 $ 69,093 $ 148,297 $ 11,305 $ 616,228
Investment securities 16,833 6,395 15,636 102,961 19,083 160,908
Federal funds sold and other earning assets -- -- 308 -- -- $ 308
--------- --------- --------- --------- --------- ---------
Total interest earning assets 367,569 43,192 85,037 251,258 30,388 777,444
--------- --------- --------- --------- --------- ---------
Interest bearing liabilities:
Time deposits 245,162 79,050 140,723 66,734 -- 531,669
Savings and interest bearing demand deposits 96,687 -- -- -- -- 96,687
Federal funds purchased 10,350 -- -- -- -- 10,350
Securities sold under agreements to repurchase 2,536 -- -- -- -- 2,536
Other borrowings 2,434 3,000 -- -- -- 5,434
--------- --------- --------- --------- --------- ---------
Total interest bearing liabilities 357,169 82,050 140,723 66,734 -- 646,676
--------- --------- --------- --------- --------- ---------
Interest sensitivity GAP (by period) $ 10,400 $ (38,858) $ (55,686) $ 184,524 $ 30,388 $ 130,768
========= ========= ========= ========= ========= =========
Interest sensitivity GAP (cumulative) $ 10,400 $ (28,458) $ (84,144) $ 100,380 $ 130,768 $ 130,768
========= ========= ========= ========= ========= =========
</TABLE>
FUTURE EARNINGS INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1997
<TABLE>
<CAPTION>
Basis point changes
-------------------------------------------
+200 -200 +100 -100
------ ------ ------ ------
<S> <C> <C> <C> <C>
Percentage change in net interest income over a
one year period due to an immediate change
in U.S. prime interest rates 1.19% -2.46% 0.59% -1.21%
</TABLE>
The financial instruments are shown to reprice at the earlier of their maturity
date or their next contractual reprice date (e.g., a variable rate loan's next
rate reset date). In the gap analysis nonmaturing interest earning assets and
interest bearing liabilities are shown to reprice immediately and the
Collateralized Mortgage Obligations and the Real Estate Mortgage Investment
Conduits that are a part of the investment securities are shown to reprice in
those periods in which they are expected to repay.
The table "Repricing Interest Rate Sensitivity Analysis" indicates that the
Company has a liability sensitive gap in time periods of less than one year and
an asset sensitive gap in time periods exceeding one year. With a positive gap,
an increase in interest rates will generally have a positive effect on the net
interest income, and vice versa. With a negative gap, a decrease in interest
rates will generally have a positive effect on the net interest income, and vice
versa.
While this repricing interest rate sensitivity analysis is a widely used measure
of interest rate risk and may be used as an indication of interest margin
direction, it does not fully reflect the effects given to interest rate risks
other than repricing risk, such as option, basis and yield curve risks.
For these reasons, using pretax earnings simulation measurement techniques the
Company also performs interest rate sensitivity analyses that express the
potential gain (loss) of net interest income from the financial instruments as a
percentage of the potential net interest income from the financial instruments
of the Company that are interest rate sensitive. The Company derives results for
one or more selected hypothetical changes in interest rates over a selected
period of time, usually one year. Potential net interest income is calculated by
multiplying the total assets on December 31, 1997, by the tax equivalent net
interest income (expressed as a ratio of the average assets for the fiscal year
1997). In general, potential loss of net interest income is calculated by
multiplying the gap forecasted in the interest rate scenario by the change in
interest rates.
The on-balance sheet financial instruments included in the gap and simulation
models include: loans, investment securities, federal funds sold, interest
bearing accounts, time deposits, saving deposits, interest bearing demand
deposits, federal funds purchased,
50
<PAGE> 52
securities sold under agreements to repurchase, and other borrowings. Neither
the Company or its subsidiaries own any derivative financial instruments or
derivative commodity instruments.
The following options are accounted for in the simulation analysis: call options
in U.S. Government Sponsored Enterprise issued investment securities; interest
rate floors in structured notes issued by U.S. Government Sponsored Enterprises;
and embedded call options in Collaterized Mortgage Obligations and Real Estate
Mortgage Investment Conduits.
Some of the features of the financial instruments included in the model that are
not reflected fully in the quantitative market risk disclosure information
include: i) repayment plans and embedded call options in loans and passthrough
mortgage-backed securities; ii) call options in municipal bonds and U.S.
Government Sponsored Enterprise issued structured notes; iii) early redemption
and put options in time deposits and other borrowings; and iv) interest rate
caps, ceilings and floors in certain variable rate loans and investment
securities.
The following assumptions were utilized in the simulation measurement technique:
o The balance sheet size was assumed to remain constant over the one
year simulation horizon.
o All maturing assets and liabilities were invested or deposited into
identical items with the same maturity.
o The interest rates are assumed to change by the same number of basis
points regardless of term or type of interest rate; except that the
timing, magnitude and direction of the change of interest rates paid
on non-maturing savings and interest bearing demand deposits are
assumed to change in a way similar to that experienced in the past,
which is less than perfectly correlated with the other interest rate
changes.
The simulations of earnings do not incorporate any management actions which
might moderate the negative consequences of interest rate changes. Therefore,
they do not reflect likely actual results but serve as conservative estimates of
interest rate risk.
YEAR 2000
The Company utilizes and is dependent upon data processing systems and hardware
in every aspect of its ongoing operation. Successfully addressing Year 2000
issues is of the highest importance to management. Although the nature of the
problem is such that there can be no complete assurance it will be successfully
resolved, a risk mitigation program is well under way. Year 2000 capability of
mission critical systems has been assessed. The main banking application
software and the computer hardware and operating system are Year 2000 compliant.
All other critical systems have been systematically identified for renovation or
replacement. A comprehensive testing plan will be implemented, with
51
<PAGE> 53
testing of all critical systems to be completed by year-end 1998. Contingency
plans have been developed to address any system failures.
The Company is also contacting borrowing customers to ascertain their level of
Year 2000 preparedness. A risk assessment will be performed, and an appropriate
provision made for any possible losses.
The estimated expense of the Company's Year 2000 project is not expected to have
a material impact on earnings.
IMPACT OF NEW ACCOUNTING STANDARDS
Discussion regarding new accounting standards and their projected impact to the
Company are contained in the notes to the consolidated financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
The Company's consolidated financial statements and notes thereto presented
elsewhere herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the changes
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Company's operations.
Unlike most industrial companies, nearly all of the Company's assets and
liabilities are monetary in nature. As a result, interest rates, and changes
therein, have a greater impact on the Company's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services.
Management of the effect of changes in interest rates, is discussed in the
Interest Rate Sensitivity section of Item 2 of this document.
52
<PAGE> 54
ITEM 3. PROPERTIES
Information on the location and a general description of the material real
property interests of the Company and its subsidiaries are set out below. Only
the Company's bank subsidiaries own or lease any real property facilities, and
these facilities are detailed for each bank subsidiary respectively.
CIB FACILITIES. CIB presently has 9 facilities in operation. A brief description
and relevant information about each of these facilities is set out below, listed
in the sequence in which CIB brought each facility on line.
Sidney Facility - Champaign County, Illinois. The Sidney facility is located at
219 South David Street, Sidney, Illinois, a community with a population of
approximately 1,000. The Sidney facility was owned by the Company in September
of 1987 when the change of control of the Company occurred and was the sole
banking location of the Company at that time. This location is a full-service
banking facility of approximately 4,000 square feet.
Champaign Facility - Champaign County, Illinois. The Champaign facility is
located at 2913 West Kirby Avenue, Champaign, Illinois, a community with a
population of approximately 63,500. The Champaign facility is owned by the bank
and opened in September of 1988. The Company further expanded this facility in
April of 1992 and in November of 1993. This location is a full-service banking
facility of approximately 8,700 square feet.
Urbana Facility - Champaign County, Illinois. The Urbana facility is located at
1514 N. Cunningham Avenue in Urbana, Illinois, a community with a population of
approximately 40,000. The Urbana facility is owned by the bank and opened in
March of 1990. This location is a full-service banking facility of approximately
2,400 square feet.
53
<PAGE> 55
Midtown Champaign Facility - Champaign County, Illinois. The main office of CIB
is in the Midtown Champaign facility, which is located at 302 West Springfield
Avenue also in Champaign, Illinois. The Midtown Champaign facility is owned by
the bank and opened in April of 1994. This location is a full-service banking
facility of approximately 2,400 square feet. CIB has purchased additional
property on the west side of the Midtown Champaign Facility in order to provide
additional parking and for further expansion for this facility.
Rantoul Facility - Champaign County, Illinois. The Rantoul facility is located
at 826 West Champaign Avenue in Rantoul, Illinois, a community with a population
of approximately 17,000. The Rantoul facility is leased by the bank and opened
in November of 1994. The lease runs until September of 1999, and has provision
for 5 consecutive 5 year renewal options. This location is a full-service
banking facility situated in a building of approximately 11,400 square feet, of
which the bank occupies approximately 6,200 square feet. The Rantoul facility
also serves as the central location for the operations of Data, which first
occupied this facility in October of 1994. Data presently leases approximately
2,000 square feet of this facility for its computer network operations. The
remaining space of approximately 3,100 square feet is occupied by the Company
and used for many of the support functions of the Company, including human
resources, accounting, auditing, legal and loan review.
Monticello Facility - Piatt County, Illinois. The Monticello facility is located
at 204 South Market Street in Monticello, Illinois, a community with a
population of approximately 5,000. The Monticello facility is leased by the bank
and opened in May of 1995. The lease runs until April of 2000, and has provision
for 4 consecutive 5 year renewal options. This location is a full-service
banking facility of approximately 2,500 square feet.
Danville Facility - Vermilion County, Illinois. The Danville facility is located
at 2490 North Vermilion Street in Danville, Illinois, a community with a
population of approximately 34,000. The Danville facility is owned by the bank
and opened in August of 1995. This location is a full-service banking facility
of approximately 2,500 square feet.
Arthur Facility - Douglas County, Illinois. The Arthur facility is located at
120 West Progress Street in Arthur, Illinois, a community which, including the
surrounding Amish community, has a population of approximately 4,500. The Arthur
facility is owned by the bank and opened in October of 1996. This location is a
full-service banking facility of approximately 1,600 square feet.
Charleston Facility - Coles County, Illinois. The Charleston facility is located
at 1415 18th Street, Charleston, Illinois, a community with a population of
approximately 21,000. The Charleston facility is owned by the bank and opened in
November of 1997 as a full-service banking facility of approximately 3,100
square feet.
South Rantoul Facility - Champaign County, Illinois. The South Rantoul facility
is located at 501 South Century Boulevard in Rantoul, Illinois. This facility is
being constructed and the
54
<PAGE> 56
Company anticipates it will open in the fall of 1998. This facility is owned by
the Company and will be a full service banking facility with approximately 4,000
square feet. The Company intends that CIB will occupy approximately 1,000 square
feet of this facility, and the remainder will be utilized for storage purposes.
CIBM FACILITIES. CIBM presently has 7 facilities in operation. A brief
description and relevant information about each of these facilities is set out
below, listed in the sequence in which CIBM brought each facility on line.
Arrowsmith Facility - McLean County, Illinois. The Arrowsmith facility is
located at 208 Main Street in Arrowsmith, Illinois, a community with a
population of approximately 315. The Arrowsmith facility was owned by the bank
at the time the Company acquired control of CIBM in October 1991 and was the
sole banking location of Arrowsmith State Bank. This location is a full-service
banking facility of approximately 2,400 square feet.
Normal Facility - McLean County, Illinois. The principal office of CIBM is in
the Normal facility, which is located at 1710 East College Avenue in Normal,
Illinois, a community with a population of approximately 40,000. The communities
of Bloomington and Normal adjoin and together have a population of approximately
92,000. The Normal facility is owned by the bank and opened in November of 1992.
This location is a full-service banking facility of approximately 4,400 square
feet.
Decatur Facility - Macon County, Illinois. The Decatur facility is located at
240 South Main Street in Decatur, Illinois, a community with a population of
approximately 84,000. The Decatur facility is leased by the bank and opened in
October 1995. The lease runs until September of 2000, and has provision for 4
consecutive 5 year renewal options. This location is a full-service banking
facility of approximately 2,200 square feet.
Bloomington Facility - McLean County, Illinois. The Bloomington facility is
located at 2407 East Washington in Bloomington, Illinois, a community with a
population of approximately 52,000. The Bloomington facility is owned by the
bank and opened in December of 1995. This location is a full-service banking
facility of approximately 3,000 square feet. This facility was acquired as part
of the transaction by which the Company acquired MSI in September of 1995.
Approximately 1,000 square feet of this facility is currently leased to MSI and
is used as MSI's principal office.
Morton Facility - Tazewell County, Illinois. The Morton facility is located at
218 North Main in Morton, Illinois, a community with a population of
approximately 14,000 located near Peoria, which has a population of
approximately 113,500. The Morton facility is leased by the bank and opened in
October of 1996. The lease runs until August of 2004, and has no provision for
renewal options. This location is a full-service banking facility of
approximately 2,400 square feet.
55
<PAGE> 57
Temporary Peoria Facility - Peoria County, Illinois. A temporary Peoria facility
is presently located a 5015 N. Glen Park Place, Peoria, Illinois. The temporary
Peoria facility is leased by the bank and opened September 3 , 1997. The
original term of this lease ran until February of 1998 and provided for 8
consecutive 1 month renewal options, which the Company has been exercising.
The Company intends to continue to exercise its renewal options as needed and
believes that the permanent Peoria facility will be opened before all renewal
options expire. This is a full-service banking facility with approximately
1,200 square feet. The Company intends that this Peoria facility will serve as
a temporary facility until the opening of the new Peoria facility discussed
below, at which time the Company intends to close the temporary Peoria
facility.
Permanent Peoria Facility - Peoria County, Illinois. A permanent Peoria facility
is under construction and will also be located across the street from the
temporary facility referenced above on Glen Park Place, Peoria, Illinois, a
community with a population of approximately 113,500. The permanent Peoria
facility will also be leased by the bank and it is anticipated that this site
will open in July of 1998. The lease for this facility is being negotiated, and
the Company expects that lease will have a term of 10 years from the opening
date of this facility with provision for 2 consecutive 5 year renewal options.
The permanent facility will be a full-service banking facility with
approximately 2,500 square feet.
East Peoria Facility - Tazewell County, Illinois. The East Peoria facility is
located at 200 River Road, East Peoria, Illinois, a community with a population
of approximately 20,000 that is also located near Peoria. The East Peoria
facility is owned by the Company and opened October 14, 1997 as a full-service
banking facility. The East Peoria facility is approximately 6,000 total square
feet, however approximately 1,919 square feet of this space is leased to a
tenant, and the bank occupies approximately 4,100 square feet for banking
operations.
CIBH FACILITIES. CIBH presently has 6 facilities in operation. A brief
description and relevant information about each of these facilities is set out
below, listed in the sequence in which CIBH brought each facility on line.
Hillside Facility - Cook County, Illinois. The principal office of CIBH is in
the Hillside facility, which is located at 101 North Wolf Road in Hillside,
Illinois, a suburb of Chicago and a community with a population of approximately
7,700. The Hillside facility is leased by the bank and was under lease at the
time the Company acquired control of CIBH in June of 1994. The lease runs until
December of 2014, with no provisions for renewal options thereafter. This
location is a full-service banking facility of approximately 10,500 square feet.
Willow Springs Facility - Cook County, Illinois. The Willow Springs facility is
located at 8480 Archer Avenue in Willow Springs, Illinois, a suburb of Chicago
and a community with a population of approximately 4,500. The Willow Springs
facility is owned by the bank and opened in July of 1996. This location is a
full-service banking facility of approximately 2,100 square feet.
56
<PAGE> 58
Niles Facility - Cook County, Illinois. The Niles facility is located at 8720
West Dempster in Niles, Illinois, a suburb of Chicago and a community with a
population of approximately 28,300. The Niles facility is leased by the bank and
opened in August of 1996. The lease runs until August of 2006, and has provision
for 2 consecutive 5 year renewal options. This location is a full-service
banking facility of approximately 4,500 square feet.
Elk Grove Village Facility - Cook County, Illinois. The Elk Grove Village
facility is located at 900 East Higgins in Elk Grove Village, Illinois, a suburb
of Chicago and a community with a population of approximately 33,500. The Elk
Grove Village facility is owned by the bank and opened in October of 1996. This
location is a full-service banking facility of approximately 4,400 square feet.
Chicago Downtown Facility - Cook County, Illinois. The Chicago Downtown facility
is located at 200 West Adams, Suite 2211 in Chicago, Illinois, a community with
a population of approximately 2,784,000. The Chicago Downtown facility is leased
by the bank and opened in October of 1996. The current lease runs until July of
1998. A new lease has been signed for this facility with a term running from the
end of the current lease until June of 2006, and has provision for one 5 year
renewal option. This location is a full-service banking facility of
approximately 2,800 square feet. This facility is intended to be a boutique
facility to be used primarily for private banking services to customers in the
downtown Chicago area.
Bolingbrook Facility - Will County, Illinois. The Bolingbrook facility is
located at 333 Quadrangle Drive, Bolingbrook, Illinois, a suburb of Chicago and
a community with a population of approximately 50,000. The Bolingbrook facility
is leased by the bank and opened in February of 1997. The lease runs until
November of 2001, and has provision for 3 consecutive 5 year renewal options.
The location is a full service banking facility of approximately of 4,900 square
feet. Approximately 371 square feet of this facility is currently leased to
Trust and is used as Trust's principal office.
Elmhurst Facility - DuPage County, Illinois. The Elmhurst facility is under
renovation and will be located at 299 N. York Road, Elmhurst, Illinois, a suburb
of Chicago and a community with a population of approximately 42,000. The
Elmhurst facility will be leased by the bank and it is anticipated that this
site will open in the latter part of May, 1998. The lease will run for a period
of 10 years from the date of the opening of this facility, and has provision for
2 consecutive 5 year renewal options. This facility will be a full service
banking facility of approximately 1,300 square feet.
MARINE FACILITIES. Marine presently has 4 full-service facilities in
operation. A permanent facility is presently under construction and will
replace the temporary Pawaukee facility currently in use. A brief description
and relevant information about each of these facilities is set out below,
listed in the sequence in which Marine brought each facility on line.
Cedarburg Facility - Ozaukee County, Wisconsin. The Cedarburg facility is
located at W61 N526 Washington Avenue, Cedarburg, Wisconsin, a suburb of
Milwaukee and a community
57
<PAGE> 59
with a population of approximately 10,000. The Cedarburg facility was owned by
Marine at the time of acquisition of FOCC by the Company on September 10, 1997.
The Cedarburg location is a full service banking facility of approximately 4,000
square feet.
Grafton Facility - Ozaukee County, Wisconsin. The Grafton facility is located at
1650 Ninth Avenue, Grafton, Wisconsin, a suburb of Milwaukee and a community
with a population of approximately 10,000. The Grafton facility was owned by
Marine at the time the Company acquired FOCC on September 10, 1997. The Grafton
location is a full service banking facility of approximately 5,200 square feet.
Temporary Pewaukee Facility - Waukesha County, Wisconsin. The temporary Pewaukee
facility is located at W238 N1645 Rockwood Drive, in the town of Pewaukee,
Wisconsin, a suburb of Milwaukee and a community with a population of
approximately 5,000. The temporary Pewaukee facility was leased by Marine after
the Company completed the acquisition of FOCC. The lease runs until May 31, 1998
and has provision for one 3 month renewal option, which the Company intends will
be exercised. The temporary Pewaukee facility opened September 24, 1997 as a
branch office for loan production and as a full service facility on December 3,
1997. This office is approximately 2,300 square feet in size. The Company
intends that this Pewaukee facility will serve until the opening of the new
Pewaukee facility discussed below, at which time the Company intends to close
this temporary facility.
Permanent Pewaukee Facility - Waukesha County, Wisconsin. The permanent Pewaukee
facility is under construction, will be owned by the bank, and will be located
at the northwest intersection of County Highway J and County Highway M, also in
the town of Pewaukee, Wisconsin. The permanent Pewaukee facility will be a full
service banking facility of approximately 10,800 square feet, approximately
5,000 square feet of which will be occupied by various operations of the
Company. The Company anticipates this facility will be opened in July of 1998,
and intends to close the temporary Pewaukee facility when the new facility
opens.
Wauwatosa Facility - Milwaukee County, Wisconsin. The Wauwatosa facility is
located at 2323 N. Mayfair Road, Wauwatosa, Wisconsin, a suburb of Milwaukee
and a community with a population of approximately 49,000. The Wauwatosa
facility is leased by Marine and opened May 15, 1998. The lease runs until May
of 2008, and has provision for 2 consecutive 5 year renewal options. The
Wauwatosa facility is a full service banking facility of approximately 5,400
square feet.
CIB-IND FACILITIES. CIB-IND presently has 1 full-service facility in operation
and is awaiting regulatory approval for a second facility. A brief description
and relevant information about each of these facilities is set out below.
Indianapolis Fox Road Facility - Marion County, Indiana. The Fox Road facility
is located at 11715 Fox Road, Indianapolis, Indiana, a community with a
population of approximately 730,000. The Fox Road facility is leased by CIB-IND
and opened March 30,
58
<PAGE> 60
1998. The lease runs until March of 2003, and provides for one 5 year renewal
option. This facility is a full-service banking facility of approximately 2,100
square feet.
Indianapolis Emerson Way Facility - Marion County, Indiana. An application for
regulatory approval has been filed and is pending with regard to the Emerson Way
facility which, upon approval, will be located at 5435 N. Emerson Way,
Indianapolis, Indiana. The Emerson Way facility is under lease by CIB-IND with a
contingency for regulatory approval. The lease term would commence upon CIB-IND
taking possession and continue for ten years, with provision for 3 consecutive 5
year renewal options. The Company anticipates regulatory approval will not be
delayed and that this facility will be opened in July of 1998. The Emerson Way
facility will be a full service banking facility of approximately 3,900 square
feet.
59
<PAGE> 61
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table summarizes information regarding beneficial ownership
by all persons believed by the Company to be beneficial owners of more than 5%
of the Company's common stock as of June 23, 1998.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent
Title of Class Beneficial Owner of Beneficial Ownership of Class
- -------------- ------------------- ----------------------- --------
<S> <C> <C> <C>
Common Stock Strategic Capital Management 6,414 shares(1) 5.90%
Inc./Strategic Capital Trust
Company
</TABLE>
- ----------------------
(1) Mr. David Sinow, a former director of the Company, is an officer,
director, and shareholder of Strategic Capital Trust Company ("SCTC"). Mr.
Sinow is also an officer and director of Strategic Capital Management, Inc.
("SCM"), a wholly owned subsidiary of SCTC. SCTC owns 750 shares of the
Company's common stock. The Company understands that Mr. Sinow has shared voting
and investment authority over 5,664 shares of the Company's common stock
purchased by investors for whom SCM provides investment management services.
In 1991, CIB and SCM entered into an agreement by which SCM provided
investment advisory services to CIB's trust department. In March of 1998,
that agreement was assigned by SCM to SCTC, and by CIB to Marine Trust and
Investment Company, a subsidiary of the Company.
SECURITY OWNERSHIP OF MANAGEMENT
The following table summarizes the number of shares and the percentage of
the Company's common stock beneficially owned as of June 23, 1998 by each
director of the Company, each executive officer named in the section "Executive
Compensation", and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Name Of Common Shares
Beneficial Owner Beneficially Owned Percent of Class
- ---------------- ------------------ ----------------
<S> <C> <C>
Jose Araujo 560(1) 0.52%
Norman Baker 2,418(2) 2.22%
John T. Bean 173(3) 0.16%
W. Scott Blake 1,288(4) 1.18%
Steven C. Hillard 982(5) 0.90%
Dean Katsaros 1,641(6) 1.51%
Jerry D. Maahs 1,909(7) 1.76%
J. Michael Straka 1,595(8) 1.47%
Donald M. Trilling 1,450(9) 1.33%
Howard E. Zimmerman 1,010(10) 0.93%
All directors and executive
officers as a group (17 persons) 14,072(11) 12.95%
- -----------------------
</TABLE>
60
<PAGE> 62
1. This figure includes 10 shares Mr. Araujo has the right to acquire
upon the exercise of stock options.
2. This figure includes 10 shares Mr. Baker has the right to acquire upon
the exercise of stock options.
3. This figure includes 50 shares jointly owned by Mr. Bean and his
spouse, 13 shares owned by Mr. Bean's spouse, and 46 shares Mr. Bean
has the right to acquire upon the exercise of stock options.
4. This figure includes 780 shares owned by a corporation with respect to
which Mr. Blake shares voting and investment power, and 10 shares Mr.
Blake has the right to acquire upon the exercise of stock options.
5. This figure includes 132 shares Mr. Hillard has the right to acquire
upon the exercise of stock options.
6. This figure includes 375 shares jointly owned by Mr. Katsaros and his
spouse, and 13 shares Mr. Katsaros has the right to acquire upon the
exercise of stock options.
7. This figure includes 1,900 shares jointly owned by Mr. Maahs and his
spouse, and 9 shares Mr. Maahs has the right to acquire upon the
exercise of stock options.
8. This figure includes 864 shares jointly owned by Mr. Straka and his
spouse, 20 shares owned by Mr. Straka's spouse, 32 shares owned by a
partnership with respect to which Mr. Straka shares voting and
investment power, and 275 shares Mr. Straka has the right to acquire
upon the exercise of stock options.
9. This figure includes 531 shares in a trust in the name of Mr.
Trilling's spouse, and 14 shares Mr. Trilling has the right to acquire
upon the exercise of stock options.
10. This figure includes 75 shares in a trust in the name of Mr.
Zimmerman's spouse, and 10 shares Mr. Zimmerman has the right to
acquire upon the exercise of stock options.
11. This figure includes, in addition to those shares footnoted above,
540 shares which the executive officers as a group have the right to
acquire upon the exercise of options, and 25 shares owned by a
partnership with respect to which one of the executive officers shares
voting and investment control.
Unless indicated otherwise, all directors and executive officers have
sole voting and investment power with respect to the shares beneficially owned
by them.
61
<PAGE> 63
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Set out below is information concerning the directors and executive
officers of the Company. Unless otherwise indicated, each person has held the
same position with his or her principal employer for the last five years. The
directors of the Company are elected for a term of three years and the year in
which each director's current term ends is noted. The executive officers of the
Company are all appointed for continuing terms unless otherwise noted.
<TABLE>
<CAPTION>
Current Positions Serving
Name and Age With the Company Since Business Experience
- ------------ ----------------- ------- -------------------
<S> <C> <C> <C>
Jose Araujo, 52 Director of the Company; 1987 Consultant to BOC
term expires in 1999. Gases, President of
Gascarb.
Norman Baker, 51 Director of the Company; 1988 President of Estoy
term expires in 2001. Pronto, Inc.,
Partner in A and B
Partnership and President
and Chairman of Associated
Storage and Transfer.
John T. Bean, 37 Director of the Company; 1998 President, Director
term expires in 2000. and Chief Executive
Officer of CIBH, Vice
President of CIBM and
Senior Vice President of
CIB.
W. Scott Blake, 37 Director of the Company; 1987 President of Blake-
term expires in 2001. Weise Real Estate Corp.
Stephen C. Bonnell,48 Senior Vice President of 1987 Secretary of the
the Company. Company, Senior Vice
President of CIB, CIBM,
CIBH, MSI, Data, HIL,
CIB-IND and Marine,
and Chief Executive
Officer, Chief
Operating Officer,
President and
a Director of CIBM.
Linda Hamilton, 42 Senior Vice President of 1993 Senior Vice President of
the Company. CIB, CIBM, CIBH, HIL,
CIB-IND, Marine and
MSI, President and
a director of Data and
Vice President of CIB.
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
Current Positions Serving
Name and Age With the Company Since Business Experience
- ------------ ----------------- ------- -------------------
<S> <C> <C> <C>
Steven C. Hillard, 35 Director of the Company; 1992 President and Chief
term expires in 2000. Executive Officer of
HILMUN Holdings, Inc.,
Chairman and Chief
Executive Officer
of Pinnacle Door Co. and
President of Johnson-Ross
Corporation.
Dean Katsaros, 35 Director of the Company; 1995 Owner of Katsaros &
term expires in 2001. Associates; Chairman
of KSB Benefit
Consultants, Inc. and
Partner, KB Consultants
Steven T. Klitzing, 35 Chief Financial Officer, 1995 Chief Financial Officer,
Senior Vice President, Senior Vice President
Treasurer and Assistant and Secretary or
Secretary of the Company. Assistant Secretary of
CIB, CIBM, CIBH,
Marine and CIB-IND,
Chief Financial Officer,
Senior Vice President,
Secretary and Treasurer
of FOCC, Chief
Financial Officer,
Treasurer and Secretary
of Trust, and
Chief Financial Officer,
Senior Vice President,
Secretary, Treasurer and
a Director of Data.
Jerry D. Maahs, 66 Director of the Company; 1987 Chief Executive
term expires in 1999. Officer of Alto Shaam
and Enthermics, Inc.;
Chairman of AS
International.
John C. Ruedi, 41 Executive Vice President 1995 Executive Vice President
of the Company. of CIB, CIBM, CIBH,
Marine and CIB-IND
and Vice President of
the Company.(1)
</TABLE>
63
<PAGE> 65
<TABLE>
<CAPTION>
Current Positions Serving
Name and Age With the Company Since Business Experience
- ------------ ----------------- ------- -------------------
<S> <C> <C> <C>
Jack E. Schall, 45 Senior Vice President of 1995 Senior Vice President of
the Company. CIB, CIBM, CIBH, HIL,
MSI, CIB-IND, Data
and Marine and Manager
of Accounting and
Finance, Okura & Co.
America), Inc.
Donald J. Straka(2), 35 Senior Vice President, 1997 Assistant Secretary,
Secretary, and General Senior Vice President
Counsel of the Company. and General Counsel of
CIB, CIBM, CIBH,
FOCC, CIB-IND and
Marine, Secretary and
General Counsel of
Trust and associate and
then partner in the law
firm of Breshear & Ginn.
J. Michael Straka(2), 60 Director, President and 1987 President, Chief
Chief Executive Officer of Executive Officer and a
the Company. Term as Director of FOCC,
director expires in 2000. Director of CIB, CIBM,
CIB-IND, Data and
MSI, Chairman and a
Director of CIBH and
Marine, President,
Chairman and a director
of HIL, and Chairman of
Trust.
Patrick J. Straka(2), 31 Vice President of the 1995 Vice President of CIB,
Company. CIB-IND, Data, MSI
CIBM, CIBH, Marine,
Data, MSI and Trust.
</TABLE>
64
<PAGE> 66
<TABLE>
<CAPTION>
Current Positions Serving
Name and Age With the Company Since Business Experience
- ------------ ----------------- ------- -------------------
<S> <C> <C> <C>
Donald M. Trilling, 67 Chairman and Director of 1987 Secretary/Treasurer of
the Company; Term as Illini Title Distributors
director expires in 2001. Inc.; President of Tiles
of Italy, Ltd.
Howard E. Zimmerman, 69 Director of the Company; 1987 Chairman of the Board
term expires in 1999. of Zimmerman Real
Estate Group.
</TABLE>
- -----------------------
1. Mr. Ruedi was named as a director of Phoenix Publishing, Inc., however he did
not actively serve on the Board of Directors of that entity. Mr. Ruedi resigned
his directorship in January of 1998. Phoenix Publishing, Inc. recently filed
bankruptcy.
2. Mr. J. Michael Straka, President, Chief Executive Officer and a director of
the Company, is the father of Donald J. Straka, a Senior Vice President,
Secretary and General Counsel of the Company, and Patrick J. Straka, a Vice
President of the Company.
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table summarizes information regarding compensation for the
last fiscal year paid to the Company's Chief Executive Officer for services
rendered to the Company and its subsidiaries. None of the Company's other
executive officers received in excess of $100,000 in total salary and bonus for
such services in the last fiscal year, and therefor no other executive officers
are listed.
65
<PAGE> 67
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Other
Name Annual All Other
and Compen- Compen-
Principal sation sation
Position Year Salary ($) Bonus($) ($) $
- -------- ---- ---------- ------- ------- ---------
<S> <C> <C> <C> <C>
J. Michael Straka 1997 $150,000 $ 8,060 -- $ 36,406(1)
President and
Chief Executive
Officer
</TABLE>
- -----------------
1. Components Of All Other Compensation for Fiscal Year 1997:
<TABLE>
<S> <C>
Director Fees $34,700
Group term life insurance - imputed compensation 465
Cash value of life insurance - imputed compensation 426
Additional term policy - imputed compensation 815
-------
Total Of All Other Compensation $36,406
=======
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No stock options or SARs were granted to Mr. J. Michael Straka during the
Company's last completed fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table summarizes information concerning each exercise of
stock options and freestanding SARs during the last completed fiscal year by Mr.
J. Michael Straka, and the fiscal year-end value of unexercised options and SARs
on an aggregated basis.
66
<PAGE> 68
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Fiscal Year End (#) Fiscal Year End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- ----------------- --------------- ------------------ ------------- -----------------------
<S> <C> <C> <C> <C>
J. Michael Straka 150 $ 152,518 185/263 $162,880/$124,413
</TABLE>
LONG-TERM INCENTIVE PLANS
No awards were made to Mr. J. Michael Straka under any long-term incentive
plans during fiscal year 1997. In fiscal year 1996 the Company adopted a
long-term incentive plan to provide incentive for Mr. J. Michael Straka to
continue his efforts to assure the growth and success of the Company and its
subsidiaries. This plan was amended by the Board of Directors of the Company in
January of 1998. In summary, this plan currently provides that Mr. Straka shall
receive a bonus of $250,000 on the fifth business day of the year 2000 if two of
three specified performance criteria have been attained in fiscal years 1998 and
1999. These performance criteria include: 1) the Company shall have achieved the
level of net income specified in the budget approved by the Company's Board of
Directors; 2) the Company's asset size shall reach or exceed certain threshold
amounts; and 3) the per share price of the Company's common stock, determined in
accordance with the formula specified by the Board of Directors, shall achieve
certain threshold levels. The plan further provides that in the event the
Company is sold prior to January 1, 2000 Mr. Straka shall be paid a portion of
the $250,000 bonus amount prorated based upon the point in time during this two
year period at which the sale occurs.
EMPLOYEE STOCK OPTION PLANS
The Company has instituted nine separate Employee Stock Option Plans. Each
plan has substantially similar provisions, and these provisions are summarized
below. This description does not purport to be complete and is qualified in its
entirety by reference to the text of each plan and the related exhibit
information filed with this Registration Statement.
The purpose of each plan was to provide additional incentive to induce the
key employees of the Company and its subsidiaries to continue their employment
and to strive to enhance the value of the Company. Each of these plans sets
aside shares of the Company's common stock with respect to which
67
<PAGE> 69
options may be granted to key employees of the Company and any of its
subsidiaries. Each plan is administered by a committee of at least three members
of the Board of Directors of the Company. Each plan provides discretion in the
members of the committee with regard to the operation of the plan, subject to
the general provisions of the plan and the direction of the entire Board. This
discretion includes the determination of which key employees shall receive
options, the price at which options are to be granted, the option period, the
number of options, the times for exercise and other limitations on exercise. The
first eight of these plans provide that the option price at which the grant is
made shall be at least 125% of the fair market value of the common stock of the
Company on the date of the grant. The ninth and latest plan provides that the
option price at which the grant is made shall be at least 100% of the fair
market value of the common stock of the Company. Each plan provides for a
vesting schedule for the options granted. Each plan also provides, or has been
modified to provide, that all of the options granted become fully vested and
immediately exercisable upon a change of control, such as a merger,
consolidation, liquidation, sale or transfer by the Company of substantially all
of its assets.
These plans are non-qualified incentive stock option plans. Any employee
receiving the grant of an option under any plan must execute an Employee Stock
Option Agreement and commit to remain in the employ of the Company or the
respective subsidiary for a period of at least twelve months after the option
grant to be eligible to exercise the option. Most of the options granted under
these plans had original terms of 5 years from the date of their grant; however,
all of the options have now been amended to provide for, or are currently being
granted with, terms of ten years. The options granted are also subject to other
restrictions and qualifications as provided in each plan.
The following table summarizes information regarding the specifics of each
of these plans:
Employee Stock Option Plans Summary
<TABLE>
<CAPTION>
Maximum # of
Shares Authorized # of Options Exercise
Effective Date For Issuance Granted to Date Price
- -------------- ------------------ --------------- ---------
<S> <C> <C> <C>
August 26, 1992 760(1) 760(1) $ 576.17(1)
June 30, 1993 925(1) 915(1) 742.98(1)
January 1, 1995 965(1) 965(1) 1,274.91(1)
April 24, 1996 1,023 1,023 1,630.51
April 30, 1997 134 134 1,978.10
August 18, 1997 49 49 2,048.25
August 20, 1997 46 46 2,048.25
September 24, 1997 46 46 2,059.64
February 25, 1998 2,500 1,930 1,960.56
</TABLE>
(1) Adjusted for a 5:1 stock split that was effected July 31, 1995.
EXECUTIVE OFFICER LIFE INSURANCE
The Company's group benefit plan provides for term life insurance for all
employees in an amount equal to at least that person's annual salary. The
executive officers identified herein are part of a group of officers entitled to
receive life insurance benefits under this plan in an amount equal to three
times their respective annual salaries.
COMPENSATION OF DIRECTORS
Effective for fiscal year 1998, the directors of the Company receive a
compensation package that consists of two elements. First, each director except
Mr. J. Michael Straka receives an annual retainer fee in the amount of $8,000.
Second, each director, including Mr. Straka, is paid a fee of $600 for each
directors meeting attended.
68
<PAGE> 70
DIRECTOR STOCK OPTION PLANS
The Company has instituted three separate Director Stock Option Plans. Each plan
has substantially similar provisions, and these provisions are summarized below.
This description does not purport to be complete and is qualified in its
entirety by reference to the text of each plan and the related exhibit
information filed with this Registration Statement.
The purpose of each plan was to provide additional incentive to induce
directors of the Company and its subsidiaries to remain as directors and to
strive to enhance the value of the Company. Each plan is to be administered by
a committee of the stockholders appointed by resolution of the stockholders
adopted at an annual or special meeting. This committee has the discretion to
determine the directors to whom options shall be granted, the price of each
option, the option period, the number of shares subject to each option, the
times for exercise and other limitations on exercise. This committee also has
authority to interpret and amend each plan and create and modify rules or
regulations relating to the plans. The first two of these plans provide that
the option price at which the grant is made shall be at least 125% of the fair
market value of the common stock of the Company reasonably determined as of the
date of the grant. The third and latest plan provides that the option price at
which the grant is made shall be at least 100% of the fair market value of the
common stock of the Company. Each plan provides for a vesting schedule for the
options granted. Each plan also provides, or has been modified to provide, that
all of the options granted become fully vested and immediately exercisable upon
a change of control, such as a merger, consolidation, liquidation, sale or
transfer by the Company of substantially all of its assets.
These plans are non-qualified incentive stock option plans. Any participant
receiving an option grant under the plans is required to enter into a written
agreement evidencing the terms of the option grant and requiring that the
individual remain in service as a director for a period of at least twelve
months after the date of the grant to be eligible to exercise the option. Most
of the options granted under these plans had original terms of 5 years from the
date of their grant; however, all of the options have now been amended to
provide for, or are currently being granted with, terms of ten years. The
options granted are also subject to other restrictions and qualifications as
provided in each plan.
The following table summarizes information regarding the specifics of each
of these plans:
Director Stock Option Plans Summary
<TABLE>
<CAPTION>
Maximum # of
Shares Authorized # of Options Exercise
Effective Date For Issuance Granted to Date Price
- -------------- ------------------ --------------- ---------
<S> <C> <C> <C>
January 1, 1995 180(1) 180(1) $1,274.91(1)
April 25, 1996 171 171 1,630.51
February 25, 1998 800 800 1,960.56
</TABLE>
(1) Adjusted for a 5:1 stock split that was effected July 31, 1995.
69
<PAGE> 71
DIRECTORS' DEFERRED COMPENSATION PLAN
In December of 1994 the Company adopted a plan allowing directors to treat
directors' fees as deferred compensation. At present, each of the Company's
banking subsidiaries has adopted similar plans. Under these plans, any director
may enter into a written deferred compensation agreement under which that
director's fees are retained by the Company in a segregated account. These fees
remain an asset of the Company or the respective bank subject to all the claims
of creditors until withdrawn by the director pursuant to the agreement. The
deferred fees accrue interest and a director has a right to cancel further
deferral at any time. The fees may be withdrawn, and are payable in equal
monthly installments over a period of 5 years at the time of normal retirement,
upon early retirement due to sickness or other disability, upon early retirement
with the consent of the Company or the respective bank, or upon the death of the
director either before or after retirement. In the event the director resigns,
the deferred fees are paid in full in a single lump sum payment. At present
three individuals have entered into deferred compensation agreements under these
plans. One of these individuals is a director of both the Company and MSI, and
has a deferred compensation agreement with each of those entities. Additionally,
one other director of the Company and one director of CIBH have entered into
deferred compensation agreements with those entities, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee for fiscal year 1997 was comprised of
the following six individuals: J. Michael Straka, W. Scott Blake, Jerry D.
Maahs, Howard E. Zimmerman, David Sinow and Norman Baker. All of these
individuals were directors of the Company in fiscal year 1997, however Mr.
Sinow is no longer a director of the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information is set out below regarding certain relationships and related
transactions between the Company and certain individuals over the last three
fiscal years.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
In August of 1991 CIB obtained authority from the State of Illinois to
operate a trust department and began providing trust services at that time. CIB
also entered an agreement at that time with Strategic Capital Management, Inc.
("SCM") for SCM to provide trust investment, asset management and related
investment management services with respect to the accounts of customers of the
Company's Illinois banks. In March of 1998 CIB assigned that agreement to
Marine Trust and Investment Company, a subsidiary of the Company, and SCM
assigned that agreement to its parent corporation Strategic Capital Trust
Company ("SCTC"). The Company understands that Mr. David Sinow, a former
director of the Company, an officer and director of SCM, and an officer,
director and stockholder of SCTC, has shared voting and investment authority
over 5,489 shares of the Company's common stock purchased by investors for whom
SCM provides investment management services. The amount paid by the Company and
any of its subsidiaries to SCM for these services in fiscal years 1995, 1996
and 1997 was $70,700, $95,000 and $72,500, respectively. The Company
anticipates the amount of fees that will be paid to SCTC for these services in
1998 will be approximately $70,000.
CERTAIN BUSINESS RELATIONSHIPS
The Company has business relationships with entities in which directors of
the Company have ownership interests. These business relationships are
summarized below. The Company believes each transaction described was on
commercially reasonable terms.
70
<PAGE> 72
Mr. Dean Katsaros, a director of the Company, is also the owner of Katsaros
& Associates, a sole proprietorship that provides both computer
software/hardware and tax consulting services. Katsaros & Associates has
provided computer software and hardware consulting services to the Company and
its subsidiaries in each of the past three fiscal years, and the Company expects
Katsaros & Associates will provide similar services in the current fiscal year.
The amount paid by the Company to Katsaros & Associates in fiscal years 1995,
1996 and 1997 for these services was $15,178, $12,978 and $14,563, respectively.
The Company anticipates the amount of business with Katsaros & Associates in
1998 will be approximately $15,000.
Mr. Katsaros is also an owner and officer of KSB Benefit Consultants, Inc.,
a corporation providing a benefit plan consulting and administration services.
KSB Benefit Consultants, Inc. has administered the Company's ESOP and 401(k)
Plans in each of the past three fiscal years, and will continue this
administration in the current fiscal year. The amount paid by the Company to KSB
Benefit Consultants, Inc. in fiscal years 1995, 1996 and 1997 for these services
was $6,480, $10,485 and $14,974, respectively. The Company anticipates the
amount of payments to KSB Benefit Consultants, Inc. in 1998 will be
approximately $20,000.
Mr. Katsaros is also an owner and partner of KB Consultants, a partnership
that sells computer equipment. The Company has purchased computer hardware from
KB Consultants in each of the past three fiscal years, and expects to continue
to do so in the current fiscal year. The amount paid by the Company to KB
Consultants in fiscal years 1995, 1996 and 1997 for such hardware was $194,897,
$299,541 and $212,000 respectively. The Company anticipates the amount of
business with KB Consultants in 1998 will be approximately $250,000.
Mr. J. Michael Straka is a director of the Company. Mr. Straka's wife,
Karen, operates a sole proprietorship known as Plank & Peg that sells antiques.
Plank and Peg has sold antiques to the Company and its subsidiaries in each of
the past three fiscal years, and the Company expects it may acquire additional
items from Plank & Peg in the current fiscal year. The amount paid by the
Company to Plank & Peg in fiscal years 1995, 1996 and 1997 for antiques was
$32,332, $85,500 and $88,000 respectively. The Company anticipates the amount of
business with Plank & Peg in 1998 will be approximately $100,000.
INDEBTEDNESS OF MANAGEMENT
All loans to the Company's directors and executive officers, any member of
their immediate family, or any corporation or organization of which any of them
is an executive officer or partner or is, directly or indirectly, the beneficial
owner of 10% or more of any class of equity securities were: 1) made in the
ordinary course of business; 2) made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons; and 3) did not involve more than the normal
risk of collectibility or present other unfavorable features.
71
<PAGE> 73
ITEM 8. LEGAL PROCEEDINGS
Apart from routine litigation incidental to operations of their businesses,
there are no material pending legal proceedings to which the Company or any of
its subsidiaries is a party or to which any of their property is subject.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There is no established public trading market for the Company's common
stock. Since the change of control of the Company in 1987, the Company has
raised capital through a number of private offerings of its common stock. The
Company sold 18,750 shares of its common stock at a price of $1,647.71 per share
and 16,320 shares at a price of $1,997.50 per share in its most recent
private offerings, made in October of 1997 and May of 1998, respectively. That
price was determined pursuant to a formula established by the Board of
Directors of the Company. Although the Company has used formulas to establish
the price at which its common stock has been sold in such stock offerings, the
Company is unable to determine a fair market value for its common stock in the
absence of an established public trading market.
The Company has not purchased any shares of its common stock during the
last two years. The Company's management is aware of approximately fifteen sales
of the Company's common stock by shareholders within the last two years. The
Company believes each transaction occurred at a price approximately equal to the
per share price for the stock that would have been set by the formula in use by
the Company at the time of the transfer; however the Company cannot verify the
accuracy of this price information.
As of June 23, 1998, 5,648 shares of the Company's common stock were
subject to outstanding options. None of the Company's common stock is subject to
warrants or securities convertible into such stock. None of the shares of the
Company's common stock could be sold pursuant to Rule 144 under the Securities
Act, and the Company has not agreed to register any of its common stock under
the Securities Act for sale by security holders. None of the Company's common
stock is being, or has publicly been proposed to be, publicly offered by the
Company.
HOLDERS
As of June 23, 1998, the Company's common stock was held of record by
approximately 854 stockholders.
DIVIDENDS
The Company has not declared or paid any cash dividends on its common stock
at any time since the change of control of the Company in 1987. The Company has
no immediate plans to begin paying cash dividends even though earnings may
indicate an ability to do so, as the Company plans to retain this cash and use
it to fund the Company's growth. Restrictions on dividends are discussed in
other sections
72
<PAGE> 74
of this Registration Statement. See, "Business - Supervision and Regulation,
Dividend Restrictions" and "Description of Registrant's Securities to be
Registered, Dividend Rights."
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years the Company has made four private placement
offerings of its common stock which were not registered under the Securities Act
of 1933 (the "Securities Act"). No underwriter was involved in any of these
offerings, which are described as follows:
In October of 1995 the Company made an offering of its common stock in
which 14,816 shares were sold at a price of $1,094.24 per share.
In November of 1996 the Company made an offering of its common stock in
which 13,040 shares were sold at a price of $1,354.06 per share.
In October of 1997 the Company made an offering of its common stock in
which 18,750 shares were sold at a price of $1,647.71 per share.
In May of 1998 the Company made an offering of its common stock in which
16,320 shares were sold at a price of $1,997.50 per share.
With respect to the above described transactions, the Company relied upon
the exemption from registration requirements provided by Section 4(2) of the
Securities Act and Rule 506 of Regulation D adopted under the Securities Act
relating to transactions not involving any public offering. The purchasers in
these offerings were either "accredited investors" as defined in Rule 501(a) of
Regulation D or, as to each offering, aggregated no more than 35 persons who
were not accredited investors but who satisfied the sophistication requirements
of Rule 506 of Regulation D.
During the last three fiscal years the Company has also sold shares to
directors and officers upon the exercise of previously granted stock options.
Each such sale occurred at a price set under the terms of the respective plan
pursuant to which the options were granted. Each price at which these options
have been exercised to date had been set at 125% of the formula price fixed by
the Company at the time of the issuance of the options. A total of 556 such
options have been exercised during the last three fiscal years at exercise
prices ranging from $576.17 to $1,274.91 per share. During the last three
fiscal years the Company has also made sales of qualifying shares of the
Company's common stock to directors of its banking subsidiaries at prices
determined in accordance with the formula for valuation in use by the Company.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The following summary description of the Company's $1 par value common
stock is qualified in its entirety by reference to the Company's Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws filed as
Exhibits to this Registration Statement.
The Company's Amended and Restated Articles of Incorporation authorize the
issuance of 50,000,000 shares of $1 par value common stock, 107,088 shares of
which were issued and outstanding at June 23, 1998. The Company's common
stock is not subject to conversion, sinking fund or redemption provisions. All
shares of the Company's outstanding common stock are, upon issuance, fully paid
and non-assessable.
DIVIDEND RIGHTS
Payment of dividends and other distributions to stockholders by the Company
are restricted by the provisions of the Illinois Business Corporation Act of
1983, as amended ("BCA"). Under the BCA, the Board of Directors of the Company
may authorize, and the Company may make, distributions to shareholders unless,
after giving effect to the distribution, either the Company would be insolvent
or the net assets of the Company would be less than zero or less than the
maximum amount payable at the time
73
<PAGE> 75
of distribution to stockholders having preferential rights in liquidation if the
Company were then to be liquidated. In addition to the restrictions on
distributions provided under the BCA, the Company, as a bank holding company, is
also subject to certain regulatory restrictions on dividends. See, "Business -
Supervision and Regulation, Dividend Restrictions."
VOTING RIGHTS
The Company's Amended and Restated Articles of Incorporation eliminate
cumulative voting rights in all circumstances. As a result, each shareholder is
entitled to one vote on all matters properly brought to a vote of the
shareholders, including the election of directors. The Company's Amended and
Restated Articles of Incorporation also supersede any provisions of the BCA that
require for approval of corporate actions a vote of two-thirds of the
shareholders, and specify instead that only the vote of the holders of the
majority of the outstanding shares of the Company's common stock shall be
required on any matter.
CLASSIFIED BOARD
The Company's Amended and Restated Bylaws provide for the 10 members of the
Company's Board of Directors to be elected for, and to serve, staggered terms of
three years each. Three members of the Board of Directors are elected in each of
two consecutive years, and four directors are elected in the third consecutive
year.
LIQUIDATION RIGHTS
Upon any liquidation, dissolution, or winding up of the affairs of the
Company, the holders of the Company's common stock are entitled to share ratably
in the assets legally available for distribution to the Company's common
shareholders.
PREEMPTION RIGHTS
The holders of the Company's common stock have no preemptive rights, and
the authorized but unissued shares of the Company's common stock may be issued
upon authorization of the Board of Directors without prior shareholder approval.
If additional shares of the Company's common stock are issued, shareholders are
not entitled to subscribe for such additional shares in proportion to the number
of shares owned by them prior to such issuance.
VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS
Upon the effectiveness of the registration of the Company's common stock
hereunder, the provisions of Section 7.85 of the BCA shall apply. The intent and
effect of Section 7.85 is to require, in addition to any other vote required by
law or in the Articles of Incorporation, the affirmative vote of holders of at
least 80% of the combined voting power of the then outstanding shares of all
classes and series of the stock of the Company entitled to vote in the election
of directors (the "Voting Shares"), voting together as a single class, and the
affirmative vote of a majority of the combined voting power of the then
outstanding Voting Shares held by "Disinterested Shareholders", as defined
therein. Section
74
<PAGE> 76
7.85 essentially requires a super-majority overall vote together with a majority
vote of Disinterested Shareholders to approve any of the specific transactions
described as "Business Combinations" therein in order to help assure that any
such Business Combination is fundamentally fair. Section 7.85 contains
exceptions from these enhanced voting requirements if the Business Combination
is approved by two-thirds of the "Disinterested Directors", as defined therein,
or if certain price and procedural requirements are met with regard to the
proposed Business Combination.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following information on indemnification of directors and officers is
intended as a summary only and is qualified in its entirety by the full text of
each document referenced below.
The Company's Amended and Restated Articles of Incorporation provide that
directors of the Company shall not be personally liable for any damages for
breach of fiduciary duty as a director except in circumstances involving: a
breach of a director's duty of loyalty to the Company; acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of the
law; transactions in which the director derives an improper personal benefit;
and in certain other circumstances when liability is imposed under the BCA.
Reference is made to Article Seven of the Amended and Restated Articles of
Incorporation filed as Exhibit 3.1 hereto.
The Company's Amended and Restated Bylaws provide that the Company shall
indemnify its officers, directors, employees and agents against claims or
actions and related expenses, including attorney's fees, judgements and fines
arising as a result of that person's prior or current services in that capacity
for the Company, or as a result of serving at the request of the Company in a
similar capacity for another organization, if the individual acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the Company, and as to a criminal action, if the individual had no
reasonable cause to believe his conduct was unlawful. This indemnification is
available both with respect to actions by third parties and derivative actions
brought on behalf of the Company. Reference is made to Article VII of the
Amended and Restated Bylaws filed as Exhibit 3.2 hereto.
The Company also maintains insurance coverage for the benefit of its
directors and officers. This insurance would provide coverage for many types of
claims, including some claims for which indemnification is available as
described above.
75
<PAGE> 77
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
CENTRAL ILLINOIS BANCORP., INC.
Sidney, Illinois
We have audited the accompanying consolidated statements of financial
condition of CENTRAL ILLINOIS BANCORP., INC. and Subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CENTRAL
ILLINOIS BANCORP., INC. and Subsidiaries, as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ STRIEGEL KNOBLOCH & COMPANY LLC
Bloomington, Illinois
February 23, 1998
76
<PAGE> 78
CENTRAL ILLINOIS BANCORP., INC.
Consolidated Statements of Financial Condition
December 31, 1997 and 1996
(dollars in thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash and due from banks (Note 2) $ 9,774 $ 16,437
Securities available for sale at fair value (Note 3) 54,319 29,004
Securities to be held to maturity (approximate fair value
of $107,282 and $82,988, respectively) (Note 3) 106,589 83,163
Loans - net of allowance for loan losses of $6,692
and $4,058, respectively (Note 4) 609,536 403,293
Premises and equipment - net (Note 5) 12,607 9,478
Other assets (Note 9) 14,498 9,203
-------- --------
Total Assets $807,323 $550,578
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 54,474 $ 40,671
NOW accounts 31,875 21,369
Savings 64,812 48,043
Time (Note 24) 531,669 357,406
------- -------
Total Deposits 682,830 467,489
Federal funds purchased and repurchase
agreements (Note 18) 12,886 13,958
Other borrowings (Note 23) 5,434 7,603
Accrued interest and other liabilities (Notes 10 and 16) 5,441 3,296
------- -------
Total Liabilities 706,591 492,346
------- -------
Commitments and contingent liabilities (Notes 8 and 17) - -
Stockholders' Equity:
Common stock, par value $1; 100,000 shares
authorized; 90,735 and 67,399 issued
and outstanding, respectively 91 67
Capital surplus 86,241 49,332
Retained earnings (Note 11) 14,179 8,904
Net unrealized gains (losses) on securities
available for sale - net (Note 3) 221 (71)
------- -------
Total Stockholders' Equity 100,732 58,232
------- -------
Total Liabilities and Stockholders' Equity $807,323 $550,578
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
77
<PAGE> 79
CENTRAL ILLINOIS BANCORP., INC.
Consolidated Statements of Income
For the Years ended December 31, 1997, 1996 and 1995
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 48,769 $ 32,405 $ 19,637
Interest and dividends on securities:
Taxable 7,519 4,589 3,338
Tax-exempt 908 452 292
Dividends 173 152 53
Interest on federal funds sold 573 259 392
Other interest income 7 - -
--------- --------- ---------
Total interest income 57,949 37,857 23,712
--------- --------- ---------
Interest Expense:
Deposits 29,746 18,384 11,589
Federal funds purchased and
repurchase agreements 180 209 162
Other borrowed funds 535 379 145
--------- --------- ---------
Total interest expense 30,461 18,972 11,896
--------- --------- ---------
Net interest income 27,488 18,885 11,816
Provision for loan losses (Note 4) 3,992 2,044 977
--------- --------- ---------
Net interest income after
provision for loan losses 23,496 16,841 10,839
--------- --------- ---------
Other Income:
Trust Department 248 269 227
Service fees 1,220 874 776
Securities gains (losses) (Note 3) 136 183 320
Other 90 266 354
--------- --------- ---------
Total other income 1,694 1,592 1,677
--------- --------- ---------
Other Expense:
Salaries and employee benefits
(Notes 7 and 14) 10,193 7,529 5,151
Occupancy expenses, net 2,943 2,054 1,301
Other operating expenses 4,242 3,376 2,479
--------- --------- ---------
Total other expense 17,378 12,959 8,931
--------- --------- ---------
Income before income taxes 7,812 5,474 3,585
Income tax expense (Note 6) 2,537 1,901 1,261
--------- --------- ---------
Net income $ 5,275 $ 3,573 $ 2,324
========= ========= =========
Earnings per share - basic (Note 27) $ 71.62 $ 60.91 $ 50.56
Earnings per share - diluted (Note 27) $ 71.08 $ 60.35 $ 50.04
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
78
<PAGE> 80
CENTRAL ILLINOIS BANCORP., INC.
Consolidated Statements of Changes in Stockholders' Equity
For the Years ended December 31, 1997, 1996 and 1995
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Net Unrealized
Gains (Losses)
on Securities
Capital Retained Available
Shares Par Value Surplus Earnings For Sale - Net Total
---------- ------------ --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994 8,676 $ 8 $ 20,817 $ 3,007 $ (89) $ 23,743
Net income - - - 2,324 - 2,324
Capital issuance 14,836 15 16,273 - - 16,288
Common stock split, five
for one, effective
July 31, 1995 34,800 35 (35) - - -
Exercise of stock options,
net of tax 80 - 108 - - 108
Change in unrealized
gains (losses), net of
income taxes of $117 - - - - 213 213
-------- -------- -------- -------- -------- ---------
Balance, December 31,
1995 58,392 58 37,163 5,331 124 42,676
Net income - - - 3,573 - 3,573
Capital issuance 9,007 9 12,169 - - 12,178
Change in unrealized
gains (losses), net
of income taxes of
($107) - - - - (195) (195)
-------- -------- -------- -------- -------- ---------
Balance, December 31,
1996 67,399 67 49,332 8,904 (71) 58,232
Net income - - - 5,275 - 5,275
Capital issuance 22,813 23 36,379 - - 36,402
Exercise of stock options,
net of tax 523 1 530 - - 531
Change in unrealized
gains (losses), net
of income taxes
of $170 - - - - 292 292
------- -------- -------- -------- -------- ---------
Balance, December 31,
1997 90,735 $ 91 $ 86,241 $ 14,179 $ 221 $ 100,732
======= ======== ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
79
<PAGE> 81
CENTRAL ILLINOIS BANCORP., INC.
Consolidated Statements of Cash Flows
For the Years ended December 31, 1997, 1996 and 1995
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities (Note 12):
Interest received $ 55,976 $ 36,486 $ 22,535
Other income 1,509 1,025 1,001
Interest paid (29,598) (18,152) (11,159)
Cash paid to suppliers and employees (15,331) (11,704) (8,070)
Income taxes refunded (paid) (3,315) (2,602) (1,501)
----------------- ----------------- -----------------
Net cash provided (used) by
operating activities 9,241 5,053 2,806
----------------- ----------------- -----------------
Cash flows from investing activities:
Sales of securities available for sale 12,033 12,935 18,032
Maturities of securities:
Available for sale 13,479 6,591 5,173
To be held to maturity 21,925 14,926 8,255
Purchase of securities available for sale (39,405) (21,481) (33,993)
Purchase of securities to be held to maturity (45,447) (53,224) (20,424)
Net (increase) decrease in loans (188,498) (147,879) (103,091)
Net (increase) decrease in Federal
funds sold - (1,855) 9,040
Proceeds from notes receivable - - 248
Purchase of other investments - (14) -
Net proceeds from sale of OREO property - 74 191
Proceeds from sale of fixed assets 7 6 17
Capital expenditures (3,799) (3,747) (2,305)
Purchase of minority interest stock - - (1)
Purchase of subsidiary stock (9,628) - (65)
Net cash acquired through acquisition 3,641 - 5
----------------- ----------------- -----------------
Net cash provided (used) by
investing activities (235,692) (193,668) (118,918)
----------------- ----------------- -----------------
Cash flows from financing activities:
Net increase (decrease) in:
Demand, NOW and savings accounts 30,647 30,496 5,434
Certificates of deposit 155,683 134,663 95,172
Proceeds from other borrowings 14,000 6,650 7,600
Repayments of other borrowings (16,169) (2,000) (5,377)
Proceeds from capital issuance 36,699 12,201 16,379
Payment to stock escrow - - 42
Net increase (decrease) in repurchase
agreements and Federal funds
purchased (1,072) 13,431 696
----------------- ----------------- -----------------
Net cash provided (used) by
financing activities 219,788 195,441 119,946
----------------- ----------------- -----------------
Net increase (decrease) in cash
and cash equivalents (6,663) 6,826 3,834
Cash and cash equivalents -
Beginning of year 16,437 9,611 5,777
----------------- ----------------- -----------------
Cash and cash equivalents -
End of year $ 9,774 $ 16,437 $ 9,611
================= =================== =================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
80
<PAGE> 82
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements
---------------------------
(dollars in thousands, except share amounts)
Note 1 - Summary of Significant Accounting Policies:
Nature of Operations
Central Illinois Bancorp., Inc. (Corporation) is a bank holding
company owning 100% of the common stock of the subsidiaries listed
below. The primary sources of revenue are providing loans to
customers who are small and middle-market businesses and
individuals and the investment in securities. Offices are located
in the Central Illinois, Chicago and the Milwaukee markets.
Although the Corporation has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their
contracts is dependent upon economic conditions in Illinois and
Wisconsin.
The accounting and reporting policies of the Corporation conform to
generally accepted accounting principles and prevailing practices
within the banking industry.
Consolidation
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiaries as follows:
Central Illinois Bank
Central Illinois Bank MC
CIB Bank
Marine Bank and Savings
CIB Data Processing Services, Inc.
Hillside Investors, Ltd.
First Ozaukee Capital Corporation
Mortgage Services of Illinois, Inc.
All significant intercompany balances and transactions have been
eliminated. The Corporation and its subsidiaries utilize the
accrual basis of accounting for major items.
Use of Estimates in the Preparation of Financial Statements
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. Estimates
used in the preparation of the financial statements are based on
various factors including the current interest rate environment and
the general strength of the local economy. Changes in the overall
interest rate environment can significantly affect the
Corporation's net interest income and the value of its recorded
assets and liabilities.
81
<PAGE> 83
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 1 - Summary of Significant Accounting Policies - Continued:
Goodwill and Other Identified Intangibles
Intangible assets are amortized using the straight-line method over
the estimated remaining benefit periods which approximate 15 years
for goodwill and 8 to 15 years for core deposit intangibles.
Premises and Equipment
Land is carried at cost. Premises and equipment are carried at
cost, less accumulated depreciation computed principally using the
straight-line method. For income tax purposes, equipment is being
depreciated using principally the Modified Accelerated Cost
Recovery System (MACRS) method and the building is being
depreciated using the straight-line method. Maintenance and repairs
are charged to expense as incurred, while renewals and betterments
are capitalized.
Other Real Estate Owned
Other real estate owned includes property acquired principally
through debt related foreclosures. These properties are carried at
the lower of cost or current appraisal. Losses from the acquisition
of property in full or partial satisfaction of debt are treated as
credit losses. Routine holding costs, subsequent declines in value,
and gains or losses on disposition are included in other expenses.
Trading Securities
Securities purchased for trading purposes are held in the trading
portfolio at market value, with market adjustments included in
non-interest income. During 1997, 1996 and 1995, the Corporation
did not have any trading securities in its portfolio.
Securities Held-to-Maturity
Bonds, notes and certain debt and equity securities for which the
Corporation has the positive intent and ability to hold to maturity
are reported at cost, adjusted for premiums and discounts that are
recognized in interest income using the interest method over the
period to maturity.
Securities Available-for-Sale
Available-for-sale securities consist of bonds, notes and certain
debt and equity securities not classified as held-to-maturity
securities or trading securities.
Unrealized holding gains and losses, net of tax, on
available-for-sale securities are reported as a net amount in a
separate component of shareholders' equity until realized.
Gains and losses on the sale of available-for-sale securities are
determined using the specific identification method.
82
<PAGE> 84
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 1 - Summary of Significant Accounting Policies - Continued:
Securities Available-for-Sale - Continued
Individual held-to-maturity and available-for-sale securities,
which have fair values that have declined more than temporarily
below their cost, are written down to their fair value. The related
write downs, if any, have been included in earnings as realized
losses.
Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Income Taxes
Deferred income taxes are provided on temporary differences between
financial statement and income tax reporting. Temporary differences
are differences between the amounts of assets and liabilities
reported for financial statement purposes and their tax bases.
Deferred tax assets are recognized for temporary differences that
will be deductible in future years' tax returns and for operating
loss and tax credit carryforwards. Deferred tax assets are reduced
by a valuation allowance if it is deemed more likely than not that
some or all of the deferred tax assets will not be realized.
Deferred tax liabilities are recognized for temporary differences
that will be taxable in future years' tax returns.
Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for
income taxes.
Loans and Allowance for Credit Losses
Loans are stated at the amount of unpaid principal, reduced by an
allowance for credit losses. Interest on loans is calculated by
using the simple interest method on daily balances of the principal
amount outstanding. The accrual of interest on impaired loans is
discontinued on a loan when, in management's opinion, the borrower
may be unable to meet payments as they become due. Interest income
is subsequently recognized only to the extent cash payments are
received.
The allowance for credit losses is maintained at a level considered
adequate to provide for estimated future credit losses. Credit
losses arise principally from loans, but may also result from
commitments to extend credits and standby letters of credit. The
allowance is increased by provisions charged to operating expenses
and reduced by net charge-offs. Management makes regular
assessments of the bank's loans to determine the level of the
allowance. Current economic conditions, historical loan loss
experience, delinquencies, nonaccruals, and other factors are
considered in determining the adequacy of the allowance.
83
<PAGE> 85
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 1 - Summary of Significant Accounting Policies - Continued:
Loans and Allowance for Credit Losses - Continued
While management believes it has established the allowance for
credit losses in accordance with generally accepted accounting
principles and has taken into account views of its regulators and
the current economic environment, there can be no assurance that in
the future the Corporation's regulators or its economic environment
will not require further increases in the allowance.
Effective January 1, 1995, the Corporation adopted Statement of
Financial Accounting Standards Nos. 114 and 118 in connection with
impaired loans. A loan is treated as impaired when based upon
current information and events it is probable that the Corporation
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Impairment is recognized
by creating a valuation allowance with a charge to bad debt
expense for the difference between its carrying value and its fair
value. Changes in the net carrying amount of the loan from one
reporting period to the next are accounted for as an adjustment to
bad debt expense. There was no significant impact on the
Corporation's financial statements due to the adoption of the new
accounting rule.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the
related loan.
Trust Assets
Assets held by the Corporation's subsidiaries in fiduciary or
agency capacity for customers, other than trust cash and deposits
at the banks, are not included in the consolidated financial
statements, as such items are not assets of the Corporation or its
subsidiaries.
Cash Flows
For purposes of presentation in the statements of cash flows, cash
and cash equivalents are defined as those amounts included in the
statement of financial condition caption "Cash and Due from Banks".
Off Statement of Financial Condition Financial Instruments
In the ordinary course of business, the Corporation has entered
into off statement of financial condition financial instruments
consisting of commitments to extend credit, commitments under
credit card arrangements and standby letters of credit. Such
financial instruments are recorded in the financial statements when
they are funded.
Stock-Based Compensation
The Corporation applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25) and related interpretation in
accounting for its stock-based compensation plans. In 1995, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (FAS 123) which is effective for fiscal years
beginning after December 15, 1995. Under FAS 123, companies may
elect to recognize stock-based compensation expense based on the
fair value of the awards or continue to account for stock-based
compensation under APB No. 25. The Corporation has elected to
continue to apply the provisions of APB No. 25.
84
<PAGE> 86
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 1 - Summary of Significant Accounting Policies - Continued:
Common Stock
The Corporation follows the practice of recording amounts received
upon the exercise of options by crediting common stock and
additional capital surplus. No charges are reflected in the
consolidated statements of income as a result of the grant or
exercise of stock options. The Corporation realizes an income tax
benefit from the exercise of certain stock options. This benefit
results in a decrease in current income taxes payable and an
increase in capital surplus.
Reporting Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (FAS 130), was issued in June, 1997, by the
Financial Accounting Standards Board. The standard establishes
reporting of comprehensive income for general purpose financial
statements. Comprehensive income is defined as the change in equity
of a business enterprise during a period and all other events and
circumstances from nonowner sources. The Standard is effective for
financial statement periods beginning after December 15, 1997. The
Corporation does not believe the adoption of the Standard will have
a material impact on the consolidated financial statements.
Disclosures About Segments of an Enterprise and Related Information
Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (FAS 131),
was issued in June, 1997, by the Financial Accounting Standards
Board. The standard requires the Corporation to disclose the
factors used to identify reportable segments including the basis of
organization, differences in products and services, geographic
areas, and regulatory environments. FAS 131 additionally requires
financial results to be reported in the financial statements for
each reportable segment. The Standard is effective for financial
statement periods beginning after December 15, 1997. The
Corporation does not believe the adoption of the Standard will have
a material impact on the consolidated financial statements.
Investment in Subsidiaries (Parent Company Only)
The Corporation's investment in subsidiaries represents the total
equity of the Parent Corporation's wholly-owned subsidiaries, using
the equity method of accounting.
Earnings Per Common Share
Effective December 31, 1997, the Corporation adopted Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (FAS
128) which establishes standards for the computation, presentation,
and disclosure requirements for earnings per common share. Basic
earnings per common share is computed on the basis of the weighted
average number of shares outstanding during the period. Diluted
earnings per common share is computed on the basis of the weighted
average number of common shares adjusted for the dilutive effect of
outstanding stock options or other common stock equivalents. The
assumed exercise of various stock options granted (see Note 19) had
a dilutive effect (see Note 28).
85
<PAGE> 87
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 1 - Summary of Significant Accounting Policies - Continued:
Reclassifications
Certain reclassifications have been made to the balances as of and
for the years ended December 31, 1996 and 1995, to be consistent
with classifications adopted for 1997.
Note 2 - Cash and Due from Banks:
The Corporation is required to maintain average reserve balances with the
Federal Reserve Bank. The average required reserve amounted to $2,101 and
$1,382 at December 31, 1997 and 1996, respectively.
Note 3 - Investment Securities:
Debt and equity securities have been classified in the statement of
financial condition according to management's intent. The carrying amount
of securities and their approximate fair values at December 31, were as
follows:
Securities Available for Sale:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1997 Cost Gains Losses Value
- ---- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
Government agencies
and corporations $ 44,140 $ 164 $ 33 $ 44,271
Obligations of states and
political subdivisions 1,618 261 -- 1,879
Other notes and bonds 649 8 -- 657
Mortgaged back securities 4,981 5 48 4,938
FHLB stock 2,574 -- -- 2,574
------------ ------------ ------------ ------------
$ 53,962 $ 438 $ 81 $ 54,319
============ ============ ============ ============
1996
- ----
U.S. Treasury securities and
obligations of U.S.
Government agencies
and corporations $ 22,580 $ 5 $ 126 $ 22,459
Obligations of states and
political subdivisions -- -- -- --
Other notes and bonds 463 10 -- 473
Mortgage backed securities 3,175 13 8 3,180
FHLB stock 2,892 -- -- 2,892
------------ ------------ ------------ ------------
$ 29,110 $ 28 $ 134 $ 29,004
============ ============ ============ ============
</TABLE>
86
<PAGE> 88
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 3 - Investment Securities - Continued:
Securities to be Held to Maturity:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1997 Cost Gains Losses Value
- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
Government agencies
and corporations $ 72,696 $ 325 $ 58 $ 72,963
Obligations of states and
political subdivisions 18,587 373 14 18,946
Other notes and bonds 450 -- -- 450
Mortgaged back securities 14,856 83 16 14,923
------------ ------------ ------------ ------------
$ 106,589 $ 781 $ 88 $ 107,282
============ ============ ============ ============
1996
- ----
U.S. Treasury securities and
obligations of U.S.
Government agencies
and corporations $ 49,963 $ 113 $ 208 $ 49,868
Obligations of states and
political subdivisions 13,751 69 77 13,743
Other notes and bonds 1,352 -- 3 1,349
Mortgage backed securities 18,097 22 91 18,028
------------ ------------ ------------ ------------
$ 83,163 $ 204 $ 379 $ 82,988
============ ============ ============ ============
</TABLE>
Assets, principally securities, carried at approximately $48,393 and
$40,215 at December 31, 1997 and 1996, respectively, were pledged to
secure public deposits and for other purposes as required or permitted by
law. Approximate fair values of these securities were $48,553 and
$40,088, at December 31, 1997 and 1996, respectively.
The Federal Home Loan Bank (FHLB) stock is a restricted investment
carried at cost. Institutions that are members of the FHLB system are
required to maintain a minimum investment in FHLB stock. The stock can
only be sold back at its par value and only to the FHLB, the Federal
Reserve Bank or other member banks.
87
<PAGE> 89
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 3 - Investment Securities - Continued:
The amortized cost and fair value of the securities as of December 31,
1997, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities in mortgage-back securities, because
certain mortgages may be called or prepaid without penalties. Therefore,
these securities are not included in the maturity categories in the
following maturity schedules:
<TABLE>
<CAPTION>
Securities
To Be Held to Maturity Securities Available for Sale
--------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Due in one year or less $ 13,514 $ 13,526 $ 6,232 $ 6,230
Due after one year through
five years 65,890 66,852 38,529 38,672
Due after five years through
ten years 8,881 9,080 1,604 1,862
Due after ten years 3,448 3,531 2,616 2,617
------------ ------------ ------------ ------------
91,733 92,989 48,981 49,381
Mortgaged backed securities 14,856 14,293 4,981 4,938
------------ ------------ ------------ ------------
$ 106,589 $ 107,282 $ 53,962 $ 54,319
============ ============ ============ ============
</TABLE>
Proceeds from the sale of securities available for sale during 1997, 1996
and 1995, were $12,003, $12,935 and $18,032, respectively.
Gross realized gains and gross realized losses on sales of securities
available for sale were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gross realized gains:
U.S. Treasury securities and
obligations of U.S. Government
agencies and corporations $ 119 $ 117 $ 338
Obligations of states and political
subdivisions -- -- --
Mortgage backed securities 17 -- --
Other -- 67 --
------------ ------------ ------------
$ 136 $ 184 $ 338
============ ============ ============
Gross realized losses:
U.S. Treasury securities and
obligations of U.S. Government
agencies and corporations $ -- $ -- $ 18
Obligations of states and political
subdivisions -- -- --
Mortgage backed securities -- -- --
Other -- 1 --
------------ ------------ ------------
$ -- $ 1 $ 18
============ ============ ============
</TABLE>
88
<PAGE> 90
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 3 - Investment Securities - Continued:
During December, 1995, the Corporation transferred fifteen investment
securities from the held to maturity category to the available for sale
category. The Corporation took advantage of the opportunity provided in
the Financial Accounting Services Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities," issued in November, 1995. The amortized cost
and related unrealized gain for these securities were $11,769 and $177,
respectively.
Note 4 - Loans:
The components of loans in the statements of financial condition were as
follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Commercial $ 376,567 $ 226,543
Commercial and residential real estate 215,615 162,177
Installment 21,939 18,095
Overdrafts 2,107 536
-------------- --------------
616,228 407,351
Deduct: Allowance for loan losses (6,692) (4,058)
-------------- --------------
Loans, net $ 609,536 $ 403,293
============== ==============
</TABLE>
The total recorded investment in impaired loans was $2,858 and $2,218 at
December 31, 1997 and 1996, respectively. The allowance for loan losses
related to these impaired loans was $68 and $603 at December 31, 1997 and
1996, respectively.
Changes in the allowance for loan losses are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance at January 1, $ 4,058 $ 2,458 $ 1,539
------------ ------------ ------------
Acquired through purchase 147 -- --
------------ ------------ ------------
Credits charged-off (1,837) (465) (75)
Recoveries 332 21 17
------------ ------------ ------------
Net (credits charged-off) recoveries (1,505) (444) (58)
------------ ------------ ------------
Provision for credit losses 3,992 2,044 977
------------ ------------ ------------
Balance at December 31, $ 6,692 $ 4,058 $ 2,458
============ ============ ============
</TABLE>
89
<PAGE> 91
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 5 - Premises and Equipment:
The major classes of premises and equipment and accumulated depreciation
at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Land $ 2,625 $ 1,679
Building and improvements 7,412 5,754
Furniture and fixtures 6,999 4,987
Construction in progress 27 --
------------ ------------
17,063 12,420
Less: Accumulated depreciation 4,456 2,942
------------ ------------
$ 12,607 $ 9,478
============ ============
</TABLE>
Depreciation expense totaled $1,142 and $808 and $556 for 1997, 1996 and
1995, respectively.
The Corporation leases certain premises and equipment under
noncancellable operating leases which expire at various dates. Such
noncancellable operating leases also include options to renew. Following
is a schedule by years of future minimum rental commitments required
under operating leases that have initial or remaining noncancellable
lease terms in excess of one year as of December 31, 1997:
<TABLE>
<CAPTION>
Year Ending December 31
-----------------------
<S> <C>
1998 $ 317
1999 285
2000 239
2001 209
2002 160
</TABLE>
The total rental expense was $386, $237 and $128, for 1997, 1996 and
1995, respectively.
Note 6 - Income Taxes:
The Corporation and its subsidiaries file consolidated income tax returns
and income tax expense is apportioned among all subsidiaries based on
their taxable income or loss and tax credits, if any.
The provision for income taxes in the consolidated statements of income
consisted of the following for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Current tax provision:
Federal $ 3,295 $ 2,213 $ 1,471
State 371 267 169
Deferred (1,129) (579) (378)
------------ ------------ ------------
$ 2,537 $ 1,901 $ 1,261
============ ============ ============
</TABLE>
90
<PAGE> 92
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 6 - Income Taxes - Continued:
A reconciliation of the income tax provision (credit) and income taxes
which would have been provided at the federal statutory rate of 34% is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
Amount % Amount % Amount %
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate $ 2,656 34.0 $ 1,861 34.0 $ 1,219 34.0
Increase (reduction)
in tax rate resulting
from:
State income
taxes, net of
Federal
income tax
benefit 245 3.1 176 3.2 112 3.1
Tax exempt
interest (406) (5.2) (173) (3.2) (95) (2.6)
Other, net 42 .6 37 .7 25 .7
---------- ---------- ---------- ---------- ---------- ----------
$ 2,537 32.5 $ 1,901 34.7 $ 1,261 35.2
========== ========== ========== ========== ========== ==========
</TABLE>
The net deferred tax asset in the accompanying statements of financial
condition consisted of the following components:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net unrealized depreciation on securities
available for sale $ -- $ 35
Net operating losses 440 233
Less valuation allowance (186) (139)
Provision for credit losses 2,430 1,407
Other 212 --
---------- ----------
2,896 1,536
---------- ----------
Deferred tax liabilities:
Net unrealized appreciation in securities
available for sale 135 --
Depreciation 347 311
Investments 121 45
Other -- 9
---------- ----------
603 365
---------- ----------
Net deferred tax asset $ 2,293 $ 1,171
========== ==========
</TABLE>
91
<PAGE> 93
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 6 - Income Taxes - Continued:
The net change in the valuation allowance for deferred tax assets was an
increase of $47 in 1997 and an increase of $8 in 1996. These changes
relate to the net operating loss carryforwards.
At December 31, 1997, the corporation had the following net operating
loss carryforwards:
<TABLE>
<CAPTION>
Expiration Date Federal State
-------------- -------------- -------------
<S> <C> <C>
2001 $ -- $ 49
2002 -- 180
2003 -- 305
2004 -- 334
2005 10 320
2006 -- --
2007 -- 150
2008 -- --
2009 226 226
2010 34 34
2011 -- 101
2012 544 557
-------------- -------------
$ 814 $ 2,256
============== =============
</TABLE>
The Corporation recorded a deferred tax asset of $254, reflecting the
benefit of $3,070, in Federal and State net operating loss carryforwards,
which expire in varying amounts between 2001 and 2012 (see above).
Realization is dependent on generating sufficient taxable income prior to
the expiration of the loss carryforwards. Although realization is not
assured, management believes it is more likely than not that the portion
of the deferred tax asset booked (asset less valuation allowance) will be
realized. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
Interest income on loans and securities totaling $1,195, $510 and $281 as
of December 31, 1997, 1996 and 1995, respectively, is exempt from federal
income taxes; accordingly, the tax provisions are less than those
obtained by using the statutory Federal corporate income tax rates.
92
<PAGE> 94
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 7 - Employee Stock Ownership Plan:
The Corporation has an employee stock ownership plan (ESOP) for the
benefit of all employees meeting certain minimum age and length of
service requirements. At December 31, 1997, the plan held 1,470 shares of
stock allocated and voted by plan trustees. Contributions are
discretionary and are determined annually by the Board of Directors.
Contributions of $162, $75 and $78 were authorized for 1997, 1996 and
1995, respectively.
Note 8 - Financial Instruments With Off-Statement-of-Condition Risk:
The Corporation is party to financial instruments with
off-statement-of-condition risk in the normal course of business to meet
the financing needs of its customers. The Corporation has entered into
commitments to extend credit which involve, to varying degrees, elements
of credit and interest rate risk in excess of the amounts recognized in
the statements of financial condition. At December 31, 1997 and 1996,
these financial instruments consisted primarily of undisbursed lines of
credit and amounted to $171,075 and $108,471, respectively. The
Corporation uses the same credit policies in making commitments as it
does for on-statement-of-condition instruments.
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 a payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Corporation evaluates each customer's creditworthiness and determines the
amount of the collateral necessary based on management's credit
evaluation of the counterparty. Collateral held varies, but may include
accounts receivable, inventories, property and equipment, residential
real estate, and income-producing commercial properties.
The Corporation does not engage in the use of interest rate swaps,
futures, forwards or option contracts.
Note 9 - Other Assets:
The total of other assets in the statements of financial condition at
December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Interest earned, not collected $ 7,281 $ 4,872
Prepaid expenses 293 248
Miscellaneous receivables 702 347
Deferred income taxes 2,293 1,171
Other investments 28 28
Other real estate owned 281 114
Cash surrender value 284 271
Goodwill 2,350 1,013
Core deposit intangibles 986 1,139
-------------- --------------
$ 14,498 $ 9,203
============== ==============
</TABLE>
93
<PAGE> 95
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 10 - Accrued Interest and Other Liabilities:
The total of accrued interest and other liabilities in the statements of
financial condition at December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accrued interest $ 3,237 $ 2,216
Accrued income taxes 233 82
Other accrued liabilities 1,971 998
---------- ----------
$ 5,441 $ 3,296
========== ==========
</TABLE>
Note 11 - Regulatory Matters:
The Corporation and its subsidiary banks are subject to various regulatory
capital requirements administered by the federal banking agencies.
Pursuant to federal holding company and bank regulations, the Corporation
and each bank subsidiary is assigned to a capital category. The assigned
capital category is largely determined by the three ratios that are
calculated in accordance with specific instructions included in the
regulations: total risk adjusted capital, Tier I capital, and Tier 1
leverage ratios. The ratios are intended to measure capital relative to
asset and credit risk associated with those assets and credit risk
associated with those assets and off-balance sheet exposures of the
entity. To be categorized as well-capitalized, each entity must maintain
total risk adjusted capital, Tier 1 capital, and Tier 1 leverage ratios of
10.0%, 6.0% and 5.0%, respectively. However, the capital category assigned
to an entity can also be affected by qualitative judgments made by such
entity's primary regulatory agency about the risks inherent in that
entity's activities that are not reflected in the calculated ratios.
There are five capital categories defined in the regulations: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Classification of a
subsidiary bank in any of the undercapitalized categories can result in
certain mandatory and possible additional discretionary actions by
regulators that could have a material effect on a bank's operations. As of
December 31, 1997, the Corporation and each of its subsidiary banks were
categorized as well capitalized, except Central Illinois Bank, and met all
capital adequacy requirements to which each respective entity is subject.
As of December 31, 1997, Central Illinois Bank was categorized as
adequately capitalized. There are no conditions or events since December
31, 1997, that management believes have changed any entity's capital
category.
The actual and required capital amounts and ratios are presented in the
tables below:
94
<PAGE> 96
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
----------------------------
(dollars in thousands, except share amounts)
Note 11 - Regulatory Matters - Continued:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to
Risk Weighted
Assets) $103,862 15.50% $ 53,598 > 8.00% $ 66,998 > 10.00%
Tier 1 Capital (to
Risk Weighted
Assets) 97,171 14.50% 26,799 > 4.00% 40,199 > 6.00%
Tier 1 Leverage
(to Average
Assets) 97,171 12.36% 31,459 > 4.00% 39,924 > 5.00%
As of December 31, 1996:
Total Capital (to
Risk Weighted
Assets) $ 60,206 13.71% $ 35,128 > 8.00% $ 43,910 > 10.00%
Tier 1 Capital (to
Risk Weighted
Assets) 56,148 12.79% 17,564 > 4.00% 26,346 > 6.00%
Tier 1 Leverage
(to Average
Assets) 56,148 10.90% 20,613 > 4.00% 25,767 > 5.00%
</TABLE>
95
<PAGE> 97
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 12 - Statements of Cash Flows:
The reconciliations of net income to net cash provided by operating
activities at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 5,275 $ 3,573 $ 2,324
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,142 808 556
Provision for credit losses 3,992 2,044 977
Amortization and accretion:
Investment securities 206 247 234
Intangible assets 248 213 201
(Gain) loss on sales:
Investment securities (136) (183) (320)
Fixed assets 1 (5) (2)
OREO property -- (18) (29)
(Increase) decrease in other assets (4,035) (2,576) (2,182)
Increase (decrease) in other
liabilities 2,548 950 1,047
---------- ---------- ----------
Net cash provided by operating activities $ 9,241 $ 5,053 $ 2,806
========== ========== ==========
Supplemental disclosures of cash flow information:
Change in unrealized gain (loss) on
securities available for sale $ (462) $ 302 $ (330)
Change in deferred taxes attributable
to unrealized gain (loss) on securities 170 (107) 117
</TABLE>
Note 13 - Transactions with Directors and Officers:
Certain directors of the Corporation and subsidiary banks, companies with
which they are affiliated, and certain principal officers are customers
of, and have banking transactions with, the subsidiary banks in the
ordinary course of business. This indebtedness has been incurred on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unrelated
persons. The activity in these loans during 1997 is as follows:
<TABLE>
<S> <C>
Balance as of January 1, 1997 $ 14,864
New loans 25,562
Repayments (22,150)
----------------
Balance as of December 31, 1997 $ 18,276
================
</TABLE>
96
<PAGE> 98
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 14 - 401(k) - Deferred Compensation Plan:
The Corporation has established an elective 401(k) deferred compensation
plan. The Corporation, at the present time, does not match any percentage
of employee contributions.
Note 15 - Related Party Transactions:
The Corporation and its subsidiaries have various agreements between
themselves for building and equipment rent, professional services and fees
for data processing. All intercompany accounts and transactions related to
these agreements have been eliminated in the consolidated financial
statements.
Note 16 - Compensated Absences:
Eligible employees of the Corporation are entitled to paid vacation. At
December 31, 1997 and 1996, the value of accumulated vacation leave is
estimated to be $204 and $138, respectively, and has been accrued and is
included in other liabilities in the consolidated financial statements.
Eligible employees accumulate sick leave at a rate of one-half (1/2) day
per month of continuous employment. Sick leave in excess of ninety (90)
days is automatically forfeited by the employee. Upon termination, the
entire accumulation of sick leave is forfeited and therefore no accrual
has been provided in the consolidated financial statements.
Note 17 - Commitments and Contingencies:
In the ordinary course of business, the Corporation has various
outstanding commitments and contingent liabilities that are not reflected
in the accompanying consolidated financial statements. In addition, the
Corporation and its subsidiaries are parties to legal actions which arise
in the normal course of their business activities. In the opinion of
management, after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a materially adverse
effect on the consolidated financial condition of the Corporation.
Note 18 - Federal Funds Purchased and Repurchase Agreements:
The Corporation had the following short-term borrowings at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
Federal Federal
Funds Repurchase Funds Repurchase
Purchased Agreements Purchased Agreements
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ending balance $ 10,350 $ 2,536 $ 11,900 $ 2,058
Highest month-end balance 12,125 3,695 15,465 3,571
Average monthly balance 741 2,256 2,838 2,637
</TABLE>
97
<PAGE> 99
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 18 - Federal Funds Purchased and Repurchase Agreements - Continued:
Pledged investments in debt securities totaling approximately $4,022 and
$4,264, secured the repurchase agreements at December 31, 1997 and 1996,
respectively. The fair value of these pledged investments were
approximately $4,024 and $4,245 at December 31, 1997 and 1996,
respectively.
Federal funds purchased represent primarily overnight borrowings.
Note 19 - Stock-Based Compensation:
The Corporation has nine active stock option plans at December 31, 1997.
All plans provide for the options to be exercisable over a five year
period beginning one year from the date of the grant, provided the
participant has remained in the employ of the Corporation or its
subsidiaries. The plans also stipulate the option price per share may not
be less than 125% of the fair market value of the common stock on the date
the option is granted. The maximum number of options originally allowable
to be granted (adjusted for 5:1 stock split) under each plan were:
<TABLE>
<S> <C>
1993 Employee Stock Option Plan 925
1995 Employee Stock Option Plan 965
1995 Director Stock Option Plan 180
1996 Employee Stock Option Plan 1,023
1996 Director Stock Option Plan 171
1997 Employee Stock Option Plan 134
1997 Employee Stock Option Plan 49
1997 Employee Stock Option Plan 46
1997 Employee Stock Option Plan 46
</TABLE>
98
<PAGE> 100
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 19 - Stock-Based Compensation - Continued:
A summary of the status of these plans and changes during the years ending
on December 31st is presented below:
<TABLE>
<CAPTION>
1997
-------------------------
Weighted
Average
Exercise
Shares Price
----------- -------------
<S> <C> <C>
Fixed Options
-------------
Outstanding at beginning
of year 3,644 $ 1,152.19
Granted 275 2,015.97
Exercised 523 628.65
Forfeited 418 934.05
---------
Outstanding at end of year 2,978
=========
Options exercisable at year-end 1,058
=========
Weighted-average fair value
of options granted during year $ 142.49
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------
Weighted
Average
Exercise
Shares Price
----------- -------------
Fixed Options
- -------------
<S> <C> <C>
Outstanding at beginning
of year 2,540 $ 931.64
Granted 1,194 1,630.51
Exercised -- N/A
Forfeited 90 1,274.91
---------
Outstanding at end of year 3,644 1,152.16
=========
Options exercisable at year-end 1,157
=========
Weighted-average fair value
of options granted during year $ 120.59
</TABLE>
99
<PAGE> 101
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 19 - Stock-Based Compensation - Continued:
<TABLE>
<CAPTION>
1995
--------------------------
Weighted
Average
Exercise
Shares Price
----------- ------------
<S> <C> <C>
Fixed Options
Outstanding at beginning
of year 1,675 $ 667.29
Granted 1,145 1,274.91
Exercised 96 633.51
Forfeited 184 816.86
---------
Outstanding at end of year 2,540 931.64
---------
Options exercisable at year-end 703
=========
Weighted-average fair value
of options granted during year $ 156.94
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ----------------------
Weighted
Average
Remaining Weighted Weighted
Range of Number Contractual Average Number Average
Exercise Outstanding Life Exercise Exercisable Exercise
Prices at 12/31/97 (Years) Price at 12/31/97 Price
- ------------ ------------ -------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
$ 742.98 665 .50 $ 742.98 532 $ 742.98
1,274.91 950 2.01 1,274.91 308 1,274.91
1,630.51 1,088 3.32 1,630.51 218 1,630.51
1,978.10 134 4.33 1,978.10 -- 1,978.10
2,048.25 95 4.63 2,048.25 -- 2,048.25
2,059.64 46 4.73 2,059.64 -- 2,059.64
------------ ----------
2,978 1,058
============ ===========
</TABLE>
100
<PAGE> 102
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 19 - Stock-Based Compensation - Continued:
The Corporation applies APB Opinion 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized in the financial statements. Had compensation cost for these
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of FAS 123, the Corporation's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- ------------
<S> <C> <C> <C> <C>
Net income As Reported $ 5,275 $ 3,573 $ 2,324
Pro Forma 5,240 3,538 2,303
Basic Earnings Per
Common Share As Report 71.62 60.91 50.56
Pro Forma 71.14 60.31 50.10
Diluted Earnings Per
Common Share As Reported 71.08 60.35 50.04
Pro Forma 70.60 59.76 49.58
</TABLE>
Fair value has been estimated using the minimum value method as defined in
FAS 123. Key assumptions used were zero percent volatility, zero percent
dividend yield, expected lives of five years and risk-free interest rates
averaging 6.32 percent, 6.42 percent and 7.83 percent, respectively, for
1997, 1996 and 1995. Because the options vest over a five year period, the
pro forma disclosures are not necessarily representative of the effects on
reported net income for future years.
Note 20 - Stock Offerings:
During 1997, the Corporation issued 23,336 shares of common stock. The
$36,993 proceeds from the 23,336 shares were used for additional
investments in subsidiary banks, acquisitions and working capital.
During 1996, the Corporation issued 9,007 shares of common stock. The
$12,178 proceeds from the 9,007 shares were used for investments in
subsidiary banks, potential acquisitions and working capital.
Note 21 - Business Combinations:
On September 10, 1997, the Corporation acquired First Ozaukee Capital
Corporation and its wholly-owned subsidiary First Ozaukee Savings Bank, a
$36,000 savings bank located in Cedarburg, Wisconsin. This acquisition was
accounted for as a purchase, and results of operations since the
acquisition have been included in the consolidated financial statements.
The excess of the acquisition cost over the fair value of net assets
acquired in the amount of $1,364 will be amortized over 8 to 15 years using
the straight-line method.
101
<PAGE> 103
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 21 - Business Combinations - Continued:
The following unaudited pro forma summary presents the consolidated results
of operations of the corporation for 1997 and 1996, as if the acquisition
had occurred at the beginning of 1996. These pro forma results are not
necessarily indicative of those that would have occurred had the
acquisition taken place at the beginning of 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net interest income $ 28,379 $ 20,071
Net income 5,025 3,251
Earnings per common share - Basic 68.22 55.43
Earnings per common share - Diluted 67.70 54.92
</TABLE>
Note 22 - Disclosures about Fair Value of Financial Instruments:
The table below summarizes the information required by Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" (FAS 107).
<TABLE>
<CAPTION>
1997
-----------------------
Carrying Estimated
Amount Fair Value
---------- ----------
<S> <C> <C>
Financial Assets:
Cash and due from banks and federal funds sold $ 9,774 $ 9,774
Securities available for sale 54,319 54,319
Securities held to maturity 106,589 107,282
Loans receivable, net 609,536 621,394
Accrued interest receivable 7,281 7,281
Financial Liabilities:
Deposit liabilities 682,830 685,893
Short-term borrowings 18,320 18,320
Accrued interest payable 3,237 3,237
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------
Carrying Estimated
Amount Fair Value
---------- ----------
<S> <C> <C>
Financial Assets:
Cash and due from banks and federal funds sold $ 16,437 $ 16,437
Securities available for sale 29,004 29,004
Securities held to maturity 83,163 82,988
Loans receivable, net 403,293 409,818
Accrued interest receivable 4,872 4,872
Financial Liabilities:
Deposit liabilities 467,489 467,939
Short-term borrowings 21,561 21,561
Accrued interest payable 2,216 2,216
</TABLE>
102
<PAGE> 104
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 22 - Disclosures about Fair Value of Financial Instruments - Continued:
A summary of the Corporation's commitments and contingent liabilities at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Notional Amounts
-------------------
1997 1996
-------- --------
<S> <C> <C>
Financial instruments whose contract amount represents credit risk:
Commitments to extend credit $157,402 $ 96,564
Credit card arrangements 7,208 5,486
Standby letters of credits 6,465 6,421
</TABLE>
Fair value amounts represent estimates of value at a point in time.
Significant estimates regarding economic conditions, loss experience, risk
characteristics associated with particular financial instruments and other
factors were used for the purposes of this disclosure. These estimates are
subjective in nature and involve matters of judgment. Therefore, they
cannot be determined with precision. Changes in the assumptions could have
a material impact on the amounts estimated.
While these estimated fair value amounts are designed to represent
estimates of the amounts at which these instruments could be exchanged in
a current transaction between willing parties, it is the Corporation's
intent to hold most of its financial instruments to maturity. Therefore,
it is not probable that the fair values shown will be realized in a
current transaction.
The estimated fair values disclosed do not reflect the value of assets and
liabilities that are not considered financial instruments. In addition,
the value of long-term relationships with depositors (core deposit
intangibles) are not reflected. The value of this item is significant.
Because of the wide range of valuation techniques and the numerous
estimates which must be made, it may be difficult to make reasonable
comparisons of the Corporation's fair value to that of other financial
institutions. It is important that the many uncertainties discussed above
be considered when using the estimated fair value disclosures and to
realize that because of these uncertainties, the aggregate fair value
should in no way be construed as representative of the underlying value of
the Corporation.
The following describes the methodology and assumptions used to estimate
fair value of financial instruments required by FAS 107.
Cash and Short-Term Investments
Cash and short-term investments are by definition short-term and do
not present any unanticipated credit issues. Therefore, the carrying
amount is a reasonable estimate of fair value.
Available for Sale and Held to Maturity Securities
The estimated fair values of securities by type are provided in Note 3
to the consolidated financial statements. These are based on quoted
market prices, when available. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
103
<PAGE> 105
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 22 - Disclosures about Fair Value of Financial Instruments - Continued:
Loans Receivable
In order to determine the fair market value of loans, the loan
portfolio was segmented based on loan type, credit quality and
repricing characteristics. For variable rate loans with no significant
credit concerns and frequent repricings, estimated fair values are
based on current carrying values. The fair values of other loans are
estimated using discounted cash flow analysis. The discount rates used
in these analyses are generally based on the Corporation's funding
cost plus a spread. The spread incorporates the impact of credit
quality and servicing costs. Maturity estimates are based on
historical experience with prepayments and current economic and
lending conditions.
Fair values for impaired loans are estimated using discounted cash
flows analyses or underlying collateral values, where applicable.
Accrued Interest Receivable
The carrying amounts of accrued interest approximates their fair
values.
Deposit Liabilities
The fair value of deposits with no stated maturity is equal to the
amount payable on demand. The estimated fair value of fixed time
deposits are based on discounted cash flow analyses. The discount
rates used in these analyses are based on market rates of alternative
funding sources currently available for similar remaining maturities.
Short-Term Borrowings
The carrying amounts of borrowings under repurchase agreements
maturing within 90 days approximate their fair values. Fair values of
other short-term borrowings are estimated using discounted cash flow
analyses based on the Corporation's current incremental borrowing
rates for similar types of borrowing arrangements.
Accrued Interest Payable
The carrying amounts of accrued interest approximates their fair
values.
Off-Statement-Of-Condition Instrument
The contract amount of off-statement-of-condition items approximates
their fair value since the off-statement-of-condition items are
comprised primarily of unfunded loan commitments which are generally
priced at market at the time of funding.
104
<PAGE> 106
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 23 - Other Borrowings:
The following amounts payable to the Federal Home Loan Bank of Chicago are
included in the statement of financial condition at December 31:
<TABLE>
<CAPTION>
Loan Date Principal Interest Rate Maturity
--------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
1997:
1/15/97 $ 2,150 5.97% 1/15/98
12/30/97 3,000 6.01% 6/30/98
----------
$ 5,150
==========
1996:
7/15/96 $ 2,150 6.02% 1/15/97
7/26/96 2,500 5.95% 1/27/97
9/27/96 2,500 5.55% 1/03/97
----------
$ 7,150
==========
</TABLE>
The Corporation is required to maintain qualifying collateral as security
for the note. The debt to collateral ratio cannot exceed 60%. The
Corporation had eligible collateral of $33,315 and $17,826 at December 31,
1997 and 1996, respectively. The collateral consisted of investment
securities and 1-4 family residential mortgages not more than 90 days
delinquent.
The Corporation had a treasury, tax and loan note option with the Federal
Reserve Bank. The balance in the note option was $284 and $453 at December
31, 1997 and 1996, respectively.
The Corporation has a $10,000 revolving business note with Marshall &
Ilsley Bank. At December 31, 1997, $-0- was outstanding. The note matures
April 30, 1998, and bears interest at the lender's prime rate. During
1997, the highest month-end and average monthly balances were $9,300 and
$1,983, respectively.
Note 24 - Deposits:
The aggregate amount of short-term certificates of deposit of $100,000 or
more at December 31, 1997 and 1996, was $114,456 and $64,147,
respectively.
At December 31, 1997, the scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 465,848
1999 50,923
2000 13,246
2001 770
2002 882
----------
$ 531,669
==========
</TABLE>
105
<PAGE> 107
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 25 - Significant Group Concentrations of Credit Risk:
The majority of the Corporation's business activity is with customers
located within the States of Illinois and Wisconsin. The commercial loan
portfolio consists of business loans to a wide variety of industries. At
December 31, 1997, the Corporation's receivables from companies and
individuals in the real estate development and investment industry
constituted approximately 38% of the total loan portfolio. Generally,
loans are secured by assets of the borrower. The loans are expected to be
repaid from cash flow or proceeds from the sale of selected assets of the
borrower.
Note 26 - Stockholders' Equity:
The payment of dividends by banking subsidiaries is subject to regulatory
restrictions by various federal and/or state regulatory authorities. At
December 31, 1997, approximately $12,000 of the retained earnings of the
banking subsidiaries is available for the payment of dividends to the
Corporation without regulatory agency approval.
Note 27 - Earnings Per Share:
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share." (FAS 128). FAS 128 establishes the standards
for the computation, presentation, and disclosure requirements for
earnings per common share. Basic earnings per common share is computed on
the basis of the weighted average number of shares outstanding during the
period. Diluted earnings per common share is computed on the basis of the
weighted average number of common shares adjusted for the dilutive effect
of outstanding stock options or other common stock equivalents. Common
stock equivalents assume exercise of stock options and use of proceeds to
purchase treasury stock at the average market price for the period. All
earnings per common share amounts for all periods have been presented, and
where appropriate, restated to conform to the FAS 128 requirements.
The following provides a reconciliation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 5,275 $ 3,573 $ 2,324
========== ========== ==========
Weighted average shares outstanding:
Basic 73,658 58,660 45,968
========== ========== ==========
Diluted 74,222 59,201 46,446
========== ========== ==========
Earnings per common share - Basic $ 71.62 $ 60.91 $ 50.56
Effect of stock options (.54) (.56) (.52)
---------- ---------- ----------
Earnings per common share - Diluted $ 71.08 $ 60.35 $ 50.04
========== ========== ==========
</TABLE>
106
<PAGE> 108
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 28 - Parent Company Financial Statements:
The condensed financial statements of the Corporation, prepared on a
parent company unconsolidated basis, are presented as follows:
Condensed Statements of Financial Condition (Parent Only)
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 7,957 $ 5,975
Investment in subsidiaries 86,508 52,425
Loans 6,434 --
Premise and equipment 95 76
Other assets 514 276
---------- ----------
Total Assets $ 101,508 $ 58,752
========== ==========
Liabilities:
Other liabilities $ 776 $ 520
---------- ----------
Total Liabilities 776 520
---------- ----------
Stockholders' Equity:
Common stock 91 67
Capital surplus 86,241 49,332
Retained earnings 14,179 8,904
Net unrealized gains (losses) on securities
available for sale - net 221 (71)
---------- ----------
Total Stockholders' Equity 100,732 58,232
---------- ----------
Total Liabilities and Stockholders' Equity $ 101,508 $ 58,752
========== ==========
</TABLE>
107
<PAGE> 109
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 28 - Parent Company Financial Statements - Continued:
Condensed Statements of Income (Parent Only)
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ -- $ -- $ --
Interest and dividend income 323 13 --
Security gains (losses) -- 67 --
Management and other fees
from affiliates 1,461 967 594
Other income 21 21 20
---------- ---------- ----------
Total Income 1,805 1,068 614
---------- ---------- ----------
Expense:
Salaries and other benefits 1,766 1,223 830
Interest expense 190 13 7
Occupancy expenses - net 128 92 25
Other expense 460 359 277
---------- ---------- ----------
Total Expense 2,544 1,687 1,139
---------- ---------- ----------
Income (loss) before income taxes
and equity in undistributed
earnings of consolidated affiliates (739) (619) (525)
Income tax benefit 270 259 212
---------- ---------- ----------
Income before equity in undistributed
earnings of consolidated affiliates (469) (360) (313)
Equity in undistributed earnings of
consolidated affiliates 5,744 3,933 2,637
---------- ---------- ----------
Net income $ 5,275 $ 3,573 $ 2,324
========== ========== ==========
Net income per common
share - Basic $ 71.62 $ 60.91 $ 50.56
========== ========== ==========
Net income per common
share - Diluted $ 71.08 $ 60.35 $ 50.04
========== ========== ==========
</TABLE>
108
<PAGE> 110
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 28 - Parent Company Financial Statements - Continued:
Condensed Statements of Cash Flows (Parent Only)
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 5,275 $ 3,573 $ 2,324
Adjustments to reconcile net income
to net cash provided by operations:
Equity in undistributed earnings
of consolidated affiliates (5,744) (3,933) (2,637)
Depreciation and amortization 20 11 8
Security (gains) losses -- (67) --
Changes in assets and liabilities:
(Increase) decrease in other assets (184) 189 (85)
Increase (decrease) in other
liabilities 151 78 178
-------- -------- --------
Net cash provided by (used in)
operating activities (482) (149) (212)
-------- -------- --------
Cash flows provided by (used in) investing activities:
Sales of securities available for sale -- 1,342 --
Purchase of securities available
for sale -- (1,289) --
Sales of premise and equipment -- 298 --
Net (increase) decrease in loans (6,434) -- --
Purchase of premise and equipment (49) (24) (319)
Net increase in investment in
subsidiaries (28,048) (14,575) (9,418)
All other investing activities - net -- -- (180)
-------- -------- --------
Net cash provided by (used in)
investing activities $(34,531) $(14,248) $ (9,917)
-------- -------- --------
</TABLE>
109
<PAGE> 111
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements - Continued
---------------------------
(dollars in thousands, except share amounts)
Note 28 - Parent Company Financial Statements - Continued:
Condensed Statements of Cash Flows (Parent Only) - Continued
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows provided by (used in) financing activities:
Proceeds from other borrowings $ 13,500 $ 2,000 $ 5,100
Repayments of other borrowings (13,500) (2,000) (5,100)
Proceeds from capital issuance 36,699 12,201 16,379
All other financing activities - net 296 -- 42
-------- -------- --------
Net cash provided by (used in)
investing activities 36,995 12,201 16,421
-------- -------- --------
Increase (decrease) in cash and
cash equivalents 1,982 (2,196) 6,292
Cash and cash equivalents at January 1, 5,975 8,171 1,879
-------- -------- --------
Cash and cash equivalents at
December 31, $ 7,957 $ 5,975 $ 8,171
======== ======== ========
</TABLE>
110
<PAGE> 112
CENTRAL ILLINOIS BANCORP., INC.
Consolidated Statements of Financial Condition
March 31, 1998 and December 31, 1997
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
-------- -----------
<S> <C> <C>
Cash and due from banks $ 9,339 $ 9,774
Securities available for sale at fair value 66,043 54,319
Securities to be held to maturity (approximate fair value
of $114,367 and $107,282, respectively) 113,480 106,589
Federal funds sold 14,025 --
Loans - net of allowance for loan losses of $7,622
and $6,692, respectively 657,088 609,536
Premises and equipment - net 12,802 12,607
Other assets 15,188 14,498
-------- --------
Total Assets $887,965 $807,323
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 50,842 $ 54,474
NOW accounts 31,208 31,875
Savings 73,797 64,812
Time 591,392 531,669
-------- --------
Total Deposits 747,239 682,830
Federal funds purchased and repurchase agreements 3,917 12,886
Other borrowings 26,306 5,434
Accrued interest and other liabilities 7,561 5,441
-------- --------
Total Liabilities 785,023 706,591
-------- --------
Stockholders' Equity:
Common stock, par value $1; 100,000 shares
authorized; 90,768 and 90,735 issued
and outstanding, respectively 91 91
Capital surplus 86,291 86,241
Retained earnings 16,259 14,179
Accumulated other comprehensive income 301 221
-------- --------
Total Stockholders' Equity 102,942 100,732
-------- --------
Total Liabilities and Stockholders' Equity $887,965 $807,323
======== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
<PAGE> 113
CENTRAL ILLINOIS BANCORP., INC.
Consolidated Statements of Income and Comprehensive Income
For the Three Month Period Ended March 31, 1998 and 1997
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 15,178 $ 9,896
Interest and dividends on securities:
Taxable 2,320 1,665
Tax-exempt 281 175
Interest on Federal funds sold 301 118
Other interest income 2 --
-------- --------
Total interest income 18,082 11,854
-------- --------
Interest Expense:
Deposits 9,011 6,122
Federal funds purchased and repurchase agreements 71 51
Other borrowed funds 220 141
-------- --------
Total interest expense 9,302 6,314
-------- --------
Net interest income 8,780 5,540
Provision for loan losses 908 1,228
-------- --------
Net interest income after provision for loan losses 7,872 4,312
-------- --------
Other Income:
Trust department 32 52
Service fees 569 524
Securities gains (losses) -- --
Other 14 12
-------- --------
Total other income 615 588
-------- --------
Other Expenses:
Salaries and employee benefits 3,196 2,428
Occupancy expenses, net 815 629
Other operating expenses 1,352 829
-------- --------
Total other expenses 5,363 3,886
-------- --------
Income before income taxes 3,124 1,014
Income tax expense 1,044 289
-------- --------
Net income 2,080 725
-------- --------
Other Comprehensive Income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period (net of tax of $49 and ($86), respectively) 80 (140)
Less reclassification adjustment for gains (losses)
included in net income -- --
-------- --------
Other comprehensive income (loss) 80 (140)
-------- --------
Comprehensive income $ 2,160 $ 585
======== ========
Earnings per share (net income):
Basic $ 22.92 $ 10.17
======== ========
Diluted $ 22.69 $ 10.13
======== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
<PAGE> 114
CENTRAL ILLINOIS BANCORP., INC.
Consolidated Statements of Changes in Stockholders' Equity
For the Three Month Period Ended March 31, 1998 and 1997
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Accumulated
Other
Par Capital Retained Comprehensive
Shares Value Surplus Earnings Income Total
------- ----- -------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997 90,735 $ 91 $ 86,241 $ 14,179 $ 221 $ 100,732
--------- ------ ----------
Comprehensive income:
Net income 2,080 -- 2,080
Other comprehensive
income -- 80 80
--------- ------ ----------
2,080 80 2,160
--------- ------ ----------
Exercise of stock options,
net of tax 33 -- 50 -- -- 50
-------- ---- -------- --------- ------ ----------
Balance, March 31, 1998 90,768 $ 91 $ 86,291 $ 16,259 $ 301 $ 102,942
======== ==== ======== ========= ====== ==========
Balance, December 31,
1996 67,399 $ 67 $ 49,332 $ 8,904 $ (71) $ 58,232
--------- ------ ----------
Comprehensive income:
Net income 725 -- 725
Other comprehensive
income (loss) -- (140) (140)
--------- ------- ----------
725 (140) 585
--------- ------- ----------
Capital issuance 4,043 4 5,470 -- -- 5,474
Exercise of stock options,
net of tax 38 -- 22 -- -- 22
-------- ---- -------- -------- ------- ----------
Balance, March 31, 1997 71,480 $ 71 $ 54,824 $ 9,629 $ (211) $ 64,313
======== ==== ======== ======== ======= ==========
</TABLE>
See the accompanying notes to the consolidated financial statements.
<PAGE> 115
CENTRAL ILLINOIS BANCORP., INC.
Consolidated Statements of Cash Flows
For the Three Month Period Ended March 31, 1998 and 1997
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net cash provided (used) by operating activities $ 4,678 $ 2,266
-------- --------
Cash flows from investing activities:
Net (increase) decrease in:
Securities (18,577) (28,178)
Loans (48,389) (35,562)
Federal funds sold (14,025) --
Capital expenditures (484) (212)
-------- --------
Net cash provided (used)
by investing activities (81,475) (63,952)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in:
Demand, NOW and savings accounts 4,686 (1,518)
Certificates of deposit 59,723 58,533
Repurchase agreements and Federal
funds purchased (8,969) (10,426)
Net proceeds from other borrowings 20,872 2,111
Proceeds from capital issuance 50 5,496
-------- --------
Net cash provided (used)
by financing activities 76,362 54,196
-------- --------
Net increase (decrease) in
cash and cash equivalents (435) (7,490)
Cash and cash equivalents at beginning of period 9,774 16,437
-------- --------
Cash and cash equivalents at end of period $ 9,339 $ 8,947
======== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
<PAGE> 116
CENTRAL ILLINOIS BANCORP., INC.
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
Note 1 - Basis of Presentation:
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and general practices within
the banking industry.
The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
presented in Central Illinois Bancorp., Inc.'s ("Corporation") 1997 Annual
Report. The quarterly consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for interim periods. All such adjustments are
of a normal recurring nature. Certain prior year amounts have been
reclassified to conform with the current year presentation. The results
for interim periods are not necessarily indicative of results to be
expected for the complete fiscal year.
Note 2 - Comprehensive Income:
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", was adopted by the Corporation on January 1, 1998.
SFAS 130 establishes standards for reporting comprehensive income.
Comprehensive income includes net income and other comprehensive income
which is defined as non-owner related transactions in equity. Prior
periods have been reclassified to reflect the application of the
provisions of SFAS No. 130.
Note 3 - Accounting Matters:
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", is effective for financial statements for periods beginning
after December 15, 1997. SFAS No. 131 establishes standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports to shareholders. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performance.
Adoption of SFAS No. 131 will expand disclosures related to the
consolidated financial statements. The Corporation adopted SFAS 131 on
January 1, 1998, and is currently evaluating its operations to determine
the appropriate disclosures with respect to SFAS No. 131.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", revises and standardizes the disclosure
requirements for employers' pensions and other postretirement benefits
plans. This standard does not change the measurement or recognition of
such plans. SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997. Restatement of disclosures for earlier periods
presented is required unless the information is not readily available, in
which case, all available information and a description of the information
not available shall be included in the notes to the financial statements.
The disclosure requirements of SFAS No. 132 have been designed to provide
information that is more comparable, understandable, and concise for the
users of this information. The Corporation adopted SFAS 132 on January 1,
1998.
<PAGE> 117
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
Independent Auditors Report
Consolidated Statements of Financial Condition at December 31, 1997
and 1996
Consolidated Statements of Income for the years ended December 31,
1997, 1996, and 1995
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
Unaudited Consolidated Statements of Financial Condition at March 31,
1998 and December 31, 1997.
Unaudited Consolidated Statements of Income and Comprehensive Income
for the three month period ended March 31, 1998 and 1997.
Unaudited Consolidated Statements of Changes in Stockholders' Equity
for the three month period ended March 31, 1998 and 1997.
Unaudited Consolidated Statements of Cash Flows for the three month
period ended March 31, 1998 and 1997.
Notes to Unaudited Consolidated Financial Statements.
EXHIBITS
The Exhibits are described in the Exhibit Index immediately following the
signature page filed as part of this Registration Statement.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Champaign, State of Illinois, on the 24th day of June, 1998.
CENTRAL ILLINOIS BANCORP., INC.
By: /s/ J. Michael Straka
-------------------------------------
J. Michael Straka
President and Chief Executive Officer
By: /s/ Steven T. Klitzing
-------------------------------------
Steven T. Klitzing
Chief Financial Officer
Chief Accounting Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed by the following persons on the 24th day
of June, 1998 in the capacities indicated. Each officer or director whose
signature appears below hereby appoints each of J. Michael Straka, Steven J.
Klitzing and Donald J. Straka as his true and lawful attorney-in-fact and
agent, with full power of substitution, to sign on his behalf, as an individual
and in the capacity stated below, any amendment to this Registration Statement,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting to
such attorney-in-fact and agent full power and authority to do and perform each
and every act and thing which such attorney-in-fact and agent may deem
appropriate or necessary, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that such
attorney-in-fact and agent, or any substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Signature Title
--------- -----
/s/ J. MICHAEL STRAKA President and Chief Executive
- ------------------------------------- Officer (Principal Executive
J. Michael Straka Officer) and Director
/s/ STEVEN T. KLITZING Chief Financial Officer (Principal
- ------------------------------------- Financial Officer and Accounting
Steven T. Klitzing Officer)
/s/ JOSE ARAUJO Director
- -------------------------------------
Jose Araujo
/s/ NORMAN BAKER Director
- -------------------------------------
Norman Baker
/s/ JOHN T. BEAN Director
- -------------------------------------
John T. Bean
/s/ W. SCOTT BLAKE Director
- -------------------------------------
W. Scott Blake
/s/ STEVEN C. HILLARD Director
- -------------------------------------
Steven C. Hillard
/s/ DEAN KATSAROS Director
- -------------------------------------
Dean Katsaros
/s/ JERRY D. MAAHS Director
- -------------------------------------
Jerry D. Maahs
/s/ J. MICHAEL STRAKA Director
- -------------------------------------
J. Michael Straka
/s/ DONALD M. TRILLING Chairman of the
- ------------------------------------- Board of Directors
Donald M. Trilling
/s/ HOWARD E. ZIMMERMAN Director
- -------------------------------------
Howard E. Zimmerman
<PAGE> 118
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
2.1 Agreement of merger by and between Central Illinois Bank MC and
Central Illinois Bank
2.2 First Addendum to Agreement of Merger by and between Central Illinois
Bank MC and Central Illinois Bank
2.3 Purchase Agreement
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
10.1 Non-Qualified Employee Stock Option Plan of the Company dated
September 24, 1997
10.2 Non-Qualified Director Stock Option Plan of the Company dated
April 25, 1996
10.3 Form of Deferred Compensation Agreement of the Company
10.4 Administrative Services Agreement dated January 1, 1997 between the
Company and KSB Benefit Consultants, Inc. related to the Employee
Stock Ownership Plan of the Company
10.5 Administrative Services Agreement dated January 1, 1997 between the
Company and KSB Benefit Consultants, Inc. related to the 401 (k) Plan
of the Company
10.6 Agreement dated December 24, 1996 between Central Illinois Bank
and Strategic Capital Management, Inc. and Assignment of Agreement
dated March 31, 1998 between Marine Trust and Investment Company
and Strategic Capital Trust Company
11 Statement re computation of per share earnings
21 Subsidiaries of the Company
24 Power of Attorney is set forth on the signature page of this
registration statement
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AGREEMENT OF MERGER
BY AND BETWEEN
CENTRAL ILLINOIS BANK MC AND CENTRAL ILLINOIS BANK
UNDER THE CHARTER OF
CENTRAL ILLINOIS BANK MC
This Agreement of Merger (Agreement) is made and entered into this 30th
day of April, 1998, by and between Central Illinois Bank (CIB), a bank organized
and existing under and by virtue of the laws of the State of Illinois, and
Central Illinois Bank MC (CIB MC), a bank organized and existing under and by
virtue of the laws of the State of Illinois (collectively the "Merging Banks").
RECITALS
WHEREAS, CIB MC is an Illinois banking corporation with its main banking
premises located at 1710 E. College Ave., Normal, McLean County, Illinois. As of
March 31, 1998, CIB MC had capital stock outstanding of One Hundred Fifty One
Thousand Five Hundred Dollars ($151,500) consisting of One Thousand One Hundred
and Fifteen (1515) shares of common stock with a par value of One Hundred
Dollars ($100) per share, surplus of Ten Million Eight Hundred Fifty Nine
Thousand Dollars ($10,859,000) and undivided profits and capital reserves of
Three Million Four Hundred Seventy One Five Hundred and Six Dollars
($3,471,506);
WHEREAS, CIB is an Illinois banking corporation with its main banking premises
located at 302 W. Springfield Ave., Champaign, Champaign County, Illinois. As of
March 31, 1998, CIB had capital stock outstanding of Three Hundred Twenty Nine
Thousand Dollars ($329,000) consisting of Three Thousand Two Hundred and Ninety
(3290) shares of common stock with a par value of One Hundred Dollars ($100) per
share, surplus of Seventeen Million Eight Hundred Twenty Nine Thousand Two
Hundred and Fifty Three Dollars ($17,829,253) and undivided profits and capital
reserves of Nine Million Eight Hundred Eighty Eight Thousand Two Hundred and
Fifty Nine Dollars ($9,888,259 );
WHEREAS, CIB MC and CIB are wholly owned subsidiaries of Central Illinois
Bancorp, Inc. (CIBI), a corporation organized and existing under and by virtue
of the laws of the State of Illinois and registered as a bank holding company
pursuant to the Bank Holding Company Act of 1956, as amended, with its principal
place of business at 2913 W. Kirby Ave., Champaign, Champaign County, Illinois;
<PAGE> 2
AGREEMENT OF MERGER PAGE 2
WHEREAS, The Board of Directors of CIBI and the Boards of Directors of each of
the Merging Banks deem it advisable, necessary and in the best interests of
their respective stockholder, CIBI, to merge the Merging Banks under the charter
of CIB MC and to change the name of "Central Illinois Bank MC" to "Central
Illinois Bank", subject to the terms and conditions set forth in this Agreement
and in accordance with applicable laws of the United States and the State of
Illinois ("the Merger"); and
WHEREAS, A majority of the Board of Directors of each of the Merging Banks has
approved the Merger, authorized the execution of this Agreement and directed
that the Merger be submitted to CIBI, the sole stockholder of each of the
Merging Banks, for its consideration and approval pursuant to Section 23 of the
Illinois Banking Act (the "Act").
NOW THEREFORE, with the foregoing recitals incorporated herein, and in
consideration of the premises and of the agreements, covenants, terms and
conditions set forth herein, the Merging Banks hereby covenant and agree as
follows:
ARTICLE I
THE MERGER
A. RESULTING BANK. Subject to the terms and conditions set forth herein
and pursuant to the provisions of the Act, as of the Effective Time (as defined
in Article I, Section C), CIB shall be merged into, and under the charter and
By-Laws of CIB MC, as hereby amended (the "Merger"), and CIB MC shall be the
bank resulting from such Merger (the "Resulting Bank"). The name of the
Resulting Bank shall be "Central Illinois Bank" and the main banking premises of
the Resulting Bank shall be 2913 W. Kirby Avenue, Champaign, Champaign County,
Illinois. The present main banking premises of CIB MC, together with each of its
branch bank facilities, shall become branch bank facilities of the Resulting
Bank. The present main banking premises of CIB, together with each of its branch
bank facilities, shall become branch bank facilities of the Resulting Bank,
excepting the branch bank facility located at 2913 W. Kirby Avenue, Champaign,
Champaign County, Illinois, which shall be the main banking premises of the
Resulting Bank.
B. SHARES OF CAPITAL STOCK. As of the Effective Time (as defined in
Article I, Section C), the Resulting Bank shall have Four Thousand Eight Hundred
and Five (4805) shares of issued and outstanding capital stock, with a par value
of One Hundred Dollars ($100) per share, and shall have the capital, surplus,
reserve for operating expenses, assets and liabilities as set forth on Exhibit
1, attached hereto and specifically incorporated herein by this reference.
<PAGE> 3
AGREEMENT OF MERGER PAGE 3
C. EFFECTIVE TIME. As soon as reasonably practicable after the date
hereof, this Agreement, together with certified copies of the authorizing
resolutions of the Board of Directors of each of the Merging Banks showing
approval of this Agreement and the transactions contemplated hereby by a
majority of the entire Boards of Directors of each of the Merging Banks, shall
be submitted to the Commissioner of the Office of Banks and Real Estate (the
"Commissioner") for approval pursuant to Section 22 of the Act. The transactions
contemplated by this Agreement are subject to the approval of this Agreement by
the Commissioner (the "Approval"). Upon receipt of the Approval by the
Commissioner, this Agreement shall be submitted to CIBI, the sole stockholder of
each of the Merging banks, for approval and adoption by written consent as
provided for by Sections 23 and 43 of the Act. Subject to and upon satisfaction
of all requirements of applicable law and all other conditions set forth in this
Agreement, this Agreement (duly executed) together with certified copies of the
resolutions of the sole stockholder of each of the Merging Banks authorizing and
approving this Agreement, shall be filed with the Commissioner pursuant to and
in the manner prescribed by Section 24 of the Act. The Merger shall become
effective on the later of June 30, 1998 or as soon as it is reasonably
practicable after receipt of all required approvals, the expiration of any
statutory waiting period and the issuance of the Certificate of Merger by the
Commissioner (the "Effective Time").
D. CHARTER. The charter of CIB MC shall be the charter of the Resulting
Bank (the "Charter"), except that, as of the Effective Time, the charter of CIB
MC shall be amended to change the main banking premises to 2913 W. Kirby Avenue,
Champaign, Champaign County, Illinois and to increase the number of shares of
common stock outstanding from One Thousand Five Hundred Fifteen (1515) to Four
Thousand Eight Hundred and Five (4805) .
E. BY-LAWS. The By-Laws of CIB MC, as hereby amended, shall be the
By-Laws of the Resulting Bank as of the Effective Time until the same shall be
thereafter altered, amended or repealed in accordance with said By-Laws, as
amended, the Charter and applicable law. A copy of the By-Laws of CIB MC, as
amended, are attached hereto as Exhibit 2 and specifically incorporated herein
by this reference.
F. DIRECTORS. As of the Effective Time, the directors of the Resulting
Bank shall be James W. Alling, Jose C. Araujo, C. Todd Atkins, Norman E. Baker,
Warren J. Bane, Darrell W. Beck, Monte J. Brannan, William K. Cooper, Julie A.
Dreesen, Steven C. Hillard , James J. Jesso, Dean M. Katsaros, Alan R.
LaRochelle, William M. O'Neill, John W. Parrott, J. Michael Straka, and Donald
M. Trilling.
<PAGE> 4
AGREEMENT OF MERGER PAGE 4
G. OFFICERS. As of the Effective Time, the officers of CIB MC and CIB
shall become officers of the Resulting Bank in the same positions they held with
CIB MC or CIB, as the case may be, except that J. Michael Straka shall be the
Chairman/Chief Executive Officer, Julie A. Dreesen shall be the President and
the First President of the Western Division, and James J. Jesso shall be First
President of the Eastern Division.
H. COMMISSIONER'S EXPENSES. The Merging Banks shall equally pay the
Commissioner's expenses of examination whether this Agreement is approved or
disapproved.
ARTICLE II
EFFECT OF THE MERGER
A. CORPORATE EXISTENCE. As of the Effective Time, the corporate
existence of each of the Merging Banks shall, with the full effect provided for
in the Illinois Banking Act, be merged into and continued in the Resulting Bank
under the charter of CIB MC and the name of "Central Illinois Bank". The
Resulting Bank shall be considered the same business and corporate entity as
each of the Merging Banks with all the property, rights, powers, duties and
obligations of each of the Merging Banks except as affected by the laws of the
State of Illinois, and by the Charter and By-Laws of the Resulting Bank. The
separate existence of CIB shall cease except to the extent provided by
applicable law.
B. RIGHTS AND LIABILITIES OF THE RESULTING BANK. The Resulting Bank
shall be liable for all liabilities of each of the Merging Banks, and for all
rights, franchises and interests of each of the Merging Banks in and to every
kind of property, real and personal and the chooses in action thereunto
belonging, shall be deemed to be transferred to and vested in the Resulting Bank
without any deed or other transfer, and the Resulting Bank, without any order or
other action on the part of any court or otherwise, shall hold and enjoy the
same and all rights of property, franchises and interests, including
appointments, designations and nominations and all other rights and interests as
trustee, executor, administrator, registrar or transfer agent of stocks and
bonds, guardian, assignee, receiver, and in every other fiduciary capacity, in
the same manner and to the same extent as was held and enjoyed by the Merging
Banks. Any reference to either CIB MC or CIB in any writing, whether executed or
taking effect before or after the Merger, shall be deemed a reference to the
Resulting Bank if not inconsistent with the other provisions of such writing.
<PAGE> 5
AGREEMENT OF MERGER PAGE 5
C. BOOKS OF THE RESULTING BANK. The assets, liabilities, reserves and
accounts of each of the Merging Banks shall be recorded on the books of the
Resulting Bank in the amounts at which each shall have been carried on the books
of the Merging Banks at the Effective Time.
D. EFFECTIVENESS OF PRIOR CORPORATE ACTS AND AUTHORIZATIONS. All
corporate acts, plan, policies, contracts, approvals and authorizations of each
of the Merging Banks, their respective stockholders, boards of directors,
committees elected or appointed by their boards of directors, officers and
agents, which were valid and effective immediately prior to the Effective Time
shall be taken for all purposes as the acts, plans, policies, contracts,
approvals and authorizations of the Resulting Bank and shall be as effective and
binding thereon as the same were with respect to any of the Merging Banks.
ARTICLE III
TREATMENT OF STOCK AND EXCHANGE
A. TREATMENT OF SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of the holders of such shares of stock:
(1) STOCK OF CIB MC. Each issued and outstanding share of common
stock of CIB MC shall be and become converted into one (1) fully paid and
nonassessable share of common stock of the Resulting Bank; and
(2) STOCK OF CIB. Each issued and outstanding share of common
stock of CIB shall be and become converted into one (1) fully paid and
nonassessable share(s) of common stock of the Resulting Bank.
B. MANNER OF EXCHANGE. Upon presentations to CIBI the Resulting Bank of
certificates representing shares of common stock of CIB MC and CIB, CIBI shall
be issued a certificate representing such number of shares of common stock of
the Resulting Bank to which CIBI is entitled pursuant to this Article III.
C. DISSENTERS' RIGHTS. There will not be dissenting stockholders as
each of the Merging Banks is a wholly-owned subsidiary of CIBI.
ARTICLE IV
MISCELLANEOUS PROVISIONS
A. POST-MERGER AGREEMENTS. Each of the Merging Banks hereby appoints
the Resulting Bank to be its true and lawful attorney-in-fact for the purposes
of taking, in its name, place and stead, any and all actions that the
<PAGE> 6
AGREEMENT OF MERGER PAGE 6
Resulting Bank deems necessary or advisable to vest in the Resulting Bank title
to all property or rights of each of the Merging Banks or otherwise to effect
the purposes of this Agreement, and each of the Merging Banks hereby grants to
said attorney-in-fact full power and authority to take all actions necessary to
effect those purposes, including the power to execute in its name, place and
stead, such further assignments or assurances in law necessary or advisable to
vest in the Resulting Bank title to all property and rights of each of the
Merging Banks.
B. TERMINATION. Notwithstanding anything herein to the contrary, this
Agreement may be terminated and abandoned by either of the Merging Banks by
appropriate resolutions of its Board of Directors at any time prior to the
Effective Time.
C. AMENDMENT. This Agreement may be amended in whole or in part by
authorization of the Board of Directors of each of the Merging Banks at any time
prior to the Effective Time; provided, however, that after this Agreement has
been approved by the stockholder of the Merging Banks, no such amendment shall
affect the rights of such stockholder in a manner which is materially adverse to
the interests of such stockholder. Notwithstanding anything to the contrary
contained in this Article IV, Section C, no such amendment shall be effective
unless approved by the Commissioner, if required.
D. ENTIRE AGREEMENT. This Agreement, constitutes the entire
understanding and agreement of the parties with respect to the subject matter
hereof and supersedes any and all prior agreements, understandings and
discussions with respect thereto.
E. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original, but
all of which together shall constitute one and the same instrument.
F. FILING AND RECORDING OF CERTIFICATE OF MERGER. After the receipt of
all approvals set forth in this Agreement, the Certificate of Merger to be
issued by the Commissioner shall be submitted to the Recorder of Deeds of
Champaign County, Illinois, as required by the Act.
G. HEADINGS. All Article and Section headings in this Agreement are for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
IN WITNESS WHEREOF, each of the Merging Banks has caused this Agreement
to be executed by its duly authorized officers and its corporate seal to be
affixed as of the date first above written.
<PAGE> 7
AGREEMENT OF MERGER PAGE 7
Central Illinois Bank Central Illinois Bank MC
By: /s/ James J. Jesso By: /s/ Julie A. Dreesen
------------------------------- -----------------------------
Its: President and CEO Its: President and CEO
Attest: /s/ Steven T. Klitzing Attest: /s/ Steven T. Klitzing
---------------------------- -------------------------
Secretary Secretary
<PAGE> 1
EXHIBIT 2.2
FIRST ADDENDUM TO AGREEMENT
OF MERGER BY AND BETWEEN
CENTRAL ILLINOIS BANK MC AND CENTRAL ILLINOIS BANK
UNDER THE CHARTER OF
CENTRAL ILLINOIS BANK MC
This First Addendum to Agreement of Merger (Addendum) is made and
entered into this 12th day of May, 1998, by and between Central Illinois Bank
(CIB), a bank organized and existing under and by virtue of the laws of the
State of Illinois, and Central Illinois Bank MC (CIB MC), a bank organized and
existing under and by virtue of the laws of the State of Illinois (collectively
the "Merging Banks").
WHEREAS, on or about April 30, 1998 the Merging Banks entered into that certain
Agreement of Merger by and between Central Illinois Bank MC and Central Illinois
Bank under the Charter of Central Illinois Bank MC (the "Merger Agreement");
WHEREAS, on or about August 27, 1991, CIB was authorized by the Office of
Commissioner of Banks and Trust Companies, now known as the Office of Banks and
Real Estate (the "OBRE") via a Certificate of Authority and Order to accept and
execute trusts and receive deposits of trust funds under the provisions of
applicable law (the "Certificate");
WHEREAS, on or about March 5, 1996, the OBRE entered an Order authorizing CIB to
conduct the Fiduciary function of Guardian as part of its authorized activities
as set forth in the Certificate (the "Order"); and
WHEREAS, it is the intent of the Merging Banks that as of the Effective Time the
rights, duties and obligations provided under and pursuant to the Certificate
and the Order transfer to the Resulting Bank.
NOW THEREFORE, with the foregoing recitals incorporated herein, and in
consideration of the premises and of the agreements, covenants, terms and
conditions set forth herein, the Merging Banks hereby covenant and agree as
follows:
A. DEFINITIONS. Capitalized terms used herein shall have the meanings
set forth in the Merger Agreement unless otherwise defined in this Addendum.
<PAGE> 2
FIRST ADDENDUM TO AGREEMENT OF MERGER PAGE 2
B. PURPOSE. The purpose of this Addendum is to clarify and supplement
the terms of the Merger Agreement. This Addendum and the Merger Agreement shall
be construed as complementary to each other.
C. TRUST POWERS. As of the Effective Time all right, duties and
obligations provided under and pursuant to the Certificate and Order shall be
transferred to and vest in the Resulting Bank without any deed or other
transfer. Upon such transfer, the trust department of CIB shall become the trust
department of the Resulting Bank and the Resulting Bank shall hold and enjoy the
same and all rights of property, franchises and interests, including, to the
extent permissible, all appointments, designations and nominations and all other
rights and interests as trustee; executor, administrator, guardian, assignee,
receiver and in every other fiduciary capacity, in the same manner and to the
same extent as was held and enjoyed by CIB through its trust department and the
powers conferred upon it by virtue of the Certificate and Order as if the
Certificate and Order were issued to the Resulting Bank.
IN WITNESS WHEREOF, each of the Merging Banks has caused this Agreement
to be executed by its duly authorized officers and its corporate seal to be
affixed as of the date first above written.
Central Illinois Bank Central Illinois Bank MC
By: /s/ James J. Jesso By: /s/ Julie A. Dreesen
------------------------------- -------------------------------
Its: President and CEO Its: President and CEO
Attest: /s/ Steven T. Klitzing Attest: /s/ Steven T. Klitzing
--------------------------- ---------------------------
Assistant Secretary Assistant Secretary
<PAGE> 1
EXHIBIT 2.3
PURCHASE AGREEMENT
This PURCHASE AGREEMENT (Agreement) is made and entered into this 4th
day of May, 1998, by and between CIB BANK (CIB), an Illinois chartered
commercial bank, and ARGO FEDERAL SAVINGS BANK, FSB (ARGO), a federally
chartered savings bank.
WHEREAS, ARGO shall transfer to CIB, subject to the terms and
conditions of this Agreement certain deposit accounts, including demand deposit
accounts, passbook savings, money market accounts, certificates of deposit and
negotiable order of withdrawal accounts attributable to its Gurnee, Illinois
branch office (the "Branch Office") as more fully described herein;
WHEREAS, CIB shall acquire from ARGO, subject to the terms and
conditions of this Agreement, certain deposit accounts, including demand deposit
accounts, passbook savings, money market accounts, certificates of deposit and
negotiable order of withdrawal accounts attributable to the Branch Office, as
more fully described herein;
WHEREAS, CIB has agreed to acquire and ARGO has agreed to sell certain
of the furniture, fixtures and equipment at the Branch Office, as more fully
described herein;
WHEREAS, CIB has agreed to assume the liabilities of ARGO with respect
to the lease pertaining to the Branch Office premises, as more fully described
herein;
WHEREAS, CIB and ARGO have determined that the transactions
contemplated by this Agreement are in the best interests of their respective
shareholders; and
WHEREAS, the transactions contemplated by this Agreement have been
approved by at least a two-thirds vote of the respective entire Boards of
Directors of CIB and ARGO and each has authorized their appropriate officers to
execute and attest to this Agreement and to make application for and to receive
the necessary supervisory approvals of the subject transactions from the Federal
Deposit Insurance Corporation (the "FDIC"), the Office of Banks and Real Estate
of the State of Illinois (the "OBRE"), the Federal Reserve Bank of Chicago (the
"FRB") and the Office of Thrift Supervision (the "OTS"), to the extent
necessary.
NOW THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, covenants,
terms and conditions set forth herein, CIB and ARGO hereby covenant and agree as
follows:
<PAGE> 2
PURCHASE AGREEMENT Page 2
1. IDENTIFICATION OF ACQUISITION BY OFFICE LOCATION. ARGO shall
transfer to CIB all of its FDIC insured deposit accounts, including demand
deposit accounts, passbook savings, money market accounts, certificates of
deposit and negotiable order of withdrawal accounts, as more fully set forth and
described in Paragraph 2 hereof (hereinafter sometimes for convenience
collectively referred to as the "Accounts" or the "Transferred Accounts"); with
the said Accounts generally originating at and attributable to the branch office
of ARGO located at 100 South Cemetary Road, Gurnee, Illinois 60031, except that
ARGO shall not transfer to and CIB shall not assume liability for any public
funds, brokered deposits, collateralized deposits (except as provided in
Paragraph 3 hereof) or Accounts owned by affiliates, directors, officers and/or
employees of ARGO who do not work at the Branch Office or any insiders or
shareholders of ARGO, or any correspondents to any interest-bearing Accounts.
2. IDENTIFICATION OF ACCOUNTS BY EXHIBIT. Marked Exhibit "A",
attached hereto and specifically incorporated herein by this reference, is a
verified statement prepared and submitted by ARGO setting forth the identity of
holder, the type of account, ownership type, account opening date, account
maturity date, history of each such account for the previous twenty four (24)
months, principal balance (including accrued and credited interest of such
account), terms of each such account and interest rate payable on each of the
Accounts as of February 28, 1998. After the close of business on the day
preceding the Closing Date (as defined in Paragraph 13 hereof), ARGO hereby
agrees to deliver to CIB a supplemental statement verifying the information set
forth in the preceding sentence together with such information with respect to
any new or additional accounts opened after February 28, 1998 on each of the
Accounts to be transferred to CIB as of the date of Closing (as defined in
Paragraph 13 hereof). The form and substance of the statements referenced in
this paragraph shall be to the satisfaction of CIB and shall include such
information as necessary to identify the ownership and total liability of such
Accounts. For the purposes of this Agreement any interest accrued on the
Accounts by ARGO, but not due for payment as of the date of Closing shall be
transferred to CIB in current funds pursuant to Paragraph 5 hereof, and CIB
shall thereupon assume the liability therefore.
3. SPECIAL PROVISION WITH RESPECT TO PLEDGED ACCOUNTS. Except as
provided in Exhibit "B" hereto, no Accounts pledged for collateral purposes or
Accounts which are otherwise pledged, encumbered or attached shall be deemed to
be subject to the terms of this Agreement, the same being specifically excluded
herefrom.
4. TRANSFER. CIB shall assume the liability for such Transferred
Accounts to it as of the date of Closing subject to the terms and conditions of
this Agreement. CIB and ARGO hereby agree that performance of this Agreement
shall be subject to receipt of all necessary regulatory approvals as set forth
in this Agreement.
<PAGE> 3
PURCHASE AGREEMENT Page 3
5. COMPENSATION ON TRANSFERRED ACCOUNTS. CIB will receive, as
consideration for the assumption of liability on the Transferred Accounts
(including interest previously credited in accordance with the terms of the
account), a cash payment at Closing equal to ninety four percent (94%) of the
aggregate account balances of the Transferred Accounts which have not matured on
or prior to Closing pursuant to the terms of the account and one hundred percent
(100%) of all interest accrued on the Transferred Accounts but not due for
payment or credited to the account as of the date of Closing. Notwithstanding
anything to the contrary contained in this Paragraph, in the event that the
aggregate amount of the Transferred Accounts as of the date of Closing exceed
Thirteen Million, Eight Hundred and Sixty Four Thousand Two Hundred and Sixty
Seven Dollars ($13,864,267), CIB shall receive one hundred percent (100%) of the
aggregate account balances, interest accrued and/or credited but not due for
payment as of the date of Closing on such excess amount; provided that such
excess amount is related to deposits acquired, accepted or renewed after
November 30, 1997 at a Premium Interest Rate. For purposes of this Agreement,
Premium Interest Rate shall mean an interest rate equal to or greater than one
hundred and four percent (104%) of the average rates paid by the banking offices
of Bank of Northern Illinois, N.A., The First National Bank of Chicago, First of
America Bank - Illinois, N.A., Harris Bank - Libertyville and Northside
Community Bank in Gurnee, Illinois on accounts of same or similar terms. For
example, if the average interest rate is five and one-half percent (5.5%) for a
one year certificate of deposit, any one year certificate of deposit with an
interest rate equal to or in excess of five and seventy-two hundredths percent
(5.72%) would be considered at a Premium Interest Rate.
6. ACCOUNTHOLDERS. Each holder of a Transferred Account of ARGO
shall, after the close of business on the Closing Date, automatically become a
holder of an Account in CIB, in a dollar amount equal to the withdrawable value
of the Account; CIB having assumed the liability for the Accounts subject to the
indemnification provisions contained herein and the existing rights,
delegations, assignments, appointments, powers of appointment and privileges of
the accounthoIders. Thereafter, each such accountholder shall be entitled to all
of the rights and privileges of an accountholder of CIB, as prescribed by its
Articles of Incorporation, ByLaws and account rules and, when appropriate, be
issued proper account documentation evidencing such account in CIB. CIB shall
continue to recognize the terms and maturities of all passbooks and certificates
of deposit issued by ARGO and outstanding on the effective date of this
Agreement or as of the Closing Date, as the case may be, until the originally
stated maturity date. Thereafter, such accounts shall be renewed upon the terms
of CIB for similar accounts.
7. ACQUISITION OF FURNITURE, FIXTURES AND EQUIPMENT. Marked Exhibit
"C", attached hereto and specifically incorporated herein by this reference is a
schedule of furniture, fixtures and equipment (the "Assets") presently located
<PAGE> 4
PURCHASE AGREEMENT Page 4
at the Branch Office, which CIB agrees to purchase from ARGO at Closing for a
price of Three Hundred and Fifty Thousand Dollars ($350,000.00.) ARGO shall
transfer its ownership of such Assets to CIB by a duly-authorized Bill of Sale.
Such sale shall be "as is", and ARGO makes no warranties whatsoever except those
set forth herein at Paragraph 12.
8. ASSIGNMENT OF LEASE. ARGO agrees to assign to CIB, and CIB agrees
to assume, all of ARGO's rights and obligations under that certain Lease
Agreement dated September 22, 1995 by and between DANVID CORPORATION ("DANVID")
as Lessor and ARGO as Lessee (the "Lease"), a copy of which Lease is attached
hereto as Exhibit "D". The parties understand that such assignment is subject to
the consent of DANVID, and the parties agree to fully cooperate with each other
and with DANVID in order to obtain such consent. CIB agrees to indemnify and
hold ARGO harmless from any obligations or liabilities arising out of the Lease
or the Leased Premises which accrued after the Closing. ARGO shall pay all Lease
obligations to the date of Closing, and shall be entitled to a credit at Closing
for prepaid rent and for its security deposit.
9. CONDITIONS PRECEDENT TO CIB'S OBLIGATION. Unless the conditions
are waived by CIB, all obligations of CIB under this Agreement are subject to
the fulfillment, prior to or at the Closing, of each of the following
conditions:
(a) OPINION OF COUNSEL TO ARGO. ARGO shall have delivered to CIB
an opinion, dated as of the Closing, of Kemp & Grzelakowski, Ltd. counsel for
ARGO, as to the validity of the transaction, and such other matters as CIB may
reasonably request. Such opinion shall be in form and substance satisfactory to
CIB and its counsel.
(b) TAX AND ACCOUNTING OPINIONS. CIB shall have ordered and
received an opinion from Striegel Knobloch & Company, L.L.C., independent
certified public accountants, to the effect that (i) the transaction shall be
accounted for under the purchase method of accounting and not as a pooling; and
(ii) the transaction shall constitute a tax-free transaction for CIB for both
Federal and State tax purposes.
(c) REGULATORY APPROVALS. CIB and ARGO shall have obtained and
received all necessary consents and approvals of all regulatory agencies and
other authorities having jurisdiction over this transaction necessary to
complete the transactions contemplated by this Agreement upon such terms and
conditions, if any, as are satisfactory to CIB in its reasonable judgment, all
waiting periods shall have expired, and there shall have been no motion for
rehearing or appeal from such approval or commencement of any suit or action by
any governmental authority seeking to enjoin the transaction provided herein or
to obtain other relief with respect thereto.
<PAGE> 5
PURCHASE AGREEMENT Page 5
(d) REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained herein and in the exhibits hereto delivered by ARGO or on
its behalf to CIB pursuant to this Agreement shall have been true and correct as
of the date of this Agreement and shall be true and correct as of the Closing as
though made on the Closing Date and shall survive the Closing as defined at
Paragraph 16 hereof.
(e) PERFORMANCE OF AGREEMENTS. ARGO shall have in all material
respects performed all obligations and agreements and complied with all
covenants and conditions contained in this Agreement to be performed and
complied with by it on or prior to the Closing.
(f) CORPORATE APPROVALS. All necessary corporate action on the
part of the directors of ARGO adopting and approving this Agreement and
approving the transactions contemplated hereby shall have been taken.
(g) CONSENT OF OTHER PERSONS.
(i) CIB and ARGO shall have received the consent of DANVID to
the assignment of the Lease upon such terms as are acceptable to CIB.
(ii) CIB and ARGO shall have received the consent of On-Line
Financial Services, Inc. ("OLFSI"), ARGO's data processor, to the conversion by
CIB of the Transferred Accounts and Assets to CIB Data Processing Services, Inc.
("CIB DP"). The data processing conversion shall be completed within one hundred
and twenty (120) days after the Closing Date. OLFSI shall covenant and consent
to provide CIB and/or CIB DP all system documentation, file layouts and files on
tape in a form acceptable to CIB DP and provide any and all additional
information and assistance deemed necessary by CIB and/or CIB DP to complete the
conversion. All costs and fees assessed by OLFSI for the conversion shall be
paid by ARGO. CIB shall pay all costs and fees assessed by CIB DP for the
conversions.
(iii) To the extent that any other material lease, contract
or Agreement to which ARGO is a party and which is related to the terms of this
Agreement shall require the consent of any other person to the transactions
contemplated herein, such consent shall have been obtained by the effective
date; provided, however, that ARGO shall not make as a condition for the
obtaining of any such consent, any agreements or undertakings not approved by
CIB.
(h) LITIGATION. No suit, action or proceeding by any governmental
agency shall have been instituted or threatened seeking to (i) enjoin, restrain
or prohibit the consummation of the transactions contemplated by
<PAGE> 6
PURCHASE AGREEMENT Page 6
this Agreement which would in the reasonable judgment of CIB make it inadvisable
to consummate such transactions, or to (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, or (iii)
that would affect adversely the right of CIB to own the Assets or to operate the
Branch Office as a Branch Office of CIB; and no court order shall have been
entered in any action or proceeding instituted by any other person which
enjoins, restrains or prohibits this Agreement or consummation of the
transactions contemplated by this Agreement. No statute, rule, regulation,
order, injunction or decree shall have been enacted, entered, promulgated or
enforced by an governmental entity which prohibits, restricts or makes illegal
consummation of the transactions contemplated hereby.
(i) PROCEEDINGS SATISFACTORY TO COUNSEL. All proceedings taken by
ARGO and all instruments executed and delivered by ARGO on or prior to the close
of business on the Closing Date, in connection with the transactions herein
contemplated shall be reasonably satisfactory in form and substance to CIB and
its counsel.
(j) NO ADVERSE CHANGES. Between the date of this Agreement and
the Closing Date, the business of the Branch Office shall be conducted in the
ordinary course, consistent in all material respects with prudent banking
practices; there shall not have occurred any material adverse change or any
condition, event, circumstance, fact or occurrence that may be expected to
result in a material adverse change in the business of the Branch Office; and
the business and properties of the Branch Office shall be kept substantially
intact, including its present operations, physical facilities, working
conditions, and relationships with lessors, customers and employees.
(k) REQUIRED FILINGS. ARGO shall have made all filings with the
Securities Exchange Commission and the regulatory agencies required or
necessitated by the consummation of the transactions contemplated by this
Agreement.
(l) DUE DILIGENCE. Commencing within thirty (30) business days
after the date of this Agreement, CIB shall commence a not greater than seven
(7) business day due diligence examination of Branch office, including the
Assets, Accounts, and all other contracts, agreements and/or documents related
to the transactions contemplated by this Agreement (Initial Investigation). ARGO
shall provide CIB full cooperation, disclosure and complete access to all
aspects of the Branch Office, including, but not limited to all books, records,
contracts, commitments, correspondence, accounts, reports, properties, assets
and employees of the Branch Office and with the full and complete cooperation of
ARGO, their officers, directors, agents and representatives at the Branch
Office. Commencing five (5) business days prior to Closing, CIB shall commence a
three (3) business day due diligence examination consistent with the Initial
Investigation. The due diligence examinations contemplated hereby shall be
<PAGE> 7
PURCHASE AGREEMENT Page 7
conducted at the sole discretion of CIB and the results of such investigations
shall be acceptable to CIB; provided, however that the right of CIB to terminate
this Agreement as a result of either such examinations shall be based upon its
review of the financial and account information provided, the operating
condition of the Assets and any other liabilities to be assumed. No
investigation by CIB shall affect the representations and warranties of ARGO set
forth herein.
(m) CLOSING CERTIFICATE. CIB shall have received a certificate
signed by the President and another duly authorized officer of ARGO and dated as
of the Closing Date, certifying in such detail as CIB may reasonably request as
to the fulfillment of the conditions to the obligations of ARGO as set forth in
this Agreement.
(n) RELEASE OF ESCROW. The funds placed in escrow pursuant to
Paragraph 14 of this Agreement shall have been released to CIB, together with
all accrued interest thereon.
(o) BULLS MONEY CARD. ARGO shall terminate and cause the
discontinuance of any Branch Office account holders' use of the "Bulls" money
card and pay any amounts relating thereto to account holders and shall not offer
at the Branch Office any other "Bulls" money cards.
(p) OLFSI AGREEMENT. OLFSI and CIB shall have agreed to the fees
and expenses to be charged by OLFSI to CIB for data processing services to be
provided by OLFSI to CIB (other than conversion fees) following the Closing and
until completion of the conversion set forth in Paragraph 9(g)(ii). OLFSI shall
agree to provide CIB and CIB DP separate financial information and data relative
to the Branch office, including but not limited to, separate general ledger and
trial balance reports together with all other daily reporting to the Branch
Office as reasonably requested by CIB and/or CIB DP until the completion of the
conversion as more fully described in Paragraph 9(g)(ii). ARGO and OLFSI shall
covenant to cooperate with CIB and CIB DP in all matters during the account
transition period and the conversion process.
10. CONDITIONS PRECEDENT TO ARGO'S OBLIGATIONS. Unless the conditions
are waived by ARGO, all obligations of ARGO under this Agreement are subject to
the fulfillment, prior to or at the Closing, of each of the following
conditions:
(a) OPINION OF COUNSEL TO CIB. CIB shall have delivered to ARGO
an opinion, dated as of the Closing, of counsel for CIB, as to the validity of
the transaction, and such other matters as ARGO may reasonably request. Such
opinion shall be in form and substance satisfactory to ARGO and its counsel,
Kemp & Grzelakowki, Ltd.
<PAGE> 8
PURCHASE AGREEMENT Page 8
(b) REGULATORY APPROVALS. CIB and ARGO shall have obtained and
received all necessary consents and approvals of all regulatory agencies and
other authorities having jurisdiction over this transaction necessary to
complete the transactions contemplated by this Agreement.
(c) REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained herein by CIB pursuant to this Agreement shall have been
true and correct as of the date of this Agreement and shall be true and correct
at the Closing as though made on the Closing Date and shall survive the Closing
as defined at Paragraph 12 of this Agreement.
(d) PERFORMANCE OF AGREEMENTS. CIB shall have in all material
respects performed all obligations and agreements and complied with all
covenants and conditions contained in this Agreement to be performed and
complied with by it on or prior to the Closing.
(e) CORPORATE APPROVALS. All other corporate action on the part
of the directors of CIB adopting and approving this Agreement and approving the
transactions contemplated hereby shall have been taken.
(f) CONSENT OF OTHERS. CIB and ARGO shall have received the
consent of DANVID to the assignment or the Lease.
(g) LITIGATION. No action or proceeding by any governmental
agency shall have been instituted or threatened which would enjoin, restrain or
prohibit the consummation of the transaction contemplated by this Agreement
which would in the reasonable judgment of ARGO make it inadvisable to consummate
such transactions, and no court order shall have been entered in any action or
proceeding instituted by any other person which enjoins or prohibits this
Agreement or consummation of the transactions contemplated by this Agreement.
(h) PROCEEDINGS SATISFACTORY TO COUNSEL. All proceedings taken by
CIB and all instruments executed and delivered by CIB on or prior to the close
of business on the Closing Date, in connection with the transactions herein
contemplated, shall be reasonably satisfactory in form and substance to ARGO and
its counsel.
(i) CLOSING CERTIFICATE. ARGO shall have received a certificate
signed by the President and another duly authorized officer of CIB and dated as
of the Closing Date, certifying in such detail as ARGO may reasonably request as
to the fulfillment of the conditions to the obligations of CIB as set forth in
this Agreement.
<PAGE> 9
PURCHASE AGREEMENT Page 9
11. REPRESENTATIONS AND WARRANTIES OF ARGO. ARGO represents and
warrants to CIB the following statements of Essential Facts, which are true and
correct on the date of this Agreement and which shall be true and correct on the
date of Closing, and of each of which shall constitute a condition precedent to
CIB's obligations hereunder:
(a) ORGANIZATION AND STANDING. ARGO is a capital stock savings
bank duly organized and validly existing and in good standing under the laws of
the United States of America, and it has all corporate powers and certificates
of authority, licenses, permits and other documentation to own its property and
to carry on its business as it is now being conducted. The deposit accounts of
ARGO, to the extent insurable, are insured by the FDIC Savings Association
Insurance Fund ("SAIF").
(b) AUTHORITY. ARGO has the full corporate power and authority to
enter into this Agreement and to carry out the transactions contemplated to be
carried out by it. This Agreement has been duly executed and delivered by ARGO
and constitutes the legal, valid and binding obligation of ARGO enforceable in
accordance with its terms.
(c) NO MATERIAL CHANGE AFTER AGREEMENT. Until the transaction is
effective, ARGO will conduct its operations related to the Transferred Accounts
hereunder in accordance with all applicable laws, regulations, orders of
regulatory authorities and in accordance with sound business and past practices.
Furthermore, between the date hereof and the Closing provided for herein, unless
otherwise agreed in writing, ARGO shall use its best efforts to maintain and
preserve its business organization intact, and to maintain its relationships and
good will with the accountholders, employees and others having business
relationships related to the deposit Accounts and the Assets which are the
subject of this Agreement. ARGO will neither enter into nor materially amend any
agreements related to the operation of the Branch Office and will not offer a
premium rate of interest to attract or maintain deposits without the prior
written consent of CIB, which consent may be withheld by CIB in its sole
discretion, nor artificially inflate the aggregate account balances of the
Transferred Accounts prior to Closing.
(d) STANDSTILL. ARGO will not, directly or indirectly, make,
encourage, facilitate, solicit, assist or initiate any inquiry, proposal or
offer to or by, or provide any information to or participate in any negotiations
with any other party related to a liquidation, consolidation, sale, purchase or
assumption related to the Assets or the Transferred Accounts, participate in any
discussions or negotiations regarding the same, furnish any information with
respect to the same, assist or participate in, or facilitate in any other manner
any effort or attempt by any person to do or seek any of the foregoing, or make
any agreement with respect to or engage in any of the foregoing anytime prior to
July 1, 1998, unless this Agreement is terminated prior to July
<PAGE> 10
PURCHASE AGREEMENT Page 10
1, 1998. ARGO shall immediately inform CIB in writing of any inquiry, proposal
or request for information (including the terms thereof and the person making
such inquiry) which ARGO may receive with respect to same and ARGO shall provide
CIB with a copy of any such written inquiries, proposals and offers.
(e) LITIGATION. There are no claims, demands, orders, actions,
suits, proceedings or other litigation (nor does ARGO know of any investigation
preliminary thereto) of any nature pending or to the knowledge of ARGO
threatened against ARGO, related to its deposit accounts at law or in equity, or
affecting any of its properties before or by any Federal, State, municipal or
other court, governmental department, commission, board, bureau, agency or
instrumentality; there is no default existing or penalty incurred under any
agreement or obligation of or binding upon ARGO nor is ARGO aware of any facts
that could reasonably afford a basis for a cause of action against ARGO.
(f) BROKERS. Neither ARGO nor any of its respective officers or
directors has retained or otherwise engaged or employed any broker, finder, or
any other such person or paid or agreed to pay any fee or commission to any
agent, broker, finder or other such person for or on account of this Agreement
or the transaction contemplated hereby.
(g) ACCURACY OF STATEMENTS. Neither this Agreement nor any
Exhibit hereto, statement, list, certificate or other information furnished or
to be furnished in writing by ARGO to CIB in connection with this Agreement or
any of the transactions contemplated hereby contains or will contain an untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein taken as a whole
with all other such statements, lists, certificates or other information
furnished above in light of the circumstances in which they are made, not
misleading.
(h) NO VIOLATION. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not violate or
result in a breach by ARGO of, or constitute a default under, or conflict with,
or cause any acceleration of any obligation with respect to: any provision or
restriction of any charter, bylaw, loan or indenture of ARGO or any provision or
restriction of any lien, lease agreement, contract, instrument, order judgment,
award, decree, ordinance or regulation or any other restriction of any kind or
character to which any assets or properties of ARGO are subject or by which ARGO
is bound.
(i) DISASTER PROVISION. The business and properties of the Branch
Office shall not have been adversely affected in any material way as a result of
any act of God, fire, flood, disturbance, or similar calamity.
<PAGE> 11
PURCHASE AGREEMENT Page 11
(j) MATERIAL CONTRACTS. Set forth in Exhibit "E", attached hereto
and specifically incorporated herein by this reference, is a listing and
description of all contracts, commitments or arrangements (whether written or
oral) under which ARGO is obligated that relate to the Branch facility, and
copies of such contracts, commitments, or arrangements are attached thereto.
(k) NO DEFAULTS. All contracts, commitments or arrangements of
ARGO set forth in Exhibits "B" and "E" (collectively the "Contracts") are valid
and in full force and effect. ARGO has fulfilled and taken all action reasonably
necessary to enable it to fulfill when due all material obligations under the
Contracts; and there are no material defaults and no events have occurred that,
with the lapse of time or election of any other party, will become material
defaults by it under any of the Contracts.
(l) ENVIRONMENTAL. The Branch Office is not contaminated with any
wastes or Hazardous Substances. "Hazardous Substances" means any substance
presently listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, under any Environmental Law,
whether by type or by quantity, including any such substance as a component.
"Hazardous Substances" include without limitation petroleum or any derivative or
byproduct thereof, asbestos radioactive material and polychlorinated biphenyls.
(m) ARGO'S BOARD OF DIRECTORS APPROVAL. Marked Exhibit "F",
attached hereto and specifically incorporated herein by this reference is a
certified copy of its Board of Directors' Resolution approving this transaction.
(n) TITLE TO ASSETS. ARGO has good and marketable title to the
Assets set forth on Exhibit "C", free and clear of all liens, Security
Interests, encumbrances or restrictions on transfer.
(o) DAMAGE TO ASSETS OR BRANCH OFFICE. There has been no damage,
destruction or loss (whether or not covered by insurance) to any of the Assets
set forth on Exhibit "C" or the Branch Office.
(p) CONDEMNATION. There are no pending or threatened condemnation
proceedings, suits or administrative actions relating to the Branch Office or
other matters materially and adversely affecting the current use, occupancy or
value thereof.
(q) EMPLOYMENT. There are no employment agreements or collective
bargaining agreements that are binding upon CIB, nor any benefit packages or
benefits under which CIB will be obligated to any of the employees of the Branch
Office whether or not CIB hires any such employees or officers of the Branch
Office.
<PAGE> 12
PURCHASE AGREEMENT Page 12
(r) TAXES. All taxes owed by ARGO relating to the Branch Office,
the Accounts set forth on Exhibit "A" and the Assets set forth on Exhibit "C"
have been paid.
(s) LEASE. The Lease is legal, valid, binding, enforceable, and
in full force and effect and will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby. No party to the Lease is
in breach or default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination, modification
or acceleration thereunder. There are no disputes, oral agreements or
forbearance programs in effect as to the Lease. ARGO has not assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the Leasehold. There are no subleases, licenses, concessions, or other
agreements, written or oral, granting to any party or parties the right of use
or occupancy of any portion of the Branch Office.
12. REPRESENTATIONS AND WARRANTIES OF CIB. CIB represents and
warrants to ARGO the following statements of Essential Facts, which are true and
correct on the date of this Agreement and which shall be true and correct on the
date of Closing, and of each of which shall constitute a condition precedent to
ARGO's obligations hereunder:
(a) ORGANIZATION AND STANDING. CIB is a capital stock commercial
bank duly organized, validly existing and in good standing under the laws of the
State or Illinois, and it has all corporate powers and certificates of
authority, licenses, permits and other documentation to own its property and to
carry on its business as it is now being conducted. The deposit Accounts of CIB,
to the extent insurable, are insured by the FDIC Bank Insurance Fund (BIF).
(b) AUTHORITY. CIB has the full corporate power and authority to
enter into this Agreement and to carry out the transactions contemplated to be
carried out by it. This Agreement has been duly executed and delivered by CIB
and constitutes the legal, valid and binding obligation or CIB, enforceable in
accordance with its terms.
(c) COMMUNITY REINVESTMENT ACT RATING. CIB received a rating of
satisfactory or outstanding pursuant to its most recent Community Reinvestment
Act (CRA) examination conducted by the FDIC as of August 25, 1997, and CIB has
received no notice of the downgrading of such CRA rating, nor any reason to
suspect that regulatory approval may not be obtained because or CIB's CRA
performance.
(d) CIB'S BOARD OF DIRECTORS APPROVAL. Marked Exhibit "G",
attached hereto and specifically incorporated herein by this reference is a
certified copy of its Board of Directors" Resolution approving this transaction.
<PAGE> 13
PURCHASE AGREEMENT Page 13
13. THE CLOSING AND EFFECTIVE DATE.
(a) CLOSING. The Closing of this transaction shall be after the
close of business on June 30, 1998. Either CIB or ARGO shall be entitled to
extend the date of Closing for up to thirty (30) days if the requesting party
notifies the other party in writing on or before June 15, 1998. Further, in the
event that all the necessary regulatory approvals have not been received thirty
(30) days prior to Closing, Closing will take place as soon as practical but not
later than thirty (30) days after receipt of regulatory approval and the
expiration of all notice periods. Whenever the term "Closing of" or "Closing
Date" or similar term is used in this Agreement, it shall be deemed to be a
reference thereto. CIB shall advise ARGO of the exact time and location of the
Closing in accordance with the foregoing.
(b) EFFECTIVE DATE. The transactions contemplated by this
Agreement shall become effective on such date as (i) all applicable legal
requirements or this Agreement (including occurrence of the Closing as described
in Paragraph 13(a) of this Agreement) and all other requirements of relevant law
have been fulfilled; (ii) all conditions precedent shall have been satisfied or
affirmatively waived; and (iii) the transaction shall be deemed effective under
all relevant rules and regulations duly promulgated by the FDIC, FRB, OBRE and
the OTS.
(c) TRANSFER DATE. The Transfer Date shall be the first business
day following the Closing Date. At 10 a.m. or earlier on the Transfer Date, ARGO
shall pay to CIB, by wire transfer or by transfer of immediately available
funds, the amount calculated pursuant to Paragraph 5 hereof, as of ARGO's close
of business on the Closing Date.
14. ESCROW DEPOSIT. Within seven (7) business days of the date of
this Agreement, CIB shall deposit into an interest bearing Escrow Account with
Harris Bank- Chicago (HBC) an amount of Two Hundred Eighty Eight Thousand
Dollars ($288,000). The Escrow Agreement shall be in form and substance
acceptable to CIB in its sole discretion, and shall provide inter alia, that
such Escrow funds together with all accrued interest may be withdrawn by CIB
upon the earlier of the termination of this Agreement or the closing of this
Agreement. ARGO and CIB shall be jointly and equally responsible for, and pay
any charges, costs, fees or expenses in connection with the Escrow Account or
administration thereof; provided that CIB's portion of the same shall not exceed
Two Hundred Dollars ($200) in the aggregate.
15. BRANCH OFFICE EMPLOYEES. CIB shall have the right, but not the
obligation, to interview and employ the existing personnel of the Branch Office.
CIB shall notify ARGO prior to the Closing of which employees CIB will offer
employment. CIB may offer employment to such employees upon terms and conditions
determined by CIB in its sole discretion.
<PAGE> 14
PURCHASE AGREEMENT Page 14
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties set forth in Paragraph 11 hereof shall be true as of and survive
the Closing and shall continue to be in force and effect thereafter. Without
limiting the effect of the foregoing, CIB's right and remedy for any breach of
warranty or misrepresentation shall be solely at CIB's election, and shall
include but not be limited to the termination of this Agreement. In addition to
CIB's right to terminate this Agreement for any breach of warranty or
misrepresentation by ARGO, ARGO shall indemnify and reimburse CIB for breaches
of representations, warranties, covenants and obligations of ARGO hereunder, and
all losses arising out of or relating to any of the Transferred Accounts and for
any liabilities of ARGO in connection with the Branch Office, except those
liabilities (other than deposit liabilities) expressly disclosed to and assumed
by CIB. This indemnification shall include reimbursement for all costs,
reasonable attorney's fees, and expenses and a return of the premium, if any,
relating to such Transferred Accounts. This indemnification shall survive the
Closing.
17. MISCELLANEOUS.
(a) NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and may be delivered via facsimile
transmittal, overnight carrier or registered or certified mail postage prepaid.
When notice is given via facsimile transmittal, it shall be conclusively deemed
to have been received on the date of transmittal provided the sender receives
confirmation of transmittal to the number set forth below. Notice given by
overnight carrier shall be conclusively deemed received on the date following
the date sent. Notice sent registered or certified mail, postage prepaid, shall
be conclusively deemed to have been received three (3) business days after its
deposit in the United States mail when sent to the other party at the received
address set forth below. Either party may change the address or facsimile number
to which notice shall be sent by giving written notice to the other party.
To ARGO: Mr. John G. Yedinak
Chairman of the Board and President
ARGO FEDERAL SAVINGS BANK,FSB
7600 West 63rd Street
Summit, Illinois 60501-1830
Facsimile No. (708) 496-6025
To CIB: J. Michael Straka
Chairman of the Board
CIB BANK
2913 W. Kirby Avenue
Champaign, Illinois 61826
Facsimile No. (217) 355-4516
<PAGE> 15
PURCHASE AGREEMENT Page 15
(b) SUCCESSORS AND ASSIGNS. All terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective transferees, successors and assigns, but the Agreement may
not be assigned by either party without the written consent of the other.
(c) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one action and the
same instrument.
(d) GOVERNING LAW. This Agreement is being delivered and is
intended to be performed in the State of Illinois and shall be construed and
enforced in accordance with the laws of the State of Illinois of the United
States of America, as applicable.
(e) REMEDIES NOT EXCLUSIVE. No remedy conferred by any of the
specific provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise. The election of any one or more remedies by
either of the parties shall not constitute a waiver of the right to pursue other
available remedies.
(f) ASSIGNMENT. This Agreement shall not be assignable by either
party without the written consent of the other. Nothing in this Agreement,
expressed or implied, is intended to confer upon any person other than the
parties hereto and their successors and permitted assigns any right or remedy
under or by reason of this Agreement.
(g) COSTS. All of the costs and expenses, including legal and
accounting fees attendant to this transaction, incurred by either party in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring the same.
(h) MODIFICATION. This Agreement may be amended or modified in
whole or in part at any time by an agreement in writing executed on behalf of
CIB and ARGO.
(i) ABANDONMENT. The transactions contemplated by this Agreement
may be abandoned on or before the effective date notwithstanding adoption or
this Agreement or the approval of any transaction contemplated by this Agreement
by the Boards or Directors of CIB and ARGO or any governmental agency by (i) the
mutual agreement of the Boards of Directors of CIB and ARGO; or (ii) by the
Board or Directors of CIB if any of the conditions provided in Paragraph 9
herein shall not have satisfied, complied with or performed in any material
respect, and CIB shall not have waived such failure of
<PAGE> 16
PURCHASE AGREEMENT Page 16
satisfaction, noncompliance or non-performance; or (iii) by the Board of
Directors of ARGO if any of the conditions provided in Paragraph 10 shall not
have been satisfied, complied with or performed in any material respect, and
ARGO shall not have waived such failure of satisfaction, noncompliance or
non-performance.
In the event of any termination, written notice setting forth the
reason thereof shall forthwith be given by CIB, if it is the terminating party,
to ARGO, or by ARGO, if ARGO is the terminating party, to CIB.
If the transaction is abandoned as defined in this Agreement, then (i)
this Agreement shall forthwith come wholly void and of no effect and without
liability to any party to this Agreement: and (ii) each party hereto shall pay
all of its costs incurred by it in the negotiation, preparation and execution of
this Agreement and the obtaining of the necessary approvals thereof, including
fees and expenses of legal counsel, accountants, and other experts, except that
ARGO shall pay costs and expenses of CIB in the event of ARGO's breach of
representations, warranties, covenants and obligations as more fully described
in Paragraph 11 (g) hereof.
(j) PARAGRAPH HEADINGS. The paragraph headings in this Agreement
are for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(k) GENDER, ETC. Words herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural and any other gender, masculine, feminine or neuter,
as the context requires.
(l) CONFIDENTIALITY. CIB and ARGO each agree to keep confidential
all information, documents, books, records and any other material no matter how
obtained from the other party hereto unless and until the transaction
contemplated herein is consummated, and if such transaction is not consummated,
each party hereto will return or cause to be returned to the applicable party
all such documents, material and information then in its possession, or the
possession of a representative of either, and neither party hereto will divulge
or use such information until it becomes known generally to the public.
18. COOPERATION. CIB and ARGO further covenant and agree that each
shall cooperate in expeditiously obtaining all necessary or appropriate
governmental approvals, consents or permits and in preparing any and all
applications contemplated by this Agreement, and will furnish such supporting
information or exhibits as may be required, and will not do, sanction or
knowingly permit any person under the control of each to do anything which might
in any way hinder, delay or prevent the expeditious approval of the transactions
<PAGE> 17
PURCHASE AGREEMENT Page 17
contemplated by this Agreement or commit any act or omission which might be
reasonably expected to have such an effect.
19. NOTICE TO ACCOUNT HOLDERS. CIB and ARGO further covenant and
agree that each shall cooperate in preparing a mailing notifying all
accountholders affected by this Agreement of the transactions contemplated
hereby. The language of the said letter shall be mutually agreeable to CIB and
ARGO. ARGO shall provide necessary mailing labels for transmittal of the same.
The said letter shall not be mailed until CIB and ARGO have received all
necessary regulatory approvals contemplated under the terms of this Agreement.
The cost of preparation of the aforescribed mailing labels and the costs of
mailing of the letter shall be a joint obligation of ARGO and CIB, in equal
amounts.
20. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between CIB and ARGO. There are no written or oral agreements between
CIB and ARGO in connection with this Agreement that are not set forth herein or
in the exhibits attached hereto. This Agreement supersedes and replaces any and
all prior agreements between CIB and ARGO whether written or oral.
21. TERMINATION; AMENDMENT. This Agreement may be amended in writing
at any time with the mutual consent of the Board of Directors of CIB and ARGO.
CIB and ARGO hereby covenant that neither shall unreasonably take any action or
refuse to take any action, whether or not specifically or generally contemplated
as a part of this Agreement, wherein such action or non-action would interfere
with the accomplishment of the transaction contemplated by this Agreement. This
Agreement and the obligations created hereby shall terminate in the event that
any one or the following events occur: (i) the necessary regulatory approvals
have not been obtained prior to the Closing Date, or (ii) the mutual agreement
of the parties. Any material condition contained in the approval of the
transactions contemplated by this Agreement by the FDIC, FRB, OBRE or the OTS
will be subject to the consent of the Boards of Directors of both CIB and ARGO,
as limited under the terms of this Agreement.
22. SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction; provided, however, that in the event the
invalid provision shall result in a material change in the terms or conditions
of this Agreement, the party against whom the provision affects may terminate
this Agreement; provided that such invalid or unenforceable provision(s) cannot
be replaced with a new provision which has the most nearly similar permittable
economic effect and which is acceptable to CIB and ARGO.
<PAGE> 18
PURCHASE AGREEMENT Page 18
23. RULE OF CONSTRUCTION. The language and all parts of this
Agreement shall in all cases be construed as a whole according to its fair
meaning, strictly neither for nor against any party hereto, and without
implication or presumption that the terms hereof shall be more strictly
construed against any party by reason of the rule of construction that a
document is to be construed more strictly against the person who prepared this
Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
ARGO FEDERAL SAVINGS BANK, FSB
BY: /s/ John G. Yedinak
-------------------------------------
John G. Yedinak
Chairman of the Board and President
ATTEST:
/s/ Frances M. Pitts
- -------------------------------
Secretary
CIB BANK
BY: /s/ J. Michael Straka
-------------------------------------
J. Michael Straka
Chairman of the Board
ATTEST:
/s/ Steven T. Klitzing
- -------------------------------
Secretary
<PAGE> 19
PURCHASE AGREEMENT EXHIBIT LIST
<TABLE>
<S> <C>
EXHIBIT A Deposit Account Trial Balances
EXHIBIT B Pledged, Encumbered, and Attached Deposit Accounts
EXHIBIT C Furniture, Fixtures and Equipment Listing
EXHIBIT D Lease Agreement for the Gurnee Branch Facility
EXHIBIT E Material Contracts Relating to the Gurnee Branch Facility
EXHIBIT F Certified Copy of Board Resolution Approving the Transaction -
ARGO
EXHIBIT G Certified Copy of Board Resolution Approving the Transaction -
Central Illinois Bank
</TABLE>
