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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant To Section 12(b) or (g) Of
The Securities Exchange Act Of 1934
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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)
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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
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Central Illinois Bank*
Central Illinois Bank MC*
Hillside Investors, Ltd.
CIB Bank*
Wisconsin
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First Ozaukee Capital Corp.
Marine Bank and Savings*
Indiana
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CIB Bank*
Banking Support Operations
Illinois
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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
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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.
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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 26 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 four new
facilities in Elmhurst and Rantoul, Illinois, Indianapolis, Indiana and
Wauwatosa, Wisconsin. 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 CIB will be the
surviving corporation after the merger and all of the banking operations of both
banks will be conducted under the name Central Illinois
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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".
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".
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
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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
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$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.
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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
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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.
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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
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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.
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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.
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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
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<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.
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<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.
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<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
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<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.
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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 Section 21E of 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.
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<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. This
discussion and analysis should be read in conjunction with the consolidated
financial statements and footnotes contained elsewhere within this document.
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.
Through this growth, the Company has also been able to improve its earnings,
minimize 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.
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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.
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<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 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.
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.
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 to the Small
Business Administration.
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 is the primary earning asset of the Company. 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.
Due to the inherent risk in 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 loan portfolio, the Company has developed and
implemented a comprehensive loan policy. The loan policy establishes the
underwriting standards of the Company, loan officer lending limits, a loan
committee, 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. The
Company will not sacrifice credit quality for growth and has established these
policies and procedures in order to minimize the credit risk of the loan
portfolio.
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.
The increase in the provision for each year is primarily a 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. The establishment of a more comprehensive loan review
program, including a more detailed analysis of the allowance, also resulted in
additional provisions to the allowance.
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, net charge-offs, and the allowance is primarily
related to the increase in average loans between each period. The implementation
of a more comprehensive loan review function, as previously discussed, also
resulted in the identification of certain problem loans, which has required
additional provisions to the allowance. The majority of net charge-offs occurred
in the commercial loan portfolio, which represented 88.8%, 83.8%, and 107.0% of
total net charge-offs for 1997, 1996, and 1995 respectively.
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 measurements 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.
48
<PAGE> 50
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>
49
<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 be 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 3 full-service facilities in operation.
A fourth facility is planned for construction, pending FDIC approval. 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
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<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 will be
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 is presently being remodeled. The lease runs until May of
2008, and has provision for 2 consecutive 5 year renewal options. The Company
anticipates this facility will be opened in June of 1998. The Wauwatosa facility
will be 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,
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<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 April 3, 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 John and Mary Lydia Hadley(1) 5,217 shares directly 5.66%
915 West Park Street owned
Champaign, IL 61821
Common Stock Strategic Capital Management 6,239 shares(2) 6.76%
Inc./Strategic Capital Trust
Company
</TABLE>
- ----------------------
(1) These beneficial owners possess shared voting and investment power.
(2) 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 5,489 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 April 3, 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) 0.61%
Norman Baker 2,318(2) 2.51%
John T. Bean 136(3) 0.15%
W. Scott Blake 1,288(4) 1.40%
Steven C. Hillard 959(5) 1.04%
Dean Katsaros 939(6) 1.02%
Jerry D. Maahs 1,909(7) 2.07%
J. Michael Straka 1,538(8) 1.67%
Donald M. Trilling 1,450(9) 1.57%
Howard E. Zimmerman 1,010(10) 1.09%
All directors and executive
officers as a group (17 persons) 13,087(11) 14.19%
- -----------------------
</TABLE>
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<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 109 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 840 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 249 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,
486 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.
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<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 Director of the Company; 1987 Secretary/Treasurer of
term expires in 2001. Illini Title Distributors
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 $36,406
=======
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No stock options or SARs were granted to Mr. J. Michael Straka during the
Company's last completed fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table summarizes information concerning each exercise of
stock options and freestanding SARs during the last completed fiscal year by Mr.
J. Michael Straka, and the fiscal year-end value of unexercised options and SARs
on an aggregated basis.
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<PAGE> 68
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Fiscal Year End (#) Fiscal Year End ($)
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
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<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.
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<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
March 26, 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.
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<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.
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<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
in its most recent private offering, made in October of 1997. 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 April 3, 1998, 5,895 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 April 3, 1998, the Company's common stock was held of record by
approximately 728 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
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<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 three 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 the three
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.
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, 90,768 shares of
which were issued and outstanding at April 3, 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
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<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
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<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.
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<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
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<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.
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<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
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
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 29th day of April, 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 29th day
of April, 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> 113
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
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 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CENTRAL ILLINOIS BANCORP., INC.
Article One: The corporation was incorporated on November 26, 1985 as
SIDNEY BANCORPORATION, INC. On November 24, 1987, the corporation
changed its name to CENTRAL ILLINOIS BANCORP., INC. Effective upon the
filing of these amended and restated Articles of Incorporation, the
name of the corporation is changed to CENTRAL ILLINOIS BANCORP, INC.
Article Two: Registered Agent: Steven T. Klitzing
Registered Office: Central Illinois Bank
219 South David Street
Sidney, Illinois 61877
Article Three: The duration of the corporation is perpetual.
Article Four: Purpose or purposes for which the corporation is
organized:
To engage in any lawful acts or activities for which
corporations may be incorporated under the Illinois Business
Corporation Act of 1983, as amended.
Article Five: Authorized Shares
Paragraph 1: The number of shares which the corporation is
authorized to issue, itemized by class, series and par value, if any,
is:
<TABLE>
<CAPTION>
Par Value Number of Shares
Class Series Per Share Authorized
<S> <C> <C> <C>
Common None $1.00 50,000,000
</TABLE>
Paragraph 2: The preferences, qualifications, limitations,
restrictions and special or relative rights in respect of the shares of
each class are:
Pursuant to Section 7.40 (b) of the Illinois Business
Corporation Act of 1983, as amended (the "Act"), cumulative
voting rights are hereby eliminated in all circumstances.
Pursuant to Section 2.10 (b) (2)(v) of the Act, any
provisions of the Act that require for approval of corporate
action a two-thirds vote of the shareholders shall be
superseded by these Articles of Incorporation to
<PAGE> 2
require the vote of the holders of a majority of the
outstanding shares of each class entitled to vote as a class
on the matter.
Article Six: Number of Shares Issued and Outstanding and the
Amount of Paid-In Capital.
The number of shares issued and outstanding is 90,735 common
shares, par value $1.00 per share. The paid-in capital is $86,331,307.
Article Seven. Other Provisions.
A director of the Corporation shall not be personally liable
to the Corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
shareholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii)
under Section 8.65 of the Illinois Business Corporation Act of 1983
(the "Act"), as it now exists or as it may be amended, or (iv) for any
transaction from which the director derived an improper personal
benefit. If the Act is amended to authorize the further elimination or
limitation of the liability of directors, then in addition to the
limitation on personal liability provided above, the liability of a
director of the Corporation shall be limited to the fullest extent
permitted by the Act as amended. Any repeal or modification of this
article by the shareholders of the Corporation shall be prospective
only, and shall not adversely affect any limitation on the personal
liability of a director of the Corporation existing at the time of the
repeal or modification.
-2-
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
CENTRAL ILLINOIS BANCORP, INC.
an Illinois corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I OFFICES AND RECORDS....................................................................................1
Section 1.1 Registered Office..................................................................................1
Section 1.2 Other Offices......................................................................................1
Section 1.3 Corporate Records - Examination by Share-holders...................................................1
ARTICLE II SHAREHOLDERS..........................................................................................2
Section 2.1 Annual Meeting.....................................................................................2
Section 2.2 Special Meetings...................................................................................2
Section 2.3 Time and Place of Meeting..........................................................................2
Section 2.4 Notice of Meeting; Waiver..........................................................................2
Section 2.5 Fixing Record Date.................................................................................3
Section 2.6 Voting Lists.......................................................................................3
Section 2.7 Quorum.............................................................................................4
Section 2.8 Voting of Shares...................................................................................4
Section 2.9 Voting of Shares by Certain Holders................................................................4
Section 2.10 Proxies...........................................................................................5
Section 2.11 Informal Action by Shareholders...................................................................5
Section 2.12 Voting by Ballot..................................................................................6
Section 2.13 Inspectors........................................................................................6
ARTICLE III BOARD OF DIRECTORS...................................................................................7
Section 3.1 General Powers.....................................................................................7
Section 3.2 Number, Tenure and Qualifications..................................................................7
Section 3.3 Regular Meetings...................................................................................7
Section 3.4 Special Meetings..................................................................................7
Section 3.5 Notice; Waiver....................................................................................7
Section 3.6 Quorum.............................................................................................8
Section 3.7 Vacancies..........................................................................................8
Section 3.8 Informal Action....................................................................................9
Section 3.9 Telephonic Meetings................................................................................9
Section 3.10 Committees........................................................................................9
Section 3.11 Presumption of Assent............................................................................10
Section 3.12 Compensation.....................................................................................10
Section 3.13 Removal of Directors.............................................................................10
ARTICLE IV OFFICERS.............................................................................................11
Section 4.1 Number............................................................................................11
Section 4.2 Election and Term of Office.......................................................................11
Section 4.3 Removal...........................................................................................11
Section 4.4 Chairman..........................................................................................12
Section 4.5 President.........................................................................................12
Section 4.6 Vice Presidents...................................................................................13
Section 4.7 Secretary.........................................................................................13
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Section 4.8 Treasurer.........................................................................................14
Section 4.9 Assistant Treasurers and Assistant Secretaries....................................................14
Section 4.10 Controller.......................................................................................14
Section 4.11 Appointive Officers..............................................................................15
Section 4.12 Salaries.........................................................................................15
Section 4.13 Vacancies........................................................................................15
ARTICLE V CERTIFICATES FOR SHARES AND THEIR TRANSFER............................................................16
Section 5.1 Certificates For Shares...........................................................................16
Section 5.2 Transfer of Shares................................................................................16
Section 5.3 Lost Certificates.................................................................................17
ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS................................................................17
Section 6.1 Contracts.........................................................................................17
Section 6.2 Loans.............................................................................................17
Section 6.3 Checks, Drafts, Etc...............................................................................17
Section 6.4 Deposits..........................................................................................17
ARTICLE VII INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS........................................................................................18
Section 7.1 Third Party Action................................................................................18
Section 7.2 Derivative Action.................................................................................18
Section 7.3 Successful Defense................................................................................19
Section 7.4 Procedures........................................................................................19
Section 7.5 Expenses..........................................................................................19
Section 7.6 Not Exclusive Provisions..........................................................................19
Section 7.7 Insurance.........................................................................................20
Section 7.8 Shareholder Notice................................................................................20
Section 7.9 Merger............................................................................................20
Section 7.10 Definitions......................................................................................20
ARTICLE VIII MISCELLANEOUS PROVISIONS...........................................................................21
Section 8.1 Fiscal Year.......................................................................................21
Section 8.2 Distributions.....................................................................................21
Section 8.3 Seal..............................................................................................21
Section 8.4 Audits............................................................................................21
Section 8.5 Resignations......................................................................................21
ARTICLE IX AMENDMENTS...........................................................................................22
Section 9 Amendments.........................................................................................22
</TABLE>
-ii-
<PAGE> 4
AMENDED AND RESTATED
BY-LAWS
OF
CENTRAL ILLINOIS BANCORP, INC.
an Illinois corporation
(Adopted April 30, 1998)
ARTICLE I
OFFICES AND RECORDS
Section 1.1 Registered Office. The Corporation shall continuously
maintain in the State of Illinois a registered office and a registered agent
whose business office shall be the registered office.
Section 1.2 Other Offices. The Corporation may have such other
offices, either within or without the State of Illinois, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
Section 1.3 Corporate Records - Examination by Share-holders. The
Corporation shall keep correct and complete books and records of account and
shall also keep minutes of the proceedings of its shareholders and Board of
Directors and committees thereof. The Corporation also shall keep at its
registered office or principal place of business in the State of Illinois, or at
the office of a transfer agent or registrar in the State of Illinois, a record
of its shareholders, giving the names and addresses of all shareholders and the
number and class of shares held by each.
Upon the written request of any shareholder of the
Corporation, the Corporation shall mail to such shareholder within fourteen (14)
days after receipt of such request a balance sheet as of the close of its latest
fiscal year and a profit and loss statement for such fiscal year; provided that
if such request is received by the Corporation before such financial statements
are available, the Corporation shall mail such financial statements within
fourteen (14) days after they become available, but in any
<PAGE> 5
event within one hundred twenty (120) days after the close of its latest fiscal
year.
Any person who is a shareholder of record of the Corporation
shall have the right to examine, in person or by agent, at any reasonable time
or times, the Corporation's books and records of account, minutes, voting trust
agreements filed with the Corporation, and the record of shareholders, and to
make extracts therefrom, but only for a proper purpose. In order to exercise
this right, a shareholder must make written demand upon the Corporation, stating
with particularity the records sought to be examined and the purpose therefor.
ARTICLE II
SHAREHOLDERS
Section 2.1 Annual Meeting. An annual meeting of the shareholders
shall be held on the last Thursday in April of each year for the purpose of
electing the directors and for the transaction of such other business as may
come before the meeting. If the day fixed for the annual meeting shall be a
legal holiday, such meeting shall be held on the next succeeding business day.
Section 2.2 Special Meetings. Special meetings of the shareholders
may be called by the Chairman, President, by the Board of Directors, and shall
be called by the President at the request of the holders of not less than
one-fifth of all the outstanding shares entitled to vote on the matter for which
the meeting is called, for the purpose or purposes stated in the call of the
meeting. Special meetings of the shareholders may also be called by such other
officers or persons as provided in the Articles of Incorporation or these
By-Laws.
Section 2.3 Time and Place of Meeting. The Board of Directors may
designate any time and place as the time and place of meeting for any annual or
special meeting of shareholders called by the Board of Directors. If no
designation is made, or if a special meeting is otherwise called, the place of
the meeting shall be at the registered office of the Corporation in the State of
Illinois.
Section 2.4 Notice of Meeting; Waiver. Written or printed notice
stating the place, day, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for
-2-
<PAGE> 6
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, or in the case of a merger,
consolidation, share exchange, dissolution, or sale, lease, or exchange of
assets, not less than twenty (20) nor more than sixty (60) days before the date
of the meeting, either personally or by mail, by or at the direction of the
Chairman, President, or the Secretary, or the officer or persons calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, with postage thereon prepaid, addressed to the shareholder at his
address as it appears on the records of the Corporation. Except as provided
herein, when a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. Attendance at any meeting shall
constitute waiver of notice thereof unless the person at the meeting objects to
the holding of the meeting because proper notice was not given.
Section 2.5 Fixing Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend, or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of shares or for the purpose of any other lawful action,
the Board of Directors of the Corporation may fix in advance a record date for
such determination of shareholders, which shall not be more than sixty (60) days
and, for a meeting of shareholders, not less than ten (10) days, or in the case
of a merger, consolidation, share exchange, dissolution or sale, lease or
exchange of assets, not less than twenty (20) days, immediately preceding such
meeting. If no record date is fixed, the record date for the determination of
shareholders for any purpose shall be the date on which notice of the meeting is
mailed or the date the Board of Directors adopts the resolution relating
thereto. A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting.
Section 2.6 Voting Lists. The officer or agent having charge of the
transfer books for shares of the Corporation shall make, within twenty (20) days
after the record date for a meeting of shareholders or ten (10) days before such
meeting, whichever is earlier, a complete list of shareholders entitled to vote
at such meeting, arranged in alphabetical order, showing the address of and the
number of shares registered in the name of the
-3-
<PAGE> 7
shareholder, which list, for a period of ten (10) days prior to such meeting,
shall be kept on file at the registered office of the Corporation and shall be
open to inspection by any shareholder and to copying at the shareholder's
expense, for any proper purpose at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to inspection by any shareholder during the whole time of
the meeting. The original share ledger or transfer book, or a duplicate thereof
kept in the State of Illinois, shall be prima facie evidence as to who are the
shareholders entitled to examine such list or share ledger or transfer book or
to vote at any meeting of shareholders.
Section 2.7 Quorum. A majority of the outstanding shares of the
Corporation entitled to vote on a matter, represented in person or by proxy,
shall constitute a quorum at any meeting of shareholders for consideration of
such matter at a meeting of shareholders; provided that if less than a majority
of the outstanding shares are represented at such meeting, a majority of the
shares so represented may adjourn the meeting at any time without further
notice. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on a matter shall be the
act of the shareholders, unless the vote of a greater number or voting by
classes is required by the Illinois Business Corporation Act of 1983, the
Articles of Incorporation or these By-Laws. At any adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted at the original meeting. Withdrawal of shareholders from any meeting
shall not cause failure of a duly constituted quorum at that meeting. The
Articles of Incorporation may require any number of a percent greater than a
majority up to and including a requirement of unanimity to constitute a quorum.
Section 2.8 Voting of Shares. Each outstanding share, regardless of
class, shall be entitled to one vote upon each matter submitted to vote at a
meeting of shareholders, except as otherwise provided in the Articles of
Incorporation of the Corporation.
Section 2.9 Voting of Shares by Certain Holders. Shares registered
in the name of another corporation, domestic or foreign, may be voted by any
officer, agent, proxy or other legal representative authorized to vote such
shares under the law of incorporation of such corporation or as the by-laws of
such corporation may prescribe, or, in the absence of such provision, as the
board of directors of such corporation may determine.
-4-
<PAGE> 8
A corporation may treat the president or other person holding
the position of chief executive officer of such other corporation as authorized
to vote such shares, together with any other person indicated and any other
holder of an office indicated by the corporate shareholder to the corporation as
a person or an office authorized to vote such shares. Such persons and offices
indicated shall be registered by the Corporation on the transfer books for
shares and included in any voting list prepared in accordance with Section 7.30
of the Illinois Business Corporation Act of 1983.
Shares registered in the name of a deceased person, a minor
ward or a person under legal disability may be voted by the administrator,
executor, or court appointed guardian, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor, or court
appointed guardian. Shares registered in the name of a trustee may be voted by
him or her, either in person or by proxy.
A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Shares of its own stock belonging to the Corporation shall not
be voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time, but shares
of its own stock held by it in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
Section 2.10 Proxies. Each shareholder entitled to vote at a meeting
of shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. No proxy shall be valid after eleven (11) months from the date of its
execution, unless otherwise provided in the proxy.
Section 2.11 Informal Action by Shareholders. Any action required to
be taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of the shareholders, may be taken without a meeting and
without a vote if a consent in writing, setting forth the action so taken, shall
be signed (i) by all of the shareholders entitled to vote with respect to the
subject matter thereof, or (ii) by the holders of outstanding
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shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voting if five (5) days prior notice of the
proposed action is given in writing to all of the shareholders entitled to vote
with respect to the subject matter thereof.
Prompt notice of the taking of the corporation action without
a meeting by less than unanimous written consent shall be given in writing to
those shareholders who have not consented in writing. In the event that the
action which is consented to is such as would have required the filing of a
certificate under any other section of the Illinois Business Corporation Act of
1983 other than Section 7.10, if such action had been voted on by the
shareholders at a meeting thereof, the certificate filed under such other
section of Illinois Business Corporation Act of 1983, shall state, in lieu of
any statement required by such section concerning any vote of shareholders, that
written consent has been given in accordance with the provisions of this Section
7.10 of the Illinois Business Corporation Act of 1983, and that written notice
has been given as provided in said Section 7.10.
Section 2.12 Voting by Ballot. Voting on any question or in any
election may be by voice unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
Section 2.13 Inspectors. At any meeting of shareholders, the chairman
of the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of
shares represented at the meeting, based upon their determination of the
validity and effect of proxies; count all votes and report the results; and do
such other acts as are proper to conduct the election and voting with
impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by
him or by a majority of them if there be more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
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ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors.
Section 3.2 Number, Tenure and Qualifications. The number of
directors of the Corporation shall be ten (10), divided into three classes, as
follows: four directors shall be elected to a three-year term at the 1998 Annual
Meeting of Shareholders, three directors shall be elected to a three-year term
at the 1999 Annual Meeting of Shareholders, and three directors shall be elected
to a three-year term at the 2000 Annual Meeting of Shareholders. The directors
shall hold office until the next annual meeting of shareholders or, thereafter,
until their successors shall have been elected and qualified. Directors need not
be residents of Illinois or shareholders of the Corporation. The number of
directors may be increased or decreased from time to time by the amendment of
this section, but no decrease shall have the effect of shortening the term of
any incumbent director. A director may resign at any time by giving written
notice to the Board of Directors, its Chairman, or to the President or Secretary
of the Corporation. A resignation is effective when the notice is given unless
the notice specifies a future date. The pending vacancy may be filled before the
effective date, but the successor shall not take office until the effective
date.
Section 3.3 Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-law immediately after,
and at the same place, as the annual meeting of shareholders, unless otherwise
designated by the Board of Directors. The Board of Directors may, by resolution,
provide the time and place for the holding of additional regular meetings
without other notice than such resolution.
Section 3.4 Special Meetings. Special meetings of the Board of
Directors may be called at the request of the Chairman, President or any two
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place as the place for holding any special
meeting of the Board of Directors called by them.
Section 3.5 Notice; Waiver. Notice of any special meeting shall be
given by written notice to each director at his or her
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business address. Any person or persons authorized to call special meetings of
the Board of Directors may give notice of special meetings by regular United
States mail; such notice shall be given at least two (2) days prior to the date
of the meeting and shall be deemed to be delivered when deposited in the United
States mail so addressed, with postage thereon prepaid. Any person or persons
authorized to call special meetings may also give notice of special meetings by
facsimile transmission, telegram, overnight private or United States mail, or
personal delivery. If by telegram, facsimile transmission, or personal delivery,
such notice shall be given at least twenty-four (24) hours prior to the meeting
and shall be deemed delivered when the telegram is delivered to the telegraph
company, when the facsimile transmission is confirmed by the director or an
agent of the director at his business address, or when personal delivery is
made, as applicable. Attendance of a director at any meeting shall constitute a
waiver of notice of such meeting except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
Section 3.6 Quorum. A majority of the number of directors fixed by
these By-Laws, or in the absence of a By-law fixing the number of directors, the
number stated in the Articles of Incorporation or named by the incorporators,
shall constitute a quorum for transaction of business at any meeting of the
Board of Directors unless a greater number is required by the Articles of
Incorporation or these By-Laws, provided that if less than a majority of such
directors is present at said meeting, a majority of the directors present may
adjourn the meeting at any time without further notice. If the Corporation has a
variable range board of directors, a quorum shall consist of a majority of the
directors then in office, but not less than a majority of the minimum number of
directors specified for the variable range of the Board unless the Articles of
Incorporation or these By-Laws specify a greater number. The act of the majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors, unless the act of or greater number is required
by the Illinois Business Corporation Act of 1983, the Articles of Incorporation
or these By-Laws.
Section 3.7 Vacancies. Any vacancy occurring in the Board of
Directors and any directorship to be filled by reason of an increase in the
number of directors may be filled by election
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at an annual meeting or at a special meeting of shareholders called for that
purpose; provided, however, that vacancies occurring between meetings of
shareholders by reason of an increase in the number of directors or otherwise
may be filled by the Board of Directors. A director elected by the shareholders
to fill a vacancy shall hold office for the balance of the term for which he was
elected. A director elected or appointed by the Board of Directors to fill a
vacancy shall serve until the next meeting of shareholders at which directors
are to be selected.
Section 3.8 Informal Action. Unless specifically prohibited by the
Articles of Incorporation or these By-Laws, any action required by the Illinois
Business Corporation Act of 1983 to be taken at a meeting of the Board of
Directors, or any other action which may be taken at a meeting of the Board of
Directors or any committee thereof, may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by all the
directors entitled to vote with respect to the subject matter thereof, or by all
the members of the committee, as the case may be. Any such consent signed by all
the directors or all the members of a committee shall have the same effect as an
unanimous vote.
The consent shall be evidenced by one or more written approvals,
each of which sets forth the action taken and bears the signature of one or more
directors. All the approvals evidencing the consent shall be delivered to the
Secretary to be filed with the corporate records. The action taken shall be
effective when all the directors have approved the consent unless the consent
specifies a different effective date.
Section 3.9 Telephonic Meetings. Unless specifically prohibited by
the Articles of Incorporation or these By-Laws, members of the Board of
Directors or of any committee of the Board of Directors may participate in and
act at any meeting of such board or committee through the use of a telephone
conference or other communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in such meetings
shall constitute attendance and presence in person at the meeting of the person
or persons so participating.
Section 3.10 Committees. The Board of Directors, by a resolution
adopted by a majority of the number of directors fixed by the By-Laws may create
one or more committees of the Board of Directors and may designate two or more
directors to constitute such a committee, which committee, to the extent
provided in such resolution, shall have and exercise all of the authority of the
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Board of Directors in the management of the Corporation, except as otherwise
provided in the Illinois Business Corporation Act of 1983. Vacancies in the
membership of any committee shall be filled by the Board of Directors at a
regular or special meeting of the Board of Directors. Each committee shall keep
regular minutes of its proceedings and report the same to the Board when
requested.
Unless the appointment by the Board of Directors requires a
greater number, a majority of any committee shall constitute a quorum, and a
majority of a quorum is necessary for committee action. A committee may act by
unanimous consent in writing without a meeting and, subject to the provision of
these By-Laws or action by the Board of Directors, any committee by majority
vote of its members shall determine the time and place of meetings and the
notice required therefor.
Section 3.11 Presumption of Assent. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to the
action taken unless his or her dissent shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 3.12 Compensation. The Board of Directors, by the affirmative
vote of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the Corporation as directors,
officers, or otherwise, notwithstanding the provisions of Section 8.60 of the
Illinois Business Corporation Act of 1983. By resolution of the Board of
Directors, the directors may be paid their expenses, if any, of attendance at
each meeting of the Board. No such payment previously mentioned in this section
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor.
Section 3.13 Removal of Directors. Shareholders at a meeting may
remove one or more directors, with or without cause, by the affirmative vote of
the holders of a majority of the outstanding shares then entitled to vote at an
election of directors, except as follows:
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(1) No director shall be removed at a meeting of the
shareholders unless the notice of such meeting shall state that a purpose of the
meeting is to vote upon the removal of one or more directors named in the
notice. Only the named director or directors may be removed at such meeting.
(2) If the Corporation has cumulative voting and less
than the entire Board is to be removed, no director may be removed, with or
without cause, if the votes cast against his or her removal would be sufficient
to elect him or her if then cumulatively voted at an election of the entire
Board of Directors.
(3) If a director is elected by a class or series of
shares, he or she may be removed only by the shareholders of that class or
series.
ARTICLE IV
OFFICERS
Section 4.1 Number. The officers of the Corporation shall be a
Chairman, a President, one or more Vice-Presidents, a Secretary, a Treasurer,
and such other officers as may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person. One officer
shall have the authority to certify the By-Laws, resolutions of the shareholders
and Board of Directors and committees thereof, and other documents of the
Corporation as true and correct copies thereof.
Section 4.2 Election and Term of Office. The officers of the
Corporation shall be elected or appointed annually by the Board of Directors at
the regular meeting of the Board of Directors or at a meeting held in lieu
thereof. Vacancies may be filled or new offices created and filled at any
meeting of the Board of Directors. Except as provided herein, each officer shall
hold office until his or her successor shall have been duly elected and shall
have qualified or until his death, resignation or removal. Election of an
officer shall not of itself create any contract rights of that officer against
the Corporation.
Section 4.3 Removal. Any officer elected or appointed by the Board
of Directors may be removed by the Board of Directors whenever in its judgment
the best interests of the Corporation
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would be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
Section 4.4 Chairman. The Chairman shall serve as the Chairman of the
Board of Directors. The Chairman shall preside at all meetings of the Board of
Directors. The Chairman shall have power to sign, with the Secretary or
Assistant Secretary, or any other proper officer of the Corporation thereunto
authorized by the Board of Directors, certificates for shares of the
Corporation, deeds, mortgages, bonds, contracts or other instruments which the
Board of Directors has authorized to be executed except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the Corporation
or shall be required by law to be otherwise signed or executed. In the absence
or disability of the President, the Chairman shall preside at all meetings of
the shareholders. The Chairman shall also have such other powers and perform
such other duties as from time to time may be delegated to him or her by the
Board of Directors, or as may be prescribed by these By-Laws.
Section 4.5 President. The President shall serve as the Chief
Executive Officer of the Corporation. The President shall preside at all
meetings of the shareholders. Subject to the control of the Board of Directors,
the President shall supervise and direct all of the business, financial, legal
and shareholder affairs of the Corporation. The President shall be responsible
for seeing that the policies of the Corporation as established by the Board of
Directors are carried out. He or she shall be ex officio a member of all
standing committees to which he or she is not appointed by the Board of
Directors. The President shall have power to sign, with the Secretary or
Assistant Secretary, or any other proper officer of the Corporation thereunto
authorized by the Board of Directors, certificates for shares of the
Corporation, deeds, mortgages, bonds, contracts or other instruments which the
Board of Directors has authorized to be executed except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the Corporation
or shall be required by law to be otherwise signed or executed. In the absence
or disability of the Chairman, the President shall preside at all meetings of
the Board of Directors. In general, the President shall perform all duties
incident to the office of the Chief Executive Officer and such other duties as
may be prescribed by the Board of Directors from time to time.
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Section 4.6 Vice Presidents. The Vice President (or if there be more
than one, the Vice Presidents) shall assist the President in the discharge of
his or her duties as the President may direct and shall perform such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors. In the absence of the President or in the event of his or
her death, inability or refusal to act, the Vice President (or in the event
there be more than one Vice President, the Vice Presidents in the order of their
seniority as determined from time to time by the Board of Directors) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Except in
those instances in which the authority to execute is expressly delegated to
another officer or agent of the Corporation or a different mode of execution is
expressly prescribed by the Board of Directors or these By-Laws, the Vice
President (or each of them if there are more than one) may execute for the
Corporation certificates for its shares and any contracts, deeds, mortgages,
bonds or other instruments, which the Board of Directors has authorized to be
executed, and he or she may accomplish such execution either under or without
the seal of the Corporation and either individually or with the Secretary, any
Assistant Secretary, or any other officer thereunto authorized by the Board of
Directors, according to the requirements of the form of the instrument.
Section 4.7 Secretary. The Secretary shall (a) keep the minutes of
the shareholders' and the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these By-Laws or as required by law; (c) be custodian of
the corporate records and of the seal of the Corporation, if such a seal shall
exist; (d) keep a register of the post office address of each shareholder which
shall be furnished to the Secretary by each such shareholder; (e) sign with the
Chairman, President or a Vice President, or any other officer thereunto
authorized by the Board of Directors, certificates for shares of the
Corporation, the issuance of which shall have been authorized by the Board of
Directors and any contracts, deeds, mortgages, bonds, or other instruments which
the Board of Directors has authorized to be executed, according to the
requirements of the form of the instrument, except when a different mode of
execution is expressly prescribed by the Board of Directors or these By-Laws;
(f) have general charge of the stock transfer books of the Corporation; and (g)
in general perform all duties incident to the office of Secretary and such other
duties from time to time may be assigned to him by the President or the Board of
Directors.
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Section 4.8 Treasurer. The Treasurer shall be the principal
accounting and financial officer of the Corporation. He or she shall (a) have
charge and custody of and be responsible for all funds and securities of the
Corporation, (b) receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit all such monies in the name
of the Corporation in such banks, trust companies or other depositaries as shall
be selected by the Board of Directors, (c) disburse the funds of the Corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and (d) in general perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him or her by the President or the Board of Directors. If required by the
Board of Directors, the Treasurer shall give a bond in such sum and with such
surety or sureties as the Board of Directors shall determine, for the faithful
discharge of his or her duties and for the restoration to the Corporation, in
case of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money, securities, and other property belonging to the
Corporation in his possession or control.
Section 4.9 Assistant Treasurers and Assistant Secretaries. The
Assistant Treasurer, or any of them if there be more than one, and the Assistant
Secretary or any of them if there be more than one, shall perform such duties as
shall be assigned to them by the Treasurer or the Secretary, respectively, or by
the President or the Board of Directors. An Assistant Secretary may sign with
the Chairman, President, or a Vice President, or any other officer thereunto
authorized by the Board of Directors, certificates for shares of the
Corporation, the issue of which shall have been authorized by the Board of
Directors, and any contracts, deeds, mortgages, bonds, or other instruments
which the Board of Directors has authorized to be executed, according to the
requirements of the form of the instrument, except when a different mode of
execution is expressly prescribed by the Board of Directors or these By-Laws. An
Assistant Treasurer shall respectively, if required by the Board of Directors,
give bonds for the faithful discharge of his or her duties in such sums and with
such sureties as the Board of Directors shall determine.
Section 4.10 Controller. The Board of Directors may elect a Controller
who shall be responsible for all accounting and auditing functions of the
Corporation and who shall perform such other duties as may from time to time be
required of him or her by the Board of Directors.
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Section 4.11 Appointive Officers. The President may appoint other
officers and agents on a division basis or otherwise, as such divisions or other
operating units are created by the Board of Directors, and such other officers
and agents shall receive such compensation, have such tenure and exercise such
authority as the President shall specify. All appointments made by the President
hereunder and all the terms and conditions thereof must be reported to the Board
of Directors. No appointive officer shall have any contractual rights against
the Corporation for compensation by virtue of such appointment beyond the date
of the appointment of his or her successor, death, resignation, or removal,
whichever event shall first occur, except as otherwise provided in an employment
contract or under an employee deferred compensation plan.
Section 4.12 Salaries. The salaries of the elected officers shall be
fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
Section 4.13 Vacancies. A newly created office or a vacancy in any
office because of death, resignation, removal, disqualification or otherwise may
be filled by the Board of Directors for the unexpired portion of the term at any
meeting of the Board of Directors.
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ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 5.1 Certificates For Shares. Certificates representing shares
of the Corporation shall be signed by the appropriate corporate officers, such
as the President or a Vice President or by such officer as shall be designated
by resolution of the Board of Directors, and by the Secretary or an Assistant
Secretary, and shall be sealed with the seal or a facsimile of the seal of the
corporation if the Corporation has a seal. If the signature of each officer be
by facsimile, the certificate shall be manually signed by or on behalf of a duly
authorized transfer agent or clerk. Each certificate representing shares shall
be consecutively numbered or otherwise identified, and shall also state the name
of the shareholder to whom issued, the number and class of shares (with
designation of series, if any), the date of issue, and that the Corporation is
organized under Illinois law. The certificate may state the par value or a
statement that the shares are without par value, if applicable. If the
Corporation is authorized and does issue shares of more than one class or of a
series within a class, the certificate shall also contain such information or
statement as may be required by law.
The name and address of each shareholder, the number and class of
shares held and the date on which the certificates for the shares were issued
shall be entered on the books of the Corporation. The shareholder in whose name
shares are registered on the books of the Corporation shall be deemed the owner
thereof for all purposes as regards the Corporation.
Unless prohibited by the Articles of Incorporation, the Board of
Directors may provide by resolution that some or all of any class or series of
shares shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until the certificate has been surrendered
to the Corporation. Within a reasonable time after the issuance or transfer of
uncertificated shares, the Corporation shall send the registered owner thereof a
written notice of all information that would appear on a certificate. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of uncertificated shares shall be identical to those of the holders of
certificates representing shares of the same class and series.
Section 5.2 Transfer of Shares. Transfer of shares of the Corporation
shall be recorded on the books of the Corporation
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and, except in the case of a lost or destroyed certificate, shall be made on
surrender for cancellation of the certificate for such shares. A certificate
presented for transfer must be duly endorsed and accompanied by proper guaranty
of signature and other appropriate assurances that the endorsement is effective.
Transfer of an uncertified share shall be made on receipt by the Corporation of
an instruction from the registered owner or other appropriate person. The
instruction shall be in writing or be a communication in such form as may be
agreed upon in writing by the Corporation.
Section 5.3 Lost Certificates. If a certificate representing shares
has allegedly been lost or destroyed, the Board of Directors may in its
discretion as may be required by law, direct that a new certificate be issued
upon such indemnification and other reasonable requirements as it may impose.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 6.1 Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, of the Corporation, to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation, and such authority may be general or confined to specific
instances.
Section 6.2 Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances. The Corporation shall have the power
to lend money to its directors, officers, employees and agents.
Section 6.3 Checks, Drafts, Etc. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 6.4 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositaries as the Board of Directors
may select.
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ARTICLE VII
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
Section 7.1 Third Party Action. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the Corporation, or who is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, or with respect to any criminal action or proceeding, that the
person had reasonable cause to believe that his conduct was unlawful.
Section 7.2 Derivative Action. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation; provided that no indemnification shall be made
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with respect to any claim, issue or matter as to which such person has been
adjudged to have been liable to the Corporation, unless, and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 7.3 Successful Defense. To the extent that a director,
officer, employee or agent of the Corporation has been successful, on the merits
or otherwise, in the defense of any action, suit or proceeding referred to in
Sections 7.1 and 7.2 herein, or in defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
Section 7.4 Procedures. Any indemnification under Sections 7.1 and
7.2 herein (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in Sections 7.1 and
7.2 herein. Such determination shall be made (a) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the shareholders.
Section 7.5 Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by the Corporation as authorized herein.
Section 7.6 Not Exclusive Provisions. The indemnification and
advancement of expenses provided by this Article VII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, contract, agreement,
vote of shareholders or disinterested directors or otherwise, both as to action
in his or her other official capacity and as to action in
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another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 7.7 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by such person in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would have the power
to indemnify such person against such liability under the provisions of this
Article VII.
Section 7.8 Shareholder Notice. If the Corporation has paid
indemnity or has advanced expenses to a director, officer, employee or agent,
the Corporation shall report the indemnification or advance in writing to the
shareholders with or before the notice of the next shareholders' meeting.
Section 7.9 Merger. In the case of a merger, the term "corporation"
shall include, in addition to the surviving corporation, any merging corporation
absorbed in a merger which, if its separate existence had continued, would have
had the power and authority to indemnify its directors, officers, and employees
or agents, so that any person who was a director, officer, employee or agent of
such merging corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this section with
respect to the surviving corporation as such person would have with respect to
such merging corporation if its separate existence had continued.
Section 7.10 Definitions. For purposes of this Article VII, references
to "other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise tax assessed on a person with respect to an
employee benefit plan; and references to the phrase "serving at the request of
the Corporation" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries. A person who acted in good faith and in a
manner he or she reasonably believed to be in the best interests of the
participants and beneficiaries of an employee benefit plan shall
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be deemed to have acted in a manner "not opposed to the best interest of the
Corporation" as referred to in this Article VII.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 8.2 Distributions. The Board of Directors may from time to
time declare, and the Corporation may pay distributions (dividends, redemptions
and other transfers of money or property) to its shareholders on its outstanding
shares in the manner and upon the terms and conditions provided by the Illinois
Business Corporation Act of 1983 and the Articles of Incorporation of the
Corporation.
Section 8.3 Seal. The Corporation may use a corporate seal which may
be altered at pleasure, by causing it, or a facsimile thereof, to be impressed
or affixed or in any other manner reproduced. The corporate seal shall have
inscribed thereon the name of the Corporation and the words "Corporate Seal,
Illinois". The affixing of a corporate seal to an instrument shall not give the
instrument additional force or effect, or change the construction thereof and
the use of the corporate seal is not mandatory.
Section 8.4 Audits. The Board of Directors shall determine whether
the Corporation's accounts, books and records shall be audited upon the
conclusion of each fiscal year, and shall determine who performs that audit.
Section 8.5 Resignations. Any director or any officer, whether
elected or appointed, may resign at any time by serving written notice of such
resignation on the Board of Directors and unless specifically made effective at
a future date, such resignation shall be deemed to be effective as of the close
of business on the date said notice is received by the Board of Directors. No
formal action shall be required of the Board of Directors or the shareholders to
make any such resignation effective.
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ARTICLE IX
AMENDMENTS
Section 9 Amendments. Unless reserved to the shareholders by the
Articles of Incorporation of the Corporation, these By-Laws may be made,
altered, amended or repealed by the shareholders or the Board of Directors, but
no By-law adopted by the shareholders may be altered, amended or repealed by the
Board of Directors if the By-Laws so provide. The By-Laws may contain any
provisions for the regulation and management of the affairs of the Corporation
not inconsistent with law or the Articles of Incorporation of the Corporation.
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EXHIBIT 10.1
CENTRAL ILLINOIS BANCORP, INC.
NON QUALIFIED EMPLOYEE STOCK OPTION PLAN
PURPOSE
1. The purpose of the Central Illinois Bancorp, Inc. (CIB or company)
employee stock option program (the plan) is to induce key employees to remain
in the employ of CIB, or of any of its subsidiaries, and to encourage such
employees to secure or increase, on reasonable terms, their stock ownership in
the company. The Board of Directors of the company believe the plan will
promote continuity of management and increase incentive, promote greater
efficiency and personal interest in the welfare of the company by those who are
primarily responsible for shaping and carrying out the long range plans of the
company and its subsidiaries, and in securing the continued growth and
financial success of its business. It is intended that the options issued
pursuant to the plan will be treated as a non-qualified option plan, and not as
an incentive stock option plan within the meaning of Section 422A of the
Internal Revenue Code of 1986, as currently amended.
EFFECTIVE DATE
2. The plan shall become effective on the 24th day of September, 1997, as
adopted by the Board of Directors on September 24, 1997, provided that the plan
is approved by the holders of a majority of the shares of stock of CIB entitled
to vote at a meeting of the shareholders within 12 months after the date of
such adoption.
STOCK SUBJECT TO PLAN
3. The maximum number of shares of common stock which may be issued
pursuant
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to the exercise of all options granted under this plan is 46. Said 46 shares
of the authorized but unissued common stock of the company will be reserved
for issue upon exercise of options granted under the plan, subject to
adjustments provided in Paragraph 14 below; provided however that the number of
shares of such authorized but unissued stock so reserved may from time to time
be reduced to the extent that a corresponding amount of issued and outstanding
stock has been purchased by the company (treasury shares) and set aside for
issue upon the exercise of options granted under the plan. If any options
shall expire or terminate for any reason without having been exercised in full,
the unpurchased shares subject thereto shall again be available for further
grants under the plan.
ADMINISTRATION
4. The plan shall be administered by the committee referred to in
Paragraph 5 (hereinafter referred to as the committee). Subject to the express
provisions of the plan, the committee, upon the direction of Central Illinois
Bancorp Board of Directors, shall have complete authority, in its discretion,
to determine those key employees (also hereinafter referred to as participants)
to whom, and the price at which options shall be granted, the option periods,
and the number of shares to be subject to each option. The committee,
through the direction of the Board of Directors of Central Illinois Bancorp,
Inc., shall also have the authority in its discretion to prescribe the time or
times at which the options may be exercised, and limitations upon exercise of
options (including limitations effective upon the death or termination of
employment of the participant), and the restrictions, if any, to be imposed
upon the transferability of shares acquired upon exercise of options. In making
such determinations, the committee may take into account the nature of the
services rendered by respective participants, their present and potential
contributions to the success of CIB or its subsidiaries, and such other factors
as the
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<PAGE> 3
committee, in its discretion shall deem relevant. Subject to the express
provisions of the plan, the committee, through the direction of the Board of
Directors of Central Illinois Bancorp, Inc., shall also have complete authority
to interpret the plan, to prescribe, amend and rescind rules and regulations
relating to the plan, to determine the terms and provisions of the
respective option agreements required by Paragraph 13 below (which need not
be identical) and to determine whether the shares delivered upon exercise of
the stock options will be treasury shares or will be authorized but
previously unissued shares, and to make all other determinations necessary or
advisable for the administration of the plan. The committee's determination on
the matters referred to in this Paragraph 4 shall be conclusive.
COMMITTEE
5. The committee shall consist of not less than three members of the Board
of Directors of CIB who are not eligible, and have not, at any time within one
year prior to appointment to the committee, been eligible to receive options
under the plan, or any other employee stock option plan of CIB, or any of its
subsidiaries, entitling participants therein to acquire stock or stock options
of the company. The committee shall be appointed from time to time by the
Board of Directors, which may from time to time remove and appoint members of
the committee in substitution for members previously appointed and may fill
vacancies, however caused, in the committee. A majority of the committee's
members shall constitute a quorum. All determinations of the committee shall
be made by a majority of its members. Any decision or determination reduced to
writing, and signed by all of the members, shall be fully as effective as if it
had been made by a majority vote at a meeting duly called and held. The
committee shall also have express authorization to hold committee meetings by
means of conference telephone, or similar communications equipment, which all
persons participating in the meeting can hear
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each other.
ELIGIBILITY
6. An option may be granted under the plan only to an officer or other key
employee of CIB, or of its present and future subsidiary companies. An
employee shall not be granted a stock option if the employee already owns
shares possessing more than 10% of the total voting power of all classes of
stock unless the option price, at the time the option is granted, is at least
125% of the fair market value of the stock covered by the option and the
option, and by its terms, is not exercisable after the expiration of five (5)
years from the date such option is granted. All participants must enter into
an option agreement with the company which, in addition to other terms,
provides that the participant will remain in the service of CIB or its
subsidiary for a period of at least twelve (12) months (commencing on the first
day of the month in which the option is granted) or until the participant's
earlier termination or retirement, at the pleasure of the company or of such
subsidiary. The agreement shall provide that it does not confer upon the
participant any right to continue in the employ of CIB, or of any such
subsidiary, and that it does not interfere in any way with the right of CIB or
of any such subsidiary to terminate the employment of the participant at
anytime. The aggregate fair market value, as determined by the committee, of
the stock with respect to which incentive stock options are exercisable for the
first time by the employee during any calendar year shall not exceed $100,000.
The aggregate number of shares which may be delivered to any one participant
upon exercise of all options granted to said participant under this plan shall
not exceed 250 shares. No person shall hold or exercise an option, or options,
under this plan for the purchase of an aggregate number of shares in excess of
25% of the total number of shares reserved for this plan, adjusted equitably
for stock splits, stock dividends and other changes in the capital stock, if
any. Except as provided below, options granted to key employees, may be
granted only once in any year, and shall be for the nearest
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whole number of shares determined by dividing the percentage, as determined by
the Committee, of the current salary (not including bonuses or other
compensation) paid by CIB or its subsidiaries to such key employee, by the
option price per share of such option. The provisions of this Paragraph 6 may
be modified by a committee of directors none of whom are eligible, nor has
been eligible during the year prior to such modification, to receive an option
(or company stock) pursuant to the plan, or any other employee stock option
plan of the company or its subsidiaries.
OPTION PRICE
7. The option price per share will be determined by the committee, and
ratified by the Board of Directors of Central Illinois Bancorp, Inc., at the
time the option is granted, and the option price per share will be not less
than 125% of the fair market value of the common stock on the date of grant as
shall reasonably be determined by the committee.
DATE OF OPTION GRANT
8. An option shall be considered granted on the date the committee acts to
grant the option or on such other date thereafter as the committee shall
specify.
TERM OF PLAN
9. The Board of Directors, without prior approval of the stockholders, may
terminate the plan at any time, but no termination shall, without the
participant's consent, alter or impair any of the rights under any option
previously granted to said participant under the plan.
TERM OF OPTIONS
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10. The term of each option granted under the plan will be for such period
(hereinafter referred to as the option period) not exceeding ten (10) years
from the date this plan was adopted as the committee shall determine. Each
option shall be subject to earlier determination as described in Paragraph 11
below.
EXERCISE OF OPTIONS
11. All options granted pursuant to the plan shall be authorized by the
Board of Directors. Each option granted will be exercisable on such date or
dates, and during such period and for such number of shares as shall be
determined pursuant to the provisions of the option agreement evidencing such
option. Subject to the express provisions of the plan, the committee shall have
complete authority, in its discretion, to determine the extent, if any, and the
conditions under which an option may be exercised in the event of the death
of the participant or in the event the participant leaves the employ of the
company, or has his employment terminated by the company. An option shall be
exercised by (a) written notice of intent to exercise the option with respect
to a specified number of shares of stock and (b) tender of payment to CIB of
the amount of the option purchase price for the number of shares of stock with
respect to which the option is then exercised. If, in connection with any
merger, consolidation, or sale, or transfer by CIB of substantially all its
assets, any option is not assumed by the surviving corporation or the
purchaser, then, in the discretion of the committee, the date of termination of
such option and the date on which such option, or any portion thereof not then
exercisable, may be exercised, may be advanced to a date to be fixed by the
committee, which date shall be not more than fifteen days prior to such merger,
consolidation, or sale, or transfer.
NONTRANSFERABILITY
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12. Options under a non-qualified plan are not transferable otherwise than
by will or the laws of descent or distribution, and may be exercised during the
lifetime of a participant and only by such participant.
AGREEMENTS
13. Options granted pursuant to this plan shall be evidenced by stock
option agreements with each participant in such form as the committee shall
from time to time adopt.
ADJUSTMENT OF NUMBER OF SHARES
14. In the event that a dividend shall be declared upon the common stock
of CIB payable in shares of common stock of the company, the number of shares
of common stock then subject to any such option, and the number of shares
reserved for issuance pursuant to the plan but not yet covered by an option,
shall be adjusted by adding to each such share the number of shares which would
be distributable thereon if such share had been outstanding on the date fixed
for determining the stockholders entitled to receive such stock dividend. In
the event that the outstanding shares of common stock shall be changed into or
exchanged for a different number or kind of shares of stock or other securities
of the company or of another corporation, whether through reorganization,
recapitalization, stock split-up, combination of shares, merger or
consolidation, then there shall be substituted for each share of common stock
reserved for issuance pursuant to this plan, but not yet covered by an option,
the number and kind of shares of stock or other securities into which each
outstanding share of common stock shall be so changed, or for which each share
shall be exchanged. In the event there shall be any change, other than as
specified above in this paragraph, in the number or kind of outstanding shares
of common stock, or of any stock or other securities into which such common
stock shall have been changed or for which it shall have been exchanged, then
if the committee shall, in its sole discretion, determine that such change
equitably requires an adjustment in the number or kind of shares theretofore
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reserved for issuance pursuant to the plan, but not yet covered by an option
and of the shares then subject to an option or options, such adjustment shall
be made by the committee and shall be effective and binding for all purposes of
this plan, and of each stock option agreement. The option price in each
agreement for each share of common stock, or other securities substituted or
adjusted as provided for in this paragraph, shall be determined by dividing the
option price in such agreement for each share prior to substitution or
adjustment by the number of shares, or the fraction of a share substituted for
such share, or to which such share shall have been adjusted. No adjustment or
substitution provided for in this paragraph shall require CIB in any agreement
to sell a fractional share, and the total substitution or adjustment with
respect to each stock option agreement shall be limited accordingly.
AMENDMENTS
15. The Board of Directors, without further approval of the stockholders,
may from time to time amend the plan in such respects as the board may deem
advisable; provided however that no amendment shall become effective, without
the prior approval of the stockholders, which would increase the maximum
number of shares for which options may be granted in the aggregate under the
plan. No amendment shall, without the participant's consent, alter or impair
any of the rights or obligations under any option previously granted to a
participant under the plan.
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EXHIBIT 10.2
CENTRAL ILLINOIS BANCORP, INC.
NON-QUALIFIED DIRECTOR STOCK OPTION PLAN
PURPOSE
1. The purpose of the Central Illinois Bancorp, Inc. (CIB or company)
non-employee director stock option program (the plan) is to induce key
individuals to remain in the directorship of CIB, or of any of its
subsidiaries, and to encourage such directors to secure or increase, on
reasonable terms, their stock ownership in the company. The shareholders of
the company believe the plan will promote continuity of directors and increase
incentive, promote greater efficiency and personal interest in the welfare of
the company by those who are primarily responsible for developing the long
range plans of the company and its subsidiaries, and in securing the continued
growth and financial success of its business. It is intended that the options
issued pursuant to the plan will be treated as a non-qualified option plan, and
not as an incentive stock option plan within the meaning of Section 422A of the
Internal Revenue Code of 1986, as currently amended.
EFFECTIVE DATE
2. The plan shall become effective on the 25th day of April, 1996, as
adopted by the shareholders on April 25, 1996.
STOCK SUBJECT TO PLAN
3. The maximum number of shares of common stock which may be issued
pursuant
<PAGE> 2
to the exercise of all options granted under this plan is 171. Said 171 shares
of the authorized but unissued common stock of the company will be reserved for
issue upon exercise of options granted under the plan, subject to adjustments
provided in Paragraph 13 below; provided, however, that the number of shares of
such authorized but unissued stock so reserved may from time to time be reduced
to the extent that a corresponding amount of issued and outstanding stock has
been purchased by the company (treasury shares) and set aside for issue upon
the exercise of options granted under the plan. If any options shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for further grants under the
plan.
ADMINISTRATION
4. The plan shall be administered by the shareholders as a committee of
the whole by a resolution adopted at any annual or special meeting of the
shareholders. Subject to the express provisions of the plan, the shareholders
shall have complete authority, in its discretion, to determine those directors
(also hereinafter referred to as participants) to whom, and the price at which
options shall be granted, the option periods, and the number of shares to be
subject to each option. The shareholders shall also have the authority in its
discretion to prescribe the time or times at which the options may be
exercised, and limitations upon exercise of options (including limitations
effective upon the death or termination of directorship of the participant),
and the restrictions, if any, to be imposed upon the transferability of shares
acquired upon exercise of options. In making such determinations, the
shareholders may take into account the nature of the services rendered by
respective participants, their present and potential contributions to the
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<PAGE> 3
success of CIB or its subsidiaries, and such other factors as the shareholders,
in their discretion shall deem relevant. Subject to the express provisions of
the plan, the shareholders shall also have complete authority to interpret the
plan, to prescribe, amend and rescind rules and regulations relating to the
plan, to determine the terms and provisions of the respective option agreements
required by Paragraph 12 below (which need not be identical) and to determine
whether the shares delivered upon exercise of the stock options will be
treasury shares or will be authorized but previously unissued shares, and to
make all other determinations necessary or advisable for the administration of
the plan. The shareholders' determination on the matters referred to in this
Paragraph 4 shall be conclusive.
ELIGIBILITY
5. An option may be granted under the plan only to a director of CIB, or
of its present and future subsidiary companies. A director shall not be
granted a stock option if the director already owns shares possessing more than
10% of the total voting power of all classes of stock unless the option price,
at the time the option is granted, is at least 125% of the fair market value of
the stock covered by the option and the option, by its terms, is not
exercisable after the expiration of five (5) years from the date such option is
granted. All participants must enter into an option agreement with the company
which, in addition to other terms, provides that the participant will remain in
the service of CIB or its subsidiary for a period of at least twelve (12)
months (commencing on the first day of the month in which the option is
granted) or until the participant's earlier termination or retirement, at the
pleasure of the company or of such subsidiary. The agreement shall provide
that it does not confer upon the participant any right to
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continue in the directorship of CIB, or of any such subsidiary, and that it
does not interfere in any way with the right of CIB or of any such subsidiary
to terminate the directorship of the participant at any time. The aggregate
fair market value, as determined by the shareholders, of the stock with respect
to which incentive stock options are exercisable for the first time by the
director during any calendar year shall not exceed $100,000. The aggregate
number of shares which may be delivered to any one participant upon exercise of
all options granted to said participant under this plan shall not exceed 50
shares. No person shall hold or exercise an option, or options, under this
plan for the purchase of an aggregate number of shares in excess of 20% of the
total number of shares reserved for this plan, adjusted equitably for stock
splits, stock dividends and other changes in the capital stock, if any.
Subject to the terms and conditions of this plan, CIB grants to each paid
director of CIB, the option to purchase from CIB all or part of an aggregate
number of ten (10) shares of stock for their directorship of CIB. In addition,
CIB grants to each paid director of any, and each, subsidiary of CIB, the
option to purchase from CIB, all or part of an aggregate number of three (3)
shares of stock for their directorship of each subsidiary entity. Further, the
options granted under this plan are cumulative. That is, a paid director who
serves on more than one board will be granted the appropriate number of options
for each board served. Options granted to the directors, may be granted only
once in any year. The provisions of this Paragraph 5 may be modified by the
shareholders.
OPTION PRICE
6. The option price per share will be determined by the shareholders of
CIB, at the time the option is granted, and the option price per share will be
not less than 125% of the fair
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market value of the common stock on the date of grant as shall reasonably be
determined by the shareholders.
DATE OF OPTION GRANT
7. An option shall be considered granted on the date the shareholders act
to grant the option or on such other date as the shareholders shall specify.
TERM OF PLAN
8. The shareholders may terminate the plan at any time, but no termination
shall, without the participant's consent, alter or impair any of the rights
under any option previously granted to said participant under the plan.
TERM OF OPTIONS
9. The term of each option granted under the plan will be for such period
(hereinafter referred to as the option period) not exceeding ten (10) years
from the date this plan was adopted as the shareholders shall determine. Each
option shall be subject to earlier termination as described in Paragraph 10
below.
EXERCISE OF OPTIONS
10. All options granted pursuant to the plan shall be authorized by the
shareholders. Each option granted will be exercisable on such date or dates,
and during such period and for such number of shares as shall be determined
pursuant to the provisions of the option agreement evidencing such option.
Subject to the express provisions of the plan, the shareholders shall have
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<PAGE> 6
complete authority, in its discretion, to determine the extent, if any, and the
conditions under which an option may be exercised in the event of the death of
the participant or in the event the participant leaves the directorship of the
company, or has his directorship terminated by the company. An option shall be
exercised by (a) written notice of intent to exercise the option with respect
to a specified number of shares of stock, and (b) tender of payment to CIB of
the amount of the option purchase price for the number of shares of stock with
respect to which the option is then exercised. If, in connection with any
merger, consolidation, or sale, or transfer by CIB of substantially all its
assets, any option is not assumed by the surviving corporation or the
purchaser, then, in the discretion of the shareholders, the date of termination
of such option and the date on which such option, or any portion thereof not
then exercisable, may be exercised, may be advanced to a date to be fixed by
the shareholders, which date shall be not more than fifteen days prior to such
merger, consolidation, or sale, or transfer.
NONTRANSFERABILITY
11. Options under a non-qualified plan are not transferable otherwise than
by will or the laws of descent or distribution, and may be exercised during the
lifetime of a participant and only by such participant.
AGREEMENTS
12. Options granted pursuant to this plan shall be evidenced by stock
option agreements with each participant in such form as the shareholders shall
from time to time adopt.
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ADJUSTMENT OF NUMBER OF SHARES
13. In the event that a dividend shall be declared upon the common stock
of CIB payable in shares of common stock of the company, the number of shares
of common stock then subject to any such option, and the number of shares
reserved for issuance pursuant to the plan but not yet covered by an option,
shall be adjusted by adding to each such share the number of shares which would
be distributable thereon if such share had been outstanding on the date fixed
for determining the shareholders entitled to receive such stock dividend. In
the event that the outstanding shares of common stock shall be changed into or
exchanged for a different number or kind of shares of stock or other securities
of the company or of another corporation whether through reorganization,
recapitalization, stock split-up, combination of shares, merger or
consolidation, then there shall be substituted for each share of common stock
reserved for issuance pursuant to this plan, but not yet covered by an option,
the number and kind of shares or stock or other securities into which each
outstanding share of common stock shall be so changed, or for which each share
shall be exchanged. In the event there shall be any change, other than as
specified above in this paragraph, in the number or kind of outstanding shares
of common stock, or of any stock or other securities into which such common
stock shall have been changed or for which it shall have been exchanged, then
if the shareholders shall, in their sole discretion, determine that such change
equitably requires an adjustment in the number or kind of shares theretofore
reserved for issuance pursuant to the plan, but not yet covered by an option
and of the shares then subject to an option or options, such adjustment shall
be made by the shareholders and shall be effective and binding for all purposes
of this plan, and of each stock option agreement. The option price in each
agreement for each share of common stock, or other
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securities substituted or adjusted as provided for in this paragraph, shall be
determined by dividing the option price in such agreement for each share prior
to substitution or adjustment by the number of shares, or the fraction of a
share substituted for such share, or to which such share shall have been
adjusted. No adjustment or substitution provided for in this paragraph shall
require CIB in any agreement to sell a fractional share, and the total
substitution or adjustment with respect to each stock option agreement shall be
limited accordingly.
AMENDMENTS
14. The stockholders may from time to time amend the plan. No amendment
shall, without the participant's consent, alter or impair any of the rights or
obligations under any option previously granted to a participant under the
plan.
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EXHIBIT 10.3
DEFERRED COMPENSATION AGREEMENT
This Agreement, made this 1st day of January, 1996, by and between Central
Illinois Bancorp, Inc. (hereinafter called "Company") and Participant,
(hereinafter called "Director").
WITNESSETH:
WHEREAS, Director is a valued member of the Board of Directors of Company, and
WHEREAS, Company wishes to retain the services of Director until his retirement
from the Board of Directors, and
WHEREAS, Company and Director both want to provide to Director a post-
retirement income.
NOW, THEREFORE, Company and Director mutually agree as follows:
1. Beginning January 1, 1996, all fees thereafter earned by Director
for his services as a member of the Board of Directors of
Company will be retained by Company and held by Company in a
segregated account designated as the "Deferred Compensation Account
for Director".
2. This segregated account will remain an asset of Company subject to
the rights and claims of all creditors of Company, until voluntarily
withdrawn by Director, paid to Director under periodic
pension payments, or paid to Director's beneficiaries or heirs.
3. Company will add interest to the amount held in this segregated
account quarterly, based on the rate then currently being paid by
Central Illinois Bank on its 365-day certificates of deposit.
4. During Director's lifetime, by mutual consent of Company and
Director, Director will have the right at any time to cancel the
further deferral of fees earned as a member of the Board of
Directors of Company and to demand and receive from Company the full
amount then held in the segregated account designated "Deferred
Compensation Account for Director."
5. On Director's normal retirement from Company's Board of
Directors, or on his earlier retirement due to sickness or other
disability, or on his early retirement with the consent of Company,
Company will pay the then balance in the segregated account to
Director in equalized monthly payments over a period of five years.
Interest added to undistributed balances in this segregated account
will be distributed as earned.
6. In the event Director dies subsequent to his retirement under
the conditions set forth in Paragraph 5, Company will continue to
make the payments called for in Paragraph 5 to such person or
persons named by Director in a written designation filed by him with
Company before his death, or in the absence of such designation, to
the person or persons designated by Director in his last will and
testament, or in the absence thereof, the entire balance will be
paid to his estate.
<PAGE> 2
7. In the event Director dies prior to his normal retirement under the
conditions set forth in Paragraph 5, Company will make such payments
as would otherwise have been made to Director under the formula
described in Paragraph 5 to such person or persons named by Director
in a written designation filed by him with Company before his death,
or in the absence of such designation, to the person or persons
designated by Director in his last will and testament, or in the
absence thereof, the entire balance will be paid to his estate.
8. If prior to normal retirement under the conditions set forth in
Paragraph 5, Director voluntarily resigns as opposed to early
retirement by consent of Company, is requested to resign by the
majority of the Board of Directors of Company, or is forced to
resign by regulatory authorities, the entire balance then held in
the segregated account "Deferred Compensation Account for Director
will be paid in full to Director.
9. If Director is dismissed for cause as a member of the Board of
Directors of Company, there is a substantial risk for forfeiture of
any funds then held in the "Deferred Compensation Account for
Director".
10. Neither Director nor his beneficiaries shall have the right
to encumber, commute, borrow against, dispose of, or assign the
right to receive payments hereunder.
IN WITNESS WHEREOF, Director and Company have executed this Agreement on the
date above written.
CENTRAL ILLINOIS BANCORP, INC.
BY:
--------------------------
- -----------------------
Participant, Director
Attest by:
--------------------------
- ----------------------- Secretary/Assistant Secretary
Date
Date:
-----------------------
<PAGE> 1
EXHIBIT 10.4
ADMINISTRATIVE SERVICES AGREEMENT
CHICAGO KSB BENEFIT CONSULTANTS, INC. CHAMPAIGN
EMPLOYER INFORMATION
NAME: CENTRAL ILLINOIS BANCORP, INC.
------------------------------------------
ADDRESS: 219 SOUTH DAVID STREET SIDNEY, IL 61877
----------------------------------------
EMPLOYER'S TAXPAYER ID NUMBER: 37-1203599
----------
PLAN'S TAX ID NUMBER: ----------
NAME OF PLAN: CENTRAL ILLINOIS BANCORP, INC.
-------------------------------
EMPLOYEE STOCK PURCHASE PLAN
-------------------------------
CONTACTS JACK SIMPSON, STEVE KLITZING, SHELLY PERKINS
----------------------------------------------
PHONE NUMBER: 217-355-6200 CHAMPAIGN; 217-688-2301 SIDNEY
----------------------------------------------
FAX NUMBER: 217-355-0929 CHAMPAIGN; 217-892-8000 SIDNEY
----------------------------------------------
AGREEMENT EFFECTIVE DATE: JANUARY 1, 1997
---------------
The above-named Employer (the "Employer") retains KSB Benefit Consultants, Inc.
(KSB) to perform recordkeeping and other services under this Agreement in
connection with the Employer's qualified plan(s) identified above. This may
include plans established using prototype qualified plan documents furnished by
KSB or other plans (the "Plan"). The Contact Person listed above will act on
the Employer's behalf until the Employer notifies KSB otherwise in writing.
- -------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 1
<PAGE> 2
SERVICE AGREEMENT -- ESOP
- -------------------------------------------------------------------------------
I. SERVICES PROVIDED
A. BASIC SERVICES
1. Allocate contributions and any forfeitures arising under the Plan
in accordance with the terms of the Plan and the information
provided by the Employer, subject to the applicable limitations of
the Internal Revenue Code of 1986, as amended ("Code").
2. Post any withdrawals, transfers distributions or future allocation
changes among funding vehicles. Post any dividends, interest or
other earnings to participants' accounts.
3. Value each participants account:
_______Monthly
_______Quarterly
X Annually
_______
4. Provide each participant with an annual statement in KSB
standard format (or more frequent statements if KSB and the Employer
agree) or in a format recommended by the Employer, showing the
balance and charges to the participant's account and such other
standard information as agreed.
Provide to each participant statements mutually agreed to by the
Employer and KSB. We guarantee "turn-around time" of thirty (30) days
after KSB receives ALL information necessary to prepare the reports
(for example, the valuation of closely held stock)
5. Prepare a Summary of Fund Operations and Plan Financial Statements
on a periodic basis:
_______Monthly
_______Quarterly
X Annually
_______
6. Process withdrawals by and distributions to participants and
beneficiaries in accordance with
- -------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 2
<PAGE> 3
SERVICE AGREEMENT -- ESOP
- -------------------------------------------------------------------------------
instructions from the Employer in accordance with Plan provisions.
Where applicable, calculate federal income tax withholding. KSB
will prepare and issue Form 1099R to report any such distributions.
- -------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 3
<PAGE> 4
SERVICE AGREEMENT -- ESOP
- -------------------------------------------------------------------------------
7. Calculate the division of a Participant's account subject to
a qualified domestic relations order (QDRO). The employer shall be
responsible to verify that an order qualifies as a QDRO. Upon
notification by the Employer, KSB shall compute the division and
establish a separate account for the ex-spouse.
B. LOANS NOT APPLICABLE
C. COMPLIANCE SERVICES
1. HCE DETERMINATION. Determine "highly compensated employees"
("HCEs"). The Employer will provide compensation data and identify
"officers" (as defined in the regulations.) The Employer will also,
if necessary, identify the family members of officers and/or HCEs
who are also employed by the Employer. The Employer will be
required to approve the list of the "highly compensated employees".
The Employer will be required to furnish this information via
electronically or by diskette in connection with the payroll
information.
2. ADP TEST. NOT APPLICABLE
3. TOP HEAVY TEST. Not Needed; plan is not top heavy
4. REFUNDS, ADP/ACP. NOT APPLICABLE
5. REFUNDS, 402(G). NOT APPLICABLE
6. ANNUAL ADDITION LIMIT. Based on information received from
the Employer, KSB shall process all corrective distributions which
are calculated by the Employer required to comply with Sec. 415(c)
Contribution limits. KSB shall make any necessary corrections as
- -------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 4
<PAGE> 5
SERVICE AGREEMENT -- ESOP
- -------------------------------------------------------------------------------
directed by the Employer. KSB shall not accept additional
contributions by Participants identified as exceeding the Sec.
415(c) limit.
- -------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 5
<PAGE> 6
SERVICE AGREEMENT -- ESOP
- -------------------------------------------------------------------------------
7. AGE 70 1/2. Shall calculate and process all distributions required
to comply with Sec. 401(a)(9). KSB shall provide the
Employer with a list of Partici-pants attaining age 70
1/2 in the next year, and current age 70 1/2
participants. After the Employer confirms the list, KSB
will calculate the distribution.
8. SERVICES NOT PROVIDED. KSB shall not perform the following
tax compliance services:
- Sec. 410(b) minimum coverage test. However, based on data
maintained by it, KSB shall provide participant count data to the
Employer necessary to report the minimum coverage test, as
necessary, on the Form 5500.
- Sec. 404 deduction limit. KSB can consult with the Employer
concerning compliance with the Sec. 415 contribution and Sec. 404
deduction limits.
- Sec. 415(e) combined benefit and contribution limit.
(Not APPLICABLE -- repealed after 1996)
9. PARTICIPANT DIRECTION. All requirements needed by the plan
to satisfy DOL Reg. Sec. 2550.404(c) will be the responsibility of
the Employer.
II. EMPLOYER RESPONSIBILITIES
A. PROVIDE ACCURATE AND COMPLETE INFORMATION. KSB will accept
information that the Employer presents as being accurate. This also
includes data supplied by any other recordkeeper or third party
representing the Plan. KSB will not accept responsibility for
errors in services or reports resulting from erroneous information
provided. If KSB must redo any of its services because of incorrect
data so provided, KSB may assess an additional fee.
- -------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 6
<PAGE> 7
SERVICE AGREEMENT -- ESOP
- -------------------------------------------------------------------------------
B. PROVIDE PAYROLL DATA ELECTRONICALLY OR BY DISKETTE. The Employer
will provide information including all Participant demographic
information, deferral and compensation information in the form of a
diskette. If any information is incomplete, improperly filled out
or ambiguous such that a transaction on behalf of a participant
cannot be processed, KSB will attempt to resolve the matter as soon
as practical by calling the Employer.
C. PROVIDE PLAN DOCUMENTS. The Employer will furnish KSB with all
information it needs to perform its services, including Plan
documents and any amendments thereto at the time of their execution.
If KSB finds an amendment unacceptable, KSB retains the right to
refuse to perform services under this Agreement. KSB will not be
responsible for: (a) the accuracy of the information provided by the
Employer, (b) any services, participant statements or reports based
on inaccurate information from the Employer, (c) the failure of the
Employer to properly and timely adopt a document drafted by KSB, or
(d) failure to provide any services, participant statements or
reports because of the Employer's failure to provide accurate
information on a timely basis, or
D. The Employer agrees to communicate information regarding the
Plan and procedures of the Plan directly to their employees.
EMPLOYEES WILL NOT CONTACT KSB.
E. Since the Plan is not a prototype plan sponsored by KSB the
Employer will be solely responsible for obtaining the IRS
qualification of the Plan and maintaining such qualification in the
future.
III. WARRANTY AND LIMITATION OF REMEDY AND LIABILITY
A. KSB does not warrant that its services hereunder will be
uninterrupted or error free; but KSB does agree that such services
will be provided without any willful misconduct, negligence, bad
faith, or failure to use due care on its part. For purposes of this
Agreement, negligence means a failure to use reasonable diligence
and the degree of skill and judgment possessed by one experienced in
furnishing comparable services to
- -------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 7
<PAGE> 8
SERVICE AGREEMENT -- ESOP
- -------------------------------------------------------------------------------
retirement plans of similar size with characteristics similar to
those of the Plan. KSB liability under this warranty is llimited
under this warranty tp the obligation to correct any errors in
service attributable solely to KSB without additional charge to the
Employer.
B. The Employer will defend, indemnify and hold KSB, its
employees, officers and directors harmless from any and all loss,
damage, penalty, liability, cost and expense incurred by, imposed
upon or asserted against them by any person, including the Employer,
its affiliates, officers, employees, agents or subcontractors, by
reason of any claim, judicial or regulatory proceeding arising from
any act or failure to act in connection with the services provided
under this Agreement, except where such loss, damage, penalty,
liability, cost or expense was a consequence of KSB or such other
person(s) willful misconduct or negligence.
IV. WAIVER; ASSIGNMENT; AMENDMENT; GOVERNING LAW
A. The failure of either party to strictly enforce any provision
of this Agreement shall not operate as a waiver of such provision or
release either party from its obligations under this Agreement
strictly in accordance with such provision.
B. Neither KSB nor the Employer may assign this Agreement
without the written consent of the other party.
C. This Agreement may be amended only by a written amendment
signed by both parties.
D. This Agreement will be governed by the laws of Illinois
except to the extent that federal law may preempt or supersede such
state law.
NOTE: KSB is not an investment manager, trustee, or other fiduciary. KSB acts
only as the plan administrator's (the employer's) agent and provider of the KSB
prototype plan document.
- -------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 8
<PAGE> 9
SERVICE AGREEMENT -- ESOP
- -------------------------------------------------------------------------------
GUARANTEE: KSB guarantees delivery of participant statements within thirty
(30) days after KSB receives ALL information necessary to prepare the reports.
This includes investment manager or trustee reports and final payroll reports.
- -------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 9
<PAGE> 10
SERVICE AGREEMENT -- ESOP
- -------------------------------------------------------------------------------
V. SERVICE AGREEMENT SIGNATURES
EMPLOYER
CENTRAL ILLINOIS BANCORPORATION
------------------------------------
Plan Sponsor
By: Steven T. Klitzing /s/ Steven T. Klitzing
----------------------- --------------------------
Print name Signature
Chief Financial Officer January 1, 1997
-------------------------- -----------------------
Print Title Date Signed
KSB BENEFIT CONSULTANTS, INC.
By:
MARY C. MURRAY /s/ Mary C. Murray
------------------ --------------------------
Print name Signature
OPERATIONS MANAGER January 1, 1997
------------------ --------------------------
Print Title Date Signed
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
KSB BENEFIT CONSULTANTS, INC. 10
<PAGE> 1
EXHIBIT 10.5
SERVICE AGREEMENT -- 401(K) PLAN
- --------------------------------------------------------------------------------
EMPLOYER INFORMATION
NAME: CENTRAL ILLINOIS BANCORPORATION
-------------------------------------------------------------
ADDRESS: 2913 KIRBY AVENUE, CHAMPAIGN, IL 61826
---------------------------------------
EMPLOYER'S TAXPAYER ID NUMBER: 37-1203599
----------
PLAN'S TAX ID NUMBER: 37-1241066
----------
NAME OF PLANS: CENTRAL ILLINOIS BANCORPORATION 401(K) PLAN
-------------------------------------------
CONTACTS: JACK SIMPSON, STEVE KLITZING, SHELLY PERKINS
--------------------------------------------
PHONE NUMBER: 217-355-6200 CHAMPAIGN; 217-688-2301 SIDNEY
-------------------------------------------
FAX NUMBER: 217-355-0929 CHAMPAIGN; 217-892-8000 SIDNEY
-------------------------------------------
AGREEMENT EFFECTIVE DATE: JANUARY 1, 1997
The above-named Employer (the "Employer") retains KSB Benefit Consultants, Inc.
(KSB) to perform recordkeeping and other services under this Agreement in
connection with the Employer's qualified plan(s) identified above. This may
include plans established using prototype qualified plan documents furnished by
KSB or other plans (the "Plan"). The Contact Person listed above will act on
the Employer's behalf until the Employer notifies KSB otherwise in writing.
- --------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 1
<PAGE> 2
SERVICE AGREEMENT -- 401(K) PLAN
- ------------------------------------------------------------------------------
I. SERVICES PROVIDED
A. BASIC SERVICES
1. Allocate contributions and any forfeitures arising under the
Plan in accordance with the terms of the Plan and the information
provided by the Employer, subject to the applicable limitations of
the Internal Revenue Code of 1986, as amended ("Code").
2. Post any withdrawals, loans, transfers distributions or
future allocation changes among funding vehicles. Post any
dividends, interest or other earnings to participants' accounts.
3. Value each participants account:
_______Monthly
X Quarterly
_______Annually
4. Provide each participant with a quarterly statement in KSB
standard format (or more frequent statements if KSB and the Employer
agree) or in a format recommended by the Employer, showing the
balance and charges to the participant's account and such other
standard information as agreed.
Provide to each participant statements mutually agreed to by the
Employer and KSB. We guarantee "turn-around time" of thirty (30)
days after KSB receives ALL information necessary to prepare the
reports.
5. Prepare a Summary of Fund Operations and Plan Financial
Statements on a periodic basis:
_______Monthly
X Quarterly
_______Annually
6. Process withdrawals by and distributions to participants and
beneficiaries in accordance with
- ------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 2
<PAGE> 3
SERVICE AGREEMENT -- 401(K) PLAN
- ------------------------------------------------------------------------------
instructions from the Employer in accordance with Plan provisions.
Where applicable, calculate federal income tax withholding. KSB
will prepare and issue Form 1099R to report any such distributions.
7. Calculate the division of a Participant's account subject to
a qualified domestic relations order (QDRO). The employer shall be
responsible to verify that an order qualifies as a QDRO. Upon
notification by the Employer, KSB shall compute the division and
establish a separate account for the ex-spouse.
B. LOANS (SEE LOAN POLICY)
1. Account for loans to participants in accordance with
instructions from the Employer and following Plan provisions.
2. Determine the availability of loan amounts. Provide an
amortization schedule based on the provisions of the loan.
3. The Employer will set the interest rate for all loans and
furnish KSB in writing with the rate and the date for the first
repayment and terms outlined in the Loan Application.
4. The Employer will take steps to ensure that loan payments are
collected (whether by payroll deduction or by check, where
applicable) and report that information to KSB.
5. KSB will not have any discretionary authority with respect to
the making of any loan.
6. The Employer shall provide KSB with information about all
outstanding loans made to a Participant under any plan maintained by
the Employer. If the Employer does not notify KSB of an outstanding
loan, KSB may assume that there is none.
7. KSB shall receive a fee of $100 for each loan set-up.
- ------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 3
<PAGE> 4
SERVICE AGREEMENT -- 401(K) PLAN
- ------------------------------------------------------------------------------
C. COMPLIANCE SERVICES
1. HCE DETERMINATION. Determine "highly compensated employees" ("HCEs").
The Employer will provide compensation data and identify "officers" (as
defined in the regulations.) The Employer will also, if necessary,
identify the family members of officers and/or HCEs who are also
employed by the Employer. The Employer will be required to approve the
list of the "highly compensated employees". The Employer will be
required to furnish this information via electronically or by diskette
in connection with the payroll information.
2. ADP TEST. Perform semi-annual non-discrimination testing. KSB shall
communicate the test results in writing to the Employer. This includes:
- Sec. 401(k) Actual Deferral Percentage Test
("ADP" test)
- Sec. 401(m) Actual Contribution Percentage Test
("ACP" test)
- The Aggregate Limit Test
The Employer shall supply compensation data for the
period being tested.
3. TOP HEAVY TEST. (not needed; plan is not top heavy)
4. REFUNDS, ADP/ACP. KSB shall, if necessary and requested by the
Employer, compute a recharacterization or return of excess
deferrals as permitted under Sec. 401(k) or return of excess aggregate
contributions as permitted under Sec. 401(m). The Employer will decide
the corrective action needed to pass the tests, if any.
5. REFUNDS, 402(G). Based on the participant data for which KSB
maintains records, and other necessary data requested of the Employer,
KSB shall calculate and process all corrective distributions from the
Plan required to comply with Code Section 402(g).
- ------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 4
<PAGE> 5
SERVICE AGREEMENT -- 401(K) PLAN
- ------------------------------------------------------------------------------
6. ANNUAL ADDITION LIMIT. Based on information received from the Employer,
KSB shall process all corrective distributions which are calculated
by the Employer required to comply with Sec. 415(c) Contribution limits.
KSB shall make any necessary corrections as directed by the Employer.
KSB shall not accept additional contributions by Participants identified
as exceeding the Sec. 415(c) limit.
7. AGE 70 1/2. Shall calculate and process all distributions
required to comply with Sec. 401(a)(9). KSB shall provide the
Employer with a list of Participants attaining age 70 1/2 in the
next year, and current age 70 1/2 participants. After the Employer
confirms the list, KSB will calculate the distribution.
8. SERVICES NOT PROVIDED. KSB shall not perform the following tax
compliance services:
- Sec. 410(b) minimum coverage test. However, based on data
maintained by it, KSB shall provide participant count data to the
Employer necessary to report the minimum coverage test, as
necessary, on the Form 5500.
- Sec. 404 deduction limit. KSB can consult with the Employer
concerning compliance with the Sec. 415 contribution and Sec. 404
deduction limits.
- Sec. 415(e) combined benefit and contribution limit, if the
Employer sponsors both DC and DB plans. KSB shall provide
necessary contribution history data to the actuary hired by the
Employer to compute the combined Sec. 415(e) limit.
9. PARTICIPANT DIRECTION. All requirements needed by the plan
to satisfy DOL Reg. Sec. 2550.404(c) will be the responsibility of
the Employer.
10. FORM 5500. KSB will prepare a draft of Form 5500 based on
the information available to us. KSB will include the schedules and
attachments made available to us from
- ------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 5
<PAGE> 6
SERVICE AGREEMENT -- 401(K) PLAN
- ------------------------------------------------------------------------------
third parties.
II. EMPLOYER RESPONSIBILITIES
A. PROVIDE ACCURATE AND COMPLETE INFORMATION. KSB will accept
information that the Employer presents as being accurate. This also
includes data supplied by any other recordkeeper or third party
representing the Plan. KSB will not accept responsibility for
errors in services or reports resulting from erroneous information
provided. If KSB must redo any of its services because of incorrect
data so provided, KSB may assess an additional fee.
B. PROVIDE PAYROLL DATA ELECTRONICALLY OR BY DISKETTE. The
Employer will provide information including all Participant
demographic information, deferral and compensation information in
the form of a diskette. If any information is incomplete,
improperly filled out or ambiguous such that a transaction on behalf
of a participant cannot be processed, KSB will attempt to resolve
the matter as soon as practical by calling the Employer.
C. PROVIDE PLAN DOCUMENTS. The Employer will furnish KSB with
all information it needs to perform its services, including Plan
documents, (except for Plans established with prototype qualified
plan documents furnished by KSB), and any amendments thereto at the
time of their execution. If KSB finds an amendment unacceptable,
KSB retains the right to refuse to perform services under this
Agreement. KSB will not be responsible for: (a) the accuracy of the
information provided by the Employer, (b) any services, participant
statements or reports based on inaccurate information from the
Employer, or (c) failure to provide any services, participant
statements or reports because of the Employer's failure to provide
accurate information on a timely basis.
D. The Employer agrees to communicate information regarding the
Plan and procedures of the Plan directly to their employees.
EMPLOYEES WILL NOT CONTACT KSB.
- ------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 6
<PAGE> 7
SERVICE AGREEMENT -- 401(K) PLAN
- ------------------------------------------------------------------------------
E. If the Plan is not a prototype plan sponsored by KSB the
Employer will be solely responsible for obtaining the IRS
qualification of the Plan and maintaining such qualification in the
future.
F. If loans are made under the Plan, then the Employer will
obtain a promissory note signed by the participant prior to
releasing the loan amount to the participant. The Employer will
keep loan promissory notes on file or as so directed by the plan
provisions, e.g. (Trustee).
III. WARRANTY AND LIMITATION OF REMEDY AND LIABILITY
B. The Employer will defend, indemnify and hold KSB, its
employees, officers and directors harmless from any and all loss,
damage, penalty, liability, cost and expense incurred by, imposed
upon or asserted against them by any person, including the Employer,
its affiliates, officers, employees, agents or subcontractors, by
reason of any claim, judicial or regulatory proceeding arising from
any act or failure to act in connection with the services provided
under this Agreement, except where such loss, damage, penalty,
liability, cost or expense was a consequence of KSB or such other
person(s) willful misconduct or negligence.
IV. WAIVER; ASSIGNMENT; AMENDMENT; GOVERNING LAW
A. The failure of either party to strictly enforce any provision
of this Agreement shall not operate as a waiver of such provision or
release either party from its obligations under this Agreement
strictly in accordance with such provision.
B. Neither KSB nor the Employer may assign this Agreement
without the written consent of the other party.
C. This Agreement may be amended only by a written amendment
signed by both parties.
D. This Agreement will be governed by the laws of Illinois
except to the extent that federal law may preempt or supersede such
state law.
- ------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 7
<PAGE> 8
SERVICE AGREEMENT -- 401(K) PLAN
- ------------------------------------------------------------------------------
NOTE: KSB is not an investment manager, trustee, or other fiduciary. KSB acts
only as the plan administrator's (the employer's) agent and provider of the KSB
prototype plan document.
GUARANTEE: KSB guarantees delivery of participant statements within thirty
(30) days after KSB receives ALL information necessary to prepare the reports.
This includes investment manager or trustee reports and final payroll reports.
- ------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 8
<PAGE> 9
SERVICE AGREEMENT -- 401(K) PLAN
- ------------------------------------------------------------------------------
V. SERVICE AGREEMENT SIGNATURES
EMPLOYER
CENTRAL ILLINOIS BANCORPORATION
--------------------------------------
Plan Sponsor
By:
Steven T. Klitzing /s/ Steven T. Klitzing
----------------------- --------------------------
Print name Signature
Chief Financial Officer January 1, 1997
----------------------- --------------------------
Print Title Date Signed
KSB BENEFIT CONSULTANTS, INC.
By:
MARY C. MURRAY /s/ Mary C. Murray
------------------ --------------------------
Print name Signature
OPERATIONS MANAGER January 1, 1997
------------------ --------------------------
Print Title Date Signed
- ------------------------------------------------------------------------------
KSB BENEFIT CONSULTANTS, INC. 9
<PAGE> 1
EXHIBIT 10.6
AGREEMENT
THIS AGREEMENT MADE AND ENTERED INTO this 24th day of December, 1996,
by and between STRATEGIC CAPITAL MANAGEMENT, INC., a Corporation, hereinafter
referred to as "SCM"; and CENTRAL ILLINOIS BANK, a banking corporation,
hereinafter referred to as "CIB";
WITNESSETH:
WHEREAS, SCM desires to continue to use the custodian services of the
Trust Department of CIB; and,
WHEREAS, the Trust Department of CIB desires to continue to use the
investment advisory services of SCM;
NOW THEREFORE, IT IS AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS:
1. For the calendar quarter ending December 31, 1996, SCM shall
pay a fee for trust custodial services provided by CIB at the
rate five (5) basis points of the fair market value of all SCM
custodian accounts.
2. All gross trust income received by the Trust Department of CIB
for the calendar quarter ending December 31, 1996, shall be
divided equally between CIB and SCM. It is anticipated that
most, if not all, of the said gross trust income will be
received during the first calendar quarter of 1997. However,
SCM shall not receive any remuneration for custodian fees
earned specifically from SCM custodian accounts.
3. Commencing January 1, 1997, and thereafter, SCM shall pay a
fee for trust custodial services provided by CIB at the rate
of two and one-half (2.5) basis points per calendar quarter of
the fair market value of all SCM custodian accounts.
4. SCM shall pay no administrative service fee to CIB commencing
January 1, 1997, and thereafter.
5. All gross trust income received and or attributed to the Trust
Department of CIB for the calendar quarter beginning January
1, 1997, and for each calendar quarter thereafter, except for
custodian fees earned from SCM custodian accounts, shall be
shared as follows:
1. Twenty-five percent (25%) shall be paid to SCM.
2. Seventy-five percent (75%) shall be retained by CIB.
6. CIB hereby acknowledges receipt of SCM's most recent ADV
Part II.
<PAGE> 2
7. This Agreement shall become effective upon its execution and
shall continue through December 20, 2001, at which time the
agreement shall renew itself for another five year period
unless terminated by either party upon 60 days advance written
notice prior to the end of the original term, or any renewal
term. Any such notice shall be in writing and forwarded by
certified mail, return receipt requested, addressed to the
receiving party as follows:
For SCM: Strategic Capital Management, Inc.
1909 Fox Drive
Champaign, IL 61820
For CIB: Central Illinois Bank
Attn: Trust Department
2913 West Kirby Avenue
Champaign, IL 61820
8. In the event that Central Illinois Bank is merged or acquired
by another entity, CIB may terminate their agreement upon
sixty (60) days advance written notice to SCM. At the
termination date, CIB (or the acquiring or merging entity)
shall pay SCM a one time payment equal to the previous twelve
month's trust income paid by CIB to SCM or $100,000.00,
whichever is greater.
9. In the event that SCM is merged or acquired by another entity,
CIB or the merging or acquiring entity of SCM may terminate
this agreement upon sixty (60) days advance written notice to
the non-terminating party.
10. This Agreement is a binding agreement upon the parties hereto,
their successors, and assigns. This Agreement may be amended
only by a writing executed by both parties. This Agreement is
the entire agreement between the parties relating to the
subject matter hereof and supersedes all prior agreements,
proposals, representations and commitments.
11. This agreement shall be interpreted in accordance with the
laws of the State of Illinois.
IN WITNESS WHEREOF the parties hereto have executed this two page Agreement by
their duly authorized representatives and have caused this Agreement to become
effective as of the date first above written.
Central Illinois Bank Strategic Capital Management, Inc.
By: /s/ J. Michael Straka By: /s/ David M. Sinnow
----------------------------------- ---------------------------------
Its: Director & CEO of the Holding Co. Its: President
---------------------------------- --------------------------------
Date: December 24, 1996 Date: December 24, 1996
--------------------------------- -------------------------------
<PAGE> 3
ASSIGNMENT OF AGREEMENT
WHEREAS, CENTRAL ILLINOIS BANK has merged its trust department into Marine Trust
& Investment Company and;
WHEREAS, STRATEGIC CAPITAL MANAGEMENT, INC. has been acquired by Strategic
Capital Trust Company;
NOW THEREFORE IT IS AGREED THAT:
ONE: The agreement previously entered into between Central Illinois Bank &
Strategic Capital Management, Inc., dated December 24, 1996, a copy of which is
attached hereto, and incorporated by reference herein, is hereby assigned to
Marine Trust & Investment Company and Strategic Capital Trust Company, the
successor parties in interest, effective 3/12/98.
TWO: All provisions of said agreement shall remain in full force and effect,
except it is mutually agreed between all parties that Paragraphs Eight and Nine
of the Agreement shall not apply with respect to the merger of the Central
Illinois Bank Trust Department into Marine Trust & Investment Company or the
acquisition of Strategic Capital Management, Inc. by Strategic Capital Trust
Company.
WITNESS OUR SIGNATURES THIS 31 st DAY OF MARCH, 1998
-----------
Central Illinois Bank Marine Trust & Investment Company
By /s/ Jack L. Simpson By /s/ Jack L. Simpson
------------------------------------- ----------------------------------
Its Sr. Vice President Its President
------------------------------------ ----------------------------------
Strategic Capital Management, Inc. Strategic Capital Trust Company
By /s/ David M. Sinnow By /s/ David M. Sinnow
------------------------------------- ----------------------------------
Its President Its President
------------------------------------ ----------------------------------
<PAGE> 1
EXHIBIT 11
EXHIBIT 11 - STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(In thousands, except share amounts)
<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 (0.54) (0.56) (0.52)
------------ ---------- -----------
Earnings per common share - Diluted $ 71.08 $ 60.35 $ 50.04
=========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
---- -------------
<S> <C>
Central Illinois Bank Illinois
Central Illinois Bank MC Illinois
C.I.B. Data Processing Services, Inc. Illinois
Marine Trust and Investment Company Illinois
Mortgage Services of Illinois, Inc. Illinois
Hillside Investors, Ltd. Illinois
CIB Bank Illinois
First Ozaukee Capital Corp. Wisconsin
Marine Bank and Savings Wisconsin
CIB Bank Indiana
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,774
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,319
<INVESTMENTS-CARRYING> 106,589
<INVESTMENTS-MARKET> 107,282
<LOANS> 616,228
<ALLOWANCE> 6,692
<TOTAL-ASSETS> 807,323
<DEPOSITS> 682,830
<SHORT-TERM> 18,320
<LIABILITIES-OTHER> 5,441
<LONG-TERM> 0
0
0
<COMMON> 91
<OTHER-SE> 100,641
<TOTAL-LIABILITIES-AND-EQUITY> 807,323
<INTEREST-LOAN> 48,769
<INTEREST-INVEST> 9,173
<INTEREST-OTHER> 7
<INTEREST-TOTAL> 57,949
<INTEREST-DEPOSIT> 29,746
<INTEREST-EXPENSE> 30,461
<INTEREST-INCOME-NET> 27,488
<LOAN-LOSSES> 3,992
<SECURITIES-GAINS> 136
<EXPENSE-OTHER> 17,378
<INCOME-PRETAX> 7,812
<INCOME-PRE-EXTRAORDINARY> 5,275
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,275
<EPS-PRIMARY> 71.62
<EPS-DILUTED> 71.08
<YIELD-ACTUAL> 4.23
<LOANS-NON> 1,841
<LOANS-PAST> 1,349
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,058
<CHARGE-OFFS> 1,837
<RECOVERIES> 332
<ALLOWANCE-CLOSE> 6,692
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,692
</TABLE>
