<PAGE>
===============================================================================
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
MBLA Financial Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
July 13, 1999
Dear Stockholder:
The Boards of Directors of MBLA Financial Corporation and Citizens
Bancshares Company have agreed to a merger in which Citizens will acquire MBLA.
In the merger, MBLA will merge with and into a subsidiary of Citizens, and Macon
Building and Loan Association, F.A. will merge with and into Citizens'
subsidiary, Citizens Bank and Trust Company.
In the merger, you will receive a cash payment for each share of MBLA stock
that you own. This cash payment will equal $24.15 plus or minus an amount that
represents the change in MBLA's adjusted book value per share from December 31,
1998 to the end of the month prior to closing. Upon completion of the merger
you will no longer own any stock or have any interest in MBLA, nor will you
receive, as a result of the merger, any stock of Citizens.
We cannot complete the merger unless we obtain the necessary government
approvals and unless the stockholders of MBLA approve the merger agreement. We
have scheduled a special meeting for MBLA stockholders to vote on the merger
agreement. The meeting will be held at MBLA's offices at 101 Vine Street,
Macon, Missouri on Wednesday, August 25, 1999 at 5:00 p.m., local time.
It is very important that your shares be represented at the meeting,
regardless of whether you plan to attend in person. If you fail to vote it will
have the same effect as a vote against approval of the merger agreement. To
assure that your shares are represented in voting on this very important matter,
please sign, date and return the enclosed proxy card in the enclosed postage-
prepaid envelope whether or not you plan to attend the meeting. If you are a
stockholder of record and do attend, you may, if you wish, revoke your proxy and
vote your shares in person at the meeting.
This document contains a more complete description of the meeting and the
terms of the merger. We urge you to review this entire document carefully.
Financial information regarding MBLA is provided in the appendices to this
document. You may also obtain information about MBLA from documents filed with
the Securities and Exchange Commission.
I enthusiastically support the merger and join with the other members of
our Board of Directors in recommending that you vote in favor of the merger.
/s/ John T. Neer
-----------------------------------
John T. Neer
President and Chief Executive Officer
Proxy Statement first mailed to stockholders on or about July 13, 1999
<PAGE>
MBLA Financial Corporation
101 Vine Street
Macon, Missouri 63552
(660) 385-2122
-------------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 25, 1999
-------------------------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of MBLA
Financial Corporation ("MBLA") will be held at MBLA's offices at 101 Vine
Street, Macon, Missouri on Wednesday, August 25, 1999 at 5:00 p.m., local time,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of May 3, 1999 by and between
Citizens Bancshares Company and MBLA, pursuant to which MBLA will
merge with a wholly-owned subsidiary of Citizens Bancshares Company
and each share of common stock of MBLA, par value $.01 per share, will
be converted into the right to receive $24.15, subject to adjustment,
all on and subject to the terms and conditions contained therein.
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement.
Only stockholders of record at the close of business on June 30, 1999 will
be entitled to notice of and to vote at the meeting and at any adjournment or
postponement
MBLA stockholders have the right to dissent from the merger and obtain
payment in cash of the fair value of their shares of MBLA common stock under
applicable provisions of Delaware law. In order to perfect dissenters' rights,
MBLA stockholders must give written demand for appraisal of their shares before
the taking of the vote on the merger at the special meeting and must not vote in
favor of the merger. A copy of the applicable Delaware statutory provisions is
included as Appendix C to the accompanying proxy statement and a summary of the
provisions can be found under "THE MERGER--You Have Appraisal Rights in the
Merger."
In the event that there are not sufficient votes to approve the foregoing
proposal at the time of the meeting, the meeting may be adjourned in order to
permit further solicitation by MBLA.
By Order of the Board of Directors
/s/ Clyde D. Smith
Clyde D. Smith
Corporate Secretary
Macon, Missouri
July 13, 1999
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING PRE-ADDRESSED POSTAGE-PAID
ENVELOPE.
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY............................................. 1
SELECTED FINANCIAL DATA OF
MBLA................................................ 6
MARKET PRICE AND DIVIDEND
INFORMATION......................................... 8
MEETING OF MBLA STOCKHOLDERS........................ 9
Place, Date and Time.............................. 9
Purpose of the Meeting............................ 9
Who Can Vote at the Meeting....................... 9
Attending the Meeting............................. 9
Vote Required..................................... 9
Voting by Proxy................................... 10
Participants in Macon Building and Loan's
ESOP............................................ 10
Independent Public Accountants.................... 11
BENEFICIAL OWNERSHIP OF MBLA
COMMON STOCK...................................... 11
THE MERGER.......................................... 13
The Parties to the Merger......................... 13
Overview of the Transaction....................... 14
What You Will Receive............................. 14
Taxable Transaction for MBLA
Stockholders.................................... 14
Background of the Merger.......................... 15
Recommendation of the MBLA Board;
MBLA's Reasons for the Merger..................... 16
Fairness Opinion of MBLA's Financial
Advisor......................................... 17
You Have Appraisal Rights in the Merger........... 21
Interests of MBLA's Directors and Officers
in the Merger that Differ From Your
Interests....................................... 23
Regulatory Approvals Needed to
Complete the Merger............................. 25
Accounting Treatment of the Merger................ 26
<CAPTION>
Page
----
<S> <C>
THE MERGER AGREEMENT................................ 26
Terms of the Merger............................... 26
When Will the Merger be Completed................. 27
Procedures for Exchanging Your Stock
Certificates.................................... 27
Conditions to Completing the Merger............... 27
Conduct of Business Prior to the Merger........... 28
Covenants of MBLA and Citizens in
the Merger Agreement............................ 31
Representations and Warranties Made by
Citizens and MBLA in the Merger
Agreement....................................... 32
Terminating the Merger Agreement.................. 33
Expenses and Termination Fees..................... 33
Changing the Terms of the Merger
Agreement....................................... 33
WHERE YOU CAN FIND MORE
INFORMATION....................................... 34
STOCKHOLDER PROPOSALS............................... 35
Appendix A Agreement and Plan of Merger,
dated as of May 3, 1999, by and
between Citizens Bancshares
Company and MBLA Financial
Corporation
Appendix B Opinion of Manchester
Partners, L.L.C.
Appendix C Section 262 of the Delaware
General Corporation Law
Appendix D 1998 Annual Report to
Stockholders of MBLA Financial
Corporation
Appendix E Form 10-Q for the quarter
ended March 31, 1999 for MBLA
Financial Corporation
</TABLE>
<PAGE>
SUMMARY
This summary does not contain all of the information that is important to you.
You should carefully read the entire proxy statement and the other documents to
which this document refers to fully understand the merger. See "Where You Can
Find More Information" on page 34.
The Companies
Citizens Bancshares Company Citizens is a bank holding company based in
515 Washington Street Chillicothe, Missouri. Citizens operates a
Chillicothe, Missouri 64601 total of 21 banking offices in Missouri
(660) 646-5500 through three banks, Citizens Bank and Trust
Company, Boonslick Bank and First Bank, CBC.
At March 31, 1999, Citizens had total assets
of $744.4 million, deposits of $609.8 million
and stockholders' equity of $59.9 million.
MBLA Financial Corporation MBLA is the savings and loan holding company
101 Vine Street for Macon Building and Loan Association, F.A.
Macon, Missouri 63552 Macon Building and Loan operates one office
(660) 385-2122 in Macon and one office in Moberly, Missouri
and specializes in residential mortgage
lending. At March 31, 1999, MBLA had total
assets of $206.2 million, deposits of $118.8
million, and stockholders' equity of $28.8
million.
A copy of MBLA's annual report to
stockholders for the year ended June 30, 1998
and quarterly report on Form 10-Q for the
quarter ended March 31, 1999 are included in
this proxy statement as Appendices D and E.
The Stockholders' Meeting
Place, Date and Time (page 9) The special meeting will be held at MBLA's
offices at 101 Vine Street, Macon, Missouri
on August 25, 1999 at 5:00 p.m., local time.
Purpose of the Meeting (page 9) At the special meeting, you will be asked to
approve a merger agreement that provides for
the merger of MBLA with a subsidiary of
Citizens.
Who Can Vote At the Meeting You can vote at the meeting of MBLA
(page 9) stockholders if you owned MBLA common stock
at the close of business on June 30, 1999.
You will be able to cast one vote for each
share of MBLA common stock you owned at that
time. As of June 30, 1999, there were
1,247,021 shares of MBLA common stock
outstanding.
1
<PAGE>
What Vote is Required for Approval of In order to approve the merger
the Merger Agreement (page 9) agreement, the holders of a majority of
the outstanding shares of MBLA common
stock entitled to vote must vote in its
favor. You can vote your shares by
attending the meeting and voting in
person or by mailing the enclosed proxy
card.
The Merger
Overview of the Transaction (page 14) MBLA has agreed to merge with a
subsidiary of Citizens, with MBLA being
the surviving corporation. Immediately
after this merger, Macon Building and
Loan will merge with Citizens Bank and
Trust Company, with Citizens Bank being
the surviving institution. As a result
of this transaction, MBLA will become a
subsidiary of Citizens and Macon
Building and Loan will cease to exist.
However, Citizens intends to operate
Macon Building and Loan's offices as
branches of Citizens Bank.
What You Will Receive (page 14) As an MBLA stockholder, each of your
shares of MBLA common stock will
automatically become exchangeable for
$24.15 in cash plus or minus an amount
that represents the change in MBLA's
adjusted book value per share from
December 31, 1998 to the end of the
month prior to closing. You will have to
surrender your MBLA stock certificates
to receive this cash payment. Citizens
will send you written instructions for
surrendering your certificates after we
have completed the merger. For more
information on how this exchange
procedure works, see "THE MERGER
AGREEMENT--Procedures for Exchanging
Your Stock Certificates" on page 27 of
this document.
Shares of MBLA are quoted on the Nasdaq
National Market. On April 22, 1999,
which is the day the last trade occurred
before we announced the merger, MBLA
common stock closed at $17.375 per
share.
Taxable Transaction for MBLA For United States federal income tax
Stockholders (page 14) purposes, your exchange of shares of
MBLA common stock for cash generally
will cause you to recognize a gain or
loss measured by the difference between
the cash you receive in the merger and
your tax basis in your shares of MBLA
common stock.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR
FOR A FULL UNDERSTANDING OF THE MERGER'S
TAX CONSEQUENCES THAT ARE PARTICULAR TO
YOU.
Recommendation to Stockholders (page The board of directors of MBLA believes
16) that the merger is advisable and fair to
you and in your best interests, and
unanimously recommends that you vote
"FOR" the proposal to approve the merger
agreement.
2
<PAGE>
For a discussion of the circumstances
surrounding the merger and the factors
considered by MBLA's board of directors
in approving the merger agreement,
please see pages 15 through 17.
Fairness Opinion of MBLA's Financial Manchester Partners, L.L.C. has
Advisor (page 17) delivered to the MBLA board of directors
its opinion that, as of the date of this
document, the merger consideration is
fair to the holders of MBLA common stock
from a financial point of view. A copy
of this opinion is provided as Appendix
B to this proxy statement. You should
read it completely to understand the
procedures followed, assumptions made,
matters considered, qualifications and
limitations on the review made by
Manchester Partners in providing this
opinion. Manchester Partners estimates
that it will receive approximately
$260,000 of professional fees from MBLA
for its services in connection with the
merger.
You Have Appraisal Rights in the Delaware law provides you with
Merger (page 21) dissenters' appraisal rights in the
merger. This means that if you are not
satisfied with the amount you are
receiving in the merger, you are legally
entitled to have the value of your
shares independently determined and to
receive payment based on that valuation.
To exercise your dissenters' rights you
must deliver a written objection to the
merger to MBLA at or before the special
meeting and you must not vote in favor
of the merger. Objections to the merger
should be addressed to MBLA's Corporate
Secretary and sent to MBLA at 101 Vine
Street, Macon, Missouri 63552. Your
failure to follow exactly the procedures
specified under Delaware law will result
in the loss of your dissenters' rights.
A copy of the dissenters' rights
provisions of Delaware law is provided
as Appendix C to this proxy statement.
Interests of Directors and Officers Some of MBLA's directors and officers
in the Merger that Differ From Your have interests in the merger that are
Interests (page 23) different from, or are in addition to,
their interests as stockholders in MBLA.
The members of MBLA's board of directors
knew about these additional interests,
and considered them, when they approved
the agreement and the merger. These
include:
1. the cancellation of existing stock
options in exchange for a cash
payment equal to the value of the
stock option;
2. the payment of severance benefits
under the existing employment
agreement with MBLA's chief
executive officer; and
3. provisions in the merger agreement
relating to protection against
claims.
3
<PAGE>
Regulatory Approvals Needed to We cannot complete the merger unless
Complete the Merger (page 25) it is approved by the Board of Governors
of the Federal Reserve System, the
Federal Deposit Insurance Corporation
and the Missouri Division of Finance.
Citizens has filed all of the required
applications or waiver requests with
these regulatory authorities. As of the
date of this proxy statement, Citizens
has not received any of the required
approvals. While we do not know of any
reason why Citizens would not be able to
obtain the necessary approvals in a
timely manner, we cannot be certain when
or if Citizens will get them.
The Merger Agreement
A copy of the merger agreement is provided as Appendix A to this proxy
statement. Please read the agreement. It is the legal document that governs
the merger.
Conditions to Completing the Merger The completion of the merger depends on
(page 27) a number of conditions being met. In
addition to the parties complying with
the merger agreement, these include:
1. Approval of the merger agreement by
the MBLA stockholders.
2. Approval of the merger by federal
and state regulatory authorities
without the imposition of any
material adverse condition.
3. The absence of any injunction or
legal restraint blocking the merger
or government proceedings trying to
block the merger.
4. The absence of any law or regulation
that makes the merger illegal.
5. MBLA stockholders having exercised
dissenters' rights with respect to
no more than 10% of the outstanding
MBLA shares.
6. Macon Building and Loan having an
allowance for loan losses of at
least $700,000.
Where the law permits, Citizens and MBLA
could decide to complete the merger even
though one or more of these conditions
has not been met. MBLA cannot be certain
when or if the conditions to the merger
will be satisfied or waived, or that the
merger will be completed.
Terminating the Merger Agreement MBLA and Citizens can agree at any time
(page 33) to terminate the merger agreement
without completing the merger, even if
the stockholders of MBLA have approved
it.
4
<PAGE>
Also, either of us can decide, without
the consent of the other, to terminate
the agreement if:
1. MBLA's stockholders do not approve
the merger;
2. a required regulatory approval is
denied;
3. we do not complete the merger by
January 31, 2000; or
4. the other party breaches a
representation, warranty or
covenant that would have a material
adverse effect on the party seeking
to terminate.
In addition, MBLA may terminate the
merger agreement if MBLA's Board of
Directors determines that it must accept
a superior offer from a third party in
the exercise of its fiduciary duties.
Termination Fees (page 33) If MBLA terminates the merger agreement
in order to accept a superior offer or
if, after another party proposes to
acquire MBLA, MBLA stockholders fail to
approve the merger agreement and within
12 months MBLA enters into a merger
agreement with a third party, MBLA will
pay Citizens a termination fee of
$1,000,000.
If the merger fails to close because of
the failure to receive a required
regulatory approval without any material
adverse conditions, Citizens will pay
MBLA a termination fee of $187,500.
Changing the Terms of the Merger We can agree to amend the agreement,
Agreement (page 33) and each of us can waive our right to
require the other party to adhere to the
terms and conditions of the agreement,
where the law allows. However, we may
not do so after MBLA stockholders
approve the agreement if the amendment
or waiver reduces or changes the
consideration that will be received by
MBLA stockholders. In those cases the
MBLA stockholders would have to approve
the amendment or waiver.
5
<PAGE>
SELECTED FINANCIAL DATA OF MBLA
The following tables show summarized historical financial data for MBLA.
The information in the following tables is based on historical financial
information that MBLA has presented in its prior SEC filings. You should read
this summary financial information in connection with this historical financial
information and with the more detailed financial information we provide in this
document. The audited financial statements of MBLA are included in the annual
report to stockholders attached as Appendix D to this document. The unaudited
financial statements of MBLA for the nine months ended March 31, 1999 and 1998
are included in the Quarterly Report on Form 10-Q attached as Appendix E to this
document. MBLA's unaudited financial statements for the nine months ended March
31, 1999 and 1998 include normal, recurring adjustments necessary to fairly
present the data for such period. The unaudited data is not necessarily
indicative of expected results of a full year's operation.
<TABLE>
<CAPTION>
At March 31, At June 30,
------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets................................... $206,188 $203,228 $234,823 $201,039 $197,252 $129,211
Investment securities available for sale....... 7,512 9,770 27,039 12,437 14,604 15,294
Mortgage-backed securities available for
sale.......................................... 44,628 48,226 68,975 71,129 69,482 14,722
Loans, net..................................... 141,121 136,647 126,448 106,485 104,700 92,949
Deposits....................................... 118,842 115,330 101,959 86,716 85,162 88,380
Total stockholders' equity..................... 28,836 27,841 28,536 28,067 29,088 28,697
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Ended March 31, Year Ended June 30,
------------------- ------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Interest income................................... $10,742 $11,743 $15,278 $15,040 $13,400 $11,190 $ 7,807
Interest expense.................................. 7,303 8,218 10,688 10,436 9,589 7,220 4,097
Net interest income............................... 3,439 3,525 4,590 4,604 3,811 3,970 3,710
Provision (credit) for loan losses................ 35 45 60 95 -- 115 75
------- ------- ------- ------- ------- ------- -------
Net interest income after provision
(credit) for loan losses....................... 3,404 3,480 4,530 4,509 3,811 3,855 3,635
------- ------- ------- ------- ------- ------- -------
Non-interest income............................... 62 7 44 10 21 14 24
Non-interest expense.............................. 1,163 1,198 1,611 2,092 1,541 1,484 1,641
Income before provision for
income taxes................................... 2,303 2,289 2,963 2,427 2,291 2,385 2,018
Provision for income taxes........................ 888 805 1,079 986 898 933 787
------- ------- ------- ------- ------- ------- -------
Net income........................................ $ 1,415 $ 1,484 $ 1,884 $ 1,441 $ 1,393 $ 1,452 $ 1,231
======= ======= ======= ======= ======= ======= =======
Basic net income per share........................ $ 1.15 $ 1.19 $ 1.52 $ 1.11 $ 1.03 $ 0.99 $ 0.73
Net income per share assuming dilution............ $ 1.11 $ 1.13 $ 1.44 $ 1.04 $ 0.97 $ 0.96 $ 0.72
Cash dividends paid per common share.............. $ 0.30 $ 0.20 $ 0.50 $ 0.40 $ 0.40 $ 0.40 $ 0.40
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
At or For the
Nine Months Ended
March 31, At or For the Year Ended June 30,
------------------ ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------- ------- -------- ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Consolidated Financial
Ratios and Other Data: (1)
Return on average assets (2).................. 0.91% 0.89% 0.86% 0.67% 0.70% 0.87% 1.00%
Return on average equity (3).................. 6.64 7.01 6.64 7.93 8.08 8.79 7.71
Average equity to average assets.............. 13.73 12.66 12.97 8.40 8.68 9.88 12.93
Equity to total assets........................ 13.99 13.50 13.70 12.15 13.96 14.75 22.21
Interest rate spread during period (4)........ 1.50 1.42 1.40 1.44 1.09 1.51 2.03
Net interest margin (5)....................... 2.24 2.13 2.12 2.15 1.94 2.40 3.08
Operating expenses to average assets.......... 0.75 0.72 0.74 0.97 0.78 0.89 1.33
Net interest income to operating
expenses..................................... 292.88 290.35 284.82 220.13 247.31 267.47 226.01
Non-performing loans to total
loans (6).................................... 0.43 0.85 0.68 0.46 0.62 0.41 0.25
Non-performing assets to total
assets (7)................................... 0.36 0.55 0.45 0.25 0.34 0.22 0.18
Allowance for loan losses to
non-performing loans (6)..................... 119.83 59.37 74.68 109.19 80.69 126.16 185.39
Allowance for loan losses
to non-performing assets (7)................. 97.58 59.37 74.68 109.19 77.99 126.16 185.39
Allowance for loan losses to total loans...... 0.51 0.51 0.50 0.50 0.50 0.51 0.46
Average interest-earning assets to
average interest-bearing liabilities......... 115.58 114.28 114.66 114.48 117.52 120.32 130.81
Dividend payout ratio (8)..................... 39.7 26.3 32.9 38.5 41.2 43.1 55.6
</TABLE>
___________________
(1) Ratios for the nine month periods ended March 31, 1999 and 1998 are
annualized where appropriate.
(2) Return on average assets is calculated by dividing net income by average
outstanding assets.
(3) Return on average stockholders' equity is calculated by dividing net income
by average stockholders' equity.
(4) The interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percent of average
interest-earning assets.
(6) Non-performing loans consist of loans delinquent 90 days or more.
(7) Non-performing assets consist of non-performing loans and real estate
acquired through foreclosure.
(8) Dividend payout ratio is calculated by dividing cash dividends by net
income.
7
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
MBLA common stock is listed on the National Market System of the Nasdaq
Stock Market under the symbol MBLF.
The following table lists the high and low prices per share for MBLA common
stock as reported on the Nasdaq National Market and the quarterly cash dividends
declared by MBLA for the periods indicated.
<TABLE>
<CAPTION>
MBLA COMMON STOCK
------------------------------
HIGH LOW DIVIDENDS
-------- -------- ---------
<S> <C> <C> <C>
Fiscal 1997
Quarter ended September 30, 1996......... $ 23.25 $ 21.25 $ N/A
Quarter ended December 31, 1996.......... 22.25 19.00 0.20
Quarter ended March 31, 1997............. 20.625 19.25 N/A
Quarter ended June 30, 1997.............. 25.25 19.875 0.20
Fiscal 1998
Quarter ended September 31, 1997......... $ 27.25 $ 23.25 $ N/A
Quarter ended December 31, 1997.......... 30.50 25.25 0.20
Quarter ended March 31, 1998............. 30.625 27.25 N/A
Quarter ended June 30, 1998.............. 27.125 23.00 0.30
Fiscal 1999
Quarter ended September 30, 1998......... $ 24.75 $ 18.375 $ N/A
Quarter ended December 31, 1998.......... 21.00 13.75 0.30
Quarter ended March 31, 1999............. 21.25 18.25 N/A
Quarter ended June 30, 1999
(through June 22, 1999)................. 23.75 16.4375 N/A
</TABLE>
The closing price per share of MBLA common stock on April 22, 1999, which
is the day of the last trade preceding the public announcement of the proposed
merger, was $17.375. On June 22, 1999, which is the latest practicable date
prior to the printing of this proxy statement, the closing price for MBLA common
stock was $22.375.
As of June 30, 1999, there were approximately 356 holders of record of MBLA
common stock. This number does not reflect the number of persons or entities who
may hold their stock in nominee or "street" name through brokerage firms.
8
<PAGE>
MEETING OF MBLA STOCKHOLDERS
Place, Date and Time
The meeting will be held at MBLA's offices at 101 Vine Street, Macon,
Missouri on Wednesday, August 25, 1999, at 5:00 p.m., local time.
Purpose of the Meeting
The purpose of the meeting is to consider and vote on a proposal to approve
and adopt the merger agreement and to act on any other matters brought before
the meeting.
Who Can Vote at the Meeting
You are entitled to vote your MBLA common stock if the records of MBLA
showed that you held your shares as of the close of business on June 30, 1999.
As of the close of business on that date, a total of 1,247,021 shares of MBLA
common stock were outstanding. Each share of common stock has one vote. As
provided in MBLA's Certificate of Incorporation, record holders of MBLA's common
stock who beneficially own, either directly or indirectly, in excess of 10% of
MBLA's outstanding shares are not entitled to any vote in respect of the shares
held in excess of the 10% limit.
Attending the Meeting
If you are a beneficial owner of MBLA common stock held by a broker, bank
or other nominee (i.e., in "street name"), you will need proof of ownership to
be admitted to the meeting. A recent brokerage statement or letter from a bank
or broker are examples of proof of ownership. If you want to vote your shares of
MBLA common stock held in street name in person at the meeting, you will have to
get a written proxy in your name from the broker, bank or other nominee who
holds your shares.
Vote Required
The special meeting will be held if a majority of the outstanding shares of
common stock entitled to vote is represented at the meeting. If you return valid
proxy instructions or attend the meeting in person, your shares will be counted
for purposes of determining whether there is a quorum, even if you abstain from
voting. Broker non-votes also will be counted for purposes for determining the
existence of a quorum. A broker non-vote occurs when a broker, bank or other
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received voting instructions from the
beneficial owner. Under applicable rules, brokers, banks and other nominees may
not exercise their voting discretion on the proposal to approve and adopt the
merger agreement and, for this reason, may not vote shares held for beneficial
owners without specific instructions from the beneficial owners.
The approval and adoption of the merger agreement will require the
affirmative vote of the holders of at least a majority of the outstanding shares
of common stock entitled to vote at the meeting. Failure to return a properly
executed proxy card or to vote in person will have the same effect as a vote
against the merger agreement. Abstentions and broker non-votes also will have
the same effect as a vote against the merger agreement.
As of May 31, 1999, directors and executive officers of MBLA, and persons
closely associated with them, beneficially owned 255,512 shares of MBLA common
stock, not including shares that may be acquired upon the exercise of stock
options. This equals 20.5% of the outstanding shares of MBLA common stock.
9
<PAGE>
As of the same date, neither Citizens nor any of its directors and executive
officers owned any shares of MBLA common stock.
Voting by Proxy
This proxy statement is being sent to you by the board of directors of MBLA
for the purpose of requesting that you allow your shares of MBLA common stock to
be represented at the special meeting by the persons named in the enclosed proxy
card. All shares of MBLA common stock represented at the meeting by properly
executed proxies will be voted in accordance with the instructions indicated on
the proxy card. If you sign and return a proxy card without giving voting
instructions, your shares will be voted as recommended by MBLA's board of
directors. The board recommends a vote "FOR" approval of the merger agreement.
If any matters not described in this proxy statement are properly presented
at the special meeting, the persons named in the proxy card will use their own
judgment to determine how to vote your shares. This includes a motion to adjourn
or postpone the meeting in order to solicit additional proxies. However, no
proxy voted against the proposal to approve the merger agreement will be voted
in favor of an adjournment or postponement to solicit additional votes in favor
of the merger agreement. MBLA does not know of any other matters to be presented
at the meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Secretary of MBLA in
writing before your common stock has been voted at the special meeting, deliver
later proxy instructions, or attend the meeting and vote your shares in person.
Attendance at the special meeting will not in itself constitute revocation of
your proxy.
If your MBLA common stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow in
order to have your shares voted. Your broker or bank may allow you to deliver
your voting instructions via the telephone or the Internet. Please see the
instruction form that accompanies this proxy statement.
MBLA will pay the cost of this proxy solicitation. In addition to
soliciting proxies by mail, directors, officers and employees of MBLA may
solicit proxies personally and by telephone. None of these persons will receive
additional or special compensation for soliciting proxies. MBLA will, upon
request, reimburse brokers, banks and other nominees for their expenses in
sending proxy materials to their customers who are beneficial owners and
obtaining their voting instructions.
Participants in Macon Building and Loan's ESOP
If you participate in the Macon Building and Loan Association Employee
Stock Ownership Plan, the proxy card represents a voting instruction to the
trustee of the ESOP as to the number of shares in your plan account. Each
participant in the ESOP may direct the trustee as to the manner in which shares
of common stock allocated to the participant's plan account are to be voted.
Unallocated shares of common stock held by the ESOP and allocated shares for
which no voting instructions are received will be voted by the trustee in the
same proportion as shares for which the trustee has received voting
instructions, subject to the trustee's exercise of his fiduciary obligations.
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<PAGE>
Independent Public Accountants
Lockridge, Constant & Conrad, LLC has served as MBLA's independent auditors
since 1985. A representative of Lockridge, Constant & Conrad is expected to be
present at the special meeting and will have an opportunity to make a statement
if he or she desires and will be available to respond to appropriate questions.
BENEFICIAL OWNERSHIP OF MBLA COMMON STOCK
The following table provides information as of May 31, 1999 with respect to
persons known to MBLA to be the beneficial owners of more than 5% of MBLA's
outstanding common stock.
<TABLE>
<CAPTION>
Number of Shares Percent of Common
Name and Address Beneficially Owned Stock Outstanding
- ---------------- ------------------ -----------------
<S> <C> <C>
Mary Kathryn Drake 156,250 (1) 12.5%
2104 Dornoch
League City, Texas
John T. Neer 84,195 (2) 6.7%
405 N. Wentz
Macon, Missouri
Macon Building and Loan Association, F.A. 71,216 (3) 5.7%
Employee Stock Ownership Plan
101 Vine Street
Macon, Missouri 63552
</TABLE>
- ------------------------
(1) This information is based on a Schedule 13D, dated August 11, 1994, filed
with the Securities and Exchange Commission.
(2) Includes 13,779 shares that may be acquired upon the exercise of
outstanding stock options and 18,416 shares allocated to Mr. Neer under
Macon Building and Loan's ESOP over which Mr. Neer has shared voting power.
(3) Includes 13,900 shares which have not been allocated to participants'
accounts and over which the trustee has sole voting power and 57,316 shares
which have been allocated to participants' accounts and over which the
trustee has shared voting power. Under the terms of the ESOP, the trustee
will vote unallocated shares and allocated shares for which no voting
instructions are received in the same proportion as shares for which the
trustee has received voting instructions from participants. The trustee of
the ESOP is Charles L. Hutton, who is a director of MBLA. Mr. Hutton
disclaims beneficial ownership of all shares held by the ESOP.
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<PAGE>
The following table provides information about the shares of MBLA common
stock that may be considered to be owned by each director of MBLA and by all
directors and executive officers of MBLA as a group as of May 31, 1999. A person
may be considered to own any shares of common stock over which he or she has,
directly or indirectly, sole or shared voting or investing power.
<TABLE>
<CAPTION>
Number of Shares
That May Be
Number of Acquired Within Percent of
Shares 60 Days By Common Stock
Name/Title Owned Exercising Options Outstanding
---------- ----------- -------------------- --------------
<S> <C> <C> <C>
Charles L. Hutton 35,362 11,237 3.7%
Chairman of the Board
Carl B. Barrows 14,189 11,237 2.0%
Vice Chairman of the Board
John T. Neer 70,416(1) 13,779 6.7%
President, Chief Executive Officer and
Director
Richard C. Miller, Jr. 30,559 11,237 3.3%
Director
Robert M. Wilhite 30,119 11,237 3.3%
Director
Arnold L. Walter 35,362 6,404 3.3%
Director
Truman L. Gehringer 3,527 1,404 0.4%
Director
All directors and executive officers as a
group 255,512(2) 78,225 25.2%
(ten persons)
</TABLE>
- ----------------------
(1) Includes 18,416 shares allocated to Mr. Neer under Macon Building and
Loan's ESOP over which Mr. Neer has shared voting power.
(2) Includes 35,611 shares allocated to executive officers under Macon Building
and Loan's ESOP over which the executive officers have shared voting power.
12
<PAGE>
THE MERGER
The following discussion of the merger is qualified by reference to the
merger agreement, which is attached to this proxy statement as Appendix A. MBLA
stockholders are urged to read the entire merger agreement carefully.
The Parties to the Merger
Citizens Bancshares Company
Citizens is a Missouri corporation that was organized in 1969 and is a
registered multi-bank holding company for Citizens Bank and Trust Company,
Boonslick Bank and First Bank, CBC. As of April 30, 1999, Citizens had total
assets, on a consolidated basis, of approximately $743 million.
Citizens Bank is a Missouri state bank that was founded in 1889 and is
headquartered in Chillicothe, Missouri. Citizens Bank has 11 locations in
northwest Missouri. As of April 30, 1999, Citizens Bank had assets of
approximately $476 million. Boonslick Bank is a Missouri state bank with
headquarters in Boonville, Missouri and 5 locations in central Missouri. As of
April 30, 1999, Boonslick Bank had assets of approximately $138 million. First
Bank, CBC is a Missouri bank headquartered in Maryville, Missouri. First Bank
has 5 locations in northwest Missouri. As of April 30, 1999, First Bank had
assets of approximately $125 million. Citizens Bank, Boonslick Bank and First
Bank offer a broad range of commercial and retail banking services, including
checking accounts, savings accounts, money market accounts, individual
retirement accounts (IRAs), full trust services, financial planning, brokerage
services, and a full line of loans. The banks originate and service commercial
and residential real estate loans, agricultural loans, and consumer loans.
MBLA Financial Corporation
MBLA became the holding company for Macon Building and Loan in 1993 in
connection with Macon Building and Loan's conversion from mutual to stock form
of organization. As a savings and loan holding company, MBLA is subject to
regulation by the Office of Thrift Supervision (the "OTS"). Since its formation,
MBLA's principle business has been to direct and coordinate the business of
Macon Building and Loan.
Macon Building and Loan was originally organized in 1885 as a Missouri-
chartered building and loan association. Macon Building and Loan converted to a
federally chartered savings and loan association in 1995. Macon Building and
Loan is a member of the Federal Home Loan Bank System and its deposit accounts
are insured up to applicable limits by the Federal Deposit Insurance
Corporation. Macon Building and Loan offers a variety of financial services to
meet the needs of the communities it serves. Macon Building and Loan's principal
business consists of attracting retail deposits from the general public and
investing those deposits, together with funds generated from operations, in one-
to four-family residential mortgage loans through purchases and originations. To
a lesser extent, Macon Building and Loan invests in U.S. Government federal
agency securities and mortgage-backed and related securities, interest-earning
deposits, commercial and multi-family real estate loans and consumer loans.
For additional information about the financial condition of MBLA and its
recent results of operations, please see MBLA's 1998 annual report to
stockholders and Form 10-Q for the quarter ended March 31, 1999 which are
attached to this proxy statement as Appendices D and E.
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<PAGE>
Overview of the Transaction
The boards of directors of MBLA and Citizens have each unanimously approved
a merger agreement that provides that MBLA will merge with a wholly owned
subsidiary of Citizens. MBLA will survive the merger and become a wholly owned
subsidiary of Citizens. In the merger, your shares of MBLA common stock will be
converted into the right to receive the cash payment described below. Upon
completion of the merger you will no longer own any stock or have any interest
in MBLA, nor will you receive, as a result of the merger, any stock of Citizens.
Immediately after the merger, Macon Building and Loan will merge into
Citizens Bank. The surviving bank will be Citizens Bank. It is the intent of
Citizens Bank to operate the offices of Macon Building and Loan as branches of
Citizens Bank.
What You Will Receive
Upon completion of the merger, each share of MBLA common stock will be
converted into the right to receive $24.15 in cash plus or minus an amount that
represents the change in MBLA's adjusted book value per share from December 31,
1998 until the end of the month prior to the date of the merger. This additional
amount will equal the adjusted net worth of MBLA as of the last day of the month
prior to the date of the merger minus the sum of $28,390,000 and certain
transaction costs divided by the sum of the number of shares of MBLA common
stock outstanding on the date of the merger plus the number of shares subject to
outstanding stock options.
The adjusted net worth of MBLA for purposes of calculating the merger
consideration will equal the consolidated stockholders' equity of MBLA
calculated in accordance with generally accepted accounting principles, but
without giving effect to changes after December 31, 1998 in unrealized gain on
securities available for sale, payment of attorneys' fees relating to the merger
after March 16, 1999 up to $75,000, and payment of financial advisors' fees up
to $300,000. The transactions costs that will be subtracted from the adjusted
net worth of MBLA for purposes of the calculation described above will be the
amount by which attorneys' fees relating to the merger incurred after March 16,
1999 exceed $75,000 and the amount by which financial advisors' fees exceed
$300,000, in each case to the extent that payment of these fees is not already
reflected in the adjusted net worth of MBLA.
Taxable Transaction for MBLA Stockholders
The following is a discussion of the material federal income tax
consequences of the merger to holders of MBLA common stock. The discussion is
based upon the Internal Revenue Code, Treasury regulations, Internal Revenue
Service rulings, and judicial and administrative decisions in effect as of the
date of this proxy statement. This discussion assumes that the MBLA common stock
is generally held for investment. In addition, this discussion does not address
all of the tax consequences that may be relevant to you in light of your
particular circumstances or to MBLA stockholders subject to special rules, such
as foreign persons, financial institutions, tax-exempt organizations, dealers in
securities or foreign currencies or insurance companies.
The receipt of cash for MBLA common stock pursuant to the merger will be a
taxable transaction for federal income tax purposes to stockholders receiving
such cash, and may be a taxable transaction for state, local and foreign tax
purposes as well. You will recognize a gain or loss measured by the difference
between your tax basis for the MBLA common stock owned by you at the time of the
merger and the amount of cash you receive for your MBLA shares. Your gain or
loss will be a capital gain or loss if your MBLA stock is a capital asset in
your hands.
14
<PAGE>
The cash payments due the holders of MBLA common stock upon the exchange of
such MBLA common stock pursuant to the merger generally will be subject to
"backup withholding" for federal income tax purposes unless certain requirements
are met. Under federal law, the third-party paying agent (in this case, Citizens
Bank) must withhold 31% of the cash payments to holders of MBLA common stock to
whom backup withholding applies, and the federal income tax liability of such
persons will be reduced by the amount so withheld. To avoid backup withholding,
you must provide Citizens Bank with your taxpayer identification number and
complete a form in which you certify that you have not been notified by the
Internal Revenue Service that you are subject to backup withholding as a result
of a failure to report interest and dividends. The taxpayer identification
number of an individual is his or her Social Security number.
Neither Citizens nor MBLA has requested or will request a ruling from the
Internal Revenue Service as to any of the tax effects to MBLA's stockholders of
the transactions discussed in this proxy statement, and no opinion of counsel
has been or will be rendered to MBLA's stockholders with respect to any of the
tax effects of the merger to stockholders.
THE TAX CONSEQUENCES OF THE MERGER TO YOU MAY VARY DEPENDING UPON YOUR
PARTICULAR CIRCUMSTANCES. THEREFORE, YOU SHOULD CONSULT YOUR TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO YOU, INCLUDING THOSE
RELATING TO STATE AND/OR LOCAL TAXES.
Background of the Merger
Since Macon Building and Loan converted from the mutual to stock form of
organization in 1993, the MBLA board of directors has monitored the rapid pace
of consolidation in the financial services industry and the evolution of the
industry. In July 1998, as part of its regular review of MBLA's strategic
alternatives, the MBLA board determined to seek the assistance of a financial
advisor. At a meeting on September 17, 1998, the MBLA board heard presentations
from two firms and elected to engage Manchester Partners for consulting and
strategic planning advice.
In September 1998, the MBLA board authorized Manchester Partners to begin
work in connection with a review of strategic alternatives. As part of this
process, the board also authorized Manchester Partners to contact selected
parties to determine their interest in a possible business combination and to
share with potentially interested parties information about MBLA, including non-
public information. Manchester Partners was instructed not to place any
limitations on any party.
Over the next several months, Manchester Partners worked with MBLA on
operational and strategic initiatives as well as to identify and contact
potential partners for a business combination. During January and February 1999,
Manchester Partners approached 20 institutions that Manchester Partners and MBLA
considered to be potential merger partners, including Citizens. Several of the
companies contacted by Manchester Partners, one of which was Citizens, expressed
an interest in a possible business combination with MBLA. After further
discussions with Manchester Partners and review of information regarding MBLA,
three of the companies stated a price range at which they would be interested in
acquiring MBLA, subject to satisfactory completion of a due diligence review of
MBLA's operations. The other institutions decided not to pursue a business
combination with MBLA. Two of the interested institutions indicated an interest
in acquiring MBLA for cash. The other institution indicated that it would offer
a combination of cash and preferred stock. In late February and early March,
Manchester Partners and representatives of MBLA held discussions with each of
the interested institutions for the purpose of refining their offers and, in the
case of the one institution that proposed the issuance of preferred stock,
ascertaining whether an all cash transaction would be possible.
15
<PAGE>
At a meeting of the MBLA board on March 18, 1999, Manchester Partners
reviewed with the board the process that had been conducted to identify and
contact potential merger partners and the results of Manchester Partners'
discussions with the interested parties. Manchester Partners reviewed with the
MBLA board in detail the three expressions of interest. The MBLA board
determined that the expression of interest that included the issuance of
preferred stock was not desirable because there would be little or no market for
the preferred stock, the preferred stock would be difficult to value, and the
complexity of the transaction and the additional requirements of securities law
compliance made the transaction less likely to be completed in a timely fashion
or at all. The MBLA board concluded that the expression of interest by Citizens
was most attractive insofar as Citizens offered the highest value to MBLA
stockholders and appeared to be best positioned to complete a transaction with
MBLA. Legal counsel for MBLA reviewed with the board its fiduciary duties to
stockholders. The MBLA board then determined that pursuing a transaction with
Citizens on the terms proposed would be in the best interests of MBLA's
stockholders in light of MBLA's prospects on a stand alone basis, the other
expressions of interest received and the likelihood of Citizens being able to
consummate a merger in a reasonable time frame. At the March 18, 1999 meeting,
the MBLA board authorized its representatives to enter into discussions with
Citizens for the purpose of negotiating a definitive merger agreement.
Beginning in late March 1999, representatives of MBLA and Citizens
negotiated the terms of the merger agreement. Over the next few weeks,
representatives of MBLA conducted a limited due diligence review of Citizens,
Citizens completed its due diligence review of MBLA and the parties worked to
refine the pricing of the transaction. During this period, the progress of the
negotiations were reported to the members of the MBLA board by Mr. Neer.
A final draft of the merger agreement was provided to the MBLA board on
April 29, 1999. That evening, the MBLA board met with legal counsel to review
the contents of the merger agreement. Legal counsel also reviewed with the board
the course of negotiations and the results of due diligence and presented a
summary of the board's fiduciary duties in the context of a sale of control of
MBLA.
On the morning of May 3, 1999 the MBLA board reconvened. Manchester
Partners presented its analysis and delivered its opinion that the merger
consideration was fair, from a financial point of view, to the stockholders of
MBLA. The MBLA board then discussed the terms of the merger agreement and the
presentation by Manchester Partners. After conclusion of the review and
discussion, a vote was taken and the MBLA board unanimously approved the merger
agreement and authorized Mr. Neer to execute the merger agreement and related
documents on behalf of MBLA.
Recommendation of the MBLA Board; MBLA's Reasons for the Merger
MBLA's board of directors has unanimously approved the merger agreement and
recommends that MBLA stockholders vote "FOR" the approval of the merger
agreement.
MBLA's board has determined that the merger and the merger agreement are
advisable and are fair to, and in the best interests of, MBLA and its
stockholders. In reaching this determination, the MBLA board consulted with
legal counsel as to its legal duties and the terms of the merger agreement and
with its financial advisor with respect to the financial aspects and fairness of
the transaction. In arriving at its determination, the MBLA board also
considered a number of factors including, but not limited to, the following,
which include all material factors considered by the MBLA board:
1. The results of the contacts and discussions between MBLA and
Manchester Partners and various third parties and the belief of the
MBLA board that the merger with Citizens offered the best transaction
available to MBLA and its stockholders;
16
<PAGE>
2. Information concerning the businesses, earnings, operations, financial
condition and prospects of MBLA and Citizens, both individually and as
combined;
3. The financial advice rendered by Manchester Partners, as financial
advisor to MBLA, that the merger consideration is fair, from a
financial standpoint, to the MBLA stockholders. (See "--Fairness
Opinion of MBLA's Financial Advisor");
4. The terms of the merger agreement, including the taxable nature of the
cash to be paid to MBLA stockholders;
5. The historical trading prices for MBLA common stock;
6. The current and prospective economic, competitive and regulatory
environment facing MBLA, Citizens and the financial services industry;
7. The results of the due diligence investigations of Citizens, including
an assessment of Citizen's ability to pay the aggregate merger
consideration and the likelihood of the merger being approved by
regulatory authorities; and
8. MBLA's strategic alternatives to the merger, including the continued
operation of Macon Building and Loan as an independent financial
institution.
In reaching its determination to approve and recommend the merger, the MBLA
board did not assign any specific or relative weights to any of the foregoing
factors, and individual directors may have weighed factors differently.
Fairness Opinion of MBLA's Financial Advisor
The MBLA board retained Manchester Partners in September 1998 to provide
certain financial advisory and investment banking services to MBLA, with the
objective of assessing MBLA's strategic alternatives to enhance stockholder
value. These services included undertaking a search process to ascertain the
interest in an acquisition of MBLA by regional and local financial service
companies and, if necessary, assisting MBLA and the MBLA board in negotiating
financial terms with prospective acquirors and rendering its opinion with
respect to the fairness of the merger consideration from a financial point of
view to MBLA stockholders in the event MBLA entered into an agreement to be
acquired. In requesting Manchester Partners' advice and opinion, the MBLA board
did not give any special instructions to Manchester Partners, nor did it impose
any limitations upon the scope of the investigation which Manchester Partners
might wish to conduct to enable it to give its opinion. Although Manchester
Partners evaluated the fairness to MBLA's stockholders from a financial point of
view of the consideration to be received in the merger, Manchester Partners was
not requested to, and did not, recommend the form or amount of consideration to
be received in the merger, which was determined by MBLA and Citizens through
arm's-length negotiations.
Manchester Partners was selected by MBLA to act as its financial advisor
because of Manchester Partners' knowledge of MBLA's market and expertise in
connection with mergers and acquisitions of savings and loan associations,
savings banks, savings and loan holding companies, commercial banks and bank
holding companies. Pursuant to a letter agreement dated September 16, 1998, and
executed by MBLA on September 25, 1998, Manchester Partners estimates that it
will receive from MBLA total professional fees of approximately $260,000, none
of which has been paid to date, plus reimbursement of certain out-of-pocket
expenses estimated at $10,000, for its services in connection with the merger.
In addition, MBLA has agreed to indemnify Manchester Partners against certain
liabilities, including liabilities under the federal securities
17
<PAGE>
laws. Manchester Partners' fee is not conditioned upon its conclusions with
respect to the fairness of the merger consideration.
On May 3, 1999, at the meeting in which the MBLA board approved and adopted
the merger agreement, Manchester Partners presented its analysis to the MBLA
board and rendered its opinion to the MBLA board that, as of such date, the
merger consideration was fair to holders of MBLA common stock from a financial
point of view. That opinion was updated as of the date of this proxy statement.
In rendering its fairness opinion, Manchester Partners reviewed and
analyzed the following:
1. the merger agreement;
2. the following information for MBLA:
(a) audited financial statements as of, and for the fiscal years
ended, June 30, 1998, 1997 and 1996, incorporated in the
respective Annual Reports to stockholders,
(b) regulatory and internal financial and other reports through
December 31, 1998 and
(c) the proxy statement for MBLA's 1998 annual meeting of
stockholders;
3. the results of discussions with MBLA's management and directors
regarding past and current business, operations, financial condition
as of December 31, 1998, and future prospects;
4. MBLA's latest publicly-available financial statements, operating
results and market pricing characteristics relative to those publicly-
traded savings institutions with characteristics deemed by Manchester
Partners to be relatively comparable;
5. competitive, economic and demographic characteristics in MBLA's market
area;
6. the potential impact of regulatory and legislative changes on savings
institutions;
7. the financial terms of other recently completed and pending
acquisitions of savings institutions, regionally and nationally, with
characteristics deemed by Manchester Partners to be relatively
comparable;
8. expressions of interest by third parties; and
9. Citizens' financial condition through December 31, 1998, which was
used to assess Citizens' resources and its ability to complete the
merger from a cash and capital perspective.
In rendering its opinion, Manchester Partners relied, without independent
verification, on the accuracy and completeness of the information about
themselves that MBLA and Citizens furnished to Manchester Partners, as well as
publicly-available information regarding other financial institutions and
competitive, economic and demographic data. MBLA did not restrict Manchester
Partners as to the material it was permitted to review. Manchester Partners did
not perform or obtain any independent appraisals or evaluations of the assets
and liabilities and potential and/or contingent liabilities of MBLA.
18
<PAGE>
Manchester Partners expresses no opinion on matters of a legal, regulatory,
tax or accounting nature or the ability of the merger to be consummated. In
rendering its opinion, Manchester Partners assumed that in the course of
obtaining the necessary regulatory and governmental approvals for the proposed
merger, no restriction will be imposed on Citizens that would have a material
adverse effect on the ability of the merger to be consummated.
Manchester Partners' opinion was based solely upon the information
available to it and the economic, market and other circumstances as they existed
as of May 3, 1999, and the date of this proxy statement. Events occurring after
the date of this proxy statement could materially affect the assumptions
Manchester Partners used in preparing its opinion.
In connection with rendering its opinion, Manchester Partners performed a
variety of financial analyses which are summarized below. Although the
evaluation of the fairness, from a financial point of view, of the merger
consideration was to some extent subjective based on the experience and judgment
of Manchester Partners, and not merely the result of mathematical analyses of
financial data, Manchester Partners principally relied on the financial analyses
summarized below in its determinations. The preparation of a fairness opinion is
a complex process and is not necessarily susceptible to partial analyses or
summary description. Manchester Partners believes its analyses must be
considered as a whole and that selecting portions of such analyses and factors
considered by Manchester Partners without considering all such analyses and
factors could create an incomplete view of the process underlying Manchester
Partners' opinion. In its analyses, Manchester Partners took into account its
assessment of general business, market, monetary, financial and economic
conditions, industry performance and other matters, many of which are beyond the
control of MBLA and Citizens, as well as Manchester Partners' experience and
knowledge of financial institutions and its principals' experience in similar
transactions. With respect to the comparable transactions analysis described
below, no public company utilized as a comparison is identical to MBLA and such
analyses necessarily involve complex considerations and judgments concerning the
differences in financial and operating characteristics of the companies and
other factors that could affect the acquisition values of the companies
concerned. Manchester Partners conducted these analyses solely for the purpose
of providing its opinion as to the fairness to the holders of MBLA common stock
from a financial point of view of the merger consideration. These analyses do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Any estimates contained in
Manchester Partners' analyses are not necessarily indicative of future results
or values, which may be significantly more or less favorable than such
estimates. None of the analyses performed by Manchester Partners was assigned a
greater significance by Manchester Partners than any other.
Manchester Partners compared the merger on the basis of stated multiples of
reported earnings, tangible book value, assets and deposits of MBLA implied by
the merger consideration to be paid to the holders of MBLA common stock with the
same ratios in 17 pending and completed thrift acquisitions in Missouri,
Illinois and Iowa since the beginning of 1995 deemed by Manchester Partners to
be comparable.
The acquisition pricing ratios of this group were:
1. price/earnings ratios ranging from 11 to 61 times, with an average of
27 times;
2. price/tangible book ratios ranging from 115% to 212%, with an average
of 146%;
3. price/assets ratios ranging from 9% to 36%, with an average of 20%;
and
4. price/deposits ratios ranging from 11% to 52%, with an average of 27%.
19
<PAGE>
In comparison, MBLA was within the ranges on all pricing ratios except
price/tangible book. Specifically, the merger consideration of $24.83, which for
purposes of its analysis reflects MBLA's estimate of the increase in MBLA's net
worth at September 30, 1999, indicates the following acquisition pricing ratios
for shares of MBLA common stock, based on financial statements as of or for the
12 months ended December 31, 1998: 17 times annualized earnings, 106% of
tangible book value, 15% of assets and 26% of deposits.
Because of the significant decline in acquisition pricing ratios in the
last year, Manchester Partners also compared the pricing ratios in the merger
with the acquisition pricing ratios in the five transactions out of the group of
17 comparable transactions that were completed or pending since July 1998. The
acquisition pricing ratios of this group were:
1. price/earnings ratios ranging from 12 to 36 times, with an average of
21.7 times;
2. price/tangible book ratios ranging from 115% to 154%, with an average
of 131%;
3. price/assets ratios ranging from 12% to 24%, with an average of 19.5%;
and
4. price/deposits ratios ranging from 18% to 46%, with an average of 27%.
The acquisition pricing ratios for MBLA were slightly below the average
pricing ratios for the transactions completed or announced since July 30, 1998.
In comparison to the other acquired companies, MBLA, in an attempt to utilize
its excess available capital, operated on a wholesale basis for asset generation
and for a portion of its interest-bearing liabilities, which reduced its
desirability as an acquisition candidate.
No company or transaction used in this composite is identical to MBLA or
the merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies involved and other factors that could affect the trading values of the
securities of the company or companies to which they are being compared.
As described above, Manchester Partners' opinion and presentation to the
MBLA board was one of many factors taken into consideration by the MBLA board in
making its determination to approve the merger Agreement and the transactions
contemplated thereby. Although the foregoing summary describes the material
components of the analyses presented by Manchester Partners to the MBLA board on
May 3, 1999, and updated as of the date of this proxy statement, in connection
with its opinion as of these dates, it does not purport to be a complete
description of all the analyses performed by Manchester Partners and is
qualified by reference to the written opinion of Manchester Partners set forth
as Appendix B hereto, which you should read in its entirety.
THE FULL TEXT OF MANCHESTER PARTNERS' OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF MANCHESTER PARTNERS'
OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX
B. YOU SHOULD READ THE MANCHESTER PARTNERS' OPINION IN ITS ENTIRETY. THE
MANCHESTER PARTNERS' OPINION IS ADDRESSED ONLY TO THE MBLA BOARD AND IS DIRECTED
ONLY TO THE MERGER CONSIDERATION TO BE RECEIVED IN THE MERGER BY THE HOLDERS OF
MBLA COMMON STOCK AND DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW YOU SHOULD
VOTE AT THE SPECIAL MEETING.
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You Have Appraisal Rights in the Merger
Under Delaware law, if you do not wish to accept the cash payment provided
for in the merger agreement you have the right to dissent from the merger and to
receive payment in cash for the fair value of your MBLA common stock. MBLA
STOCKHOLDERS ELECTING TO EXERCISE DISSENTERS' RIGHTS MUST COMPLY WITH THE
PROVISIONS OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW IN ORDER TO
PERFECT THEIR RIGHTS. MBLA WILL REQUIRE STRICT COMPLIANCE WITH THE STATUTORY
PROCEDURES. A copy of Section 262 is attached as Appendix C.
The following is intended as a brief summary of the material provisions of
the Delaware statutory procedures required to be followed by a stockholder in
order to dissent from the merger and perfect the stockholder's dissenters'
rights. This summary, however, is not a complete statement of all applicable
requirements and is qualified in its entirety by reference to Section 262 of the
Delaware General Corporation Law, the full text of which appears in Appendix C
of this proxy statement.
Section 262 requires that stockholders be notified not less than 20 days
before the special meeting to vote on the merger that dissenters' appraisal
rights will be available. A copy of Section 262 must be included with such
notice. This proxy statement constitutes MBLA's notice to its stockholders of
the availability of dissenters' rights in connection with the merger in
compliance with the requirements of Section 262. If you wish to consider
exercising your dissenters' rights you should carefully review the text of
Section 262 contained in Appendix C because failure to timely and properly
comply with the requirements of Section 262 will result in the loss of your
dissenters' rights under Delaware law.
If you elect to demand appraisal of your shares, you must satisfy each of
the following conditions:
1. You must deliver to MBLA a written demand for appraisal of your shares
before the vote with respect to the merger is taken. This written
demand for appraisal must be in addition to and separate from any
proxy or vote abstaining from or against the merger. Voting against or
failing to vote for the merger by itself does not constitute a demand
for appraisal within the meaning of Section 262.
2. You must not vote in favor of the merger. An abstention or failure to
vote will satisfy this requirement, but a vote in favor of the merger,
by proxy or in person, will constitute a waiver of your dissenters'
rights in respect of the shares so voted and will nullify any
previously filed written demands for appraisal.
If you fail to comply with either of these conditions and the merger is
completed, you will be entitled to receive the cash payment for your shares of
MBLA common stock as provided for in the merger agreement, but you will have no
dissenters' rights with respect to your shares of MBLA common stock.
All demands for appraisal should be addressed to the Corporate Secretary,
MBLA Financial Corporation, 101 Vine Street, Macon, Missouri 63552, before the
vote on the merger is taken at the special meeting and should be executed by, or
on behalf of, the record holder of the shares of MBLA common stock. The demand
must reasonably inform MBLA of the identity of the stockholder and the intention
of the stockholder to demand appraisal of his or her shares.
TO BE EFFECTIVE, A DEMAND FOR APPRAISAL BY A HOLDER OF MBLA COMMON STOCK
MUST BE MADE BY OR IN THE NAME OF SUCH REGISTERED STOCKHOLDER, FULLY AND
CORRECTLY, AS THE STOCKHOLDER'S NAME APPEARS ON HIS OR HER STOCK CERTIFICATE(S)
AND CANNOT BE MADE BY THE BENEFICIAL OWNER IF HE OR SHE DOES NOT ALSO
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HOLD THE SHARES OF RECORD. THE BENEFICIAL HOLDER MUST, IN SUCH CASES, HAVE THE
REGISTERED OWNER SUBMIT THE REQUIRED DEMAND IN RESPECT OF SUCH SHARES.
If shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in such capacity; and if the shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or for all joint owners. An authorized agent, including one for two
or more joint owners, may execute the demand for appraisal for a stockholder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or she is acting
as agent for the record owner. A record owner, such as a broker, who holds
shares as a nominee for others, may exercise his or her right of appraisal with
respect to the shares held for one or more beneficial owners, while not
exercising this right for other beneficial owners. In such case, the written
demand should state the number of shares as to which appraisal is sought. Where
no number of shares is expressly mentioned, the demand will be presumed to cover
all shares held in the name of such record owner.
If you hold your shares of MBLA common stock in a brokerage account or in
other nominee form and you wish to exercise appraisal rights, you should consult
with your broker or such other nominee to determine the appropriate procedures
for the making of a demand for appraisal by such nominee.
Within ten days after the effective date of the merger, Citizens must give
written notice that the merger has become effective to each MBLA stockholder who
has properly filed a written demand for appraisal and who did not vote in favor
of the merger. Within 120 days after the effective date, either Citizens or any
stockholder who has complied with the requirements of Section 262 may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of the shares held by all stockholders entitled to appraisal. Citizens
does not presently intend to file such a petition in the event there are
dissenting stockholders and has no obligation to do so. Accordingly, the failure
of a stockholder to file such a petition within the period specified could
nullify such stockholder's previously written demand for appraisal.
At any time within 60 days after the effective date, any stockholder who
has demanded an appraisal has the right to withdraw the demand and to accept the
cash payment specified by the merger agreement for his or her shares of MBLA
common stock. If a petition for appraisal is duly filed by a stockholder and a
copy of the petition is delivered to Citizens, Citizens will then be obligated
within 20 days after receiving service of a copy of the petition to provide the
Chancery Court with a duly verified list containing the names and addresses of
all stockholders who have demanded an appraisal of their shares. After notice to
dissenting stockholders, the Chancery Court is empowered to conduct a hearing
upon the petition, to determine those stockholders who have complied with
Section 262 and who have become entitled to the appraisal rights provided
thereby. The Chancery Court may require the stockholders who have demanded
payment for their shares to submit their stock certificates to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the Chancery Court may
dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to appraisal of their
shares of MBLA common stock, the Chancery Court will appraise the shares,
determining their fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest. When the value is determined, the Chancery Court will direct the
payment of such value, with interest thereon accrued during the pendency of the
proceeding if the Chancery Court so determines, to the stockholders entitled to
receive the same, upon surrender by such holders of the certificates
representing such shares.
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In determining fair value, the Chancery Court is required to take into
account all relevant factors. You should be aware that the fair value of your
shares as determined under Section 262 could be more, the same, or less than the
value that you are entitled to receive pursuant to the merger agreement.
Costs of the appraisal proceeding may be imposed upon Citizens and the
stockholders participating in the appraisal proceeding by the Chancery Court as
the Chancery Court deems equitable in the circumstances. Upon the application of
a stockholder, the Chancery Court may order all or a portion of the expenses
incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts, to be charged pro rata against the value of all shares
entitled to appraisal. Any stockholder who had demanded appraisal rights will
not, after the effective date, be entitled to vote shares subject to such demand
for any purpose or to receive payments of dividends or any other distribution
with respect to such shares (other than with respect to payment as of a record
date prior to the effective date); however, if no petition for appraisal is
filed within 120 days after the effective date, or if such stockholder delivers
a written withdrawal of his or her demand for appraisal and an acceptance of the
merger within 60 days after the effective date, then the right of such
stockholder to appraisal will cease and such stockholder will be entitled to
receive the cash payment for shares of his or her MBLA common stock pursuant to
the merger agreement. Any withdrawal of a demand for appraisal made more than 60
days after the effective date of the merger may only be made with the written
approval of the surviving corporation and must, to be effective, be made within
120 days after the effective date.
In view of the complexity of Section 262, MBLA stockholders who may wish to
dissent from the merger and pursue appraisal rights should consult their legal
advisors.
Interests of MBLA's Directors and Officers in the Merger that Differ From Your
Interests
Some members of MBLA's management and the MBLA board may have interests in
the merger that are in addition to, or different from the interests of
stockholders. The MBLA board was aware of these interests and considered them in
approving the merger agreement.
Existing Employment and Salary Continuation Retirement Agreements. MBLA is
a party to an employment agreement with its chief executive officer, John T.
Neer, which provides Mr. Neer with a severance payment and continuation of his
employee benefits for three years if he is terminated following a "change in
control" of MBLA or Macon Building and Loan, as defined in the agreement. The
merger will constitute a change in control of MBLA and Macon Building and Loan
and as a result of Mr. Neer's termination of employment after completion of the
merger, he will be entitled to a severance payment in the amount of
approximately $475,000. Mr. Neer has agreed to accept this severance payment in
equal installments over 10 years. MBLA is also a party to a salary continuation
retirement agreement with Mr. Neer. This agreement provides Mr. Neer with ten
annual payments of approximately $50,000. Citizens has agreed to honor the
salary continuation retirement agreement with Mr. Neer.
Existing Directors' Consultation and Retirement Plan. Macon Building and
Loan has adopted a directors' consultation and retirement plan that provides
directors who have served for at least ten years and who agree to provide
consulting services to Macon Building and Loan with an annual retirement benefit
for a period of five years. As a result of the merger of Macon Building and Loan
with Citizens Bank, all of Macon Building and Loan's directors will retire from
service. The annual retirement benefit will equal 50% of the directors' annual
compensation at the time of retirement. A director who has served for 10 years
will be eligible to receive 75% of the director's annual retirement benefit. The
percentage of the annual retirement benefit that a director will be entitled to
receive increases 5% each year until a director becomes eligible to receive 100%
of the annual retirement benefit after 15 years of service. The annual
retirement
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benefit is currently $4,800. All of the directors are entitled to receive 100%
of the annual retirement benefit, except for Mr. Neer, who is entitled to 95% of
the annual retirement benefit. Citizens has agreed to honor Macon Building and
Loan's directors' consultation and retirement plan.
MBLA Stock Options. Upon completion of the merger, all outstanding options
to purchase MBLA common stock under MBLA's stock option plans will be canceled
and converted into the right to receive an amount of cash equal to the per share
merger consideration minus the exercise price for each option. As of May 31,
1999, the directors and executive officers of MBLA held options to purchase a
total of 78,225 shares of MBLA common stock. The following table reflects the
number of options, the weighted average exercise price of the options and the
amounts payable to each director and executive officer upon cancellation of
their stock options, assuming the per share merger consideration equals $24.15.
<TABLE>
<CAPTION>
Number of Weighted
Securities Average
Underlying Exercise Net Proceeds
Unexercised Price Through
Name and Title Options Per Share Conversion
- -------------- ----------- --------- ------------
<S> <C> <C> <C>
Charles L. Hutton 11,237 $11.69 $139,151
Chairman of the Board
John T. Neer 13,779 11.38 174,917
President, Chief Executive Officer and Director
Carl B. Barrows 11,237 11.69 139,151
Vice Chairman of the Board
Richard C. Miller, Jr. 11,237 11.69 139,151
Director
Robert M. Wilhite 11,237 11.69 139,151
Director
Arnold L. Walter 6,404 12.96 71,151
Director
Truman L. Gehringer 1,404 23.50 801
Director
Clyde E. Smith 11,000 10.00 155,650
Vice President and Chief Financial Officer
Sarah Hartung 690 10.00 9,764
Vice President
</TABLE>
Indemnification of MBLA Directors and Officers Against Claims. Citizens
has agreed to indemnify and hold harmless each present and former director and
officer of MBLA for a period of six years from liability and expenses arising
out of matters existing or occurring at or prior to the consummation of the
merger to the fullest extent allowed under Delaware law as in effect at the time
of closing. This indemnification extends to liability arising out of the
transactions contemplated by the merger agreement. Citizens has also agreed to
advance any costs to each of these persons as they are incurred. Citizens has
also agreed that it will maintain a policy of directors' and officers' liability
insurance coverage for the benefit of MBLA's directors and officers for six
years following consummation of the merger.
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Regulatory Approvals Needed to Complete the Merger
Completion of the merger and the bank merger is subject to a number of
regulatory approvals and consents. The acquisition of Macon Building and Loan
by Citizens is subject to the approval of the Board of Governors of the Federal
Reserve System or the Federal Reserve Bank of Kansas City under the Bank Holding
Company Act. Citizens filed a request for a waiver of this application
requirement on June 17, 1999. The bank merger is subject to the prior approval
of the FDIC under the Bank Merger Act. In reviewing applications under the Bank
Merger Act, the FDIC must consider, among other factors, the financial and
managerial resources and future prospects of the existing and resulting
institutions, and the convenience and needs of the communities to be served. In
addition, the FDIC may not approve a transaction if it will result in a monopoly
or otherwise be anticompetitive. Citizens Bank filed an application with the
FDIC on June 17, 1999. The bank merger also requires advance notice to the
Office of Thrift Supervision.
Further, under Missouri law, the bank merger is subject to the prior
approval of the Director of Finance. Citizens Bank filed a copy of the plan of
bank merger and copies of the proceedings of the respective boards of directors
with the Director of Finance on June 9, 1999 for his review. Following FDIC
approval and within 30 days of the anticipated closing date, Citizens Bank will
file copies of the documents with the Director of Finance for his approval.
Under the Community Reinvestment Act of 1977, the FDIC and the Federal
Reserve System must take into account the record of performance of Citizens Bank
and Macon Building and Loan in meeting the credit needs of the entire community,
including low- and moderate-income neighborhoods, served by each institution. As
part of the review process, the banking agencies frequently receive comments and
protests from community groups and others. Citizens Bank and Macon Building and
Loan each received a "Satisfactory" rating during their last respective federal
Community Reinvestment Act examinations.
In addition, a period of 15 to 30 days must expire following approval by
the FDIC and the Federal Reserve System, within which period the United States
Department of Justice may file objections to the merger under the federal
antitrust laws. While Citizens believes that the likelihood of such action by
the Department of Justice is remote in this case, there can be no assurance that
the Department of Justice will not initiate such proceeding, or that the
Attorney General of the State of Missouri will not challenge the merger, or if
such proceeding is instituted or challenge is made, as to the result of the
challenge.
The merger and the bank merger cannot proceed in the absence of the
requisite regulatory approvals. See "THE MERGER AGREEMENT--Conditions to
Completing the Merger" and "--Terminating the Merger Agreement." There can be
no assurance that the requisite regulatory approvals will be obtained, and if
obtained, there can be no assurance as to the date of any such approval. There
can also be no assurance that any such approvals will not contain a condition or
requirement that causes such approvals to fail to satisfy the condition set
forth in the merger agreement and described under "THE MERGER AGREEMENT--
Conditions to Completing the Merger."
Citizens is not aware of any other regulatory approvals that would be
required for completion of the merger or the bank merger, except as described
above. Should any other approvals be required, it is presently contemplated
that such approvals would be sought. There can be no assurance that any other
approvals, if required, will be obtained.
The approval of any application merely implies the satisfaction of
regulatory criteria for approval, which does not include review of the merger
from the standpoint of the adequacy of the consideration to be received by MBLA
stockholders. Furthermore, regulatory approvals do not constitute an
endorsement or recommendation of the merger.
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Accounting Treatment of the Merger
Citizens will account for the merger under the purchase method of
accounting. This means that Citizens and MBLA will be treated as one company as
of the date of the merger and Citizens will record the fair market value of
MBLA's assets less liabilities on its financial statements. Citizens will
record any difference between the purchase price and the fair value of MBLA's
identifiable net assets as goodwill.
THE MERGER AGREEMENT
The following describes material provisions of the merger agreement. This
description does not purport to be complete and is qualified by reference to the
merger agreement, which is attached as Appendix A and is incorporated into this
proxy statement by reference.
Terms of the Merger
The merger agreement provides for a business combination in which MBLA will
merge with a wholly owned subsidiary of Citizens. MBLA will be the surviving
corporation in the merger and will become a wholly owned subsidiary of Citizens.
The current directors and officers of MBLA will cease to be directors and
officers of MBLA upon completion of the merger. Under the merger agreement,
Citizens has the right to revise the structure of the transaction so long as the
revised structure does not change the amount or kind of consideration being paid
to MBLA stockholders, diminish the benefits of the transaction to MBLA
stockholders, directors, officers and employees, or materially delay or impede
the receipt of any required regulatory approval.
As a result of the merger, except as noted below, each outstanding share of
MBLA common stock will become exchangeable for a cash payment equal to $24.15
plus or minus an amount that represents the change in MBLA's adjusted book value
per share from December 31, 1998 to the end of the month prior to closing. For
a more detailed description of the merger consideration, see "THE MERGER--What
You Will Receive." If there is a change in the capitalization of MBLA as a
result of a stock split, stock dividend, reclassification, recapitalization or
other similar transaction, the amount of the merger consideration will be
equitably adjusted. Shares held directly or indirectly by Citizens and shares
held by MBLA as treasury stock will be canceled and retired upon completion of
the merger, and no payment will be made for them. Canceled shares will not
include shares held by either MBLA or Citizens in a fiduciary capacity or in
satisfaction of a debt previously contracted. Holders of shares for which
dissenters' rights have been exercised will be entitled only to the rights
granted by Section 262 of the Delaware General Corporation Law.
Under the merger agreement, each outstanding stock option granted under
MBLA's stock option plans will be canceled at the consummation of the merger and
the option holder will receive a cash payment equal to the number of shares of
MBLA common stock subject to the option multiplied by an amount equal to the
difference between the merger consideration and the exercise price of the
option.
In connection with the merger, Citizens Bank and Macon Building and Loan
have entered into a plan of merger under which Citizens Bank and Macon Building
and Loan will merge, with Citizens Bank being the surviving bank. It is the
intention of Citizens Bank to operate the former offices of Macon Building and
Loan as offices of Citizens Bank. The bank merger agreement may be terminated
by mutual consent of the parties at any time and will be terminated
automatically in the event the merger agreement is terminated.
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When Will the Merger be Completed
The closing of the merger will take place no later than 14 days after the
expiration of the last waiting period under the required regulatory approvals
and the satisfaction or waiver of all of the conditions to the merger contained
in the merger agreement, unless Citizens and MBLA agree to another date. See "-
- -Conditions to Completing the Merger." On the date of the closing, Citizens
will file a certificate of merger with the Delaware Secretary of State. The
merger will become effective at the time stated in the certificate of merger.
We expect to complete the merger in the fourth calendar quarter of 1999.
However, we cannot guarantee when or if the required regulatory approvals will
be obtained. See "--Regulatory Approvals Needed to Complete the Merger."
Furthermore, either party may terminate the merger agreement if, among other
reasons, the merger has not been completed on or before January 31, 2000, unless
failure to complete the merger by that time is due to the breach of any
representation, warranty or covenant by the party seeking to terminate. See "--
Terminating the Merger Agreement."
Procedures for Exchanging Your Stock Certificates
Within five business days after the completion of the merger, Citizens Bank
will mail to each former holder of record of MBLA common stock a letter with
instructions on how to exchange MBLA stock certificates for the cash merger
consideration.
PLEASE DO NOT SEND IN YOUR MBLA STOCK CERTIFICATES UNTIL YOU RECEIVE THE
LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM CITIZENS BANK. DO NOT RETURN YOUR
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
After you mail the letter of transmittal and your stock certificates to
Citizens Bank, your check will be mailed to you. The MBLA certificates you
surrender will be canceled.
After the completion of the merger, there will be no further transfers of
MBLA common stock. MBLA stock certificates presented for transfer after the
completion of the merger will be canceled and exchanged for the merger
consideration.
If your MBLA stock certificates have been lost, stolen or destroyed, you
will have to prove your ownership of these certificates and that they were lost,
stolen or destroyed before you receive any consideration for your shares.
Citizens Bank will send you instructions on how to provide such evidence.
Conditions to Completing the Merger
The obligations of Citizens and MBLA to consummate the merger are
conditioned on the following:
1. the approval of the merger agreement by MBLA's stockholders;
2. the receipt of all required regulatory approvals and any required
consents of third parties without any condition or requirement that
would materially and adversely impact the economic benefit of the
transaction to Citizens and MBLA, and the expiration of all statutory
waiting periods;
3. no party to the merger being subject to any legal order that prohibits
consummating any part of the transaction and no governmental entity
having instituted any proceeding for the purpose of blocking the
transaction;
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<PAGE>
4. the absence of any statute, rule or regulation that prohibits
completion of any part of the transaction;
5. the other party having performed in all material respects its
obligations under the merger agreement, the other party's
representations and warranties being true and correct as of the date
of the merger agreement and as of the closing date, and receipt of a
certificate signed by the other party's chief executive officer and
chief financial offer to such effect; and
6. the receipt of legal opinions regarding customary matters from counsel
to the other party.
The obligations of Citizens to complete the merger are also conditioned on
the following:
1. the number of shares for which dissenters' rights have been exercised
not exceeding 10% of the outstanding shares of MBLA common stock;
2. Macon Building and Loan having an allowance for loan losses of not
less than $700,000; and
3. the receipt of a statement from MBLA's legal and financial advisors as
to the amount of their fees relating to the merger.
The obligations of MBLA to complete the merger are also conditioned on
Citizens having deposited the funds to pay the merger consideration with
Citizens Bank, acting as exchange agent.
MBLA cannot guarantee whether all of the conditions to the merger will be
satisfied or waived by the party permitted to do so. If the merger is not
completed on or before January 31, 2000, the merger agreement may be terminated
by a vote of a majority of the board of directors of either Citizens or MBLA.
Conduct of Business Prior to the Merger
MBLA has agreed that, until the completion of the merger, MBLA will use its
best efforts to:
1. conduct its business in the regular, ordinary and usual course
consistent with past practice;
2. maintain and preserve intact its business organization, properties,
leases, employees and advantageous business relationships and retain
the services of its officers and key employees;
3. take no action which would interfere with the ability of Citizens or
MBLA to perform their respective covenants and agreements on a timely
basis under the merger agreement;
4. take no action which would interfere with any party's ability to
obtain any necessary approvals, consents or waivers of any
governmental authority required for the transactions contemplated by
the merger agreement;
5. take no action that results in or is reasonably likely to have a
material adverse effect on MBLA or Macon Building and Loan;
6. continue to implement its Year 2000 plan;
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<PAGE>
7. maintain the types and amounts of insurance as are customary in the
industry;
8. confer with Citizens on a regular basis regarding operational matters;
9. promptly notify Citizens of any significant change in its business,
assets, financial condition or results of operations; and
10. promptly provide Citizens with copies of all filings made in
connection with the transaction.
Further, except as otherwise provided in the merger agreement, until the
completion of the merger, MBLA has agreed that will not take certain actions
unless permitted to by Citizens. These include:
1. amending its certificate of incorporation or bylaws;
2 issuing any shares of its capital stock or any securities convertible
or exercisable for any shares of its capital stock other than shares
issued upon the exercise of outstanding stock options; changing the
terms of any of its outstanding stock options or issuing any option;
or changing its capitalization;
3. paying any cash or stock dividends other than regular semi-annual cash
dividends not in excess of $0.30 per share or purchasing any shares of
its capital stock;
4. disposing of any of its material assets or cancelling or assigning any
indebtedness other than in the ordinary course of business consistent
with past practice;
5. increasing the compensation or fringe benefits of any of its employees
or directors, other than general increases in compensation for non-
executive officer employees in the ordinary course of business
consistent with past practice; paying any pension or retirement
allowance not required by any existing plan, or establishing or
amending any trust or account related to any employee benefit plan;
voluntarily accelerating the vesting of any stock options or other
compensation or benefit; granting any stock options; making any
discretionary contribution to any employee benefit plan; hiring any
employee with an annual total compensation in excess of $35,000; or
entering into any employment contract;
6. changing its method of accounting as in effect at March 31, 1999,
except as required by changes in generally accepting accounting
practices;
7. settling any claim against MBLA for more than $50,000 or agreeing to
material restrictions on the operations of MBLA;
8. acquiring any business or assets of another business that would be
material to MBLA;
9. making any real estate loans secured by undeveloped land or non-
residential real estate located outside of Missouri or making any non-
residential construction loans outside of Missouri, except pursuant to
existing loan commitments;
10. opening any new branch or applying to relocate or terminate the
operation of any banking office;
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11. making any investment other than in the ordinary course of business
consistent with past practice in individual amounts not to exceed
$50,000, other than certain debt securities;
12. making any investment in any debt security (including mortgage-backed
and mortgage-related securities) except for short- to intermediate-
term U.S. government and U.S. government agency securities, mortgage-
backed or mortgage related securities which would not be considered
"high risk" securities or securities of the FHLB, or materially
restructuring or changing its investment securities portfolio;
13. entering into, renewing, amending or terminating any contract, or
making any change in any of its leases or contracts, other than with
respect to those involving the payment of less than $20,000 per year;
14. making or modifying any loan except in conformity with existing
lending practices in amounts not to exceed an aggregate of $300,000
with respect to any individual borrower or for which MBLA has a
binding loan commitment as of the date of the merger agreement;
15. incurring any additional borrowings other than short-term (six months
or less) FHLB borrowings and reverse repurchase agreements consistent
with past practice, or pledging any of its assets to secure any
borrowings other than as required pursuant to the terms of borrowings
currently in effect or in connection with borrowings or reverse
repurchase agreements permitted under the merger agreement;
16. making any capital expenditures in excess of $20,000 per expenditure
other than pursuant to binding commitments and other than expenditures
necessary to maintain existing assets in good repair or to make
payment of necessary taxes;
17. organizing, capitalizing, lending to or otherwise investing in any
subsidiary;
18. electing any new senior executive officer or director;
19. engaging in any transaction that is not in the usual and ordinary
course of business and consistent with past practices;
20. entering into any new line of business;
21. taking or omitting to take any action that is intended or may
reasonably be expected to result in any of MBLA's representations and
warranties contained in the merger agreement being or becoming untrue
in any material respect;
22. investing in real estate or in any real estate development project,
other than in connection with the resolution of any loan; and
23. making any loan to any director or officer of MBLA or any entity
controlled by any director or officer, other than renewals of existing
loans.
30
<PAGE>
Covenants of MBLA and Citizens in the Merger Agreement
Agreement Not to Solicit Other Offers
MBLA has agreed not to seek to have an outside third party try to buy a
material interest in MBLA or its subsidiaries. Generally, an effort by MBLA to
obtain an offer to engage in a merger or similar business combination, buy at
least 25% of MBLA's assets or 25% of MBLA's stock, or a public announcement to
enter into an agreement to do any of these things, would violate this covenant.
Despite MBLA's agreement not to solicit other offers, the MBLA board may
generally enter into discussions or negotiations with anyone who makes an
unsolicited, written bona fide proposal to acquire MBLA that is a financially
superior proposal to that of Citizens. A proposal of this nature is one about
which MBLA's financial advisors opine in writing is superior to this merger from
a financial point of view to MBLA's stockholders. For the MBLA board to enter
into negotiations on a superior proposal, it would also have to first determine
that their fiduciary duties obligate them to do so. If MBLA does enter into
negotiations with a third party regarding a superior proposal, it has to notify
Citizens and provide Citizens with information about the other party and its
proposal.
The MBLA board may also withdraw or modify its recommendation for the
merger and enter into a business combination with a third party if, after
consulting with independent legal counsel, the board determines in good faith
that doing so is necessary for it to comply with its fiduciary duties to
stockholders.
Employee Matters
Each Macon Building and Loan employee whose employment is not specifically
terminated will become an employee of Citizens Bank. Citizens will use its best
efforts to retain all of Macon Building and Loan's employees, subject to their
qualifications and the needs of Citizens Bank.
Appropriate steps will be taken to terminate all of MBLA's employee benefit
plans around the time the merger closes. All former employees of Macon Building
and Loan who continue as employees of Citizens Bank will be eligible to
participate in Citizens' employee benefit plans on the same basis as any newly-
hired employee of Citizens Bank. However, service with Macon Building and Loan
will be treated as service with Citizens Bank for purposes of satisfying any
waiting periods, evidence of insurability requirements or the application of any
preexisting condition limitation with respect to any of Citizens' welfare
benefit plans. Continuing employees will also receive credit for service with
Macon Building and Loan for purposes of computing vacation pay benefits.
Prior to the consummation of the merger, Macon Building and Loan will
terminate its ESOP. After consummation of the merger, the ESOP will repay the
outstanding balance of its loan and allocate any surplus cash to the accounts of
ESOP participants in proportion to their account balances, to the extent allowed
under applicable law and the governing documents of the ESOP.
31
<PAGE>
Indemnification of MBLA Officers and Directors
Citizens has agreed to indemnify and hold harmless each present and former
director and officer of MBLA for a period of six years from liability and
expenses arising out of matters existing or occurring at or prior to the
consummation of the merger to the fullest extent allowed under Delaware law as
in effect at the time of closing. Citizens has also agreed that it will
maintain a policy of directors' and officers' liability insurance coverage for
the benefit of MBLA's directors and officers for six years following the
consummation of the merger.
Certain Other Covenants
The merger agreement also contains other agreements relating to the conduct
of the parties prior to the consummation of the merger, including the following:
1. MBLA will revise its policies and procedures to conform to Citizens'
after all required regulatory approvals have been received, MBLA
stockholders have approved the merger agreement, and Citizens has
confirmed that it is not aware of any fact that would prevent the
completion of the merger.
2. MBLA will give Citizens access during normal business hours to its
property, books, contracts and records and furnish to Citizens all
information it may reasonably request.
3. MBLA will take any necessary action to exempt the parties and this
transaction from any antitakeover provisions contained in MBLA's
certificate of incorporation or bylaws or federal or state law.
4. MBLA and Citizens will use their respective reasonable best efforts to
obtain all required approvals and to consummate the merger.
5. MBLA and Citizens will consult with each other regarding any public
statements about the merger.
6. MBLA will notify Citizens of any contract defaults and any events
which would reasonably be likely to result in a material adverse
effect on MBLA. MBLA and Citizens will notify each other of any
communication from a third party regarding the need to obtain that
party's consent to the merger and of any event that would be
reasonably likely to cause any representation or warranty in the
merger agreement to be untrue or to cause any covenant or condition in
the merger agreement not to be complied with.
7. MBLA will use its best efforts to comply with all year 2000
regulations and guidelines and will take all actions necessary to
receive a rating of "satisfactory" or better on any year 2000
compliance examinations.
Representations and Warranties Made by Citizens and MBLA in the Merger Agreement
Both Citizens and MBLA have made certain customary representations and
warranties to each other relating to their businesses. For information on these
representations and warranties, please refer to the merger agreement attached as
Appendix A. The representations and warranties must be true in all material
respects through the completion of the merger unless the change does not have a
material negative impact
32
<PAGE>
on the party's business, financial condition or results of operations. See "--
Conditions to Completing the Merger."
Terminating the Merger Agreement
The merger agreement may be terminated at or prior to the completion of the
merger, either before or after approval of the merger agreement by the
stockholders of MBLA by:
1. the mutual consent of MBLA and Citizens;
2. either party if MBLA's stockholders fail to approve the Agreement;
3. either party if a required regulatory approval is denied or any
governmental authority has issued an order prohibiting consummation of
the merger;
4. either party if the merger is not consummated by January 31, 2000;
5. either party if the other party breaches a representation, warranty or
covenant that would have a material adverse effect on the party
seeking to terminate; or
6. MBLA if the Board of Directors determines that it must accept a
superior offer from a third party in the exercise of its fiduciary
duties.
Expenses and Termination Fees
All costs and expenses incurred in connection with the merger will be paid
by the party incurring the expense.
If MBLA terminates the merger agreement in order to accept a superior offer
or if, after another party proposes to acquire MBLA, the stockholders fail to
approve the merger agreement and within 12 months MBLA enters into a merger
agreement with a third party, MBLA will pay Citizens a termination fee of
$1,000,000.
If the merger fails to close because of the failure to receive a required
regulatory approval without any adverse conditions, Citizens will pay MBLA a
termination fee of $187,500.
Changing the Terms of the Merger Agreement
Prior to the completion of the merger, any provision of the merger
agreement may be waived, amended or modified by the parties. However, after the
vote by the stockholders of MBLA, no amendment or modification may be made that
would reduce the consideration to be received by MBLA's stockholders under the
terms of the merger.
33
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
MBLA files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information that MBLA files at the SEC's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. MBLA's public filings are also available to the public
from commercial document retrieval services and at the Internet World Wide
Website maintained by the SEC at "http://www.sec.gov."
The SEC allows MBLA to "incorporate by reference" information into this
document, which means that MBLA can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this document,
except for any information superseded by information contained directly in this
document. This document incorporates by reference the other documents which are
listed below that MBLA has previously filed with the SEC. The documents contain
important information about MBLA's financial condition.
MBLA SEC Filings (File No. 0-211482)
. Management's discussion and analysis of financial condition and
results of operations on Pages
2 through 7 of MBLA's 1998 annual report to stockholders
. Annual Report on Form 10-KSB for the year ended June 30, 1998
. Quarterly Report on Form 10-Q for the three months ended September 30,
1998
. Quarterly Report on Form 10-Q for the three months ended December 31,
1998
. Quarterly Report on Form 10-Q for the three months ended March 31,
1999
. Current Report on Form 8-K dated November 19, 1998
. Current Report on Form 8-K dated December 17, 1998
. Current Report on Form 8-K dated May 3, 1999
MBLA also incorporates by reference additional documents that it might file
with the SEC between the date of this document and the date of the meeting.
These include periodic reports, such as Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
Documents incorporated by reference are available from MBLA without charge
(except for exhibits to the documents unless the exhibits are specifically
incorporated in this document by reference). Stockholders of MBLA may obtain
documents incorporated by reference in this document by requesting them in
writing or by telephone from MBLA at the following address:
MBLA Financial Corporation
101 Vine Street
Macon, Missouri 63552
Attention: Clyde Smith, Corporate Secretary
Telephone No. (660) 385-2122
If you would like to request documents from MBLA, please do so by August
18, 1999 in order to receive them before the special meeting of stockholders.
If you request any incorporated documents from us we will mail them to you by
first-class mail, or other equally prompt means, within one business day of our
receipt of your request.
34
<PAGE>
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the meeting. MBLA has not
authorized anyone to provide you with information that is different from what is
contained in this document. This document is dated July 13, 1999. You should
not assume that the information contained in this document is accurate as of any
date other than that date, and neither the mailing of this document to
stockholders nor the issuance of MBLA's securities in the merger shall create
any implication to the contrary.
STOCKHOLDER PROPOSALS
If the merger is not approved by MBLA's stockholders at the special
meeting, MBLA expects that it would hold its 1999 annual meeting of stockholders
in the fourth calendar quarter of 1999. Any proposal to be presented by any
stockholder for action at the 1999 annual meeting must have been received by the
Secretary of MBLA no later than June 1, 1999 in order to be eligible for
inclusion in MBLA's proxy materials for the annual meeting. As of that date,
MBLA had not received any stockholder proposals for inclusion in the proxy
materials for the 1999 annual meeting.
If a stockholder wishes to present a proposal at MBLA's annual meeting, the
stockholder must give advance notice to MBLA not less than 90 days prior to the
meeting, unless less than 100 days notice or prior disclosure of the date of the
meeting is given, in which case the stockholder must give notice to MBLA within
ten days after disclosure of the meeting date. MBLA's bylaws specify the
information that must accompany notice of a stockholder proposal. Copies of the
bylaws may be obtained from the Secretary of the MBLA.
35
<PAGE>
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 3, 1999
BY AND BETWEEN
CITIZENS BANCSHARES COMPANY
AND
MBLA FINANCIAL CORPORATION
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE NO.
Introductory Statement.......................................................A-4
ARTICLE I
THE MERGER.............................................................A-4
----------
Section 1.1. Structure of the Merger..................................A-4
-----------------------
Section 1.2. Effect on Outstanding Shares of MBLA Common Stock........A-4
-------------------------------------------------
Section 1.3. Exchange Procedures......................................A-6
-------------------
Section 1.4. Effect on Outstanding Shares of Acquisition Sub
-----------------------------------------------
Common Stock.............................................A-7
------------
Section 1.5. Stock Options............................................A-7
-------------
Section 1.6. Bank Merger..............................................A-8
-----------
Section 1.7. Directors and Officers of MBLA at Effective Time.........A-8
------------------------------------------------
Section 1.8. Alternative Structure....................................A-8
---------------------
Section 1.9. Certificate of Incorporation and Bylaws of the Surviving
--------------------------------------------------------
Corporation..............................................A-8
-----------
ARTICLE II
REPRESENTATIONS AND WARRANTIES.........................................A-8
------------------------------
Section 2.1. Disclosure Letters.......................................A-8
------------------
Section 2.2. Standards................................................A-9
---------
Section 2.3. Representations and Warranties of MBLA...................A-9
--------------------------------------
Section 2.4. Representations and Warranties of Citizens..............A-23
------------------------------------------
ARTICLE III
CONDUCT PENDING THE MERGER............................................A-26
--------------------------
Section 3.1. Conduct of MBLA's Business Prior to the Effective Time..A-26
------------------------------------------------------
Section 3.2. Forbearance by MBLA.....................................A-27
-------------------
Section 3.3. Conduct of Citizens's Business Prior to the Effective
-----------------------------------------------------
Time....................................................A-30
----
ARTICLE IV
COVENANTS.............................................................A-30
---------
Section 4.1. Acquisition Proposals...................................A-30
---------------------
Section 4.2. Certain Policies of MBLA................................A-31
------------------------
Section 4.3. Access and Information..................................A-32
----------------------
Section 4.4. Certain Filings, Consents and Arrangements..............A-33
------------------------------------------
Section 4.5. Antitakeover Provisions.................................A-33
-----------------------
Section 4.6. Additional Agreements...................................A-33
---------------------
Section 4.7. Publicity...............................................A-33
---------
Section 4.8. Stockholders Meetings...................................A-33
---------------------
Section 4.9. Proxy Statement.........................................A-34
---------------
Section 4.10. Notification of Certain Matters.........................A-34
-------------------------------
Section 4.11. Employees, Directors and Officers.......................A-34
---------------------------------
Section 4.12. Indemnification.........................................A-35
---------------
Section 4.13. Year 2000...............................................A-37
---------
A-2
<PAGE>
ARTICLE V
CONDITIONS TO CONSUMMATION............................................A-37
--------------------------
Section 5.1. Conditions to Each Party's Obligations..................A-37
--------------------------------------
Section 5.2. Conditions to the Obligations of Citizens and
---------------------------------------------
Citizens Bank...........................................A-38
-------------
Section 5.3. Conditions to the Obligations of MBLA and Macon Building
--------------------------------------------------------
& Loan..................................................A-38
------
ARTICLE VI
TERMINATION...........................................................A-39
-----------
Section 6.1. Termination.............................................A-39
-----------
Section 6.2. Termination Fee.........................................A-40
---------------
Section 6.3 Effect of Termination...................................A-40
---------------------
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME............................A-41
------------------------------------------
Section 7.1. Effective Date and Effective Time.......................A-41
---------------------------------
Section 7.2. Deliveries at the Closing...............................A-41
-------------------------
ARTICLE VIII
CERTAIN OTHER MATTERS.................................................A-41
---------------------
Section 8.1. Certain Definitions; Interpretation.....................A-41
-----------------------------------
Section 8.2. Survival................................................A-42
--------
Section 8.3. Waiver; Amendment.......................................A-42
-----------------
Section 8.4. Counterparts............................................A-42
------------
Section 8.5. Governing Law...........................................A-42
-------------
Section 8.6. Expenses................................................A-42
--------
Section 8.7. Notices.................................................A-42
-------
Section 8.8. Entire Agreement; etc...................................A-43
---------------------
Section 8.9. Successors and Assigns; Assignment......................A-43
----------------------------------
A-3
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This is an AGREEMENT AND PLAN OF MERGER, dated as of the 3rd day
of May, 1999 ("AGREEMENT"), by and between Citizens Bancshares Company, a
Missouri corporation ("CITIZENS"), and MBLA Financial Corporation, a Delaware
corporation ("MBLA").
INTRODUCTORY STATEMENT
The Board of Directors of each of Citizens and MBLA (i) has
determined that this Agreement and the business combination and related
transactions contemplated hereby are in the best interests of Citizens and MBLA,
respectively, and in the best interests of their respective stockholders and
(ii) has approved, at meetings of each of such Boards of Directors, this
Agreement.
Citizens and MBLA desire to make certain representations, warranties
and agreements in connection with the business combination and related
transactions provided for herein and to prescribe various conditions to such
transactions.
In consideration of their mutual promises and obligations hereunder,
the parties hereto adopt and make this Agreement and prescribe the terms and
conditions hereof and the manner and basis of carrying it into effect, which
shall be as follows:
ARTICLE I
THE MERGER
----------
Section 1.1. Structure of the Merger. Prior to the Effective Date
-----------------------
(as defined in SECTION 7.1), Citizens will form a Delaware corporation that will
be a wholly-owned subsidiary of Citizens ("ACQUISITION SUB"). On the Effective
Date, Acquisition Sub will merge with and into MBLA ("MERGER"), with MBLA being
the surviving entity, pursuant to the provisions of, and with the effect
provided in, the Delaware General Corporation Law ("DGCL"). Upon consummation of
the Merger, the separate corporate existence of Acquisition Sub shall cease.
MBLA shall be the surviving corporation in the Merger and shall continue to be
governed by the laws of the State of Delaware and its name and separate
corporate existence, with all of its rights, privileges, immunities, powers and
franchises, shall continue unaffected by the Merger. From and after the
Effective Time (as defined in SECTION 7.1), MBLA shall possess all of the
properties and rights and be subject to all of the liabilities and obligations
of Acquisition Sub, all as more fully described in the DGCL.
Section 1.2. Effect on Outstanding Shares of MBLA Common Stock.
-------------------------------------------------
(a) By virtue of the Merger, automatically and without any action on
the part of the holder thereof, each share of common stock, par value $.01 per
share, of MBLA ("MBLA COMMON STOCK") issued and outstanding at the Effective
Time, other than Excluded Shares (as
A-4
<PAGE>
defined below), shall become and be converted into the right to receive $24.15
in cash, subject to adjustment as described below (the "MERGER CONSIDERATION").
"EXCLUDED SHARES" shall consist of (i) shares the holder of
which pursuant to any applicable law providing for dissenters' or appraisal
rights is entitled to receive payment in accordance with the provisions of any
such law, such holder to have only the rights provided in any such law (the
"DISSENTERS' SHARES"), (ii) shares held directly or indirectly by Citizens
(other than shares held in a fiduciary capacity or in satisfaction of a debt
previously contracted) and (iii) shares held by MBLA as treasury stock.
(b) The Merger Consideration shall be increased or decreased, as the
case may be, by an amount equal to the Net Worth (as defined below) of MBLA as
of the last day of the month prior to the month in which the Effective Time
shall occur minus the sum of $28,390,000 and the Excess Transaction Costs (as
hereinafter defined) divided by the sum of the number of shares of MBLA Common
Stock issued and outstanding on the Effective Date and the number of shares of
MBLA Common Stock subject to MBLA Options (as defined in SECTION 1.5) on the
Effective Date. "NET WORTH" shall mean the consolidated stockholders' equity of
MBLA calculated in accordance with generally accepted accounting principles,
consistently applied ("GAAP"), excluding any changes in unrealized gain on
securities available for sale after December 31, 1998 and any reductions for
attorneys' fees up to $75,000 incurred after March 16, 1999 relating to the
transactions contemplated by this Agreement and financial advisors' fees up to
$300,000. Furthermore, Net Worth shall be exclusive of the effect of any
payments made or expenses incurred under the terms of existing employment
agreements (solely with respect to termination payments and post-termination
benefits), existing salary continuation agreements, existing director retirement
plans or with respect to the termination of any existing data processing
contract, each as identified in MBLA's Disclosure Letter (as defined in SECTION
2.1). "EXCESS TRANSACTION COSTS" shall mean the sum of the following items: (i)
the amount, if any, by which attorneys' fees incurred by MBLA after March 16,
1999 and on or prior to the Effective Date in connection with the transactions
contemplated by this Agreement exceed $75,000; and (ii) the amount, if any, by
which financial advisor's fees incurred by MBLA on or prior to the Effective
Date exceed $300,000, in each case only to the extent that such Excess
Transaction Costs are not reflected in the Net Worth of MBLA.
(c) If, between the date of this Agreement and the Effective Time,
the outstanding shares of MBLA Common Stock shall have been changed into a
different number of shares or into a different class by reason of any stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Merger Consideration shall be adjusted correspondingly
to the extent appropriate to reflect such change in the number of outstanding
shares.
(d) As of the Effective Time, each Excluded Share, other than
Dissenters' Shares, shall be cancelled and retired and shall cease to exist, and
no exchange or payment shall be made with respect thereto.
A-5
<PAGE>
Section 1.3. Exchange Procedures.
-------------------
(a) Appropriate transmittal materials ("LETTER OF TRANSMITTAL")
shall be mailed as soon as reasonably practicable after the Effective Time, and
in no event later than 5 business days thereafter, to each holder of record of
MBLA Common Stock as of the Effective Time. A Letter of Transmittal will be
deemed properly completed only if accompanied by certificates representing all
shares of MBLA Common Stock to be converted thereby.
(b) At and after the Effective Time, each certificate ("MBLA
CERTIFICATE") previously representing shares of MBLA Common Stock (except as
specifically set forth in SECTION 1.2) shall represent only the right to receive
the Merger Consideration multiplied by the number of shares of MBLA Common Stock
previously represented by the MBLA Certificate.
(c) Prior to the Effective Time, Citizens shall deposit, or shall
cause to be deposited, in a segregated account with Citizens Bank, which shall
act as exchange agent ("EXCHANGE AGENT") for the benefit of the holders of
shares of MBLA Common Stock, for exchange in accordance with this SECTION 1.3,
an amount of cash sufficient to pay the aggregate Merger Consideration to be
paid with respect to the outstanding shares of MBLA Common Stock pursuant to
SECTION 1.2.
(d) The Letter of Transmittal shall (i) specify that delivery shall
be effected, and risk of loss and title to the MBLA Certificates shall pass,
only upon delivery of the MBLA Certificates to the Exchange Agent, (ii) be in a
form and contain any other provisions as Citizens may reasonably determine and
(iii) include instructions for use in effecting the surrender of the MBLA
Certificates in exchange for the Merger Consideration. Upon the proper surrender
of the MBLA Certificates to the Exchange Agent, together with a properly
completed and duly executed Letter of Transmittal, the holder of such MBLA
Certificates shall be entitled to receive in exchange therefor a check in the
amount equal to the cash that such holder has the right to receive pursuant to
SECTION 1.2. MBLA Certificates so surrendered shall forthwith be canceled. As
soon as practicable, but no later than 10 business days following receipt of the
properly completed Letter of Transmittal and any necessary accompanying
documentation, the Exchange Agent shall issue a check as provided herein. If
there is a transfer of ownership of any shares of MBLA Common Stock not
registered in the transfer records of MBLA, the Merger Consideration shall be
issued to the transferee thereof if the MBLA Certificates representing such MBLA
Common Stock are presented to the Exchange Agent, accompanied by all documents
required, in the reasonable judgment of Citizens and the Exchange Agent, (x) to
evidence and effect such transfer and (y) to evidence that any applicable stock
transfer taxes have been paid.
(e) From and after the Effective Time there shall be no transfers on
the stock transfer records of MBLA of any shares of MBLA Common Stock. If, after
the Effective Time, MBLA Certificates are presented to Citizens, they shall be
canceled and exchanged for the Merger Consideration deliverable in respect
thereof pursuant to this Agreement in accordance with the procedures set forth
in this SECTION 1.3.
A-6
<PAGE>
(f) Any portion of the aggregate amount of cash to be paid pursuant
to SECTION 1.2 that remains unclaimed by the stockholders of MBLA for 12 months
after the Effective Time shall be repaid by the Exchange Agent to Citizens upon
the written request of Citizens. After such request is made, any stockholders of
MBLA who have not theretofore complied with this SECTION 1.3 shall look only to
Citizens for the Merger Consideration deliverable in respect of each share of
MBLA Common Stock such stockholder holds, as determined pursuant to SECTION 1.2
of this Agreement, without any interest thereon. If outstanding MBLA
Certificates are not surrendered prior to the date on which such payments would
otherwise escheat to or become the property of any governmental unit or agency,
the unclaimed items shall, to the extent permitted by any abandoned property,
escheat or other applicable laws, become the property of Citizens (and, to the
extent not in its possession, shall be paid over to it), free and clear of all
claims or interest of any person previously entitled to such claims.
Notwithstanding the foregoing, neither the Exchange Agent nor any party to this
Agreement (or any affiliate thereof) shall be liable to any former holder of
MBLA Common Stock for any amount delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(g) Citizens and the Exchange Agent shall be entitled to rely upon
MBLA's stock transfer books to establish the identity of those persons entitled
to receive the Merger Consideration, which books shall be conclusive with
respect thereto. In the event of a dispute with respect to ownership of stock
represented by any MBLA Certificate, Citizens and the Exchange Agent shall be
entitled to deposit any Merger Consideration represented thereby in escrow with
an independent third party and thereafter be relieved with respect to any claims
thereto.
(h) If any MBLA Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such MBLA Certificate to be lost, stolen or destroyed and, if required by the
Exchange Agent, the posting by such person of a bond in such amount as the
Exchange Agent may direct as indemnity against any claim that may be made
against it with respect to such MBLA Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed MBLA Certificate the Merger
Consideration deliverable in respect thereof pursuant to SECTION 1.2.
Section 1.4. Effect on Outstanding Shares of Acquisition Sub Common
------------------------------------------------------
Stock. By virtue of the Merger, automatically and without any action on the part
- -----
of the holder thereof, each share of Common Stock of Acquisition Sub issued and
outstanding at the Effective Time shall be converted into one share of the
Common Stock of MBLA, as the surviving corporation.
Section 1.5. Stock Options. At the Effective Time, each option to
-------------
acquire shares of MBLA Common Stock (an "MBLA OPTION") granted pursuant to the
1993 Incentive Stock Option Plan and the 1993 Stock Option Plan for Outside
Directors (together, the "MBLA OPTION PLANS") that is then outstanding and
unexercised shall be canceled, and in lieu thereof the holders of such options
shall be paid in cash an amount equal to the product of (i) the number of shares
of MBLA Common Stock subject to such option at the Effective Time and (ii) an
amount equal to the excess of the Merger Consideration over the exercise price
per share of such option,
A-7
<PAGE>
net of any cash which must be withheld under federal and state income and
employment tax requirements. At the Effective Time the MBLA Option Plans shall
be deemed terminated.
Section 1.6. Bank Merger. Concurrently with or as soon as
-----------
practicable after the execution and delivery of this Agreement, Citizens Bank
and Trust Company ("CITIZENS BANK"), a wholly-owned subsidiary of Citizens, and
Macon Building and Loan Association, F.A. ("MACON BUILDING & LOAN"), a
wholly-owned subsidiary of MBLA, shall enter into the Plan of Bank Merger, in
the form attached hereto as EXHIBIT A, pursuant to which the merger of Macon
---------
Building & Loan with and into Citizens Bank ("BANK MERGER") will be effected.
The parties hereto intend that the Bank Merger shall become effective on the
Effective Date and shall take all actions necessary or appropriate to cause the
Bank Merger to become effective immediately following the Effective Time.
Section 1.7. Directors and Officers of MBLA at Effective Time. At
------------------------------------------------
the Effective Time, the directors and officers of MBLA shall consist of the
directors and officers of Acquisition Sub serving immediately prior to the
Effective Time, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the surviving corporation until their respective
successors are duly elected or appointed and qualified.
Section 1.8. Alternative Structure. Notwithstanding anything to the
---------------------
contrary contained in this Agreement, prior to the Effective Time, Citizens may
specify that the structure of the transactions contemplated hereby be revised
and the parties shall enter into such alternative transactions as Citizens may
determine to effect the purposes of this Agreement; PROVIDED, HOWEVER, that such
revised structure shall not (i) alter or change the amount or kind of the Merger
Consideration or the treatment of MBLA Options or the economic benefits of the
transactions contemplated hereby to the holders of MBLA Common Stock, (ii)
diminish the benefits to be received by the directors, officers or employees of
MBLA or Macon Building & Loan as set forth in or as contemplated by this
Agreement, or (iii) materially impede or delay the receipt of any approval
referred to in this Agreement. This Agreement and any related documents shall be
appropriately amended in order to reflect any such revised structure.
Section 1.9. Certificate of Incorporation and Bylaws of the
----------------------------------------------
Surviving Corporation. The Certificate of Incorporation and Bylaws of MBLA in
- ---------------------
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation and Bylaws of the surviving corporation from and after the
Effective Time until amended as provided by law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1. Disclosure Letters. Prior to the execution and delivery
------------------
of this Agreement, MBLA and Citizens have each delivered to the other a letter
(each, its "DISCLOSURE LETTER") setting forth, among other things, facts,
circumstances and events the disclosure of which is required or appropriate in
relation to any or all of their respective representations and warranties (and
making specific reference to the Section of this Agreement to which they
relate);
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PROVIDED, that (a) no such fact, circumstance or event is required to be set
forth in the Disclosure Letter as an exception to a representation or warranty
if its absence is not reasonably likely to result in the related representation
or warranty being deemed untrue or incorrect under the standards established by
SECTION 2.2 and (b) the mere inclusion of a fact, circumstance or event in a
Disclosure Letter shall not be deemed an admission by a party that such item
represents a material exception or that such item is reasonably likely to result
in a Material Adverse Effect (as defined in SECTION 2.2(B)).
Section 2.2. Standards.
---------
(a) No representation or warranty of MBLA or Citizens contained in
SECTIONS 2.3 or 2.4, respectively, shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, on
account of the existence of any fact, circumstance or event unless, as a direct
or indirect consequence of such fact, circumstance or event, individually or
taken together with all other facts, circumstances or events inconsistent with
any paragraph of SECTIONS 2.3 or 2.4, as applicable, there is reasonably likely
to exist a Material Adverse Effect. MBLA's representations, warranties and
covenants contained in this Agreement shall not be deemed to be untrue or
breached as a result of effects arising solely from actions taken pursuant to
this Agreement or in compliance with a written request of Citizens.
(b) As used in this Agreement, the term "MATERIAL ADVERSE EFFECT"
means either (i) an effect which is material and adverse to the business,
financial condition or results of operations of MBLA or Citizens, as the context
may dictate, and its Subsidiaries (as defined herein) taken as a whole;
PROVIDED, HOWEVER, that any such effect resulting from any (A) changes in laws,
rules or regulations or generally accepted accounting principles or regulatory
accounting requirements or interpretations thereof that apply to both Citizens
and Citizens Bank and MBLA and Macon Building & Loan, as the case may be, or to
similarly situated financial and/or depository institutions or (B) changes in
economic conditions affecting financial institutions generally, including but
not limited to, changes in the general level of market interest rates shall not
be considered in determining if a Material Adverse Effect has occurred; or (ii)
the failure of a representation or warranty contained in SECTIONS 2.3(A)(I),
(III) and (IV), SECTION 2.3(B), SECTION 2.3(C), the first sentence of SECTION
2.3(I), SECTION 2.3(T), SECTIONS 2.4(A)(I) and (IV), SECTION 2.4(B), the last
sentence of each of SECTION 2.3(E) or SECTION 2.4(C) or the second sentence of
each of SECTION 2.3(F)(I) or SECTION 2.4(D)(I) to be true and correct in all
material respects.
(c) For purposes of this Agreement, "KNOWLEDGE" shall mean, with
respect to a party hereto, actual knowledge of any of the members of the Board
of Directors of that party or any officer of that party with the title ranking
not less than vice president.
Section 2.3. Representations and Warranties of MBLA. Subject to
--------------------------------------
SECTIONS 2.1 and 2.2, MBLA represents and warrants to Citizens that, except as
disclosed in MBLA's Disclosure Letter:
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(a) Organization.
------------
(i) MBLA is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is registered as a
savings and loan holding company under the Home Owners' Loan Act, as amended
("HOLA"). Macon Building & Loan is a stock savings association duly organized,
validly existing and in good standing under the laws of the United States of
America and is a wholly-owned Subsidiary (as defined below) of MBLA. Each
Subsidiary of MBLA other than Macon Building & Loan is a corporation, limited
liability company or partnership duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization.
Each of MBLA and its Subsidiaries has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. As used in this Agreement, unless the context requires
otherwise, the term "SUBSIDIARY" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, which
is consolidated with such party for financial reporting purposes or which is
controlled, directly or indirectly, by such party.
(ii) MBLA and each of its Subsidiaries has the requisite
corporate power and authority and is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary.
(iii) MBLA's Disclosure Letter sets forth all of MBLA's
Subsidiaries and all entities (whether corporations, partnerships or similar
organizations), including the corresponding percentage ownership, in which MBLA
owns, directly or indirectly, 5% or more of the ownership interests as of the
date of this Agreement and indicates for each of MBLA's Subsidiaries, as of such
date, its jurisdiction of organization and the jurisdiction(s) wherein it is
qualified to do business. All such Subsidiaries and ownership interests are in
compliance with all applicable laws, rules and regulations relating to direct
investments in equity ownership interests. MBLA owns, either directly or
indirectly, all of the outstanding capital stock of each of its Subsidiaries. No
Subsidiary of MBLA other than Macon Building & Loan is an "insured depository
institution" as defined in the Federal Deposit Insurance Act, as amended
("FDIA"), and the applicable regulations thereunder. All of the shares of
capital stock of MBLA's Subsidiaries are fully paid, nonassessable and not
subject to any preemptive rights and are owned by MBLA or a Subsidiary of MBLA
free and clear of any claims, liens, encumbrances or restrictions (other than
those imposed by applicable federal and state securities laws), and there are no
agreements or understandings with respect to the voting or disposition of any
such shares.
(iv) The deposits of Macon Building & Loan are insured by the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC") to the extent provided in the FDIA.
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(b) Capital Structure.
-----------------
(i) The authorized capital stock of MBLA consists of 2,500,000
shares of MBLA Common Stock and 500,000 shares of preferred stock, par value
$.01 per share. As of the date of this Agreement (A) 1,247,021 shares of MBLA
Common Stock were issued and outstanding, (B) no shares of MBLA preferred stock
were issued and outstanding, (C) no shares of MBLA Common Stock were reserved
for issuance, except that 78,225 shares of MBLA Common Stock were reserved for
issuance pursuant to the MBLA Option Plans, (D) no shares of MBLA preferred
stock were reserved for issuance and (E) 518,190 shares of MBLA Common Stock
were held by MBLA in its treasury or by its Subsidiaries. The authorized capital
stock of Macon Building & Loan consists of 1,000,000 shares of common stock, par
value $1.00 per share, and 200,000 shares of preferred stock, par value $1.00
per share. As of the date of this Agreement, 1,000 shares of such common stock
were outstanding, no shares of such preferred stock were outstanding and all
outstanding shares of such common stock were, and as of the Effective Time will
be, owned by MBLA. All outstanding shares of capital stock of MBLA and Macon
Building & Loan are duly authorized and validly issued, fully paid and
nonassessable and not subject to any preemptive rights and, with respect to
shares of MBLA held by MBLA in its treasury or by its Subsidiaries and shares of
Macon Building & Loan, are free and clear of all liens, claims, encumbrances or
restrictions (other than those imposed by applicable federal and state
securities laws) and there are no agreements or understandings with respect to
the voting or disposition of any such shares. MBLA's Disclosure Letter sets
forth a complete and accurate list of all outstanding options to purchase MBLA
Common Stock that have been granted pursuant to the MBLA Option Plans, including
the names of the optionees, dates of grant, exercise prices, dates of vesting,
dates of termination and shares subject to each grant.
(ii) No bonds, debentures, notes or other indebtedness having
the right to vote on any matters on which stockholders may vote of MBLA are
issued or outstanding.
(iii) As of the date of this Agreement, except for options
granted pursuant to the MBLA Option Plans, neither MBLA nor any of its
Subsidiaries has or is bound by any outstanding subscriptions, options,
warrants, calls, rights, convertible securities, commitments or agreements of
any character obligating MBLA or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, any additional shares of capital
stock of MBLA or any of its Subsidiaries or obligating MBLA or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
right, convertible security, commitment or agreement. As of the date hereof,
there are no outstanding contractual obligations of MBLA or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of MBLA or any of its Subsidiaries.
(c) Authority.
---------
(i) MBLA has all requisite corporate power and authority to
enter into this Agreement, and, subject to approval of this Agreement by the
requisite vote of MBLA's stockholders and receipt of all required regulatory or
governmental approvals, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and, subject to
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the approval of this Agreement by MBLA's stockholders, the consummation of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate actions on the part of MBLA. This Agreement has been duly and validly
executed and delivered by MBLA and constitutes a valid and binding obligation of
MBLA, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity,
whether applied in a court of law or a court of equity.
(ii) Macon Building & Loan has all requisite corporate power
and authority to enter into the Plan of Bank Merger and, subject to approval of
the Plan of Bank Merger by MBLA as the sole stockholder of Macon Building & Loan
and the receipt of all required regulatory or governmental approvals, to
consummate the transactions contemplated thereby. The execution and delivery of
the Plan of Bank Merger and the consummation of the transactions contemplated
thereby have been duly authorized by all necessary corporate actions on the part
of Macon Building & Loan. The Plan of Bank Merger, upon execution and delivery
by Macon Building & Loan, will be duly and validly executed and delivered by
Macon Building & Loan and will constitute a valid and binding obligation of
Macon Building & Loan, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
and remedies generally and subject, as to enforceability, to general principles
of equity, whether applied in a court of law or a court of equity.
(d) Stockholder Approval; Fairness Opinion. The affirmative vote of
--------------------------------------
a majority of the outstanding shares of MBLA Common Stock entitled to vote on
this Agreement is the only vote of the stockholders of MBLA required for
approval of this Agreement and the consummation of the Merger and the related
transactions contemplated hereby. MBLA has received the written opinion of
Manchester Partners, L.L.C., a division of D.R. Hancock & Co., to the effect
that, as of the date hereof, the Merger Consideration to be received by MBLA's
stockholders is fair, from a financial point of view, to such stockholders.
(e) No Violations; Consents. The execution, delivery and performance
-----------------------
of this Agreement by MBLA do not, and the consummation of the transactions
contemplated hereby will not, constitute (i) assuming receipt of all Requisite
Regulatory Approvals (as defined in SECTION 2.4(C)) and requisite stockholder
approvals, a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license to
which MBLA or any of its Subsidiaries (or any of their respective properties) is
subject, (ii) a breach or violation of, or a default under, the certificate of
incorporation or bylaws of MBLA or the similar organizational documents of any
of its Subsidiaries or (iii) a breach or violation of, or a default under (or an
event which, with due notice or lapse of time or both, would constitute a
default under), or result in the termination of, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the properties or assets of MBLA or any
of its Subsidiaries under, any of the terms, conditions or provisions of any
note, bond, indenture, deed of trust, loan agreement or other agreement,
instrument or obligation to which MBLA or any of its Subsidiaries is a party, or
to which any of their respective properties or assets may be subject. The
consummation by MBLA and Macon Building & Loan of the transactions (including
the Bank Merger) contemplated hereby (exclusive
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of the effect of any changes effected pursuant to SECTION 1.7) will not require
any approval, consent or waiver under any such law, rule, regulation, judgment,
decree, order, governmental permit or license or the approval, consent or waiver
of any other party to any such agreement, or instrument, other than (x) the
approval of the holders of a majority of the outstanding shares of MBLA Common
Stock entitled to vote thereon, (y) the approval of MBLA as the sole stockholder
of Macon Building & Loan and (z) the consent of the Office of Thrift Supervision
("OTS"). As of the date hereof, the executive officers of MBLA know of no reason
pertaining to MBLA why any of the approvals referred to in this SECTION 2.3(E)
should not be obtained without the imposition of any material condition or
restriction described in the last sentence of SECTION 5.1(B).
(f) Reports and Financial Statements.
--------------------------------
(i) MBLA and each of its Subsidiaries have each timely filed
all material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
June 30, 1994 with (a) the FDIC, (b) the OTS, (c) the National Association of
Securities Dealers, Inc. ("NASD") and (d) the Securities and Exchange Commission
("SEC") (collectively, "MBLA'S REPORTS") and have paid all fees and assessments
due and payable in connection therewith. As of their respective dates, none of
MBLA's Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. All of MBLA's Reports filed with the SEC complied in all
material respects with the applicable requirements of the Securities Exchange
Act of 1934, as amended ("EXCHANGE ACT") and the rules and regulations of the
SEC promulgated thereunder.
(ii) Each of the financial statements of MBLA included in
MBLA's Reports complied as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto and
have been prepared in accordance with GAAP applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited financial statements, as permitted by the SEC). Each of
the consolidated statements of condition contained or incorporated by reference
in MBLA's Reports (including in each case any related notes and schedules) and
each of the consolidated statements of operations, consolidated statements of
cash flows and consolidated statements of changes in stockholders' equity,
contained or incorporated by reference in MBLA's Reports (including in each case
any related notes and schedules) fairly presented (a) the financial position of
the entity or entities to which it relates as of its date and (b) the results of
operations, stockholders' equity and cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect), in each case in
accordance with GAAP, except as may be noted therein.
(g) Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
MBLA's Reports filed on or prior to the date of this Agreement, since June 30,
1998, (i) MBLA and its
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Subsidiaries have not incurred any liability, except in the ordinary course of
their business consistent with past practice, (ii) MBLA and its Subsidiaries
have conducted their respective businesses only in the ordinary and usual course
of such businesses consistent with their past practices, (iii) there has not
been any Material Adverse Effect with respect to MBLA and its Subsidiaries,
taken as a whole, (iv) there has been no increase in the salary, compensation,
pension or other benefits payable or to become payable by MBLA or any of its
Subsidiaries to any of their respective directors, officers or employees, other
than in conformity with the policies and practices of such entity in the usual
and ordinary course of its business, (v) neither MBLA nor any of its
Subsidiaries has paid or made any accrual or arrangement for payment of bonuses
or special compensation of any kind or any severance or termination pay to any
of their directors, officers or employees, and (vi) there has been no change in
any accounting principles, practices or methods of MBLA or any of its
Subsidiaries other than as required by GAAP.
(h) Absence of Claims. No litigation, controversy, claim, action,
-----------------
suit or other legal administrative or arbitration proceeding before any court,
governmental agency or arbitrator is pending against MBLA or any of its
Subsidiaries and no such litigation, controversy, claim, action, suit or
proceeding has been threatened. To the knowledge of MBLA, there are no
investigations, reviews or inquiries by any court or governmental agency pending
or threatened against MBLA or any of its Subsidiaries.
(i) Absence of Regulatory Actions. Since June 30, 1994, neither MBLA
-----------------------------
nor any of its Subsidiaries is a party to any cease and desist order, written
agreement or memorandum of understanding with, or any commitment letter or
similar undertaking to, or has been subject to any action, proceeding, order or
directive by, or has been a recipient of any extraordinary supervisory letter
from any federal or state governmental authority charged with the supervision or
regulation of depository institutions or depository institution holding
companies or engaged in the insurance of bank and/or savings and loan deposits
("GOVERNMENT REGULATORS"), or has adopted any board resolutions at the request
of any Government Regulator, or has been advised by any Government Regulator
that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such action, proceeding, order,
directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
There is no unresolved violation, criticism or exception by any Government
Regulators with respect to any report or statement relating to any examinations
of MBLA or any of its Subsidiaries.
(j) Taxes. All federal, state, local and foreign tax returns
-----
required to be filed by or on behalf of MBLA or any of its Subsidiaries have
been timely filed or requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and all such filed
returns are complete and accurate in all material respects. All taxes shown on
such returns, all taxes required to be shown on returns for which extensions
have been granted and all other taxes required to be paid by MBLA or any of its
Subsidiaries have been paid in full or adequate provision has been made for any
such taxes on MBLA's balance sheet (in accordance with GAAP). For purposes of
this SECTION 2.3(J), the term "taxes" shall include all income, franchise, gross
receipts, real and personal property, real property transfer and gains, wage and
employment taxes. As of the date of this Agreement, there is no audit
examination,
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deficiency assessment, tax investigation or refund litigation with respect to
any taxes of MBLA or any of its Subsidiaries, and no claim has been made by any
authority in a jurisdiction where MBLA or any of its Subsidiaries do not file
tax returns that MBLA or any such Subsidiary is subject to taxation in that
jurisdiction. All taxes, interest, additions and penalties due with respect to
completed and settled examinations or concluded litigation relating to MBLA or
any of its Subsidiaries have been paid in full or adequate provision has been
made for any such taxes on MBLA's balance sheet (in accordance with GAAP). MBLA
and its Subsidiaries have not executed an extension or waiver of any statute of
limitations on the assessment or collection of any material tax due that is
currently in effect. MBLA and each of its Subsidiaries has withheld and paid all
taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
third party, and MBLA and each of its Subsidiaries has timely complied with all
applicable information reporting requirements under Part III, Subchapter A of
Chapter 61 of the Internal Revenue Code (the "IRC") and similar applicable state
and local information reporting requirements.
(k) Agreements.
----------
(i) MBLA and its Subsidiaries are not bound by any material
contract (as defined in Item 601(b)(10) of Regulation S-K promulgated by the
SEC), to be performed after the date hereof that has not been filed with or
incorporated by reference in MBLA's Reports. Neither MBLA nor any of its
Subsidiaries is a party to an oral or written (A) consulting agreement
(including data processing and software programming contracts) not terminable on
60 days' or less notice, (B) agreement with any present or former director,
officer or employee of MBLA or any of its Subsidiaries the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving MBLA or any of its Subsidiaries of the nature
contemplated by this Agreement, (C) agreement with respect to any employee or
director of MBLA or any of its Subsidiaries providing any term of employment or
compensation guarantee extending for a period longer than 60 days, (D) agreement
or plan, including any stock option plan, phantom stock or stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting or payment of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement or (E) agreement containing covenants that limit the ability of MBLA
or any of its Subsidiaries to compete in any line of business or with any
person, or that involve any restriction on the geographic area in which, or
method by which, MBLA (including any successor thereof) or any of its
Subsidiaries may carry on its business (other than as may be required by law or
any regulatory agency) or (F) any lease or license with respect to any property,
real or personal, whether as landlord, tenant, licensor or licensee, involving a
liability or obligation as obligor in excess of $5,000 on an annual basis. To
the knowledge of MBLA, each of the agreements and other documents referenced in
MBLA's Disclosure Letter with respect to this SECTION 2.3(K)(I) is a valid,
binding and enforceable obligation of the parties sought to be bound thereby,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability to
general principles of equity, whether applied in a court of law or a court of
equity. MBLA has
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previously delivered to Citizens true and complete copies of each agreement and
other documents referenced in MBLA's Disclosure Letter with respect to this
SECTION 2.3(K)(I).
(ii) Neither MBLA nor any of its Subsidiaries is in default
under (and no event has occurred which, with due notice or lapse of time or
both, would constitute a default under) or is in violation of any provision of
any note, bond, indenture, mortgage, deed of trust, loan agreement, lease or
other agreement to which it is a party or by which it is bound or to which any
of its respective properties or assets is subject and, to the knowledge of MBLA,
no other party to any such agreement (excluding any loan or extension of credit
made by MBLA or any of its Subsidiaries) is in default in any respect
thereunder.
(iii) MBLA and each of its Subsidiaries owns or possesses
valid and binding licenses and other rights to use without payment all patents,
copyrights, trade secrets, trade names, servicemarks and trademarks used in its
businesses, and neither MBLA nor any of its Subsidiaries has received any notice
of conflict with respect thereto that asserts the right of others. Each of MBLA
and its Subsidiaries has performed all the obligations required to be performed
by it and are not in default under any contact, agreement, arrangement or
commitment relating to any of the foregoing.
(l) Labor Matters. MBLA and its Subsidiaries are in material
-------------
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and are not
engaged in any unfair labor practice. Neither MBLA nor any of its Subsidiaries
is or has ever been a party to, or is or has ever been bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization with respect to its employees, nor is MBLA or any of
its Subsidiaries the subject of any proceeding asserting that it has committed
an unfair labor practice or seeking to compel it or any such Subsidiary to
bargain with any labor organization as to wages and conditions of employment nor
has any such proceeding been threatened, nor is there any strike, other labor
dispute or organizational effort involving MBLA or any of its Subsidiaries
pending or threatened.
(m) Employee Benefit Plans. MBLA's Disclosure Letter contains a
----------------------
complete and accurate list of all written or oral pension, retirement, stock
option, stock purchase, stock ownership, savings, stock appreciation right,
profit sharing, deferred compensation, consulting, bonus, group insurance,
severance and other benefit plans, funds, contracts, agreements and
arrangements, including, but not limited to, "employee benefit plans," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), incentive and welfare policies, contracts, plans and
arrangements and all trust agreements related thereto with respect to any
present or former directors, officers or other employees of MBLA or any of its
Subsidiaries (hereinafter collectively referred to as the "MBLA EMPLOYEE
PLANS"). Prior to the date hereof, MBLA has provided to Citizens true and
complete copies of each of the MBLA Employee Plans, any related trust agreements
and any amendments thereto, together with the most recent determination letters
issued by the IRS with respect to any qualified plans and the most recent
actuarial valuation report, Form 5500 and summary plan description for each MBLA
Employee Plan. All of the MBLA Employee Plans comply in all material respects
with all
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applicable requirements of ERISA, the IRC and other applicable laws; with
respect to the MBLA Employee Plans, no event has occurred that would subject
MBLA or any of its Subsidiaries to a material liability under ERISA, the IRC or
any other applicable law; there has occurred no "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the IRC) which is likely to
result in the imposition of any penalties or taxes under Section 502(i) of ERISA
or Section 4975 of the IRC upon MBLA or any of its Subsidiaries; and all
required contributions to the MBLA Employee Plans through the date hereof have
been made. Neither MBLA nor any of its Subsidiaries has provided, or is required
to provide, security to any MBLA pension plan or to any single-employer plan of
an ERISA Affiliate pursuant to Section 401(a)(29) of the IRC. Neither MBLA, its
Subsidiaries, nor any ERISA Affiliate has contributed to any "multiemployer
plan," as defined in Section 3(37) of ERISA, on or after September 26, 1980.
There is no pending or threatened litigation, administrative action or
proceeding relating to any MBLA Employee Plan. There has been no announcement or
commitment by MBLA or any of its Subsidiaries to create an additional MBLA
Employee Plan, or to amend any MBLA Employee Plan, except for amendments
required by applicable law which do not materially increase the cost of such
MBLA Employee Plan; and, except as specifically identified in MBLA's Disclosure
Letter, MBLA and its Subsidiaries do not have any obligations for
post-retirement or post-employment benefits under any MBLA Employee Plan that
cannot be amended or terminated upon 60 days' notice or less without incurring
any liability thereunder, except for coverage required by Part 6 of Title I of
ERISA or Section 4980B of the IRC, or similar state laws, the cost of which is
borne by the insured individuals. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not result in
any payment or series of payments by MBLA or any of its Subsidiaries to any
person which is an "excess parachute payment" (as defined in Section 280G of the
IRC), increase or secure (by way of a trust or other vehicle) any benefits
payable under any MBLA Employee Plan or accelerate the time of payment or
vesting of any such benefit.
(n) Title to Assets. MBLA's Disclosure Letter contains a complete
---------------
and accurate list of all real property owned or leased by MBLA or any of its
Subsidiaries, including all properties of MBLA or any of its Subsidiaries
classified as "Real Estate Owned" or words of similar import (the "REAL
PROPERTY"). To the knowledge of MBLA, none of the buildings, structures or other
improvements located on the Real Property encroaches upon or over any adjoining
parcel or real estate or any easement or right-of-way. MBLA and each of its
Subsidiaries have good and marketable title to their respective properties and
assets (including any intellectual property asset such as any trademark, service
mark, tradename or copyright) and property acquired in a judicial foreclosure
proceeding or by way of a deed in lieu of foreclosure or similar transfer
whether real or personal, tangible or intangible, reflected on the consolidated
financial statements of MBLA as of June 30, 1998, or acquired after such date,
other than such items of personal property as have been disposed of in the
ordinary course of business since June 30, 1998, in each case free and clear of
any liens, security interests, encumbrances, mortgages, pledges, restrictions,
charges or rights or interests of others, except pledges to secure deposits and
other liens incurred in the ordinary course of business. Each lease pursuant to
which MBLA or any of its Subsidiaries is lessee or lessor is valid and in full
force and effect and neither MBLA nor any of its Subsidiaries, nor any other
party to any such lease is in default or in violation of any provisions of any
such lease. All material tangible properties of MBLA and each of its
A-17
<PAGE>
Subsidiaries are in a good state of maintenance and repair, conform with all
applicable ordinances, regulations and zoning laws and are considered by MBLA to
be adequate for the current business of MBLA and its Subsidiaries.
(o) Compliance with Laws. MBLA and each of its Subsidiaries has all
--------------------
permits, licenses, certificates of authority, orders and approvals of, and has
made all filings, applications and registrations with, all federal, state, local
and foreign governmental or regulatory bodies (each, a "GOVERNMENTAL ENTITY")
that are required in order to permit it to carry on its business as it is
presently conducted; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect, and, to the best knowledge of
MBLA, no suspension or cancellation of any of them is threatened. Since the date
of its incorporation, the corporate affairs of MBLA have not been conducted in
violation of any law, ordinance, regulation, order, writ, rule, decree or
approval of any Governmental Entity. Neither MBLA nor any of its Subsidiaries
are in material violation of, is, to the knowledge of MBLA, under investigation
with respect to any material violation of, or has been given notice or been
charged with any material violation of, any law, ordinance, regulation, order,
writ, rule, decree or condition to approval of any Governmental Entity.
(p) Fees. Other than financial advisory services performed for MBLA
----
by Manchester Partners, L.L.C., neither MBLA nor any of its Subsidiaries, nor
any of their respective officers, directors, employees or agents, has employed
any broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions or finder's fees, and no broker or finder has acted
directly or indirectly for MBLA or any of its Subsidiaries in connection with
this Agreement or the transactions contemplated hereby. MBLA has provided
Citizens with a true and correct copy of the contract between MBLA and
Manchester Partners, L.L.C.
(q) Environmental Matters. There is no suit, claim, action, demand,
---------------------
executive or administrative order, directive, investigation or proceeding
pending or threatened before any court, governmental agency or board or other
forum against MBLA or any of its Subsidiaries for alleged noncompliance
(including by any predecessor) with, or liability under, any Environmental Law
(as defined below) or relating to the presence of or release into the
environment of any Hazardous Material (as defined below), whether or not
occurring at or on a site owned, leased or operated by it or any of its
Subsidiaries. To MBLA's knowledge, the properties currently owned or operated by
MBLA or any of its Subsidiaries (including, without limitation, soil,
groundwater or surface water on, under or adjacent to the properties, and
buildings thereon) are not contaminated with and do not otherwise contain any
Hazardous Material other than as permitted under applicable Environmental Law.
Neither MBLA nor any of its Subsidiaries has received any notice, demand letter,
executive or administrative order, directive, request or other communication
(written or oral) for information from any federal, state, local or foreign
governmental entity or any third party indicating that it may be in violation
of, or liable under, any Environmental Law. To MBLA's knowledge, there are no
underground storage tanks on, in or under any properties owned or operated by
MBLA or any of its Subsidiaries and no underground storage tanks have been
closed or removed from any properties owned or operated by MBLA or any of its
Subsidiaries. To MBLA's knowledge, during the period of MBLA's or any of its
Subsidiaries' ownership or operation of any of their respective current
properties, there has been
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no contamination by or release of Hazardous Materials in, on, under or affecting
such properties. To MBLA's knowledge, prior to the period of MBLA's or any of
its Subsidiaries' ownership or operation of any of their respective current
properties, there was no contamination by or release of Hazardous Material in,
on, under or affecting such properties.
"ENVIRONMENTAL LAW" means (i) any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, directive, executive or administrative
order, judgment, decree, injunction, legal requirement or agreement with any
governmental entity relating to (A) the protection, preservation or restoration
of the environment (which includes, without limitation, air, water vapor,
surface water, groundwater, drinking water supply, structures, soil, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety as it relates to Hazardous Materials, or (B) the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of, Hazardous Materials, in each case as amended and as now in effect. The term
Environmental Law includes all federal, state and local laws, rules, regulations
or requirements relating to the protection of the environment or health and
safety, including, without limitation, (i) the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Water Pollution Control
Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including, but not limited to,
the Hazardous and Solid Waste Amendments thereto and Subtitle I relating to
underground storage tanks), the Federal Solid Waste Disposal and the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970 as it relates to
Hazardous Materials, the Federal Hazardous Substances Transportation Act, the
Emergency Planning and Community Right-To-Know Act, the Safe Drinking Water Act,
the Endangered Species Act, the National Environmental Policy Act, the Rivers
and Harbors Appropriation Act or any so-called "Superfund" or "Superlien" law,
each as amended and as now or hereafter in effect, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of or exposure to any Hazardous Material.
"HAZARDOUS MATERIAL" means any substance (whether solid, liquid or
gas) which is or could be detrimental to human health or safety or to the
environment, currently or hereafter listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any
Environmental Law, whether by type or by quantity, including any substance
containing any such substance as a component. Hazardous Material includes,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial
substance, oil or petroleum, or any derivative or by-product thereof, radon,
radioactive material, asbestos, asbestos-containing material, urea formaldehyde
foam insulation, lead and polychlorinated biphenyl.
A-19
<PAGE>
(r) Loan Portfolio; Allowance; Asset Quality.
----------------------------------------
(i) With respect to each loan owned by MBLA or its
Subsidiaries in whole or in part, to MBLA's knowledge (A) the note and the
related security documents are each legal, valid and binding obligations of the
maker or obligor thereof, enforceable against such maker or obligor in
accordance with their terms, (B) the note and the related security documents,
copies of which are included in the loan files, are true and correct copies of
the documents they purport to be and have not been suspended, amended, modified,
canceled or otherwise changed except as otherwise disclosed by documents in the
applicable loan file and (C) MBLA or one of its Subsidiaries is the sole holder
of legal and beneficial title to each loan reflected in the consolidated
financial statements of MBLA except as otherwise disclosed in the applicable
loan file or on the books and records of MBLA and its Subsidiaries.
(ii) The allowance for loan losses reflected in MBLA's
statement of financial condition at December 31, 1998 was, and the allowance for
possible losses shown on the balance sheets in MBLA's Reports for periods ending
after December 31, 1998 will be, in the opinion of management, adequate to
provide for losses inherent in MBLA's loan portfolio.
(iii) MBLA's Disclosure Letter sets forth a true and complete
listing, as of March 31, 1999, of (A) all loans, leases, advances, credit
enhancements, guarantees, other extensions of credit, commitments and
interest-bearing assets of MBLA and its Subsidiaries (collectively, "LOANS")
that have been classified (whether regulatory or internal) as "Special Mention,"
"Substandard," "Doubtful," "Loss" or words of similar import listed by category,
including the amounts thereof; (B) Loans (1) that are contractually past due 90
days or more in the payment of principal and/or interest, (2) that are on a
non-accrual status, (3) where the interest rate terms have been reduced and/or
the maturity dates have been extended subsequent to the agreement under which
the Loan was originally created due to concerns regarding the borrower's ability
to pay in accordance with such initial terms, or (4) where a specific reserve
allocation exists in connection therewith, listed by category, including the
amounts thereof; and (C) Loans with any director, executive officer or five
percent or greater stockholder of MBLA or any of its Subsidiaries or any person,
corporation or enterprise controlling, controlled by or under common control
with any of the foregoing, including the amounts thereof. To the knowledge of
MBLA, neither MBLA nor any of its Subsidiaries is a party to any Loan that is in
violation of any law, regulation or rule of any Governmental entity. Any asset
of MBLA or any of its Subsidiaries that is classified as "Real Estate Owned" or
words of similar import that is included in any non-performing assets of MBLA or
any of its Subsidiaries is listed in MBLA's Disclosure Letter and is carried net
of reserves at the lower of cost or fair value, less estimated selling costs,
based on current independent appraisals or evaluations or current management
appraisals or evaluations; PROVIDED, HOWEVER, that "current" shall mean within
the past 12 months.
(s) Deposits. None of the deposits of MBLA or any of its
--------
Subsidiaries is a "brokered" deposit.
(t) Anti-takeover Provisions Inapplicable. MBLA and its Subsidiaries
-------------------------------------
have taken all actions required to exempt MBLA, Citizens, Acquisition Sub,
Citizens Bank, the
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<PAGE>
Agreement, the Plan of Bank Merger, the Merger and the Bank Merger from any
provisions of an antitakeover nature contained in their organizational
documents, and the provisions of any federal or state "anti-takeover," "fair
price," "moratorium," "control share acquisition" or similar laws or
regulations.
(u) Material Interests of Certain Persons. No officer or director of
-------------------------------------
MBLA, or any "associate" (as such term is defined in Rule 12b-2 under the
Exchange Act of any such officer or director, has any material interest in any
material contract or property (real or personal), tangible or intangible, used
in or pertaining to the business of MBLA or any of its Subsidiaries.
(v) Insurance. In the opinion of management, MBLA and its
---------
Subsidiaries are presently insured for amounts deemed reasonable by management
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured. All of the
insurance policies and bonds maintained by MBLA and its Subsidiaries are in full
force and effect, MBLA and its Subsidiaries are not in default thereunder and
all material claims thereunder have been filed in due and timely fashion.
(w) Investment Securities; Derivatives.
----------------------------------
(i) Except for investments in Federal Home Loan Bank ("FHLB")
Stock, pledges to secure FHLB borrowings, and reverse repurchase agreements
entered into in arms-length transactions pursuant to normal commercial terms and
conditions and entered into in the ordinary course of business and restrictions
that exist for securities to be classified as "held to maturity," none of the
investments reflected in the consolidated balance sheet of MBLA at December 31,
1998, and none of the investment securities held by it or any of its
Subsidiaries since December 31, 1998, is subject to any restriction (contractual
or statutory) that would materially impair the ability of the entity holding
such investment freely to dispose of such investment at any time.
(ii) Except for adjustable-rate mortgage loans and
adjustable-rate advances, neither MBLA nor any of its Subsidiaries is a party to
or has agreed to enter into an exchange-traded or over-the-counter equity,
interest rate, foreign exchange or other swap, forward, future, option, cap,
floor or collar or any other contract that is a derivative contract (including
various combinations thereof) or owns securities that (a) are referred to
generically as "structured notes," "high risk mortgage derivatives," "capped
floating rate notes" or "capped floating rate mortgage derivatives" or (b) are
likely to have changes in value as a result of interest or exchange rate changes
that significantly exceed normal changes in value attributable to interest or
exchange rate changes.
(x) Indemnification. Except as provided in the certificate of
---------------
incorporation or bylaws of MBLA and the similar governing documents of its
Subsidiaries, neither MBLA nor any Subsidiary is a party to any indemnification
agreement with any of its present or former directors, officers, employees,
agents or other persons who serve or served in any other capacity with any other
enterprise at the request of MBLA and, to the best knowledge of MBLA, there are
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<PAGE>
no claims for which any such person would be entitled to indemnification under
the organization certificate of incorporation or bylaws of MBLA or the similar
governing documents of any of its Subsidiaries, under any applicable law or
regulation or under any indemnification agreement.
(y) Books and Records. The books and records of MBLA and its
-----------------
Subsidiaries on a consolidated basis have been, and are being, maintained in
accordance with applicable legal and accounting requirements and reflect in all
material respects the substance of events and transactions that should be
included therein.
(z) Corporate Documents. Complete and correct copies of the
-------------------
certificate of incorporation, bylaws and similar governing documents of MBLA and
each of MBLA's Subsidiaries, as in effect as of the date of this Agreement, have
previously been delivered to Citizens. The minute books of MBLA and Macon
Building & Loan constitute a complete and correct record of all actions taken by
their respective boards of directors (and each committee thereof) and their
stockholders. The minute books of each of MBLA's other Subsidiaries constitutes
a complete and correct record of all actions taken by their respective boards of
directors (and each committee thereof) and the stockholders of each such
Subsidiary.
(aa) Year 2000 Matters. MBLA and its Subsidiaries have completed a
-----------------
review of their computer systems to identify systems that could be affected by
the "Year 2000" issue and reasonably believe they have identified all such Year
2000 problems. MBLA's management has developed and commenced implementation of a
plan which is designed to complete any required initial changes to the computer
systems of MBLA and its Subsidiaries and to complete testing of those changes by
June 30, 1999 (the "Year 2000 Plan"), a true and complete copy of which has been
provided to Citizens. Between the date of this Agreement and the Effective Time,
MBLA shall use commercially practicable efforts to implement and/or continue to
undertake its Year 2000 Plan. Year 2000 issues have not had, and are not
reasonably expected to have, a Material Adverse Effect on MBLA and its
Subsidiaries, taken as a whole.
(bb) Proxy Statement. The information regarding MBLA to be included
---------------
in the proxy statement to be filed with the SEC by MBLA under the Exchange Act
and distributed in connection with MBLA's meeting of stockholders to vote upon
this Agreement and the Merger (as amended or supplemented from time to time, the
"PROXY STATEMENT") will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
(cc) Community Reinvestment Act Compliance. Macon Building & Loan is
-------------------------------------
in material compliance with the applicable provisions of the Community
Reinvestment Act ("CRA") and the regulations promulgated thereunder, and Macon
Building & Loan currently has a CRA rating of satisfactory or better. To MBLA's
knowledge, there is no fact or circumstance or set of facts or circumstances
that would cause Macon Building & Loan to fail to comply with such provisions or
cause the CRA rating of Macon Building & Loan to fall below satisfactory.
(dd) Undisclosed Liabilities. As of the date hereof, MBLA and its
-----------------------
Subsidiaries have not incurred any debt, liability or obligation of any nature
whatsoever (whether accrued,
A-22
<PAGE>
contingent, absolute or otherwise and whether due or to become due) except for
(i) liabilities reflected on or reserved against in the consolidated financial
statements of MBLA as of December 31, 1998, (ii) liabilities incurred since
December 31, 1998 in the ordinary course of business consistent with past
practice that, either alone or when combined with all similar liabilities, have
not had, and would not reasonably be expected to have, a Material Adverse Effect
on MBLA and its Subsidiaries, taken as a whole, and (iii) liabilities incurred
for legal, accounting, financial advising fees and out-of-pocket expenses in
connection with a proposed sale or merger of MBLA.
Section 2.4. Representations and Warranties of Citizens. Subject to
------------------------------------------
SECTIONS 2.1 and 2.2, Citizens represents and warrants to MBLA that, except as
specifically disclosed in Citizens's Disclosure Letter:
(a) Organization.
------------
(i) Citizens is a corporation duly organized, validly existing
and in good standing under the laws of the State of Missouri and is registered
as a bank holding company under the Bank Holding Company Act, as amended
("BCHA"). Citizens Bank is a bank duly organized, validly existing and in good
standing under the laws of the State of Missouri and is a Subsidiary of
Citizens. Each Subsidiary of Citizens other than Citizens Bank is a corporation,
limited liability company or partnership duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization. Each of Citizens and its Subsidiaries has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted.
(ii) Citizens and each of its Subsidiaries has the requisite
corporate power and authority and is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary.
(iii) All of the shares of capital stock of Citizens Bank are
fully paid, nonassessable and not subject to any preemptive rights and (except
for directors' qualifying shares) are owned by Citizens free and clear of any
claims, liens, encumbrances or restrictions (other than those imposed by
applicable federal and state securities laws) and there are no agreements or
understandings with respect to the voting or disposition of any such shares.
(iv) The deposits of Citizens Bank are insured by the Bank
Insurance Fund of the FDIC to the extent provided in the FDIA.
(b) Authority.
---------
(i) Citizens has all requisite corporate power and authority
to enter into this Agreement and, subject to receipt of all required regulatory
or governmental approvals, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Boards of
Directors of Citizens. This Agreement has been duly and validly
A-23
<PAGE>
executed and delivered by Citizens and constitutes a valid and binding
obligation of Citizens, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
and remedies generally and subject, as to enforceability, to general principles
of equity, whether applied in a court of law or a court of equity.
(ii) Citizens Bank has all requisite corporate power and
authority to enter into the Plan of Bank Merger and, subject to approval of the
Plan of Bank Merger by the stockholders of Citizens Bank and the receipt of all
required regulatory or governmental approvals, to consummate the transactions
contemplated thereby. The execution and delivery of the Plan of Bank Merger and,
subject to the approval of the stockholders of Citizens Bank, the consummation
of the transactions contemplated thereby, have been duly authorized by the Board
of Directors of Citizens Bank. The Plan of Bank Merger, upon execution and
delivery by Citizens Bank, will be duly and validly executed and delivered by
Citizens Bank and will constitute a valid and binding obligation of Citizens
Bank, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity,
whether applied in a court of law or a court of equity.
(c) No Violations; Consents. The execution, delivery and performance
-----------------------
of this Agreement by Citizens do not, and the consummation of the transactions
contemplated hereby will not, constitute (i) assuming receipt of all Requisite
Regulatory Approvals, a breach or violation of, or a default under, any law,
rule or regulation or any judgment, decree, order, governmental permit or
license to which Citizens or any of its Subsidiaries (or any of their respective
properties) is subject, (ii) a breach or violation of, or a default under, the
articles of incorporation or bylaws of Citizens or the similar organizational
documents of any of its Subsidiaries or (iii) a breach or violation of, or a
default under (or an event which, with due notice or lapse of time or both,
would constitute a default under), or result in the termination of, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the properties or
assets of Citizens or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, indenture, deed of trust, loan
agreement or other agreement, instrument or obligation to which Citizens or any
of its Subsidiaries is a party, or to which any of their respective properties
or assets may be subject. The consummation by Citizens and Citizens Bank of the
transactions (including the Bank Merger) contemplated hereby (exclusive of the
effect of any changes effected pursuant to SECTION 1.7) will not require any
approval, consent or waiver under any such law, rule, regulation, judgment,
decree, order, governmental permit or license or the approval, consent or waiver
of any other party to any such agreement, or instrument, other than (x) the
approval of Citizens as the sole shareholder of Acquisition Sub, (y) the
approval of the shareholders of Citizens Bank, and (z) the approval of the Board
of Governors of the Federal Reserve System ("FRB") under the BHCA, the approval
of the Missouri Division of Finance under Chapter 362 of the Missouri Revised
Statutes, and the approval of the FDIC under Section 18(c) of the FDIA
(collectively, the "REQUISITE REGULATORY APPROVALS"). As of the date hereof, the
executive officers of Citizens know of no reason pertaining to Citizens why any
of the approvals referred to in this SECTION 2.4(C) should not be obtained
without the imposition of any material condition or restriction described in
the last sentence of SECTION 5.1(B).
A-24
<PAGE>
(d) Reports and Financial Statements.
--------------------------------
(i) Citizens and each of its Subsidiaries have each timely
filed all material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since December 31, 1996 with (a) the FDIC, (b) the FRB and (c) the Missouri
Division of Finance (collectively, "CITIZENS' REPORTS") and, to Citizens'
knowledge, have paid all fees and assessments due and payable in connection
therewith. As of their respective dates, none of Citizens' Reports contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
(ii) The financial statements of Citizens, as of December 31,
1998 and 1997 and for each of the years in the three-year period ended December
31, 1998, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto). The consolidated statements of condition at December 31, 1998 and 1997
(including in each case any related notes and schedules) and each of the
consolidated statements of operations, consolidated statements of cash flows and
consolidated statements of changes in stockholders' equity, for the years ended
December 31, 1998, 1997 and 1996 (including in each case any related notes and
schedules) fairly presented (a) the financial position of the entity or entities
to which it relates as of its date and (b) the results of operations,
stockholders' equity and cash flows, as the case may be, of the entity or
entities to which it relates for the periods set forth therein, in each case in
accordance with GAAP, except as may be noted therein.
(e) Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
Citizens' Reports filed on or prior to the date of this Agreement, since
December 31, 1998, there has not been any Material Adverse Effect with respect
to Citizens and its Subsidiaries, taken as a whole, that would reasonably be
expected to prevent or adversely affect the ability of Citizens to obtain the
Requisite Regulatory Approvals.
(f) Absence of Claims. No litigation, proceeding, controversy, claim
-----------------
or action before any court or governmental agency is pending or has been
threatened against Citizens or any of its Subsidiaries that would reasonably be
expected to prevent or adversely affect or which seeks to prohibit the
consummation of the transactions contemplated by this Agreement.
(g) Absence of Regulatory Actions. Neither Citizens nor any of its
-----------------------------
Subsidiaries is a party to any cease and desist order, written agreement or
memorandum of understanding with, or any commitment letter or similar written
undertaking to, or is subject to any action, proceeding, order or directive by,
or is a recipient of any extraordinary supervisory letter from any Government
Regulator, or has adopted any board resolutions at the request of any Government
Regulator, nor has it been advised by any Governmental Regulator that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such action, proceeding, order, directive, written
agreement, memorandum of
A-25
<PAGE>
understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar written undertaking.
(h) Year 2000 Matters. Citizens has completed a review of its
-----------------
computer systems to identify systems that could be affected by the "Year 2000"
issue and reasonably believes it has identified all Year 2000 problems.
Citizens' management has developed and commenced implementation of a plan which
is designed to complete any required initial changes to its computer systems and
to complete testing of those changes by December 31, 1999. Between the date of
this Agreement and the Effective Time, Citizens shall use commercially
practicable efforts to implement and/or continue to undertake such plan. Year
2000 issues are not reasonably expected to prevent or adversely affect the
ability of Citizens to obtain the Requisite Regulatory Approvals.
(i) Proxy Statement. The information regarding Citizens provided to
---------------
MBLA by Citizens for inclusion in the Proxy Statement will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
(j) Community Reinvestment Act Compliance. Citizens' depository
-------------------------------------
institution Subsidiaries are each in material compliance with the applicable
provisions of the CRA and the regulations promulgated thereunder, and each
currently has a CRA rating of satisfactory or better. To Citizens' knowledge,
there is no fact or circumstance or set of facts or circumstances that would
cause any of its depository institution Subsidiaries to fail to comply with such
provisions or cause the CRA rating of any such institution to fall below
satisfactory.
(k) Availability of Funds. Citizens has received a written loan
---------------------
commitment for, or has readily available to it, sufficient funds to satisfy its
obligations under Article I of this Agreement.
ARTICLE III
CONDUCT PENDING THE MERGER
--------------------------
Section 3.1. Conduct of MBLA's Business Prior to the Effective Time.
------------------------------------------------------
Except as expressly provided in this Agreement, during the period from the date
of this Agreement to the Effective Time, MBLA shall, and shall cause its
Subsidiaries to, use its best efforts to (i) conduct its business in the
regular, ordinary and usual course consistent with past practice, (ii) maintain
and preserve intact its business organization, properties, leases, employees and
advantageous business relationships and retain the services of its officers and
key employees, (iii) take no action which would adversely affect or delay the
ability of MBLA or Citizens to perform their respective covenants and agreements
on a timely basis under this Agreement, (iv) take no action which would
adversely affect or delay the ability of MBLA, Macon Building & Loan, Citizens
or Citizens Bank to obtain any necessary approvals, consents or waivers of any
governmental authority required for the transactions contemplated hereby or
which would reasonably be
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<PAGE>
expected to result in any such approvals, consents or waivers containing any
material condition or restriction, (v) take no action that results in or is
reasonably likely to have a Material Adverse Effect on MBLA or Macon Building &
Loan, (vi) continue to implement its Year 2000 Plan in accordance with its
terms, (vii) maintain insurance in such amounts and against such risks and
losses as are customary for companies engaged in a similar business, (viii)
confer on a regular and frequent basis with one or more representatives of
Citizens to discuss, subject to applicable law, material operational matters and
the general status of the ongoing operations of MBLA and its Subsidiaries, (ix)
promptly notify Citizens of any significant change in its business, properties,
assets, condition (financial or otherwise) or results of operations, and (x)
promptly provide Citizens with copies of all filings made by MBLA or any of its
Subsidiaries with any state or federal court, administrative agency, commission
or other Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
Section 3.2. Forbearance by MBLA. Without limiting the covenants set
-------------------
forth in SECTION 3.1 hereof, except as otherwise provided in this Agreement and
except to the extent required by law or regulation or any Governmental Entity,
during the period from the date of this Agreement to the Effective Time, MBLA
shall not, and shall not permit any of its Subsidiaries to, without the prior
consent of Citizens:
(a) unless required by applicable law or regulation or regulatory
directive, change any provisions of the certificate of incorporation or bylaws
of MBLA or the similar governing documents of its Subsidiaries;
(b) issue, deliver or sell any shares of its capital stock or any
securities or obligations convertible or exercisable for any shares of its
capital stock or change the terms of any of its outstanding stock options or
warrants or issue, grant or sell any option, warrant, call, commitment, stock
appreciation right, right to purchase or agreement of any character relating to
the authorized or issued capital stock of MBLA except pursuant to the exercise
of stock options or warrants outstanding as of the date of this Agreement, or
split, combine, reclassify or adjust any shares of its capital stock or
otherwise change its capitalization;
(c) other than regular semi-annual dividends not in excess of $0.30
per share of MBLA Common Stock, make, declare or pay any cash or stock dividend
or make any other distribution on, or directly or indirectly redeem, purchase or
otherwise acquire, any shares of its capital stock or any securities or
obligations convertible into or exchangeable for any shares of its capital
stock. Subject to applicable regulatory restrictions, if any, Macon Building &
Loan may pay a cash dividend that is, in the aggregate, sufficient to fund any
dividend by MBLA permitted hereunder;
(d) other than in the ordinary course of business consistent with
past practice, (i) sell, transfer, assign, mortgage, encumber or otherwise
dispose of any of its material properties, leases, assets or other rights or
agreements to any individual, corporation or other entity other than a direct or
indirect wholly owned Subsidiary of MBLA or (ii) cancel, release or assign any
indebtedness of any such individual, corporation or other entity;
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(e) except to the extent required by law or as specifically provided
for elsewhere herein, increase in any manner the compensation or fringe benefits
of any of its employees or directors, other than general increases in
compensation for non-executive officer employees in the ordinary course of
business consistent with past practice; pay any pension or retirement allowance
not required by any existing plan or agreement to any employees or directors, or
become a party to, amend or commit itself to fund or otherwise establish any
trust or account related to any MBLA Employee Plan (as defined in SECTION
2.3(M)) with or for the benefit of any employee or director; voluntarily
accelerate the vesting of any stock options or other compensation or benefit;
grant or award any stock options; make any discretionary contribution to any
MBLA Employee Plan; hire any employee with an annual total compensation payment
in excess of $35,000; or enter into any employment contract or other agreement
or arrangement with any director, officer or other employee;
(f) except as contemplated by SECTION 4.2, change its method of
accounting as in effect at March 31, 1999, except as required by changes in GAAP
as concurred in by MBLA's independent auditors;
(g) settle any claim, action or proceeding involving any liability
of MBLA or any of its Subsidiaries for money damages in excess of $50,000 or
impose material restrictions upon the operations of MBLA or any of its
Subsidiaries;
(h) acquire or agree to acquire, by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets, in each case which are
material, individually or in the aggregate, to MBLA, except in satisfaction of
debts previously contracted;
(i) except pursuant to commitments existing at the date hereof which
have previously been disclosed to Citizens, other than in the ordinary course
consistent with past practice, make any real estate loans secured by undeveloped
land or real estate located outside the State of Missouri (other than real
estate secured by one-to-four family homes) or make any construction loans
(other than construction loans secured by one-to-four family homes) outside the
State of Missouri;
(j) establish or commit to the establishment of any new branch or
other office facilities or file any application to relocate or terminate the
operation of any banking office;
(k) other than in the ordinary course of business consistent with
past practice in individual amounts not to exceed $50,000 and other than
investments for MBLA's portfolio made in accordance with SECTION 3.2(L), make
any investment either by purchase of stock or securities, contributions to
capital, property transfers, or purchase of any property or assets of any other
individual, corporation or other entity;
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(l) make any investment in any debt security, including
mortgage-backed and mortgage-related securities (other than U.S. government and
U.S. government agency securities with final maturities not greater than five
years, mortgage-backed or mortgage related securities which would not be
considered "high risk" securities pursuant to Thrift Bulletin Number 52 issued
by the OTS or securities of the FHLB, in each case that are purchased in the
ordinary course of business consistent with past practice), or materially
restructure or change its investment securities portfolio, through purchases,
sales or otherwise;
(m) enter into, renew, amend or terminate any contract or agreement,
or make any change in any of its leases or contracts, other than with respect to
those involving aggregate payments of less than, or the provision of goods or
services with a market value of less than, $20,000 per annum and other than
contracts or agreements covered by SECTION 3.2(N);
(n) make, renegotiate, renew, increase, extend, modify or purchase
any loan, lease (credit equivalent), advance, credit enhancement or other
extension of credit, or make any commitment in respect of any of the foregoing,
except (A) in conformity with existing lending practices in amounts not to
exceed an aggregate of $300,000 with respect to any individual borrower or (B)
loans or advances as to which MBLA has a binding obligation to make such loan or
advances as of the date hereof;
(o) incur any additional borrowings other than short-term (six
months or less) FHLB borrowings and reverse repurchase agreements consistent
with past practice, or pledge any of its assets to secure any borrowings other
than as required pursuant to the terms of borrowings of MBLA or any Subsidiary
in effect at the date hereof or in connection with borrowings or reverse
repurchase agreements permitted hereunder;
(p) make any capital expenditures in excess of $20,000 per
expenditure other than pursuant to binding commitments existing on the date
hereof disclosed in the MBLA Disclosure Schedule and other than expenditures
necessary to maintain existing assets in good repair or to make payment of
necessary taxes;
(q) organize, capitalize, lend to or otherwise invest in any
Subsidiary;
(r) elect to any senior executive office any person who is not a
member of the senior executive officer team of MBLA as of the date of this
Agreement or elect to the Board of Directors of MBLA any person who is not a
member of the Board of Directors of MBLA as of the date of this Agreement;
(s) engage in any transaction that is not in the usual and ordinary
course of business and consistent with past practices;
(t) enter into any new line of business;
(u) take or omit to take any action that is intended or may
reasonably be expected to result in any of MBLA's representations and warranties
set forth in this Agreement
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being or becoming untrue in any material respect, or which would make any of
such representations and warranties untrue or incorrect in any material respect
if made anew after taking such action;
(v) make any equity investment or commitment to make such an
investment in real estate or in any real estate development project, other than
in connection with foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructuring in the ordinary course of business consistent with
prudent banking practices;
(w) make or increase any loan or other extension of credit, or
commit to make or increase any such loan or extension of credit, to any director
or officer of MBLA or any of its Subsidiaries, or any entity controlled,
directly or indirectly, by any of the foregoing, other than renewals of existing
loans or commitments to loan; or
(x) agree or make any commitment to take any action that is
prohibited by this Section 3.2.
In the event that Citizens does not respond in writing to MBLA
within 5 business days of receipt by Citizens of a written request for MBLA to
engage in any of the actions for which Citizens's prior written consent is
required pursuant to this SECTION 3.2, Citizens shall be deemed to have
consented to such action. Any request by MBLA or response thereto by Citizens
shall be made in accordance with the notice provisions of SECTION 8.7, shall
note that it is a request pursuant to this SECTION 3.2 and shall state that a
failure to respond within 5 business days shall constitute consent.
Section 3.3. Conduct of Citizens' Business Prior to the Effective
----------------------------------------------------
Time. Except as expressly provided in this Agreement, during the period from the
- ----
date of this Agreement to the Effective Time, Citizens shall, and shall cause
its Subsidiaries to, use its best efforts to (i) take no action which would
materially adversely affect or delay the ability of MBLA or Citizens to perform
their respective covenants and agreements on a timely basis under this Agreement
and (ii) take no action which would adversely affect or delay the ability of
MBLA, Citizens, Macon Building & Loan or Citizens Bank to obtain any necessary
approvals, consents or waivers of any governmental authority required for the
transactions contemplated hereby or which would reasonably be expected to result
in any such approvals, consents or waivers containing any material condition or
restriction.
ARTICLE IV
COVENANTS
---------
Section 4.1. Acquisition Proposals. From and after the date hereof
---------------------
until the termination of this Agreement, neither MBLA or Macon Building & Loan,
nor any of their respective officers, directors, employees, representatives,
agents or affiliates (including, without limitation, any investment banker,
attorney or accountant retained by MBLA or any of its Subsidiaries), will,
directly or indirectly, initiate, solicit or knowingly encourage (including by
way
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of furnishing non-public information or assistance), or facilitate knowingly,
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal (as defined below), or enter
into or maintain or continue discussions or negotiate with any person or entity
in furtherance of such inquiries or to obtain an Acquisition Proposal or agree
to or endorse any Acquisition Proposal; PROVIDED, HOWEVER, that nothing
contained in this SECTION 4.1 shall prohibit the Board of Directors of MBLA from
(i) furnishing information to, or entering into discussions or negotiations with
any, person or entity that makes an unsolicited written, bona fide proposal to
acquire MBLA pursuant to a merger, consolidation, share exchange, business
combination, tender or exchange offer or other similar transaction, if, and only
to the extent that, (A) the Board of Directors of MBLA receives a written
opinion from its independent financial advisor that such proposal may be
superior to the Merger from a financial point-of-view to MBLA's stockholders and
(B) the Board of Directors of MBLA, after consultation with independent legal
counsel, determines in good faith that such action is necessary for the Board of
Directors of MBLA to comply with its fiduciary duties to stockholders under
applicable law (such proposal that satisfies (A) and (B) being referred to
herein as a "SUPERIOR PROPOSAL"), (ii) complying with Rule 14e-2 promulgated
under the Exchange Act with regard to a tender or exchange offer or (iii)
failing to make or withdrawing or modifying its recommendation and entering into
a Superior Proposal if there exists a Superior Proposal and the Board of
Directors of MBLA, after consultation with independent legal counsel, determines
in good faith that such action is necessary for the Board of Directors of MBLA
to comply with its fiduciary duties to stockholders under applicable law. MBLA
shall notify Citizens orally and in writing of any Acquisition Proposal
(including, without limitation, the terms and conditions of any such Acquisition
Proposal and the identity of the person making such Acquisition Proposal) as
promptly as practicable (but, in any event, no later than 24 hours) after the
receipt thereof and shall keep Citizens informed of the status and details of
any such Acquisition Proposal. For purposes of this Agreement, "ACQUISITION
PROPOSAL" shall mean any of the following (other than the transactions
contemplated hereunder) involving MBLA or any of its Subsidiaries: (i) any
merger, consolidation, share exchange, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 25% or more of the assets of MBLA or Macon Building & Loan, taken
as a whole, in a single transaction or series of transactions; (iii) any tender
offer or exchange offer for 25% or more of the outstanding shares of capital
stock of MBLA or the filing of a registration statement under the Securities Act
of 1933 in connection therewith; or (iv) any public announcement of a proposal,
plan or intention to do any of the foregoing or any agreement to engage in any
of the foregoing.
Section 4.2. Certain Policies of MBLA.
------------------------
(a) At the request of Citizens, MBLA shall cause Macon Building &
Loan to modify and change its loan, litigation and real estate valuation
policies and practices (including loan classifications and levels of reserves)
and investment and asset/liability management policies and practices after the
date on which all Requisite Regulatory Approvals and stockholder approvals are
received, and after receipt of written confirmation from Citizens that it is not
aware of any fact or circumstance that would prevent completion of the Merger,
and prior to the Effective Time so as to be consistent on a mutually
satisfactory basis with those of Citizens Bank; PROVIDED, HOWEVER, that MBLA
shall not be required to take such action more than 30 days prior
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to the Effective Date; and PROVIDED, FURTHER, that such policies and procedures
are not prohibited by GAAP or any applicable laws and regulations.
Notwithstanding the foregoing, Macon Building & Loan shall not be required to
increase its levels of reserves pursuant to this SECTION 4.2 until after the
Merger Consideration has been calculated in accordance with SECTION 1.2.
(b) MBLA's representations, warranties and covenants contained in
this Agreement shall not be deemed to be untrue or breached in any respect for
any purpose as a consequence of any modifications or changes undertaken solely
on account of this SECTION 4.2. Citizens agrees to hold harmless, indemnify and
defend MBLA and its Subsidiaries, and their respective directors, officers and
employees, for any loss, claim, liability or other damage caused by or resulting
from compliance with this SECTION 4.2.
Section 4.3. Access and Information. Upon reasonable notice, MBLA
----------------------
shall (and shall cause its Subsidiaries to) afford Citizens and its
representatives (including, without limitation, directors, officers and
employees of Citizens and its affiliates and counsel, accountants and other
professionals retained by Citizens) such reasonable access during normal
business hours throughout the period prior to the Effective Time to the books,
records (including, without limitation, tax returns and work papers of
independent auditors), contracts, properties, personnel and to such other
information relating to MBLA and its Subsidiaries as Citizens may reasonably
request; PROVIDED, HOWEVER, that no investigation pursuant to this SECTION 4.3
shall affect or be deemed to modify any representation or warranty made herein.
MBLA shall provide Citizens with true and complete copies of all financial and
other information relating to the business or operations of MBLA and its
Subsidiaries that is provided to directors of MBLA and Macon Building & Loan in
connection with meetings of their Board of Directors of committees thereof. In
furtherance, and not in limitation of the foregoing, MBLA shall make available
to Citizens all information necessary or appropriate for the preparation and
filing of all real property and real estate transfer tax returns and reports
required by reason of the Merger or the Bank Merger. Citizens will not, and will
cause its representatives not to, use any information obtained pursuant to this
SECTION 4.3 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement. Subject to the requirements of applicable law,
Citizens will keep confidential, and will cause its representatives to keep
confidential, all information and documents obtained pursuant to this SECTION
4.3 unless such information (i) was already known to Citizens or an affiliate of
Citizens, other than pursuant to a confidentiality agreement or other
confidential relationship, (ii) becomes available to Citizens or an affiliate of
Citizens from other sources not known by such party to be bound by a
confidentiality agreement or other obligation of secrecy, (iii) is disclosed
with the prior written approval of MBLA or (iv) is or becomes readily
ascertainable from published information or trade sources. In the event that
this Agreement is terminated or the transactions contemplated by this Agreement
shall otherwise fail to be consummated, each party shall promptly cause all
copies of documents or extracts thereof containing information and data as to
another party hereto (or an affiliate of any party hereto) to be returned to the
party that furnished the same.
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Section 4.4. Certain Filings, Consents and Arrangements. Citizens
------------------------------------------
shall as soon as practicable and in cooperation with MBLA (and in any event
within 45 days after the date hereof) make, or cause to be made, any filings and
applications and provide any notices required to be filed or provided in order
to obtain all approvals, consents and waivers of Governmental Entities and third
parties necessary or appropriate for the consummation of the transactions
contemplated hereby. Citizens shall provide MBLA and its counsel with an
opportunity to review all filings, applications and notices prior to their being
submitted to any governmental authority and shall provide MBLA with copies of
all filings, applications and notices submitted to any governmental authority.
Section 4.5. Antitakeover Provisions. MBLA and its Subsidiaries
-----------------------
shall take all steps required by any relevant federal or state law or regulation
or under any relevant agreement or other document to exempt or continue to
exempt Citizens, Acquisition Sub, Citizens Bank, the Agreement, the Plan of Bank
Merger, the Merger and the Bank Merger from any provisions of an antitakeover
nature contained in MBLA's or its Subsidiaries' organization certificates and
bylaws and the provisions of any federal or state antitakeover laws.
Section 4.6. Additional Agreements. Subject to the terms and
---------------------
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all actions
and to do promptly, or cause to be done promptly, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including the Merger
and the Bank Merger, as expeditiously as possible, including using efforts to
obtain all necessary actions or non-actions, extensions, waivers, consents and
approvals from all applicable Governmental Entities, effecting all necessary
registrations, applications and filings (including, without limitation, filings
under any applicable state securities laws) and obtaining any required
contractual consents and regulatory approvals.
Section 4.7. Publicity. MBLA and Citizens shall consult with each
---------
other in issuing any press releases or otherwise making public statements with
respect to the Merger and any other transaction contemplated hereby and in
making any filings with any governmental entity or with any national securities
exchange with respect thereto.
Section 4.8. Stockholders Meeting. MBLA shall take all action
--------------------
necessary, in accordance with applicable law and its Certificate of
Incorporation and Bylaws, to convene a meeting of its stockholders ("STOCKHOLDER
MEETING") as promptly as practicable for the purpose of considering and voting
on approval and adoption of this Agreement, the Merger and the other
transactions provided for in this Agreement. Except to the extent legally
required for the discharge by the Board of Directors of its fiduciary duties as
advised by such Board's counsel, the Board of Directors of MBLA shall (a)
recommend at its Stockholder Meeting that the stockholders vote in favor of and
approve the transactions provided for in this Agreement and (b) use its best
reasonable efforts to solicit such approvals. MBLA may employ professional proxy
solicitors to assist in contacting stockholders in connection with soliciting
favorable votes on the Merger.
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Section 4.9. Proxy Statement. As soon as practicable after the date
---------------
hereof, MBLA shall prepare a Proxy Statement for the purpose of taking
stockholder action on the Merger and this Agreement and shall file the Proxy
Statement with the SEC, respond to comments of the staff of the SEC and,
promptly after the Proxy Statement is cleared by the SEC, mail the Proxy
Statement to the holders of record (as of the applicable record date) of shares
of voting stock of MBLA. MBLA shall provide Citizens and its counsel with an
opportunity to review the Proxy Statement prior to its being filed with the SEC
and shall provide Citizens and its counsel with copies of the definitive Proxy
Statement.
Section 4.10 Notification of Certain Matters. MBLA shall give prompt
-------------------------------
notice to Citizens of: (a) any event or notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by MBLA or any of its Subsidiaries subsequent
to the date of this Agreement and prior to the Effective Time, under any
contract material to the financial condition, properties, businesses or results
of operations of MBLA and its Subsidiaries taken as a whole to which MBLA or any
Subsidiary is a party or is subject; and (b) any event, condition, change or
occurrence which individually or in the aggregate has, or which, so far as
reasonably can be foreseen at the time of its occurrence, is reasonably likely
to result in a Material Adverse Effect with respect to MBLA and its Subsidiaries
taken as a whole. Each of MBLA and Citizens shall give prompt notice to the
other party of any (i) notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with any of the transactions contemplated by this Agreement and (ii)
the occurrence or non-occurrence of any fact or event which would be reasonably
likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate in any respect at any time from the date hereof to the
Effective Time or to cause any covenant, condition or agreement under this
Agreement not to be complied with or satisfied in all material respects.
Section 4.11 Employees, Directors and Officers.
---------------------------------
(a) All persons who are employees of Macon Building & Loan
immediately prior to the Effective Time and whose employment is not specifically
terminated at or prior to the Effective Time (a "CONTINUING EMPLOYEE") shall, at
the Effective Time, become employees of Citizens Bank; PROVIDED, HOWEVER, that
in no event shall any of MBLA's employees be officers of Citizens Bank, or have
or exercise any power or duty conferred upon such an officer, unless and until
duly elected or appointed to such position in accordance with the bylaws of
Citizens Bank. All of the Continuing Employees shall be employed at the will of
Citizens Bank and no contractual right to employment shall inure to such
employees because of this Agreement. Citizens will use its best efforts to
retain all of the employees of Macon Building & Loan, subject to the
qualifications of such employees and the needs of Citizens Bank.
(b) Except as otherwise provided in paragraph (d) of this SECTION
4.11, appropriate steps shall be taken to terminate all MBLA Employee Plans as
of the Effective Time or as promptly as practical thereafter. Immediately
following the Effective Time, each Continuing Employee shall be eligible to
participate in Citizens' benefit plans on the same basis as a new employee of
Citizens or Citizens Bank (it being understood that inclusion of Continuing
Employees in Citizens' benefit plans may occur at different times with respect
to different plans). Service with MBLA or Macon Building & Loan shall be treated
as service with Citizens Bank for purposes of satisfying any waiting periods,
evidence of insurability requirements, or the
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application of any preexisting condition limitation with respect to any Citizens
or Citizens Bank "welfare benefit plan", as defined in Section 3(1) of ERISA,
but not with respect to any pension, profit sharing or any other employee
benefit plan. Each Continuing Employee shall receive credit for service with
MBLA or Macon Building & Loan for purposes of computing vacation pay benefits.
(c) Citizens agrees to honor existing employment and salary
continuation agreements, including the change in control provisions of such
agreements, between MBLA and Macon Building & Loan and certain employees as set
forth in MBLA's Disclosure Letter. Such payments may be made by MBLA immediately
prior to the Effective Time if so agreed to by Citizens, or on such other
schedule as may be mutually agreed upon by the individual employee and Citizens.
Citizens also agrees to honor the Directors' Consultation and Retirement Plan of
MBLA.
(d) Prior to the Effective Time, MBLA shall terminate the MBLA
Employee Stock Ownership Plan ("ESOP") by proper action of the Board of
Directors of MBLA. As soon as administratively practicable after the Effective
Time, the ESOP shall apply any cash received in the Merger with respect to
unallocated shares of MBLA Common Stock to the repayment in full of the
outstanding ESOP indebtedness. Any surplus cash remaining after repayment of
such indebtedness shall be allocated as investment earnings of the ESOP to the
stock accounts of ESOP participants (and, if required, to the accounts of former
participants or their beneficiaries) in proportion to their stock account
balances in a manner consistent with the terms of the ESOP plan document.
(e) MBLA shall use its best efforts to obtain from each holder of an
MBLA Option and to deliver to Citizens at or before the Closing ( as defined in
SECTION 7.1) an agreement to the cancellation of such holder's MBLA Options in
exchange for a cash payment as described in SECTION 1.5.
Section 4.12 Indemnification.
---------------
(a) From and after the Effective Time through the sixth anniversary
of the Effective Date, Citizens (and any successor) agrees to indemnify and hold
harmless each present and former director and officer of MBLA and its
Subsidiaries and each officer or employee of MBLA and its Subsidiaries that is
serving or has served as a director or trustee of another entity expressly at
MBLA's request or direction (each, an "INDEMNIFIED PARTY"), against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, amounts paid
in settlement, losses, claims, damages or liabilities (collectively, "COSTS")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of matters existing or occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement), whether asserted or
claimed prior to, at or after the Effective Time, and to advance any such Costs
to each Indemnified Party as they are from time to time incurred, in each case
to the fullest extent such Indemnified Party would have been permitted to be
indemnified as a director, officer or employee of MBLA and its Subsidiaries and
under the DGCL (as in effect on the Effective Date).
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(b) Any Indemnified Party wishing to claim indemnification under
SECTION 4.12(A), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Citizens thereof, but the failure to so
notify shall not relieve Citizens of any liability it may have hereunder to such
Indemnified Party if such failure does not materially and substantially
prejudice Citizens. In the event of any such claim, action, suit, proceeding or
investigation: (i) Citizens shall have the right to assume the defense thereof
with counsel reasonably acceptable to the Indemnified Party and Citizens shall
not be liable to such Indemnified Party for any legal expenses of other counsel
subsequently incurred by such Indemnified Party in connection with the defense
thereof, except that if Citizens does not elect to assume such defense within a
reasonable time or counsel for the Indemnified Party at any time advises that
there are issues which raise conflicts of interest between Citizens and the
Indemnified Party (and counsel for Citizens does not disagree), the Indemnified
Party may retain counsel satisfactory to such Indemnified Party, and Citizens
shall remain responsible for the reasonable fees and expenses of such counsel as
set forth above, to be paid promptly as statements therefor are received;
PROVIDED, HOWEVER, that Citizens shall be obligated pursuant to this paragraph
(b) to pay for only one firm of counsel for all Indemnified Parties in any one
jurisdiction with respect to any given claim, action, suit, proceeding or
investigation unless the use of one counsel for such Indemnified Parties would
present such counsel with a conflict of interest; (ii) the Indemnified Party
will reasonably cooperate in the defense of any such matter; and (iii) Citizens
shall not be liable for any settlement effected by an Indemnified Party without
its prior written consent, which consent may not be withheld unless such
settlement is unreasonable in light of such claims, actions, suits, proceedings
or investigations against, or defenses available to, such Indemnified Party.
(c) Citizens shall pay all reasonable Costs, including attorneys'
fees, that may be incurred by any Indemnified Party in successfully enforcing
the indemnity and other obligations provided for in this SECTION 4.12 to the
fullest extent permitted under the DGCL (as in effect on the Effective Date).
The rights of each Indemnified Party hereunder shall be in addition to any other
rights such Indemnified Party may have under applicable law.
(d) Citizens shall maintain MBLA's existing directors and officers'
insurance policy (or provide a policy providing comparable coverage and amounts
on terms no less favorable to the persons currently covered by MBLA's existing
policy, including Citizens's existing policy if its meets the foregoing
standard) covering persons who are currently covered by such insurance for a
period of six years after the Effective Date.
(e) In the event Citizens or any of its successors or assigns (i)
consolidates with or merges into any other person or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person or entity, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Citizens
assume the obligations set forth in this SECTION 4.12.
(f) The provisions of this SECTION 4.12 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
representatives.
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Section 4.13 Year 2000. From the date hereof until the Effective
---------
Time, with respect to all computer systems of MBLA and its Subsidiaries, MBLA
hereby covenants and agrees (a) to use its best efforts to comply with all
Federal Financial Institution Examination Council Year 2000 regulations and
guidelines and (b) that MBLA and Macon Building & Loan will each take all
actions necessary to receive a rating of "Satisfactory" or better on any Year
2000 compliance examination conducted by their respective examining agencies.
ARTICLE V
CONDITIONS TO CONSUMMATION
--------------------------
Section 5.1. Conditions to Each Party's Obligations. The respective
--------------------------------------
obligations of each party to effect the Merger, the Bank Merger and any other
transactions contemplated by this Agreement shall be subject to the satisfaction
of the following conditions:
(a) This Agreement shall have been approved by the requisite vote of
MBLA's stockholders in accordance with applicable laws and regulations.
(b) The Requisite Regulatory Approvals, the consent of the OTS and
any other required waivers with respect to this Agreement and the transactions
contemplated hereby shall have been obtained and shall remain in full force and
effect, and all statutory waiting periods shall have expired; and all other
consents, waivers and approvals of any third parties which are necessary to
permit the consummation of the Merger and the other transactions contemplated
hereby shall have been obtained or made except for those the failure to obtain
would not have a Material Adverse Effect (i) on MBLA and its Subsidiaries taken
as a whole or (ii) on Citizens and its Subsidiaries taken as a whole. No such
approval or consent shall have imposed any condition or requirement that would
so materially and adversely impact the economic or business benefits to Citizens
or MBLA of the transactions contemplated hereby that, had such condition or
requirement been known, such party would not, in its reasonable judgment, have
entered into this Agreement.
(c) No party hereto shall be subject to any order, decree, ruling or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger, the Bank Merger or any other
transactions contemplated by this Agreement and no Governmental Entity shall
have instituted any proceeding for the purpose of enjoining or prohibiting the
consummation of the Merger, the Bank Merger or any transactions contemplated by
this Agreement.
(d) No statute, rule or regulation shall have been enacted, entered,
promulgated, interpreted, applied or enforced by any governmental authority
which prohibits, restricts or makes illegal consummation of the Merger, the Bank
Merger or any other transactions contemplated by this Agreement.
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<PAGE>
Section 5.2. Conditions to the Obligations of Citizens and Citizens
------------------------------------------------------
Bank. The obligations of Citizens and Citizens Bank to effect the Merger, the
- ----
Bank Merger and any other transactions contemplated by this Agreement shall be
further subject to the satisfaction of the following additional conditions:
(a) Each of the obligations of MBLA and Macon Building & Loan,
respectively, required to be performed by it at or prior to the Closing pursuant
to the terms of this Agreement shall have been duly performed and complied with
in all material respects and the representations and warranties of MBLA and
Macon Building & Loan contained in this Agreement shall be true and correct,
subject to SECTIONS 2.1 and 2.2, as of the date of this Agreement and as of the
Effective Time as though made at and as of the Effective Time (except as to any
representation or warranty which specifically relates to an earlier date), and
Citizens shall have received a certificate to the foregoing effect signed by the
chief executive officer and the chief financial or principal accounting officer
of MBLA.
(b) On the Closing Date, Dissenters' Shares shall not constitute
more than 10% of the outstanding shares of MBLA Common Stock.
(c) Citizens shall have received the opinion of counsel to MBLA and
Macon Building & Loan with respect to those matters set forth on Exhibit B
---------
hereto in form and substance reasonably satisfactory to Citizens.
(d) On the Closing Date, Macon Building & Loan's allowance for loan
losses shall be not less than $700,000.
(e) On the Closing Date, Citizens shall have received a statement
from each of Muldoon, Murphy & Faucette LLP, and Manchester Partners, L.L.C.
setting forth the total fees paid or payable with respect to all legal or
financial advisory services, as the case may be, rendered in connection with
this Agreement and the transactions contemplated hereby.
Section 5.3. Conditions to the Obligations of MBLA and Macon
-----------------------------------------------
Building & Loan. The obligations of MBLA and Macon Building & Loan to effect the
- ---------------
Merger, the Bank Merger and any other transactions contemplated by this
Agreement shall be further subject to the satisfaction of the following
additional conditions:
(a) Each of the obligations of Citizens and Citizens Bank,
respectively, required to be performed by it at or prior to the Closing pursuant
to the terms of this Agreement shall have been duly performed and complied with
in all material respects and the representations and warranties of Citizens and
Citizens Bank contained in this Agreement shall be true and correct, subject to
SECTIONS 2.1 and 2.2, as of the date of this Agreement and as of the Effective
Time as though made at and as of the Effective Time (except as to any
representation or warranty which specifically relates to an earlier date), and
MBLA shall have received a certificate to the foregoing effect signed by the
chief executive officer and the chief financial or principal accounting officer
of Citizens.
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<PAGE>
(b) Citizens shall have provided to the Exchange Agent sufficient
cash to pay the aggregate Merger Consideration and MBLA shall have received a
certificate from the Exchange Agent to such effect.
(c) MBLA shall have received the opinion of counsel to Citizens and
Citizens Bank with respect to those matters set forth on Exhibit C hereto in
form and substance reasonably satisfactory to MBLA.
ARTICLE VI
TERMINATION
-----------
Section 6.1. Termination. This Agreement may be terminated, and the
-----------
Merger abandoned, at or prior to the Effective Date, either before or after any
requisite stockholder approval:
(a) by the mutual consent of Citizens and MBLA in a written
instrument, if the Board of Directors of each so determines by vote of a
majority of the members of its entire Board; or
(b) by Citizens or MBLA, if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event of the
failure of the stockholders of MBLA to approve the Agreement at the Stockholder
Meeting; PROVIDED, HOWEVER, that MBLA shall only be entitled to terminate the
Agreement pursuant to this clause if it has complied in all material respects
with its obligations under SECTION 4.8; or
(c) by Citizens or MBLA, by written notice to the other party, if
either (i) any approval, consent or waiver of a governmental agency required to
permit consummation of the transactions contemplated hereby shall have been
denied or (ii) any governmental authority of competent jurisdiction shall have
issued a final, unappealable order enjoining or otherwise prohibiting
consummation of the transactions contemplated by this Agreement; or
(d) by Citizens or MBLA, if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event that the
Merger is not consummated by January 31, 2000, unless the failure to so
consummate by such time is due to the breach of any representation, warranty or
covenant contained in this Agreement by the party seeking to terminate; or
(e) by Citizens or MBLA (provided that the party seeking termination
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein), in the event of (i) a failure to perform or
comply by the other party with any covenant or agreement of such other party
contained in this Agreement, which failure or non-compliance is material in the
context of the transactions contemplated by this Agreement, or (ii) subject to
SECTION 2.2(A), any inaccuracies, omissions or breach in the representations,
warranties, covenants or agreements of the other party contained in this
Agreement the circumstances as to which either
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<PAGE>
individually or in the aggregate have, or reasonably could be expected to have,
a Material Adverse Effect on such other party; in either case which has not been
or cannot be cured within 30 calendar days after written notice thereof is given
by the party seeking to terminate to such other party; or
(f) by MBLA, if the Board of Directors of MBLA reasonably determines
that a proposal made by a third party to acquire, directly or indirectly,
including pursuant to a tender offer, exchange offer, merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction, for consideration consisting of cash and/or securities, more than
50% of the combined voting power of the shares of MBLA Common Stock then
outstanding or all or substantially all of the assets of MBLA constitutes a
Superior Proposal and that such proposal must be accepted in order to comply
with the Board of Directors' fiduciary duties to Stockholders under applicable
law; PROVIDED, HOWEVER, that prior to any such termination, MBLA shall use its
reasonable efforts to negotiate in good faith with Citizens to make such
adjustments in the terms and conditions of this Agreement a would enable MBLA to
proceed with the transactions contemplated herein.
Section 6.2. Termination Fee.
---------------
(a) In the event that (a) MBLA terminates this Agreement pursuant to
SECTION 6.1(F) or (b) Citizens or MBLA terminates this Agreement pursuant to
SECTION 6.1(B) after it has been publicly announced prior to the Stockholders
Meeting that a person (other than Citizens) has made or disclosed an intention
to make a proposal to engage in a merger, consolidation, share exchange or other
similar transaction with MBLA or Macon Building & Loan and within 12 months
after the termination of this Agreement MBLA or Macon Building & Loan enters
into an agreement with any person to effect a merger, consolidation, share
exchange or other similar transaction, then MBLA shall, within 10 business days
following written demand by Citizens, pay to Citizens an amount equal to
$1,000,000.
(b) In the event that the Merger is not consummated as a result of
the failure to satisfy the conditions set forth in SECTION 5.1(B), then Citizens
shall, within 10 business days following written demand by MBLA, pay to MBLA an
amount equal to $187,500.
Section 6.3. Effect of Termination. In the event of termination of
---------------------
this Agreement by either Citizens or MBLA prior to the consummation of the
Merger as provided in SECTION 6.1, this Agreement shall forthwith become void
and have no effect except (i) the obligations of the parties under SECTIONS 4.3
(with respect to confidentiality and the return of information), 6.2 and 8.6
shall survive any termination of this Agreement and (ii) that notwithstanding
anything to the contrary contained in this Agreement, no party shall be relieved
or released from any liabilities or damages arising out of its willful breach of
any provision of this Agreement.
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<PAGE>
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
------------------------------------------
Section 7.1. Effective Date and Effective Time. The closing of the
---------------------------------
transactions contemplated hereby ("CLOSING") shall take place at the offices of
Stinson, Mag & Fizzell, P.C., 1201 Walnut Street, Suite 2800, Kansas City,
Missouri, unless another place is agreed to by Citizens and MBLA, on a date
designated by Citizens ("CLOSING DATE") that is no later than 14 days following
the date on which the expiration of the last applicable waiting period in
connection with notices to and approvals of governmental authorities shall occur
and all conditions to the consummation of this Agreement are satisfied or
waived, or on such other date as may be agreed to by the parties. Prior to the
Closing Date, Acquisition Sub and MBLA shall execute a Certificate of Merger in
accordance with all appropriate legal requirements, which shall be filed as
required by law on the Closing Date, and the Merger provided for therein shall
become effective upon such filing or on such date as may be specified in such
Certificate of Merger. The date of such filing or such later effective date as
specified in the Certificate of Merger is herein referred to as the "EFFECTIVE
DATE." The "EFFECTIVE TIME" of the Merger shall be as set forth in the
Certificate of Merger.
Section 7.2. Deliveries at the Closing. Subject to the provisions of
-------------------------
Articles V and VI, on the Closing Date there shall be delivered to Citizens and
MBLA the documents and instruments required to be delivered under Article V.
ARTICLE VIII
CERTAIN OTHER MATTERS
---------------------
Section 8.1. Certain Definitions; Interpretation. As used in this
-----------------------------------
Agreement, the following terms shall have the meanings indicated:
"material" means material to Citizens or MBLA (as the case may be)
and its respective Subsidiaries, taken as a whole.
"person" includes an individual, corporation, limited liability
company, partnership, association, trust or unincorporated organization.
When a reference is made in this Agreement to Sections, Exhibits or
Schedules, such reference shall be to a Section of, Exhibit or Schedule to, this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for ease of reference only and shall not affect
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation." Any singular term in this Agreement
shall be deemed to include the plural, and any plural term the singular. Any
reference to gender in this Agreement shall be deemed to include any other
gender.
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<PAGE>
Section 8.2. Survival. Only those agreements and covenants of the
--------
parties that are by their terms applicable in whole or in part after the
Effective Time, including SECTIONS 4.3, 4.11 and 4.12 of this Agreement, shall
survive the Effective Time. All other representations, warranties, agreements
and covenants shall be deemed to be conditions of the Agreement and shall not
survive the Effective Time.
Section 8.3. Waiver; Amendment. Prior to the Effective Time, any
-----------------
provision of this Agreement may be (i) waived in writing by the party benefitted
by the provision or (ii) amended or modified at any time (including the
structure of the transaction) by an agreement in writing between the parties
hereto except that, after the vote by the stockholders of MBLA or Citizens, no
amendment or modification may be made that would reduce the amount or alter or
change the kind of consideration to be received by holders of MBLA Common Stock
or contravene any provision of the DGCL or the federal banking laws, rules and
regulations.
Section 8.4. Counterparts. This Agreement may be executed in
------------
counterparts each of which shall be deemed to constitute an original, but all of
which together shall constitute one and the same instrument.
Section 8.5. Governing Law. This Agreement shall be governed by,
-------------
and interpreted in accordance with, the laws of the State of Missouri, without
regard to conflicts of laws principles.
Section 8.6. Expenses. Each party hereto will bear all expenses
--------
incurred by it in connection with this Agreement and the transactions
contemplated hereby.
Section 8.7. Notices. All notices, requests, acknowledgments and
-------
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, overnight courier or
facsimile transmission (confirmed in writing) to such party at its address or
facsimile number set forth below or such other address or facsimile transmission
as such party may specify by notice (in accordance with this provision) to the
other party hereto.
If to MBLA, to:
MBLA Financial Corporation
101 Vine Street
Macon, Missouri 63552
Facsimile: (660) 385-2122
Attention:John T. Neer, President
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<PAGE>
With copies to:
Paul M. Aguggia, Esq.
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Facsimile: (202) 966-9409
If to Citizens, to:
Citizens Bancshares Company
700 Jackson
Post Office Box 50
Chillicothe, Missouri 64601
Facsimile: (660) 646-1041
Attention:Edward D. Douglas, Chairman
With copies to:
Richard N. Nixon, Esq.
Stinson, Mag & Fizzell, P.C.
1201 Walnut Street, Suite 2800
Kansas City, Missouri 64106
Facsimile: (816) 691-3495
Section 8.8. Entire Agreement; etc. This Agreement, together with
---------------------
the Plan of Bank Merger and the Disclosure Letters, represents the entire
understanding of the parties hereto with reference to the transactions
contemplated hereby and supersedes any and all other oral or written agreements
heretofore made. All terms and provisions of this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Except for SECTIONS 4.11 and 4.12, which confer rights
on the parties described therein, nothing in this Agreement is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 8.9. Successors and Assigns; Assignment. This Agreement
----------------------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that this Agreement may
not be assigned by either party hereto without the written consent of the other
party.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the 3rd day of May, 1999.
CITIZENS BANCSHARES COMPANY
By: /s/ Edward D. Douglas
-----------------------------------------
Edward D. Douglas
Chairman and Chief Executive Officer
MBLA FINANCIAL CORPORATION
By: /s/ John T. Neer
-----------------------------------------
John T. Neer
President and Chief Executive Officer
A-44
<PAGE>
APPENDIX B
July 13, 1999
Board of Directors
Macon Building and Loan Association, F.A.
101 Vine Street
Macon, Missouri 63352
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of MBLA Financial Corporation ("MBLA") of the
consideration to be paid to MBLA's shareholders by Citizens Bancshares Company
in Chillicothe, Missouri ("Citizens"), pursuant to the terms of the proposed
Agreement and Plan of Merger by and among MBLA and Citizens (the "Agreement").
Pursuant to the Agreement, the holder of each share of common stock of MBLA
would be entitled to receive $24.15 per share in cash, subject to adjustment as
set forth in paragragh 1.2 (b) Agreement.
Manchester Partners, L.L.C., as part of its investment banking services, is
engaged in the independent valuation of businesses and securities in connection
with mergers, acquisitions, and sales of listed and unlisted securities, private
placements and valuations for corporate and other purposes. We are familiar
with MBLA and Citizens and have completed our financial analysis of this
transaction.
In rendering our opinion, we have reviewed the Agreement, as well as
financial and other information that was publicly available or furnished to us
by MBLA and Citizens, including information provided during Manchester Partners'
discussions with their respective managements. We have conducted conversations
with Citizens' senior management regarding recent developments and management's
pro forma analysis for Citizens and MBLA. In addition, we have spoken to
members of Citizens' management and MBLA's management regarding factors which
affect each entity's business. We have also compared certain financial and
securities data (as appropriate) of MBLA with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the common stock of MBLA, reviewed prices and premiums
paid in other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
<PAGE>
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to us or that was otherwise reviewed by
us. With respect to the pro forma analysis supplied to us, we have assumed that
such information was reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the respective managements of
Citizens and MBLA as to the future operating and financial performance of
Citizens and MBLA and that such information provided a reasonable basis upon
which we could form our opinion. We also assumed that there were no material
changes in the assets, liabilities, financial condition, results of operations,
business or prospects of either Citizens or MBLA since the date of the most
recent financial statements made available to us. We did not make or obtain any
independent evaluation, appraisal or physical inspection of Citizens' or MBLA's
assets or liabilities nor did we review loan files of Citizens or MBLA.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. Our opinion is directed to the Board of Directors of
MBLA and does not constitute a recommendation to any shareholder as to how such
shareholder should vote on the proposed transaction, nor have we expressed any
opinion as to the prices at which any securities of MBLA might trade in the
future. Except as required by applicable law, including (without limitation)
federal securities laws, our opinion may not be published or otherwise used or
referred to, nor shall any public reference to Manchester Partners be made,
without our consent.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion, as of the date hereof, that the consideration to be paid to the
shareholders of MBLA pursuant to the Agreement is fair, from a financial point
of view, to the shareholders of MBLA.
Very truly yours,
/s/ MANCHESTER PARTNERS, L.L.C.
MANCHESTER PARTNERS, L.L.C.
<PAGE>
APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on
<PAGE>
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or
C-2
<PAGE>
all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock
of a constituent corporation that are entitled to appraisal rights. Such
notice may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date
of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand
in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request
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<PAGE>
for such a statement is received by the surviving or resulting corporation or
within 10 days after expiration of the period for delivery of demands for
appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
C-4
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-5
<PAGE>
APPENDIX D
MBLA Financial Corporation
SIXTH ANNUAL REPORT
MBLA
'98
<PAGE>
TABLE OF CONTENTS
President's Message. . . . . . . . . . . . . . . . . . . . . . . D-1
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . D-2
Consolidated Financial Statements. . . . . . . . . . . . . . . . D-9
Notes to Consolidated Financial Statements . . . . . . . . . . . D-17
Independent Auditors' Report . . . . . . . . . . . . . . . . . . D-37
Corporate Information. . . . . . . . . . . . . . . . . . . . . . D-38
<PAGE>
PRESIDENT'S MESSAGE TO OUR STOCKHOLDERS:
- -----------------------------------------------------------------------------
MBLA Financial Corporation
is pleased to announce another consecutive year of outstanding earnings.
- -----------------------------------------------------------------------------
Macon Building and Loan Association, F.A. officially became a subsidiary of
MBLA Financial Corporation when the Association converted to stock form on June
24, 1993. The Conversion to a stock form of organization occurred after 108
years of operation as a mutual state-chartered savings and loan association.
We wish to thank our officers and employees for their hard work and
dedication during this past year, for our profitable year and our "Outstanding"
rating as one of the highest capitalized savings and loans in the nation./1/
Earnings for the year ended June 30, 1998, were $1,884,000 or $1.44 per
share. This was an increase of 38% over the previous fiscal year. Our return on
assets for the year ended June 30, 1998 was .86% and our return on equity was
6.64%.
Our total assets as of June 30, 1998 were $203.2 million with loans
receivable of $136.6 million (an increase of $10.2 million) and deposits of
$115.3 million. Our stockholders' equity was $27.8 million or 13.70% of total
assets. The Association had regulatory capital ratios of tangible and core
capital to assets of 13.2% and risk-based capital of 32.1%. Our capital
percentages are among the highest of all banks and savings and loans in the
nation./1/
The Company's stock price closed at $24.75 at year end, which is 147% over
the initial offering price on June 24, 1993. In addition, the Company paid its
stockholders $ .50 per share in dividends during fiscal 1998. The Company's
book value at June 30, 1998 was $22.32 per share, an increase of $.34 per share.
During 1998 the Company repurchased 78,491 shares of its Common Stock for $2.048
million or an average of $26.09 per share.
At June 30, 1998, non-performing assets were $924,000, an increase of
$347,000 from June 30, 1997. Loan loss reserves at June 30, 1998 were $690,000
or 74.68% of non-performing loans.
We continue to look at ways to enhance shareholder value by increasing
profitability. We were pleased with our results in 1998 and we look forward to
a profitable year in 1999.
Sincerely,
/s/ John T. Neer
John T. Neer
President and Chief Executive Officer
/1/. Source -- Sheshunoff Corp.
D-1
<PAGE>
MANAGEMENT'S DISCUSSION
and Analysis of Financial Condition and
Results of Operation
General
- -------
MBLA Financial Corporation ("Company") is the savings and loan holding company
for Macon Building and Loan Association, F.A. (the "Association" or "Macon").
Apart from the operations of the Association, the Company did not engage in any
significant operations during the year ended June 30, 1998.
The business of the Association consists principally of attracting deposits from
the general public and using such deposits to purchase and originate mortgage
loans secured by one- to four-family residences. The servicing rights on
substantially all loans purchased by the Association are retained by the
sellers. In addition, the Association in vests in U.S. government and federal
agency securities and mortgage-backed and related securities, interest-earning
deposits and commercial and multi-family real estate loans and consumer loans.
The Association's profitability depends primarily on its net interest income
which is the difference between the income it receives on its loans and in
vestment portfolio and its cost of funds, which consists of interest paid on
deposits and other borrowed funds. Net interest income is also affected by the
relative amounts of interest-earning assets and interest-bearing liabilities.
When interest-earning assets approximate or exceed interest-bearing liabilities,
any positive interest rate spread will generate net interest income. To a lesser
extent, the Association's profitability is also affected by the level of other
income and non-interest expenses. Other income has not been significant. Other
expenses consists of compensation and benefits, occupancy related expenses,
deposit insurance premiums, losses on the sale of real estate acquired through
foreclosure and other operating expenses.
The Association's loan portfolio has increased to $136.6 million at June 30,
1998 from $126.4 million at June 30, 1997. The Association decreased its
investment in mortgage-backed and other investment securities in fiscal years
1998. While management cannot predict the duration of the increase in loan
demand, the Association will pursue other possible investment alternatives to
help diversify its portfolio while raising appropriate funds for these purposes.
The Association's operating strategies have been developed to respond to the
economic conditions prevailing in the Association's primary market area.
However, due to traditional low local loan demand, the Association has, for over
32 years, purchased the majority of its loans from selected mortgage banking
companies and financial institutions located primarily in Columbia, Boone
County, Missouri, and to a lesser extent other cities in central Missouri. The
sellers retain servicing rights on the loans purchased by the Association. By
extending its lending market area and employing alternative investment
opportunities, such as mortgage-backed and investment securities, the
Association has attempted to limit, and believes it has been successful in
limiting, the impact of low local loan demand on its results of operations.
The economy of Boone County depends primarily on the service and government
industries. The education industry also plays an important role in the economy
of Boone County as three colleges and universities are located there.
The population of Macon and Randolph Counties declined between 1980 and 1994 and
this trend is assumed to now be stabilized. In contrast, the population of Boone
County has grown faster than the
D-2
<PAGE>
state and national growth rates during the last thirteen years, and the
population of Boone County is expected to continue to grow. Boone County's per
capita income in 1996 was higher than the income levels for Macon and Randolph
Counties, but was still lower than the state and national per capita income
levels.
The Association continues to maintain a high level of asset quality and has
remained profitable notwithstanding the decline in the local economy and
traditional low demand for mortgage loans in its market area.
The operations of Macon are influenced significantly by local economic
conditions and by policies of financial institution regulatory agencies,
including the OTS and the FDIC. The Association's cost of funds is influenced
by interest rates on competing investments and general market interest rates.
Lending activities are affected by the demand for financing of real estate and
other types of loans, which in turn are affected by the interest rates at which
such financing may be offered. Historically, the Association has foregone
growth to maintain profitability.
The Association has employed various strategies intended to minimize the adverse
effect of interest rate risk on future operations by providing a close match
between the interest rate sensitivity of its assets and liabilities and by
expanding its activities which are not directly dependent on interest rate
spreads. The Association's strategies are intended to stabilize net interest
income for the long-term by protecting its interest rate spread against changes
in interest rates.
The Board of Directors has appointed an Asset/Liability Committee comprised of
the President and the entire Board of Directors. It is the responsibility of
this committee to manage the interest rate sensitivity of the Association's
balance sheet in order to minimize large fluctuations in the net income of the
Association. The Association utilizes adjustable rate mortgages ("ARMs") to
provide repricing opportunities more closely matched within the time frames in
which its deposits are repriced. The committee is charged with the
responsibility to manage interest rate risk while remaining sensitive to the
Board's directive that credit risk not be substituted for interest rate risk.
As a result of these efforts, approximately 87.78% of Macon's mortgage loan
portfolio as of June 30, 1998, consisted of ARMs, including ARMs secured by
commercial real estate.
The difference between the amount of interest-earning assets and interest-
bearing liabilities to be repriced during a specific time period is referred to
as the "GAP position." The amounts of assets or liabilities which mature or
reprice during a particular period are determined in accordance with the
contractual terms of the asset or liability but are not adjusted for loan
amortization. Adjustable rate loans and mortgage-backed securities are adjusted
for scheduled repayments and prepayments. The Association's passbook accounts
generally are subject to immediate withdrawal and are included in the three
months or less category on the Association's one year GAP projection. The GAP
position of the Association's assets and liabilities could vary substantially if
different assumptions were used.
The balance sheet structure poses a challenge of interest rate risk to the
management. The Association's one year GAP at June 30, 1998, was a negative
5.26% or $10.7 million.
The Association's one year GAP is reflected in the following table:
D-3
<PAGE>
Maturities
within
One Year
----------
Assets: $ 129,624,000
Liabilities: 140,352,000
-------------
GAP: $ -10,728,000
-------------
A negative one year GAP is defined to be the excess of interest-bearing
liabilities over interest-earning assets that mature or reprice in one year.
Generally, during a period of rising interest rates, a negative gap within a
given period of time would adversely affect net interest income, while a
positive gap within a given period of time would result in an increase in net
interest income; during a period of falling interest rates, a negative gap
within a given period of time would result in an increase in net interest income
while a positive gap within a given period of time would have the opposite
effect. Many factors affect the one-year GAP position which are beyond the
control of the Association such as regulatory policy changes and customer
reactions to interest rate changes. However, Macon believes that its
asset/liability management enables it, in part, to avoid large swings in the
profitability of the Association.
Effect of Inflation and Changing Prices
The Financial Statements and related data presented 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 changes in the relative purchasing power of money
over time due to inflation. The primary impact of inflation on the operations
of Macon is reflected in increased operating costs. Unlike most industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally have
a more significant impact on a financial institution's performance than does
inflation. Interest rates do not necessarily move the same direction or to the
same extent as the price of goods and services. However, long-term mortgage
rates, which are influenced by inflationary expectations, have a significant
impact on the types of loans originated. For example, ARMs are more acceptable
to the borrowing public during times of higher interest rates and are originated
to be retained for the loan portfolio by Macon. In the current interest rate
environment, liquidity and the maturity structure of Macon's assets and
liabilities are critical to the maintenance of acceptable performance levels.
Liquidity and Capital Resources
The Association's principal sources of funds are proceeds from maturities of
investment securities, principal payments received on mortgage-backed and
related securities, loan repayments and deposits.
The primary investing activities of the Association are originating and
purchasing loans and purchasing investments and mortgage-backed securities.
Proceeds from maturities of investment securities and principal payments
received on mortgage-backed and related securities provided $32.1 million of
liquidity for the year ended June 30, 1998. New loan closing exceeded
originations by $19.4 million.
The Association's most significant financing activities are deposit accounts,
FHLB borrowings, taxes and insurance on behalf of borrowers, and the payment of
dividends. During the year ended June 30, 1998, the Association repaid $44.2
million of FHLB advances while the net increase in deposits and escrow balances
was $13.3 million.
Federal regulations require the Association to maintain minimum levels of liquid
assets (i.e., cash and eligible investments). The required percentage has
varied from time to time based upon economic conditions and savings flows and is
currently 4% of the average daily balance of its net withdrawable savings
deposits and short-term borrowings. The Association attempts to maintain levels
of liquidity at levels in excess of those required by regulation. Maintaining
levels of liquidity acts, in part, to reduce the Association's balance sheet
exposure to interest rate risk. At June 30, 1998, the Associa-
D-4
<PAGE>
tion's liquidity ratio (liquid assets as a percentage of net withdrawable
savings deposits and short-term borrowings) was 5.59%.
The Association must also maintain adequate levels of liquidity to ensure the
availability of funds to satisfy loan commitments and deposit withdrawals. At
June 30, 1998, the Association had outstanding commitments to originate loans of
$9.5 million. At the same time, certificates of deposit which are scheduled to
mature in one year or less totalled $86.4 million. Based upon historical
experience, management believes the majority of maturing certificates of deposit
will remain with the Association. In addition, management of the Association
believes that it can adjust the offering rates of certificates of deposit to
retain deposits in changing interest rate environments. In the event that a
significant portion of these deposits are not retained by the Association, the
Association would be able to utilize FHLB advances to fund deposit withdrawals,
which would result in an increase in interest expense to the extent that the
average rate paid on such advances exceeds the average rate paid on deposits of
similar duration.
Management believes its ability to generate funds internally will satisfy its
liquidity requirements. If the Association requires funds beyond its ability to
generate them internally, it has the ability to borrow funds from the FHLB under
a blanket agreement which assigns all investments in FHLB stock as well as
qualifying first mortgage loans equal to 150% of the outstanding advances as
collateral to secure the amounts borrowed. At June 30, 1998, the Association
had approximately $71.6 million available to it under the above-mentioned
borrowing arrangement. At June 30, 1998, the Association had $58.6 in advances
from the FHLB.
The Association is required to maintain specific amounts of capital pursuant to
OTS regulations on minimal capital standards. As of June 30, 1998, the
Association complied with all regulatory capital requirements as of that date
with tangible and risk-based capital ratios of 13.2% and 31.2% respectively.
For a detailed discussion of regulatory capital requirements, see "REGULATION --
Federal Regulation of Savings Associations -- Capital Requirements."
Comparison of Operating Results for the Years Ended June 30, 1998 and 1997
Net Income. Net income for fiscal 1998 increased $443,000 from fiscal 1997.
- ----------
The increase in net income primarily resulted from an increase in mortgage
lending activity and was offset somewhat from a decrease in mortgage-backed and
related securities activity and a decrease in SAIF deposit insurance premiums.
Interest rates remained stabilized on interest-earning assets and interest-
bearing liabilities during the period.
Interest Income. Interest income increased $238,000 for fiscal year 1998 due
- ---------------
primarily to increased mortgage loan activity. The higher balance of loans
outstanding during fiscal 1998 reflects an increase in deposit growth, improved
local loan demand and a continued volume of purchased loans. Total loans
originated and purchased during fiscal 1998 increased loans outstanding by $10.1
million. During this period, the Association reduced its mortgage-backed
securities portfolio by $20.7 million.
Interest Expense: Interest expense for fiscal 1998 was $10.7 million as
- ----------------
compared to $10.4 million for fiscal 1997. The increase in interest expense was
primarily due to the increase in deposits and off-set by the decrease in Federal
Home Loan Bank advances. The average cost of deposits increased from 5.52% for
fiscal 1997 to 5.65% for fiscal 1998. Due to current interest rates, customers
continue to move funds into shorter term certificates of deposit.
Net Interest Income. Net interest income for fiscal 1998 remained relatively at
- -------------------
the same level as fiscal year 1997.
D-5
<PAGE>
Although the Association's mortgage loan activity increased during fiscal 1998,
net interest income decreased due to a decrease in mortgage-backed and related
securities.
Provisions for Loan Losses. During fiscal 1998, the Association decreased its
- --------------------------
provision for loan losses to $60,000 from $95,000 in fiscal 1997. The loan loss
allowance was at $690,000 at June 30, 1998. The Association has historically
experienced low losses. However, no assurances can be given as to future loss
levels. The Association's policy requires that a loan loss provision be equal to
1/2 of 1% of outstanding mortgage loans.
Other Income. Other income for fiscal 1998 totalled $44,000 as compared to
- ------------
$10,000 for fiscal 1997. Other income is not considered a significant part of
the total income of the Association.
Other Expense. Other expenses during fiscal 1998 were $1.6 million as compared
- -------------
to $2.1 million for fiscal 1997. The decrease of approximately $480,000 was due
to the decrease in the SAIF deposit insurance of accounts premium offset by a
slight increase in compensation and benefits.
Income Taxes. The provision for federal and state income taxes increased
- ------------
$93,000 to $1.1 million in fiscal 1998 from $1.0 million in fiscal 1997. The
effective tax rate was 36.4% in fiscal 1998 as compared to 40.6% in fiscal 1997.
Comparison of Operating Results for the Years Ended June 30, 1997 and 1996
Net Income. Net income for fiscal 1997 increased $48,000 from fiscal 1996.
- ----------
The increase in net income primarily resulted from increased loan activity and
investments. During the period, interest rates in general decreased on
interest-earning assets and interest-bearing liabilities; net interest income
increased by $793,000. In addition, non-interest expenses increased for deposit
insurance.
Interest Income. Interest income increased $1.64 million or 12.2%, to $15.04
- ---------------
million for fiscal 1997 from $13.40 million for fiscal 1996. This increase
resulted from an increase in the interest on mortgage loans, investment and
related securities. Interest on loans in- creased by $932,000 or 12.73% to $8.3
million in fiscal 1997. The higher balance of loans outstanding during fiscal
1997 reflects an increase in refinancing of purchased mortgage loans and a
continued volume of purchased loans. Total mortgage loans originated and
purchased during fiscal 1997 were $33.5 million compared to $17.5 million in
fiscal 1996. Management believes that this trend of increased mortgage lending
activity for the Association's portfolio will continue based on continued higher
loan activity and the Association's desire to originate adjustable rate
mortgages. During this period, the Association continued investing in mortgage-
backed and other related securities in order to obtain higher interest rates
than what were provided by short-term liquid investments.
Interest Expense. Interest expense for fiscal 1997 was $10.4 million as
- ----------------
compared to $9.6 million for fiscal 1996, an increase of $ .8 million, or 8.83%.
The increase resulted from an increase in borrowed money. The average cost of
deposits increased from 5.47% during fiscal 1996 to 5.52% for fiscal 1997. The
level of deposits increased $15.2 million or 17.58% to $102.0 million in fiscal
1997 over the fiscal 1996 level of $86.7 million. Due to current interest
rates, customers moved more funds into shorter-term certificates of deposits.
In addition, passbook accounts continued to further deteriorate.
Net Interest Income. Net interest income for fiscal 1997 increased $793,000 or
- -------------------
20.8% over fiscal 1996. Net interest income increased during this period, due
to an increase in mortgage loan interest income. This was a result of the
increase in refinancing due to lower
D-6
<PAGE>
interest rates and increased purchased loans and mortgage-backed and related
securities.
Provision for Loan Losses. During fiscal 1997, the Association made a $95,000
- -------------------------
additional provision for loan losses. The loan loss allowance was at $630,000
at June 30, 1997. The Association historically experienced low loan losses.
No answers, however, can be given as to future loss levels. However, the
Association's policy requires that a loan loss provision be equal to 1/2 of 1%
of outstanding mortgage loans.
Other Income. Other income for fiscal 1997 totalled $10,000 as compared to
- ------------
$21,000 for fiscal 1996. Other income is not considered a significant part of
the total income of the Association.
Other Expenses. Other expenses during fiscal 1997 were $2.09 million as
- --------------
compared to $1.54 million for fiscal 1996. The increase of approximately
$550,000 in fiscal 1997 reflects an increase due to a one-time SAIF insurance
assessment of $558,000.
Income Taxes. The provision for federal and state income taxes increased
- ------------
$88,000 to $986,000 in fiscal 1997 from $898,000 in fiscal 1996, primarily as a
result of lower earnings. The effective tax rate was 40.6% in fiscal 1997 as
compared to 39% in fiscal 1996.
Capital Requirements
At June 30, 1998, the Association exceeded each of its capital requirements.
The decrease in capital levels are attributed to the Association's continued
effort to leverage its capital. This was mentioned in the "Liquidity and
Capital Resources" section of Management's Discussion and Analysis. See
"Capital Levels" graph which sets forth in terms of percentages the OTS
tangible, leverage and risk-based capital requirements for the Association.
Effect of Stock Repurchase
The effect of the Company's stock repurchases resulting in ownership of Treasury
stock, would be reflected in a possible increase in earnings per share and the
possibility of an increase in book value of the remaining shares outstanding,
depending on the price paid for the shares repurchased. Stock repurchases would
also reduce the company's capital ratio to assets.
Year 2000
The Year 2000 issue exists because many computer systems and applications use
two-digit date fields to designate a year. As the century date change occurs,
date-sensitive systems may recognize the Year 2000 as 1900, or not at all. This
inability to recognize or properly treat the Year 2000 may cause systems to
process financial and operational information incorrectly. The Association has
been in contact with their data processing service provider. Their tentative
Year 2000 testing schedule begins in September 1998 and continues through
January 1999. As of this date, the Association expects a cost of no more than
$25,000 to be Year 2000 compliant.
The Association has contacted software vendors and does not foresee any major
capital expenditures. In-house testing of major software packages the
Association utilizes (as well as Association hardware) have been initiated and
expect to be completed by March 31, 1999. The Association should have all
testing completed by June 30, 1999.
D-7
<PAGE>
<TABLE>
<CAPTION>
CAPITAL LEVELS AS OF JUNE 30, 1998
(Thousands of Dollars)
Tangible Core Risk-Based
-------- ------- ----------
<S> <C> <C> <C>
Required $ 3,420 $ 8,099 $ 6,840
Actual $26,716 $26,716 $27,406
</TABLE>
SUMMARY OF HISTORICAL NET INCOME
NET INCOME
(Thousands of Dollars)
1998 - $1,884
1997 - $1,441
1996 - $1,393
1995 - $1,452
1994 - $1,231
1993 - $1,012
1992 - $1,246
1991 - $1,303
1990 - $1,233
NET INCOME FOR FISCAL YEAR ENDING
D-8
<PAGE>
See accompanying notes to consolidated financial statements.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
At or for the Year Ended June 30,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets $203,228 $234,823 $201,039 $197,252 $129,211
Loans receivable, net 136,647 126,448 106,485 104,700 92,949
Interest-earning deposits 3,055 4,484 4,811 2,390 3,599
Investment securities (2) 9,770 27,039 12,437 14,604 15,294
Mortgage-backed securities,
net (2) 48,226 68,975 71,129 69,482 14,722
Foreclosed real estate -- -- 23 -- 3
Deposits 115,330 101,959 86,716 85,162 88,380
Federal Home Loan Bank
Advances 58,640 102,870 85,086 81,787 10,475
Earnings per Share --
Basic (3) 1.52 1.11 1.03 .99 .73
Dividends per Share .50 .40 .40 .40 .40
Stockholders' Equity
(1)(2) 27,841 28,536 28,067 29,088 28,697
Selected Operating Data:
Interest Income $ 15,278 $ 15,040 $ 13,400 $ 11,190 $ 7,807
Interest expense on
deposits and
borrowed funds 10,688 10,436 9,589 7,220 4,097
-------- -------- -------- -------- --------
Net interest income 4,590 4,604 3,811 3,970 3,710
Less provision for loan
losses 60 95 -- 115 75
Net interest income -------- -------- -------- -------- --------
after provision
for loan losses 4,530 4,509 3,811 3,855 3,635
-------- -------- -------- -------- --------
Non-interest income:
Loan origination fees -- -- -- -- 5
Net gain on sale of
investment securities 14 -- 10 -- --
Other 30 10 11 14 19
-------- -------- -------- -------- --------
Total non-interest income 44 10 21 14 24
-------- -------- -------- -------- --------
Non-interest expense:
Compensation and benefits 1,099 927 991 878 981
Office occupancy and
equipment 84 81 80 99 86
Federal deposit insurance
premiums 127 740 252 240 244
Loss (gain) from
foreclosed real estate
activities -- 10 14 6 (1)
Net loss on sale of
investment securities -- 59 -- -- --
Data processing 70 56 52 58 57
Other 231 219 152 203 274
Total non-interest -------- -------- -------- -------- --------
expense 1,611 2,092 1,541 1,484 1,641
-------- -------- -------- -------- --------
Income before income taxes 2,963 2,427 2,291 2,385 2,018
Income tax expense 1,079 986 898 933 787
-------- -------- -------- -------- --------
Net income $ 1,884 $ 1,441 $ 1,393 $ 1,452 $ 1,231
======== ======== ======== ======== ========
</TABLE>
(1) The Association may not pay dividends to the Company on its stock if its
regulatory capital would thereby be reduced below (i) the aggregate amount
then required for the liquidation account, or (ii) the amount of its
regulatory capital requirements.
(2) Investment securities, mortgage-backed securities and stockholders' equity
have been adjusted to reflect the adoption of FAS 115 during fiscal year
ended June 30, 1994.
(3) Earnings per Share - basic have been restated for 1994 through 1997 to
reflect SFAS No. 28, "Earnings Per Share".
D-9
<PAGE>
SUMMARY OF UNAUDITED QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
Year Ended June 30, 1998 Year Ended June 30, 1997
--------------------------------------------- ------------------------------------------
(Dollars in Thousands, Except for Per Share Data)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
------- ------- ------- ------- ----- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $3,991 $3,936 $3,816 $3,535 $15,278 $3,504 $4,061 $3,539 $3,936 $15,040
Interest expense 2,798 2,768 2,652 2,470 10,688 2,418 2,785 2,511 2,722 10,436
------ ------ ------ ------ ------- ------ ------ ------ ------ -------
Net interest income
before provision
for loan losses 1,193 1,168 1,164 1,065 4,590 1,086 1,276 1,028 1,214 4,604
Provision for loan
losses 15 15 15 15 60 20 5 15 55 95
------ ------ ------ ------ ------- ------ ------ ------ ------ -------
Net interest income
after provision
for loan losses 1,178 1,153 1,149 1,050 4,530 1,066 1,271 1,013 1,159 4,509
Gain (loss) on sale
of assets -- 14 -- -- 14 -- -- (59) -- (59)
Income (loss) from real
estate operation -- -- -- -- -- -- -- -- -- --
Other income 4 1 10 15 30 -- 5 5 -- 10
Non-interest expense 341 377 502 391 1,611 925 419 333 356 2,033
------ ------ ------ ------ ------- ------ ------ ------ ------ -------
Income (loss)
before tax 841 791 657 674 2,963 141 857 626 803 2,427
Income tax expense 336 317 152 274 1,079 35 335 255 361 986
------ ------ ------ ------ ------- ------ ------ ------ ------ -------
Net income (loss) $ 505 $ 474 $ 505 $ 400 $ 1,884 $ 106 $ 522 $ 371 $ 442 $ 1,441
====== ====== ====== ====== ======= ====== ====== ====== ====== =======
Earnings per share --
basic 0.40 0.38 0.41 0.33 1.52 0.08 0.40 0.29 0.34 1.11
Earnings per share --
diluted 0.38 0.36 0.39 0.31 1.44 0.08 0.37 0.27 0.32 1.04
</TABLE>
D-10
<PAGE>
SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>
At or for the Year Ended June 30,
-------------------------------------------
1998 1997 1996 1995 1994
-------- ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND
OTHER DATA:
Return on average assets 0.86% 0.67% 0.70% 0.87% 1.00%
Return on average retained earnings 6.64 7.93 8.08 8.79 7.71
Average retained earnings to
average assets 12.97 8.40 8.68 9.88 12.93
Retained earnings to total assets 9.36 7.89 8.79 8.52 12.33
Interest rate spread during period 1.40 1.44 1.09 1.51 2.03
Net interest margin 2.12 2.15 1.94 2.40 3.08
Operating expenses to average
assets .74 0.97 0.78 0.89 1.33
Net interest income to operating
expenses 284.82 220.13 247.31 267.47 226.01
Non-performing loans (1) to
total loans .68 0.46 0.62 0.41 0.25
Non-performing assets (2)
to total assets .45 0.25 0.34 0.22 0.18
Allowance for loan losses to
non-performing loans (1) 74.68 109.19 80.69 126.16 185.39
Allowance for loan losses to
non-performing assets (2) 74.68 109.19 77.99 126.16 183.39
Allowance for loan losses
to total loans .50 0.50 0.50 0.51 0.46
Average interest-earning
assets to average interest-
bearing liabilities 114.66 114.48 117.52 120.32 130.81
Dividend payout ratio 32.9 38.5 41.2 43.1 55.6
Loan originations $ 7,286 $ 1,751 $ 1,283 $ 2,432 $ 3,350
Loan Purchase $29,702 $32,213 $16,503 $22,706 $35,891
Number of:
Deposit account $ 7,686 $ 7,477 $ 6,749 $ 6,922 $ 7,352
Full-service customer
service facilities 2 2 2 2 2
</TABLE>
(1) Non-performing loans consist of loans delinquent 90 days or more.
(2) Includes non-performing loans and real estate acquired through
foreclosure.
D-11
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30,
-----------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
ASSETS
Cash on hand and noninterest-earning deposits $ 580 $ 230
Interest-earning deposits in other institutions 3,055 4,484
Investment securities (Note 2)
Securities available-for-sale, at fair value 9,770 27,039
Mortgage-backed securities (Note 3)
Securities available-for-sale, at fair value 48,226 68,975
Loans receivable, net (Notes 4 and 15) 136,647 126,448
Accrued interest receivable (Note 5) 1,162 1,595
Investment required by law --
Stock in Federal Home Loan Bank, at cost 3,134 5,652
Real estate owned --- ---
Premises and equipment (Note 6) 282 308
Other assets 372 92
-------- --------
Total assets $203,228 $234,823
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 7) $115,330 $101,959
Federal Home Loan Bank advances (Note 8) 58,640 102,870
Advances from borrowers for taxes and insurance 165 171
Income taxes liability (Note 10) 541 590
Accrued expenses and other liabilities 711 697
-------- --------
Total liabilities 175,387 206,287
-------- --------
Commitments and contingencies (Note 13)
Preferred stock, $.01 par value; authorized
500,000 shares; none outstanding -- --
Common stock $.01 par value; authorized
2,500,000 shares, issued 1,765,211
shares in 1998 and 1,738,111 shares in 1997 17 17
Additional paid-in capital 17,526 16,944
Retained earnings, substantially restricted 19,022 18,535
Less:
Treasury stock, 518,190 shares in 1998,
439,699 shares in 1997, at cost (9,395) (7,347)
Unrealized gain (loss) on securities
available-for-sale, net of applicable
deferred income taxes 859 727
Common stock acquired by the ESOP (Note 9) (188) (282)
Common stock awarded by Association Recognition
and Retention Plan (Note 9) -- (58)
-------- --------
Total stockholders' equity 27,841 28,536
-------- --------
Total liabilities and stockholders' equity $203,228 $234,823
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
D-12
<PAGE>
For the Three Years Ended June 30, 1998
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended June 30
-----------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Interest income:
Loans receivable (Note 4) $ 9,619 $ 8,254 $ 7,322
Investment securities and FHLB stock 1,118 1,860 1,040
Mortgage-backed and related securities 4,210 4,729 4,768
Other interest-earning assets 331 197 270
------- ------- -------
Total interest income 15,278 15,040 13,400
------- ------- -------
Interest expense:
Deposits (Note 7) 6,135 5,107 4,678
Federal Home Loan Bank advances 4,553 5,329 4,911
------- ------- -------
Total interest expense 10,688 10,436 9,589
------- ------- -------
Net interest income 4,590 4,604 3,811
Provision for loan losses (Note 4) 60 95 --
------- ------- -------
Net interest income after provision for
loan losses 4,530 4,509 3,811
------- ------- -------
Noninterest income:
Other (Note 12) 44 10 21
------- ------- -------
Total noninterest income 44 10 21
------- ------- -------
Noninterest expense:
Compensation and benefits (Note 9) 1,099 927 991
Occupancy and equipment (Note 6) 84 81 80
SAIF deposit insurance premiums 127 740 252
Loss (gain) on sale of real estate owned -- 10 14
Net loss on sale of mortgage-backed
securities -- 59 --
Other (Note 12) 301 275 204
------- ------- -------
Total noninterest expense 1,611 2,092 1,541
------- ------- -------
Income before income taxes 2,963 2,427 2,291
Income tax expense (Note 10) 1,079 986 898
------- ------- -------
Net income $ 1,884 $ 1,441 $ 1,393
======= ======= =======
Earnings per share -- basic $ 1.52 $ 1.11 $ 1.03
Earnings per share -- diluted $ 1.44 $ 1.04 $ .97
</TABLE>
See accompanying notes to consolidated financial statements.
D-13
<PAGE>
For the Three Years Ended June 30, 1998
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Three Years Ended June 30, 1998
------------------------------------------------------------------------
(In Thousands)
Unrealized
Gain (Loss)
on
Securities
Available-
for-Sale,
Net of
Applicable Common Common
Additional Deferred Stock Stock
Common Paid-In Retained Treasury Income Acquired Awarded
Stock Capital Earnings Stock Taxes by ESOP by RRP Total
----- ------ -------- -------- -------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 $17 $16,615 $16,806 $(3,667) $198 $(524) $(357) $29,088
Additions (deductions) for the
year ended June 30, 1996:
Net income -- -- 1,393 -- -- -- -- 1,393
Stock options exercised -- -- -- -- -- -- -- --
Dividends declared ($.40
per share) -- -- (534) -- -- -- -- (534)
Compensation expense related
to ESOP -- 120 -- -- -- -- -- 120
Deferred tax on RRP -- 19 -- -- -- -- -- 19
Reduction of employee stock
ownership plan obligation -- -- -- -- -- 134 -- 134
Amortization of executive
stock plan -- -- -- -- -- -- 149 149
Purchase of treasury stock
(126,664 shares) -- -- -- (2,257) -- -- -- (2,257)
Change in unrealized gain
(loss) on securities
available-for-sale, net
of deferred income tax of
$26,000 -- -- -- -- (45) -- -- (45)
--- ------- ------- ------- ---- ----- ----- -------
Balance, June 30, 1996 17 16,754 17,665 (5,924) 153 (390) (208) 28,067
=== ======= ======= ======= ==== ===== ===== =======
Additions (deductions) for
the year ended June 30, 1997:
Net income -- -- 1,441 -- -- -- -- 1,441
Stock options retired -- -- (58) -- -- -- -- (58)
Dividends declared ($.40
per share) -- --- (513) -- -- -- -- (513)
Compensation expense related
to ESOP -- 119 -- -- -- -- -- 119
Deferred tax on RRP -- 71 -- -- -- -- -- 71
Reduction of employee stock
ownership plan obligation -- -- -- -- -- 108 -- 108
Amortization of executive stock
plan -- -- -- -- -- -- 150 150
Purchase of treasury stock
(66,699 shares) -- -- -- (1,423) -- -- -- (1,423)
Change in unrealized gain
(loss) on securities
available-for-sale,
net of deferred income
tax of $337,000 -- -- --- -- 574 -- -- 574
--- ------- ------- ------- ---- ----- ----- -------
Balance, June 30, 1997 17 16,944 18,535 (7,347) 727 (282) (58) 28,536
=== ======= ======= ======= ==== ===== ===== =======
Additions (deductions) for the
year ended June 30, 1998:
Net income -- -- 1,884 -- -- -- -- 1,884
Stock options exercised -- 270 -- -- -- -- -- 270
Stock options retired -- -- (779) -- -- -- -- (779)
Dividends declared ($.50
per share) -- -- (618) -- -- -- -- (618)
Compensation expense related
to ESOP -- 151 -- -- -- -- -- 151
Deferred tax on RRP -- 73 -- -- -- -- -- 73
Reduction of employee stock
ownership plan obligation -- -- -- -- -- 94 -- 94
Amortization of executive
stock plan -- 88 -- -- -- -- 58 146
Purchase of treasury stock
(78,491 shares) -- -- -- (2,048) -- -- -- (2,048)
Change in unrealized gain
(loss) on securities
available-for-sale, net
of deferred income tax of
$77,000 -- -- -- -- 132 -- -- 132
--- ------- ------- ------- ---- ----- ----- -------
Balance, June 30, 1998 $17 $17,526 $19,022 $(9,395) $859 $(188) $ -- $27,841
=== ======= ======= ======= ==== ===== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
D-14
<PAGE>
For the Three Years Ended June 30, 1998
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,884 $ 1,441 $ 1,393
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Provision for loan losses 60 95 --
Net loss (gain) on sale of
real estate owned -- 10 14
(Gain) loss on sale of
mortgage-backed securities (14) 59 (10)
Depreciation 48 45 42
Amortization of premiums and discounts (22) (58) (79)
RRP compensation expense 135 38 87
FHLB stock dividend -- -- (82)
Decrease (increase) in interest receivable 433 (443) (12)
Decrease (increase) in other assets (279) 42 35
Increase (decrease) in income tax payable (126) 13 77
Increase (decrease) in other liabilities 26 33 7
Excess of fair value over cost of ESOP
unallocated shares 151 118 121
Deferred tax on RRP 73 72 19
-------- -------- --------
Net cash provided by operating
activities 2,369 1,465 1,612
-------- -------- --------
Cash flows from investing activities:
Loans purchased (29,702) (32,213) (16,503)
(Increase) decrease in loans, net 19,443 12,126 14,613
Proceeds from maturities of investment
securities 27,992 31,927 9,669
Sale of investment securities 1,174 -- --
Proceeds from sale of mortgage-backed
securities 3,891 16,516 3,510
Mortgage-backed securities called 17,000 -- --
Purchase of investment securities
and FHLB stock (11,915) (47,799) (7,556)
Principal collected on repayments and
maturities of mortgage-backed and
related securities 4,119 3,431 5,955
Purchase of mortgage-backed and
related securities (4,000) (17,000) (11,007)
Proceeds from the sale of real estate owned -- 42 66
FHLB stock redeemed 2,518 -- --
Purchase of equipment (22) (69) (13)
-------- -------- --------
Net cash provided (used) by
investing activities 30,498 (33,039) (1,266)
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
D-15
<PAGE>
For the Three Years Ended June 30, 1998
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from the issuance of common
stock $ 271 $ -- $ --
Purchase of treasury stock (2,048) (1,423) (2,257)
Net increase (decrease) in deposits 13,371 15,243 1,553
Stock options retired (779) (58) --
Net increase (decrease) in advances from
borrowers for taxes and insurance (6) 15 (42)
Dividends paid (618) (513) (534)
Proceeds from FHLB advances 62,000 18,000 7,000
Principal payments on FHLB advances (106,231) (215) (3,701)
Unearned ESOP compensation decrease 94 108 135
--------- ------- -------
Net cash provided (used) by financing
activities (33,946) 31,157 2,154
--------- ------- -------
Increase (decrease) in cash and
cash equivalents (1079) (417) 2,500
Cash and cash equivalents at beginning
of period 4,714 5,131 2,631
--------- ------- -------
Cash and cash equivalents at end of period $ 3,635 $ 4,714 $ 5,131
========= ======= =======
Supplemental cash flow disclosures:
Cash paid for:
Interest $ 1,955 $ 1,800 $ 1,757
========= ======= =======
Income taxes $ 1,133 $ 903 $ 802
========= ======= =======
Noncash activity:
Loans transferred to real estate owned $ -- $ 30 $ 103
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
D-16
<PAGE>
June 30, 1998, 1997 and 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
- ----------------------------------------------------------------------------
MBLA Financial Corporation (the "Company") is a Delaware corporation
incorporated February 23, 1993, for the purpose of being the savings and loan
holding company for Macon Building and Loan Association, F.A. (the
"Association").
The Association provides financial services to individuals and corporate
customers, and is subject to competition from other financial institutions. The
Association is also subject to the regulations of certain Federal agencies and
undergoes periodic examination by those regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION
- ------------------------------------------------------------------------------
The accompanying consolidated financial statements include the accounts of the
Company, and its wholly-owned subsidiary, Macon Building and Loan Association,
F.A., and MBL Financial Services, Inc., the Association's wholly owned
subsidiary. All significant intercompany transactions and balances are
eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
statement of financial condition and revenues and expenses for the year. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Association's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Association to recognize additions to the allowances
based on their judgements about information available to them at the time of
their examination.
CASH EQUIVALENTS
- -----------------------------------------------------------------------------
Cash equivalents of $3.6 million and $4.7 million at June 30, 1998 and 1997,
respectively, consist of cash on hand and funds due from banks. For purposes of
the statements of cash flows, the Association considers all highly liquid debt
instruments with original maturities when purchased of three months or less to
be cash equivalents.
INVESTMENT SECURITIES
- ------------------------------------------------------------------------------
Investment securities that are held for short-term resale are classified as
trading securities and are carried at fair value. Debt securities that
management has the ability and intent to hold to maturity are classified as
held-to-maturity and are carried at cost, adjusted for amortization of premium
and accretion of discounts using methods approximating the interest method.
Other marketable securities are classified as available-for-sale and are carried
at fair value. Realized and unrealized gains and losses on trading securities
are included in net income. Unrealized gains and losses, net of tax, on
securities available-for-sale are recognized as direct increases or decreases in
stockholders' equity. Cost of securities sold is determined using the specific
identification method.
MORTGAGE-BACKED AND RELATED SECURITIES
- ------------------------------------------------------------------------------
Mortgage-backed securities represent participating interest in pools of long-
term first mortgage loans originated and serviced by issuers of the securities.
Mortgage-backed securities are classified as available for sale and are carried
at fair value. Premiums and discounts are amortized using methods approximating
the interest method over the remaining period to contractual maturity, adjusted
for anticipated prepayments. The Company evaluates mortgage-backed securities on
a monthly basis to monitor prepayments and the resulting effects on yields and
valuations. Management considers the concentration of credit risk to be minimal
on mortgage-backed securities because all such securities are guaranteed as to
timely payment of principal and interest by FNMA, FHLMC or GNMA. Should any be
sold, gains and losses are recognized based on the specific-identification
method. All sales are made without recourse.
At June 30, 1998 and 1997, the Company had no outstanding commitments to sell
loans or securities.
Equity securities that are nonmarketable are carried at cost. Nonmarketable
equity securities held by the Association consists of stock in the Federal Home
Loan Bank. The Association, as a member of the Federal Home Loan Bank system, is
required to maintain an investment in capital stock of the Federal Home Loan
Bank in an amount based on its outstanding loans and advances.
D-17
<PAGE>
June 30, 1998, 1997 and 1996
No ready market exists for the Bank stock and they have no quoted market
value. For reporting purposes, these investments are assumed to have a market
value equal to cost.
LOANS RECEIVABLE
- ------------------------------------------------------------------------------
Loans receivable are stated at unpaid principal balances, less the allowance
for loan losses, and net deferred loan origination fees and costs.
PROVISIONS OF LOSSES ON LOANS AND INTEREST RECEIVABLE
- --------------------------------------------------------------------------------
Provision for losses on loans receivable are based upon management's estimate
of the amount required to maintain an adequate allowance for losses, relative to
the risks in the loan portfolio. The estimate is based on reviews of the
portfolio, including assessment of the carrying value of the loans to the
estimated net realizable value of the related underlying collateral, considering
past loss experience, current economic conditions and such other factors which,
in the opinion of management, deserve current recognition. The Association is
subject to the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities. As an integral part of those
examinations, the various regulatory agencies periodically review the
Association's allowance for loan losses. Such agencies may require the
Association to recognize changes to the allowance based on their judgements
about information available to them at the time of their examination.
Accrual of interest income on loans is discontinued for those loans with i
interest more than ninety days delinquent or sooner if management believes
collectibility of the interest is not probable. Management's assessment of
collectibility is primarily based on a comparison of the estimated value of
underlying collateral to the related loan and accrued interest receivable
balances.
Financial accounting standards define the recognition criteria for loan
impairment and the measurement methods for certain impaired loans and loans for
which terms have been modified in troubled-debt restructurings (a restructured
loan). Specifically, a loan is considered impaired when it is probable a
creditor will be unable to collect all amounts due - both principal and interest
- - according to the contractual terms of the loan agreement. When measuring
impairment, the expected future cash flows of an impaired loan are required to
be discounted at the loan's effective interest rate. Alternatively, impairment
can be measured by reference to an observable market price, if one exists, or
the fair value of the collateral for a collateral-dependent loan.
Regardless of the historical measurement method used, a creditor is required
to measure impairment based on the fair value of the collateral when the
creditor determines foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected future cash
flows at the loan's effective rate of interest as stated in the original loan
agreement.
The Association applies the recognition criteria to multifamily real estate
loans, commercial real estate loans and restructured loans. Smaller balance,
homogeneous loans, including one-to-four family residential and construction
loans and consumer loans, are collectively evaluated for impairment. A creditor
is allowed to use existing methods for recognizing interest income on impaired
loans. The Association has elected to continue to use its existing nonaccrual
methods for recognizing interest on impaired loans.
LOAN ORIGINATION FEES, COMMITMENT FEES, AND RELATED COSTS
- -------------------------------------------------------------------------------
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized as an adjustment to interest income using the interest
method over the contractual life of the loans, adjusted for prepayments.
FORECLOSED REAL ESTATE
- -------------------------------------------------------------------------------
Real estate properties acquired through, or in lieu of, loan foreclosures are
initially recorded at the estimated fair value less estimated selling costs at
the date of foreclosure. Costs relating to development and improvement of
property are capitalized, whereas costs relating to the holding of property are
expensed.
Valuations are periodically performed by management, and losses are charged to
operations if the carrying value of a property exceeds its estimated net
realizable value.
All foreclosed real estate owned is held for sale.
D-18
<PAGE>
June 30, 1998, 1997 and 1996
INCOME TAXES
- --------------------------------------------------------------------------------
The Company files a consolidated federal income tax return with the
Association. The provision for federal and state taxes on income is based on
earnings reported in the financial statements.
Deferred income taxes arise from temporary differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities.
An asset and liability approach is used for financial accounting and reporting
of income taxes which, among other things, requires the Company to take into
account changes in the tax rates when valuing the deferred income tax accounts
recorded on the balance sheet. A deferred tax liability or asset is recognized
for the estimated future tax effects attributable to temporary differences and
loss carryforwards. Temporary differences include differences between financial
statement income and tax return income which are expected to reverse in future
periods as well as differences between the tax bases of assets and liabilities
and their amounts for financial reporting which are also expected to be settled
in future periods. To the extent a deferred tax asset is established which is
not realizable, a valuation allowance shall be established against such asset.
PREMISES AND EQUIPMENT
- ------------------------------------------------------------------------------
Land is carried at cost. Buildings, furniture, fixtures, and equipment are
carried at cost, less accumulated depreciation and amortization. Buildings and
furniture, fixtures, and equipment are depreciated using straight-line and
accelerated methods over the estimated useful lives of the assets.
EARNINGS PER SHARE
- -------------------------------------------------------------------------------
Earnings per share has been computed in accordance with Financial Accounting
Standards Board Statement No. 128 (SFAS No.128). This Statement, which is
effective for periods ending after December 15, 1997, requires disclosure of
basic earnings per share and diluted earnings per share, and also requires
restatement of earnings per share data for prior periods. Basic earnings per
share was computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the periods. Diluted
earnings per share reflects the potential dilution that could occur if stock
options were converted into common stock under the treasury stock method.
The following shows the amounts used in computing earnings per share and the
effect on income and the weighted average number of shares of dilutive potential
common stock. The earnings per share information for 1997 have been restated
from the amounts previously reported to comply with SFAS No. 128.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------- -------------------------------- --------------------------------
Per- Per- Per-
Income Shares Share Income Shares Share Income Shares Share
(numerator) (denominator) Amount (numerator) (denominator) Amount (numerator) (denominator) Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS Net Income $1,884,000 1,240,977 $1.52 $1,441,000 1,303,465 $1.11 $1,393,000 1,353,576 $1.03
===== ===== =====
Effect of Dilutive
Securities stock options -- 65,181 -- -- 76,404 -- -- 71,293 --
---------- --------- ---------- --------- ---------- ---------
Diluted EPS Net Income
and assumed conversions $1,884,000 1,306,158 $1.44 $1,441,000 1,379,869 $1.04 $1,393,000 1,424,869 $ .97
========== ========= ===== ========== ========= ===== ========== ========= =====
</TABLE>
NOTE 2: INVESTMENT SECURITIES
Securities available-for-sale consist of the following:
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------------
Gross Gross
Amor- Unrea- Unrea-
tized lized lized Fair
Cost Gains Losses Value
-------- ------ ------- --------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government and federal agencies $ 9,745 $26 $(1) $ 9,770
======= === === =======
<CAPTION>
June 30, 1997
-----------------------------------
Gross Gross
Amor- Unrea- Unrea-
tized lized lized Fair
Cost Gains Losses Value
-------- ------ ------- --------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government and federal agencies $26,971 $76 $(8) $27,039
======= === === =======
</TABLE>
D-19
<PAGE>
June 30, 1998, 1997 and 1996
The following is a summary of maturities of investment securities available-for-
sale as of June 30:
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(In thousands)
<S> <C> <C> <C> <C>
Amounts maturing in:
One year or less $5,996 $6,015 $ 5,991 $ 5,991
After one year through five years 3,749 3,755 5,980 5,993
After five years through ten years -- -- 15,000 15,055
------- ------ ------- -------
$9,745 $9,770 $26,971 $27,039
====== ====== ======= =======
</TABLE>
There were no sales of investment securities during the years ended June 30,
1998, 1997, or 1996.
U.S. Government and federal agency securities with fair value of $501,400 were
pledged to collateralized short-term loans from the Federal Home Loan Bank of
$58,640,000 at June 30, 1997. (See Note 8.) Additionally, $5,013,000 of U.S.
Government and federal agency securities were pledged to collateralize customer
deposit accounts of $5,118,000 at June 30, 1998.
NOTE 3: MORTGAGE-BACKED AND RELATED SECURITIES
<TABLE>
<CAPTION>
June 30, 1998
---------------------------------------------
Gross Gross
Unrea- Unrea-
Amortized lized lized Fair
Cost Gains Losses Value
-------- ------ ------ -------
(In thousands)
<S> <C> <C> <C> <C>
FHLMC-REMIC $27,064 $1,010 $ (8) $28,066
FNMA-REMIC 6,278 144 (27) 6,395
GNMA ARM certificate 12,400 193 -- 12,593
FHLMC certificates 659 37 -- 696
FNMA-ARM certificates 320 -- (12) 308
FHLMC-ARM certificates 168 -- -- 168
------- ------ ------- -------
$46,889 $1,384 $ (47) $48,226
======= ====== ======= =======
<CAPTION>
June 30, 1998
---------------------------------------------
Gross Gross
Unrea- Unrea-
Amortized lized lized Fair
Cost Gains Losses Value
-------- ------ ------ -------
(In thousands)
<S> <C> <C> <C> <C>
FHLMC-REMIC $40,051 $ 765 $ -- $40,816
FNMA-REMIC 10,169 79 (27) 10,221
GNMA-ARM 16,099 244 -- 16,343
FHLMC certificates 929 42 -- 971
FNMA-ARM certificates 390 -- (20) 370
FHLMC-ARM certificates 251 3 -- 254
------- ------ ------- -------
$67,889 $1,133 $ (47) $68,975
======= ====== ======= =======
</TABLE>
D-20
<PAGE>
June 30, 1998, 1997 and 1996
The amortized cost and fair value of mortgage-backed securities by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
Available-for-Sale Available-for-Sale
-------------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ 62 $ 63
Due after one year through five years -- -- -- --
Due after five years through ten years 659 696 867 909
Due after ten years 46,230 47,530 66,960 68,003
-------- -------- ------- -------
$ 46,889 $ 48,226 $67,889 $68,975
======== ======== ======= =======
</TABLE>
Mortgage-backed and related securities with a fair value of $38,353,000 were
pledged to collateralized short-term loans from the Federal Home Loan Bank of
$58,640,000 at June 30, 1998. (See Note 8)
Gross proceeds from the sales of mortgage-backed and related securities were
$3,905,000 for the year ended June 30, 1998. Gross realized gains were $13,700.
There were no realized losses.
NOTE 4: LOANS RECEIVABLE
<TABLE>
<CAPTION>
Loans receivable are summarized as follows: 1998 1997
---- ----
(In thousands)
<S> <C> <C>
Mortgage loans:
One- to four-family $122,328 $115,104
Multi-family 714 1,247
Commercial real estate 13,434 9,824
-------- --------
Total mortgage loans 136,476 126,175
-------- --------
Other loans:
Home improvement 188 270
Loans on savings accounts 412 342
Other loans - FHA Non-mortgage 224 372
-------- --------
Total other loans 824 984
-------- --------
Total loans receivable 137,300 127,159
Add:
Premium on purchased loans 6 8
Deferred loan costs 31 27
Less:
Loans in process -- 116
Allowance for loan losses 690 630
-------- --------
Loans receivable, net $136,647 $126,448
======== ========
</TABLE>
At June 30, 1998, the Association's loan portfolio consisted of $16,774,000 of
fixed rate loans and $120,526,000 of variable rate loans. The fixed rate loans
had a weighted average term to maturity of 9.6 years and a weighted average
interest rate of 8.30%. The variable rate loans had a weighted average term to
maturity of 17.1 years and a weighted average interest rate of 7.24%.
The Association is required to maintain qualifying collateral for the Federal
Home Loan Bank of Des Moines (the "Bank") representing 150 percent of current
Bank credit. (See Note 8) At June 30, 1998, the Association met this
requirement. Qualifying collateral is defined as fully disbursed, whole first
mortgage loans on improved residential property or securities representing a
whole interest in such mortgages. The mortgages must not be past due more than
60 days. Loans pledged at June 30, 1998 total $46.4 million.
D-21
<PAGE>
June 30, 1998, 1997 and 1996
They must not be otherwise pledged or encumbered as security for other
indebtedness, and the documents must be in the physical possession or control of
the Association. The documents that govern the determination of the qualifying
mortgage collateral are the (a) Federal Home Loan Bank of Des Moines's Credit
Policy Statement, dated January 1, 1998, and (b) the Agreement for Advances,
Pledge and Security Agreement between the Association and the Federal Home Loan
Bank of Des Moines, dated April 14, 1989.
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
June 30,
-------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 630 $ 535 $ 535
Provision charged to income 60 95 --
Charge-offs and recoveries, net -- -- --
----- ----- -----
Balance at end of period $ 690 $ 630 $ 535
===== ===== =====
</TABLE>
Nonaccrual and renegotiated loans for which interest has been reduced totaled
approximately $924,000 and $577,000 at June 30, 1998 and 1997, respectively.
Interest that would have been recognized on nonaccrual loans under their
original terms but for which an allowance has been established amounted to
$64,000 and $39,000 at June 30, 1998 and 1997, respectively. The amount that was
included in income on such loans was $46,000 and $7,000 for the years ended June
30, 1998 and 1997, respectively.
The Association is not committed to lend additional funds to debtors whose
loans have been modified.
NOTE 5: ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(In thousands)
<S> <C> <C>
Investment securities $ 164 $ 408
Mortgage-backed and related securities 216 337
Loans receivable 782 850
------ ------
$1,162 $1,595
====== ======
</TABLE>
NOTE 6: PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(In thousands)
<S> <C> <C>
Cost:
Land $ 37 $ 37
Buildings 472 471
Furniture, fixtures and equipment 322 478
------ -----
831 986
Less accumulated depreciation and amortization (549) (678)
------ -----
$ 282 $ 308
====== =====
</TABLE>
Depreciation expense for the years ended June 30, 1998, 1997, and 1996 was
$48,000, $45,000, and $42,000, respectively.
D-22
<PAGE>
June 30, 1998, 1997 and 1996
NOTE 7: DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
Weighted Weighted
Average Average
Rate Amount % Rate Amount %
-------- ------ ------ -------- ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook savings 3.00% $ 5,975 5.18 3.00% $ 6,299 6.18
---- -------- ------ ---- -------- ------
Certificates of deposit:
4.00% to 4.99% 4.45 18 .02 4.86% 1,277 1.25
5.00% to 5.99% 5.76 99,672 86.42 5.62% 59,634 58.49
6.00% to 6.99% 6.17 8,356 7.25 6.13% 33,383 32.74
7.00% to 7.99% 7.00 1,308 1.13 7.04% 1,365 1.34
8.00% to 8.99% 8.00 1 -- 8.00% 1 --
---- -------- ------ ---- -------- ------
5.80 109,355 94.82 6.33% 95,660 93.82
---- -------- ------ ---- -------- ------
5.67 $115,330 100.00 5.78% $101,959 100.00
==== ======== ====== ==== ======== ======
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $18.3 and $11.1 million at June 30,
1998 and 1997, respectively.
Scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
Year Ending June 30, 1998
---------------------------------------------------
There-
1999 2000 2001 2002 2003 after
------ ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
4.00% to 4.99% $ 18 $ -- $ -- $ -- $ -- $ --
5.00% to 5.99% 79,184 12,690 6,247 1,432 119 --
6.00% to 6.99% 7,174 894 288 -- -- --
7.00% to 7.99% -- 1,308 -- -- -- --
8.00% to 8.99% -- 1 -- -- -- --
------- ------- ------ ------ ---- ----
$86,376 $14,893 $6,535 $1,432 $119 $ --
======= ======= ====== ====== ==== ====
<CAPTION>
Year Ending June 30, 1997
---------------------------------------------------
There-
1998 1999 2000 2001 2002 after
------ ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
4.00% to 4.99% $ 1,277 $ -- $ -- $ -- $ -- $ --
5.00% to 5.99% 41,924 11,415 4,212 1,787 296 --
6.00% to 6.99% 29,710 3,339 324 10 -- --
7.00% to 7.99% 85 -- 1,280 -- -- --
8.00% to 8.99% -- -- 1 -- -- --
------- ------- ------ ------ ---- ----
$72,996 $14,754 $5,817 $1,797 $296 $ --
======= ======= ====== ====== ==== ====
</TABLE>
D-23
<PAGE>
June 30, 1998, 1997 and 1996
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Years Ended
June 30,
---------------------------
1998 1997 1996
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Passbook $ 183 $ 205 $ 229
Certificates of deposit and money market demand 5,109 4,462 4,154
Certificates of deposit $100,000 or more 843 440 295
------ ------ ------
$6,135 $5,107 $4,678
====== ====== ======
</TABLE>
D-24
<PAGE>
June 30, 1998, 1997 and 1996
NOTE 8: FEDERAL HOME LOAN BANK ADVANCES
Advances consist of the following:
<TABLE>
<CAPTION>
June 30,
Maturity Interest ----------------
Date Rate 1998 1997
- -------- -------- ---- ----
(In thousands)
<S> <C> <C> <C>
07-18-97 5.610% $ -- $ 2,000
11-07-97 5.660% -- 12,000
12-19-97 5.730% -- 8,000
02-09-98 5.170% -- 7,000
05-18-98 5.640% -- 5,000
05-26-98 5.590% -- 14,000
07-02-98 5.516% 8,000 4,000
01-15-99 5.680% 8,000 --
03-19-99 5.660% -- 5,000
03-19-99 5.618% 5,000 --
05-28-99 5.606% 15,000 --
06-25-99 5.606% 12,000 --
06-26-99 5.640% -- 12,000
09-13-99 5.780% -- 15,000
11-07-00 5.460% 7,000
04-23-02 5.650% -- 15,000
------- --------
Total short-term advances 55,000 99,000
------- --------
11-18-08 6.17% 626 664
11-24-08 6.30% 1,284 1,362
11-28-08 6.28% 1,247 1,329
12-05-08 6.24% 214 229
12-30-08 6.19% 269 286
------- --------
Total long-term advances 3,640 3,870
------- --------
Total advances $58,640 $102,870
======= ========
</TABLE>
See Notes 2, 3, and 4 of the financial statements for collateral securing this
indebtedness.
Advances at June 30, 1998, have maturity dates as follows:
<TABLE>
<S> <C> <C>
06-30-99 $48,247 $ 48,230
06-30-00 265 21,247
06-30-01 7,284 15,265
06-30-02 303 283
06-30-03 325 15,304
Thereafter 2,216 2,541
------- --------
$58,640 $102,870
======= ========
</TABLE>
The maximum amount of Federal Home Loan Bank advances outstanding at any month
end during the years ended June 30, 1998 and 1997 was $89,852,000 and
$113,016,000 respectively.
Advances maturing January 15, 1999 and November 7, 2000, and all long-term
advances are fixed rates. The remaining advance rates adjust monthly.
D-25
<PAGE>
June 30, 1998, 1997 and 1996
NOTE 9: OFFICER, DIRECTOR AND EMPLOYEE PLANS
STOCK OPTION PLANS
- -------------------------------------------------------------------------------
The Company adopted an incentive stock option plan for the benefit of the
officers and employees of the Company and its affiliates and a director's stock
option plan for the benefit of outside directors of the Company. The number of
shares of common stock authorized under the Employees' Plan is 103,674. For the
year ended June 30, 1993, 103,674 options were granted at $10.00 per share. No
options were granted subsequently. Options granted under the Incentive Plan
become exercisable in seven annual installments with the first installment
exercisable on the date of grant, June 24, 1993. The term of the options issued
under the Employees' Plan expires ten years from the date of grant, or within
one year from the date of death, disability or retirement of the optionee.
The number of shares of common stock authorized under the Directors' Plan is
68,826. For the year ended June 30, 1993, stock options to purchase 58,993
shares were granted at a price of $10.00 per share and are exercisable
immediately. During the year ended June 30, 1998, stock options to purchase
9,828 shares were granted at a price of $23.50 per share and are exercisable
immediately. The term of the options issued under the Director's Plan expires
ten years from the date of grant, or three years from the date of death,
disability or retirement of the optionee.
The company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for the stock
option plans. If the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
no. 123) had been applied, compensation cost would have been determined based on
the fair market value at the grant date for awards under those plans. The pro
forma effect of applying SFAS No. 123 is as follows for the applicable income
statement components:
<TABLE>
<CAPTION>
As Pro Forma Under
Reported Effect SFAS No. 123
---------- --------- ------------
<S> <C> <C> <C>
Compensation and benefits $1,099,000 $56,000 $1,155,000
========== ======= ==========
Income before income taxes 2,963,000 $56,000 $2,907,000
Income tax expense 1,079,000 21,000 1,058,000
---------- ------- ----------
Net Income $1,884,000 $35,000 1,849,000
========== ======= ==========
Earning Per Share-basic $ 1.52 $ .03 $ 1.49
========== ======= ==========
Earning Per Share-diluted $ 1.44 $ .03 $ 1.41
========== ======= ==========
</TABLE>
The weighted-average grant-date fair value of the options granted during the
year ended June 30, 1998 was $56,000. The fair value of options granted was
determined using the Black-Scholes option-pricing model. Significant assumptions
used were-risk-free interest rate of 6.15%; expected life of 5.9 years; expected
volatility of 15%; and expected dividends of $.40 per share. A summary of the
status of the company's two fixed stock option plans as of June 30, 1996, 1997,
and 1998 and changes during the years ending in those dates is presented below:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------- ------------------------ --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- ------------- ------- --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 149,556 $10 149,556 $10 139,723 $10.00
Granted -- -- 9,828 23.50
Exercised -- -- (27,100) 10.00
Retired -- (9,833) 10 (44,226) 10.00
------- ------- ------- ------
Outstanding at end of year 149,556 10 139,723 10 78,225 11.70
======= ======= ======= ======
Options Exercisable at year end 129,181 129,348 77,845
Weighted-average fair value of options
granted during the year $ N/A $ N/A $56,000
</TABLE>
D-26
<PAGE>
June 30, 1998, 1997 and 1996
The following table summarizes the information about fixed stock options
outstanding at June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------- ------------------------------
Weighted-
Average Weighted-
Remaining Weighted Number Average
Outstanding Contractual Average Exercisable Exercise
Exercise Price At June 30, 1998 Life Exercise Price At June 30, 1998 Price
- -------------- ---------------- ----------- -------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
$10.00 68,397 5.0 Years $10.00 68,017 $10.00
$23.50 9,828 5.0 Years $23.50 9,828 $23.50
</TABLE>
NOTE 9: OFFICER, DIRECTOR AND EMPLOYEE PLANS (Continued)
EMPLOYEE STOCK OWNERSHIP PLAN
- ------------------------------------------------------------------------------
The ESOP covers substantially all employees with more than one year of
employment and who have attained the age of 21. The ESOP borrowed $685,000 from
the Company and purchased 68,500 common shares. The loan is payable over a
period of 10 years with an interest rate of 4 percent. The Association makes
scheduled discretionary cash contributions to the ESOP sufficient to service the
amount borrowed.
Shares are released for allocation to participants based upon the ratio of the
current year's debt service to the sum of total principal and interest payments
over the life of the loan. Released shares are allocated among ESOP participants
on the basis of compensation in the year of allocation. Dividends paid on
allocated and unallocated shares are added to participant accounts.
The Company accounts for its ESOP in accordance with Statement of Position 93-
6. Accordingly, the debt of the ESOP is recorded as debt and shares pledged as
collateral are reported as unearned ESOP shares, a reduction of stockholder's
equity. As shares are released from collateral, the Association records
compensation expense in an amount equal to the fair value of the shares, and the
shares become outstanding for earnings-per-share (EPS) computations.
Compensation expense is also recognized for Company dividends on unallocated
shares paid or added to participant accounts. ESOP compensation expense was
$257,000, $240,000 and $275,000 for the years ended June 30, 1998, 1997 and 1996
respectively.
The ESOP shares as of June 30, 1998 were as follows:
Allocated shares 41,514
Shares released for allocation 4,690
Unreleased shares 24,513
--------
Total ESOP shares 70,717
Fair value of unreleased shares ========
at June 30, 1998 $607,000
========
ASSOCIATION RECOGNITION AND RETENTION PLAN
- --------------------------------------------------------------------------------
The Company formed an Association Recognition and Retention Plan ("RRP"),
which was authorized to acquire 4% of the shares of common stock. The total
shares authorized were awarded to directors and to employees in key management
positions in order to provide them with a proprietary interest in the Company in
a manner designed to encourage such employees to remain with the Company.
The Association contributed funds to the RRP plan to enable it to acquire the
shares of common stock required to fund the RRP (69,000 shares). For the year
ended June 30, 1993, there were 64,308 shares awarded. Awards under the RRP Plan
become vested at a rate of 25% per year.
The $690,000 contributed to the RRP was amortized to compensation expense as
the plan participants become vested in those shares. For the years ended June
30, 1997 and 1996, the Association recognized compensation expense of $37,000,
and $87,000 respectively for the RRP plan. The unamortized cost, which is
comparable to deferred compensation, is reflected as a reduction of
stockholders' equity. During the year ended June 30, 1998, there were 4,692
shares awarded to directors which resulted in an additional $135,000 of
compensation expense.
OUTSIDE DIRECTORS' RETIREMENT PLAN
- -------------------------------------------------------------------------------
Under this plan an outside director who has served as a director for at least
15 years at the time of retirement will be eligible to receive a benefit equal
to 50% of the annual directors fee for five years. In addition, a director's
heirs are eligible to receive 1/2 of the benefit due to the director.
The Outside Directors' Retirement Plan is unfunded. All benefits will be
payable from the Association's current assets. The Association estimated the
future cost of the Outside Directors Retirement Plan and accrues current
compensation expense. The Association estimated the cost based on an assumed
retirement age of 75 and an assumption that all directors would have at least 15
years service at the time of retirement. The estimated cost is being amortized
into compensation expense over a 14 year period. This is the estimated average
number of years to retirement plus the five year benefit period for the existing
board members. This
D-27
<PAGE>
amortization resulted in expense of approximately $8,000 for the years ended
June 30, 1998, 1997, and 1996.
June 30, 1998, 1997 and 1996
NOTE 10: INCOME TAXES
As discussed in Note 1, the Company uses the liability method of accounting
for income taxes. Under this method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and tax basis of existing assets and liabilities.
A deferred tax asset is to be recognized for the bad debt reserve established
for financial reporting purposes and requires a deferred tax liability to be
recorded for increases in the tax bad debt reserve since January 1, 1988, the
effective date of certain changes made by the Tax Reform Act of 1986 to the
calculation of savings institutions' bad debt deduction.
Accordingly, retained earnings at June 30, 1998, include approximately
$4,714,000 for which no deferred federal income tax liability has been
recognized.
The Company and the Association file consolidated federal income tax returns
on a fiscal year ended June 30 basis. In accordance with the Tax Sharing
Agreement, the Association agrees to remit its pro rata share of the total
consolidated tax liability, calculated as if it were filing a separate return
for the year, to the Company on a quarterly basis. There were no significant
intercompany tax receivable/payable balances at June 30, 1998.
Income tax expense for the periods then ended is summarized as follows:
<TABLE>
<CAPTION>
June 30,
------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Federal:
Current $ 941 $ 763 $ 744
Deferred 12 109 59
State:
Current 131 111 91
Deferred (5) 3 4
------ ----- -----
$1,079 $ 986 $ 898
====== ===== =====
</TABLE>
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rates of 34 percent to income before income taxes as a
result of the following:
<TABLE>
<CAPTION>
June 30,
-------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Expected income tax expense at federal tax rate $1,007 $ 825 $ 779
State income tax, net of federal tax benefit 83 75 63
Nondeductible loan loss provision 20 32 --
Compensation expense for employee stock plans -- 41 48
Other (31) 13 8
------ ----- -----
Total income tax expense $1,079 $ 986 $ 898
====== ===== =====
</TABLE>
D-28
<PAGE>
June 30, 1998, 1997, and 1996
NOTE 10: INCOME TAXES (Continued)
Temporary differences between the financial statement carrying amounts and tax
basis of assets and liabilities that give rise to significant portions of the
deferred tax liability relate to the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
(In thousands)
<S> <C> <C>
Income tax basis of FHLB stock versus carrying value $ 77 $ 139
Deferred loan fees 13 11
Unrealized gain on investments 504 427
----- -----
Gross deferred tax liabilities 594 577
----- -----
SFAS 106 deferred tax asset (Note 9) (19) (16)
RRP expense deferred for tax (60) (66)
State deferred tax benefit for bad debts (48) (44)
----- -----
Gross deferred tax assets (127) (126)
----- -----
Net deferred tax liability (asset) 467 451
----- -----
Federal tax payable 15 74
State tax payable 59 65
----- -----
Net current tax liability 74 139
----- -----
Total income tax liability $ 541 $ 590
===== =====
</TABLE>
Deferred tax expense (benefit) results from temporary differences between the
financial statement carrying amounts and tax basis of existing assets and
liabilities. The sources and tax effects of these temporary differences are as
follows:
<TABLE>
<CAPTION>
June 30,
------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
FHLB stock dividends $ (62) $ -- $ 28
Deferred loan fees 2 1 (2)
Tax bad debt reserve -- -- (5)
Post retirement benefits - SFAS 106 (3) (3) (3)
State bad debt (9) (14) (7)
RRP expense deferred for tax 6 48 26
Tax benefit of RRP plan 73 73 19
----- ----- -----
Total deferred tax expense $ 7 $ 112 $ 63
===== ===== =====
</TABLE>
D-29
<PAGE>
June 30, 1998, 1997 and 1996
NOTE 11: REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift Supervision
(OTS). Failure to meet the minimum regulatory capital requirements can initiate
certain mandatory, and possible additional discretionary actions by regulators,
that if undertaken, could have a direct material affect on the Association and
the consolidated financial statements. Under the regulatory capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines involving quantitative
measures of the Association's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classification under the prompt corrective action guidelines
are also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios of: total risk-
based capital and Tier I capital to risk-weighted assets (as defined in the
regulations), and Tier I capital to adjusted total assets (as defined), and
tangible capital to adjusted total assets (as defined). As discussed in greater
detail below, as of June 30, 1998, the Association does meet all of the capital
adequacy requirements to which it is subject.
As of June 30, 1998, the most recent notification from the OTS, the
Association was categorized as well-capitalized under the regulatory framework
for prompt corrective action. To be categorized as well-capitalized, the
Association must maintain minimum total risk-based, Tier I risk-based, and Tier
I leverage ratios as disclosed in the table below. There are no conditions or
events since the most recent notification that management believes have changed
the Association's prompt corrective action category.
<TABLE>
<CAPTION>
For Capital Adequacy
Purposes and to be Well-
Capitalized under the Prompt
Corrective Action Provision
Minimum For
Capital
Adequacy
Actual Purposes
---------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(dollars
in
thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998
Total Risk-Based Capital
(to Risk-Weighted Assets) $27,406 32.1% $ 8,549 10.0% $6,840 8.0%
Tier I Capital (to
Risk-Weighted Assets) $26,716 31.2% $ 5,130 6.0% $3,420 4.0%
Tier I Capital (to
Adjusted Total Assets) $26,716 13.2% $12,148 6.0% $8,099 4.0%
Tangible Capital (to
Adjusted Total Assets) $26,716 13.2% $10,124 5.0% -- --
As of June 30, 1997
Total Risk-Based Capital
(to Risk-Weighted Assets) $26,824 31.7% $ 8,456 10.0% $6,765 8.0%
Tier I Capital (to
Risk-Weighted Assets) $26,194 31.0% $ 5,074 6.0% $3,383 4.0%
Tier I Capital (to
Adjusted Total Assets) $26,194 11.2% $14,044 6.0% $9,363 4.0%
Tangible Capital (to
Adjusted Total Assets) $26,194 11.2% $11,703 5.0% -- --
</TABLE>
D-30
<PAGE>
June 30, 1998, 1997 and 1996
NOTE 12: OTHER NON-INTEREST INCOME AND EXPENSE
Other non-interest income and expense amounts are summarized as follows:
<TABLE>
<CAPTION>
June 30,
------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Other non-interest income:
Gain on sale of investments and loans $ 34 $ -- $ --
Loan late charges 3 4 4
Other 7 6 17
---- ----- ----
$ 44 $ 10 $ 21
==== ===== ====
Other non-interest expense:
Advertising and promotion $ 47 $ 40 $ 8
Data processing 70 56 52
Professional fees 51 59 39
Printing, postage and supplies 26 27 28
Telephone 20 12 9
Foreclosed real estate expenses -- -- 5
Other 87 81 63
---- ----- ----
$301 $ 275 $204
==== ===== ====
</TABLE>
NOTE 13: COMMITMENTS AND CONTINGENCIES
Loan Commitments
The Association had outstanding firm commitments to originate or purchase loans
as follows:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------------------- -----------------------
Fixed- Variable- Fixed- Variable-
Rate Rate Total Rate Rate Total
------ --------- ----- ------ --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
First-mortgage loans $1,388 $8,153 $9,541 $ 355 $7,593 $7,948
====== ====== ====== ====== ====== ======
</TABLE>
The Association is, from time to time, a party to certain lawsuits arising in
the ordinary course of its business. The Association believes that none of these
lawsuits would, if adversely determined, have a material adverse effect on its
financial condition or results of operations.
D-31
<PAGE>
June 30, 1998, 1997 and 1996
NOTE 14: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Association is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit.
Those instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the statement of financial position. The contract of
those instruments reflect the extent of the Association's involvement in
particular classes of financial instruments.
The Association's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit, is
represented by the contractual amount of those instruments. The Association uses
the same credit policies in making commitments as it does for on-balance-sheet
instruments.
<TABLE>
<CAPTION>
Contract Amount
---------------
June 30,
-----------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Financial instruments,
the contract amounts
of which represent
credit risk:
Commitments to
extend credit $9,541 $7,948
====== ======
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some commitments can expire without being drawn
upon the total commitment amounts do not necessarily represent future cash
requirements. The Association evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if it is deemed necessary
by the Association upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but may include
residential and income-producing commercial properties. The loan commitments at
June 30, 1998, were at fixed rates of 7.9% to 8.5% for 15 to 30 years on
$1,388,000 and variable rates of 7.0% to 8.2% on $8,153,000.
The Association maintains cash accounts at the Federal Home Loan Bank and two
local banks. Balances reflected on the local banks' statements exceed the
$100,000 insurance limit by varying amounts on a daily basis. The Association
controls this risk by monitoring the financial condition of the local banks.
The Federal Home Loan Bank is an instrumentality of the U.S. Government.
NOTE 15: SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Association's business activity is with customers located within
the State of Missouri. As of June 30, 1998 and 1997, the Association's loans
receivable included approximately $119.1 million and $91.2 million ,
respectively of loans originated or purchased in the Columbia, Missouri area. A
substantial part of these loans are on 1 to 4 family residences. Included is
approximately $9.4 million and $8.9 million of commercial loans, respectively.
NOTE 16: RELATED PARTY TRANSACTIONS
Certain directors and executive officers of the Company or its subsidiary were
loan customers. A summary of aggregate related party loan activity, for loans
aggregating $60,000 or more to any one related party is as follows:
<TABLE>
<CAPTION>
June 30,
-------------------
1998 1997
--------- --------
<S> <C> <C>
Beginning balance $261,000 $258,000
New loans 10,000 15,000
Repayments 17,000 12,000
-------- --------
Ending balance $254,000 $261,000
======== ========
</TABLE>
D-32
<PAGE>
June 30, 1998, 1997 and 1996
NOTE 17: CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statement of financial condition, as of June 30, 1998
and 1997 and condensed statements of earnings and cash flows for the years then
ended for MBLA Financial Corporation should be read in conjunction with the
consolidated financial statements and the notes thereto.
<TABLE>
<CAPTION>
June 30,
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
ASSETS
Cash on hand and noninterest earning deposits $ -- $ 1
Interest-earning deposits in other institutions 473 1,600
Investment in subsidiary 27,575 26,921
ESOP loan receivable 188 282
------- -------
Total assets $28,236 $28,804
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Income taxes payable $ (4) $ (4)
Dividends payable 374 260
Accrued expenses 25 12
------- -------
Total liabilities 395 268
------- -------
STOCKHOLDERS' EQUITY
Common stock 17 17
Additional paid in capital 17,526 16,944
Retained earnings 19,022 18,535
Less:
Treasury stock (9,395) (7,347)
Unrealized gain (loss) on securities, net of taxes 859 727
ESOP obligation (188) (282)
RRP incentive plan -- (58)
------- -------
Total Stockholders' Equity 27,841 28,536
------- -------
Total liabilities and stockholders' equity $28,236 $28,804
======= =======
</TABLE>
D-33
<PAGE>
June 30, 1998, 1997 and 1996
NOTE 17: CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Statement of Income
Years Ended June 30,
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Interest income:
Investment securities $ -- $ 39
Other interest-earning assets 41 20
ESOP loan 10 14
------- -------
51 73
Income from investment in subsidiary 1,945 1,471
Noninterest expense:
Other (122) (101)
------- -------
Income before income taxes 1,874 1,443
Income tax (expense) recovery 10 (2)
------- -------
Net income $ 1,884 $ 1,441
======= =======
<CAPTION>
Statement of Cash Flows
Years Ended June 30,
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,884 $ 1,441
Equity in earnings of subsidiary (45) 229
Adjustments to reconcile net earnings to net
cash provided by operating activities:
(Increase) decrease in interest receivable (1) (1)
Decrease in dividend receivable -- 1,200
Decrease in income tax payable -- 2
Increase (decrease) in other liabilities 126 (11)
------- -------
Net cash provided (used) by operating
activities 1,964 2,860
------- -------
Cash flows from investing activities:
Proceeds from maturities of investment
securities and certificates of deposit 1,174 927
Purchase of investment securities and
certificates of deposit (1,174) (927)
(Increase) decrease in loans receivable ESOP 94 108
------- -------
Net cash provided (used) in investing
activities 94 108
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 271 --
Stock options retired (779) (58)
Purchase of treasury stock (2,048) (1,423)
Dividends paid (631) (528)
------- -------
Net cash provided (used) by financing
activities (3,187) (2,009)
------- -------
Increase (decrease) in cash and cash
equivalents (1,129) 959
Cash and cash equivalents at beginning of period 1,601 642
------- -------
Cash and cash equivalents at end of period $ 472 $ 1,601
======= =======
Dividends paid by subsidiary to parent $ 1,900 $ 1,180
======= =======
</TABLE>
D-34
<PAGE>
June 30, 1998, 1997 and 1996
NOTE 18: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
company's financial instruments at June 30, 1998 and 1997. FASB Statement No.
107, Disclosures About Fair Value of Financial Instruments, defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
<TABLE>
<CAPTION>
June 30, 1998
----------------------
Carrying Fair
Amount Value
---------- ----------
(In thousands)
<S> <C> <C>
Nontrading instruments:
Cash and cash
equivalents $ 3,635 $ 3,635
Investment securities
and mortgage-backed
securities $ 57,996 $ 57,996
Loans, net $ 136,647 $ 136,925
Accrued interest
receivable $ 1,162 $ 1,162
FHLB stock $ 3,134 $ 3,134
Deposit liabilities $(115,330) $(115,635)
Debt-FHLB advances $ (58,640) $ (58,541)
Other liabilities $ (1,417) $ (1,417)
<CAPTION>
June 30, 1997
----------------------
Carrying Fair
Amount Value
---------- ----------
(In thousands)
<S> <C> <C>
Nontrading instruments:
Cash and cash
equivalents $ 4,714 $ 4,714
Investment securities
and mortgage-backed
securities $ 96,014 $ 96,014
Loans, net $ 126,448 $ 127,436
Accrued interest
receivable $ 1,595 $ 1,595
FHLB stock $ 5,652 $ 5,652
Deposit liabilities $(101,959) $(102,171)
Debt-FHLB advances $(102,870) $(102,735)
Other liabilities $ (1,458) $ (1,458)
</TABLE>
The carrying amounts in the tables are included in the statement of financial
position under the indicated captions, except for advances from borrowers for
taxes and insurance, income taxes payable and accrued expenses and other
liabilities which have been combined into other liabilities.
ESTIMATION OF FAIR VALUES
- -------------------------------------------------------------------------------
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments.
Short-term financial instruments are valued at their carrying amounts included
in the statement of financial position, which are reasonable estimates of fair
value due to the relatively short period to maturity of the instruments. This
approach applies to cash and cash equivalents, accrued receivables, and certain
other liabilities.
Loans are valued on the basis of estimated future receipts of principal and
interest, discounted at various rates and reduced by the loan loss allowance.
Future cash flows of loans are estimated based on their maturities and weighted
average rates and are discounted at current rates offered for similar loan terms
to new borrowers.
Investment securities are valued at quoted market prices if available. For
unquoted securities, the reported fair value is estimated by the Company on the
basis of financial and other information.
Fair value of demand deposits and deposits with no defined maturity is taken
to be the amount payable on demand at the reporting date. The fair value of
fixed-maturity deposits is estimated using rates currently offered for deposits
of similar remaining maturities. The intangible value of long-term relationships
with depositors is not taken into account in estimating the fair values
disclosed.
Rates currently available to the Company for Federal Home Loan Bank advances
with similar terms and remaining maturities are used to estimate the fair value
of existing borrowings as the present value of expected cash flows. Advances
which have maturities within one year or rates which adjust monthly are valued
at the carrying amount.
NOTE 19: MARKET RISK DISCLOSURES
The Association's net portfolio values would change as market interests
change. Based on the office of Thrift Supervisor's Interest Rate Risk Exposure
Report as of June 30, 1998, a 200 basis point increase in market interest rates
would cause a $4.19 million, or 15.36 percent, decline in the market value of
its portfolio assets.
NOTE 20: YEAR 2000
The Association has been in contact with their data processing service
provider. Their tentative Year 2000 testing schedule begins in September 1998
and continues through January 1999. As of this date, the Association expects a
cost of no more than $25,000 to be Year 2000 compliant.
The Association has contacted software vendors and does not foresee any major
capital expenditures. In-house testing of major software packages the
Association utilizes (as well as Association hardware) have been initiated and
expected to be completed by March 31, 1999. The Association should have all
testing completed by June 30, 1999.
D-35
<PAGE>
June 30, 1998, 1997 and 1996
NOTE 21: RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 130 "Reporting Comprehensive Income," will be adopted July 1, 1998.
This statement provides accounting and reporting standards to report a measure
of all changes in equity of an enterprise that results from recognized
transactions and economic events of the period. The major component of
comprehensive income for the Company will be unrealized gains and losses on
certain investments in debt and equity securities.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a foreign-
currency-denominated forecasted transaction. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
Management believes adoption of SFAS Nos. 130 and 133 does not have a material
effect on the financial position or results of operations, nor will adoption
require additional capital resources.
The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Association keeps its
books and records and performs its financial accounting responsibilities. It is
intended only as a summary of some of the recent pronouncements made by the FASB
which are of particular interest to financial institutions.
D-36
<PAGE>
[LOCKRIDGE, CONSTANT & CONRAD, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
MBLA Financial Corporation
Macon, Missouri
We have audited the accompanying consolidated statements of financial condition
of MBLA Financial Corporation and Subsidiary as of June 30, 1998 and 1997, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended June 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of
MBLA Financial Corporation and Subsidiary as of June 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1998, in conformity with generally accepted
accounting principles.
/s/ Lockridge, Constant & Conrad, LLC
August 4, 1998
Chillicothe, Missouri
MEMBERS SEC PRACTICE SECTION AND
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
D-37
<PAGE>
General Information for Stockholders
MBLA FINANCIAL CORPORATION
101 Vine Street 801 North Morley
Macon, Missouri 63552 Moberly, Missouri 65270
Telephone: (660) 385-2122 Telephone: (660) 263-6231
Annual Meeting
The Annual Meeting of MBLA Financial Corporation Stockholders will be held
at the office of Macon Building & Loan Association, 101 Vine Street, Macon,
Missouri, on Tuesday, October 27, 1998 at 4:30 p.m. A formal notice of the
Meeting, together with a proxy statement and a proxy form, will be mailed to
shareholders.
Transfer Agent and Registrar
Registrar and Transfer Company
10 Commerce Drive Shareholder and
Cranford, NJ 07016-3572 General Inquiries
(800) 456-0596 Clyde D. Smith
Vice President and
Chief Financial Officer
101 Vine Street
Macon, MO 63552
(660) 385-2122
General Counsel
Hadley Grimm
105 N. Rollins Suite C
Macon, MO 63552
(660) 385-2115
Stock Listing
MBLA Financial Corporation stock is traded on the over-the-counter market under
the NASDAQ symbol of MBLF and can be found listed in the following newspapers
under the noted abbreviations:
Wall Street Journal: MBLA USA Today: MBLA
The following table sets forth market price information for the common stock of
the Company for the periods indicated and dividend payments for each semi-annual
period as indicated. There is no assurance that the Company will continue to
pay dividends due to future changes in economic conditions and future interest
rates.
<TABLE>
<CAPTION>
Quarter Ended High Low Dividends
------------- ---- --- ---------
<S> <C> <C> <C>
September 30, 1996 $ 23.25 $ 21.25 N/A
December 30, 1996 $ 22.25 $ 19.00 $.20
March 31, 1997 $20.625 $ 19.25 N/A
June 30, 1997 $ 25.25 $19.875 $.20
September 30, 1997 $ 27.25 $ 23.25 N/A
December 30, 1997 $ 30.50 $ 25.25 $.20
March 30, 1998 $30.625 $ 27.25 N/A
June 30, 1998 $27.125 $ 23.00 $.30
</TABLE>
Annual and Other Reports
Additional copies of this Annual Report to Shareholders, and copies of the
Company's most recent Form 10-KSB may be obtained without charge from the
Company.
D-38
<PAGE>
MBLA FINANCIAL
CORPORATION
101 Vine Street
Macon, MO 63552
<PAGE>
APPENDIX E
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF
1934
________________
FOR THE QUARTER ENDED MARCH 31, 1999 COMMISSION FILE NO. 0-21482
MBLA FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1637679
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
101 VINE STREET
MACON, MISSOURI 63552
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (660) 385-2122
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_____
-----
The number of shares outstanding of the issuer's common stock, par value $.01
per share, was 1,247,021 at May 4, 1999.
================================================================================
<PAGE>
MBLA FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1 Financial Statements Page
----
<S> <C>
Consolidated Statements of Financial Condition as of March 31,
1999 (unaudited) and June 30, 1998............................... E-2
Consolidated Statements of Income for the Three Months
ended March 31, 1999 and 1998 (unaudited) and for the
Nine Months ended March 31, 1999 and 1998 (unaudited)............ E-3
Consolidated Statements of Comprehensive Income for the
Three Months ended March 31, 1999 and 1998 (unaudited)
and for the Nine Months ended March 31, 1999 and 1998
(unaudited)...................................................... E-4
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months ended March 31, 1999 and
1998 (unaudited)................................................. E-5
Consolidated Statements of Cash Flows for the Nine Months
ended March 31, 1999 and 1998 (unaudited)........................ E-7
Notes to Unaudited Consolidated Financial Statements............. E-9
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ E-11
Item 3 Quantitative and Qualitative Disclosures About Market Risk....... E-21
PART II. OTHER INFORMATION
- ----------------------------
Item 1 Legal Proceedings................................................ E-22
Item 2 Changes in Securities and Use of Proceeds........................ E-22
Item 3 Default upon Senior Securities................................... E-22
Item 4 Submission of Matters to a Vote of Security Holders.............. E-22
Item 5 Other Information................................................ E-22
Item 6 Exhibits and Reports on Form 8-K................................. E-22
Signature Page............................................................ E-23
</TABLE>
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31,
1999 June 30,
(unaudited) 1998
----------- --------
ASSETS (In thousands)
<S> <C> <C>
Cash on hand and noninterest-earning deposits $ 77 $ 580
Interest-earning deposits in other institutions 7,787 3,055
Investment securities available-for-sale, at fair value 7,512 9,770
Mortgage-backed and related securities
available-for-sale, at fair value 44,628 48,226
Loans receivable, net 141,121 136,647
FHLB stock 3,134 3,134
Accrued interest receivable 1,093 1,162
Real estate owned 138 -
Premises and equipment 268 282
Other assets 430 372
-------- --------
Total assets $206,188 $203,228
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $118,842 $115,330
Advances from Federal Home Loan Bank 57,456 58,640
Advances from borrowers for taxes and insurance 128 165
Income taxes payable 550 541
Accrued expenses and other liabilities 376 711
-------- --------
Total liabilities $177,352 $175,387
-------- --------
Preferred stock, $.01 par value;
authorized 500,000 shares; none outstanding $ - $ -
Common stock, $.01 par value; authorized 2,500,000
shares, issued 1,765,211 shares at March 31, 1999
and June 30, 1998 17 17
Additional paid-in capital 17,754 17,526
Retained earnings, substantially restricted 20,068 19,022
Less:
Treasury stock, at cost - 518,190 shares at March 31, 1999
and June 30, 1998 (9,395) (9,395)
Common stock acquired by the ESOP (139) (188)
Unrealized gain on securities available-for-sale,
net of applicable deferred income taxes 531 859
-------- --------
Total stockholders' equity $ 28,836 $ 27,841
-------- --------
Total liabilities and stockholders' equity $206,188 $203,228
======== ========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
E-2
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -----------------
1999 1998 1999 1998
-------- -------- -------- -------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $2,618 $ 2,412 $ 7,784 $ 7,172
Investment securities 154 301 509 928
Mortgage-backed and related securities 690 1,016 2,252 3,389
Other interest-earning assets 83 87 197 254
------ -------- -------- -------
Total interest income 3,545 3,816 10,742 11,743
Interest expense:
Deposits 1,590 1,547 4,890 4,532
Advances 746 1,105 2,413 3,686
------ -------- -------- -------
Total interest expense 2,336 2,652 7,303 8,218
Net interest income 1,209 1,164 3,439 3,525
Provision for loan losses 5 15 35 45
------ -------- -------- -------
Net interest income after provision for loan losses 1,204 1,149 3,404 3,480
------ -------- -------- -------
Noninterest income:
Commitment fees - - - 1
Other 7 2 62 6
------ -------- -------- -------
Total noninterest income 7 2 62 7
------ -------- -------- -------
Noninterest expense:
Compensation and benefits 248 363 742 838
Occupancy and equipment 40 43 107 116
SAIF deposit insurance premiums 30 33 94 94
Loss on sale of real estate owned 32 - 32 -
Net gain on sale of investments - - - (14)
Net gain of sale of loans (26) (8) (54) (8)
Other 103 63 242 172
------ -------- -------- -------
Total noninterest expense 427 494 1,163 1,198
------ -------- -------- -------
Income before income taxes 784 657 2,303 2,289
Income tax expense 332 152 888 805
------ -------- -------- -------
Net income $ 452 $ 505 $ 1,415 $ 1,484
====== ======== ======== =======
Earnings per share:
Basic $ 0.37 $ 0.41 $ 1.15 $ 1.19
Diluted $ 0.35 $ 0.39 $ 1.11 $ 1.13
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
E-3
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1999 1998 1999 1998
------- -------- ------- ------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net income $452 $505 $1,415 $1,484
Other comprehensive gain (loss),
net of tax:
Unrealized holding gains (losses)
arising during period (53) 22 (328) 181
----- ------ ------- ------
Comprehensive income $399 $527 $1,087 $1,665
===== ====== ======= ======
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
E-4
<PAGE>
MBLA FINANCIAL CORPORATION
CONSOLIATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
SECURITIES
AVAILABLE-
FOR-SALE,
NET OF
COMMON COMMON APPLICABLE
ADDITIONAL STOCK STOCK DEFERRED
COMMON PAID-IN RETAINED TREASURY ACQUIRED ACQUIRED INCOME
STOCK CAPITAL EARNINGS STOCK BY ESOP BY RRP TAXES TOTAL
------ ---------- -------- -------- -------- -------- ----- -----
(IN THOUSANDS)
NINE MONTHS ENDED
- -----------------
MARCH 31, 1998
- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 $ 17 $16,944 $18,535 ($7,347) ($282) ($58) $727 $28,536
Additions (deductions) for
the nine months ended
March 31, 1998:
Net income - - 1,484 - - - - 1,484
Compensation expense
related to ESOP - 115 - - - - - 115
Reduction of ESOP
obligation - - - - 47 - - 47
Deferred tax on RRP - 55 - - - - - 55
Amortization of RRPs - - - - - 58 - 58
Dividends on unallocated
ESOP shares - - 6 - - - - 6
Purchase of treasury stock
(74,466 shares) - - - (1,955) - - - (1,955)
RRP shares released - 89 - - - - - 89
Stock options exercised - 271 - - - - - 271
Stock options retired - - (632) - - - - (632)
Dividends declared - - (257) - - - - (257)
Unrealized gain (loss) on
securities available-for-
sale, net of defered
income tax of $106,000 - - - - - - 181 181
--------------------------------------------------------------------------------------------------
Balance, March 31, 1998 $ 17 $17,474 $19,136 ($9,302) ($235) $ 0 $908 $ 27,998
==================================================================================================
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
E-5
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Securities
Available-
For-Sale,
Common Net of
Additional Stock Applicable
Common Paid-In Retained Treasury Acquired Deferred
Stock Capital Earnings Stock by ESOP Taxes Total
------ ---------- -------- -------- -------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended
- -----------------
March 31, 1999
- --------------
Balance at June 30, 1998 $ 17 $ 17,526 $19,022 ($9,395) ($188) $ 859 $27,841
Additions (deductions) for
the nine months ended
March 31, 1999:
Net income - - 1,415 - - - 1,415
Compensation expense
related to ESOP - 71 - - - - 71
Reduction of ESOP
obligation - - - - 49 - 49
Deferred tax on RRP - 24 - - - - 24
Dividends on unallocated
ESOP shares - - 5 - - - 5
Deferred tax on incentive
options exercised - 133 - - - - 133
Dividends declared - - (374) - - - (374)
Unrealized gain (loss) on
securities available-for-sale,
net of deferred income tax of
$193,000 - - - - - (328) (328)
-----------------------------------------------------------------------------------------
Balance, March 31, 1999 $ 17 $ 17,754 $20,068 ($9,395) ($139) $ 531 $28,836
=========================================================================================
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
E-6
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
1999 1998
------- --------
(In thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 1,415 $ 1,484
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Provision for loan losses 35 45
Net loss on sale of real estate owned 32 -
Net gain on sale of mortgage-backed and related securities - (14)
Net loss on disposal of fixed assets - 2
Depreciation 28 33
Amortization of premiums and discounts (8) (52)
Excess of fair value over cost of ESOP unallocated shares 71 115
Amortization of RRP - 147
Deferred tax on RRP 24 54
Deferred tax on incentive options exercised 133 -
Decrease (increase) in interest receivable 70 286
Decrease (increase) in other assets (57) 3
Increase (decrease) in income tax payable 202 (156)
Increase (decrease) in other liabilities (340) (85)
---------- ----------
Net cash provided by operating activities $ 1,605 $ 1,862
---------- ----------
Cash flow from investing activities:
Loans purchased and originated (34,867) (23,725)
Proceeds from loans sold 4,606 735
(Increase) decrease in loans, net 25,753 16,403
Proceeds from maturities of available-for-sale investment securities 4,500 27,186
Purchase of available-for-sale investment securities (2,249) (11,147)
Principal collected on repayments and maturities of available-
for-sale mortgage-backed and related securities 3,094 20,004
Proceeds from sale of mortgage-backed and related securities - 3,905
Purchase of mortgage-backed and related securities - (4,000)
Loans transferred to REO (174) -
Proceeds from REO insurance claims 4 -
Purchase of equipment and office building improvements (15) (23)
---------- ----------
Net cash provided (used) by investing activities $ 652 $ 29,338
---------- ----------
Cash flows from financing activities:
Net increase in deposits 3,512 11,783
Net decrease in advances from borrowers for taxes and insurance (37) (50)
Proceeds from FHLB advances 2,000 2,000
Principal payments on FHLB advances (3,184) (40,171)
Dividends paid (368) (511)
Purchase of treasury stock - (1,955)
Proceeds from issuance of common stock - 271
Unearned ESOP compensation decrease 49 47
Stock options retired - (632)
---------- ----------
Net cash provided (used) by financing activities $ 1,972 ($ 29,218)
---------- ----------
Increase (decrease) in cash and cash equivalents $ 4,229 $ 1,982
Cash and cash equivalents at beginning of period 3,635 4,714
---------- ----------
Cash and cash equivalents at end of period $ 7,864 $ 6,696
========== ==========
</TABLE>
E-7
<PAGE>
MBLA FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
1999 1998
------- --------
(In thousands)
<S> <C> <C>
Supplemental cash flow disclosures:
Cash paid for:
Interest $ 3,906 $ 5,386
========== ==========
Income Taxes $ 657 $ 908
========== ==========
Noncash activity:
Loans transferred to real estate owned $ 174 -
========== ==========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
E-8
<PAGE>
MBLA FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles (GAAP)
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of
only normal recurring accruals) necessary for a fair presentation have been
included. The results of operations and other data for the three and nine
month periods ended March 31, 1999 are not necessarily indicative of
results that may be expected for the entire fiscal year ending June 30,
1999.
The unaudited consolidated financial statements include the amounts of MBLA
Financial Corporation (the "Holding Company") and its wholly-owned
subsidiary, Macon Building and Loan Association, F.A. (the "Association"),
and the Association's wholly-owned subsidiary, MBL Financial Services, for
the three and nine month periods ended March 31, 1999. The consolidated
financial statements for the prior period include accounts of the Holding
Company and its subsidiaries. Material intercompany accounts and
transactions have been eliminated in consolidation.
(2) CONVERSION TO STOCK OWNERSHIP
The Holding Company, a Delaware corporation, was incorporated on February
23, 1993 for the purpose of becoming the holding company for the
Association upon the Association's conversion from the mutual to stock form
of ownership. The conversion was completed on June 24, 1993. The proceeds
from the conversion, after recognizing conversion expenses and underwriting
costs of approximately $840,000, were $16.41million and are recorded as
common stock and additional paid in capital on the accompanying unaudited
consolidated statement of financial condition. The Holding Company utilized
approximately $8.205 million of the net proceeds to purchase all of the
capital stock of the Association.
The Association has established for eligible employees an Employee Stock
Ownership Plan ("ESOP") in connection with the conversion. The ESOP
borrowed $685,000 from the Holding Company and purchased 68,500 common
shares issued in the conversion. The Association is making the scheduled
discretionary cash contributions to the ESOP sufficient to service the
amount borrowed. To date, the Association has made payments of $643,000
($546,000 in principal) to the Holding Company. The $139,000 ESOP
obligation ($685,000 in stock issued by the Holding Company on June 30,
1993 less the principal payments made by the Association) is reflected in
the accompanying consolidated financial statements as a charge to unearned
compensation and a credit to common stock and paid-in capital. The
unamortized balance of unearned compensation is shown as a deduction of
stockholders' equity. The unpaid balance of the ESOP loan is eliminated in
consolidation.
The Association established several Recognition and Retention Plans
("RRP's") which purchased in the aggregate 69,000 shares of common stock in
the conversion. The Association contributed $690,000 to fund the purchase
of the RRP shares. All but 4,692 shares were awarded to directors and
officers at conversion and were earned over varying annual rates, depending
upon the individual's position in the Association. The aggregate purchase
price of these shares was amortized as compensation expense over the
participants' vesting period. The remaining 4,692 shares were awarded to
directors on January 2, 1998 and were accordingly expensed at that time.
E-9
<PAGE>
The Holding Company has adopted stock option plans for the benefit of
directors, officers, and other key employees of the Association. The number
of shares of common stock reserved for issuance under the stock option
plans was equal to 10% of the total number of common shares issued pursuant
to the Association's conversion to the stock form of ownership. The option
exercise price was $10.00 as of the date of the option grant, and the
maximum option term cannot exceed ten years. The stock options awarded to
directors may be exercised at any time after grant. The stock options
awarded to officers and other key employees are exercisable on a cumulative
basis in equal installments over varying time periods, depending upon the
officer's or employee's position with the Association. At June 24, 1993,
172,500 stock options were issued with 9,833 reserved for future use and
162,667 granted. The remaining 9,833 options were awarded to directors
during the quarter ended September 30, 1997 at an exercise price of $23.50.
As of March 31, 1999, 94,275 options had been exercised or retired, leaving
a total of 78,225 which had not been exercised.
(3) EARNINGS PER SHARE
Earnings per share (EPS) computations follow SFAS No. 128 which is
effective for financial statements issued for periods ending after December
15, 1997. Basic EPS have been determined by dividing net income for the
period (numerator) by the weighted-average number of common shares
outstanding during the period (denominator). Weighted-average common shares
include shares held by the RRP plan and allocated ESOP shares. Unallocated
ESOP shares are not used in either basic or diluted EPS calculations.
Shares issued during the period and shares reacquired during the period are
weighted for the portion of the period outstanding. In determining diluted
EPS, the denominator used for basic EPS is increased to include the number
of additional common shares (common stock equivalents) that would have been
outstanding if the dilutive potential common shares had been issued. Stock
options are regarded as common stock equivalents and are computed using the
treasury stock method. Prior periods EPS have been restated to comply with
SFAS No. 128.
(4) STOCK REPURCHASE PROGRAM
During the quarter ended March 31, 1999, the Company did not repurchase any
shares of its common stock. As of March 31, 1999, MBLA Financial
Corporation had repurchased a total of 518,190 shares of its common stock.
(5) COMMITMENTS AND CONTINGENCIES
Commitments to originate and purchase mortgage loans of $6.663 million at
March 31, 1999, represent amounts which the Association plans to fund
within the normal commitment period of sixty to ninety days. As of March
31, 1999, the Association had no commitments to purchase mortgage-backed
securities, CMOs or investment securities. The Association had commitments
outstanding of $1.136 million to sell mortgage loans at March 31, 1999. The
Association did not have any commitments outstanding at March 31, 1999 to
sell mortgage-backed and related securities or investment securities.
(6) RECLASSIFICATIONS
None.
E-10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
MBLA Financial Corporation was organized, as a Delaware corporation, in
February 1993 at the direction of the Association's Board of Directors to
acquire all of the capital stock that the Association issued upon its conversion
from the mutual to stock form of ownership. The business of the Holding Company
consists primarily of the business of the Association. There are no current
arrangements, understandings or agreements to expand its business activities or
make any business acquisitions.
Macon Building and Loan Association, F.A., originally founded in 1885, is a
Federally chartered stock savings and loan association headquartered in Macon,
Missouri. Its deposits are insured up to the maximum allowable amount by the
Federal Deposit Insurance Corporation (the "FDIC"). The Association serves Macon
and Randolph Counties, Missouri. The Association conducts business through its
main office and one branch office in Moberly, Missouri.
The business of the Association consists principally of attracting deposits
from the general public and using such deposits to purchase and originate
mortgage loans secured by one- to four-family residences. The servicing rights
on substantially all loans purchased by the Association are retained by the
sellers. To a lesser extent, the Association invests in U.S. government and
federal agency securities and mortgage-backed and related securities, interest-
earning deposits and commercial and multi-family real estate loans and consumer
loans.
The Association's results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
its loans and investment portfolio, and its cost of funds, consisting of the
interest paid on its deposits and also interest paid on FHLB advances. The
Association's operating expenses consist primarily of employee compensation,
occupancy expenses, FDIC insurance premiums and other general and administrative
expenses. The Association's results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
market interest rates, government policies, and actions of regulatory
authorities.
The Association's operating strategies have been developed to respond to
the economic conditions prevailing in the Association's primary market area.
Macon's deposits are generated primarily from customers located in the
Association's primary market area. However, due to insufficient loan demand, the
Association has, for over 30 years, purchased the majority of its loans from
selected mortgage banking companies and financial institutions located primarily
in Columbia, Boone County, Missouri, and to a lesser extent, the Kansas City,
St. Louis, Springfield and Cape Girardeau areas. The sellers retain servicing
rights on the loans purchased by the Association. By extending its lending
market area and employing alternative investment opportunities, such as
mortgage-backed and related securities and other investment securities, the
Association has attempted to limit, and believes it has been successful in
limiting, the impact of these economic conditions on its results of operations.
The economy of Boone County is primarily dependent on the services and
government industries. The education industry also plays an important role in
the economy of Boone County as three colleges and universities are located
there.
The Association continues to maintain a high level of asset quality and has
remained profitable. The local economies of both Macon County and Randolph
County have improved and the demand for mortgage loans is good but the
Association still must purchase the majority of their mortgage loans. Past
performance, however, is not a guarantee of future results.
The operations of Macon Building and Loan Association are influenced
significantly by local economic conditions and by policies of the Office of
Thrift Supervision (OTS) and the FDIC. The
E-11
<PAGE>
Association's cost of funds is influenced by interest rates on competing
investments and general market interest rates. Lending activities are affected
by the demand for financing of real estate and other types of loans, which in
turn is affected by the interest rates at which such financing may be offered.
LIQUIDITY AND CAPITAL RESOURCES
The Holding Company and Association's most liquid assets are cash, due from
banks and interest-earning deposits. The levels of these assets are dependent on
the Association's lending, investing, operating, and deposit activities during
any given period. At March 31, 1999, cash, due from banks and interest-earning
deposits totalled $7.864 million.
The Association's primary sources of funds are deposits, advances from the
FHLB, proceeds from principal and interest payments on loans, proceeds from
principal and interest payments on mortgage-backed and related securities, and
proceeds from the maturing of investment securities. While maturity and
scheduled amortization of loans and investment securities are predictable
sources of funds, deposit inflows and mortgage prepayments are greatly
influenced by local conditions, general interest rates and regulatory changes.
The Association is required to maintain minimum levels of liquid assets as
defined by OTS regulations. Liquid assets consist of cash, due from banks,
interest-earning deposits, short and intermediate term U.S. Government and
government agency securities. This requirement, which periodically varies
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short term borrowings. The current required liquidity ratio is
4%. The Association historically has maintained a level of liquid assets in
excess of this regulatory requirement. The Association's liquidity ratios were
11.84% and 9.14% at March 31, 1999 and 1998, respectively. Liquidity management
for the Association is both a daily and long term function of the Association's
management strategy. In the event that the Association should require funds
beyond its ability to generate internally, additional sources of funds are
available through the use of Federal Home Loan Bank advances and reverse
repurchase agreements.
The primary investment activity of the Association is the origination and
purchase of mortgage loans. During the three months ended March 31, 1999 and
1998, the Association originated and purchased mortgage loans in the aggregate
amount of $10.090 million and $10.532 million, respectively. During the three
months ended March 31, 1999, the Association sold loans in the amount of $2.459
million. Another investment activity of the Association is investment in U.S.
Treasury securities, agency bonds, mortgage-backed securities, collateralized
mortgage obligations and FHLB overnight funds. During periods when the
Association's loan demand is limited, the Association may purchase short-term
investment securities to obtain a higher yield than otherwise available.
At March 31, 1999, the Association had outstanding loan commitments to
originate and purchase $6.663 million of loans. The Association believes that it
will have sufficient funds available to meet all of these commitments. At March
31, 1999, the Association had outstanding commitments of $1.136 million to sell
mortgage loans. The Association did not have any outstanding commitments to sell
mortgage-backed and related securities or any other investment securities at
March 31, 1999. Should the Association need to, the Board of Directors has
authorized management to obtain additional short-term advances from the Federal
Home Loan Bank ("FHLB") of Des Moines to fund loan purchases. At March 31, 1999,
the Association had an available credit line of approximately $19 million with
the FHLB of Des Moines, under which $57.456 million was outstanding. If needed,
the Association can pledge more collateral to obtain a higher credit line.
At March 31, 1999, certificates of deposit which are scheduled to mature in
one year or less from March 31, 1999, totalled $86.245 million. Management
believes that a significant portion of these funds will remain with the
Association.
E-12
<PAGE>
CAPITAL AND PROMPT CORRECTIVE ACTION RATIOS
At March 31, 1999, the Association exceeded each OTS capital and prompt
corrective action ratio. The following table sets forth the OTS minimum ratios
for "adequately capitalized" and "well capitalized", as well as the Association
ratio, for each category.
<TABLE>
<CAPTION>
MINIMUM MINIMUM
"ADEQUATELY "WELL
CAPITALIZED" CAPITALIZED" ASSOCIATION
RATIO RATIO RATIO RATIO
- ------- ------------- ------------- -----------
<S> <C> <C> <C>
Tier 1 (Core)
Capital Ratio 4% 5% 13.66%
Total Risk-Based
Capital Ratio 8% 10% 32.49%
Tier 1 Risk-Based
Capital Ratio 4% 6% 31.67%
</TABLE>
The minimum OTS Tangible Equity Ratio to be deemed other than "critically under
capitalized" is 2%. At March 31, 1999, the Association's tangible equity ratio
was 13.66%.
CHANGES IN FINANCIAL CONDITION
Total assets increased $2.960 million to $206.188 million at March 31, 1999
from $203.228 million at June 30, 1998. The increase in assets is primarily
attributable to the increase in loans receivable and interest-earning deposits,
partially offset by decreases in investment securities and mortgage-backed and
related securities.
Cash due from banks and interest-earning deposits increased from $3.635
million to $7.864 million. This increase was due, in part, to a net inflow of
deposits and the maturing of investment securities which were invested in
overnight funds. The increased balance on cash due from bank and interest-
earning deposits are expected to be used to fund outstanding loan commitments
and to repay borrowings.
Investment securities decreased $2.258 million to $7.512 million at March
31, 1999 from $9.770 million at June 30, 1998. The decrease is attributable to
the maturing of investment securities in an amount greater than the purchase of
investment securities during the nine months ended March 31, 1999.
Mortgage-backed and related securities decreased $3.598 million to $44.628
million at March 31, 1999 from $48.226 million at June 30, 1998. This decrease
is due to the repayments of mortgage-backed and related securities during the
nine months ended March 31, 1999. There were not any purchases of mortgage-
backed and related securities during the period.
Loans receivable increased $4.474 million to $141.121 million at March 31,
1999 from $136.647 million at June 30, 1998. This increase is due to loan
originations and purchases in an amount greater than loan repayments and loans
sold during the period.
Deposits increased $3.512 million or 3.05% from $115.330 million at June
30, 1998 to $118.842 million at March 31, 1999. The average cost of deposits
decreased from 5.65% at June 30, 1998 to 5.24% at March 31, 1999. The increase
in deposits is due to a net increase in certificates
E-13
<PAGE>
of deposit. Certificates of deposit with maturities of one year or less
increased $96,000 million; 18 to 48 month certificates of deposit increased
$1.810 million; jumbo certificates of deposit increased $858,000; and passbook
savings increased $748,000. A significant portion of the deposit growth of
approximately $3.169 million was from the Moberly branch office.
Advances from the FHLB of Des Moines decreased $1.184 million to $57.456
million from $58.640 million at June 30, 1998. This decrease in advances
reflects the normal principal repayment of mortgage-matched advances, along with
repayments of LIBOR advances funded with proceeds received from deposit growth
and loan repayments. The average cost of advances decreased from 5.63% at June
30, 1998 to 4.98% at March 31, 1999.
Stockholders' equity increased $995,000 to $28.836 million at March 31,
1999 from $27.841 million at June 30, 1998. The increase in stockholders' equity
is attributable to earnings during the period which was reduced by dividends
paid to shareholders and a market value decline in available-for-sale securities
at March 31, 1999 as compared to June 30, 1998. MBLA Financial Corporation's
capital to asset ratio was 13.99% as of March 31, 1999 as compared to 13.70% at
June 30, 1998.
INTEREST RATE SENSITIVITY
Macon Building and Loan Association, F.A., has employed various strategies
intended to minimize the adverse effect of interest rate risk on future
operations by providing a close match between the interest rate sensitivity of
its assets and liabilities and by expanding its activities which are not
directly dependent on interest rate spreads. The Association's strategies are
intended to stabilize net interest income for the long-term by protecting its
interest rate spread against changes in interest rates.
The Association utilizes ARMs to provide repricing opportunities more
closely matched within the time frames in which its deposits are repriced.
Management is charged with the responsibility to manage interest rate risk while
remaining sensitive to the Board's directive that credit risk not be substituted
for interest rate risk. As a result of these efforts, approximately 89% of Macon
Building and Loan Association's mortgage loan portfolio as of March 31, 1999,
consisted of ARMs, including ARM loans secured by commercial real estate.
Approximately 80% of all ARMs, or 71% of all loans, are adjustable in one, two,
or three years from March 31, 1999.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE
MBLA Financial Corporation and Macon Building and Loan Association have
classified all investment securities and mortgage-backed and related securities
as available-for-sale with all investments reported at fair value with
unrealized holding gains and losses excluded from earnings and reported as a
separate component of shareholders' equity. At March 31, 1999, the effect on
stockholders' equity was an addition of $531,000 net of deferred income taxes as
compared to an addition of $859,000 at June 30, 1998 net of deferred income
taxes.
YEAR 2000
The Association utilizes FISERV's thrift platform for data processing.
The Association installed new teller terminals during the quarter ended December
31, 1998 at an approximate installed cost of $12,000. These new terminals are
Y2K compliant as is all other computer hardware currently in use.
Y2K testing of the FISERV thrift platform processing system has been
completed. Macon Building & Loan Association participated in proxy testing with
FISERV and has received written
E-14
<PAGE>
documentation of testing. Proxy testing of FISERV's thrift platform indicates
the system is Y2K compliant. Testing of the "connectivity" to FISERV was
successfully completed in March 1999.
The Association has contacted major multi-family and commercial borrowers
regarding their Y2K compliance. All responses received by the Association
indicate borrowers' awareness of Y2K issues; borrowers' awareness, and if
appropriate steps are being taken to correct any problems; if borrowers'
computer/software is compliant and has been tested; if testing has not been
undertaken, when to expect completion; and Y2K awareness but computers not used
for their accounting system. Responses received by borrowers indicate awareness
of issues and systems are either currently Y2K compliant or will be in 1999.
The Association has contacted all other major software vendors and mission
critical third-party providers regarding Y2K compliance. All major software
vendors and mission critical third-party providers who responded to the
Association inquiries have indicated their software and/or systems are Y2K
compliant.
The Association has adopted a "Business Resumption Contingency Plan" in the
event of a "worst-case" failure or interruption of mission critical systems. A
"worst-case" scenario would involve complete failure of Association computer
systems caused by either power failure by local utility companies who supply
electricity or by inability of Association computer system to function/operate
on January 3, 2000. Association management and personnel will be available
January 1 and January 2, 2000 to further test systems and to again validate
Association systems. The Association does not expect any major capital
expenditures on these areas at this time.
SUBSEQUENT EVENTS
On May 3, 1999, MBLA Financial Corporation ("MBLA") entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Citizens BancShares
Company ("Citizens"). The Merger Agreement provides that a wholly-owned
subsidiary of Citizens will be merged with and into MBLA, with MBLA being the
surviving entity (the "Merger") and becoming a wholly-owned subsidiary of
Citizens. Immediately following the consummation of the Merger, Macon Building
and Loan Association, F.A., a federally-chartered stock savings and loan
association and a subsidiary of MBLA, will merge with and into Citizens Bank and
Trust Company, a bank organized under the laws of the State of Missouri and a
subsidiary of Citizens.
Pursuant to the terms of the Merger Agreement, each share of MBLA common
stock, par value $.01 per share, outstanding at the effective time of the
Merger, will be exchanged for a cash payment of $24.15 plus an amount equal to
the change in adjusted book value per share of MBLA from December 31, 1998 to
the end of the month prior to closing.
Consummation of the Merger is subject to various conditions, including the
approval of the shareholders of MBLA and the receipt of all requisite regulatory
approvals.
ASSET QUALITY
The Holding Company and the Association regularly review interest earning
assets to determine proper valuation. Management's monitoring of the asset
portfolio includes reviews of historical loss experience, known and inherent
risks in the portfolio, the value of any underlying collateral, prospective
economic conditions and the regulatory environment. The Association's non-
accrual mortgage loans delinquent more than 90 days decreased from $887,000 at
June 30, 1998 to $605,000 at March 31, 1999.
E-15
<PAGE>
The table on the following page sets forth information regarding the
Association's non-accrual loans and foreclosed real estate at the dates
indicated. The Association discontinues accruing interest on delinquent loans no
later than ninety days past due, at which time all accrued but uncollected
interest is reversed. At March 31, 1999, the Association has no restructured
loans within the meaning of Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 15.
E-16
<PAGE>
MBLA FINANCIAL CORPORATION
ASSET QUALITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1999 1998 1998 1998 1998
--------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans
delinquent more than 90 days $ 605 $ 1,488 $ 878 $ 887 $1,137
Non-accrual other loans
delinquent more than 90 days 0 0 0 0 0
--------------------------------------------------------------------------------
Total non-performing loans 605 1,488 878 887 1,137
Real estate owned and in-
substance foreclosed loans
net of related allowance 138 4 4 0 0
--------------------------------------------------------------------------------
Total non-performing assets $ 743 $ 1,492 $ 882 $ 887 $1,137
================================================================================
Non-performing loans to
total loans 0.43% 1.05% 0.62% 0.65% 0.85%
Non-performing assets to
total assets 0.36% 0.72% 0.42% 0.44% 0.55%
Allowance for loans losses
to non-performing loans 119.83% 48.39% 79.93% 77.79% 59.37%
</TABLE>
E-17
<PAGE>
RESULTS OF OPERATIONS
Comparison of quarterly results in this section are between the three month
periods ended March 31, 1999, and March 31, 1998 and between the nine month
periods then ended.
GENERAL
Net income for the quarter ended March 31, 1999 was $452,000, a decrease of
$53,000 from the $505,000 net income for the quarter ended March 31, 1998. Basic
earnings per share for the quarter ended March 31, 1999 were 37c per share as
compared to 41c per share for the quarter ended March 31, 1998. Diluted earnings
per share were 35c per share for the quarter ended March 31, 1999 as compared to
39c per share for the quarter ended March 31, 1998.
Comprehensive income for the quarter ended March 31, 1999 was $399,000 as
compared to $527,000 for the quarter ended March 31, 1998. The quarter ended
March 31, 1999 had a net unrealized holding loss of $53,000 net of deferred
taxes while the quarter ended March 31, 1998 had a net unrealized holding gain
of $22,000 net of deferred income taxes.
Net income for the nine months ended March 31, 1999 was $1.415 million as
compared to $1.484 million for the nine months ended March 31, 1998. Basic
earnings per share were $1.15 for the nine months ended March 31, 1999 as
compared to $1.19 for the nine months ended March 31, 1998. Diluted earnings per
share were $1.11 per share for the nine months ended March 31, 1999 and $1.13
per share for the nine months ended March 31, 1998.
Comprehensive income for the nine months ended March 31, 1999 was $1.087
million as compared to $1.665 million for the same period ended March 31, 1998.
The nine month period ended March 31, 1999 had a net unrealized holding loss of
$328,000 on available-for-sale securities as compared to a net unrealized
holding gain of $181,000 for the nine months ended March 31, 1998. Both are net
of deferred income taxes.
INTEREST INCOME
Total interest income decreased $271,000 to $3.545 million for the quarter
ended March 31, 1999 from $3.816 million for the quarter ended March 31, 1998.
Interest on mortgage loans increased $206,000 to $2.618 million for the three
month period ended March 31, 1999 over the same period ended March 31, 1998.
Interest on investment securities decreased $147,000 to $154,000 for the three
month period ended March 31, 1999 as compared to the quarter ended March 31,
1998. Interest on mortgage-backed and related securities decreased $326,000 to
$690,000 for the three month period ended March 31, 1999 as compared to the same
period ended March 31, 1998. Interest on other interest-earning assets decreased
$4,000 to $83,000 for the three month period ended March 31, 1999 as compared to
the same period ended March 31, 1998.
Total interest income decreased $1.001 million to $10.742 million for the
nine months ended March 31, 1999 from $11.743 million for the nine months ended
March 31, 1998. Interest on mortgage loans increased $612,000 to $7.784 million
for the nine month period ended March 31, 1999 over the same period ended March
31, 1998. Interest on investment securities decreased $419,000 to $509,000 for
the nine month period ended March 31, 1999 as compared to the nine months ended
March 31, 1998. Interest on mortgage-backed and related securities decreased
$1.137 million to $2.252 million for the nine month period ended March 31, 1999
as compared to the same period ended March 31, 1998. Interest on other interest-
earning assets decreased $57,000 to $197,000 for the nine month period ended
March 31, 1999 as compared to the same period ended March 31, 1998.
E-18
<PAGE>
Total interest income decreased during both periods because of lower
average earning asset balances during the period ended March 31, 1999 as
compared to the period ended March 31, 1998 in conjunction with lower interest
rates on earning assets. Interest on mortgage loans increased both periods
because of the higher mortgage loan balances ended March 31, 1999 as compared to
March 31, 1998 due to increased loan originations and purchases. Interest on
investment securities decreased both periods ended March 31, 1999 as compared to
periods ended March 31, 1998 because of maturities of investment securities
outpacing any new investments. The decrease in interest income on mortgage-
backed and related securities for each period was due primarily to mortgage
securities which were called during the third quarter of fiscal year ended June
30, 1998 in addition to normal principal payments received. The decrease in
interest on other interest-earning assets was attributable to the lower interest
rate environment coupled with slightly lower average balances on earning assets
during both periods ended March 31, 1999 as compared to the periods ended March
31, 1998.
INTEREST EXPENSE
Total interest expense for the quarter ended March 31, 1999 was $2.336
million as compared to $2.652 million for the quarter ended March 31, 1998, a
decrease of $316,000 or 11.92%. Interest expense on deposits increased $143,000
to $1.590 million at March 31, 1999 from $1.547 million at March 31, 1998.
Interest expense on advances decreased $359,000 to $746,000 at March 31, 1999
from $1.105 million at March 31, 1998. The average cost of funds which includes
both interest paid on deposits and interest paid on advances, decreased from
5.66% at March 31, 1998 to 5.15% at March 31, 1999.
Total interest expense for the nine months ended March 31, 1999 was $7.303
million as compared to $8.218 million for the nine months ended March 31, 1998,
a decrease of $915,000 or 11.13%. Interest expense on deposits increased
$358,000 to $4.890 million at March 31, 1999 from $4.532 million at March 31,
1998. Interest expense on advances decreased $1.273 million to $2.413 million at
March 31, 1999 from $3.686 million at March 31, 1998.
The decrease in total interest expense for each period ended March 31, 1999
as compared to the same periods ended March 31, 1998 is attributable to the
lower average balances in FHLB advances during the most recent periods. The
Association had mortgage securities called during the third quarter of fiscal
year ended June 30, 1998 and then paid-off the corresponding advances at the
same time. Part of this decrease in interest expense was offset by the higher
expense in deposits. The increase in interest expense on deposits resulted from
the deposit growth which the Association has been experiencing. The decrease of
interest expense on advances was discussed above.
NET INTEREST INCOME
Net interest income before provisions for loan losses was $1.209 million
for the quarter ended March 31, 1999 as compared to $1.164 million for the
quarter ended March 31, 1998, an increase of $45,000. Net interest income before
provisions for loan losses was $3.439 million for the nine months ended March
31, 1999 as compared to $3.525 million for the nine months ended March 31, 1998,
a decrease of $86,000. The decrease in net interest income for both periods is
due to the overall net decrease in earning assets between the comparable
periods.
PROVISION FOR LOAN LOSSES
At March 31, 1999, the provision for loan losses general loan valuation
allowance is $725,000. For the three months ended March 31, 1999, provision for
loan losses was increased $5,000 as compared to an increase of $15,000 during
the quarter ended March 31, 1998. For the nine months
E-19
<PAGE>
ended March 31, 1999 and March 31, 1998, provision for loan losses was increased
$35,000 and $45,000 respectively each period. The Association has a policy of
maintaining a general loan valuation allowance of one-half of one percent of
outstanding loans. The Association continuously monitors this provision on a
quarterly basis. As of March 31, 1999, the provision for loan losses was .514%
of outstanding loans.
NONINTEREST INCOME
Other income for the quarter ended March 31, 1999 was $7,000 as compared to
$2,000 for the quarter ended March 31, 1998. Other income for the nine months
ended March 31, 1999 was $62,000 as compared to $7,000 for the nine months ended
March 31, 1998. Other noninterest income for the nine months ended March 31,
1999 was enhanced by a $42,000 Missouri state income tax refund for tax years
1996 and 1997. Other income is not considered a significant part of the overall
income of the company.
NONINTEREST EXPENSE
Noninterest expense for the quarter ended March 31, 1999 decreased $67,000
to $427,000, as compared to $494,000 for the quarter ended March 31, 1998.
Compensation and benefits decreased $115,000 and other noninterest expense
increased $40,000 for the quarter ended March 31, 1999 as compared to the
quarter ended March 31, 1998. A net gain on sale of loans of $26,000 offset a
$32,000 loss on sale of real estate owned for the quarter ended March 31, 1999.
Noninterest expense for the nine months ended March 31, 1999 decreased
$35,000 to $1.163 million, as compared to $1.198 million for the nine months
ended March 31, 1998. Compensation and benefits decreased $96,000 and other
noninterest expense increased $70,000 for the nine months ended March 31, 1999
as compared to the nine months ended March 31, 1998. The increase in expenses
was partially offset by a net gain on sale of loans of $54,000 for the period
ended March 31, 1999.
INCOME TAX
The provision for federal and state income taxes increased $180,000 to
$332,000 for the quarter ended March 31, 1999 as compared to $152,000 for the
quarter ended March 31, 1998. The provision for federal and state income taxes
increased $83,000 to $888,000 for the nine months ended March 31, 1999 as
compared to $805,000 for the nine months ended March 31, 1998.
E-20
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 1999, there have been no material changes in the
quantitative and qualitative disclosures about market risk presented in the
Holding Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1998 based on December 31, 1998 data provided by the Office of Thrift
Supervision ("OTS"). The Association experiences approximately a 60-day lag time
from the end of the quarter until receiving data from OTS.
E-21
<PAGE>
MBLA FINANCIAL CORPORATION AND SUBSIDIARY
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Holding Company and the Association are not involved in any
pending legal proceedings other than legal proceedings incident to the
business of the Holding Company and the Association, which involve
amounts in the aggregate which management believes are immaterial to
the financial condition and results of operations of the Holding
Company and the Association.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3 DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11. Statement re: Computation of Per Share Earnings
Exhibit 27. Financial Data Schedule*
*Submitted only with filing in electronic format.
(b) There were not any reports filed on Form 8-K.
E-22
<PAGE>
MBLA FINANCIAL CORPORATION AND SUBSIDIARY
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MBLA Financial Corporation
---------------------------------------------
(Registrant)
Dated May 5, 1999 /s/ John T. Neer
---------------------------------------------
John T. Neer
President and Chief Executive Officer
(Duly Authorized Officer)
Dated May 5, 1999 /s/ Clyde D. Smith
---------------------------------------------
Clyde D. Smith
Vice President and Chief Financial Officer
(Principal Financial Officer)
E-23
<PAGE>
REVOCABLE PROXY
MBLA FINANCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF MBLA FINANCIAL CORPORATION
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON August 25, 1999.
The undersigned stockholder of MBLA Financial Corporation (the
"Company") hereby appoints Charles L. Hutton, Carl B. Barrows and John T. Neer
as proxies, each of them with full power of substitution, to attend and act as
proxy for the undersigned and to cast all votes which the undersigned
stockholder is entitled to cast at the special meeting of stockholders of the
Company to be held at 5:00 p.m., local time on August 25, 1999, at the Company's
offices at 101 Vine Street, Macon, Missouri, and any and all adjournments and
postponements thereof (the "Special Meeting"), with all powers which the
undersigned would possess if personally present (i) as designated below with
respect to the matters set forth below and described in the accompanying Proxy
Statement and (ii) in their discretion with respect to any other business that
may properly come before the Special Meeting. The undersigned stockholder hereby
revokes any proxy or proxies heretofore given.
This proxy will be voted in the manner directed by the undersigned
stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED (1) "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT (AS DEFINED HEREIN) AND (2) IN THE
DISCRETION OF THE PROXIES AS TO ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE
THE SPECIAL MEETING.
This proxy card will also be used to provide voting instructions to the
trustee for any shares of common stock of the Company allocated to participants
under the Macon Building and Loan Association Employee Stock Ownership Plan.
(continued--to be signed and dated on reverse side)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT.
1. Approval and adoption of the Agreement and Plan of Merger,
dated as of May 3, 1999, by and between Citizens Bancshares
Company and the Company pursuant to which the Company will
merge with a wholly-owned subsidiary of Citizens Bancshares
Company and each share of common stock of the Company, par
value at $.01 per share, will be converted into the right to
receive $24.15, subject to adjustment, all on and subject to
the terms and conditions contained therein.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof. As of the
date of the Special Meeting, management of the Company is not
aware of any such other business.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and the Proxy Statement, dated July 13, 1999, for the
Special Meeting.
Dated: ____________________________________
Signature: _________________________________
Signature: _________________________________
Title: _____________________________________
(Please date and sign here exactly as name
appears at left. When signing as attorney,
administrator, trustee or guardian, give full
title as such; and when stock has been issued
in the name of two or more persons, all
should sign.)
PLEASE ACT PROMPTLY.
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE
DATE, SIGN AND RETURN ALL CARDS IN THE ACCOMPANYING ENVELOPE.
2
