Registration No. 333-3322
As filed with the Securities and Exchange Commission on June 11, 1996
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ILLINOIS COMMUNITY BANCORP, INC.
(Exact name of registrant as specified in charter)
ILLINOIS 6719 [TO BE APPLIED FOR]
- --------------------------------- ------------------------------ -----------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification Number)
210 E. FAYETTE AVENUE
EFFINGHAM, ILLINOIS 62401-3613
(217) 347-7127
-------------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
DOUGLAS A. PIKE, PRESIDENT
ILLINOIS COMMUNITY BANCORP, INC.
210 E. FAYETTE AVENUE
EFFINGHAM, ILLINOIS 62401-3613
(217) 347-7127
---------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
copies to:
HOWARD S. PARRIS, ESQUIRE
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
1220 19TH STREET, N.W., SUITE 700
WASHINGTON, D.C. 20036
(202) 822-9611
---------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER EFFECTIVENESS.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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ILLINOIS COMMUNITY BANCORP, INC.
Cross-Reference Sheet showing the location in the
Prospectus of the items of the Form S-4
HEADINGS IN PROXY
ITEMS OF FORM S-4 STATEMENT/PROSPECTUS
- ----------------- ------------------------
Item 1 Forepart of the Registration Statement -- Facing Page; Cross-Reference Sheet;
and Outside Front Cover Page of Outside Front Cover Page of
Prospectus Prospectus
Item 2 Inside Front and Outside Back Cover -- Outside Front Cover Page of Prospectus
Pages of Prospectus
Item 3 Risk Factors, Ratio of Earnings to -- Page 1 of Prospectus; Proposal I -
Fixed Charges and Other Information Proposed Holding Company Formation
Item 4 Terms of the Transaction -- Proposal I - Proposed Holding Company
Formation
Item 5 Pro Forma Financial Information -- Not Applicable
Item 6 Material Contacts with Company Being -- Proposal I - Proposed Holding Company
Formation
Item 7 Additional Information Required for -- Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
Item 8 Interests of Named Experts and Counsel -- Not Applicable
Item 9 Disclosure of Commission Position on -- Proposal I - Proposed Formation of
Indemnification for Securities Act Holding Company
Liabilities
Item 10 Information With Respect to S-3 -- Not Applicable
Registrants
Item 11 Incorporation of Certain Information -- Not Applicable
By Reference
Item 12 Information With Respect to S-2 or S-3 -- Not Applicable
Registrants
Item 13 Incorporation of Certain Information -- Not Applicable
by Reference
Item 14 Information with Respect to Registrant -- Market for Illinois Guarantee Common Stock
Other Than S-3 or S-2 Registrants and Dividend Information; Proposal I -
Proposed Holding Company Formation
(Continued on following page)
Item 15 Information With Respect to S-3 -- Not Applicable
Companies
Item 16 Information With Respect to S-2 or -- Not Applicable
S-3 Companies
Item 17 Information With Respect to Other -- Proposal I - Proposed Holding Company
Than S-3 or S-2 Companies Formation; Illinois Guarantee Savings
Bank, FSB; Financial Statements
Item 18 Information if Proxies, Consents or 18(a)(1) -- Page 1
Authorizations are to be Solicited
18(a)(2) -- Voting and Revocation of Proxies
18(a)(3) -- Proposal I - Proposed Holding Company
Formation
18(a)(4) -- Proposal I - Proposed Holding Company
Formation; Miscellaneous
18(a)(5) -- Proposal I - Proposed Holding
Company Formation; Voting Securities
and Principal Holders
thereof
18(a)(6) -- Proposal I - Proposed Holding Company
Formation
18(a)(7) -- Proposal I - Proposed Holding Company
Formation
Item 19 Information if Proxies, Consents or -- Not Applicable
Authorizations are not to be
Solicited or in an Exchange Offer
SCHEDULE 14A INFORMATION
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:
[x] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Illinois Guarantee Savings Bank, FSB
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Illinois Guarantee Savings Bank, FSB
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Rules 0-11(c)(1)(iii), 14a-6(i)(1), or 14a-6(i)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] 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:
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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:
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid
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[_] Fee paid previously with preliminary materials
[x] 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:
$2,529.00 previously paid
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2. Form, Schedule or Registration Statement No.:
Form S-4
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3. Filing Party:
Illinois Community Bancorp, Inc.
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4. Date Filed:
April 9, 1996
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June ___, 1996
Dear Stockholder:
We invite you to attend the Special Meeting of Stockholders (the "Special
Meeting") of Illinois Guarantee Savings Bank, FSB ("Illinois Guarantee" or the
"Bank") to be held at 210 East Fayette Avenue, Effingham, Illinois, on
________, June ___, 1996 at __:00 _.m. local time.
The attached Notice of Special Meeting and Proxy Statement/Prospectus
describe the formal business to be transacted at the Special Meeting.
Stockholders will be asked to consider and vote upon a proposal to reorganize
Illinois Guarantee into the holding company form of ownership by approving an
Agreement and Plan of Reorganization under which (i) Illinois Guarantee will
become a wholly owned subsidiary of Illinois Community Bancorp, Inc., an
Illinois corporation formed by the Bank for this purpose, and (ii) each
outstanding share of the common stock of Illinois Guarantee will be converted
into one share of common stock of the holding company. Reorganization into the
holding company form of ownership will permit diversification into a broader
range of financial and business activities and create greater flexibility in
operations. In the event that there are not enough votes to approve the proposal
to reorganize the Bank into the holding company form of ownership, stockholders
will vote upon a proposal to adjourn the Special Meeting. Stockholders will also
be asked to consider and vote upon the holding company's 1996 Stock Option and
Incentive Plan and Management Recognition Plan. As an integral part of the
Special Meeting, we will report on the Bank's operations. Directors and officers
of the Bank will be present to respond to any questions that our stockholders
may have.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
Because the holding company reorganization requires the approval of a majority
of the shares outstanding, the failure to vote or an abstention is equivalent to
a vote against the reorganization. On behalf of the Board of Directors, we urge
you to please sign, date and return the enclosed proxy card in the enclosed
postage-prepaid envelope as soon as possible even if you currently plan to
attend the Special Meeting. This will not prevent you from voting in person, but
will assure that your vote is counted if you are unable to attend the meeting.
Sincerely,
Douglas A. Pike
President
ILLINOIS GUARANTEE SAVINGS BANK, FSB
210 EAST FAYETTE AVENUE
EFFINGHAM, ILLINOIS 62401-3613
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE ___, 1996
- --------------------------------------------------------------------------------
The Special Meeting of Stockholders (the "Special Meeting") of Illinois
Guarantee Savings Bank, FSB (the "Bank") will be held at 210 East Fayette
Avenue, Effingham, Illinois, on ________, June ___, 1996 at __:00 _.m. local
time.
The Special Meeting is for the following purposes which are more
completely described in the accompanying Proxy Statement/Prospectus:
1. The approval of the reorganization of the Bank into the holding
company form of ownership by approving an Agreement and Plan of
Reorganization, pursuant to which the Bank will become a wholly owned
subsidiary of a holding company, Illinois Community Bancorp, Inc., a
newly formed Illinois corporation ("Holding Company"), and each
outstanding share of common stock of the Bank will be converted into
one share of common stock of the Holding Company (the "Holding Company
Reorganization");
2. The adjournment of the Special Meeting to a later date if an
insufficient number of shares is present in person or by proxy at the
Special Meeting to approve the Holding Company Reorganization;
3. Approval of the Holding Company's 1996 Stock Option and Incentive
Plan;
4. Approval of the Holding Company's Management Recognition Plan; and
5. Such other matters as may properly come before the Special Meeting
or any adjournment thereof.
The Board of Directors is not aware of any other business to come before
the Special Meeting.
Any action may be taken on any one of the foregoing proposals at the
Special Meeting or any adjournment thereof. Stockholders of record at the
close of business on May ___, 1996 (the "Record Date"), are the stockholders
entitled to vote at the Special Meeting and any adjournment thereof.
Appraisal rights will be available to stockholders as of the Record Date
who do not vote in favor of the Holding Company Reorganization and otherwise
comply with the procedures set forth in 12 C.F.R. (S)552.14, a copy of which is
attached as Exhibit D to the accompanying Proxy Statement/Prospectus.
You are requested to fill in and sign the enclosed proxy which is
solicited by the Board of Directors and to mail it promptly in the enclosed
envelope. The proxy will not be used if you attend and vote at the Special
Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
Douglas A. Pike
President
Effingham, Illinois
June ___, 1996
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE BANK THE EXPENSE OF A
FURTHER REQUEST FOR PROXIES IN ORDER TO INSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
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ILLINOIS GUARANTEE SAVINGS BANK, FSB
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE ___, 1996
ILLINOIS COMMUNITY BANCORP, INC.
PROSPECTUS FOR 502,550 SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE
This Proxy Statement/Prospectus is being furnished to the holders of common
stock of Illinois Guarantee Savings Bank, FSB ("Illinois Guarantee" or the
"Bank"), a federally chartered stock savings bank, in connection with the
solicitation of proxies by the Board of Directors of Illinois Guarantee for use
at a Special Meeting of Stockholders to be held at 210 East Fayette Avenue,
Effingham, Illinois, on ________, June ___, 1996 at __:00 _.m. local time.
This Proxy Statement/Prospectus also serves as the Prospectus of Illinois
Community Bancorp, Inc., an Illinois corporation (the "Holding Company"), under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the issuance of up to 502,550 shares of the Holding Company's common stock, par
value $.01 per share (the "Holding Company Common Stock"), in the Reorganization
of Illinois Guarantee into the holding company form of ownership and the
reservation of up to 70,357 shares of the Holding Company Common Stock for
issuance under the Holding Company's 1996 Stock Option and Incentive Plan
("Option Plan") and Management Recognition Plan ("MRP"). The accompanying
Notice of Special Meeting and this Proxy Statement/Prospectus are first being
mailed to stockholders on or about ________ ___, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR ANY STATE
SECURITIES AUTHORITY, NOR HAS ANY SUCH COMMISSION, OFFICE OR AUTHORITY PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement which the Holding Company has filed with the
Securities and Exchange Commission ("SEC"), Washington, D.C., under the
Securities Act. The Registration Statement, including exhibits, may be inspected
without charge or copied at prescribed rates at the office of the SEC, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Bank is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information with
the Office Thrift Supervision of the United States Department of the Treasury
("OTS"). Copies may be obtained at prescribed rates from the OTS, Information
Services Division, 1776 G Street, N.W., Washington, D.C. 20552.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL A SECURITY, OR A SOLICITATION OF A PROXY, IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
THE SECURITIES MADE UNDER THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF ILLINOIS GUARANTEE SAVINGS BANK, FSB OR ILLINOIS COMMUNITY BANCORP,
INC. SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
In order to be eligible for inclusion in the proxy materials of the Bank,
or, assuming consummation of the Reorganization, the Company, for the Annual
Meeting of Stockholders for the fiscal year ending June 30, 1996, any
stockholder proposal to take action at such meeting must be received at the
Bank's or the Company's executive offices at 210 East Fayette Avenue, Effingham,
Illinois, by no later than June ___, 1996. Any such proposals shall be subject
to the requirements of the proxy rules adopted under the Securities Exchange Act
of 1934, as amended.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
TABLE OF CONTENTS
Page
----
Summary of Proposals......................................................
Introduction..............................................................
Voting and Revocation of Proxies..........................................
Voting Securities and Principal Holders Thereof...........................
Proposal I - Proposed Holding Company Formation...........................
Proposal II - Adjournment of Special Meeting..............................
Proposal III - Approval of 1996 Stock Option
and Incentive Plan......................................................
Proposal IV - Approval of Management
Recognition Plan........................................................
New Plan Benefits.........................................................
Executive and Director Compensation.......................................
Illinois Guarantee SavingS Bank, FSB......................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................
Business of the Bank.................................................
Regulation of the Bank...............................................
Taxation.............................................................
Market for Illinois Guarantee Common Stock and
Dividend Information................................................
Financial Statements......................................................
Experts...................................................................
Miscellaneous.............................................................
Date for Submission of Stockholder Proposals..............................
Exhibit A - Agreement and Plan of Reorganization.......................... A-1
Exhibit B - Articles of Incorporation..................................... B-1
Exhibit C - Bylaws........................................................ C-1
Exhibit D - Dissenter and Appraisal Rights................................ D-1
Exhibit E - 1996 Stock Option and Incentive Plan.......................... E-1
Exhibit F - Management Recognition Plan................................... F-1
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JUNE ___, 1996
- --------------------------------------------------------------------------------
SUMMARY OF PROPOSALS
- --------------------------------------------------------------------------------
PROPOSAL I -- PROPOSED HOLDING COMPANY FORMATION
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION APPEARING ELSEWHERE
IN THIS PROXY STATEMENT/PROSPECTUS UNDER "PROPOSAL I -- PROPOSED HOLDING COMPANY
FORMATION" AND EXHIBITS A, B, C AND D ATTACHED HERETO.
GENERAL. The formation of a holding company will be accomplished under an
Agreement and Plan of Reorganization, dated February 20, 1996 ("Plan of
Reorganization"), pursuant to which the Bank will become a wholly owned
subsidiary of Illinois Community Bancorp, Inc., a newly formed Illinois
corporation. Under the terms of the proposed reorganization (the
"Reorganization"), each outstanding share of the Bank's common stock, par value
$1.00 per share (the "Illinois Guarantee Common Stock"), other than shares as to
which dissenter's rights of appraisal have been properly exercised, will be
converted into one share of the Holding Company Common Stock. Upon consummation
of the Reorganization, the holders of certificates which formerly represented
Illinois Guarantee Common Stock will cease to have any rights with respect to
such Illinois Guarantee Common Stock and the former holders of Illinois
Guarantee Common Stock will become the holders of all of the outstanding Holding
Company Common Stock. The Holding Company was incorporated on February 20, 1996,
and has no prior operating history. Following the Reorganization, it is intended
that the Bank will continue its operations at the same location, with the same
management and subject to all the rights, obligations and liabilities of the
Bank existing immediately prior to the Reorganization.
The Company's and the Bank's mailing address is 210 East Fayette Avenue,
Effingham, Illinois 62401-3613. The telephone number for the principal
executive offices of the Company and the Bank is (217) 347-7127.
REASONS FOR THE HOLDING COMPANY REORGANIZATION. The Board of Directors of
the Bank believes that a holding company structure will provide greater
flexibility than is currently enjoyed by Illinois Guarantee. Present regulations
applicable to savings associations limit both the types of businesses in which
Illinois Guarantee may engage and the amount which Illinois Guarantee may invest
in subsidiaries. Illinois Guarantee is also limited in its ability to engage in
certain corporate transactions, such as stock repurchases, by certain provisions
of the Internal Revenue Code of 1986 applicable to savings associations, but not
applicable to their holding companies. The Board of Directors believes that
stock repurchases would improve market liquidity and enhance stockholder value
by adding another potential purchaser to the market. The establishment of a
unitary holding company (i.e., a holding company with only one savings
association subsidiary) also permits diversification of operations and the
acquisition and formation of companies engaged in lines of business which, while
complimentary to the thrift business, should help to reduce the risks inherent
in an industry which is sensitive to interest rate changes. Moreover, a holding
company structure will help facilitate the acquisition of other financial
institutions. The Holding Company does not, however, presently intend to operate
more than one savings association subsidiary. The Bank's Board of Directors
believes that acquisition or formation of such enterprises, which do not have
the degree of asset and liability interest rate sensitivity inherent in the
structure of a savings association, will provide a beneficial stabilizing effect
on operations. Upon consummation of the Reorganization, the Holding Company will
be in a position to take immediate advantage of any acquisition opportunities
which may arise, although no specific acquisition is planned at this time. For
further information, see "PROPOSAL I -- PROPOSED HOLDING COMPANY FORMATION --
Reasons for the Holding Company Reorganization." If, however, the Bank ceases to
be a "Qualified Thrift Lender" (generally defined as an a savings association
with at least 65% of its tangible assets, including investments made by a
subsidiary of such institution, invested in "qualified thrift investments"), the
Holding Company will not be permitted to take advantage of certain
diversification opportunities. At December 31, 1995, the Bank's percentage of
qualified thrift investments was 79.96% which was in excess of that requirement
to qualify the Bank as a Qualified Thrift Lender. See "PROPOSAL I -- PROPOSED
HOLDING COMPANY FORMATION -- Regulation of Illinois Community Bancorp,
Inc."
-2-
MARKET FOR COMMON STOCK. At the present time, Illinois Guarantee Common
Stock is listed and traded over-the-counter through the National Daily Quotation
System "Pink Sheets" published by the National Quotation Bureau. However, it is
unlikely that an active market will develop for Illinois Guarantee Common Stock
or that, following consummation of the Reorganization, an active public market
will develop for the Holding Company Common Stock. Accordingly, holders of
Holding Company Common Stock should have a long-term investment intent.
DIVIDENDS. The ability of the Bank to pay dividends on Illinois Guarantee
Common Stock is restricted by federal regulations and tax considerations.
Although the Holding Company will not be subject to these restrictions, the
Holding Company's principal source of income initially will consist of its
equity in the earnings of the Bank, and the aforementioned restrictions on the
Bank's ability to pay dividends will continue in effect. In addition, certain
limitations generally imposed on Illinois corporations may have an impact on the
Holding Company's ability to pay dividends. See "PROPOSAL I -- PROPOSED HOLDING
COMPANY FORMATION -- Comparison of Stockholders' Rights -- Payment of
Dividends."
DISSENTERS' RIGHTS. Stockholders of the Bank will have dissenters'
appraisal rights in connection with the Reorganization. Such rights will entitle
stockholders who do not vote in favor of the holding company formation and who
comply with certain other conditions to receive the fair or appraised value of
their shares of Illinois Guarantee Common Stock rather than having such shares
converted into shares of Holding Company Common Stock. The Plan of
Reorganization states that it is a condition to consummation of the holding
company formation that the holders of not more than 10% of the Illinois
Guarantee Common Stock exercise their dissenters' rights. Although such
condition to the Reorganization may be waived by the parties in the discretion
of the Board of Directors, the Board of Directors does not currently intend to
waive this condition. See "PROPOSAL I -- PROPOSED HOLDING COMPANY FORMATION --
Rights of Dissenting Stockholders."
MANAGEMENT OF THE CORPORATION. The Board of Directors of the Holding
Company presently consists and, upon the completion of the Reorganization, is
expected to continue to consist of all of the present directors of Illinois
Guarantee. The officers of the Holding Company will consist of persons now
serving as officers of Illinois Guarantee. See "PROPOSAL I -- PROPOSED HOLDING
COMPANY FORMATION -- Management of Illinois Community Bancorp, Inc."
TAX CONSEQUENCES. Illinois Guarantee has received an opinion of counsel
that, among other things, the Reorganization will be treated as a non-taxable
transaction at the corporate and stockholder levels. Receipt of this opinion or
a ruling from the Internal Revenue Service ("IRS") is a condition to the
consummation of the Reorganization. This opinion will not be binding on the IRS.
Each Illinois Guarantee stockholder should consult his own tax advisor as to
specific federal, state and local tax consequences of the Reorganization, if
any, to such stockholder. See "PROPOSAL I -- PROPOSED HOLDING COMPANY FORMATION
- -- Tax Consequences."
CONDITIONS TO THE REORGANIZATION. The Plan of Reorganization sets forth a
number of conditions which must be met before the Reorganization will be
consummated, including, among others: (i) approval of the Plan of Reorganization
by the holders of a majority of the outstanding shares of Illinois Guarantee
Common Stock; (ii) stockholders holding no more than 10% of the Illinois
Guarantee Common Stock shall have elected to exercise dissenters' appraisal
rights under applicable federal law; (iii) receipt of either a ruling from the
IRS or an opinion of legal counsel or independent auditors that the
Reorganization will be treated as a non-taxable transaction for federal income
tax purposes; (iv) approval of the Reorganization by the OTS, the Federal
Deposit Insurance Corporation ("FDIC"), the SEC and any other federal or state
agency having jurisdiction necessary for consummation of the Reorganization; and
(v) registration of the shares of Holding Company Common Stock to be issued in
the Reorganization under the Securities Act, to the extent required by
applicable law, and the compliance by the Holding Company with all applicable
state securities laws relating to the issuance of the Holding Company Common
Stock.
-3-
COMPARISON OF STOCKHOLDERS' RIGHTS. As a result of the Reorganization,
holders of the Illinois Guarantee Common Stock, whose rights are presently
governed by federal law and regulations and the Charter and Bylaws of Illinois
Guarantee, will become stockholders of the Holding Company, an Illinois
corporation. Accordingly, their rights will be governed by the Illinois Business
Corporation Act, and the Articles of Incorporation and Bylaws of the Holding
Company. Certain differences arise from this change of governing law, as well as
from distinctions between the Charter and Bylaws of Illinois Guarantee and the
Articles of Incorporation and Bylaws of the Holding Company. These differences
relate to the issuance of capital stock, the payment of dividends, the calling
of special meetings of stockholders, the filling of vacancies on the Board of
Directors, the number of directors permitted on the respective Boards of
Directors, removal of directors, approval of mergers, consolidations, sale of
substantially all assets and certain business combinations, limitations on
acquisitions of capital stock, advance notice requirements for nominations of
directors and presentation of new business at meetings of stockholders and
amendment of the Charter and Bylaws of Illinois Guarantee and the Articles of
Incorporation and Bylaws of the Holding Company. Further, the Holding Company,
as a general business corporation, will be able to enter into various lines of
business unlike the Bank, which, as a regulated savings bank, is restricted in
the businesses in which it may engage. See "PROPOSAL I -- PROPOSED HOLDING
COMPANY FORMATION -- Comparison of Stockholders' Rights."
ARTICLES OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS THAT COULD
DISCOURAGE ACQUISITIONS OF CONTROL. The Holding Company's Articles of
Incorporation and Bylaws contain certain provisions not contained in the
corresponding corporate documents of the Bank that could discourage non-
negotiated takeover attempts that certain stockholders might deem to be in their
interests or through which stockholders might otherwise receive a premium for
their shares over the then-current market price and that may tend to perpetuate
existing management. These provisions include: certain provisions relating to
meetings of stockholders, including a prohibition against the calling of special
meetings by stockholders unless 20% of all votes entitled to be cast request
such a meeting in writing; a provision prohibiting any person from acquiring or
offering to acquire more than 10% of the Holding Company's equity securities
(which provision shall remain in effect for a period of five years from the
September 28, 1995 date of the consummation of the mutual to stock conversion of
the Bank); and restrictions on the voting rights of holders of more than 10% of
the Holding Company's equity securities. The Articles of Incorporation include a
provision requiring a supermajority vote for certain business combinations. The
Articles of Incorporation also authorize the issuance of additional shares of
Holding Company Common Stock which could be issued without stockholder approval
on terms or in circumstances that could deter a future takeover attempt. In
addition, the Illinois Business Corporation Act provides for certain
restrictions on acquisition of the Holding Company which are not applicable to
the Bank. These Articles, Bylaws and statutory provisions may have the effect of
discouraging or preventing a future takeover attempt in which stockholders of
the Holding Company otherwise might receive a substantial premium for their
shares over then-current market prices. See "PROPOSAL I -- PROPOSED HOLDING
COMPANY FORMATION -- Comparison of Stockholders' Rights" and "-- Certain Anti-
Takeover Provisions of the Articles of Incorporation and Bylaws."
In addition to the provisions described above, the Holding Company's
Articles of Incorporation contain, as authorized by Illinois law, provisions
limiting the liability of directors and officers of the Holding Company for
certain breaches of their fiduciary duty to the Holding Company's stockholders,
indemnifying directors and officers in certain proceedings against them, and
providing a supermajority vote requirement in order to remove a director. Such
provisions may have the effect of protecting the management of the Holding
Company against attempts to change or replace it; directors and officers of the
Bank thus may be deemed to have a personal interest in the consummation of the
Reorganization. See "PROPOSAL I -- PROPOSED HOLDING COMPANY FORMATION --
Management of Illinois Community Bancorp, Inc. -- Indemnification of Officers
and Directors and Limitation of Liability" and " -- Certain Anti-Takeover
Provisions of the Articles of Incorporation and Bylaws."
RECOMMENDATION. The Board of Directors of the Bank believes that the
ability to diversify through a holding company structure will help the Bank
remain competitive in the future. THE BOARD OF DIRECTORS OF THE BANK HAS
UNANIMOUSLY APPROVED THE REORGANIZATION AND RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE PLAN OF REORGANIZATION.
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PROPOSAL II -- ADJOURNMENT OF SPECIAL MEETING
Approval of the Plan of Reorganization requires the affirmative vote of a
majority of the total votes eligible to be cast at the Special Meeting. In the
event there is an insufficient number of shares present in person or by proxy at
the Special Meeting to approve the Plan of Reorganization, the Board of
Directors intends to adjourn the Special Meeting to a later date. The effect of
any such adjournment would be to permit the Bank to solicit additional proxies
for approval of the Plan of Reorganization, in the event the Plan of
Reorganization is not approved.
The Board of Directors recommends a vote "FOR" the approval of the
adjournment under the circumstances described herein. Approval of the
adjournment requires the affirmative vote of the holders of a majority of the
votes cast in person or by proxy at the Special Meeting. For more information,
see "Proposal II -- Adjournment of Special Meeting."
PROPOSAL III -- APPROVAL OF 1996 STOCK OPTION AND INCENTIVE PLAN
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION APPEARING ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS UNDER "PROPOSAL III -- APPROVAL OF 1996 STOCK
OPTION AND INCENTIVE PLAN" AND EXHIBIT E, ATTACHED HERETO.
GENERAL. The Board of Directors has adopted the Illinois Community
Bancorp, Inc. 1996 Stock Option and Incentive Plan (the "Option Plan"), subject
to its approval by the Bank's stockholders. The initial grant of stock options
under the Option Plan will occur upon its receipt of stockholder approval
PURPOSE OF THE OPTION PLAN. The purpose of the Option Plan is to advance
the interests of the Holding Company by providing directors and selected
employees of the Holding Company, the Bank and its affiliates with the
opportunity to acquire shares of Common Stock.
ELIGIBLE PERSONS; TYPES OF AWARDS. Under the Option Plan, the Committee
may grant stock options ("Options") and stock appreciation rights ("SARs")
(collectively, "Awards") to such employees as the Committee shall designate.
Directors who are not employees will receive the automatic grant described below
(see " -- Automatic Grants"), and will otherwise be ineligible to receive Awards
under the Option Plan.
SHARES AVAILABLE FOR GRANTS. The Option Plan would reserve 50,255 shares
of Holding Company Common Stock for issuance upon the exercise of Options or
SARs. Such shares may be authorized but unissued shares, treasury shares, or
shares held in a grantor trust established by the Holding Company.
OPTIONS. The Committee would have the discretion to grant Options that
are incentive stock options ("ISOs") as defined in Section 422 of the Code, or
that are not ISOs ("Non-ISOs"). The exercise price as to any Option may not be
less than the fair market value (determined under the Option Plan) of the
optioned shares on the date of grant.
AUTOMATIC GRANTS. On the Effective Date, all executive officers as a group
(4 persons), all directors who are not executive officers as a group (5 persons)
and all employees, including officers who are not executive officers as a group
(8 persons) will receive a one-time grant of Options to purchase 28,139, 9,546
and 11,557 shares of Holding Company Common Stock at an exercise price per share
equal to its fair market value on the Effective Date.
SARS. An SAR may be granted in tandem with all or part of any Option
granted under the Option Plan, or without any relationship to any Option. An SAR
granted in tandem with an ISO must expire no later than the ISO, must have the
same exercise price as the ISO and may be exercised only when the ISO is
exercisable and when the fair market value of the shares subject to the ISO
exceeds the exercise price of the ISO. For SARs granted in tandem with Options,
the optionee's exercise of the SAR cancels his or her right to exercise the
Option, and vice versa. Regardless of whether an SAR is granted in tandem with
an Option, exercise of the SAR will entitle the optionee to receive, as the
Committee prescribes in the grant, all or a percentage of the difference between
(i) the fair market value of the shares of Holding Company Common Stock subject
to the SAR at the time of its exercise, and (ii) the fair market value of such
shares at the time the SAR was granted (or, in the case of SARs granted in
-5-
tandem with Options, the exercise price). The exercise price as to any
particular SAR may not be less than the fair market value of the optioned shares
on the date of grant.
EXERCISE OF OPTIONS AND SARS. The exercise of Options and SARs will be
subject to such terms and conditions as are established by the Committee in a
written agreement between the stock option committee and the optionee; provided
that each Award, including all Awards made on the Effective Date, shall become
exercisable with respect to 20% of the underlying shares on each of the five
annual anniversary dates of the date on which the Award occurred.
DURATION OF THE OPTION PLAN AND GRANTS. The Option Plan has a term of 10
years from the Effective Date, after which date no Awards may be granted. The
maximum term for an Award is 10 years from the date of grant.
RECOMMENDATION AND VOTE REQUIRED. Stockholder approval of the Option Plan
requires the affirmative vote of the holders of a majority of the votes eligible
to be cast at the Special Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" APPROVAL OF THE OPTION PLAN.
PROPOSAL IV -- APPROVAL OF MANAGEMENT RECOGNITION PLAN
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION APPEARING ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS UNDER "PROPOSAL IV -- MANAGEMENT RECOGNITION
PLAN" AND EXHIBIT F, ATTACHED HERETO.
GENERAL. The Board of Directors of the Holding Company has adopted the
Illinois Community Bancorp, Inc. Management Recognition Plan (the "MRP"),
subject to its approval by the Bank's stockholders. The initial grant of MRP
awards will occur and the MRP will become effective upon the MRP's receipt of
stockholder approval (the "Effective Date").
PURPOSE OF THE MRP. The purpose of the MRP is to reward and retain
personnel of experience and ability in key positions of responsibility by
providing such persons with a proprietary interest in the Holding Company, with
compensation for their past contributions to the Holding Company and its
subsidiaries, and with an incentive to make such contributions in the
future.
ADMINISTRATION. The MRP will be administered by an MRP Committee
consisting of not less than three non-employee members of the Board who are
"disinterested persons" within the meaning of the federal securities laws.
MRP TRUST; PURCHASE LIMITATIONS. The assets of the MRP will be held in a
trust (the "MRP Trust"). With funds contributed by the Holding Company or the
Bank, the MRP Trust will purchase, in the aggregate, 20,102 shares of the
Holding Company Common Stock on and after the Effective Date. The MRP Trustees
may purchase such shares either on the open market or from the Holding
Company.
TYPES OF AWARDS; ELIGIBLE PERSONS. The MRP Committee may make MRP awards,
in the form of restricted stock, with respect to shares held in the underlying
MRP Trust. The MRP Committee has the discretion to select employees of the
Holding Company and the Bank who will receive discretionary MRP awards.
AUTOMATIC AWARDS. On the MRP Effective Date, all executive officers as a
group (4 persons), all directors who are not executive officers as a group (5
persons) and all employees including officers who are not executive officers as
a group (8 persons) will receive 8,040, 3,819 and 6,232 shares, respectively, of
restricted stock under the MRP (see "New Plan Benefits" below).
VESTING. Pursuant to the MRP, freely transferable shares of Holding
Company Common Stock will be transferred to participants as they become vested
in their MRP awards. MRP awards will become 20% vested on each of the five
anniversary dates of the award, provided, with respect to each vesting date,
that the participant is an employee or director of the Holding Company or a
subsidiary on such date.
-6-
VOTING. All unvested shares of Holding Company Common Stock held by the
MRP Trust (whether or not subject to an MRP award) will be voted by the MRP
Trustees in the same proportion as the trustee of the Holding Company's ESOP
trust votes Holding Company Common Stock held therein.
DURATION OF THE MRP. The MRP and MRP Trust will remain in effect until the
earlier of (i) termination by the Holding Company's Board of Directors, or (ii)
the distribution of all assets of the MRP Trust. Termination of the MRP will not
affect any awards previously granted, and any outstanding awards will remain
valid and in effect until they have been earned and distributed from the MRP
Trust, or by their terms expire or are forfeited.
RECOMMENDATION AND VOTE REQUIRED. Approval of the MRP requires the
affirmative vote of the holders of a majority of the votes eligible to be cast
at the Special Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE MRP.
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INTRODUCTION
- --------------------------------------------------------------------------------
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Illinois Guarantee for the
Special Meeting of Stockholders to be held at 210 East Fayette Avenue,
Effingham, Illinois, on ________, June ___, 1996 at __:00 _.m. local time. The
accompanying Notice of Special Meeting and this Proxy Statement/Prospectus,
together with the enclosed form of proxy, are first being mailed to stockholders
on or about April __, 1996.
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VOTING AND REVOCATION OF PROXIES
- --------------------------------------------------------------------------------
Proxies solicited by the Board of Directors of the Bank will be voted in
accordance with the directions given therein. WHERE NO INSTRUCTIONS ARE GIVEN,
PROPERLY EXECUTED PROXIES WHICH HAVE NOT BEEN REVOKED WILL BE VOTED IN FAVOR OF
EACH PROPOSAL SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS FOR CONSIDERATION AT
THE SPECIAL MEETING. Proxies marked as abstentions will not be counted as votes
cast. In addition, shares held in street name which have been designated by
brokers on proxy cards as not voted ("broker no votes") will not be counted as
votes cast. Proxies marked as abstentions or as broker no votes, however, will
be treated as shares present for purposes of determining whether a quorum is
present.
Stockholders who execute the form of proxy enclosed herewith retain the
right to revoke such proxies at any time prior to exercise. Unless so revoked,
the shares represented by properly executed proxies will be voted at the Special
Meeting and all adjournments thereof. Proxies may be revoked at any time prior
to exercise by written notice to the Bank or by the filing of a properly
executed, later-dated proxy. A proxy will not be voted if a stockholder attends
the Special Meeting and votes in person. The presence of a stockholder at the
Special Meeting alone will not revoke such stockholder's proxy.
-7-
- --------------------------------------------------------------------------------
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
- --------------------------------------------------------------------------------
Stockholders of record as of the close of business on May ___, 1996 (the
"Record Date"), are entitled to one vote for each share then held. As of the
Record Date, the Bank had 502,550 shares of the Bank's common stock, $1.00 par
value per share ("Illinois Guarantee Common Stock"), issued and
outstanding.
Persons and groups owning in excess of 5% of the Illinois Guarantee Common
Stock are required to file certain reports regarding such ownership pursuant to
the Securities Exchange Act of 1934, as amended. Based upon such reports,
management knows of no person or entity, other than those disclosed below, who
owned more than 5% of the Illinois Guarantee Common Stock at the Record Date.
The following table sets forth, as of the Record Date, the shares of Illinois
Guarantee Common Stock beneficially owned by such persons and entity and by all
officers and directors of the Bank as a group. It is expected that the 17.46% of
the Bank Common Stock beneficially owned by all officers and directors as a
group will be voted in favor of each of the proposals described herein.
AMOUNT AND NATURE PERCENT OF SHARES
NAME AND ADDRESS OF BENEFICIAL OF COMMON STOCK
OF BENEFICIAL OWNER OWNERSHIP (1) OUTSTANDING
- ------------------- ----------------- -----------------
Illinois Guarantee Savings Bank, FSB 40,204(2) 8.0%
Employee Stock Ownership Plan
210 E. Fayette Avenue
Effingham, Illinois 21227
All Officers and Directors 87,723(4) 17.46
as a Group (11 Persons)
______________
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner, for purposes of this table, of any shares of
Illinois Guarantee Common Stock if he or she has or shares voting or
investment power with respect to such Illinois Guarantee Common Stock or
has a right to acquire beneficial ownership at any time within 60 days from
the Record Date. As used herein, "voting power" is the power to vote or
direct the voting of shares and "investment power" is the power to dispose
or direct the disposition of shares. Except as otherwise noted, ownership
is direct, and the named individuals and group exercise sole voting and
investment power over the shares of the Illinois Guarantee Common Stock.
(2) Shares owned by the Employee Stock Ownership Plan ("ESOP") are held in a
suspense account for allocation among participants on the basis of
compensation as the loan is repaid. Of the 40,204 shares held by the ESOP,
no shares had been allocated as of the Record Date. The ESOP Committee as
appointed by the Board of Directors, consists of Directors Ludwig, Garbe
and Sehy. Directors Ludwig, Garbe and Sehy, none of whom are full-time
employees of the Bank, serve as the ESOP Trustee. The ESOP Trustee must
vote all allocated shares held in the ESOP in accordance with the
instructions of the participating employees. Allocated shares for which
employees do not give instructions and unallocated shares are voted by the
ESOP Trustee in the same proportion as participants vote allocated stock;
provided that, in the absence of any voting direction as to allocated
stock, the Bank's Board of Directors shall direct the Trustee as to the
voting of all shares of unallocated stock and in the absence of such
direction from the Board Directors, the Trustee shall have sole discretion
as to the voting of such shares.
(3) Includes shares of Illinois Guarantee Common Stock owned, over which shares
the named individual has sole or shared voting and investment power.
(4) Includes certain shares of Illinois Guarantee Common Stock owned by
businesses in which the director is an officer or major stockholder, or by
spouses, or as a custodian or trustee for minor children, over which shares
the named individual or all officers and directors as a group effectively
exercise sole voting and investment power.
-8-
- --------------------------------------------------------------------------------
PROPOSAL I -- PROPOSED HOLDING COMPANY FORMATION
- --------------------------------------------------------------------------------
SUMMARY
The formation of a holding company will be accomplished under an Agreement
and Plan of Reorganization, dated February 20, 1996 (the "Plan of
Reorganization"), pursuant to which Illinois Guarantee will become a wholly
owned subsidiary of Illinois Community Bancorp, Inc., an Illinois corporation
recently formed by the Bank for the purpose of becoming a holding company for
the Bank. Under the terms of the Plan of Reorganization, each outstanding share
of Illinois Guarantee Common Stock (other than shares as to which dissenters'
rights of appraisal have been properly exercised) will be converted into one
share of Holding Company Common Stock, and the former holders of Illinois
Guarantee Common Stock will become the holders of all of the outstanding Holding
Company Common Stock. The Holding Company was incorporated on March 8, 1996, and
has no prior operating history. Following the Reorganization, it is intended
that Illinois Guarantee will continue its operations at the same location, with
the same management, and subject to all the rights, obligations and liabilities
of the Bank existing immediately prior to the Reorganization.
REASONS FOR THE HOLDING COMPANY REORGANIZATION
The Board of Directors of Illinois Guarantee believes that a holding
company structure will provide greater flexibility than is currently enjoyed by
the Bank. Federal regulations limit the types of businesses in which the Bank
may engage and limit the amount which may be invested by the Bank in
subsidiaries. Illinois Guarantee is also limited in its ability to engage in
certain corporate transactions, such as stock repurchases, by provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable to savings
associations but not to their holding companies. The Board of Directors believes
that stock repurchases will improve market liquidity and enhance stockholder
value by adding another potential purchaser to the market. Because there are
generally no restrictions on the business activities of a unitary holding
company (a holding company with only one savings association subsidiary), the
establishment of a unitary holding company also permits diversification of
operations and the acquisition and formation of companies engaged in lines of
business which, while complementary to the thrift business, should help to
reduce the risks inherent in an industry which is sensitive to interest rate
changes. The qualification of the Holding Company as a unitary holding company
will, however, be subject to the Bank's maintenance of its status as a Qualified
Thrift Lender ("QTL"). See "-- Regulation of Illinois Community Bancorp, Inc. --
Activities Restrictions." The Bank is currently, and expects to remain, a QTL,
although there can be no assurance of its ability to do so. Upon consummation of
the Reorganization, it is expected that the Holding Company will be in a
position to take immediate advantage of any acquisition opportunities which may
arise, though no specific acquisition is planned at this time.
Although the Board of Directors of Illinois Guarantee presently intends to
operate the Holding Company as a unitary holding company in order to permit
diversification, the Holding Company will have the ability to become a multiple
holding company (a holding company which has more than one savings association
subsidiary) in the future. The multiple holding company structure can facilitate
the acquisition of other savings associations in addition to other companies. If
a multiple holding company structure is utilized, the acquired savings
association would be able to operate on a more autonomous basis as a wholly
owned subsidiary of the holding company rather than as a division of the Bank.
For example, the acquired institution could retain its own directors, officers
and corporate name, as well as having representation on the Holding Company
board of directors. This more autonomous operation may be decisive in
acquisition negotiations. Although there are no pending plans, agreements or
understandings for acquisitions, the Holding Company will be in a position to
immediately take advantage of any acquisition opportunities as they arise. It
should be noted that the acquisition of another savings association would be
subject to regulatory approval (and as applicable, stockholder approval), and
that certain aspects of the operations of the Holding Company and those of its
savings association subsidiaries would still be subject to oversight and
supervision by the OTS. See "-- Regulation of Illinois Community Bancorp, Inc.--
Restrictions on Acquisitions."
-9-
If a multiple holding company structure is used, the Holding Company will
in the future be able to diversify its financial services and business
activities through the Holding Company or other subsidiaries of the Holding
Company without being restricted by the 2%-of-assets service corporation
investment authority generally applicable to the service corporation subsidiary
investments of a federal savings association. In general, however, the business
activities of multiple holding companies are restricted to certain enumerated
activities (except that such restrictions do not apply in the case of multiple
holding companies where each acquisition of an additional savings association
was made pursuant to authority to approve emergency thrift acquisitions and each
subsidiary savings association satisfies the QTL test). See "-- Regulation of
Illinois Community Bancorp, Inc. -- Activities Restrictions." The range of
financial services and business activities authorized for multiple holding
companies is currently broader than the activities permitted service
corporations of federal savings associations. This ability to diversify on a
limited basis while acquiring other savings association through a multiple
structure or to have complete authority to diversify as a unitary holding
company is believed by the Board of Directors of Illinois Guarantee to be a
substantial operating advantage of the holding company structure.
THE BOARD OF DIRECTORS OF THE BANK HAS UNANIMOUSLY APPROVED THE PLAN OF
REORGANIZATION AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE PLAN OF
REORGANIZATION.
PLAN OF REORGANIZATION
The Reorganization will be accomplished under the Plan of Reorganization,
which is attached as Exhibit A hereto. The following discussion is qualified in
its entirety by reference to the Plan of Reorganization. The Plan of
Reorganization was unanimously approved by the Board of Directors on February
20, 1996.
The Holding Company is a newly organized Illinois corporation which was
formed by the Bank solely for the purpose of effecting the Reorganization, and,
therefore, the Holding Company has no prior operating history. The Plan of
Reorganization is by and between the Holding Company, the Bank, and Illinois
Guarantee Interim Savings Bank, FSB, a to-be-formed interim federal stock
savings association ("Interim Savings").
The Reorganization will be accomplished by the following steps: (i) the
formation by the Bank of a wholly owned service corporation or operating
subsidiary, the Holding Company, incorporated under the laws of the State of
Illinois for the purpose of becoming the sole stockholder of a newly formed
interim federal stock savings bank, and subsequently becoming the sole
stockholder of the Bank, which formation shall include the issuance of up to
100,000 shares of Holding Company Common Stock to the Bank for a price of $1.00
per share or for such other consideration in excess of the aggregate par value
of such shares as the OTS shall approve; (ii) the formation of an interim
federal stock savings bank, Interim Savings, which will be wholly owned by the
Holding Company; and (iii) the merger of the Bank and Interim Savings, with the
Bank as the surviving corporation. Pursuant to such merger: (a) all of the
issued and outstanding shares of Illinois Guarantee Common Stock (other than
shares as to which dissenters' rights of appraisal have been properly exercised)
will automatically be converted by operation of law on a one-for-one basis into
an equal number of issued and outstanding shares of Holding Company Common
Stock, and (b) all of the issued and outstanding shares of common stock of
Interim Savings will automatically be converted by operation of law on a one-
for-one basis into an equal number of issued and outstanding shares of Illinois
Guarantee Common Stock, which will be all of the issued and outstanding stock of
the Bank.
After the Reorganization, the former holders of Illinois Guarantee Common
Stock will be the holders of all of the outstanding Holding Company Common
Stock. Thus, because the Holding Company will hold all of the issued and
outstanding voting stock of the Bank, the Bank is described herein as a "wholly
owned" subsidiary of the Holding Company following the Reorganization.
The Board of Directors of the Bank presently intends to cause the Holding
Company to be initially capitalized up to approximately $100,000. The initial
capitalization will be effected through the purchase of 100,000 shares of
Holding Company Common Stock at $1.00 per share, subject to OTS approval. Future
capitalization of
-10-
the Holding Company will be dependent upon dividends declared by the Bank or the
raising of additional capital by the Holding Company through a future issuance
of securities or debt or through other means. The Board of Directors of the
Holding Company has no present plans or intentions with respect to any future
issuance of securities or debt at this time, except the Holding Company may
issue Holding Company Common Stock in connection with the implementation of the
Option Plan and the MRP, if such plans are approved by the Bank's stockholders.
See "PROPOSAL III -- APPROVAL OF 1996 STOCK OPTION AND INCENTIVE PLAN" and
"PROPOSAL IV --APPROVAL OF MANAGEMENT RECOGNITION PLAN." The Holding Company
does not intend to enter into any employment agreements.
After the Reorganization, the Bank will continue its existing business and
operations as a wholly owned subsidiary of the Holding Company, and the
consolidated capitalization, assets, liabilities, income and financial
statements of the Holding Company immediately following the Reorganization will
be substantially the same as those of the Bank immediately prior to consummation
of the Reorganization. The Federal Stock Charter and the Bylaws of the Bank will
continue in effect, and will not be affected in any manner by the
Reorganization. The name "Illinois Guarantee Savings Bank, FSB" will continue to
be utilized. The corporate existence of the Bank will continue unaffected and
unimpaired by the Reorganization.
EFFECTIVE DATE
The "Effective Date" of the Reorganization will be the date upon which the
Articles of Combination pertaining to the Reorganization are endorsed by the
OTS. Although management of the Bank does not anticipate any significant delays
in obtaining the OTS' endorsement of the Articles, the effects of any such
delays on holders of the Illinois Guarantee Common Stock would depend upon the
attendant facts and circumstances surrounding the specific delay.
OPTIONAL EXCHANGE OF STOCK CERTIFICATES
After the Effective Date of the Reorganization, certificates evidencing
shares of Illinois Guarantee Common Stock will represent, by operation of law,
the same number of shares of the Holding Company Common Stock. Former holders of
the Illinois Guarantee Common Stock will not be required to exchange their
Illinois Guarantee Common Stock certificates for Holding Company Common Stock
certificates, but will have the option to do so. Any stockholder desiring more
information about such exchange may request additional information from the Bank
by writing the President of the Bank, 210 East Fayette Avenue, Effingham,
Illinois 62401-3613.
RIGHTS OF DISSENTING STOCKHOLDERS
Federal regulations entitle a stockholder who does not vote for the
Reorganization to demand payment by the Bank of the fair or appraised value for
his shares. A dissenting stockholder must deliver to Douglas A. Pike, President,
Illinois Guarantee Savings Bank, FSB, 210 East Fayette Avenue, Effingham,
Illinois 62401-3613, before voting on Proposal I, written notice identifying
himself and stating his intention thereby to demand appraisal of and payment for
his shares. Such written notice must be separate from and in addition to any
proxy or vote against Proposal I. A proxy or vote against the Plan of
Reorganization does not by itself constitute a demand for appraisal. In addition
to making written notice of their demand appraisal, the stockholder must not
vote in favor of the Plan of Reorganization. Stockholders who return executed
but unmarked proxies will be deemed to have voted in favor of the Plan of
Reorganization. Stockholders who abstain from voting on the Reorganization will
not be deemed to have voted in favor of the Plan of Reorganization.
Under the Plan of Reorganization, the obligations of the Holding Company,
the Bank and Interim Savings to consummate the Reorganization are conditioned
upon the holders of not more than 10% of the Bank's outstanding shares electing
to exercise their rights as dissenting stockholders. Although the parties to
the Plan of Reorganization could waive this condition, none of them presently
intends to do so.
-11-
Provided that such stockholder does not vote in favor of the Reorganization
(or return an executed but unmarked proxy), and assuming the holders of the
requisite number of shares approve Proposal I, then, within 10 days after the
Effective Date of the Reorganization, the Bank shall (i) notify each stockholder
entitled to such notice of the Effective Date, (ii) offer to pay to each such
stockholder a specified price deemed by the Bank to be the fair value for his
shares, and (iii) remind each dissenting stockholder that, within 60 days after
the Effective Date of the Reorganization, the stockholder must either agree with
the Bank on the fair value of his shares or file a petition with the OTS
demanding determination of the fair market value of the shares, or the
stockholder shall be deemed to have accepted the terms of the Reorganization. If
within 60 days of the Effective Date of the Reorganization, the fair value is
agreed upon between the Bank and a stockholder who is entitled to payment, such
payment shall be made within 90 days of the Effective Date of the
Reorganization. Within 60 days of the Effective Date of the Reorganization, each
stockholder demanding appraisal and payment must, as a condition to exercise of
his appraisal rights, submit to the Bank his certificates of stock for placement
of a notation thereon regarding the stockholder's demand of appraisal and
payment. At any time within 60 days after the Effective Date of the
Reorganization, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms of the Reorganization.
In the event that a fair value cannot be determined by the Bank and a
stockholder demanding appraisal and payment, an appraisal will be determined by
the OTS, which shall direct payment by the Bank in accordance with such
appraised value upon surrender of the stockholder's stock certificate. The
appraised value determined by the OTS may be more or less than the appraised
value determined by the Bank.
The OTS has the right to apportion among all or some of the parties any
expenses of any proceeding to demand the fair or appraised value of shares as it
deems equitable. Any stockholder who has demanded appraisal rights for his
shares of Illinois Guarantee Common Stock is, with certain exceptions,
thereafter denied voting and dividend rights with respect to such shares. Shares
of the Holding Company Common Stock into which shares of Illinois Guarantee
Common Stock would have been converted had their holders assented to the
Reorganization shall have the status of authorized and unissued shares of the
Holding Company Common Stock. A copy of the governing federal regulation is
attached hereto as Exhibit D and incorporated herein by reference.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Illinois Guarantee expects that, for federal income tax purposes, the
Reorganization will be treated as a tax-free reorganization and that no gain or
loss will be recognized by a stockholder of Illinois Guarantee who receives
Holding Company Common Stock in the Reorganization solely in exchange for such
stockholder's shares of Illinois Guarantee Common Stock. The Internal Revenue
Service ("IRS") has not been asked to rule upon the tax consequences of the
Reorganization. Instead, Illinois Guarantee will rely upon the opinion of
Housley Kantarian & Bronstein, P.C., its special counsel, as to certain federal
income tax consequences of the Reorganization to the Illinois Guarantee
stockholders. Such opinion is based upon the Code, regulations now in effect or
proposed thereunder, current administrative rulings and practice and judicial
authority, all of which are subject to change and such change may be made with
retroactive effect. Unlike private letter rulings received from the IRS, an
opinion is not binding upon the IRS and there can be no assurance that the IRS
will not take a position contrary to the positions reflected in such opinion, or
that such opinion will be upheld by the courts if challenged by the IRS.
Based upon the opinion of Housley Kantarian & Bronstein, P.C., which is
based upon various representations and subject to various assumptions and
qualifications described below, the following federal income tax consequences to
the Illinois Guarantee stockholders will result from the Reorganization.
(1) The merger of Interim Savings with and into Illinois Guarantee will
constitute a reorganization within the meaning of 368(a) of the
Code.
(2) Interim Savings will not recognize any gain or loss on the transfer
of its assets to the Bank in exchange for Bank Common Stock and the
assumption by the Bank of the liabilities, if any, of Interim
Savings.
(3) The Bank will not recognize any gain or loss on the receipt of the
assets of Interim Savings in exchange for the transfer to Interim
Savings of Bank Common Stock.
(4) The Bank's basis in the assets received from Interim Savings in the
proposed transaction will, in each case, be the same as the basis of
such assets in the hands of Interim Savings immediately prior to
the transaction.
(5) The Bank's holding period for the assets received from Interim
Savings in the proposed transaction will, in each instance, include
the period during which such assets were held by Interim
Savings.
(6) The Holding Company will not recognize any gain or loss upon its
receipt of Bank Common Stock in exchange for capital stock of
Interim Savings.
(7) Stockholders of Illinois Guarantee will not recognize any gain or
loss upon their exchange of Illinois Guarantee Common Stock solely
for shares of Holding Company Common Stock.
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(8) An Illinois Guarantee stockholder's aggregate basis in his or her
shares of Holding Company Common Stock received pursuant to the
Reorganization will be equal to the aggregate basis of such
stockholder's shares of Illinois Guarantee Common Stock surrendered
in exchange therefor.
(9) An Illinois Guarantee stockholder's holding period of his or her
shares of Holding Company Common Stock received pursuant to the
Reorganization will include the period during which the
stockholder's shares of Illinois Guarantee Common Stock surrendered
in exchange therefor were held by such stockholder, provided that
such Illinois Guarantee Common Stock is a capital asset in the hands
of such stockholder on the date of the Reorganization.
(10) If a stockholder of Illinois Guarantee dissents to the
Reorganization and receives solely cash in exchange for all of his
or her shares of Illinois Guarantee Common Stock, such cash will be
treated as having been received by the stockholder as a distribution
in redemption of his or her shares of Illinois Guarantee Common
Stock, subject to the provisions and limitations of Section 302 of
the Code. Accordingly, assuming such stockholder satisfies at least
one of the four conditions under Section 302(b) of the Code, such as
that the stockholder's direct and indirect interest in Illinois
Guarantee or the Holding Company will completely terminate, the
stockholder will recognize gain or loss in an amount equal to the
difference between the cash received and the stockholder's basis in
such shares of Illinois Guarantee Common Stock.
The opinion of Housley Kantarian & Bronstein, P.C., is based in part upon,
and subject to the continuing validity in all material respects through the date
of the Reorganization to, various representations of Illinois Guarantee and upon
certain assumptions and qualifications, including that the Reorganization is
consummated in the manner and according to the terms provided in the Plan of
Reorganization. For instance, such opinion assumes, among other things, the
accuracy of the facts regarding the Reorganization as described in the Proxy
Statement/Prospectus, including that, except for stockholders who exercise
disenters' rights of appraisal, holders of Bank Common Stock will only receive
voting stock of the Holding Company (i.e., the Holding Company Common Stock) in
the Reorganization, that the Bank will continue its historic business operations
following the Reorganization, and that there is no plan or intention by the
Holding Company to liquidate the Bank following the Reorganization. Further,
such opinion assumes the satisfaction of the "continuity of interest"
requirement under judicial interpretations of Section 368(a) of the Code.
Generally, under the "continuity of interest" requirement, the Illinois
Guarantee stockholders must maintain a continuing proprietary interest in the
successor company (i.e., the Holding Company) after the Reorganization through
ownership on an aggregate basis of a minimum percentage of the stock of the
Holding Company. In addition, the opinion is qualified by reference to the
statutory, judicial and administrative tax authorities then in effect, the
subsequent change of which may have retroactive effect or render the opinion
invalid.
Illinois Guarantee expects that because the Reorganization will constitute
a reorganization within the meaning of Section 368(a) of the Code, its tax bad
debt reserves maintained immediately prior to the Reorganization will not be
required to be recaptured into its taxable income as a result of the
Reorganization. Further, Illinois Guarantee has been advised by Housley
Kantarian & Bronstein, P.C., that such reserves will not be required to be
recaptured into income as a result of the payment of cash to stockholders who
dissent to the Reorganization.
THE FEDERAL INCOME TAX DISCUSSION DOES NOT PURPORT TO CONSIDER ALL ASPECTS
OF FEDERAL INCOME TAXATION WHICH MAY BE RELEVANT TO AN ILLINOIS GUARANTEE
STOCKHOLDER ENTITLED TO SPECIAL TREATMENT UNDER THE INTERNAL REVENUE CODE, SUCH
AS TRUSTS, INDIVIDUAL RETIREMENT ACCOUNTS, OTHER EMPLOYEE BENEFIT PLANS,
INSURANCE COMPANIES, AND STOCKHOLDERS WHO ARE NOT CITIZENS OR RESIDENTS OF THE
UNITED STATES. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH ILLINOIS
GUARANTEE STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL
ADVISOR AS TO THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON HIS OR HER
OWN FACTS AND CIRCUMSTANCES AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER
TAX CONSEQUENCES ARISING OUT OF THE REORGANIZATION.
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Cash payments made to Illinois Guarantee stockholders who exercise their
right to dissent to the Reorganization will be subject to a 31% backup
withholding tax under federal income tax law unless certain requirements are
met. Generally, the Bank will be required to deduct and withhold the tax if: (i)
the stockholder fails to furnish a taxpayer identification number ("TIN") to the
Bank or fails to certify under penalty of perjury that such TIN is correct; (ii)
the IRS notifies the Bank that the TIN furnished by the stockholder is
incorrect; (iii) the IRS notifies the Bank that the stockholder has failed to
report interest, dividends or original issue discount in the past; or (iv) there
has been a failure by the stockholder to certify under penalty of perjury that
such shareholder is not subject to such backup withholding tax. Any amounts
withheld by the Bank in collection of the backup withholding tax will reduce the
federal income tax liability of the stockholder from whom such tax was withheld.
The TIN of an individual stockholder is that stockholder's Social Security
number.
CONSEQUENCES UNDER FEDERAL SECURITIES LAWS
The Holding Company has filed with the SEC a registration statement under
the Securities Act for the registration of the Holding Company Common Stock to
be issued and exchanged pursuant to the Plan of Reorgani zation. This Proxy
Statement/Prospectus and the accompanying Notice of Special Meeting constitute
the Prospectus of the Holding Company filed as part of such registration
statement. Upon consummation of the Reorganization, the Holding Company will
register the Holding Company Common Stock under the Exchange Act and will be
required to comply with the insider trading, reporting and proxy requirements
under the Exchange Act. In addition, the Holding Company will be required to
file periodic reports with the SEC. The Holding Company will also be subject to
the general anti-fraud provisions of the federal securities laws after the
Reorganization.
The registration under the Securities Act of shares of Holding Company
Common Stock to be issued in connection with the Reorganization does not cover
the resale of such shares. The Holding Company Common Stock acquired by persons
who are not affiliates of the Holding Company or Illinois Guarantee may be
resold without registration. Shares received by affiliates of Illinois Guarantee
will be subject to the resale restrictions of Rule 145 under the Securities Act,
which are substantially the same as the restrictions of Rule 144 discussed
below. For purposes of these Rules, an "affiliate" of an issuer is any person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such issuer. The Rule 145
restrictions terminate after two years if the Holding Company continues to
comply with the reporting requirements under the Exchange Act, but any affiliate
of Illinois Guarantee who becomes an affiliate of the Holding Company will
continue to be subject to the restrictions on sales by affiliates under Rule
144.
If the Holding Company meets the current public information requirements
of Rule 144 under the Securities Act, each affiliate of Illinois Guarantee who
complies with the other conditions of Rule 144, including those that require the
affiliate sales to be aggregated with those of certain other persons, would be
able to sell in the public market, without registration, in any three-month
period, a number of shares not to exceed the greater of (i) 1.0% of the
outstanding shares of the Holding Company, or (ii) the average weekly volume of
trading in such shares during the preceding four calendar weeks. Provision may
be made in the future by the Holding Company to permit affiliates to have their
shares registered for sale under the Securities Act under certain circumstances.
CONDITIONS TO THE REORGANIZATION
The Plan of Reorganization sets forth a number of conditions which must be
met before the Reorganization will be consummated, including, among others, (i)
the approval of the Plan of Reorganization by the holders of a majority of the
outstanding shares of Illinois Guarantee Common Stock, (ii) holders of no more
than 10% of the outstanding shares shall have exercised dissenters' appraisal
rights, (iii) the receipt of either a ruling from the IRS or an opinion of
counsel that the Reorganization will be treated as a non-taxable transaction
under the Code (see "--Certain Federal Income Tax Consequences"), (iv) the
approval of the Reorganization by the OTS and the receipt of all approvals from
any other governmental agencies which may be required for the consummation of
the Reorganization, and (v) registration of the shares of the Holding Company
Common Stock to be issued in the Reorganization under the Securities Act, to the
extent required by applicable law, and the compliance by the Holding
-14-
Company with all applicable state securities laws relating to the issuance of
the Holding Company Common Stock. Additionally, the Plan of Reorganization may
be terminated at any time prior to the Effective Date of the Reorganization by
the Board of Directors.
An application to acquire all the outstanding shares of Illinois Guarantee
Common Stock, and the related application to establish and merge Interim Savings
in connection with the consummation of the Reorganization has been filed with
the OTS. No assurance can be given that OTS approval will be received or will
not be received on terms or conditions that would require changes in the Plan of
Reorganization. Unless such changes are materially adverse to stockholders of
the Bank, the Board of Directors will amend the Plan of Reorganization to comply
with such terms or conditions. It is anticipated that any OTS approval will be
subject to the satisfaction of certain conditions, including (i) the
consummation of the Reorganization within 120 days of OTS approval, (ii) the
absence of any material adverse events or changes in the financial condition or
operations of Illinois Guarantee prior to the Reorganization, (iii) the
operation of Illinois Guarantee in accordance with its Business Plan, as now in
effect or as it may be amended upon OTS approval, for at least three years after
the Reorganization and (iv) the submission to the OTS of opinions of Illinois
Guarantee's independent auditors and legal counsel that the Reorganization was
consummated in accordance with generally accepted accounting principles and all
applicable laws and regulations, respectively. Although there can be no
assurance, management believes all conditions to OTS approval of the
Reorganization will be satisfied.
AMENDMENT, TERMINATION OR WAIVER
The Board of Directors of the Bank may cause the Plan of Reorganization to
be amended or terminated if the Board determines for any reason that such
amendment or termination would be advisable. Such amendment or termination may
occur at any time prior to the filing of Articles of Combination with the OTS,
whether before or after stockholder approval of the Plan of Reorganization,
provided that no such amendment may be made to the Plan of Reorganization after
stockholder approval if such amendment is deemed to be materially adverse to the
stockholders of the Bank. Additionally, any of the terms or conditions of the
Plan of Reorganization may be waived by the party which is entitled to the
benefit thereof.
BUSINESS OF ILLINOIS GUARANTEE
For a discussion of the business of Illinois Guarantee, see "Illinois
Guarantee Savings Bank, FSB."
BUSINESS OF ILLINOIS COMMUNITY BANCORP, INC.
GENERAL. Prior to completion of the Reorganization, the Holding Company
will be a non-operating, wholly owned operating subsidiary of the Bank. Upon
the completion of the Reorganization, the Bank will become a wholly owned
subsidiary of the Holding Company, and each stockholder of the Bank will become
a stockholder of the Holding Company with the same respective ownership interest
therein as presently held in the Bank.
Immediately after consummation of the Reorganization, it is expected that
the Holding Company will not engage in any business activity other than to hold
all of the stock of the Bank. The Holding Company does not presently have any
arrangements or understandings regarding any acquisition or merger
opportunities. It is antici pated, however, that the Holding Company in the
future may pursue other investment opportunities, including possible
diversification through acquisitions and mergers. It is the Holding Company's
intention to become a vertically integrated organization capable of providing a
full range of financial services to the public by entering businesses that are
complementary to Illinois Guarantee and that further enhance the safety and
soundness of its daily operations.
PROPERTY. The Holding Company is not expected to own or lease real or
personal property initially. Instead, it intends to utilize the premises,
equipment and furniture of Illinois Guarantee without the direct payment of any
rental fees to the Bank.
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LEGAL PROCEEDINGS. The Holding Company has not, since its organization,
been a party to any legal proceedings.
EMPLOYEES. At the present time, the Holding Company does not intend to
employ any persons other than its management, who will be the same persons
serving as the management of Illinois Guarantee. It will utilize the support
staff of the Bank from time to time and reimburse Illinois Guarantee for the
time of its employees. If the Holding Company acquires other savings
associations or pursues other lines of business, at such time it may hire
additional employees.
COMPETITION. It is expected that for the immediate future the primary
business of the Holding Company will be the ownership of the Bank's common
stock. Therefore, the competitive conditions to be faced by the Holding Company
will be the same as those faced by the Bank.
MANAGEMENT OF ILLINOIS COMMUNITY BANCORP, INC.
DIRECTORS. The Holding Company's Articles of Incorporation provide that
the Board of Directors shall consist of not less than five nor more than fifteen
members. The Board of Directors will initially consist of seven members who will
be divided into three classes as nearly equal as possible. Directors shall be
elected for staggered terms of three years so that approximately one-third of
the directors are elected each year. The directors of the Holding Company are,
and upon completion of Reorganization will continue to be, the same persons who
are at present the directors of the Bank.
The following table sets forth the name of each director and the year the
term of office of each director expires as a director of the Holding Company and
as a director of the Bank:
TERM OF OFFICE EXPIRES
AS DIRECTOR OF THE HOLDING
NAME COMPANY AND THE BANK
---- --------------------
Garrett M. Andes, II 1996
Ernest E. Garbe 1996
Milton Hinkle 1997
Gerald E. Ludwig 1997
Michael F. Sehy 1997
Douglas A. Pike 1998
Frederick C. Schaefer 1998
The principal occupation of each director and executive officer of
Illinois Guarantee is set forth below. All directors and executive officers
have held their present positions for at least five years unless otherwise
stated.
GARRETT M. ANDES, II is the owner of a pharmacy in Effingham, Illinois.
ERNEST E. GARBE was a self-employed farmer until his retirement in 1995.
He currently serves on the boards of directors of the National Lutheran Church-
Missouri Synod, Inc., the South Central Regional Planning Commission and the
Dieterich Community Development Corporation. Mr. Garbe is also a charter member
of the Dieterich Community Ruritan Club and a member of the Private Industry
Council of 14 County S.D.A. 23.
MILTON HINKLE is a retired masonry contractor. He is a member of the Sacred
Heart Catholic Church Board of Directors as a Lay Board Member.
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GERALD E. LUDWIG is owner of Ludwig Medical, Inc., a manufacturer of
plastic disposable medical devices. Mr. Ludwig was elected Chairman of the Board
and Chief Executive Officer of the Bank on April 18, 1995.
MICHAEL F. SEHY is a self-employed optometrist. He currently serves as
Effingham Park District Commissioner, is a member of the Rotary Club, the
Knights of Columbus and the Effingham Chamber of Commerce.
DOUGLAS A. PIKE has been in the financial institutions industry for more
than 12 years and joined the Bank in February 1995 as Vice President of Lending.
Mr Pike was appointed President and Chief Operating Officer of the Bank on June
20, 1995. Prior to joining the Bank, he served as loan officer of Effingham
State Bank and, prior to that, as consumer loan officer of First National Bank
of Effingham, both in Effingham, Illinois. Mr. Pike is a Commissioner of the
Effingham City Council. He is also a member of the Benevolent Order of Elks and
the Knights of Columbus.
FREDERICK C. SCHAEFER is a ticket agent for Greyhound, a position he has
held since 1990. From 1958 until his retirement in 1988, Mr. Schaefer served as
an Illinois State Trooper. He currently serves as a member of the Knights of
Columbus, the Fraternal Order of Police and as member and director of the
American Legion Post 120.
EXECUTIVE OFFICERS OF THE HOLDING COMPANY. With the exception of John H.
Leonard, the executive officers of the Holding Company are, and upon completion
of the Reorganization will be, the following persons, each of whom is an
executive officer of Illinois Guarantee:
NAME POSITION
---- --------
Gerald E. Ludwig Chairman and Chief Executive Officer
Douglas A. Pike President and Chief Operating Officer
Ronald R. Schettler Senior Vice President, Chief Administrative
Officer and Secretary
For information with respect to the business experience of Mr. Ludwig and
Mr. Pike, see " -- Directors" above.
RONALD R. SCHETTLER has been in the financial institutions industry for
more than 29 years, and currently serves as Senior Vice President of the Bank in
charge of administration and investments, a position he has held since joining
the Bank in June 1995. Prior to that time, Mr. Schettler was Vice President of
Effingham State Bank in Effingham, Illinois. He is a member of the United
Methodist Church, the Scottish Rite, the Effingham Chamber of Commerce, the
Master Masons, the Effingham Shrine Club and the Benevolent Order of Elks.
EXECUTIVE COMPENSATION. Since the formation of the Holding Company, none
of its executive officers or directors has received any remuneration from the
Holding Company. It is expected that unless and until the Holding Company
becomes actively involved in additional businesses, no separate compensation
will be paid to its directors and officers in addition to compensation paid to
them by the Bank. However, the Holding Company may determine that such
separate compensation is appropriate in the future. At the present time, the
Holding Company does not intend to employ any persons other than its present
management. If the Holding Company acquires other businesses, it may at such
time hire additional employees.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF LIABILITY.
The Bank is required by OTS regulations to indemnify its directors, officers
and employees against legal and other expenses incurred in defending lawsuits
brought against them by reason of the performance of their official duties.
Indemnification may be made to such person only if final judgment on the merits
is in his favor or, in case of (i) settlement, (ii) final judgment against him
or (iii) final judgment in his favor, other than on the merits, if a majority
of the disinterested directors of the Bank determines that he was acting in
good faith within the scope of his employment or authority as he could
-17-
reasonably have perceived it under the circumstances and for a purpose he could
have reasonably believed under the circumstances was in the best interest of the
Bank or its stockholders. If a majority of the disinterested directors of the
Bank concludes that in connection with an action any person ultimately may
become entitled to indemnification, the directors may authorize payment of
reasonable costs and expenses arising from defense or settlement of such action.
The Holding Company's Articles of Incorporation provide for indemnification
of any individual who is or was a director, officer, employee or agent of the
Holding Company (collectively, a "Covered Person") in any proceeding in which
the individual is made a party as a result of his service in such capacity, as
follows. With respect to an action or suit by or in the right of the Holding
Company (a derivative suit), the Holding Company will indemnify a Covered Person
for expenses (including attorneys' fees, but excluding amounts paid inn
settlement) actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit only if: (i) the Covered Person is
successful on the merits or otherwise; or (ii) the Covered Person acted in good
faith in the transaction that is the subject of the suit or action, and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Holding Company. Such Covered Person will not be indemnified with respect to
any claim, issue or matter as to which he has been adjudged to have been liable
to the Company unless, and only to the extent that, the court in which the suit
was brought shall determine that he is entitled to indemnification.
Generally, with respect to a suit, action or proceeding (whether civil,
criminal, administrative or investigative), other than a derivative suit (a
nonderivative suit), against a Covered Person, the Holding Company will
indemnify the covered person for amounts reasonably incurred by the Covered
Person in connection with the nonderivative suit, including, but not limited to,
expenses (including attorneys' fees), amounts paid in settlement, judgments and
fines. Indemnification may only be made in a non-derivative suit if: (i) the
Covered Person is successful on the merits or otherwise, or (ii) the Covered
Person acted in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Corporation.
If the Indemnification provisions of the Holding Company's Articles of
Incorporation are invalidated by a court of competent jurisdiction, then any
Covered Person will be indemnified to the full extent permitted by applicable
law. Additionally, if the Illinois Business Corporation Act is amended, or other
Illinois law is enacted, to permit further indemnification, then any Covered
Person will be indemnified to the fullest extent as permitted by the Illinois
Business Corporation Act, as so amended, or such other Illinois law. Management
does not have any plans to provide for indemnification rights beyond those
provided in the Holding Company's Articles of Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Holding
Company pursuant to the foregoing provisions, the Holding Company has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
The Holding Company's Articles of Incorporation also provide that a
director will not be personally liable to the Holding Company or its
stockholders for monetary damages for breach of his or her fiduciary duty as a
director, except (i) for any breach of the director's duty of loyalty to the
Holding Company or its stockholders, (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) under Section 8.65 of the Illinois Business Corporation Act (dealing with,
among other things, unlawful distributions), or (iv) for any transaction from
which the director derived any improper personal benefit.
This provision eliminates the potential liability of the Holding Company's
directors and officers for failure, through ordinary negligence, to satisfy
their duty of care, which requires directors and officers to exercise informed
business judgment in discharging their duties. It may thus reduce the likelihood
of derivative litigation against directors and officers and discourage or deter
stockholders from bringing a lawsuit against directors and officers for breach
of their duty of care, even though such an action, if successful, might
otherwise have been beneficial to the Holding Company and its stockholders.
Stockholders may thus be surrendering a cause of action based upon
-18-
negligent business decisions, including those relating to attempts to change
control of the Holding Company. The provision will not, however, affect the
right to pursue equitable remedies for breach of the duty of care, although such
remedies might not be available as a practical matter, and the provision does
not apply to breaches of duty prior to the incorporation of the Holding Company
or to breaches not committed as a director, officer, employee or agent of the
Holding Company.
To the best of management's knowledge, there is currently no pending or
threatened litigation for which indemnification may be sought or any recent
litigation involving directors of the Bank that might have been affected by the
limited liability provision in the Holding Company's Articles of Incorporation
had it been in effect at the time of the litigation. Federal regulations contain
no provisions for limitation of directors' liability.
The above provisions seek to ensure that the ability of the Holding
Company's directors and officers to exercise their best business judgment in
managing the Holding Company's affairs, subject to their continuing fiduciary
duties of loyalty to the Holding Company and its stockholders, is not
unreasonably impeded by exposure to the potentially high personal costs or other
uncertainties of litigation. The nature of the tasks and responsibilities
undertaken by directors and officers often requires such persons to make
difficult judgments of great importance which can expose such persons to
personal liability, but from which they will acquire no personal benefit (other
than as stockholders). In recent years, litigation against corporations and
their directors and officers, often amounting to mere "second guessing" of good-
faith judgments and involving no allegations of personal wrongdoing, has become
common. Such litigation often claims damages in large amounts which bear no
relationship to the amount of compensation received by the directors or
officers, particularly in the case of directors who are not officers of the
corporation. The expense of defending such litigation, regardless of whether it
is well founded, can be enormous. Individual directors and officers can seldom
bear either the legal defense costs involved or the risk of a large judgment.
In order to attract and retain competent and conscientious directors and
officers in the face of these potentially serious risks, corporations have
historically provided for corporate indemnification in their bylaws and have
obtained liability insurance protecting the company and its directors and
officers against the cost of litigation and related expenses. Based upon the
publicized trends in the insurance industry and the reported experience of other
companies, the Bank's management has no reason to believe that these problems
will be alleviated in the near future. While in the opinion of the Bank's
management current conditions have not to date impaired the Bank's ability to
secure qualified directors and officers, management of the Bank believes that
these trends may result in individuals being unwilling, in many instances, to
serve as directors of the Holding Company without at least a partial supplement
to the protection which such insurance has historically provided. The provisions
of the Holding Company's Articles of Incorporation relating to director
liability and the Illinois law authorizing such provisions are intended to
reduce, in appropriate cases, the risk incident to serving as a director, which
otherwise could be covered by liability insurance. The Holding Company's Board
of Directors, the individual members of which will benefit from the inclusion of
the indemnification and limitation of liability provisions, has a personal
interest in including these provisions in the Holding Company's Articles of
Incorporation at the potential expense of stockholders.
COMPARISON OF STOCKHOLDERS' RIGHTS
INTRODUCTION. As a result of the Reorganization, holders of Illinois
Guarantee Common Stock, whose rights are presently governed by federal law and
the Federal Stock Charter and Bylaws of the Bank, will become stockholders of
the Holding Company, an Illinois corporation. Accordingly, their rights will be
governed by the Illinois Business Corporation Act, and the Articles of
Incorporation and Bylaws of the Holding Company. Certain differences arise from
this change of governing law, as well as from distinctions between the Charter
and Bylaws of the Bank and the Articles of Incorporation and Bylaws of the
Holding Company. The following discussion is not intended to be a complete
statement of the differences affecting the rights of stockholders, but
summarizes the material differences. The Articles of Incorporation and Bylaws of
the Holding Company are attached hereto as Exhibits B and C and should be
reviewed for more detailed information.
-19-
ISSUANCE OF CAPITAL STOCK. The Bank's Federal Stock Charter authorizes
the issuance of 5,000,000 shares of capital stock, 4,000,000 shares of which are
common stock, par value $1.00 per share and 1,000,000 shares of which are serial
preferred stock, par value $1.00 per share. The Articles of Incorporation of the
Holding Company authorize the issuance of 5,000,000 shares of capital stock,
4,000,000 shares of which are common stock, par value $0.01 per share and
1,000,000 shares of which are serial preferred stock. The lower par value of the
Holding Company Common Stock will give the Holding Company's Board of Directors
more flexibility to issue Holding Company Common Stock as dividends or in
acquisitions. At December 31, 1995, there were 502,550 shares of Illinois
Guarantee Common Stock outstanding. Following the Reorganization, there will be
the same number of shares of Holding Company Common Stock outstanding, except
for shares deemed authorized but unissued in accordance with the exercise of
dissenters' rights. Under the Bank's Federal Stock Charter, shares of capital
stock may not be issued directly or indirectly to officers, directors or
controlling persons of the Bank (other than as part of a general public offering
or as qualifying shares to a director) unless the issuance or the plan under
which they would be issued is approved by a majority of the votes eligible to be
cast. This restriction on issuing stock to officers, directors or controlling
persons is not contained in the Holding Company's Articles of Incorporation. The
Holding Company's Articles of Incorporation authorize the issuance of additional
shares of stock up to the amount authorized as approved by the board of
directors without the approval of the stockholders.
The Holding Company has no present intention to issue additional shares of
stock at this time, except shares of stock may be issued in connection with
implementation of the Option Plan and the MRP, if such plans are approved by
stockholders of the Bank. See "PROPOSAL III -- APPROVAL OF 1996 STOCK OPTION AND
INCENTIVE PLAN" and "PROPOSAL IV -- APPROVAL OF MANAGEMENT RECOGNITION PLAN." If
additional shares are issued, the percentage ownership interests of existing
stockholders would be reduced, and, depending on the terms pursuant to which new
shares were issued, the book value of outstanding stock could be diluted.
Moreover, such additional share issuance could be construed as having an anti-
takeover effect. The ability to issue additional shares, which exists under both
the Federal Stock Charter of Illinois Guarantee and the Articles of
Incorporation of the Holding Company, gives management greater flexibility in
financing corporate operations.
PAYMENT OF DIVIDENDS. Federal regulations impose certain limitations on
the payment of dividends and other capital distributions (including stock
repurchases and cash mergers) by the Bank. Under these regulations, a savings
institution that, immediately prior to, and on a pro forma basis after giving
effect to, a proposed capital distributions, has total capital (as defined by
OTS regulation) that is equal to or greater than the amount of its fully phased-
in capital requirements (a "Tier 1 Association") is generally permitted, after
notice, to make capital distributions during a calendar year in the amount equal
to the greater of: (a) 75% of its net income for the previous four quarters; or
(b) up to 100% of its net income to date during the calendar year plus an amount
that would reduce by one-half the amount by which its ratio of total capital to
assets exceeded its fully phased-in risk-based capital ratio requirement at the
beginning of the calendar year. Savings associations with total capital in
excess of the fully phased-in capital requirement that have been notified by the
OTS that they are in need of more than normal supervision will be subject to
restriction on dividends. A savings institution with total capital in excess of
current minimum capital ratio requirements but not in excess of the fully
phased-in requirements (a "Tier 2 Association") is permitted, after notice, to
make capital distributions without OTS approval of up to 75% of its net income
for the previous four quarters, less dividends already paid for such period,
depending on the savings institution's level of risk-based capital. A savings
institution that fails to meet current minimum capital requirements (a "Tier 3
Association") is prohibited from making any capital distributions without the
prior approval of the OTS. Tier 1 Associations that have been notified by the
OTS that they are in need of more than normal supervision will be treated as
either a Tier 2 or Tier 3 Association. The Bank is a Tier 1 Association. Under
regulations which took effect on December 19, 1992, the Bank is prohibited from
making any capital distributions, including dividends, if after making the
distribution, the Bank would have: (i) a total risk-based capital ratio of less
than 8.0%; (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a
leverage ratio of less than 4.0%.
In addition to the foregoing, earnings of the Bank appropriated to bad
debt reserves and deducted for federal income tax purposes are not available for
payment of cash dividends or other distributions to the Holding Company without
payment of taxes at the then current tax rate by the Bank on the amount of
earnings removed from the
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reserves for such distributions. Finally, the Bank is not permitted to pay
dividends on its capital stock if its regulatory capital would thereby reduced
below the remaining balance of the liquidation account which was established for
the benefit of certain depositors of the Bank at the time of its conversion to
stock form.
Unlike the Bank, the Holding Company is not subject to regulatory
restrictions on the payment of dividends to stockholders. Generally, under the
Illinois Business Corporation Act, no dividends may be paid if, after giving
effect to the dividend; (i) the Holding Company would be insolvent, or (ii) the
Holding Company's net assets would be less than zero or less than the maximum
amount payable at the time of distribution to shareholders having preferential
rights in liquidation if the Holding Company were then to be liquidated. After
the Reorganization, however, the Holding Company's principal source of income
will initially consist of its equity in the earnings, if any, of the Bank.
Although the Holding Company will not be subject to the restrictions applicable
to the Bank regarding dividend payments to its stockholders, the restrictions on
the Bank's ability to pay dividends to the Holding Company may affect the
Holding Company's ability to pay dividends.
The payment of future cash dividends by Illinois Guarantee, and thus by
the Holding Company, will continue to depend upon the Bank's earnings, financial
condition and capital requirements, as well as the tax and regulatory
considerations discussed herein. In deciding whether to declare a dividend, the
Bank's Board of Directors considers many factors, including the Bank's
profitability, maintenance of adequate capital, the Bank's current and
anticipated future income, outstanding loan commitments, adequacy of loan loss
reserves, cash flow requirements and economic conditions. Before declaring a
dividend, the Board of Directors must determine that the Bank will exceed its
regulatory capital requirements after the payment of the dividend. If the
Reorganization takes place, the savings and loan holding company provisions of
the Home Owners' Loan Act will require Illinois Guarantee to give the OTS 30
days' advance notice of any proposed declaration of dividends to the Holding
Company.
PREEMPTIVE RIGHTS. The Bank's Charter provides that holders of the Bank's
capital stock are not entitled to preemptive rights with respect to any shares
of the Bank that may be issued. Stockholders of the Holding Company will also
not have preemptive rights.
SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the holders of
Illinois Guarantee Common Stock generally may be called by the chairman of the
board, the president, a majority of the Board of Directors and must be called
upon the written request of the holders of not less than 10% of all the
outstanding capital stock entitled to vote at the meeting. The Holding Company's
Articles of Incorporation and Bylaws provide that special meetings of
stockholders may only be called by the President, the Board of Directors, a duly
appointed committee of the Board of Directors, or by the holders of not less
than 20% of all the votes entitled to be cast at the meeting.
RIGHTS OF STOCKHOLDERS TO DISSENT. Stockholders of the Bank have
dissenters' appraisal rights in connection with a plan of merger or
consolidation to which the Bank is a party. Stockholders of the Holding Company
similarly will have dissenters' appraisal rights in connection with a business
combination to which the Holding Company is a party.
VACANCIES ON THE BOARD OF DIRECTORS. Any vacancy on the Board of
Directors of the Bank may be filled by the affirmative votes of a majority of
the remaining directors although less than a quorum, and any director so
appointed is to serve until the next election of directors by stockholders.
Additionally, any directorship of the Bank to be filled by reason of an increase
in the number of directors may be filled by election by the Board of Directors
for a term of office only until the next election of directors by the
stockholders. The Articles of Incorporation of the Holding Company provide that
vacancies on the board and newly created directorships shall be filled by a two-
thirds vote of the directors then in office. A director of the Holding Company
so chosen shall hold office until the next meeting of stockholders at which
directors are to be elected.
NUMBER AND TERM OF DIRECTORS. The Bank's Federal Stock Charter provides
that the number of directors, as stated in the Bylaws, shall not be less than
five nor more than fifteen. Illinois Guarantee's Bylaws provide that its Board
of Directors shall consist of seven members and shall be divided into three
classes as nearly equal in
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number as possible, which shall each be elected for three-year terms. The
Holding Company's Articles of Incorpor ation provide that its Board of Directors
shall consist of not less than six nor more than fifteen members, as set forth
in its Bylaws. The Holding Company's Bylaws presently set the number of
directors at seven persons. Although the Holding Company has no present
intention of reducing its number of directors below its present seven members,
the Board of Directors believes that the ability to reduce the number of
directors to as few as six members will result in greater flexibility in the
event of vacancies on the Board of Directors. Under the Illinois Business
Corporation Act, the Holding Company is required to have at least six directors
in order to stagger the terms of directors.
REMOVAL OF DIRECTORS. OTS regulations provide that at a meeting of
stockholders called expressly for that purpose, any director may be removed for
cause by a vote of the holders of a majority of the shares then entitled to vote
at an election of directors. The regulation states that if less than the entire
board is to be removed, no one of the directors may be removed if the votes cast
against the removal would be sufficient to elect a director if then cumulatively
voted at an election of the class of directors of which such director is a part.
Whenever the holders of the shares of any class are entitled to elect one or
more directors pursuant to the provisions of Illinois Guarantee's Charter or
supplemental sections thereto, the provisions shall apply, with respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole. The Articles of Incorporation of the Holding Company provide that
any director or the entire Board of Directors may be removed only for cause and
only by the affirmative vote of the holders of at least 80% of the outstanding
shares of capital stock entitled to vote generally in the election of directors
at a meeting of the stockholders called for that purpose.
APPROVAL OF MERGERS, CONSOLIDATIONS, SALE OF SUBSTANTIALLY ALL ASSETS AND
CERTAIN BUSINESS COMBINATIONS. Under present federal regulations, the approval
of the holders of at least two-thirds of the Illinois Guarantee Common Stock is
required for a merger, consolidation or sale of assets not in the ordinary
course of business (except for certain mergers with an interim federal
institution such as Interim Savings, which requires only a majority vote),
except that no stockholder approval is required if the Bank is the acquiring
institution and the transaction involves, among other things, the issuance of
shares of Illinois Guarantee Common Stock amounting to 15% or fewer of the
shares of Illinois Guarantee Common Stock outstanding immediately prior to the
transaction. Illinois Guarantee may effect a dissolution pursuant to a plan
adopted and approved by the Bank's Board of Directors, by the OTS, and by the
holders of a majority of the outstanding shares of Illinois Guarantee Common
Stock. Under the Illinois Business Corporation Act, the Holding Company may be
voluntarily dissolved upon the recommendation of the Board of Directors or by
proposal of one-fifth of one-fifth of the stockholders entitled to vote thereon,
if such dissolution is approved by the affirmative vote of at least two-thirds
of the votes entitled to vote thereon.
The Holding Company's Articles of Incorporation require the approval of
the holders of (i) at least 80% of the Holding Company's outstanding shares of
voting stock, and (ii) at least a majority of the Holding Company's outstanding
shares of voting stock, not including shares held by a "Related Person," to
approve certain "Business Combinations" as defined therein, and related
transactions. The increased voting requirements in the Company's Articles of
Incorporation apply in connection with business combinations involving a
"Related Person," except in cases where the proposed transaction has been
approved in advance by two-thirds of those members of the Holding Company's
Board of Directors who are unaffiliated with the Related Person and who were
directors prior to the time when the Related Person became a Related Person (the
"Continuing Directors"). The term "Related Person" is defined to include any
individual, corporation, partnership or other entity which owns beneficially or
controls, directly or indirectly, more than 10% of the outstanding shares of
voting stock of the Holding Company. A "Business Combination" is defined to
include (i) any merger, or consolidation of the Holding Company with or into a
Related Person; (ii) any sale, lease exchange, mortgage, pledge, transfer, or
other disposition of all or a substantial part of the assets of the Holding
Company or of a subsidiary to a Related Person (the term "substantial part" is
defined to include more than 25% of the Holding Company's total assets); (iii)
any merger, consolidation or share exchange of a Related Person with or into the
Holding Company or a subsidiary of the Holding Company; (iv) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all or any
substantial part of the assets of a Related Person to the Holding Company or a
subsidiary of the Holding Company; (v) the issuance of any securities
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of the Holding Company or a subsidiary of the Holding Company to a Related
Person; (vi) the acquisition by the Holding Company or a subsidiary of the
Holding Company of any securities of the Related Person; (vii) any
reclassification of the Holding Company Common Stock, or any recapitalization
involving the Holding Company Common Stock; and (viii) any agreement, contract
or other arrangement providing for any of the above transactions.
Under the Illinois Business Corporation Act, mergers, consolidations and
sales of substantially all of the assets of an Illinois corporation must
generally be approved by the affirmative vote of the holders of two-thirds of
the outstanding shares of stock entitled to vote thereon. Section 11.75 of the
Illinois Business Corporation Act ("Section 11.75"), however, will prohibit the
Holding Company from engaging in certain business combinations (including a
merger) with a person who is the beneficial owner of 15% or more of the Holding
Company's outstanding voting stock (an "Interested Shareholder") during the
three-year period following the date such person became an Interested
Shareholder. This restriction does not apply if (i) before such person became an
Interested Shareholder, the Board of Directors of the corporation approved the
transaction in which the Interested Shareholder became an Interested Shareholder
or approved the business combination; (ii) upon consummation of the transaction
which resulted in the shareholder becoming an Interested Shareholder, the
Interested Shareholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding, those shares owned by (A) persons
who are directors and also officers and (B) employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) on or subsequent to the date such person became an Interested
Shareholder, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of shareholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock which is not owned by the Interested Shareholder. The requirements
of the statute do not apply to a corporation if the corporation's articles of
incorporation contain a provision expressly electing not to be governed by
Section 11.75 or if the corporation adopts such an amendment to its Articles of
Incorporation. The Articles of Incorporation of the Holding Company do not
contain such a provision and the Holding Company will be subject to Section
11.75. There is no comparable statute or regulation governing transactions with
the Bank.
The Illinois Business Corporation Act also contains a statute which is
designed to protect against hostile takeovers. Section 7.85 of the Illinois
Business Corporation Act ("Section 7.85") requires, among other things, that
certain business combinations (including a merger) between a corporation and an
"Interested Shareholder" (defined to include a person who is the beneficial
owner of 10% or more of the combined voting power of such corporation) be
approved by (i) the affirmative vote of the holders of at least 80% of the
combined voting power of the then outstanding shares of all classes and series
of the corporation entitled to vote generally in the election of directors (the
"Voting Shares"), and (ii) the affirmative vote of a majority of the combined
voting power of the then outstanding Voting Shares held by disinterested
shareholders voting together as a single class. Section 7.85's supermajority
voting requirements are inapplicable if: (i) the business combination was
approved by two-thirds of the corporation's disinterested directors (as
defined); or (ii) certain fair price and other procedural requirements as
specified in the statute are met. Section 7.85 applies to an Illinois
corporation which either has a class of equity securities registered under the
Exchange Act or specifically adopts Section 7.85 in its original articles of
incorporation. The original Articles of Incorporation of the Holding Company
contain a provision specifically adopting Section 7.85. Additionally, upon
completion of the Reorganization, the Holding Company will have a class of
equity securities registered under the Exchange Act. The Holding Company will
therefore be subject to the provisions of Section 7.85. There is no comparable
statutory or regulatory provision applicable to the Bank.
LIMITATIONS ON ACQUISITIONS OF CAPITAL STOCK AND VOTING RIGHTS OF CERTAIN
STOCKHOLDERS. The Bank's Federal Stock Charter provides that for a period of
five years from the date of completion of the Bank's conversion from mutual to
stock form, from September 28, 1995 (the "Conversion Date"), no person shall
acquire or offer to acquire beneficial ownership of more than 10% of any equity
security of the Bank (excluding a transaction, such as the Reorganization, in
which the Bank forms a holding company). Additionally, the voting rights of any
shares acquired in excess of the 10% limitation are eliminated. The Articles of
Incorporation of the Holding Company have a similar provision; however, the
Holding Company's Articles have a Board of Director override, which disables the
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10% ownership limitation in the event the offer or acquisition is approved in
advance by two-thirds of the Holding Company's "Continuing Directors" (as
hereinafter defined). The Holding Company's Articles of Incorporation
additionally provide that, beginning five years after the Conversion Date, if
any person acquires the "beneficial ownership" of more than 10% of any class of
equity security of the Holding Company, then, with respect to each vote in
excess of 10%, the record holders of voting stock of the Holding Company
beneficially owned by such person shall be entitled to cast only one-hundredth
of one vote with respect to each vote in excess of 10% of the voting power of
the outstanding shares of voting stock of the Holding Company which such record
holders would otherwise be entitled to cast without giving effect to the
provision, and the aggregate voting power of such record holders shall be
allocated proportionately among such record holders. For purposes of these
limitations, beneficial ownership is determined with reference to the
regulations of the SEC which define beneficial ownership generally as the power
to vote or the power to dispose of securities. Beneficial ownership generally
would not include the power to vote securities as directed pursuant to revocable
proxies solicited in accordance with the SEC proxy rules. Accordingly, this
limitation would generally not restrict the ability of a beneficial owner of
less than 10% of the outstanding Holding Company Common Stock from voting
revocable proxies solicited in accordance with the SEC proxy rules as directed.
An exception from the restriction is provided if the acquisition of more than
10% of the securities received the prior approval by a two-thirds vote of the
Holding Company's "Continuing Directors." Under the Holding Company's Articles
of Incorporation, the restriction on voting shares beneficially owned in
violation of the foregoing limitations is imposed automatically. In order to
prevent the imposition of such restrictions, the Board of Directors must take
affirmative action approving in advance a particular offer to acquire or
acquisition.
ADVANCE NOTICE REQUIREMENTS FOR NOMINATIONS OF DIRECTORS AND PRESENTATION
OF NEW BUSINESS AT MEETINGS OF STOCKHOLDERS. Illinois Guarantee's Bylaws
generally provide that any stockholder desiring to make a nomination for the
election of directors or a proposal for new business at a meeting of
stockholders must submit written notice to the Bank at least five days in
advance of the meeting. Failure to comply with these advance notice requirements
will preclude such nominations or new business from being acted upon at the
meeting.
The Holding Company's Articles of Incorporation provide that a stockholder
wishing to make nominations or proposals generally must give written notice to
the Secretary of the Holding Company not less than 30 nor more than 60 days
before the meeting, together with certain information relating to the nomination
or new business.
AMENDMENT OF CHARTER, ARTICLES OF INCORPORATION AND BYLAWS. The Bank's
Federal Stock Charter provides that it may be amended only if the amendment is
first proposed by the Bank's Board of Directors, then preliminarily approved by
the OTS and thereafter approved by the holders of a majority of the votes
eligible to be cast at a legal meeting. The Holding Company's Articles of
Incorporation do not require OTS approval prior to amendment and may be amended
by the vote of the holders of a majority of the outstanding shares of the
Holding Company Common Stock, except for Articles X, XI, XII, XIII, XIV, XV,
XVI, XVII, XVIII, XIX and XX, which require the affirmative vote of 80% of the
outstanding shares of the Holding Company Common Stock in order to be amended;
provided, however, that such provisions may be amended by the affirmative vote
of the holders of a majority of the outstanding shares of Holding Company Common
Stock if the amendment is first approved by a majority of the Continuing
Directors. The Bylaws of the Bank may be amended by the vote of either a
majority of the Board of Directors or the holders of a majority of the
outstanding shares of Illinois Guarantee Common Stock. The Bylaws of the Holding
Company may be repealed, altered, amended or rescinded by a vote of two-thirds
of the Board of Directors or by the affirmative vote of the holders of at least
80% of the outstanding shares of capital stock of the Holding Company entitled
to vote generally in the election of directors (considered for this purpose as
one class) cast at a meeting of the stockholders called for that purpose
(provided that notice of such proposed repeal, alteration, amendment or recision
is included in the notice of such meeting).
CERTAIN ANTI-TAKEOVER PROVISIONS OF THE HOLDING COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
The Board of Directors believes that certain of the provisions described
above reduce the Holding Company's vulnerability to takeover attempts and
certain other transactions which have not been negotiated with and
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approved by its Board of Directors. These provisions include: provisions
requiring the affirmative vote of 80% of the shares outstanding for the approval
of Business Combinations with Related Persons; the requirement of advance notice
of stockholder nominations and new business; the prohibition on offers to
acquire or acquisitions of more than 10% of the Holding Company's equity
securities for a period of five years from the Conversion Date; the limitation
of the voting rights of holders of more than 10% of the Holding Company's equity
securities beginning five years after the Conversion Date; the authorization of
additional shares of Holding Company Common Stock; the classification of the
Board of Directors; and the requirement of an 80% vote to remove directors or to
amend certain provisions of the Articles of Incorporation and the Bylaws. The
Board of Directors believes these provisions are in the best interests of the
Bank and of the Holding Company and its stockholders. In the judgment of the
Board of Directors, the Board of Directors is in the best position to consider
all relevant factors and to negotiate for what is in the best interests of the
stockholders and the Holding Company's other constituents. Accordingly, the
Board of Directors of the Holding Company and the Bank believe that it is in the
best interests of the Holding Company and its stockholders to encourage
potential acquirors to negotiate directly with the Company's Board of Directors
and that these provisions will encourage such negotiations and discourage
nonnegotiated takeover attempts. It is also the view of the Board of Directors
that these provisions should not discourage persons from proposing a merger or
other transaction at prices reflective of the true value of the Holding Company
and which is in the best interests of all stockholders.
Certain corporate takeover practices could be highly disruptive to a
company and could result in inequitable treatment among the company's
stockholders. These practices typically involve a purchaser's acquisition of a
substantial portion of a company's capital stock and attempt to replace
incumbent management and the Board of Directors. Takeover attempts which have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the Holding
Company and stockholders, with due consideration given to matters such as the
management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause great expense. Although a tender offer or
other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all the outstanding
shares of a target company. As a result, shareholders may be presented with the
alternative of partially liquidating their investment at a time that may be
disadvantageous, or retaining their investment in an enterprise which is under
different management and whose objectives may not be similar to those of the
remaining shareholders.
While the Boards of Directors of the Bank and the Holding Company are not
aware of any effort that might be made to obtain control of the Holding Company
after the Reorganization, the Board of Directors, as discussed below, believes
that it is appropriate to include certain provisions as part of the Holding
Company's Articles of Incorporation to protect the interests of the Holding
Company and its stockholders from hostile takeovers which the Board of Directors
might conclude are not in the best interests of the Bank, the Holding Company or
the Holding Company's stockholders. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the current Board of
Directors or management of the Holding Company more difficult.
REGULATION OF ILLINOIS COMMUNITY BANCORP, INC.
Upon completion of the Reorganization, the Holding Company will become a
savings and loan holding company within the meaning of the Home Owners' Loan
Act, as amended. As such, it will be registered with the OTS and will be subject
to OTS regulations, examinations and reporting requirements. As a subsidiary of
a savings
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and loan holding company, the Bank will be subject to certain restrictions in
its dealings with the Holding Company and with other companies affiliated with
the Holding Company, and will continue to be subject to regulatory requirements
as a federal savings association.
ACTIVITIES RESTRICTIONS. The Board of Directors presently intends to
operate the Holding Company as a unitary savings and loan holding company.
Currently, there are generally no restrictions on the activities of a unitary
savings and loan holding company. However, if the Director of the OTS determines
that there is reasonable cause to believe that the continuation by a savings and
loan holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings association, the
Director of the OTS may impose such restrictions as deemed necessary to address
such risk including limiting: (i) payment of dividends by the savings
association; (ii) transactions between the savings association and its
affiliates; and (iii) any activities of the savings association that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings association.
If the Holding Company were to acquire control of another savings
association, other than through merger or other business combination with the
Bank, the Holding Company would thereupon become a multiple savings and loan
holding company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
association meets the QTL test, the activities of the Holding Company and any of
its subsidiaries (other than the Bank or other subsidiary savings institutions)
would thereafter be subject to further restrictions. Among other things, no
multiple savings and loan holding company or subsidiary thereof which is not a
savings association shall commence or continue for a limited period of time
after becoming a multiple savings and loan holding company or subsidiary
thereof, any business activity, upon prior notice to, and no objection by, the
OTS, other than: (i) furnishing or performing management services for a
subsidiary savings association; (ii) conducting an insurance agency or escrow
business; (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary savings institution; (iv) holding or managing properties used
or occupied by a subsidiary savings institution; (v) acting as trustee under
deeds of trust; (vi) those activities authorized by regulation as of March 5,
1987 to be engaged in by multiple holding companies; or (vii) unless the
Director of the OTS by regulation prohibits or limits such activities for
savings and loan holding companies, those activities authorized by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") as
permissible for bank holding companies. Those activities described in (vii)
above must also be approved by the Director of the OTS prior to being engaged in
by a multiple savings and loan holding company.
Notwithstanding the above rules as to permissible business activities of
unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the QTL test, then such
unitary holding company will become subject to the activities restrictions
applicable to multiple holding companies. To meet its QTL test, an institution's
"Qualified Thrift Investments" must represent 65% of "portfolio assets." Under
OTS implementing regulations, portfolio assets are defined as total assets less
intangibles, the value of property used by a savings association in its business
and liquidity investments in an amount not exceeding 20% of assets. OTS
regulations define Qualified Thrift Investments to include, among other things,
loans that were made to purchase, refinance, construct, improve or repair
domestic residential housing, home equity loans, mortgage-backed securities,
FHLB, FHLMC or FNMA stock and, subject to a 20% of portfolio assets limit,
savings associations are able to treat as Qualified Thrift Investments 200% of
their investments in loans to finance "starter homes" and loans for
construction, development or improvement of housing and community service
facilities or for financing small businesses in "credit-needy" areas.
A savings association that was not subject to penalties for failure to
maintain QTL status as of June 30, 1991 shall be deemed a QTL as long as its
percentage of Qualified Thrift Investments continues to equal or exceed 65% in
at least nine out of each 12 months. A savings association will cease to be a
QTL when its percentage of Qualified Thrift Investments as measured by monthly
averages over the immediately preceding 12-month period falls below 65% for four
or more months. A savings association that fails to maintain QTL status will be
permitted to requalify once, and if it fails the QTL test a second time, it will
become immediately subject to all penalties as if all time limits on such
penalties had expired. Since the Bank was not subject to sanctions for failure
to comply with
-26-
the QTL test as of June 30, 1991, it will remain in compliance until its monthly
average percentage of Qualified Thrift Investments to portfolio assets falls
below 65% for four or more months as measured by monthly averages over the
preceding 12-month period. At December 31, 1995, the Bank's percentage of
Qualified Thrift Investments to portfolio assets was 79.96%.
RESTRICTIONS ON ACQUISITIONS. Savings and loan holding companies are
prohibited from acquiring, without prior approval of the Director of OTS, (i)
control of any other savings association or savings and loan holding company or
substantially all the assets thereof or (ii) more than 5% of the voting shares
of a savings association or holding company thereof which is not a subsidiary.
Under certain circumstances, a registered savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the voting shares of an under-capitalized savings association pursuant to a
"qualified stock issuance" without that savings association being deemed
controlled by the holding company. In order for the shares acquired to
constitute a "qualified stock issuance," the shares must consist of previously
unissued stock or treasury shares, the shares must be acquired for cash, the
savings and loan holding company's other subsidiaries must have tangible capital
of at least 6-1/2% of total assets, there must not be more than one common
director or officer between the savings and loan holding company and the issuing
savings association and transactions between the savings association and the
savings and loan holding company and any of its affiliates must conform to
Sections 23A and 23B of the Federal Reserve Act. Except with the prior approval
of the Director of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may also acquire control of any savings association, other
than a subsidiary savings association, or of any other savings and loan holding
company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state if: (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home or
branch office in the state of the association to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
association pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act; or (iii) the statutes of the state in which the
association to be acquired is located specifically permit institutions to be
acquired by state-chartered associations or savings and loan holding companies
located in the state where the acquiring entity is located (or by a holding
company that controls such state-chartered savings institutions).
The Bank Holding Company Act of 1956 authorizes the Federal Reserve Board
to approve an application by a bank holding company to acquire control of any
savings association. Pursuant to rules promulgated by the Federal Reserve Board,
owning, controlling or operating a savings association is a permissible activity
for bank holding companies, if the savings association engages only in deposit-
taking activities and lending and other activities that are permissible for bank
holding companies. In approving such an application, the Federal Reserve Board
may not impose any restriction on transactions between the savings association
and its holding company affiliates except as required by Sections 23A and 23B of
the Federal Reserve Act.
A bank holding company that controls a savings association may merge or
consolidate the assets and liabilities of the savings association with, or
transfer assets and liabilities to, any subsidiary bank which is a member of the
Bank Insurance Fund ("BIF") with the approval of the appropriate federal banking
agency and the Federal Reserve Board. The resulting bank will be required to
continue to pay assessments to the SAIF at the rates prescribed for SAIF members
on the deposits attributable to the merged savings association plus an annual
growth increment. In addition, the total assets of all depository institution
subsidiaries of the bank holding company must be at least equal to twice the
total assets of the savings association and the bank holding company and all its
bank subsidiaries must meet all applicable capital standards upon consummation
of the acquisition. Finally, the transaction must comply with the restrictions
on interstate acquisitions of commercial banks under the Bank Holding Company
Act.
TRANSACTIONS WITH AFFILIATES. Transactions between savings associations
and any affiliate are governed by Sections 23A and 23B of the Federal Reserve
Act, as amended. An affiliate of a savings association is any company
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or entity which controls, is controlled by or is under common control with the
savings association. In a holding company context, the parent holding company of
a savings association (such as the Holding Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
association. Generally, Sections 23A and 23B (i) limit the extent to which the
savings association or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such savings association's
capital stock and surplus, and contain an aggregate limit on all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus and (ii) require that all such transactions be on terms
substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
similar other types of transactions. Additionally, in addition to the
restrictions imposed by Sections 23A and 23B, no savings association may (i)
loan or otherwise extend credit to an affiliate, except for any affiliate which
engages only in activities which are permissible for bank holding companies, or
(ii) purchase or invest in any stocks, bonds, debentures, notes or similar
obligations of any affiliate, except for affiliates which are subsidiaries of
the savings association.
The restrictions contained in Section 22(h) of the Federal Reserve Act, as
amended, apply to loans by savings associations to executive officers, directors
and principal stockholders (such as the Holding Company). Section 22(h) requires
that loans to directors, executive officers and greater than 10% stockholders be
made on terms substantially the same as offered in comparable transactions to
other persons. Under Section 22(h), loans to an executive officer and to a
greater than 10% stockholder of a savings association (18% in the case of
institutions located in an area with less than 30,000 in population), and
certain affiliated entities of either, may not exceed together with all other
outstanding loans to such person and affiliated entities the association's loan-
to-one borrower limit (generally equal to 15% of the institution's unimpaired
capital and surplus and an additional 10% of such capital and surplus for loans
fully secured by certain readily marketable collateral). Section 22(h) also
prohibits loans, above amounts prescribed by the appropriate federal banking
agency, to directors, executive officers and greater than 10% stockholders of a
savings association, and their respective affiliates, unless such loan is
approved in advance by a majority of the board of directors of the association
with any "interested" director not participating in the voting. The Federal
Reserve Board has prescribed the loan amount (which includes all other
outstanding loans to such person), as to which such prior board of director
approval is required, to be the greater of $25,000 or 5% of capital and surplus
(up to $500,000).
ACCOUNTING TREATMENT
The Reorganization will be accounted for as a reorganization under common
control treated as if a pooling of interests. Therefore, the consolidated
capitalization, assets, liabilities, income and other financial data of the
Holding Company immediately following the Reorganization will be substantially
the same as those of the Bank immediately prior to consummation of the
Reorganization, and after the Reorganization, will be shown in the Holding
Company's consolidated financial statements at the Bank's historical recorded
values.
LEGAL OPINION
The validity of the shares of the Holding Company Common Stock issuable
upon consummation of the Reorganization will be passed upon by Housley
Kantarian & Bronstein, P.C., Washington, D.C.
VOTE REQUIRED AND BOARD RECOMMENDATION
Approval of the Plan of Reorganization requires the affirmative vote of a
majority of the total votes eligible to be cast at the Special Meeting. Since
the required vote is based on the number of shares outstanding, an abstention or
failure to vote, including a broker no vote, is equivalent to voting against the
Plan of Reorganization. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE PLAN OF REORGANIZATION.
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Approximately 87,723 shares, or 17.46% of the shares of Illinois Guarantee
Common Stock outstanding are held by directors and executive officers of
Illinois Guarantee and their affiliates. It is expected that these shares will
be voted "FOR" the Reorganization.
THIS DESCRIPTION OF THE PROPOSED HOLDING COMPANY FOR ILLINOIS GUARANTEE
DOES NOT PURPORT TO BE COMPLETE, BUT IS QUALIFIED IN ITS ENTIRETY BY THE PLAN OF
REORGANIZATION AND THE ARTICLES OF INCORPORATION AND BYLAWS OF THE HOLDING
COMPANY ATTACHED AS EXHIBITS A, B AND C, RESPECTIVELY, TO THIS PROXY
STATEMENT/PROSPECTUS WHICH ARE INCORPORATED BY REFERENCE HEREIN.
- --------------------------------------------------------------------------------
PROPOSAL II -- ADJOURNMENT OF SPECIAL MEETING
- --------------------------------------------------------------------------------
Approval of the Plan of Reorganization requires the affirmative vote of a
majority of the total votes eligible to be cast at the Special Meeting. In the
event there is an insufficient number of shares present in person or by proxy at
the Special Meeting to approve the Plan of Reorganization, the Board of
Directors intends to adjourn the Special Meeting to a later date. The place and
date to which the Special Meeting would be adjourned would be announced at the
Special Meeting, but, in order to avoid the necessity for setting a new record
date or providing formal written notice of the adjournment, would in no event be
more than 30 days after the date of the Special Meeting.
The effect of any such adjournment would be to permit the Bank to solicit
additional proxies for approval of the Plan of Reorganization, in the event the
Plan of Reorganization is not approved. While such an adjournment would not
invalidate any proxies previously filed, including those filed by stockholders
voting against the subject proposals, it would give the Bank the opportunity to
solicit additional proxies in favor of the Plan of Reorganization in the event
the Plan of Reorganization is not approved. As a result, such adjournment could
be advantageous to stockholders who favor the proposed Reorganization to the
potential disadvantage of those who disfavor such proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
ADJOURNMENT UNDER THE CIRCUMSTANCES DESCRIBED HEREIN. APPROVAL OF THE
ADJOURNMENT REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
VOTES CAST IN PERSON OR BY PROXY AT THE SPECIAL MEETING.
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PROPOSAL III -- APPROVAL OF 1996 STOCK OPTION AND INCENTIVE PLAN
- --------------------------------------------------------------------------------
GENERAL. The Board of Directors has adopted the Illinois Community
Bancorp, Inc. 1996 Stock Option and Incentive Plan (the "Option Plan"), subject
to its approval by the Bank's stockholders. The initial grant of stock options
under the Option Plan will occur upon its receipt of stockholder approval. The
Option Plan is attached hereto as Exhibit E and should be consulted for
additional information. All statements made herein regarding the Option Plan,
which are only intended to summarize the Option Plan, are qualified in their
entirety by reference to the Option Plan. Although the Option Plan will be
named the "Illinois Community Bancorp, Inc. 1996 Stock Option and Incentive
Plan," the Option Plan will be the option plan of the Bank until the
consummation of the Reorganization, at which time it will become the option plan
of the Holding Company, and options will be for shares of Holding Company Common
Stock rather than Bank Common Stock. If the Reorganization is not consummated
for any reason, the Option Plan will continue in effect as the Option Plan of
the Bank, and will be renamed the Illinois Guarantee Savings Bank, FSB 1996
Stock Option and Incentive Plan, and options will be for shares of Bank Common
Stock rather than Holding Company Common Stock. References herein to the
Holding Company shall be applicable to the Bank prior to the Effective Date of
the Reorganization.
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PURPOSE OF THE OPTION PLAN. The purpose of the Option Plan is to advance
the interests of the Holding Company by providing directors and selected
employees of the Holding Company, the Bank and its affiliates with the
opportunity to acquire shares of Common Stock. By encouraging such stock
ownership, the Holding Company and the Bank seek to attract, retain, and
motivate the best available personnel for positions of substantial
responsibility and to provide additional incentive to directors and employees of
the Holding Company and its affiliates to promote the success of the business of
the Holding Company.
DESCRIPTION OF THE OPTION PLAN
EFFECTIVE DATE. The Option Plan will become effective on the date of its
approval by the Bank's stockholders (the "Effective Date"), and prior thereto no
awards may be made.
ADMINISTRATION. The Option Plan will be administered by a committee (the
"Committee") appointed by the Holding Company's Board of Directors, consisting
of at least three directors of the Holding Company who are "disinterested
persons" within the meaning of the federal securities laws. The Committee has
discretionary authority to select participants and grant awards, to determine
the form and content of any awards made under the Option Plan, to interpret the
Option Plan, and to make other decisions necessary or advisable in connection
with administering the Option Plan. All decisions, determinations, and
interpretations of the Committee are final and conclusive on all persons
affected thereby. Members of the Committee will be indemnified to the full
extent permissible under the Holding Company's governing instruments in
connection with any claims or other actions relating to any action taken under
the Option Plan. As of the date hereof, the members of the Committee are
expected to be Directors Garbe, Ludwig, and Sehy.
ELIGIBLE PERSONS; TYPES OF AWARDS. Under the Option Plan, the Committee
may grant stock options ("Options") and stock appreciation rights ("SARs")
(collectively, "Awards") to such employees as the Committee shall designate.
Directors who are not employees will receive the automatic grant described below
(see " -- Automatic Grants"), and will otherwise be ineligible to receive Awards
under the Option Plan. As of the Record Date, the Holding Company and its
subsidiaries had approximately 15 employees and 6 non-employee directors who
were eligible to participate in the Option Plan.
SHARES AVAILABLE FOR GRANTS. The Option Plan would reserve 50,255 shares
of Holding Company Common Stock for issuance upon the exercise of Options or
SARs. Such shares may be authorized but unissued shares, treasury shares, or
shares held in a grantor trust established by the Holding Company. In the event
of any merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of shares, or similar
event in which the number or kind of shares is changed without receipt or
payment of consideration by the Bank, the Committee will adjust both the number
and kind of shares of stock as to which Options and SARs may be awarded under
the Option Plan, the affected terms of all outstanding Options and SARs, and the
aggregate number of shares of Holding Company Common Stock remaining available
for grant under the Option Plan. Generally, the number of shares as to which
SARs are granted are charged against the aggregate number of shares available
for grant under the Option Plan, provided that, in the case of an SAR granted in
conjunction with an Option, under circumstances in which the exercise of the SAR
results in termination of the Option and vice versa, only the number of shares
of Holding Company Common Stock subject to the Option shall be charged against
the aggregate number of shares of Holding Company Common Stock remaining
available under the Option Plan. If Awards should expire, become unexercisable
or be forfeited for any reason without having been exercised, the shares of
Holding Company Common Stock subject to such Awards shall, unless the Option
Plan shall have been terminated, be available for the grant of additional Awards
under the Option Plan.
OPTIONS. The Committee would have the discretion to grant Options that are
incentive stock options ("ISOs") as defined in Section 422 of the Code, or that
are not ISOs ("Non-ISOs"). The exercise price as to any Option may not be less
than the fair market value (determined under the Option Plan) of the optioned
shares on the date of grant. In the case of an optionee who owns more than 10%
of the outstanding Holding Company Common
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Stock on the date of grant, such option price may not be less than 110% of fair
market value of the shares. As required by federal tax laws, to the extent that
the aggregate fair market value (determined when an ISO is granted) of the
Holding Company Common Stock with respect to which ISOs are exercisable by an
optionee for the first time during any calendar year (under all plans of the
Holding Company and of any subsidiary) exceeds $100,000, the Options granted in
excess of $100,000 will be treated as Non-ISOs, and not as ISOs.
AUTOMATIC GRANTS. On the Effective Date, certain officers and directors of
the Holding Company or an affiliate will receive a one-time grant of an Option
to purchase shares of Holding Company Common Stock at an exercise price per
share equal to its fair market value on the Effective Date (see " --New Plan
Benefits" below). In addition, each non-employee director who joins the Board of
Directors of the Holding Company or an affiliate either within the two-year
period before the Effective Date or after the Effective Date will receive, on
the date of joining the Board, Non-ISOs to purchase 1,004 the shares of Holding
Company Common Stock reserved under the Option Plan (or such lesser number of
shares as are then available under the Option Plan), at an exercise price per
share equal to the fair market value of the Illinois Guarantee Common Stock on
the date of grant. Options granted to non-employee directors will have a term of
ten years, and expire one year after a director terminates service on the Board
for any reason. In the event of the director's disability or death during the
term of his directorship, his Options will become immediately exercisable and
will expire one or two years, respectively, from the date of such event. In no
event shall Options expire later than the date on which such Options would
otherwise expire.
SARS. An SAR may be granted in tandem with all or part of any Option
granted under the Option Plan, or without any relationship to any Option. An SAR
granted in tandem with an ISO must expire no later than the ISO, must have the
same exercise price as the ISO and may be exercised only when the ISO is
exercisable and when the fair market value of the shares subject to the ISO
exceeds the exercise price of the ISO. For SARs granted in tandem with Options,
the optionee's exercise of the SAR cancels his or her right to exercise the
Option, and vice versa. Regardless of whether an SAR is granted in tandem with
an Option, exercise of the SAR will entitle the optionee to receive, as the
Committee prescribes in the grant, all or a percentage of the difference between
(i) the fair market value of the shares of Holding Company Common Stock subject
to the SAR at the time of its exercise, and (ii) the fair market value of such
shares at the time the SAR was granted (or, in the case of SARs granted in
tandem with Options, the exercise price). The exercise price as to any
particular SAR may not be less than the fair market value of the optioned shares
on the date of grant.
EXERCISE OF OPTIONS AND SARS. The exercise of Options and SARs will be
subject to such terms and conditions as are established by the Committee in a
written agreement between the Committee and the optionee; provided that each
Award, including all Awards made on the Effective Date, shall become exercisable
with respect to 20% of the underlying shares on each of the five annual
anniversary dates of the date on which the Award occurred. Such vesting shall
accelerate to 100% upon optionee's termination of employment due to death or
disability (as defined in the Option Plan). In the absence of Committee action
to the contrary, an otherwise unexpired Option shall cease to be exercisable
upon (i) an optionee's termination of employment for "just cause" (as defined in
the Option Plan), (ii) the date three months after an optionee terminates
service for a reason other than just cause, death, or disability, (iii) the date
one year after an optionee terminates service due to disability, or (iv) the
date two years after an optionee terminates service due to death.
An optionee may exercise Options or SARs, subject to provisions relative to
their termination and limitations on their exercise, only by (i) written notice
of intent to exercise the Option or SAR with respect to a specified number of
shares of Holding Company Common Stock, and (ii) in the case of Options, payment
to the Holding Company (contemporaneously with delivery of such notice) in cash,
in Holding Company Common Stock, or a combination of cash and Holding Company
Common Stock, of the amount of the exercise price for the number of shares with
respect to which the Option is then being exercised. Holding Company Common
Stock utilized in full or partial payment of the exercise price for Options
shall be valued at its market value at the date of exercise.
CONDITIONS ON ISSUANCE OF SHARES. The Committee will have the
discretionary authority to impose, in agreements, such restrictions on shares of
Holding Company Common Stock issued pursuant to the Option Plan as it may deem
appropriate or desirable, including but not limited to the authority to impose a
right of first refusal or to establish repurchase rights or both of these
restrictions. In addition, the Committee may not issue shares unless
-31-
the issuance complies with applicable securities laws, and to that end may
require that a participant make certain representations or warranties.
NONTRANSFERABILITY. Awards may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent and distribution. Limited transfers, principally to family
members, are permitted if a pending securities law change is approved.
EFFECT OF DISSOLUTION AND RELATED TRANSACTIONS. In the event of (i) the
liquidation or dissolution of the Holding Company, (ii) a merger or
consolidation in which the Holding Company is not the surviving entity, or (iii)
the sale or disposition of all or substantially all of the Holding Company's
assets (any of the foregoing to be referred to herein as a "Transaction"), all
outstanding Awards, together with the exercise prices thereof, will be equitably
adjusted for any change or exchange of shares for a different number or kind of
shares which results from the Transaction. However, any such adjustment will be
made in such a manner as to not constitute a modification, within the meaning of
Section 424(h) of the Code, of outstanding ISOs.
DURATION OF THE OPTION PLAN AND GRANTS. The Option Plan has a term of 10
years from the Effective Date, after which date no Awards may be granted. The
maximum term for an Award is 10 years from the date of grant, except that the
maximum term of an ISO (and an SAR granted in tandem with an ISO) may not exceed
five years if the optionee owns more than 10% of the Holding Company Common
Stock on the date of grant. The expiration of the Option Plan, or its
termination by the Committee, will not affect any Award then outstanding.
AMENDMENT AND TERMINATION OF THE OPTION PLAN. The Board of Directors of
the Holding Company may from time to time amend the terms of the Option Plan
and, with respect to any shares at the time not subject to Awards, suspend or
terminate the Option Plan; provided that the provisions relating to grants of
Options to non-employee directors may not be amended more than once every six
months (other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder). No amendment,
suspension, or termination of the Option Plan will, without the consent of any
affected holders of an Award, alter or impair any rights or obligations under
any Award previously granted.
FINANCIAL EFFECTS OF AWARDS. The Holding Company will receive no monetary
consideration for the granting of Awards under the Option Plan. It will receive
no monetary consideration other than the option price for shares of Holding
Company Common Stock issued to optionees upon the exercise of their Options, and
will receive no monetary consideration upon the exercise of SARs. Under current
accounting standards, recognition of compensation expense is not required when
Options are granted at an exercise price equal to or exceeding the fair market
value of the Illinois Guarantee Common Stock on the date the Option is granted.
The granting of SARs will require charges to the income of the Holding
Company based on the amount of the appreciation, if any, in the average market
price of the Holding Company Common Stock to which the SARs relate over the
exercise price of those shares. If the average market price of the Holding
Company Common Stock declines subsequent to a charge against earnings due to
estimated appreciation in the Holding Company Common Stock subject to SARs, the
amount of the decline will reverse such prior charges against earnings (but not
by more than the aggregate of such prior charges).
FEDERAL INCOME TAX CONSEQUENCES
ISOS. An optionee recognizes no taxable income upon the grant of ISOs. If
the optionee holds the Option shares for at least two years from the date the
ISO is granted, and for one year from the date the ISO is exercised, any gain
realized on the sale of the shares received upon exercise of such ISO is taxed
as long-term capital gain. However, the difference between the fair market value
of the Holding Company Common Stock at the date of exercise and the exercise
price of the ISO will be treated by the optionee as an item of tax preference in
the year of exercise for purposes of the alternative minimum tax. If an optionee
disposes of the shares before the expiration of either of the two special
holding periods noted above, the disposition is a "disqualifying disposition."
In this event, the optionee will be required, at the time of the disposition of
the Holding Company Common Stock, to treat the lesser of the gain realized or
the difference between the exercise price and the fair market value of the
Holding Company Common Stock at the date of exercise as ordinary income and the
excess, if any, as capital gain.
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The Holding Company will not be entitled to any deduction for federal
income tax purposes as the result of the grant or exercise of an ISO, regardless
of whether or not the exercise of the ISO results in liability to the optionee
for alternative minimum tax. However, if an optionee has ordinary income taxable
as compensation as a result of a disqualifying disposition, the Holding Company
will be entitled to deduct an equivalent amount.
NON-ISOS. In the case of a Non-ISO, an optionee will recognize ordinary
income upon the exercise of the Non-ISO in an amount equal to the difference
between the fair market value of the shares on the date of exercise and the
option price (or, if the optionee is subject to certain restrictions imposed by
the federal securities laws, upon the lapse of those restrictions unless the
optionee makes a special tax election within 30 days after the date of exercise
to have the general rule apply). Upon a subsequent disposition of such shares,
any amount received by the optionee in excess of the fair market value of the
shares as of the exercise will be taxed as capital gain. The Holding Company
will be entitled to a deduction for federal income tax purposes at the same time
and in the same amount as the ordinary income recognized by the optionee in
connection with the exercise of a Non-ISO.
SARS. The grant of an SAR has no tax effect on the optionee or the Holding
Company. Upon exercise of the SARs, however, any cash or Holding Company Common
Stock received by the optionee in connection with the surrender of his or her
SAR will be treated as compensation income to the optionee, and the Holding
Company will be entitled to a business expense deduction for the amounts treated
as compensation income.
STOCK OPTIONS GRANTED
Set forth below is certain information, as of the Record Date, relating to
all outstanding Options to be granted to the specified individuals and groups of
individuals on the Effective Date of the Option Plan. All such Options (i) will
vest at a rate of 20% per year following the date of grant, and (ii) will
automatically expire ten years after the date of their grant. The exercise price
for these Options will equal 100% of the fair market value of the underlying
Common Stock on the date of grant. As of the date hereof, the Option grants set
forth below were the only Awards that had been made under the Option Plan.
Number of Percentage
Shares Subject of Shares Reserved
Participant (or Group) to Option(1) Under Option Plan
- ---------------------- --------------- -------------------
Gerald E. Ludwig, Chairman of the Board 2,512 5%
and Chief Executive Officer
Garrett M. Andes, II, Director 1,005 2%
Ernest E. Garbe, Director 2,512 5%
Milton Hinkle, Director 1,005 2%
Frederick C. Schaefer, Director 2,512 5%
Michael I. Sehy, Director 2,512 5%
Douglas A. Pike, President and Director 12,060 24%
Ronald R. Schettler, Senior Vice President 9,045 18%
John H. Leonard, Senior Vice President 4,522 9%
All executive officers as a group (4 persons) 28,139 56%
All directors who are not executive
officers as a group (5 persons) 9,546 19%
All employees, including all current officers who
are not executive officers, as a group (8 persons) 11,557 23%
_________________
(1) The option exercise price will be the 100% of the market price of the
Common Stock on the date of grant, as reported on the National Daily
Quotation System "Pink Sheet" published by the National Quotation Bureau,
Inc. ($11.50 per share on February 10, 1996, the date of the most recent
trade known to the Bank).
FOR ADDITIONAL INFORMATION RELATING TO GRANTS MADE UNDER THE OPTION PLAN, SEE
"NEW PLAN BENEFITS" BELOW.
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RECOMMENDATION AND VOTE REQUIRED
The Board of Directors has determined that the Option Plan is desirable,
cost effective, and produces incentives which will benefit the Holding Company
and its stockholders. The Board of Directors is seeking stockholder approval of
the Option Plan pursuant to the requirements of the OTS, in order to satisfy the
requirements of the Code for favorable tax treatment of ISOs, and to exempt
certain option transactions from the short-swing trading rules of the Securities
and Exchange Commission ("SEC").
Stockholder approval of the Option Plan requires the affirmative vote of
the holders of a majority of the votes eligible to be cast at the Special
Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE OPTION
PLAN.
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PROPOSAL IV -- APPROVAL OF MANAGEMENT RECOGNITION PLAN
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GENERAL
The Board of Directors of the Holding Company has adopted the Illinois
Community Bancorp, Inc. Management Recognition Plan (the "MRP"), subject to its
approval by the Bank's stockholders. The initial grant of MRP awards will occur
upon the MRP's receipt of stockholder approval. A copy of the MRP is attached
hereto as Exhibit F, and should be consulted for additional information. All
statements made herein regarding the MRP, which are only intended to summarize
the MRP, are qualified in their entirety by reference to the MRP. Although the
MRP will be named the "Illinois Community Bancorp, Inc. Management Recognition
Plan" the MRP will be the MRP of the Bank until the consummation of the
Reorganization, at which time it will become the MRP of the Holding Company, and
awards will be for shares of Holding Company Common Stock rather than Bank
Common Stock. If the Reorganization is not consummated for any reason, the MRP
will continue in effect as the MRP of the Bank, and will be renamed Illinois
Guarantee Savings Bank, FSB Management Recognition Plan, and awards of shares of
stock under the MRP will be awards for shares of Bank Common Stock rather than
Holding Company Common Stock. References herein to the Holding Company shall be
applicable to the Bank prior to the Effective Date of the Reorganization.
PURPOSE OF THE MRP
The purpose of the MRP is to reward and retain personnel of experience and
ability in key positions of responsibility by providing such persons with a
proprietary interest in the Holding Company, with compensation for their past
contributions to the Holding Company and its subsidiaries, and with an incentive
to make such contributions in the future.
DESCRIPTION OF THE MRP
Effective Date. The MRP will become effective immediately upon its
approval by the Bank's stockholders (the "Effective Date"), and prior thereto no
awards may be made.
Administration. The MRP will be administered by an MRP Committee
consisting of not less than three non-employee members of the Board who are
"disinterested persons" within the meaning of the federal securities laws.
Except as limited by the express provisions of the MRP or by resolutions adopted
by the Board, the MRP Committee has sole and complete authority and discretion
(1) to select and grant MRP awards to employees, (2) to determine the form and
content of MRP awards to be issued under the MRP, (3) to interpret the MRP, (4)
to prescribe, amend, and rescind rules and regulations relating to the MRP, and
(5) to make other determinations necessary or advisable for the administration
of the MRP. The MRP provides that members of the MRP Committee shall be
indemnified and held harmless for actions taken under the MRP in good faith and
in the best interests of the Bank and its subsidiaries. The MRP Committee is
expected to consist of Directors Ludwig, Sehy, and Garbe.
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MRP Trust; Purchase Limitations. The assets of the MRP will be held in a
trust (the "MRP Trust"), as to which Directors Ludwig, Sehy, and Garbe will act
as trustees ("MRP Trustees") and thereby have the responsibility to invest all
funds contributed to the MRP Trust by the Bank. With funds contributed by the
Holding Company or the Bank, the MRP Trust will purchase, in the aggregate,
20,102 shares of the Holding Company Common Stock on and after the Effective
Date. The MRP Trustees may purchase such shares either on the open market or
from the Holding Company. Said 20,102 shares is the maximum that the MRP Trust
may purchase, in the aggregate, pursuant to the MRP. In the event an MRP award
is forfeited for any reason or additional shares are purchased by the MRP Trust
associated with an MRP, the MRP Committee may make awards with respect to such
shares.
Types of Awards; Eligible Persons. The MRP Committee may make MRP awards,
in the form of restricted stock, with respect to shares held in the underlying
MRP Trust. The MRP Committee has the discretion to select employees of the
Holding Company and the Bank who will receive discretionary MRP awards. In
selecting those employees to whom MRP awards will be granted and the number of
shares covered by such awards, the MRP Committee will consider the position,
duties and responsibilities of the eligible employees, the value of their
services to the Holding Company and its subsidiaries, and any other factors the
MRP Committee may deem relevant. In addition, the MRP specifically provides for
certain automatic awards to certain employees and all non-employee directors
(see " -- Automatic Awards" below).
Automatic Awards. Certain employees and directors of the Holding Company
and its affiliates will receive a one-time award on the MRP Effective Date (see
"New Plan Benefits" below). In addition, each non-employee director who joins
the Board of Directors of the Holding Company either within the two-year period
before the MRP Effective Date or subsequent to the MRP Effective Date will
receive on the date of joining the Board a one-time award of 402 shares (or such
lesser number of shares as are then available under the MRP).
Vesting. Pursuant to the MRP, freely transferable shares of Holding
Company Common Stock will be transferred to participants as they become vested
in their MRP awards. MRP awards will become 20% vested on each of the five
anniversary dates of the award, provided, with respect to each vesting date,
that the participant is an employee or director of the Holding Company or a
subsidiary on such date. All shares of Holding Company Common Stock subject to
outstanding awards will be immediately 100% earned and nonforfeitable upon a
participant's death or disability (as defined in the MRP). If a participant
terminates employment for reasons other than death or disability, the
participant forfeits all rights to the shares then under restriction.
Voting; Distributions of Shares; Dividends. All unvested shares of Holding
Company Common Stock held by the MRP Trust (whether or not subject to an MRP
award) will be voted by the MRP Trustees in the same proportion as the trustee
of the Holding Company's ESOP trust votes Holding Company Common Stock held
therein. The MRP Trustees will distribute all shares, together with any shares
representing stock dividends, in the form of Holding Company Common Stock. One
share of Holding Company Common Stock shall be given for each share earned.
Payments representing cash dividends (and earnings thereon) will be made in
cash.
No shares may be distributed from the MRP Trust prior to the date which is
five years from the date of the Bank's conversion from mutual to stock form to
the extent the recipient would after receipt of such shares own in excess of ten
percent of the issued and outstanding shares of Holding Company Common Stock,
unless such action is approved in advance by a majority vote of the
disinterested directors of the Holding Company's Board of Directors. Any shares
remaining undistributed solely by reason of the operation of this rule shall be
distributed to the recipient on the date which is five years from the date of
the Bank's conversion to stock form, provided that the recipient is vested as to
those shares.
Nontransferability. MRP awards and rights to shares held in the MRP Trust
are not transferable by participants in the MRP, and during the lifetime of a
participant, shares held in the MRP Trust may only be earned by and paid to the
participant. Limited transfers, principally to family members, are permitted if
a pending securities law change is approved.
-35-
Taxation. Participants will recognize compensation income when their
interest vests, or at an earlier date pursuant to a participant's election to
accelerate recognition pursuant to Section 83(b) of the Code.
Financial Effects of Awards. Under current accounting standards, when MRP
awards are granted, the Holding Company must recognize compensation expense
based on the fair market value of the Illinois Guarantee Common Stock on the
date the awards are granted, with such amount being amortized over the expected
vesting period for the award.
Adjustments for Capital Changes. In the event of any merger,
consolidation, recapitalization, reorganization, reclassification, stock
dividend, split-up, combination of shares, or similar event in which the number
or kind of shares is changed without receipt or payment of consideration by the
Holding Company, the MRP Committee will adjust both the number and kind of
shares of stock as to which awards may be awarded under the MRP, the affected
terms of all outstanding awards, and the aggregate number of shares of Holding
Company Common Stock remaining available for future awards under the MRP. In the
event of (i) the liquidation or dissolution of the Holding Company, (ii) a
merger or consolidation in which the Bank is not the surviving entity, or (iii)
the sale or disposition of all or substantially all of the Holding Company's
assets (any of the foregoing to be referred to herein as a "Transaction"), all
outstanding MRP awards shall be equitably adjusted for any change or exchange of
shares of Holding Company Common Stock for a different number or kind of shares
or other securities, which results from the Transaction.
Amendment and Termination of the MRP. The Holding Company's Board of
Directors may, by resolution, at any time amend or terminate the MRP. The power
to amend or terminate includes the power to direct the MRP Trustees to return to
the Holding Company all or any part of the assets of the MRP Trust, including
shares of Holding Company Common Stock held in the plan share reserve of the
MRP. However, the termination of the MRP Trust may not affect a participant's
right to earn outstanding MRP awards and to receive Holding Company Common Stock
relating thereto, including earnings thereon, in accordance with the terms of
the MRP and the particular MRP award made to the participant.
Duration of the MRP. The MRP and MRP Trust will remain in effect until the
earlier of (i) termination by the Holding Company's Board of Directors, or (ii)
the distribution of all assets of the MRP Trust. Termination of the MRP will not
affect any awards previously granted, and any outstanding awards will remain
valid and in effect until they have been earned and distributed from the MRP
Trust, or by their terms expire or are forfeited.
-36-
MRP AWARDS GRANTED
Set forth below is certain information relating to all MRP awards scheduled
to be made on the MRP's Effective Date. Each MRP award is contingent upon
approval of the MRP by the Bank's stockholders, and no MRP award may become
vested prior thereto. Each MRP award will become vested at the rate of one-fifth
per year of the participant's continued service following the date of the award.
Number of Percentage of Value of
Shares Awarded Shares Available Shares Awarded
Participant (or Group) under MRP under MRP under MRP(1)
- ---------------------- --------- --------- ------------
Gerald E. Ludwig, Chairman of the Board 1,005 5% $ 11,558
and Chief Executive Officer
Garrett M. Andes, II, Director 402 2% 4,623
Ernest E. Garbe, Director 1,005 5% 11,558
Milton Hinkle, Director 402 2% 4,623
Frederick C. Schaefer, Director 1,005 5% 11,558
Michael F. Sehy, Director 1,005 5% 11,558
Douglas A. Pike, President and Director 3,015 15% 34,673
Ronald R. Schettler, Senior Vice President 2,412 12% 27,738
John H. Leonard, Senior Vice President 1,608 8% 18,492
All executive officers as a group (4 persons) 8,040 40% 92,460
All directors who are not executive
officers as a group (5 persons) 3,819 19% 43,919
All employees including all current officers
who are not executive officers, as a group
(8 persons) 6,232 31% 71,668
_____________________
(1) Based on the most recent sale price of the Illinois Guarantee Common
Stock as reported on the National Daily Quotation System "Pink Sheet"
published by the National Quotation Bureau, Inc. as of the Record Date
($11.50 per share on February 10, 1996 the date of the most recent trade
known to the Bank).
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RECOMMENDATION AND VOTE REQUIRED
The Board of Directors of the Holding Company has determined that the MRP
is desirable, cost effective, and produces incentives which will benefit the
Bank and its stockholders. The Board of Directors is seeking stockholder
approval of the MRP in order to satisfy the requirements of the OTS, and to
exempt certain transactions from the short-swing trading rules of the Securities
and Exchange Commission ("SEC").
Approval of the MRP requires the affirmative vote of the holders of a
majority of the votes eligible to be cast at the Special Meeting. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE MRP.
- --------------------------------------------------------------------------------
NEW PLAN BENEFITS
- --------------------------------------------------------------------------------
The following table sets forth certain information regarding the benefits
to be received under the Option Plan and the MRP.
1996 Stock Option
and Incentive Plan (1) MRP (2)
---------------------------- ----------------------------
Dollar Number Dollar Number
Name and Position Value ($) of Units Value ($)(3) of Units
- ---------------- -------- ------------ --------------- --------
Gerald E. Ludwig, Chairman of the Board -- 2,512 $11,558 1,005
Garrett M. Andes, II, Director -- 1,005 4,623 402
Ernest E. Garbe, Director -- 2,512 11,558 1,005
Milton Hinkle, Director -- 1,005 4,623 402
Frederick C. Schaefer, Director -- 2,512 11,558 1,005
Michael F. Sehy, Director -- 2,512 11,558 1,005
Douglas A. Pike, President and Director -- 12,060 34,673 3,015
Ronald R. Schettler, Senior Vice
President and Secretary -- 9,045 27,738 2,412
John H. Leonard, Senior Vice President -- 4,522 18,492 1,608
All executive officers as a group
(4 persons) -- 28,139 92,460 8,040
All directors who are not executive
officers as a group (5 persons) -- 9,546 43,919 3,819
All employees who are not executive
officers as a group (8 persons) -- 11,557 71,668 6,232
_______________________
(1) All Options will be granted at an exercise price equal to the fair market
value of the underlying shares of Illinois Guarantee Common Stock on the
date of the grant. All Options listed herein will be granted on the date
that the Holding Company's stockholders approve the Option Plan. In
addition to the Option grants shown herein, the Option Plan provides for
future grants of Awards pursuant to the terms of the Option Plan summarized
above. See "PROPOSAL III -- APPROVAL OF 1996 STOCK OPTION AND INCENTIVE
PLAN."
(2) None of the shares of Holding Company Common Stock awarded pursuant to the
MRP currently is vested. For information regarding the vesting of shares
awarded pursuant to the MRP, see "PROPOSAL IV -- APPROVAL OF MANAGEMENT
RECOGNITION PLAN."
(3) Based on the fair market value of the Illinois Guarantee Common Stock on
the Record Date ($11.50 per share, which equals the last known sale price
of a share of the Illinois Guarantee Common Stock).
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EXECUTIVE AND DIRECTOR COMPENSATION
- --------------------------------------------------------------------------------
The following table sets forth the cash and noncash compensation for fiscal
1995 awarded to or earned by the Bank's Chief Executive Officer. No executive
officer of the Bank earned salary and bonus in fiscal 1995 exceeding $100,000
for services rendered in all capacities to the Bank.
ANNUAL COMPENSATION
-----------------------------------
NAME AND FISCAL OTHER ANNUAL LONG-TERM ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION COMPENSATION
- ------------------ ---- ------ ----- --------------- ------------ ------------
Gerald E. Ludwig (2) 1995 $ -- -- -- -- $ 6,353
Donald J. Wente 1995 57,483 -- -- -- 7,850 (4)
President (3) 1994 52,199 -- -- -- 10,452
1993 53,034 -- -- -- 10,452
_______________
(1) Executive officers of the Bank receive indirect compensation in the form of
certain perquisites and other personal benefits. The amount of such
benefits received by the named executive officer in fiscal 1995, 1994 or
1993 did not exceed 10.0% of the executive officer's salary during each of
the three years.
(2) Mr. Ludwig was not an executive officer of the Bank prior to April 18, 1995
and received only directors fees of $500 per month, or $6,000 for the 1995
fiscal year for his services as Chairman of the Board and Chief Executive
Officer of the Bank for the period from April 18, 1995 through June 30,
1995. In addition, the Bank paid a portion of the premium for Mr. Ludwig's
group health insurance coverage, totaling $353 during fiscal 1995. See
"Business of the Bank -- Changes in Key Management Personnel."
(3) Mr. Wente resigned as President, effective April 18, 1995. For more
information, see "Illinois Guarantee Savings Bank, FSB -- Business of the
Bank -- Changes in Key Management Personnel."
(4) Includes Directors' fees and 401(k) Plan contributions of $3,925 and profit
sharing contributions of $3,925 for fiscal 1995.
DIRECTORS' FEES. Members of Illinois Guarantee's Board of Directors receive
fees of $500 per month. Total directors' fees for fiscal 1995 were $35,000.
DIRECTOR RETIREMENT PLAN. Effective January 1, 1995, the Bank's Board of
Directors adopted the Illinois Guarantee Savings Bank, FSB Retirement Plan for
Non-employee Directors (the "Directors' Plan"). Under the Directors' Plan, each
director will receive monthly benefits for the ten-year period following
termination of service on the Board, in an amount equal to the product of his or
her "Benefit Percentage", his or her "Vested Percentage" and $500. A
participant's "Benefit Percentage" is based on his or her overall years of
service on the Board of Directors of the Bank, and increases in increments of 5%
for each full year of service, to 100% for 20 or more years of service. A
participant's "Vested Percentage" is based on years of service after January 1,
1995, and increases from 33 1/3% for less than one year of service, to 66 2/3%
for one year of service, to 100% for two or more years of service. A
participant's Vested Percentage accelerates to 100% if his or her service
terminates due to death or disability. In the event of a "change in control" (as
such term is defined in the Directors' Plan), the participant's Vested
Percentage becomes 100% regardless of his or her years of service (provided the
director is then serving on the Board), and his or her benefit becomes
immediately payable. This provision may have the effect of deferring a hostile
change in control by increasing the costs of acquiring control. If a participant
dies, his or her surviving spouse will receive an amount equal to 50% of the
benefits that would have been paid to the participant under the Directors' Plan
if the participant (i) had survived to collect the full benefits payable for
retirement, and (ii) had a Vested Percentage equal to 100%, but only if the
participant had not both terminated service on the Board of Directors prior to
his or her death, and then had a Vested Percentage below 100%. The Bank will pay
benefits from its general assets, and expects to establish a trust in order to
hold assets with which to pay benefits. Trust assets will be subject to the
claims of the Bank's general creditors.
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- --------------------------------------------------------------------------------
ILLINOIS GUARANTEE SAVINGS BANK, FSB
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The business of the Bank consists of attracting deposits from the general
public and using these funds to originate mortgage loans secured by one-to four-
family residences located primarily in Effingham, Illinois and surrounding
areas. To a lesser extent, the Bank invests in interest-bearing deposits, U.S.
Government and federal agency securities, mortgage-backed securities and local
municipal securities. Illinois Guarantee also originates multi-family and
commercial real estate loans, as well as automobile loans, home improvement
loans and other consumer loans. The Bank's profitability depends primarily on
its net interest income, which is the difference between the interest income it
earns on its loans, mortgage-backed securities and investment portfolio and its
cost of funds, which consists mainly of interest paid on deposits. Net interest
income is affected by the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on these
balances. When interest-earning assets approximate or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income.
The Bank's profitability is also affected by the level of noninterest
income and expense. Noninterest income consists primarily of late charges and
other loan fees. Noninterest expense consists of salaries and benefits,
occupancy related expenses, deposit insurance premiums paid to the SAIF and
other operating expenses.
The operations of the Bank, and savings institutions in general, are
significantly influenced by general economic conditions and related monetary and
fiscal policies of financial institutions' regulatory agencies. Deposit flows
and the cost of funds are influenced by interest rates on competing investments
and general market rates of interest. Lending activities are affected by the
demand for financing real estate and other types of loans, which in turn is
affected by the interest rates at which such financing may be offered and other
factors affecting loan demand and the availability of funds.
RECENT DEVELOPMENTS
BIF-SAIF Premium Disparity. The Federal Deposit Insurance Corporation
("FDIC") has lowered the deposit insurance assessment rate for most commercial
banks insured by the Bank Insurance Fund ("BIF") to a statutory minimum of
$2,000 annually. The FDIC has indicated that the assessment rate for SAIF-
insured institutions will not fall below .23% of insured deposits until
approximately the year 2002. This decrease in BIF rates has resulted in a
substantial disparity in deposit insurance premiums paid by savings
institutions, such as the Bank, which are insured by the Savings Association
Insurance Fund ("SAIF") and institutions insured by the BIF. The lower deposit
insurance rates paid by BIF-insured institutions are likely to give them a
significant competitive advantage over SAIF-insured institutions such as the
Bank.
To alleviate this disparity, one proposal being considered by the U.S.
Department of Treasury, the FDIC, and the U.S. Congress provides that a one-time
assessment of as much as 85 to 90 basis points (0.85% to 0.90%) be imposed on
all SAIF-insured deposits to cause the SAIF insurance fund to reach its
designated reserve ratio (currently 1.25%). Once this occurs, the two funds
would be merged into one fund. There can be no assurance that this proposal or
any other proposal will be implemented or that premiums for either fund will not
be adjusted in the future by the FDIC or legislative action.
The payment of a special assessment would severely and negatively impact
the Bank's results of operations, resulting in a net charge of up to
approximately $176,000, after adjusting for tax effects. However, if such a
special assessment is imposed and the SAIF is recapitalized, it could have the
effect of reducing the Bank's insurance premiums in the future, thereby
restoring competitive equality between BIF-insured and SAIF-insured
institutions.
-40-
BUSINESS STRATEGY
Illinois Guarantee's business strategy is to operate as a well capitalized,
profitable and independent community savings bank dedicated to financing home
ownership and consumer needs in its market area. The Bank has implemented this
strategy by: (i) closely monitoring the needs of customers and providing quality
service; (ii) emphasizing consumer-oriented banking by originating construction
and permanent loans on residential and commercial real estate, and consumer
loans, and by offering checking accounts and other financial services and
products; (iii) improving and maintaining high asset quality; (iv) maintaining
capital in excess of regulatory requirements; and (v) managing interest rate
risk by emphasizing the origination of loans with adjustable rates and shorter
terms, and investments in short-term and liquid investments.
The Bank has adopted various new business strategies intended to increase
its presence in its Primary Market Area, thereby increasing its lending
activities and sources of income. These steps include (i) hiring experienced
banking personnel including a new chief lending officer (now President Douglas
Pike, who continues to manage the Bank's lending activities), a chief
administrative officer and various other employees to support the Bank's
expanded operations; (ii) instituting a marketing program to contact local
realtors, builders, auto dealers and others in order to increase the origination
of one-to-four-family residential loans, construction loans and permanent loans
secured by multi-family and commercial real estate, and consumer loans,
including direct and indirect automobile loans, through arrangements with local
auto dealers; (iii) planning the opening of a new branch office (expected to
open in the fourth quarter of 1996 at an anticipated cost of $1.7 million) in
the northern section of its Primary Market Area, an area of Effingham, Illinois
which is experiencing growth in commercial and retail activities, and is in
close proximity to expanding residential areas; (iv) installing automated teller
machines ("ATMs") at its main office and the new branch office, as well as other
possible "stand alone" locations; and (v) offering new products to its customers
and potential customers, including a credit and debit card program.
In order to implement these new business strategies, the Bank has incurred,
and will incur additional costs and expenses resulting from opening the new
branch office, hiring additional Bank personnel, increasing its presence in its
market area by advertising and marketing its new loan products, and putting in
place the systems and procedures necessary to properly conduct and monitor these
new lending and business activities. The costs and expenses associated with
implementing these strategies, especially in the first few years, although
currently impossible to qualify, could be substantial. However, the Bank
believes that the opening of the new branch office, the hiring of additional
personnel and the implementation of these new lending and business strategies
are in the best long-term interests of the Bank. For more information, see
"Properties".
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1994, 1995 AND MARCH 31, 1996
The Bank's financial condition was relatively stable during fiscal 1995, as
the Bank's assets increased by $1.2 million, or 3.4%, from $35.2 million at June
30, 1994 to $36.4 million at June 30, 1995. Assets increased by $7.2 million, or
20.0%, from $36.4 million at June 30, 1995 to $43.7 million at March 31, 1996
due to receipt of proceeds from the Conversion and increases in customer
deposits. The Bank expects stable growth over the next year at three to four
percent annually.
Loan receivable, net increased by $595,000, or 2.8%, during fiscal 1995,
from $21.3 million at June 30, 1994 to $21.8 million at June 30, 1995. Loans
receivable, net increased by $8.7 million, or 39.7% during the nine months ended
March 31, 1996, totaling $30.5 million at March 31, 1996. This increase was
primarily attributable to a $3.3 million increase in one to four family
residential real estate loans, a $1.1 million increase in commercial real estate
loans, a $1.0 million increase in commercial loans and a $1.9 million increase
in loans secured by automobiles. The Bank is seeking to originate construction
loans with the long term objective of originating permanent loans upon
completion of construction.
Cash and investment securities increased by $636,000, or 6.0%, during
fiscal 1995, totaling $10.7 million at June 30, 1994 and $11.3 million at June
30, 1995. The increase was due to an increase in deposits. Cash and
-41-
investment securities totaled $9.8 million at March 31, 1996, a decrease of $1.5
million, or 13.2%, from June 30, 1995. This decrease was primarily attributable
to investing funds in new loans. The Bank will try to maintain adequate
liquidity with cash and investment securities utilizing excess liquidity to fund
lending activities.
Mortgage-backed securities decreased by $370,000, or 13.7%, during fiscal
1995, totaling $2.7 million at June 30, 1994 and $2.3 million at June 30, 1995.
The decrease was the result of paydown on principle. Mortgage-backed securities
decreased by $398,000, or 17.1%, during the nine months ended March 31, 1996,
totaling $2.0 million at such date. This decrease was the result of paydown of
securities. The Bank intends to not purchase any additional mortgage-backed
securities.
The Bank's deposits have shown growth during recent periods, totaling $31.8
million, $32.7 million, and $35.4 million at June 30, 1994, June 30, 1995 and
March 31, 1996, respectively. The increase in deposits was primarily
attributable to new customer deposits. The Bank is anticipating a 10% growth in
deposits in the next year due to opening of the new branch facility; however,
there can be no assurance that such deposit growth will be achieved. This growth
will assist in providing liquidity for the Bank's lending activities.
RESULTS OF OPERATIONS
The Bank's operating results depend primarily upon its net interest income,
which is the difference between the interest income earned on its interest-
earning assets (loans, mortgage-backed securities, investment securities and
short-term interest-bearing deposits) and the interest expense paid on its
interest-bearing deposits. Operating results are also significantly affected by
provisions for losses on loans, noninterest income and noninterest expense. Each
of these factors is significantly affected not only by the Bank's policies, but,
to varying degrees, by general economic and competitive conditions and by
policies of federal regulatory authorities.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND
1995
Net Income. The Bank's net income for the nine months ended March 31, 1996
was $238,000 compared to $159,000 for the nine months ended March 31, 1995. The
increase in net earnings resulted primarily from an increase in net interest
income of $301,000 offset by an increase in noninterest expense of $218,000 and
an increase in noninterest income of $9,000 and a provision for loan losses of
$15,000 in 1996.
Net Interest Income. Net interest income for the nine months ended March
31, 1996 was $984,000 compared to $683,000 for the nine months ended March 31,
1995. The increase in net interest income was due to an increase in the ratio of
interest-earning assets to interest-bearing liabilities from 108.4% for the nine
months ended March 31, 1995 to 111.7% for the nine months ended March 31, 1996.
The improvement in the ratio was mainly attributable to the investment of the
proceeds received from the Conversion on September 28, 1995 and the investment
of such funds in interest-earning assets. The impact of the improved ratio was
improved by the increase in the interest rate spread from 2.36% in 1995 to 2.70%
in 1996. The increase in interest rate spread was due to a more significant
increase in yield on interest-earning assets as compared to the increase in the
cost of interest-bearing liabilities.
Interest Income. Interest income increased by $522,000, or 30.6%, from $1.7
million for the nine months ended March 31, 1995 to $2.2 million for the same
period in 1996. This increase resulted from an increase in the average yield on
interest-earning assets to 7.72% for the nine months ended March 31, 1996 from
6.71% for the nine months ended March 31, 1995. The increase in the average
yield on interest-earning assets was reflective of the general increase in
market interest rates. The increase in market interest rates resulted in higher
yields on new loan origination as well as on existing adjustable-rate mortgage
loans in the Bank's portfolio. In addition, average balance of interest-earning
assets increased by $7.2 million from March 31, 1995 to $41.4 million at March
31, 1996 due primarily to the proceeds of the Conversion.
-42-
Interest Expense. Interest expense increased by $221,000, or 24.1%, to $1.2
million for the nine months ended March 31, 1996 from $1.0 million for the same
period in 1995. The increase was primarily attributable to the increase in the
average cost of deposits from 4.35% for the nine months ended March 31, 1995 to
5.02% for the nine months ended March 31, 1996. Due to the interest rate
environment for calendar year 1995, there was an increase in the percentage of
savings customers using higher yield certificates of deposit instead of demand
deposit accounts. Certificates of deposit increased $1.8 million, or 7.3%, to
$26.4 million at March 31, 1995 compared to March 31, 1995, with an increase in
average weighted interest rate paid of .21%, or 4.0% to 5.40% at March 31, 1996.
This shift in the deposit mix has also had an effect on the increase in the
average cost of deposits. Through marketing efforts and cross-selling, the Bank
has recently begun to move away from its traditional emphasis on certificates of
deposit and has begun emphasizing products such as free checking and IRA-type
accounts.
Provision for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors including, general economic conditions, loan
portfolio compensation, prior loss experience, the estimated fair value of the
underlying collateral and other factors that warrant recognition in providing
for an adequate loan loss allowance. During the nine months ended March 31, 1996
and 1995, the Bank's provision for loan losses was $15,000 and $0, respectively.
This increase was due to an increase in the loan portfolio.
At March 31, 1996, the Bank's allowance for loan losses was $169,000. The
breakdown of general loss allowances and specific loss allowances is made for
regulatory accounting purposes only. General loan loss allowances are added back
to capital to the extent permitted in computing risk-based capital. At March 31,
1996, approximately $113,000 of the general allowance was eligible to be counted
as risk-based capital. Both general and specific loss allowances are charged to
expense. The consolidated financial statements of the Bank are prepared in
accordance with GAAP and, accordingly, provisions for loan losses are based on
management's assessment of the factors set forth above. The Bank regularly
reviews its loan portfolio, including problem loans, to determine whether any
loans require classification and/or the establishment of appropriate reserves.
Management believes it has established its existing allowance for loan losses in
accordance with GAAP, however future reserves may be necessary if economic
conditions or other circumstances differ substantially from the assumptions used
in making the initial determination. Additional loan loss provisions may be
necessary, as lending activities increase.
Noninterest Income. Noninterest income increased $9,000, or 24.32%, from
$37,000 for the nine months ended March 31, 1995 to $46,000 for the nine months
ended March 31, 1996. The increase in noninterest income was largely due to an
$11,000 gain on sale of the Palestine, IL branch facility which was closed in
1991.
Noninterest Expense. Noninterest expense increased by $218,000, or 47.81%,
from $456,000 for the nine months ended March 31, 1995 to $674,000 for the nine
months ended March 31, 1996. The increase resulted from increases in
compensation expense, occupancy, and other operating expenses. The increase in
compensation expense was in part the result of normal salary increases, coupled
with both the hiring of an additional loan officer and other employees. The
increase in occupancy expense was in part due to remodeling the existing
building and in part due to increased depreciation expense on equipment
purchased during the fiscal year ended June 30, 1995. The increase in other
operating expenses was due in general to increased expenses and an increase in
professional training. Operating expenses will likely increase in future periods
due to the opening of the branch office and the implementation of the Bank's new
business strategies. See " -- Business Strategy" and "Business of the Bank --
Properties".
The Bank's effective tax rates for the six months ended Mach 31, 1996 and
1995 were approximately 30.21% and 39.78%, respectively.
Nonperforming Assets. At March 31, 1996, the Bank had $278,000
nonperforming assets, compared with $121,000 in nonperforming assets at March
31, 1995.
-43-
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
Net Income (Loss). The Bank's net income decreased from $319,000 for the
twelve months ended June 30, 1994 to $61,000 for the twelve months ended June
30, 1995. The decrease in net income for the period reflects an increase in the
provision for loan losses and increased operating expenses in the 1995 period
(mostly relating to the cost of the Severance Agreement with former President
Wente), which more than offset an increase in net interest income.
Net Interest Income. Net interest income for the twelve months ended June
30, 1995 increased $49,000, or 5.36%, to $963,000 compared to $914,000 for the
twelve months ended June 30, 1994. The increase in net interest income was due
to an increase in loans receivable, net of $595,000, or 2.8%, to $21.9 million
at June 30, 1995, compared to $21.3 million at June 30, 1994, together with an
increase in the interest rate spread of one basis point, resulting from an
increase in the yield on interest earning assets to 6.89% for the 1995 twelve
month period compared to 6.36% for the 1994 twelve month period, and an increase
in the rate paid on deposits to 4.49% for the 1995 twelve month period compared
to 3.97% for the 1994 twelve month period.
Interest Income. Interest income for the twelve months ended June 30, 1995
increased by $202,000 or 9.28% to $2.4 million for the 1995 twelve month period
compared to $2.2 million for the 1994 twelve month period. The increase was due
to the average-yield on interest earning assets increasing to 6.89% for the 1995
twelve month period compared to 6.36% for the 1994 twelve month period,
resulting from an increase in the yield on the Bank's loan portfolio to 7.86%
for the 1995 twelve month period compared to 7.27% for the 1994 twelve month
period, and an increase in the yield on investment securities to 4.91% for the
1995 twelve month period compared to 4.46% for the 1994 twelve month period.
Interest Expense. Interest expense for the twelve months ended June 30,
1995, increased by $153,000, or 12.11%, to $1.4 million for the 1995 twelve
month period due to an increase in the average rate paid on deposits to 4.49%
for the 1995 twelve month period compared to 3.97% for the 1994 twelve month
period.
Provision for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors including general economic conditions, loan portfolio
compositions, prior loss experience, the estimated fair value of the underlying
collateral and other factors that warrant recognition in providing for an
adequate loan loss allowance. The Bank's provision for loan losses totaled
$50,000 for the fiscal year ended June 30, 1995, compared to $0 in such
provision for the fiscal year ended June 30, 1994. The Bank's provisions for
loan losses are likely to increase in future years, due to the Bank's increased
lending activities, and as the Bank becomes more active in the origination of
multi-family, commercial real estate or consumer lending, which lending
activities involve increased risk for the Bank. The Bank anticipates additional
provisions for loan losses due to loan base growth.
Noninterest Income. Noninterest income for the twelve months ended June 30,
1995 decreased by $81,000 to $38,000 compared to $119,000 for the twelve months
ended June 30, 1994, due to the gain on the sale of FHLMC Stock, an equity
security held for sale, in the 1994 twelve month period of $81,000, not realized
in the 1995 period.
Noninterest Expense. Noninterest expense increased by $333,000, or 60.55%,
to $883,000 for the twelve months ended June 30, 1995 compared to $550,000 for
the twelve months ended June 30, 1994. The increase in noninterest expense for
fiscal 1995 was due to additional compensation expense of $261,000 associated
with the resignation of former President Wente, the present value of his
severance agreement and other retirement benefits paid by the Bank. Additional
salaries and fees paid in fiscal 1995 and not in fiscal 1994 totaled $36,000.
Due to the Bank's increased lending activities, the new branch opening and
related factors, the Bank expects its noninterest (operating) expenses to
increase significantly in future years. This increase would likely have a
negative effect on the Bank's net income.
-44-
Income Taxes and Cumulative Effect of Change in Accounting Principles. The
Bank's provision for income taxes for the 1995 twelve month period totaled
$7,000 compared to a provision of $108,000 for the 1994 twelve month period. The
benefit and reduced provision for the 1995 period were due to the net loss and
decrease in net income realized during fiscal 1995 compared to fiscal 1994.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1994 AND 1993
Net Income. The Bank's net income for the year ended June 30, 1994 was
$319,000 compared to $249,000 for the year ended June 30, 1993. During the 1994
fiscal year, the Bank sold FHLMC stock for a gain of $81,000. In the 1993 fiscal
year, the Bank incurred a $41,000 expense related to an adjustment on
adjustable-rate mortgage loans due to certain regulatory concerns which were
addressed by the Bank. See "Regulation of the Bank -- Supervisory Agreement."
Additionally, in fiscal 1993, the Bank had a gain on the sale of lots owned for
future expansion in the amount of $15,000.
Net Interest Income. Net interest income for the year ended June 30, 1994
increased $12,000 or 1.33% to $914,000 compared with $902,000 for the year ended
June 30, 1993. The insignificant fluctuation in net interest income during this
period was attributable to the equivalent decline of both the yield on interest-
earning assets and the cost of interest-bearing liabilities. Although the Bank's
net interest income was relatively stable during this period, the Bank's
interest rate spread at June 30, 1994 increased as the cost of deposits
decreased to a greater degree than the decrease in the yield on interest-earning
assets.
Interest Income. Interest income decreased $300,000, or 12.11%, from $2.5
million to $2.2 million during the year ended June 30, 1994 compared to the 1993
fiscal year. This decrease resulted primarily from the effect of a decline in
the average yield on interest-earning assets from 7.00% for the year ended June
30, 1993 to 6.36% for the year ended June 30, 1994, which was reflective of the
general decline in market interest rates. The decrease in market interest rates
resulted in lower yields on new loan originations as well as on existing
adjustable-rate loans in the Bank's portfolio.
Interest Expense. Interest expense decreased $312,000, or 19.81%, to $1.3
million for the year ended June 30, 1994 from $1.6 million for 1993. The
decrease was primarily attributable to the significant decline in the average
cost of deposits to 3.97% in the 1994 fiscal year from 4.73% in the 1993 fiscal
year. This decrease in the cost of deposits was reflective of the general
decline in market interest rates during this period. Due to the declining
interest rate environment of the past few years, the percentage of savings
customers using demand deposit accounts instead of higher yielding time deposits
has continued to increase. This shift in the deposit mix has also had a
significant effect on the decline in the average cost of deposits. The Bank
incurred a decrease of $970,000 in deposits, or 2.96%, for the year ended June
30, 1994 from June 30, 1993. This decline was primarily from savings customers
seeking higher yields with alternative investments.
Provision for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors including general economic conditions, loan portfolio
compositions, prior loss experience, the estimated fair value of the underlying
collateral and other factors that warrant recognition in providing for an
adequate loan loss allowance.
During the years ended June 30, 1994 and 1993, the Bank's provisions for
possible loan losses were zero, as no actual losses were experienced from the
Bank's lending activities, and because, at that time, the Bank believed its loan
loss reserves to be adequate. At June 30, 1994 and 1993 the Bank had $49,000 in
real estate held for sale, representing thirteen unimproved lots which the Bank
held, pending improvement in the local real estate market.
At June 30, 1994, the Bank's allowance was primarily composed of $125,000
in general allowances. The breakdown of general loss allowances and specific
loss allowances is made for regulatory accounting purposes only. General loan
loss allowances are added back to capital to the extent permitted in computing
risk-based capital. Both
-45-
general and specific loss allowances are charged to expense. The consolidated
financial statements of the Bank are prepared in accordance with generally
accepted accounting principles (GAAP) and, accordingly, provisions for loan
losses are based on management's assessment of the factors set forth above. The
Bank regularly reviews its loan portfolio, including problem loans, to determine
whether any loans require classification and/or the establishment of appropriate
allowances. Management believes it has established its existing allowance for
loan losses in accordance with GAAP, however, future provisions may be necessary
if economic conditions or other circumstances differ substantially from the
assumptions used in making the initial determination, or if the Bank becomes
engaged in multi-family, commercial real estate or consumer lending which
involve increased risk to the Bank.
Noninterest Income. Noninterest income was $119,000 for the year ended June
30, 1994 compared to $54,000 for the year ended June 30, 1993. The $65,000
increase was primarily the result of a $81,000 gain on sale of investment
securities.
Noninterest Expense. The Bank's noninterest expense decreased $41,000 for
the year ended June 30, 1994 as compared to the year ended June 30, 1993. This
decrease was primarily the result of the $41,000 charge due to the adjustable-
rate mortgage loan adjustment in 1993 required by the Supervisory Agreement. See
"Regulation of the Bank -- Supervisory Agreement."
Income Taxes and Cumulative Effect of Change in Accounting Principle. The
Bank's effective tax rate for the year ended June 30, 1994 was 35% compared to
32% for the year ended June 30, 1993, which together with the increase in income
resulted in an increase in the provision for income taxes of $52,000 or 44.83%
to $168,000 for the year ended June 30, 1994 compared to $116,000 for the year
ended June 30, 1993. On July 1, 1993, the Bank adopted SFAS No. 109 which
resulted in an increase in income of $4,000 for the cumulative effect of a
change in accounting principle.
ASSET/LIABILITY MANAGEMENT
The principal operating objective of the Bank is the achievement of a
positive interest rate spread that can be sustained during fluctuations in
prevailing interest rates. Since the Bank's principal interest-earning assets
have substantially longer terms to maturity than its primary source of funds,
i.e., deposit liabilities, increases in general interest rates will generally
result in an increase in the Bank's cost of funds before the yield on its asset
portfolio adjusts upwards. Savings institutions have generally sought to reduce
their exposure to adverse changes in interest rates by attempting to achieve a
closer match between the periods in which their interest-bearing liabilities and
interest-earning assets can be expected to reprice through the origination of
adjustable-rate mortgages and loans with shorter terms and by selling loans in
the secondary market.
The term "interest rate sensitivity" refers to those assets and liabilities
which mature and reprice periodically in response to fluctuations in market
rates and yields. Thrift institutions have historically operated in a mismatched
position with interest-sensitive liabilities greatly exceeding interest-
sensitive assets in the short-term time periods. As noted above, one of the
principal goals of the Bank's asset/liability program is to more closely match
the interest rate sensitivity characteristics of the asset and liability
portfolios.
In order to properly manage interest rate risk, the Bank's management
monitors the difference between the Bank's maturing and repricing assets and
liabilities and develops and implements strategies to decrease the "negative
gap" between the two. Management assesses the Bank's asset/liability mix,
recommends strategies to the Board of Directors that will enhance income while
managing the Bank's vulnerability to changes in interest rates, and reports to
the Board of Directors the results of the strategies used.
Since the early 1980's, the Bank has stressed the origination of
adjustable-rate residential mortgage loans. At December 31, 1995, $12.3 million,
or 50.07%, of the Bank's total loans secured by real estate were adjustable-rate
mortgages. In addition, the Bank had $398,000 in adjustable-rate mortgage-backed
securities at December 31, 1995.
-46-
In order to increase the interest rate sensitivity of its assets, the Bank
has also maintained a consistent level of short and intermediate-term investment
securities and other assets. At December 31, 1995, the Bank had $4.9 million of
investment securities and interest-bearing deposits maturing within one year and
$1.3 million of investment securities maturing within one to five years. At
December 31, 1995, the Bank also had $2.7 million in investment securities
maturing after five years, of which $1.5 million represented the Bank's
investment in an asset management adjustable-rate fund, which is an uninsured
mutual fund, and therefore carries greater risk than government insured
investment securities.
In the future, in managing its interest rate sensitivity, the Bank intends
to continue to stress the origination of adjustable-rate mortgages and loans
with shorter maturities, the purchase of adjustable-rate mortgage-backed
securities and the maintenance of a consistent level of short-term securities.
In addition, the Bank may increase its origination of fixed-rate mortgage loans,
and then sell such loans in the secondary mortgage market to FHLMC.
INTEREST RATE SENSITIVITY ANALYSIS
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific period if it
will mature or reprice within that period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities, and is considered negative when the amount
of interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap would adversely affect net interest income while a positive gap
would result in an increase in net interest income, while conversely during a
period of falling interest rates, a negative gap would result in an increase in
net interest income and a positive gap would negatively affect net interest
income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 1995 which are expected to
mature or reprice in each of the time periods shown/(1)/.
Over One Over Five
One Year Through Through Over Ten
or Less Five Years Ten Years Years Total
--------- ----------- ----------- --------- --------
(Dollars in thousands)
Interest-earning assets (1):
Mortgage loans, gross.................. $14,445 $ 2,245 $ 1,876 $1,630 $20,196
Consumer and other loans, gross........ 863 1,098 -- -- 1,961
Investment securities (2)(3)........... 5,735 2,756 -- 2,226 10,717
Mortgage-backed securities............. 952 732 445 197 2,326
------- -------- ---------- ------ -------
Total............................... 21,995 6,831 2,321 4,053 35,200
======= ======== ========== ====== =======
Interest-bearing liabilities:
Demand deposits........................ 2,200 5,408 -- -- 7,608
Time deposits.......................... 20,542 4,537 16 -- 25,095
------- -------- ---------- ------ -------
Total............................... 22,742 9,945 16 -- 32,703
======= ======== ========== ====== =======
Interest sensitivity gap................. $ (747) $ (3,114) $ 2,305 $4,053 $ --
======= ======== ========== ====== =======
Cumulative interest sensitivity gap...... $ (747) $ (3,861) $ (1,556) $2,497 $ 2,497
======= ======== ========== ====== =======
Ratio of interest-earning assets
to interest-bearing liabilities........ 96.72% 68.69% 14,506.25% N/A 107.64%
======= ======== ========== ====== =======
Ratio of cumulative gap to total assets.. (2.05)% (10.61)% (4.28)% 6.86% 6.86%
======= ======== ========== ====== =======
(Footnotes on following page)
-47-
- --------------------
(1) In calculating this table, the Bank has used the assumptions which follow:
(i) the decay rate for passbook accounts and demand accounts is considered
to be 20% per year and money market deposit accounts decay at a rate of 50%
for the first year and 25% per next two years; and (ii) prepayment
assumptions are as follows: mortgage loans -- 10.0% per year; consumer and
other loans -- 5.0% per year; mortgage-backed securities -- 7.5% per year.
(2) Investment securities are at amortized cost.
(3) Investment securities include interest-bearing deposits and time deposits.
Call dates on various securities have not been considered.
(4) Deposits only -- no borrowings outstanding at June 30, 1995.
Management believes the current one-year gap of (2.05)% presents a slight
risk to the net interest income margin should an increase occur in the current
level of interest rates. If interest rates increase, the Bank's negative one-
year gap should cause the net interest margin to decrease. A conservative rate-
gap policy provides a stable net interest income margin. Accordingly, management
emphasizes a structured balance of rates spread by term to maturity and does not
anticipate a change in such objectives over the next year.
The preceding table was prepared utilizing certain assumptions regarding
prepayment and decay rates which management of the Bank believes reflect
Illinois Guarantee's actual experience. While management does not believe that
these assumptions will be materially different from Illinois Guarantee's actual
experience, the actual interest rate sensitivity of the Bank's assets and
liabilities could vary significantly from the information set forth in the table
due to market and other factors.
Certain shortcomings are inherent in the method of analysis presented in
the table above. Although certain assets and liabilities may have similar
maturity or periods of repricing they may react in different degrees to changes
in the market interest rates. The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
rates on other types of assets and liabilities may lag behind changes in market
interest rates. Certain assets, such as adjustable-rate mortgages, generally
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. In the event of a change in interest rates,
prepayments and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Additionally, an increased credit risk
may result as the ability of many borrowers to service their debt may decrease
in the event of an interest rate increase. Virtually all of the adjustable-rate
loans in the Bank's portfolio contain conditions which restrict the periodic
change in interest rate.
-48-
YIELDS EARNED AND RATES PAID
Net interest income is affected by (i) the difference ("interest rate
spread") between rates of interest earned on interest-earning assets and rates
of interest paid on interest-bearing liabilities and (ii) 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. Savings institutions
have traditionally used interest rate spreads as a measure of net interest
income. Another indication of an institution's net interest income is its "net
yield on interest-earning assets" which is net interest income divided by
average interest-earning assets. The following table sets forth, at March 31,
1996 and for the nine months ended March 31, 1996 and 1995, and the two years
ended June 30, 1995 and 1994, the weighted average yields earned on the Bank's
assets and the weighted average interest rates paid on the Bank's liabilities,
together with the Bank's interest rate spread and net yield on interest-earning
assets. Average balances are derived from quarterly balances. Management does
not believe that the use of quarterly balances instead of daily balances has
caused any material difference in the information presented.
At Nine Months Ended
March 31, March 31, Years Ended June 30,
------------------- ----------------------
1996 1996 1995 1995 1994
---------- -------- --------- ---------- ----------
Weighted average yield on total loan portfolio............. 8.02% 7.77% 7.42% 7.43% 7.27%
Weighted average yield on investment securities (1)........ 5.95 6.19 5.20 5.77 4.46
Weighted average yield on mortgage-backed securities....... 7.78 7.67 7.15 7.25 7.10
Weighted average yield on all interest-earning assets.. 7.54 7.72 6.71 6.89 6.36
Weighted average paid on:
Demand deposits.......................................... 3.11 3.32 2.91 2.78 2.88
Time deposits............................................ 5.40 5.41 4.76 4.94 4.52
Weighted average rate paid on all deposits................. 4.82 5.00 4.35 4.49 3.97
Weighted average rate paid on all interest-bearing
liabilities.............................................. 4.85 5.02 4.35 4.49 3.97
Interest rate spread (difference between weighted
average rates paid on all interest-earning assets
and all interest-bearing liabilities).................... 2.69 2.70 2.36 2.40 2.39
Net yield on interest-earning assets (net interest income
as a percentage of average interest-earning assets)...... 3.54 3.41 2.06 2.79 2.67
___________________
(1) Includes interest-bearing deposits and other interest-earning assets.
PERFORMANCE RATIOS
Nine Months Ended
March 31, (1) Years Ended June 30,
---------------------- -----------------------------
1996 1995 1995 1994
----- ------ --------- --------
Return on assets (net income divided by
average total assets)................................. 0.79% 0.66% 0.17% 0.91%
Return on equity (net income divided
by average equity).................................... 5.29 7.84 2.07 12.09
Equity to assets ratio (average equity
divided by average total assets)...................... 14.86 8.38 8.38 7.51
___________________
(1) Annualized.
-49-
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid at the periods indicated. Such yields and costs are derived by dividing
income or expense by the average semi-annual balance of assets or liabilities,
respectively, for the periods presented. Management does not believe that the
use of quarterly balances instead of daily balances has caused any material
difference in the information presented. Interest earned on loan portfolios is
net of reserves for uncollected interest.
At March 31, Nine Months Ended March 31,
-------------------------------------------
1996 1996 1995
-------------------- --------------------- ---------------------
Average Average Average Average Average
Balance Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ----------- ------- -------- ----------- ------- -------- -----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net.................... $30,510 8.02% $26,800 $1,662 7.77% $21,130 $1,162 7.42%
Investment securities.................... 8,968 5.95 9,533 443 6.19 10,598 413 5.20
Mortgage-backed securities............... 1,928 7.78 2,137 122 7.67 2,573 130 7.15
------- ------- ------ ------- --------
Total interest-earning assets.......... 41,406 7.54 38,470 2,227 7.72 34,301 1,705 6.71
Non-interest-earning assets................ 2,274 1,907 951
------- ------- -------
Total assets........................... $43,680 $40,377 $35,252
======= ======= =======
Interest-bearing liabilities:
Deposits................................. $34,501 4.82 $32,730 1,227 5.00 $31,336 1,022 4.35
Other borrowings......................... 372 4.85 269 16 8.25 -- -- --
------- ------- ------ ------- -------- ----------
Total interest-bearing liabilities..... 34,873 4.83 32,999 1,243 5.02 31,336 1,022 4.35
------ -------- ----------
Non-interest-bearing liabilities........... 1,375 1,379 962
------- ------- -------
Total liabilities..................... 36,248 34,378 32,298
Stockholders' equity.................. 7,249 5,849 2,864
Valuation reserves.................... 183 150 90
------- ------- -------
Total liabilities and retained
earnings.......................... $43,680 $40,377 $35,252
======= ======= =======
Net interest income........................ $ 984 $ 683
====== ========
Interest rate spread....................... 2.69% 2.70% 2.36%
====== ====== ==========
Net yield on interest-earning assets....... 3.54% 2.06%
====== ==========
Ratio of average interest-earning assets
to average interest-bearing liabilities.. 119.44% 116.58% 109.46%
====== ====== ==========
-50-
Year Ended June 30,
----------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------ ------------------------------- ------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ----------- ------- -------- ----------- ------- -------- -----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net............ $21,273 $1,581 7.43% $20,142 $1,464 7.27% $21,350 $1,725 8.08%
Investment securities............ 10,659 615 5.77 10,883 485 4.46 10,066 447 4.44
Mortgage-backed securities....... 2,524 183 7.25 3,212 228 7.10 3,960 305 7.70
------- ------ ------- -------- ------- --------
Total interest-earning assets.. 34,456 2,379 6.89 34,237 2,177 6.36 35,376 2,477 7.00
------ -------- --------
Non-interest-earning assets........ 1,024 917 897
------- ------- -------
Total assets................... $35,480 $35,154 $36,273
======= ======= =======
Interest-bearing liabilities:
Deposits......................... $31,695 $1,416 4.49 $31,815 $1,263 3.97 $33,330 $1,575 4.73
------- ------ ------- -------- ------- --------
Total interest-bearing
liabilities.................. 31,695 4.49 31,815 1,263 3.97 33,330 1,575 4.73
-------- --------
Non-interest-bearing liabilities... 830 700 625
------- ------- -------
Total liabilities.............. 32,525 32,515 33,955
Retained earnings.............. 2,955 2,639 2,318
------- ------- -------
Total liabilities and
retained earnings........... $35,480 $35,154 $36,273
======= ======= =======
Net interest income................ $ 963 $ 914 $ 902
====== ======== ========
Interest rate spread............... 2.40% 2.39% 2.28%
====== ========== ==========
Net yield on interest-earning
assets............................ 2.79% 2.67% 2.55%
====== ========== ==========
Ratio of average interest-earning
assets to average
interest-bearing liabilities..... 108.71% 107.61% 106.14%
====== ========== ==========
-51-
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rates (change in
rate multiplied by old volume); and (iii) changes in rate-volume (changes in
rate multiplied by the changes in volume).
Nine Months Ended March 31, Year Ended June 30,
-------------------------------- --------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
-------------------------------- --------------------------------------------------------------
Increase(Decrease) Increase(Decrease) Increase(Decrease)
Due to Due to Due to
---------------------------------- --------------------------------------------------------------
Rate/ Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total Volume Rate Volume Total
------- ----- -------- ------ ------- ---- ------- ------ ------- ---------- ------- ------
Interest income:
Loan portfolio, net...... $ 420 $ 74 $ 6 $ 500 $ 82 $ 32 $ 3 $ 117 $ 37 $(287) $ (11) $(261)
Mortgage-backed
securities.............. (31) 15 8 (8) (48) 5 (2) (45) 22 (93) (6) (77)
Investment securities.... (55) 105 (20) 30 (9) 142 (3) 130 (19) 60 (3) 38
----- ---- ---- ----- ----- ---- --- ----- ----- ----- ----- -----
Total interest-earning
assets................ 334 194 (6) 522 25 179 (2) 202 40 (320) (20) (300)
----- ---- ---- ----- ----- ---- --- ----- ----- ----- ----- -----
Interest expense:
Deposits................. 27 173 5 205 (5) 159 (1) 153 19 (325) (6) (312)
Other borrowings......... 16 -- -- 16 -- -- -- -- -- -- -- --
----- ---- ---- ----- ----- ---- --- ----- ----- ----- ----- -----
Total interest-bearing
liabilities......... 43 173 5 221 (5) 159 (1) 153 19 (325) (6) (312)
----- ---- ---- ----- ----- ---- --- ----- ----- ----- ----- -----
Change in net interest
income.................... $ 291 $ 21 $(11) $ 301 $ 30 $ 20 $(1) $ 49 $ 21 $ 5 $ (14) $ 12
===== ==== ==== ===== ===== ==== === ===== ===== ===== ===== =====
-52-
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds consist of deposits, repayment and
prepayment of loans and mortgage-backed securities, maturities of investments
and interest-bearing deposits, and funds provided from operations. While
scheduled repayments of loans and mortgage-backed securities and maturities of
investment securities are predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by the general level of interest rates,
economic conditions and competition. The Bank uses its liquidity resources
principally to fund existing and future loan commitments, to fund maturing
certificates of deposit and demand deposit withdrawals, to invest in other
interest-earning assets, to maintain liquidity, and to meet operating expenses.
Management believes that loan repayments and other sources of funds will not be
adequate to meet the Bank's liquidity needs for the 1996 and 1997 fiscal years.
The Bank anticipates utilizing FHLB advances for liquidity.
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which may be varied at the direction of
the OTS depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The required minimum ratio is
currently 5%. The Bank has historically maintained a level of liquid assets in
excess of regulatory requirements. The Bank's average regulatory liquidity ratio
at March 31, 1996 was 14.88%.
A major portion of the Bank's liquidity consists of cash and cash
equivalents, which include investments in highly liquid deposits with original
maturities of 3 years or less. The level of these assets is dependent on the
Bank's operating, investing, lending and financing activities during any given
period. At March 31, 1996, cash and cash equivalents totaled $1.5 million and
short term certificates of deposit of $297,000.
The primary investing activities of the Bank include origination of loans
and purchase of mortgage-backed securities. During the nine months ended March
31, 1996 and the year ended June 30, 1995, purchases of investment securities
totaled $1.4 million and $7.5 million, respectively, while loan originations
totaled $14.3 million and $5.9 million. These investments were funded primarily
from loan and mortgage security repayments of $6.1 million and $5.5 million and
investment security maturities of $3.9 million and $6.2 million for the nine
months ended March 31, 1996 and the year ended June 30, 1995, respectively.
Liquidity management is both a daily and long-term function of business
management. If the Bank requires funds beyond its ability to generate them
internally, the Bank believes that it could borrow additional funds from the
FHLB. At March 31, 1996, the Bank had no outstanding advances from the
FHLB.
At March 31, 1996, the Bank had $386,000 in outstanding commitments to
originate fixed-rate mortgages. The Bank anticipates that it will have
sufficient funds available to meet its current loan origination commitments.
Certificates of deposit which are scheduled to mature in one year or less
totaled $17.9 million at March 31, 1996. Based on historical experience,
management believes that a significant portion of such deposits will remain with
the Bank.
At March 31, 1996, the Bank exceeded all of its regulatory capital
requirements. For further information regarding the Bank's regulatory capital at
March 31, 1996, "Regulation of the Bank -- Regulatory Capital Compliance."
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated 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 results of operations in
terms of historical dollars without considering changes in the relative
purchasing power of money over time because of inflation. Unlike most industrial
companies, virtually all of the assets and liabilities of the Bank are monetary
in nature. As a result, interest rates have a more significant impact on the
Bank's performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services.
-53-
IMPACT OF NEW ACCOUNTING STANDARDS
In December 1991, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 107 titled "Disclosures
about Fair Value of Financial Instruments." SFAS No. 107 requires that an entity
disclose, either in its financial statements or in the accompanying notes, the
fair value of financial instruments of which it is practicable to estimate that
value and the methods and significant assumptions used to estimate the fair
value. As a result of the adoption of SFAS No. 107, users of financial
statements will be able to assess more completely an entity's management of
market risk. SFAS No. 107 is effective for institutions with total assets less
than $150 million for periods ending after December 15, 1995 and does not
require disclosure of comparative periods prior to the effective date. SFAS No.
107 will not have an adverse effect on the Bank's financial position as the
statement extends only to financial statement disclosures.
The FASB issued SFAS No. 109, "Accounting for Income Taxes" in February
1992. SFAS No. 109 requires a change in accounting for income taxes from the
deferral method required under Accounting Principles Board Opinion No. 11 ("APB
11") to the asset and liability method. The objective of the asset and liability
method is to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the tax basis of the
Bank's assets and liabilities at enacted tax rates expected to be in effect when
such amounts are realized or settled. Under the deferral method, which was in
effect prior to the issuance of this standard, deferred income taxes were
recognized based on tax rates in effect during the period the differences arose.
The Bank adopted the statement on a prospective basis effective for the Bank on
July 1, 1993. The impact of the adoption of SFAS No. 109 was to increase income
for the year ended June 30, 1994 by $4,000.
In November 1993, the AICPA approved SOP No. 93-6, "Employers' Accounting
for Employee Stock Ownership Plans," which is effective for fiscal years
beginning after December 15, 1993 and which applies to shares of capital stock
of sponsoring employers acquired by ESOPs after March 31, 1992 that have not
been committed to be released as of the beginning of the year in which the SOP
is adopted. The SOP will, among other things, change the measure of compensation
recorded by employers from the cost of ESOP shares to their fair value. To the
extent that the fair value of the Bank's ESOP shares, committed to be released
directly to compensate employees differs from the cost of such shares,
compensation expenses and a related charge or credit to additional paid-in
capital will be reflected in the Bank's financial statements. SOP No. 93-6 also
requires that shares committed to be released be considered as outstanding for
earnings per share computations. Management does not expect the adoption of SOP
No. 93-6 to have a material effect on the Bank's financial condition or results
of operations. SOP 93-6 will, however, have an impact on earnings per share.
In October 1994, the FASB issued SFAS No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments," and
is effective for financial statements issued for fiscal years ending after
December 15, 1995 for entities with less than $150 million in total assets in
the current statement of financial position. The statement generally addresses
required disclosures for derivative instruments held or issued for trading
purposes and for purposes other than trading. The Bank currently has no
derivative financial instruments.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable intangibles to be
disposed of. The statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. If the review for recoverability, based on undiscounted expected
future cash flows, indicates that impairment exists, the loss should be measured
based on the fair value of the asset. The fair value of an asset is the amount
at which the asset could be bought or sold in a current transaction between
willing parties, that is, other than in a forced liquidation sale. An entity
that recognizes an impairment loss shall disclose additional information in the
financial statements related to the impaired asset. All long-lived assets and
certain identifiable intangibles to be disposed of and for which management has
committed to a plan to dispose of the assets, whether by sale or abandonment,
shall be reported at the lower of the carrying amount or fair value less cost to
sell. Subsequent revisions in estimates of fair value less cost to sell shall be
reported as adjustments to
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the carrying amount of assets to be disposed of, provided that the carrying
amount of the asset does not exceed the carrying amount of the asset before an
adjustment was made to reflect the decision to dispose of the asset. This
statement requires additional disclosure in the footnotes regarding assets to be
disposed of.
The Bank has elected not to adopt the provisions of SFAS No. 121 until
fiscal year ending June 30, 1997. Management does not believe that the adoption
of SFAS No. 121 will have a significant impact on the Bank's financial position
or on the results of its operations as long-lived assets are not significant,
and management has no plans to dispose of any long-lived assets.
In May 1995, the FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights," an amendment to SFAS No. 65 "Accounting for Certain Mortgage
Banking Activities." Prior to the issuance of SFAS No. 122, SFAS No. 65 required
separate capitalization of the cost of rights to service mortgage loans for
others when those rights were acquired through a purchase transaction but
prohibited separate capitalization when those rights were acquired through loan
origination activities. As a result, mortgage banking enterprises often reported
losses on the sale of mortgage loans with servicing rights retained that were
acquired through loan origination activities. However, if the same mortgage loan
had been acquired in a purchase transaction, the cost of the mortgage servicing
rights would have been capitalized separately as an asset and would not have
been deducted from the sales price of the mortgage loans.
This statement amends certain provisions of SFAS No. 65 to eliminate
the accounting distinction between rights to service mortgage loans for others
that are acquired through loan origination activities and those acquired through
purchase transactions. When a mortgage banking enterprise purchases or
originates mortgage loans, the cost of acquiring those loans includes the cost
of the related mortgage servicing rights. If the mortgage banking enterprise
sells or securitizes the loans and retains the mortgage service rights, the
enterprise should allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans without the mortgage servicing rights based on
their relative fair values if it is practicable to estimate those fair values.
If it is not practicable to estimate the fair values of the mortgage servicing
rights and the mortgage loans without the mortgage servicing right, the entire
cost of acquiring the loans should be allocated to the mortgage loans without
the mortgage servicing rights and no cost should be allocated to the mortgage
servicing rights. Any cost allocated to mortgage servicing rights should be
recognized as a separate asset. Mortgage servicing rights should be amortized
in proportion to and over the period of estimated net servicing income.
Mortgage servicing rights capitalized should be assessed for impairment based on
the fair value of those rights. A mortgage banking enterprise should stratify
its mortgage servicing rights that are capitalized based on one or more of the
predominant risk characteristics of the underlying loans. Impairment should be
recognized through a valuation allowance for each impaired stratum.
This statement applies prospectively in fiscal years beginning after
December 15, 1995, to transactions in which mortgage banking enterprise sells or
securitizes mortgage loans with servicing rights retained and to impairment
evaluations of all amounts capitalized as mortgage servicing rights, including
those purchased before adoption of this statement.
The Bank plans to adopt the provisions of SFAS 122 effective June 1, 1997.
Based on the Bank's current operating activities, management does not believe
that the adoption of this statement will have a material impact on the Bank's
financial condition or results of operations.
In December 1994, the Accounting Standards Division of the AICPA approved
SOP 94-6, "Disclosure of Certain Significant Risks and Uncertainties." SOP 94-6
requires disclosures in the financial statements beyond those now being required
or generally made in the financial statements about the risk and uncertainties
existing as of the date of those financial statements in the following areas:
nature of operations, use of estimates in the preparation of financial
statements, certain significant estimates, current vulnerability due to certain
concentrations. This statement is effective for financial statements issued for
fiscal years ending after December 15, 1995.
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In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a fair value-based method of accounting
for stock options and other equity instruments. It requires the use of that
method for transactions with other than employees and encourages its use for
transactions with employees. It permits entities to continue to use the
intrinsic value method included in Accounting Principles Board-25 (Accounting
for Stock Issued to Employees), but regardless of the method used to account for
the compensation cost associated with stock option and similar plans, it
requires employers to disclose information in accordance with SFAS No. 123. The
general principle underlying SFAS No. 123 is that equity instruments are
recognized at the fair value of the consideration received for them. If the fair
value of the considerations received cannot be reasonably determined, the fair
value of the equity instrument itself may be used. The fair value method of
accounting for stock options and other instruments applies this general
principle, measuring compensation cost for employers as the excess of the fair
value of the equity instrument over the amount paid by the employee. The
definition of fair value in SFAS No. 123 is the same as that included in SFAS
No. 121 (Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of).
SFAS No. 123 requires significantly expanded disclosures, including
disclosure of the pro forma amount of net income (and earnings per share for
public entities) as if the fair value-based method were used to account for
stock-based compensation, if the intrinsic value method of APB-25 is retained.
The recognition requirements for transactions with other than employees
apply for transactions entered into after December 15, 1995. The recognition
alternative of the fair value-based method for transactions with employees may
be implemented immediately upon issuance of SFAS No. 123. The disclosure
requirements, which apply regardless of the recognition method chosen, are
applicable for financial statements for fiscal years beginning after December
15, 1995.
BUSINESS OF THE BANK
CHANGES IN KEY MANAGEMENT PERSONNEL
Effective April 18, 1995, President and Chief Executive Officer Donald J.
Wente resigned from his positions of employment with the Bank, and was replaced
by Chairman of the Board Gerald E. Ludwig, who was also appointed to serve as
Chief Executive Officer of the Bank. On June 20, 1995, the Board promoted Vice
President of Lending Douglas A. Pike to the positions of President and Chief
Operating Officer of the Bank. On June 12, 1995, the Bank hired Ronald R.
Schettler as Senior Vice President in charge of administration and investments.
On June 17, 1995 in recognition for his more than 35 years of service to
Illinois Guarantee, the Bank executed an agreement (the "Separation Agreement")
with former President and Chief Executive Officer Donald J. Wente whereby Mr.
Wente resigned from his positions with the Bank and resigned as a Director. In
exchange for Mr. Wente's general release of all claims which he may have against
the Bank relating to his service to, employment by, and resignation and
separation from the Bank, the Bank agreed to provide to Mr. Wente (i) upon
execution of the Separation Agreement, a lump sum payment of $20,000 and to
transfer to him ownership of his company car; (ii) severance pay equal to
$64,000 per year for three years (including the initial $20,000 payment) and
$14,000 per year for an additional seven years; and (iii) health, medical and
life insurance benefits as if Mr. Wente were a Bank employee up to the time he
is eligible for participation in Medicare and Medicaid or when Mr. Wente reaches
age 65, whichever occurs first. All payments shall be offset by such deductions
as are required by law. The Bank determined to execute the Separation Agreement
with Mr. Wente in recognition of his service to Illinois Guarantee, and to
resolve the issue of Mr. Wente's employment by, and resignation from his
positions with Illinois Guarantee.
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MARKET AREA
Illinois Guarantee's office is located in the city of Effingham, Effingham
County, Illinois. The Bank considers its primary market area to be its home
county of Effingham. Effingham County can be characterized as primarily rural in
nature, as the total population of the County totaled only 33,000, less than 40
percent of which lived in the town of Effingham. The economy in the Bank's
market area is based on manufacturing, service industries and agriculture. The
manufacturing sector is dominated by the Fedders Company, a manufacturer of air
conditioning units, and several large printing companies. Many of the service
industries in Effingham are related to the town's location at the junction of
I-57 and I-70 and include restaurants and fast-food outlets, truck stops and
service centers, and motels. Farm products produced in Effingham County
primarily include corn, soybeans, other grain products and dairy products. The
following market data information has been provided by the Illinois Department
of Commerce and Community Affairs and exhibits the slight improvement in the
economy in the Bank's primary market area of Effingham County, Illinois.
Effingham County had average per capita personal income of $17,980 in 1993,
which represented a 3.8% increase from 1992. The State of Illinois and the
United States had average per capita incomes of $22,560 and $20,800,
respectively, during 1993. Effingham County had an average unemployment rate of
4.4% during 1995, compared to 5.25% and 5.65% for the State of Illinois and the
United States, respectively. In 1990, Effingham County had an unemployment rate
of 7.3%, compared to unemployment rates of 6.2% and 5.5% for Illinois and the
United States, respectively. Effingham County's population increased 0.2% from
1980 to 1990. Management believes that economic and demographic trends in
Effingham County and surrounding markets will provide sufficient business
opportunities for the Bank.
LENDING ACTIVITIES
GENERAL. Illinois Guarantee emphasizes the origination of adjustable-rate
loans and short term (15 years or less) fixed-rate loans, in order to manage the
interest rate sensitivity of its interest-earning assets. The principal lending
activity of Illinois Guarantee is the origination of adjustable-rate mortgage
loans for the purpose of financing the construction and acquisition of single-
family residential properties. Illinois Guarantee also originates construction
and permanent loans on multi-family and commercial real estate, as well as
automobile loans, home improvement loans and other consumer loans. At March 31,
1996, loans with adjustable rates or terms of five years or less totaled $20.9
million, or 68.06% of Illinois Guarantee's total loans.
In February 1995, the Bank hired a new Vice President of Lending, Douglas
Pike, to expand and increase the Bank's lending activities. Mr. Pike was
appointed President of the Bank in June 1995, and continues to manage the Bank's
lending operations. Mr. Pike has been involved in commercial and consumer
lending, including automobile lending, since 1986 through his employment with
two commercial banks located in Effingham, Illinois. Mr. Pike has been active in
contacting local realtors, builders, auto dealers and others in order to
generate the origination of one-to-four-family residential loans, construction
loans and permanent loans on single-family, multi-family and commercial real
estate, and consumer loans including automobile lending on an indirect basis,
through relationships established with five local auto dealers. These activities
have resulted in increased loan originations for the Bank, particularly the
origination of construction and permanent loans on one- to four-family and multi
family residential real estate.
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LOAN PORTFOLIO. Set forth below is selected data relating to the
composition of Illinois Guarantee's loan portfolio by type of loan on the dates
indicated.
At March 31, At June 30,
---------------------------------------
1996 1995 1994
---------------- ---------------------------------------
Amount % Amount % Amount %
------- ------- ------- ------- ----------- --------
(Dollars in thousands)
Real estate loans --
One- to four-family residential.. $20,310 65.95% $16,982 76.64% $17,515 81.31%
Multi-family residential......... 1,044 3.39 392 1.77 407 1.89
Agricultural..................... 425 1.38 600 2.71 578 2.68
Commercial....................... 3,297 10.71 2,182 9.85 2,275 10.56
Construction..................... 871 2.83 40 .18 -- --
------- ------ ------- ------ ------- ------
25,947 84.26 20,196 91.15 20,775 96.44
------- ------ ------- ------ ------- ------
Commercial business................ 985 3.20 180 0.81 -- --
------- ------ ------- ------ ------- ------
Consumer loans --
Automobiles...................... 3,348 10.87 1,427 6.44 396 1.84
Other............................ 514 1.67 354 1.60 372 1.72
------- ------ ------- ------ ------- ------
3,862 12.54 1,781 8.04 768 3.56
------- ------ ------- ------ ------- ------
Total.............................. 30,794 100.00% 22,157 100.00% 21,543 100.00%
====== ====== ======
Less:
Loans in process................. 92 118 144
Deferred loan fees............... 23 18 23
Allowance for loan losses........ 169 175 125
------- ------- -------
Total, net.................... $30,510 $21,846 $21,251
======= ======= =======
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ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LENDING. The primary emphasis
of Illinois Guarantee's lending activity is the origination of conventional
mortgage loans on one- to four-family residential dwellings. Most loans are
originated in amounts up to $100,000 on single-family properties located in
Illinois Guarantee's primary market area of Effingham County. As of March 31,
1996, loans on one- to four-family residential properties accounted for 65.95%
of Illinois Guarantee's loan portfolio. Illinois Guarantee's mortgage loan
originations are for terms of from 10 years to up to 30 years, amortized on a
monthly basis with interest and principal due each month. Residential real
estate loans often remain outstanding for significantly shorter periods than
their contractual terms as borrowers may refinance or prepay loans at their
option, without penalty. Conventional residential mortgage loans granted by
Illinois Guarantee customarily contain "due-on-sale" clauses which permit
Illinois Guarantee to accelerate the indebtedness of the loan upon transfer of
ownership of the mortgaged property.
Illinois Guarantee uses standard Federal Home Loan Mortgage Corporation
("FHLMC") documents, to allow for the sale of loans in the secondary mortgage
market. Illinois Guarantee's lending policies generally limit the maximum loan-
to-value ratio on mortgage loans secured by owner-occupied properties to 95% of
the lesser of the appraised value or purchase price of the property, with the
condition that private mortgage insurance is required on loans with a loan-to-
value ratio in excess of 80%. The majority of loans in Illinois Guarantee's loan
portfolio have loan-to-value ratios of 80% or less.
Illinois Guarantee offers adjustable-rate mortgage loans with terms of up
to 30 years. Adjustable-rate loans offered by Illinois Guarantee include loans
which reprice annually or provide for an initial three year term, and then
reprice annually. Adjustable-rate loans provide for an interest rate which is
2.5% above the interest rate paid on U.S. Treasury securities of a corresponding
term. Illinois Guarantee offers initial discounted interest rates, but borrowers
are qualified based on the loan status following the first interest rate
adjustment.
Illinois Guarantee retains all adjustable-rate mortgages it originates,
which helps reduce Illinois Guarantee's exposure to changes in interest rates.
Illinois Guarantee's adjustable-rate mortgages include caps on increases or
decreases of 2% per year, and 6% over the life of the loan. Illinois Guarantee's
adjustable-rate mortgage loans contain an open-end provision which permits
Illinois Guarantee to lend additional amounts in later years, in the form of
home improvement loans, which are secured by the original first mortgage.
The Bank also originates second mortgage loans on owner-occupied, single
family and one- to four- family residential real estate. Such loans are subject
to the same loan-to-value ratios (when combined with existing loans), as any
other residential real estate loan, at adjustable rates, and over a term not to
exceed 15 years.
The primary purpose for offering adjustable-rate loans is to increase the
interest rate sensitivity of Illinois Guarantee's loan portfolio. However,
because the interest income earned on adjustable-rate loans varies with
prevailing interest rates, cash flows from such loans are not as predictable as
cash flows from fixed-rate loans. Further, the annual and lifetime adjustment
limits on the Bank's adjustable-rate mortgage loans have the effect of limiting
the sensitivity of those loans to changes in market interest rates and this is
particularly true with respect to loans with initially discounted interest rates
in the event of increases in market rates. The Bank's policy of offering
initially discounted interest rates results in the Bank initially earning
reduced income from such loans. Additionally, there are unquantifiable credit
risks resulting from potential increased costs to the borrower as a result of
repricing of adjustable-rate mortgage loans. It is possible that during periods
of rising interest rates, the risk of default on adjustable-rate mortgage loans
may increase due to the upward adjustment of interest cost to the borrower.
During the year ended June 30, 1995, Illinois Guarantee originated $2.7
million, in adjustable-rate mortgage loans and $1.7 million in fixed-rate
mortgage loans. Approximately 38.18% of all loan originations during the year
ended June 30, 1995 were refinancings of loans already in Illinois Guarantee's
loan portfolio. At June 30, 1995, Illinois Guarantee's loan portfolio included
$11.0 million in adjustable-rate one- to four-family residential mortgage loans,
or 49.62% of Illinois Guarantee's loan portfolio, and $6.0 million in fixed-rate
one- to four-family residential mortgage loans, or 27.20% of Illinois
Guarantee's loan portfolio.
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MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. At June 30, 1995, the Bank's
multi-family and commercial real estate loan portfolio consisted of 38 loans,
totaling $3.1 million, or 14.33% of total loans. The Bank originated $363,000 in
such loans during the year ended June 30, 1995, $2.0 million in such loans
during the year ended June 30, 1994, and $15,000 in such loans during the year
ended June 30, 1993. The increase during the years ended June 30, 1994 was due
to business referrals to the Bank of borrowers known personally to members of
management of the Bank for the origination of five loans, all secured by real
estate, raw land or farm land in the Bank's primary market area. The Bank's
commercial real estate loans are secured by office buildings, small retail
establishments, small apartment buildings, raw land and farm land, all located
in Effingham County, Illinois. The Bank's largest loan had an outstanding
balance of $378,000 at June 30, 1995 and was secured by commercial property
located in Effingham, Illinois.
Multi-family and commercial real estate loans generally are originated in
amounts up to 80% of the appraised value of the property for terms of 10 to 20
years. Appraisals are performed by independent fee appraisers. The interest rate
on these loans generally is subject to adjustment on an annual bases and is
calculated by adding a 3.5% margin to the appropriate index (usually the weekly
average one-year U.S. Treasury Bill index).
Commercial and agricultural real estate lending, as well as multi-family
residential real estate lending entails significant additional risks compared
with one- to four-family residential lending. For example, commercial real
estate loans and multi-family residential real estate loans typically involve
large loan balances to single borrowers or groups of related borrowers, the
payment experience on such loans typically is dependent on the successful
operation of the real estate project, and these risks can be significantly
impacted by supply and demand conditions in the market for commercial office,
retail and warehouse space or multi-family residential units. Agricultural real
estate loans involve a greater degree of risk as payments on such loans depend,
to a larger degree, on the results of operations of the related farm. Consistent
with these increased risks, during the economic slowdown in the late 1980s and
early 1990s the Bank experienced increases in its non-performing commercial real
estate loans and real estate acquired in settlement of such loans. As of June
30, 1995, all of the Bank's commercial real estate loans were performing.
CONSTRUCTION LOANS. Illinois Guarantee, from time to time has engaged in
construction lending to qualified borrowers for construction of one- to four-
family residential properties. Such loans have converted to permanent financing
upon completion of construction. These properties are located in the Bank's
Primary Market Area. At June 30, 1995, the Bank had one construction loan
outstanding with a balance of $40,000 at that date. Borrowers seeking
construction loans must satisfy all credit requirements which would apply to the
Bank's permanent mortgage loan financing for the subject property.
As part of the Bank's new business strategies, the Bank expects to be
active in the origination of both construction loans and the succeeding
permanent loans on single-family and multi-family residential real estate and
commercial real estate in the Bank's Primary Market Area. The Bank's new
management has contacted various builders who have experience in constructing
and developing single-family and multi-family residential real estate (four to
eight unit apartment buildings) and commercial real estate in the Bank's Primary
Market Area.
Construction financing generally is considered to involve a higher degree
of risk of loss than long-term financing on improved, occupied real estate. Risk
of loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction or
development and the estimated cost (including interest) of construction. During
the construction phase, a number of factors could result in delays and cost
overruns. If the estimate of construction costs proves to be inaccurate, the
Bank may be required to advance funds beyond the amount originally committed to
permit completion of the development. If the estimate of value proves to be
inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with collateral having a value which is insufficient to assure full repayment.
The Bank has sought to minimize this risk by limiting construction lending to
qualified borrowers (i.e., borrowers who satisfy all credit requirements and
whose loans satisfy all other underwriting standards which would apply to the
Bank's permanent mortgage loan financing for the subject property) in the Bank's
Primary Market Area. In engaging in lending for the construction of multi-family
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residential properties, the Bank would be subject to each of these risks, as
well as the risks noted above for multi-family real estate lending.
COMMERCIAL BUSINESS LOANS. The Bank originates a limited number of
commercial business loans to local retail establishments and other businesses.
These loans are generally secured by equipment. Such loans totaled $180,000 at
June 30, 1995 and all but two loans in the amount of $24,000 were performing at
that date.
Commercial business loans involve a greater degree of risk than other types
of lending as payments on such loans are often dependent on successful operation
of the business involved which may be subject to a greater extent to adverse
conditions in the economy. The Bank seeks to minimize this risk through its
underwriting guidelines, which require that the loan be supported by adequate
cash flow of the borrower, profitability of the business and collateral. The
maximum loan to value ratio on a commercial business loan is 75%.
CONSUMER LENDING. The Bank's consumer loans consist of savings account
loans, home improvement loans, automobile loans and other consumer loans,
including (from time to time) unsecured lines of credit. At June 30, 1995, the
consumer loan portfolio totaled $1.8 million, or 8.04%, of total loans. Consumer
loans are generally offered for terms of up to five years at fixed interest
rates. Management expects to continue to promote consumer loans as part of its
strategy to provide a wide range of personal financial services to its customers
and as a means to increase the yield on the Bank's loan portfolio.
The Bank makes loans for automobiles, both new and used, directly to the
borrowers. The loans are generally limited to 80% of the purchase price or the
retail value listed by the National Automobile Dealers Association. The terms of
the loans are determined by the age and condition of the collateral. Collision
insurance policies are required on all these loans, unless the borrower has
substantial other assets and income. At June 30, 1995, the total amount of
automobile loans was $1.4 million. Automobile loans originated during the year
ended June 30, 1995 amounted to $1.6 million.
As part of the Bank's new business strategies, the Bank may engage in
indirect lending on automobiles through arrangements with six automobile dealers
in Effingham, Illinois. Such loans would be for the purchase of used
automobiles, would have loan to value ratios of up to 100%, and would provide
for terms of up to five years. It is unclear as to how much loan origination
volume these loan arrangements will generate, although the Bank has adopted a
policy of limiting automobile loans to no more than 10% of the Bank's total loan
portfolio. During the year ended June 30, 1995, the Bank originated $906,000 in
indirect loans on automobiles.
The Bank also makes savings account loans up to 90% of the amount of the
depositor's savings account balance. The Bank makes other consumer loans, which
may or may not be secured. The term of the loans usually depends on the
collateral. Unsecured loans usually do not exceed $20,000, and have a term not
to exceed one year.
The Bank intends to continue the origination of consumer loans, and as
indicated above, may increase its origination of such loans. Consumer loans tend
to be originated at higher interest rates than mortgage loans and for shorter
terms. However, consumer loans generally involve more risk than one- to four-
family residential real estate loans. Repossessed collateral for a defaulted
loan (especially for automobile loans) may not provide an adequate source of
repayment of the outstanding loan balance as a result of damage, loss or
depreciation (especially for automobiles), and the remaining deficiency often
does not warrant further substantial collection efforts against the borrower. In
addition, loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Further, the application of various
state and federal laws, including federal and state bankruptcy and insolvency
law, may limit the amount which may be recovered. In underwriting consumer
loans, the Bank considers the borrower's credit history, an analysis of the
borrower's income and ability to repay the loan, and the value of the
collateral. The Bank's risks associated with consumer loans have been further
limited by the modest amount of consumer loans made by the Bank. Despite the
risks noted above, the Bank's level of consumer loan delinquencies generally has
been low. No assurance can be given, however, that the Bank's delinquency rate
on consumer loans will continue to remain low in the future, or that the Bank
will not incur future losses on these activities.
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LOAN COMMITMENTS. The Bank makes a 90-day loan commitment to borrowers. At
June 30, 1995, the Bank had three variable rate loan commitments for $86,000 and
one fixed-rate loan commitment for $110,000 outstanding for the origination of
one-to four-family residential real estate loans.
LOAN SOLICITATION AND PROCESSING. Loan originations are derived from a
number of sources, including the Bank's existing customers, referrals, realtors,
advertising and "walk-in" customers at the Bank's office. The Bank does not use
loan brokers.
Upon receipt of a loan application from a prospective borrower, a credit
report and verifications are ordered to verify specific information relating to
the loan applicant's employment, income and credit standing. For all mortgage
loans, an appraisal of real estate intended to secure the proposed loan is
obtained from an independent fee appraiser who has been approved by the Bank's
Board of Directors, or one of the Bank's directors who performs appraisals. Fire
and casualty and earthquake insurance are required on all loans secured by
improved real estate. Insurance on other collateral is required unless waived by
the loan committee. The Board of Directors of the Bank has the responsibility
and authority for the general supervision over the loan policies of the Bank.
The Board has established written lending policies for the Bank.
Loan applications are accepted at the Bank's office. The Bank's President
(formerly the Vice President of Lending) may approve secured loans up to $30,000
and unsecured loans up to $10,000. The Bank's Loan Committee, which is composed
of two non-employee directors and the Bank's President, may approve all types of
loans up to 5% of withdrawable capital for secured loans and 2% of withdrawable
capital for unsecured loans, provided such loans conform to the Bank's lending
policies. All other loans must be approved by the full Board of Directors. In
addition, the full Board of Directors reviews on a monthly basis, all loans
originated by the Bank.
INTEREST RATES AND LOAN FEES. In addition to earning interest on loans,
Illinois Guarantee also receives income from, among other sources, loan
origination fees, changes on certain deposits and fees related to late payments,
loan modifications and miscellaneous services related to loans. These fees do
not constitute a significant portion of Illinois Guarantee's income from
operations. Interest rates charged by the Bank on all loans are primarily
determined by competitive loan rates offered in its market area. The Bank
charges a 1% loan origination fee on new fixed-rate mortgage loans, and a fee of
$250 for adjustable-rate loans. The origination fees, net of direct origination
costs, are deferred and amortized into income over the life of the loan. At June
30, 1995, the amount of deferred loan origination fees was $18,000.
-62-
LOAN MATURITY SCHEDULE. The following table sets forth certain information
at June 30, 1995 regarding the dollar amount of loans maturing in the Bank's
portfolio based on their contractual terms to maturity. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less.
Due After Due after Due after
Due during the year ending 3 through 5 through 10 through Due after 15
June 30, 5 years after 10 years after 15 years after years after
--------------------------
1996 1997 1998 June 30, 1995 June 30, 1995 June 30, 1995 June 30, 1995 Total
------ ------- ------ ------------- -------------- -------------- ------------- -------
(In thousands)
One- to four-family residential.. $1,382 $1,211 $1,172 $2,406 $5,210 $3,377 $2,264 $17,022
Multi-family, commercial real
estate and agricultural........ 340 318 312 657 1,002 427 118 3,174
Consumer and other............... 863 399 346 353 -- -- -- 1,961
------ ------ ------ ------ ------ ------ ------ -------
Total........................ $2,585 $1,928 $1,830 $3,416 $6,212 $3,804 $2,382 $22,157
====== ====== ====== ====== ====== ====== ====== =======
The next table sets forth at June 30, 1995, the dollar amount of all loans
due one year or more after June 30, 1995 which have predetermined interest rates
and have floating or adjustable interest rates.
Predetermined Floating or
Rate Adjustable Rates
------------- ----------------
(In thousands)
One- to four-family residential....... $ 5,484 $ 10,156
Multi-family, commercial real estate
and agricultural..................... 908 1,926
Consumer and other.................... 1,098 --
---------- ----------
Total............................... $ 7,490 $ 12,082
========== ==========
-63-
ORIGINATIONS AND SALES OF LOANS. Historically, Illinois Guarantee has sold
less than 10% of the loans it has originated. The Bank sold $478,000 in loans in
1993 in connection with the closing of its Palestine, Illinois branch office.
The Bank sold $400,000 in participation loans in 1994 in connection with certain
large commercial real estate loans originated in 1994, of which the Bank sold a
portion to comply with loans to one borrower limitations. In January 1995, the
Bank sold $51,000 in education loans to the Student Loan Marketing Association.
The Bank may sell loans in whole or a portion of the loan if it exceeds its
legal lending limit. In recent years, Illinois Guarantee has not purchased any
loans and has no plans to do so in the future. However, Illinois Guarantee may
in the future, originate fixed-rate residential mortgage loans and then sell
such loans in the secondary mortgage market to FHLMC.
NON-PERFORMING ASSETS, ASSET CLASSIFICATION AND ALLOWANCES FOR LOSSES.
Loans are reviewed on a regular basis and are placed on a non-accrual status
when, in the opinion of management, the collection of principal and interest are
doubtful.
Real estate acquired by the Bank as a result of foreclosure is classified
as real estate owned until such time as it is sold. When such property is
acquired, it is recorded at the lower of the unpaid principal balance or its
fair value. Any required write-down of the loan to its fair value is charged to
the allowance for loan losses.
The following table sets forth information with respect to Illinois
Guarantee's non-performing assets at the dates indicated. Illinois Guarantee did
not have any restructured loans within the meaning of SFAS No. 15 at the
indicated dates.
At
March 31, At June 30,
-------------------------------
1996 1995 1994
---------- -------- --------
(In thousands)
Loans accounted for on a non-accrual basis:(1)
Real Estate:
Residential................................... $ -- $ 42 $ 31
Commercial.................................... 41 -- --
Consumer and other............................. 13 -- --
----- ----- -----
Total........................................ $ 54 $ 42 $ 31
===== ===== =====
Accruing loans which are contractually past
due 90 days or more: (1)
Real estate:
Residential................................... $ 131 $ 29 $ 44
Commercial.................................... -- 24 --
Consumer and other............................. 4 -- 4
----- ----- -----
Total........................................ $ 135 $ 53 $ 48
===== ===== =====
Total of non-accrual and 90 days
past due loans.............................. $ 189 $ 95 $ 79
===== ===== =====
Percentage of total loans....................... 0.62% 0.43% 0.37%
===== ===== =====
Other non-performing assets (2)................. $ 49 $ 49 $ 49
===== ===== =====
______________________
(1) Non-accrual status denotes loans on which, in the opinion of management,
the collection of additional interest is unlikely. Payments received on a
non-accrual loan are applied to the outstanding principal balance. The Bank
reserves interest on all loans 90 days past due, for which, in the opinion
of management, the collection of this interest is questionable. When
payments are received on these loans, the payments are applied to reserved
interest first with any excess applied to principal.
(2) Other non-performing assets represents property acquired by the Bank
through foreclosure. This property is carried at the lower of its fair
market value or the principal balances of the related loan, is classified
as real estate held for sale on the Bank's balance sheet because it has
been held for more than five years, and is not included in the Bank's
capital calculations.
-64-
At June 30, 1995, the Bank had $42,000 in non-accrual loans, and $53,000 in
accruing loans 90 days or more past due. Other non-performing assets at June 30,
1995 represents 13 undeveloped lots held for sale, valued at a total of $49,000,
which the Bank held, pending improvement in the local real estate market.
During the year ended June 30, 1995, gross interest income of $2,000
would have been recorded on loans accounted for on a non-accrual basis if the
loans had been current throughout these periods.
At June 30, 1995, loans which were not classified as non-accrual, 90
days past due or restructured but where known information about possible credit
problems of borrowers caused management to have serious concerns as to the
ability of the borrowers to comply with present loan repayment terms and may
result in disclosure as non-accrual, 90 days past due or restructured amounted
to $154,000.
Federal regulations require each savings association to classify its asset
quality on a regular basis. In addition, in connection with examinations of such
savings associations, federal examiners have authority to identify problem
assets and, if appropriate, classify them. An asset is classified substandard if
it is determined to be inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any. As a
general rule, the Bank will classify a loan as substandard if the Bank can no
longer rely on the borrower's income as the primary source for repayment of the
indebtedness and must look to secondary sources such as guarantors or
collateral. An asset is classified as doubtful if full collection is highly
questionable or improbable. An asset is classified as loss if it is considered
uncollectible, even if a partial recovery could be expected in the future. The
regulations also provide for a special mention designation, described as assets
which do not currently expose a savings association to a sufficient degree of
risk to warrant classification but do possess credit deficiencies or potential
weaknesses deserving management's close attention. Assets classified as
substandard or doubtful require a savings association to establish general
allowances for loan losses. If an asset or portion thereof is classified loss, a
savings association must either establish specific allowances for loan losses in
the amount of the portion of the asset classified as loss, or charge-off such
amount. Federal examiners may disagree with a savings association's
classifications and amounts reserved. If a savings association does not agree
with an examiner's classification of an asset, it may appeal this determination
to the OTS District Director. At June 30, 1995, the Bank had $91,000 in assets
classified as substandard, $24,000 in assets classified as doubtful and no
assets classified as loss.
Included in these totals at June 30, 1995 and classified as "substandard,"
all in the Bank's market area, were one loan on single-family residences and one
loan on a commercial property, classified due to delinquency or past credit
history, and one consumer loan. Also included in this total and classified as
"substandard," were the lots held by the Bank as real estate held for sale at
June 30, 1995 in the amount of $49,000. The Bank determined to hold this
property as "real estate owned", pending improvement in the local real estate
market. Management considered all of the above items in calculating the Bank's
allowance for loan losses.
In originating loans, Illinois Guarantee recognizes that credit losses will
occur and that the risk of loss will vary with, among other things, the type of
loan being made, the creditworthiness of the borrower over the term of the loan,
general economic conditions and, in the case of a secured loan, the quality of
the security for the loan. It is management's policy to maintain an adequate
general allowance for loan losses based on, among other things, the Bank's and
the industry's historical loan loss experience, evaluation of economic
conditions and regular reviews of delinquencies and loan portfolio quality.
Further, after properties are acquired following loan defaults, additional
losses may occur with respect to such properties while the Bank is holding them
for sale. The Bank increases its allowances for loan losses and losses on real
estate owned by charging provisions for possible losses against the Bank's
income. Specific reserves also are recognized against specific assets when
warranted. The Bank added an additional provision for loan losses of $50,000
during the year ended June 30, 1995 due to the new business strategies of multi-
family, commercial real estate and consumer lending being pursued by the Bank,
which types of lending carry increased risks for the Bank in comparison to one-
to four-family residential lending.
As a result of the declines in regional real estate market values and the
significant losses experienced by many financial institutions, there has been a
greater level of scrutiny by regulatory authorities of the loan portfolios of
financial institutions undertaken as part of the examination of the institution
by federal or state regulators. Results of recent examinations indicate that
these regulators may be applying more conservative criteria in evaluating real
-65-
estate market values, requiring significantly increased provisions for potential
loan losses. While Illinois Guarantee believes it has established its existing
allowances for loan losses in accordance with generally accepted accounting
principles, there can be no assurance that regulators, in reviewing the Bank's
loan portfolio, will not request the Bank to significantly increase its
allowance for loan losses, thereby negatively affecting the Bank's financial
condition and earnings.
The following table analyzes activity in Illinois Guarantee's allowance for
loan losses for the periods indicated.
Year Ended June 30,
-----------------------------
1995 1994
---- ----
(In thousands)
Balance at beginning of period.................................... $ 125 $ 125
---------- ---------
Loans charged-off:
Real estate -- mortgage:......................................... -- --
---------- ---------
Residential..................................................... -- --
---------- ---------
Net loans charged-off............................................. -- --
---------- ---------
Provision for loan losses......................................... 50 --
---------- ---------
Balance at end of period.......................................... $ 175 $ 125
========== =========
Ratio of net charge-offs to average
loans outstanding during the period................................ -- % -- %
========== =========
Illinois Guarantee evaluates the allowance for loan losses on a regular
basis. At June 30, 1995, the allowance was .79% of total loans, compared to
0.56% of total loans at June 30, 1994. In light of the Bank's increased
originations of multi-family and commercial real estate loans, and consumer
loans, the Bank expects that its provisions for loan losses will increase in
future periods to account for the additional risks inherent in these types of
lending.
The following table sets forth a breakdown of the allowance for loan losses
by loan category at the dates indicated. Management believes that the allowance
can be allocated by category only on an approximate basis. These allocations are
not necessarily indicative of future losses and do not restrict the use of the
allowance to absorb losses in any loan category.
June 30,
--------------------------------------------------------------
1995 1994
-------------------------- ---------------------------
Percent of Percent of
Loans in Loans in
Category to Category to
Amount Total Loans Amount Total Loans
------- ----------- ------ -----------
(Dollars in thousands)
Real estate - mortgage:
Residential........................................ $ 41 78.59% $ 59 83.20%
Commercial......................................... 12 12.56 14 13.24
Commercial business................................. 12 0.81 -- --
Consumer............................................ 40 8.04 4 3.56
Unallocated......................................... 70 -- 48 --
------- -------- ------- --------
Total allowance for loan losses................... $ 175 100.00% $ 125 100.00%
======= ======== ======= ========
-66-
INVESTMENT ACTIVITIES
GENERAL. Illinois Guarantee is required under federal regulations to
maintain a minimum amount of liquid assets equal to 5.0% of the net withdrawable
savings deposits and current borrowings. It has generally been the Bank's policy
to maintain a liquidity portfolio in excess of regulatory requirements. At
December 31, 1995, the Bank's liquidity ratio was 24.05%. Liquidity levels may
be increased or decreased depending upon the yields on investment alternatives,
management's judgment as to the attractiveness of the yields then available in
relation to other opportunities, management's expectations of the level of yield
that will be available in the future and management's projections as to the
short-term demand for funds to be used in Illinois Guarantee's loan origination
and other activities.
The general objectives of the Bank's investment policy are to assure the
safe and sound investment of the assets of the Bank, to provide sufficient
liquidity to meet operating and funding needs, and to comply with regulatory
liquidity requirements. All securities and investments are recorded on the books
of the Bank in accordance with generally accepted accounting principles. All
purchases of securities and investments conform to the Bank's interest rate risk
policy. The type of investments allowed under the investment policy are only
those which qualify as liquid investments under current regulations. The Bank's
mutual fund investment represents an interest in a money market fund and an
adjustable-rate mortgage loan fund, neither of which are insured. Bank
investments also include the demand, overnight and certificate of deposit
accounts at the FHLB of Chicago. Investments may be made in certificates of
deposit and savings accounts in other financial institutions insured by the FDIC
so long as the total investment with accrued interest does not exceed the
$100,000 insurance limit per each institution. Other investments allowed consist
of direct U.S. Government obligations and other government agencies that have
the full faith and credit backing of the U.S. Government. At June 30, 1995, the
investments qualifying as liquid investments consisted of interest-earning
deposits in other financial institutions and stock in the FHLB of Chicago and
U.S. Government Agency securities.
INVESTMENTS. The following table sets forth the carrying value of the
Bank's investment securities portfolio, short-term investments, and FHLB of
Chicago stock at the dates indicated.
At June 30,
---------------------------------
1995 1994
------- --------
(In thousands)
AVAILABLE FOR SALE (1)
Investment securities:
Mutual funds......................................... 1,584 1,550
Equities............................................. 206 182
FHLB stock............................................. 214 210
-------- --------
Total available for sale investments.............. $ 2,004 $ 1,942
======== ========
HELD TO MATURITY
Investment securities:
U.S. Government and Agency securities................ $ 5,232 $ 5,374
State and municipal obligations...................... 513 602
Mutual funds......................................... -- --
Equities............................................. -- --
Interest-bearing deposits and certificates of deposit.. 3,155 2,357
FHLB stock............................................. -- --
-------- --------
Total held to maturity investments................ $ 8,900 $ 8,333
======== ========
____________________
(1) The Bank transferred securities to available for sale as of June 30,
1994. For more discussion on this, see Notes A and B of Notes to
Consolidated Financial Statements.
-67-
The following table sets forth the scheduled maturities, carrying values,
market values and average yields for the Bank's investment securities at June
30, 1995.
One Year or Less One to Five Years Five to Ten Years
-------------------- --------------------- ---------------------
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
--------- ------- ---------- ------- ---------- -------
(Dollars in thousands)
HELD TO MATURITY (1)
Investment securities:
U.S. Government and
Agency securities............ $ 2,153 5.85% $ 2,579 5.90% $ -- --%
State and municipal
obligations (2).............. 336 4.08 177 5.24 -- --
Interest-earning deposits
and certificates of
deposit...................... 3,155 5.80 -- -- -- --
--------- ---------- ----------
Total........................ $ 5,644 5.72% $ 2,756 5.84% $ -- --%
========= ========== ==========
AVAILABLE FOR SALE (3)
Mutual funds.................. $ 91 5.74% $ -- --% $ -- --%
Equities...................... -- -- -- -- --
--------- ---------- ---------- --
Total........................ $ 91 5.74% $ -- --% $ -- --%
========= ========== ==========
More than Ten Years Total Investment Portfolio
--------------------- -----------------------------
Carrying Average Carrying Market Average
Value Yield Value Value Yield
------- ------ ------- ------- -------
HELD TO MATURITY (1)
Investment securities:
U.S. Government and
Agency securities............ $ 500 7.70% $ 5,232 $ 5,223 6.06%
State and municipal
obligations (2).............. -- -- 513 513 4.48
Interest-earning deposits
and certificates of
deposit...................... -- -- 3,155 3,155 5.80
--------- -------- --------
Total........................ $ 500 7.70% $ 8,900 $ 8,891 5.88%
========= ======== ========
AVAILABLE FOR SALE (3)
Mutual funds.................. $ 1,500 6.26% $ 1,591 $ 1,584 6.22%
Equities...................... 226 7.04 226 420 7.04
--------- -------- --------
Total........................ $ 1,726 6.37% $ 1,817 $ 2,004 6.33%
========= ======== ========
______________
(1) This schedule uses contractual maturity dates. Some of the securities
have call date options.
(2) These obligations are all local issues without a readily ascertainable
market value.
(3) For financial reporting these securities are valued at estimated fair
market value.
-68-
MORTGAGE-BACKED SECURITIES. Illinois Guarantee invests excess funds in
mortgage-backed securities, as well as other investments and may increase its
investment in this type of security in the future. At June 30, 1995, the total
investment in mortgage-backed securities was $2.3 million, with $457,000 in
adjustable-rate securities, $1.9 million in fixed-rate securities and an average
yield of 7.57%. The Bank invests in mortgage-backed securities originated by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the FHLMC.
Prepayments in the Bank's mortgage-backed securities portfolio may be
affected by declining and rising interest rate environments. In a low and
falling interest rate environment, prepayments would be expected to increase. In
such an event, the Bank's fixed-rate securities subscribed for at a premium
price could result in actual yields to the Bank that are lower than anticipated
yields. The Bank's floating rate securities would be expected to generate lower
yields as a result of the effect of falling interest rates on the indexes for
determining payment of interest. Additionally, the increased principal payments
received may be subject to reinvestment at lower rates. Conversely, in a period
of rising rates, prepayments would be expected to decrease, which would make
less principal available for reinvestment at higher rates. In a rising rate
environment, floating rate instruments would generate higher yields to the
extent that the indexes for determining payment of interest did not exceed the
life-time interest rate caps on the Bank's mortgage-backed securities.
The Bank has historically invested in mortgage-backed securities as an
alternative investment to supplement its lending efforts and maintain compliance
with certain regulatory requirements. See " -- Regulation of the Bank --
Qualified Thrift Lender Test." Further, under the OTS risk-based capital
requirements, GNMA mortgage-backed securities have a zero percent risk weight,
and FNMA, FHLMC and AA-rated private mortgage-backed securities have a risk
weight of 20%, in contrast to the 50% risk weight carried by one- to four-family
performing residential loans. See " -- Regulation of the Bank -- Regulatory
Capital Requirements." Mortgage-backed securities may also be used as collateral
for borrowings and through repayments, as a source of liquidity.
The Bank purchases securities through any registered broker or dealer and
requires that the securities be delivered to the safekeeping agent of the
Savings & Community Bankers Trust Company before the funds are transferred to
the broker or dealer. Illinois Guarantee purchases investment securities
pursuant to an investment policy established by the Board of Directors pursuant
to OTS Thrift Bulletin 52.
The following table sets forth the carrying value of the Bank's mortgage-
backed securities at the dates indicated.
At June 30,
--------------------------
1995 1994 1993
------ ------ ------
(In thousands)
GNMA..................... $1,053 $1,202 $1,498
FNMA..................... 260 272 341
FHLMC.................... 1,013 1,222 1,902
------ ------ ------
$2,326 $2,696 $3,741
====== ====== ======
-69-
The following table sets forth the scheduled maturities, carrying values,
market values and average yields for the Bank's mortgage-backed securities at
June 30, 1995.
One Year or Less One to Five Years Five to Ten Years
---------------- ----------------- ---------------------
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
-------- ------- ------- --------- -------- ----------
(Dollars in thousands)
GNMA....................... $ 70 8.68% $ 288 8.33% $ 484% 8.25%
FNMA....................... 17 7.07 52 7.07 88 7.07
FHLMC...................... 349 7.14 655 7.06 7 5.88
-------- ------- ---------
Total..................... $ 436 7.57% $ 995 7.45% $ 579 7.41%
======== ======= =========
More than Ten Years Total Investment Portfolio
------------------- ----------------------------
Carrying Average Carrying Market Average
Value Yield Value Value Yield
------- ------- --------- ------ -------
GNMA....................... $ 211 8.89% $ 1,053 $ 1,092 8.45%
FNMA....................... 103 7.07 260 267 7.07
FHLMC...................... 2 10.00 1,013 1,020 6.72
------- -------- -------
Total..................... $ 316 8.30% $ 2,326 $ 2,379 7.57
======= ======== =======
-70-
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS
GENERAL. Deposits are the primary source of Illinois Guarantee's funds for
lending and other investment purposes. In addition to deposits, Illinois
Guarantee derives funds from principal repayments and interest payments on loans
and investments as well as other sources arising from operations in the
production of net earnings. Loan prepayments and interest payments are a
relatively stable source of funds, while deposit inflows and outflows are
significantly influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources, or on a longer term basis for general
business purposes.
DEPOSITS. Deposits are attracted principally from within Illinois
Guarantee's primary market area through the offering of a broad selection of
deposit instruments, including passbook savings, NOW accounts, money market
accounts and certificates of deposit. Deposit account terms vary, with the
principal differences being the minimum balance required, the time periods the
funds must remain on deposit and the interest rate.
The Bank's policies are designed primarily to attract deposits from local
residents rather than to solicit deposits from areas outside of its primary
market. The Bank does not accept deposits from brokers due to the volatility and
rate sensitivity of such deposits. Interest rates paid, maturity terms, service
fees and withdrawal penalties are established by the Bank on a periodic basis.
Determination of rates and terms are predicated upon funds acquisition and
liquidity requirements, rates paid by competitors, growth goals and federal
regulations.
For more information on the Bank's deposit accounts, see Note G of Notes to
Consolidated Financial Statements.
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity at June 30, 1995.
Certificates
Maturity Period of Deposit
--------------- --------------
(In thousands)
Three months or less............ $ 113
Over three through six months... 740
Over six through twelve months.. --
Over twelve months.............. 675
------
Total.......................... $1,528
======
The following table sets forth the average balances and interest rates based
on monthly balances for transaction accounts and certificates of deposit for the
periods indicated.
Year Ended June 30,
-------------------------------------------------
1995 1994
---------------------- ---------------------
Interest- Interest-
Bearing Bearing
Demand Time Demand Time
Deposits Deposits Deposits Deposits
-------- -------- -------- --------
(Dollars in thousands)
Average balance.................................. $ 7,481 $ 24,214 $ 9,578 $ 22,237
Average rate..................................... 3.02% 4.91% 2.77% 4.49%
-71-
BORROWINGS. Savings deposits historically have been the primary source of
funds for the Bank's lending and investment activities and for its general
business activities. The Bank is authorized, however, to use advances from the
FHLB of Chicago to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. Advances from the FHLB are secured by the Bank's stock
in the FHLB and a portion of the Bank's mortgage loans. The Bank had no FHLB
advances outstanding at June 30, 1995.
The FHLB of Chicago functions as a central reserve bank providing credit
for savings institutions and certain other financial institutions. As a member,
Illinois Guarantee is required to own capital stock in the FHLB and is
authorized to apply for advances on the security of such stock and certain of
its home mortgages and other assets (principally, securities which are
obligations of, or guaranteed by the United States) provided certain standards
related to creditworthiness have been met.
SUBSIDIARY ACTIVITIES
As a federal savings institution, Illinois Guarantee is permitted to invest
an amount equal to 2.0% of its assets in subsidiaries with an additional
investment of 1.0% of assets where such investment serves primarily community,
inner-city and community development purposes. Under such limitations, as of
June 30, 1995, Illinois Guarantee was authorized to invest up to approximately
$1.1 million in the stock of or in loans to subsidiaries. In addition,
institutions meeting regulatory capital requirements and certain other tests may
invest up to 50% of their regulatory capital in conforming first mortgage loans
to subsidiaries.
Illinois Guarantee has one service corporation, Illinois Guarantee Service
Corporation. The primary purpose of the corporation is to provide credit
insurance products to existing Bank borrowers. The Bank's investment in this
service corporation was $37,000 at June 30, 1995, with no commitments for
further investment, and the service corporation generated $8,000 in net income
for the Bank during the year ended June 30, 1995.
COMPETITION
Illinois Guarantee experiences substantial competition both in attracting
and retaining savings deposits and in the making of mortgage and other loans.
Direct competition for savings deposits primarily comes from commercial banks
and other savings institutions located in or near the Bank's primary market
area. Additional significant competition for savings deposits comes from credit
unions, money market funds and brokerage firms. The primary factors in competing
for loans are interest rates and loan origination fees and the range of services
offered by the various financial institutions. Competition for origination of
real estate loans normally comes from commercial banks, other thrift
institutions, mortgage bankers, mortgage brokers and insurance companies.
Management considers Illinois Guarantee's competitors in its market area to
consist of six commercial banks and one savings institution located outside of
its market area. Overall, management believes that Illinois Guarantee is the
smallest of the financial institutions competing for deposits and loans in its
market area.
Illinois Guarantee is able to compete effectively in its primary market by
offering competitive interest rates and loan fees, providing a wide variety of
deposit products, and by emphasizing personal customer service. Management
believes that, as a result of the Bank's commitment to varied products and
personal service, the Bank has developed a solid base of core deposits and the
Bank's loan origination quality is among the leaders in the Bank's market area.
EMPLOYEES
At March 31, 1996, Illinois Guarantee had 16 full-time and two part-time
employees. None of Illinois Guarantee's employees is represented by a collective
bargaining agreement. Illinois Guarantee believes that it enjoys good relations
with its personnel.
-72-
EXECUTIVE OFFICERS OF THE BANK
The Bank has recently made significant changes in its management personnel.
For more information, see "Changes in Key Management Personnel." The current
management of the Bank is described below.
GERALD E. LUDWIG is owner of Ludwig Medical, Inc., a manufacturer of
plastic disposable medical devices. Mr. Ludwig was elected Chairman of the Board
and Chief Executive Officer of the Bank on April 18, 1995.
DOUGLAS A. PIKE has been in the financial institutions industry for more
than 12 years and joined the Bank in February 1995 as Vice President of Lending.
Mr Pike was appointed President and Chief Operating Officer of the Bank on June
20, 1995. Prior to joining the Bank, he served as loan officer of Effingham
State Bank and, prior to that, as consumer loan officer of First National Bank
of Effingham, both in Effingham, Illinois. Mr. Pike is a Commissioner of the
Effingham City Council. He is also a member of the benevolent order of Elks and
the Knights of Columbus.
RONALD R. SCHETTLER has been in the financial institutions industry for
more than 28 years, and currently serves as Senior Vice President of the Bank in
charge of administration and investments, a position he has held since joining
the Bank in June 1995. Prior to that time, Mr. Schettler was Vice President of
Effingham State Bank in Effingham, Illinois. He is a member of the United
Methodist Church, the Scottish Rite, the Effingham Chamber of Commerce and the
Master Masons.
JOHN H. LEONARD was hired as Senior Vice President and Chief Credit Officer
of the Bank in May 1996. He has been in the financial services industry since
1975, and has been employed by Citizens Bank of Illinois since 1986. Mr. Leonard
served as a commercial lending officer and Assistant Vice President of Citizens
Bank of Illinois from 1993 to 1996. He is a director of the Effingham Chamber of
Commerce and is involved in youth athletic programs in Effingham.
PROPERTIES
The following table sets forth certain information at June 30, 1995
regarding Illinois Guarantee's office facility, which is owned by Illinois
Guarantee, and certain other information relating to this property at that date.
As noted below, Illinois Guarantee also holds title to property adjoining the
main office in Effingham, Illinois.
Year Completed Square Footage Net Book Value
-------------- -------------- --------------
Main Office:
210 East Fayette Avenue
Effingham, Illinois 1970 2,940 $179,000
Land (next to main office) -- -- 26,000
In March of 1995, the Bank entered into a purchase option agreement for the
acquisition of land to construct a branch facility in Effingham, Illinois. The
option amount was $1,000 and the option was exercised in June of 1995. Total
purchase price of the land was $375,000 and projected branch cost is an
additional $1,300,000, with $473,000 of this cost incurred as of March 31, 1996.
The branch is expected to be completed during the fourth quarter of 1996.
Expected sources of funds to construct this branch will come from liquid assets
resulting from proceeds of the stock conversion.
LEGAL PROCEEDINGS
Although Illinois Guarantee, from time to time, is involved in various
legal proceedings in the normal course of business, there are no material legal
proceedings to which Illinois Guarantee or its subsidiary is a party or to which
any of their property is subject.
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REGULATION OF THE BANK
GENERAL
As a federally chartered savings institution, Illinois Guarantee is subject
to extensive regulation by the OTS. The lending activities and other investments
of Illinois Guarantee must comply with various federal regulatory requirements.
The OTS periodically examines the Bank for compliance with various regulatory
requirements. The FDIC also has the authority to conduct special examinations of
the Bank because its deposits are insured by the SAIF. The Bank must file
reports with OTS describing its activities and financial condition. The Bank is
also subject to certain reserve requirements promulgated by the Federal Reserve
Board. This supervision and regulation is intended primarily for the protection
of depositors. Certain of these regulatory requirements are referred to below or
discussed elsewhere herein.
SUPERVISORY AGREEMENT
At December 31, 1995, the Bank exceeded all of its regulatory capital
requirements. On October 7, 1992, the Bank entered into a Supervisory Agreement
(the "Agreement") with the OTS. The Agreement required the Bank to: (i) adopt
and implement a written consumer compliance program designed to ensure that the
Bank operates in compliance with all applicable consumer protection laws, rules
and regulations; (ii) correct certain truth in lending disclosure violations,
making reimbursements where necessary to provide restitution to borrowers who
received incorrect truth in lending disclosures as to the interest rates
charged, or to be charged on adjustable-rate mortgage loans; (iii) review the
interest rate adjustments made on certain adjustable-rate mortgage loans to
determine if they were correct, and if necessary review all adjustable-rate
mortgage loan interest rate adjustments, making restitution to borrowers, where
necessary; and (iv) correct certain other technical violations of the Real
Estate Settlement Procedures Act, the Electronic Funds Transfer Act and the
Expedited Funds Availability Act. The Bank complied with the terms of the
Agreement, and made restitution to certain borrowers totaling $41,000 in fiscal
1993. Subsequent to the completion of an OTS examination in August 1994, the
Bank requested a release from the Agreement. Based upon continued compliance
with its requirements, the OTS terminated the Agreement on November 9, 1994.
REGULATORY CAPITAL REQUIREMENTS
Under OTS regulations, savings institutions must maintain "tangible"
capital equal to 1.5% of adjusted total assets, "core" capital equal to 3.0% of
adjusted total assets and a combination of core and "supplementary" capital
equal to 8.0% of "risk-weighted" assets. In addition, the OTS has recently
adopted regulations which impose certain restrictions on savings institutions
that have a total risk-based capital ratio that is less than 8.0%, a ratio of
Tier 1 capital to risk-weighted assets of less than 4.0% or a ratio of Tier 1
capital to adjusted total assets of less than 4.0% (or 3.0% if the institution
is rated composite 1 under the OTS examination rating system). See "-- Prompt
Corrective Regulatory Action." For purposes of these regulations, Tier 1 capital
has the same definition as core capital. Core capital is defined as common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related surplus, minority interests in the equity accounts
of fully consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits and "qualifying supervisory goodwill." Core capital is generally
reduced by the amount of the savings institution's intangible assets for which
no market exists. Limited exceptions to the rule requiring the deduction of
intangible assets are provided for mortgage servicing rights, purchased credit
card relationships and qualifying supervisory goodwill held by an eligible
savings institution. Tangible capital is given the same definition as core
capital but does not include qualifying supervisory goodwill and is reduced by
the amount of all the savings institution's intangible assets with only a
limited exception for subscribed for mortgage servicing rights and subscribed
for credit card relationships.
OTS regulations further provide that core and tangible capital need not be
reduced by the amount of core deposit intangibles resulting from branch purchase
transactions consummated (or under firm contract) prior to March 4, 1994, to the
extent permitted by the OTS, provided that such core deposit intangibles are
valued in accordance with generally accepted accounting principles, supported by
credible assumptions, and have their amortization adjusted at least annually to
reflect decay rates (past and present) in the acquired customer base.
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Both core and tangible capital are further reduced by an amount equal to a
gradually increasing percentage of the savings association's debt and equity
investments in subsidiaries engaged in activities not permissible for national
banks, other than subsidiaries engaged in activities undertaken as agent for
customers or in mortgage banking activities and depository institutions or
holding companies therefor. At March 31, 1996, Illinois Guarantee had no such
investments.
Adjusted total assets for purposes of the core and tangible capital
requirements are a savings institution's total assets as determined under
generally accepted accounting principles, adjusted for certain goodwill amounts,
and increased by a pro rated portion of the assets of subsidiaries in which the
savings institution holds a minority interest and which are not engaged in
activities for which the capital rules require the savings institution to net
its debt and equity investments in such subsidiaries against capital, as well as
a pro rated portion of the assets of other subsidiaries for which netting is not
fully required under the phase-in rules. Adjusted total assets are reduced by
the amount of assets that have been deducted from capital, the portion of the
savings institution's investments in subsidiaries that must be netted against
capital under the capital rules and, for purposes of the core capital
requirement, qualifying supervisory goodwill. At December 31, 1995, Illinois
Guarantee's adjusted total assets for purposes of the core and tangible capital
requirements, were $41.9 million.
In determining compliance with the risk-based capital requirements, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided the amount of supplementary capital used
does not exceed the savings institution's core capital. Supplementary capital is
defined to include certain preferred stock issues, nonwithdrawable accounts and
pledged deposits that do not qualify as core capital, certain approved
subordinated debt, certain other capital instruments and a portion of the
savings institution's general loan and lease loss allowances. Total core and
supplementary capital are reduced by the amount of capital instruments held by
other depository institutions pursuant to reciprocal arrangements and by an
increasing percentage of the savings association's high loan-to-value ratio land
loans and non-residential construction loans and equity investments other than
those deducted from core and tangible capital. As of December 31, 1995, Illinois
Guarantee had $49,000 in equity investments for which OTS regulations required a
phased deduction from total capital after July 1, 1990.
The risk-based capital requirement is measured against risk-weighted
assets, which equal the sum of each asset and the credit-equivalent amount of
each off-balance-sheet item after being multiplied by an assigned risk weight.
Under the OTS risk-weighting system, cash and government securities backed by
the full faith and credit of the U.S. Government are given a 0% risk weight.
Mortgage-backed securities issued, or fully guaranteed as to principal and
interest, by the FNMA or FHLMC are assigned a 20% risk weight. One- to four-
family first mortgages not more than 90 days past due with loan-to-value ratios
under 80% are assigned a risk weight of 50%. Consumer and residential
construction loans are assigned a risk weight of 100%. As of June 30, 1995,
Illinois Guarantee's risk-weighted assets were approximately $17.2 million.
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The table below provides information with respect to Illinois Guarantee's
compliance with its regulatory capital requirements at June 30, 1995.
Percent of
Amount Assets (2)
------ ---------
(Dollars in thousands)
Tangible capital (1)....................................... $ 2,789 7.71%
Tangible capital requirement............................... 543 1.50
------- ------
Excess................................................... $ 2,246 6.21%
======= ======
Tier 1/Core capital........................................ $ 2,789 7.71%
Tier 1/Core capital requirement (3)........................ 1,086 3.00
------- ------
Excess................................................... $ 1,703 4.71%
======= ======
Tier 1 Risk-Based Capital.................................. $ 2,789 16.19%
Tier 1 Risk-Based Capital Requirement...................... 1,378 8.00
------- ------
Excess................................................... $ 1,411 8.19%
======= ======
Risk-based capital......................................... $ 2,914 16.91%
Risk-based capital requirement (4)......................... 1,378 8.00
------- ------
Excess................................................... $ 1,536 8.91%
======= ======
_____________________
(1) Reconciliation from GAAP capital to tangible capital: (In thousands)
GAAP capital......................................... $ 2,959
Real estate held for investment...................... 49
Unrealized gains on available-for-sale securities.... 121
-------
$ 2,789
(2) Based on adjusted total assets for purposes of the tangible capital and
core capital requirements, and risk-weighted assets for purpose of the
risk-based capital requirement.
(3) The core requirement applicable to the Bank may increase if the OTS amends
its capital regulations, as it has proposed, in response to the more
stringent leverage ratio recently adopted by the Office of the Comptroller
of the Currency for national banks.
(4) Represents the total capital required at June 30, 1995. Does not reflect
any additional capital requirement as a result of the recently adopted OTS
regulation regarding the interest rate risk component of capital.
The OTS has proposed an amendment to its capital regulations establishing a
minimum core capital ratio of 3.0% for savings institutions rated composite 1
under the OTS MACRO rating system. For all other savings institutions, the
minimum core capital will be 3.0% plus at least an additional 100 to 200 basis
points. In determining the amount of additional core capital, the OTS will
assess both the quality of risk management systems and the level of overall risk
in each individual savings institution through the supervisory process on a
case-by-case basis.
The risk-based capital standards of the OTS require institutions with more
than a "normal" level of interest rate risk to maintain additional total
capital. A savings institution's interest rate risk is measured in terms of the
sensitivity of its "net portfolio value" to changes in interest rates. Net
portfolio value is defined, generally, as the present value of expected cash
inflows from existing assets and off-balance sheet contracts less the present
value of expected cash outflows from existing liabilities. A savings institution
is considered to have a "normal" level of interest rate risk exposure if the
decline in its net portfolio value after an immediate 200 basis point increase
or decrease in market interest rates (whichever results in the greater decline)
is less than 2.0% of the current estimated economic value of its assets. A
savings institution with a greater than normal interest rate risk is required to
deduct from total capital, for purposes of calculating its risk-based capital
requirement, an amount (the "interest rate risk
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component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.
The OTS calculates the sensitivity of a savings institution's net portfolio
value based on data submitted by the institution in a schedule to its semi-
annually Thrift Financial Report and using the interest rate risk measurement
model adopted by the OTS. The amount of the interest rate risk component, if
any, to be deducted from a savings institution's total capital is based on the
institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS requires any exempt
savings institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a semi-annually basis. The Bank does not
have more than a normal level of interest rate risk under OTS rule and has not
been required to increase its total capital as a result of such rule.
In addition to requiring generally applicable capital standards for savings
associations, the Director of OTS is authorized to establish the minimum level
of capital for a savings institution at such amount or at such ratio of capital-
to-assets as the Director of the OTS determines to be necessary or appropriate
for such institution in light of the particular circumstances of the
institution. The Director of the OTS may treat the failure of any savings
institution to maintain capital at or above such level as an unsafe or unsound
practice and may issue a directive requiring any savings institution which fails
to maintain capital at or above the minimum level required by the Director of
the OTS to submit and adhere to a plan for increasing capital. Such an order may
be enforced in the same manner as an order issued by the FDIC.
At March 31, 1996, Illinois Guarantee exceeded all regulatory minimum capital
requirements.
LIQUIDITY REQUIREMENTS
The Bank is required to maintain average daily balances of liquid assets
(cash, deposits maintained pursuant to Federal Reserve Board requirements, time
and savings deposits in certain institutions, obligations of the United States
and states and political subdivisions thereof, shares in certain mutual funds
with certain restricted investment policies, highly rated corporate debt, and
mortgage loans and mortgage-related securities with less than one year to
maturity or subject to pre-arranged sale within one year) equal to the monthly
average of not less than a specified percentage (currently 5%) of its net
withdrawable savings deposits plus short-term borrowings. The Bank is also
required to maintain average daily balances of short-term liquid assets at a
specified percentage (currently 1%) of the total of its net withdrawable savings
accounts and borrowings payable in one year or less. Monetary penalties may be
imposed for failure to meet liquidity requirements. The average regulatory
liquidity ratio of the Bank for the month of March 1996 was 14.88% with respect
to liquid assets and 11.60% with respect to short-term liquid assets.
QUALIFIED THRIFT LENDER TEST
A savings association that does not meet the Qualified Thrift Lender Test
("QTL Test") must either convert to a bank charter or comply with the following
restrictions on its operations: (i) the institution may not engage in any new
activity or make any new investment, directly or indirectly, unless such
activity or investment is permissible for a national bank; (ii) the branching
powers of the institution shall be restricted to those of a national bank; (iii)
the institution shall not be eligible to obtain any advances from its FHLB; and
(iv) payment of dividends by the institution shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the institution ceases to be a Qualified Thrift Lender, it
must cease any activity, and not retain any investment not permissible for a
national bank and immediately repay any outstanding FHLB advances (subject to
safety and soundness considerations).
To meet the QTL Test, an institution's "Qualified Thrift Investments" must
represent 65% of "portfolio assets." Under OTS regulations, portfolio assets
are defined as total assets less intangibles, property used by a savings
association in its business and liquidity investments in an amount not exceeding
20% of assets. Qualified Thrift Investments consist of (i) loans, equity
positions or securities related to domestic, residential real estate or
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manufactured housing, and (ii) 50% of the dollar amount of residential mortgage
loans originated by the savings association and sold within 90 days of
origination. In addition, subject to a 20% of portfolio assets limit, savings
associations are able to treat as Qualified Thrift Investments 200% of their
investments in loans to finance "starter homes" and loans for construction,
development or improvement of housing and community service facilities, or for
financing small businesses in "credit-needy" areas. A savings association must
maintain its status as a QTL on a monthly basis in nine out of every 12 months.
A savings association that fails to maintain Qualified Thrift Lender status is
permitted to requalify once, and if it fails the QTL Test a second time, it will
become immediately subject to all penalties as if all time limits on such
penalties had expired.
For the quarter ended March 31, 1996, Illinois Guarantee had in excess of
66.57% of assets invested in Qualified Thrift Investments as then defined. It is
expected that the Bank will continue to qualify as a Qualified Thrift Lender,
although there can be no assurance that it will do so.
DIVIDEND RESTRICTIONS
Under OTS regulations, the Bank may not pay dividends on its capital stock
if its regulatory capital would thereby be reduced below the amount then
required for the liquidation account established for the benefit of certain
depositors of the Bank at the time of its conversion to stock form. In addition,
Illinois Guarantee will be required by OTS regulations to provide at least 30
days prior notice to the OTS of any proposed declaration of dividends.
Federal regulations impose additional limitations on the payment of
dividends and other capital distributions (including stock repurchases and cash
mergers) by the Bank. Under these regulations, a savings institution that,
immediately prior to, and on a pro forma basis after giving effect to, a
proposed capital distribution, has total capital (as defined by OTS regulations)
that is equal to or greater than the amount of its fully phased-in capital
requirements (a "Tier 1 Association") is generally permitted, without OTS
approval to make capital distributions during a calendar year in the amount
equal to the greater of (i) 75% of its net income for the previous four
quarters, or (ii) up to 100% of its net income to date during the calendar year
plus an amount that would reduce by one-half the amount by which its capital-to-
assets ratio exceeded regulatory requirements at the beginning of the calendar
year. A savings institution with total capital in excess of current minimum
capital requirements but not in excess of the fully phased-in requirements (a
"Tier 2 Association") is permitted to make capital distributions without OTS
approval of up to 75% of its net income for the previous four quarters, less
dividends already paid for such period. A savings institution that fails to meet
current minimum capital requirements (a "Tier 3 Association") is prohibited from
making any capital distributions without the prior approval of the OTS. Tier 1
Associations that have been notified by the OTS that they are in need of more
than normal supervision will be treated as either a Tier 2 or Tier 3
Association. At December 31, 1995, the Bank qualified as a Tier 1 Association.
All savings associations including the Bank are prohibited from making any
capital distributions if after making the distribution, they would be
undercapitalized as defined in the OTS' prompt corrective action regulations.
The OTS, after consultation with the FDIC, however, may permit an otherwise
prohibited stock repurchase if made in connection with the issuance of
additional shares in an equivalent amount and the repurchase will reduce the
institution's financial obligations or otherwise improve the institution's
financial condition.
In addition to the foregoing, earnings of the Bank appropriated to bad debt
reserves and deducted for federal income tax purposes are not available for
payment of cash dividends or other distributions to the stockholders without
payment of taxes at the then current tax rate by the Bank on the amount of
earnings removed from the reserves for such distributions. See "Taxation." The
Bank intends to make full use of this favorable tax treatment afforded to the
Bank and does not contemplate use of any earnings in a manner which would limit
the Bank's bad debt deduction or create federal tax liabilities.
DEPOSIT INSURANCE
The Bank is required to pay assessments based on a percent of its insured
deposits to the FDIC for insurance of its deposits by the SAIF. Through December
31, 1997, the assessment rate shall not be less than 0.18%. After
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December 31, 1997, the SAIF assessment rate will be a rate determined by the
FDIC to be appropriate to increase the reserve ratio of the SAIF to 1.25% of
insured deposits or such higher percentage as the FDIC determines to be
appropriate but not less than 0.15%.
Under the FDIC's risk-based deposit insurance assessment system, the
assessment rate for an insured depository institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the institution's capital level and supervisory evaluations. Based on the
data reported to regulators for the date closest to the last day of the seventh
month preceding the semi-annual assessment period, institutions are assigned to
one of three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria as in the prompt
corrective action regulations. See "-- Prompt Corrective Regulatory Action."
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken.
The Bank's savings deposits are insured by the SAIF, which is administered
by the FDIC. The assessment rate currently ranges from 0.23% of deposits for
well capitalized institutions in Subgroup A to 0.31% of deposits for
undercapitalized institutions in Subgroup C. The FDIC also administers the BIF,
which has the same designated reserve ratio as the SAIF. On August 8, 1995, the
FDIC lowered the deposit insurance assessment rate for most commercial banks and
other depository institutions with deposits insured by the BIF to a range of
from 0.31% of insured deposits for undercapitalized BIF-insured institutions to
0.04% of deposits for well-capitalized institutions, which constitute over 90%
of BIF-insured institutions. The amendment creates a substantial disparity in
the deposit insurance premiums paid by BIF and SAIF members and could place
SAIF-insured savings institutions at a significant competitive disadvantage to
BIF-insured institutions.
Legislation approved by the U.S. Congress provides for a one-time
assessment, currently estimated to be 0.85% of insured deposits, that would
fully capitalize the SAIF. It is unknown whether this legislation will be
enacted or whether premiums for either BIF or SAIF members will be adjusted in
the future by the FDIC or by legislative action. If a special assessment as
described above were to be required, it would result in a one-time charge to the
Bank currently estimated to be $176,000, after adjusting for tax effects,
assuming the special assessment is based on deposits held at March 31, 1996. If
such a special assessment were required and the SAIF as a result were fully
recapitalized, it could have the effect of reducing the Bank's future deposit
insurance premiums to the SAIF, thereby increasing net income in future periods
from that which would otherwise have been reported.
The FDIC has adopted a regulation which provides that any insured
depository institution with a ratio of Tier 1 capital to total assets of less
than 2% will be deemed to be operating in an unsafe or unsound condition, which
would constitute grounds for the initiation of termination of deposit insurance
proceedings. The FDIC, however, would not initiate termination of insurance
proceedings if the depository institution has entered into and is in compliance
with a written agreement with its primary regulator, and the FDIC is a party to
the agreement, to increase its Tier 1 capital to such level as the FDIC deems
appropriate. Tier 1 capital is defined as the sum of common stockholders'
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority interests in consolidated subsidiaries, minus all intangible assets
other than mortgage servicing rights and qualifying supervisory goodwill
eligible for inclusion in core capital under OTS regulations and minus
identified losses and investments in certain securities subsidiaries. Insured
depository institutions with Tier 1 capital equal to or greater than 2% of total
assets may also be deemed to be operating in an unsafe or unsound condition
notwithstanding such capital level. The regulation further provides that in
considering applications that must be submitted to it by savings associations,
the FDIC will take into account whether the savings association is meeting the
Tier 1 capital requirement for state non-member banks of 4% of total assets for
all but the most highly rated state non-member banks.
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LIMITS ON LOANS TO ONE BORROWER
With certain limited exceptions, the maximum amount that a savings
institution or a national bank may lend to any borrower (including certain
related entities of the borrower) at one time may not exceed 15% of the
unimpaired capital and surplus of the savings association, plus an additional
10% of unimpaired capital and surplus for loans fully secured by readily
marketable collateral. Savings associations are additionally authorized to make
loans to one borrower, for any purpose, in an amount not to exceed $500,000 or,
by order of the Director of OTS, in an amount not to exceed the lesser of
$30,000,000 or 30% of unimpaired capital and surplus, to develop residential
housing, provided: (i) the purchase price of each single-family dwelling in the
development does not exceed $500,000; (ii) the savings association is in
compliance with its fully phased-in capital requirements; (iii) the loans comply
with applicable loan-to-value requirements; and (iv) the aggregate amount of
loans made under this authority does not exceed 150% of unimpaired capital and
surplus.
At March 31, 1996, the maximum amount that Illinois Guarantee could have
loaned to any one borrower without prior to OTS approval was $1.1 million. At
such date, the largest aggregate amount of loans that Illinois Guarantee had
outstanding to any one borrower and their related interests was $495,000.
TRANSACTIONS WITH AFFILIATES
For information with respect to restrictions on transactions between the
Bank and its affiliates, see " -- Regulation of Illinois Community Bancorp,
Inc. --Transactions with Affiliates."
REAL ESTATE LENDING POLICIES
Under OTS regulations, savings associations must adopt and maintain written
policies that establish appropriate limits and standards for extensions of
credit that are secured by liens or interests in real estate or are made for the
purpose of financing permanent improvements to real estate. These policies must
establish loan portfolio diversification standards, prudent underwriting
standards, including loan-to-value limits, that are clear and measurable, loan
administration procedures and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of the
Interagency Guidelines for Real Estate Lending Policies (the "Interagency
Guidelines") that have been adopted by the federal bank regulators.
The Interagency Guidelines, among other things, call upon depository
institutions to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits: (i) for loans
secured by raw land, the supervisory loan-to-value limit is 65% of the value of
the collateral; (ii) for land development loans (i.e., loans for the purpose of
improving unimproved property prior to the erection of structures), the
supervisory limit is 75%; (iii) for loans for the construction of commercial,
multi-family or other nonresidential property, the supervisory limit is 80%;
(iv) for loans for the construction of one-to four-family properties, the
supervisory limit is 85%; and (v) for loans secured by other improved property
(e.g., farmland, completed commercial property and other income-producing
property including non-owner-occupied, one- to four-family property), the limit
is 85%. Although no supervisory loan-to-value limit has been established for
owner-occupied, one- to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution should require appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.
The Interagency Guidelines state that it may be appropriate in individual
cases to originate or subscribe for loans with loan-to-value ratios in excess of
the supervisory loan-to-value limits, based on the support provided by other
credit factors. The aggregate amount of loans in excess of the supervisory
loan-to-value limits, however, should not exceed 100% of total capital and the
total of such loans secured by commercial, agricultural, multifamily and other
non-one-to-four family residential properties should not exceed 30% of total
capital. The supervisory loan-to-value limits do not apply to certain
categories of loans including loans insured or guaranteed by the U.S. Government
and its agencies or by financially capable state, local or municipal governments
or agencies, loans
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backed by the full faith and credit of a state government, loans that are to be
sold promptly after origination without recourse to a financially responsible
party, loans that are renewed, refinanced or restructured without the
advancement of new funds, loans that are renewed, refinanced or restructured in
connection with a workout, loans to facilitate sales of real estate acquired by
the institution in the ordinary course of collecting a debt previously
contracted and loans where the real estate is not the primary collateral.
The Bank believes that its current lending policies conform to the
Interagency Guidelines and does not anticipate that the Interagency Guidelines
will have a material effect on its lending activities.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 district
Federal Home Loan Banks subject to supervision and regulation by the Federal
Housing Finance Board ("FHFB"). The Federal Home Loan Banks provide a central
credit facility primarily for member institutions. As a member of the FHLB of
Chicago, the Bank is required to acquire and hold shares of capital stock in the
FHLB of Chicago in an amount at least equal to 1% of the aggregate unpaid
principal of its home mortgage loans, home purchase contracts, and similar
obligations at the end of each year, or 1/20 of its advances (borrowings) from
the FHLB of Chicago, whichever is greater. Illinois Guarantee was in compliance
with this requirement with investment in FHLB of Chicago stock at March 31,
1996, of $214,000. As of March 31, 1996, Illinois Guarantee had no advances
outstanding from the FHLB of Chicago.
FEDERAL RESERVE SYSTEM
Pursuant to regulations of the Federal Reserve Board, all FDIC-insured
depository institutions must maintain average daily reserves against their
transaction accounts. No reserves are required to be maintained on the first
$4.3 million of transaction accounts, reserves equal to 3% must be maintained on
the next $52.0 million of transaction accounts, and a reserve of 10% must be
maintained against all remaining transaction accounts. These reserve
requirements are subject to adjustment by the Federal Reserve Board. Because
required reserves must be maintained in the form of vault cash or in a
noninterest bearing account at a Federal Reserve Bank, the effect of the reserve
requirement is to reduce the amount of the institution's interest-earning
assets. At December 31, 1995, the Bank met its reserve requirements.
PROMPT CORRECTIVE REGULATORY ACTION
General. FDICIA requires the federal banking regulators to take prompt
corrective action if an institution fails to satisfy certain minimum capital
requirements, including a leverage limit, a risk-based capital requirement, and
any other measure of capital deemed appropriate by the federal banking
regulators for measuring the capital adequacy of an insured depository
institution. All institutions, regardless of their capital levels, are
restricted from making any capital distribution or paying any management fees
that would cause the institution to fail to satisfy the minimum levels for any
of its capital requirements. An institution that fails to meet the minimum
level for any relevant capital measure (an "undercapitalized institution") may
be: (i) subject to increased monitoring by the appropriate federal banking
regulator; (ii) required to submit an acceptable capital restoration plan within
45 days; (iii) subject to asset growth limits; and (iv) required to obtain prior
regulatory approval for acquisitions, branching and new lines of businesses. A
significantly undercapitalized institution, as well as any undercapitalized
institution that does not submit an acceptable capital restoration plan, may be
subject to regulatory demands for recapitalization, broader application of
restrictions on transactions with affiliates, limitations on interest rates paid
on deposits, asset growth and other activities and possible replacement of
directors and officers, and restrictions on capital distributions by any bank
holding company controlling the institution. Any company controlling the
institution could also be required to divest the institution or the institution
could be required to divest subsidiaries. The senior executive officers of a
significantly undercapitalized institution may not receive bonuses or increases
in compensation without prior approval. If an institution's ratio of tangible
capital to total assets falls below a level established by the appropriate
federal banking regulator, which may not be less than 2% nor more than 65% of
the minimum tangible
-81-
capital level otherwise required (the "critical capital level"), the institution
will be subject to conservatorship or receivership within 90 days unless
periodic determinations are made that forbearance from such action would better
protect the deposit insurance fund. Unless appropriate findings and
certifications are made by the appropriate federal bank regulatory agencies, a
critically undercapitalized institution must be placed in receivership if it
remains critically undercapitalized on average during the calendar quarter
beginning 270 days after the date it became critically undercapitalized.
The federal banking regulators, including the OTS, have adopted regulations
implementing the prompt corrective action provisions of FDICIA. Under such
regulations, the OTS measures a savings institution's capital adequacy on the
basis of its total risk-based capital ratio (the ratio of its total capital to
risk-weighted assets), Tier 1 risk-based capital ratio (the ratio of its core
capital to risk-weighted assets) and leverage ratio (the ratio of its core
capital to adjusted total assets). A savings institution that is not subject
to a written directive to meet or maintain a specific capital level is deemed
"well-capitalized" if it also has: (i) a total risk-based capital ratio of 10%
or greater; (ii) a Tier 1 risk-based capital ratio of 6% or greater; and (iii) a
leverage ratio of 5% or greater. An "adequately capitalized" savings
institution is a savings institution that does not meet the definition of well-
capitalized and has: (i) a total risk-based capital ratio of 8% or greater; (ii)
a Tier 1 capital risk-based ratio of 4% or greater; and (iii) a leverage ratio
of 4% or greater (or 3% or greater if the savings institution has a composite 1
rating under the OTS examination rating system). An "undercapitalized
institution" is a savings institution that has (i) a total risk-based capital
ratio less than 8%; or (ii) a Tier 1 risk-based capital ratio of less than 4%;
or (iii) a leverage ratio of less than 4% (or 3% if the institution has a
composite 1 rating under the OTS examination rating system). A "significantly
undercapitalized" institution is defined as a savings institution that has: (i)
a total risk-based capital ratio of less than 6%; or (ii) a Tier 1 risk-based
capital ratio of less than 3%; or (iii) a leverage ratio of less than 3%. A
"critically undercapitalized" savings institution is defined as a savings
institution that has a ratio of "tangible equity" to total assets that is equal
to or less than 2%. "Tangible equity" is defined as core capital plus the
association's outstanding cumulative perpetual preferred stock (and related
surplus) less all intangibles other than qualifying supervisory goodwill and
certain mortgage servicing rights. The OTS may reclassify a well capitalized
savings institution as adequately capitalized and may require an adequately
capitalized or undercapitalized institution to comply with the supervisory
actions applicable to institutions in the next lower capital category (but may
not reclassify a significantly undercapitalized institution as critically
undercapitalized) if the OTS determines, after notice and an opportunity for a
hearing, that the savings institution is in an unsafe or unsound condition or if
the OTS determines that the institution has received and not corrected a less-
than-satisfactory rating for any rating category under the OTS examination
rating system. As of March 31, 1996, the Bank was classified as "well-
capitalized" under the prompt corrective action regulations.
SAFETY AND SOUNDNESS GUIDELINES. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"),
each Federal banking agency is required to establish safety and soundness
standards for institutions under its authority. On July 10, 1995, the Federal
banking agencies, including the OTS, released Interagency Guidelines
Establishing Standards for Safety and Soundness and published a final rule
establishing deadlines for submission and review of safety and soundness
compliance plans. The final rule and the guidelines went into effect on August
9, 1995. The guidelines require savings institutions to maintain internal
controls and information systems and internal audit systems that are appropriate
for the size, nature and scope of the institution's business. The guidelines
also establish certain basic standards for loan documentation, credit
underwriting, interest rate risk exposure, and asset growth. The guidelines
further provide that savings institutions should maintain safeguards to prevent
the payment of compensation, fees and benefits that are excessive or that could
lead to material financial loss, and should take into account factors such as
comparable compensation practices at comparable institutions. If the OTS
determines that a savings institution is not in compliance with the safety and
soundness guidelines, it may require the institution to submit an acceptable
plan to achieve compliance with the guidelines. A savings institution must
submit an acceptable compliance plan to the OTS within 30 days of receipt of a
request for such a plan. Failure to submit or implement a compliance plan may
subject the institution to regulatory sanctions. Management believes that the
Bank already meets substantially all the standards adopted in the interagency
guidelines, and therefore does not believe that implementation of these
regulatory standards will materially affect the Bank's operations.
-82-
Additionally under FDICIA, as amended by the CDRI Act, the Federal banking
agencies are required to establish standards relating to the asset quality and
earnings that the agencies determine to be appropriate. On July 10, 1995, the
Federal banking agencies, including the OTS, issued proposed guidelines relating
to asset quality and earnings. Under the proposed guidelines, a savings
institution should maintain systems, commensurate with its size and the nature
and scope of its operations, to identify problem assets and prevent
deterioration in those assets as well as to evaluate and monitor earnings and
ensure that earnings are sufficient to maintain adequate capital and reserves.
Management believes that the asset quality and earnings standards, in the form
proposed by the banking agencies, would not have a material effect on the Bank's
operations.
TAXATION
FEDERAL TAXATION
Savings institutions are subject to the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), in the same general manner as other
corporations. However, institutions such as Illinois Guarantee which meet
certain definitional tests and other conditions prescribed by the Code may
benefit from certain favorable provisions regarding their deductions from
taxable income for annual additions to their bad debt reserve. For purposes of
the bad debt reserve deduction, loans are separated into "qualifying real
property loans," which generally are loans secured by interests in certain real
property, and nonqualifying loans, which are all other loans. The bad debt
reserve deduction with respect to nonqualifying loans must be based on actual
loss experience. The amount of the bad debt reserve deduction with respect to
qualifying real property loans may be based upon actual loss experience (the
"experience method") or a percentage of taxable income determined without
regard to such deduction (the "percentage of taxable income method"). Illinois
Guarantee has elected to use the method which results in the greatest deduction
for federal income tax purposes which historically has been the percentage of
taxable income method.
Under the percentage of taxable income method, the bad debt reserve
deduction for qualifying real property loans is computed as a percentage, which
Congress has reduced from as much as 60% in prior years to 8.0% of taxable
income, with certain adjustments, for taxable years beginning after 1986. The
allowable deduction under the percentage of taxable income method (the
"percentage bad debt deduction") for taxable years beginning before 1987 was
scaled downward in the event that less than 82% but more than 60% of the total
dollar amount of the assets of an institution qualified within certain
designated categories. The Tax Reform Act of 1986 (the "1986 Act") eliminated
this scale down provision, and for all years after 1986 an 8% percentage bad
debt deduction may be taken as long as not less than 60% of the total dollar
amount of the assets of an institution falls within such categories. In the
event the percentage of assets in the designated categories falls below 60%, the
institution could be required to recapture, generally over a period of up to
four years, its existing bad debt reserve, although net operating loss
carryforwards could be used to offset such recapture. As of June 30, 1995,
Illinois Guarantee's assets falling within such categories exceeded 60%, and it
is anticipated that Illinois Guarantee will continue to qualify in the
foreseeable future to utilize the percentage of taxable income method.
The bad debt deduction under the percentage of taxable income method is
limited to the extent that (i) the amount accumulated in reserves for qualifying
real estate loans does not exceed 6.0% of such loans outstanding at the end of
the taxable year and (ii) the amount when added to the bad debt reserve for
losses on nonqualifying loans, equals the amount by which 12.0% of total
deposits or withdrawable accounts of depositors at year-end exceeds the sum of
surplus, undivided profits and reserves at the beginning of the year. It is not
expected that either limitation will restrict Illinois Guarantee from making the
maximum addition to its bad debt reserve. The percentage bad debt deduction
under the percentage of taxable income method is reduced by the deduction for
losses on nonqualifying loans.
Earnings appropriated to Illinois Guarantee's bad debt reserve and claimed
as a tax deduction are not available for the payment of cash dividends or for
distribution to shareholders (including distributions made on dissolution or
liquidation), unless Illinois Guarantee includes the amount in taxable income,
along with the amount
-83-
deemed necessary to pay the resulting federal income tax. As of December 31,
1995, Illinois Guarantee had approximately $436,000 of accumulated earnings for
which federal income taxes have not been provided.
Illinois Guarantee's federal income tax returns have never been audited.
For additional information regarding federal income taxes, see Notes A and
I of Notes to Consolidated Financial Statements.
STATE TAXATION
The State of Illinois has a corporate income tax which subjects the Bank's
Illinois taxable income to a 4.8% tax and a Personal Property Replacement tax of
2.5%. However, by virtue of statutory provisions relative to a calculations of
taxes assessed against thrift institutions, such institutions do not pay state
income tax in years in which income on United States Government securities
exceeds taxable income.
For additional information regarding taxation, see Note I of Notes to
Consolidated Financial Statements.
MARKET FOR ILLINOIS GUARANTEE
COMMON STOCK AND DIVIDEND INFORMATION
At the present time, Illinois Guarantee Common Stock is listed and traded
over-the-counter through the National Daily Quotation System "Pink Sheets"
published by the National Quotation Bureau. The high and low bid information
for Illinois Guarantee Common Stock for the fiscal quarters since the Bank's
initial public offering was completed on September 28, 1995 is as follows:
Bid Price(1)
--------------------
For the Quarter Ended High Low
--------------------- ---- ---
December 31, 1995 $11.75 $10.00
March 31, 1996 11.50 11.50
- --------------------
(1) Based on bids received by Trident Securities, Inc. The quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commission, and
may not represent actual transactions.
The most recent trade of which the Bank is aware took place on February 10,
1996, at $11.50 per share. There is currently no active market for the Illinois
Guarantee Common Stock and it is not expected that an active market for the
Holding Company Common Stock will develop upon consummation of the
Reorganization. There were approximately 260 stockholders of record at the
Record Date. No dividends have been paid since the Common Stock's issuance on
September 28, 1996.
As a "Tier 1" institution under OTS regulations, the Bank is generally
authorized to pay dividends in any calendar year up to the greater of 75% of its
net income for the previous four quarters or the amount of its net income during
such calendar year plus one-half of the amount by which the Bank's capital
exceeded the Bank's fully phased-in capital requirement at the beginning of the
year, so long as such dividends would not reduce the Bank's regulatory capital
below the amount required for the Bank's liquidation account or the Bank's fully
phased-in capital requirement. For additional information describing regulatory
restrictions on the payment of dividends, see "PROPOSAL I -- PROPOSED HOLDING
COMPANY FORMATION -- Comparison of Stockholders' Rights -- Payment of
Dividends."
-84-
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited financial statements of the Bank for its fiscal year ended June
30, 1995 and the unaudited financial statements for the nine months ended March
31, 1996 and 1995, prepared in conformity with generally accepted accounting
principles, are included at page F-1 in this Proxy Statement/Prospectus. No
financial statements of the Holding Company are presented in this Proxy
Statement/Prospectus, as the Holding Company currently has no significant assets
or liabilities. In addition, no pro forma consolidated financial statements of
the Holding Company are included herein since such statements would reflect no
material differences from the consolidated financial statements of the
Bank.
-85-
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
Index to Consolidated Financial Statements
Independent Auditors' Report................................................. F-2
Consolidated Statements of Financial Condition as of
March 31, 1996 (Unaudited) and June 30, 1995 and 1994...................... F-3
Consolidated Statements of Income for the Nine Months Ended
March 31, 1996 and 1995 (Unaudited) and
for the Years Ended June 30, 1995 and 1994................................. F-4
Consolidated Statements of Retained Earnings for the Nine Months Ended
March 31, 1996 (Unaudited) and for the Years Ended June 30, 1995 and 1994.. F-5
Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 1996 and 1995 (Unaudited) and
for the Years Ended June 30, 1995 and 1994................................. F-6
Notes to Consolidated Financial Statements................................... F-8
F-1
[LETTERHEAD OF LARSSON, WOODYARD & HENSON, LLP APPEARS HERE]
[LOGO APPEARS HERE]
Independent Auditors' Report
To the Board of Directors
Illinois Guarantee Savings Bank FSB
and Subsidiary
Effingham, Illinois
We have audited the accompanying consolidated statements of financial
condition of Illinois Guarantee Savings Bank, FSB and Subsidiary as of June
30, 1995 and 1994, and the related consolidated statements of income, retained
earnings, and cash flows for each of the years then ended June 30, 1995 and
1994. These consolidated financial statements are the responsibility of the
Bank'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 audits 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 consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Illinois Guarantee Savings Bank, FSB and Subsidiary as of June 30, 1995 and
1994 and the results of their operations and their cash flows for each of the
years then ended, June 30, 1995 and 1994, in conformity with generally
accepted accounting principles.
/s/ LARSSON, WOODYARD & HENSON, LLP
May 24, 1996
F-2
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1996, June 30, 1995 and June 30, 1994
March 31, June 30,
------------- ------------------------------
1996 1995 1994
------------- ------------ --------------
(Unaudited) (Audited)
------------- ------------------------------
ASSETS (1,000's)
--------------------------------------------------
Cash and Cash Equivalents:
Cash $ 854 $ 415 $ 408
Interest bearing deposits 602 1,175 1,881
--------- --------- ---------
Total Cash and Cash Equivalents 1,456 1,590 2,289
Time deposits 297 1,980 476
Securities available for sale (amortized cost of $7,531,
$1,817, and $1,792, as of March 31, 1996 and
June 30, 1995 and 1994, respectively) 7,770 2,004 1,942
Securities held to maturity (approximate market value
of $299, $5,736 and $5,950 at March 31, 1996 and
June 30, 1995 and 1994, respectively) 299 5,745 5,976
Mortgage-backed securities available-for-sale
(amortized cost of $1,890) 1,928 0 0
Mortgage-backed securities held to maturity
(approximate market value of $2,379 and $2,680
at June 30, 1995 and 1994, respectively 0 2,326 2,696
Loans receivable, net 30,510 21,846 21,251
Accrued interest receivable 269 263 238
Premises and equipment, net 973 315 244
Real estate held for sale 49 49 49
Prepaid income taxes 0 71 0
Other assets 129 204 34
--------- --------- ---------
Total Assets $ 43,680 $ 36,393 $ 35,195
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 35,363 $ 32,703 $ 31,787
Note payable - Employee Stock Ownership Plan shares 372 0 0
Accrued interest payable 104 133 48
Deferred income taxes 79 21 86
Advances from borrowers for taxes and insurance 82 289 293
Other liabilities 248 288 107
--------- --------- ---------
Total Liabilities 36,248 33,434 32,321
--------- --------- ---------
Stockholders' Equity
Common stock, $1.00 par value;
authorized 1,000,000 shares
502,550 shares issued and outstanding 503 0 0
Paid-in capital 4,060 0 0
Retained Earnings 3,076 2,838 2,777
Unrealized gain on securities held available for sale 183 121 97
Unearned employee stock ownership plan ( 390) 0 0
--------- --------- ---------
Total Stockholders' Equity 7,432 2,959 2,874
--------- --------- ---------
Commitments and contingencies
Total Liabilities and Stockholders' Equity $ 43,680 $ 36,393 $ 35,195
========= ========= =========
See accompanying notes to consolidated financial statements.
F-3
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended Years Ended
March 31, June 30,
---------------------------- -------------------------------
1996 1995 1995 1994
----------- ----------- -------------- -------------
(Unaudited) (Audited)
---------------------------- -------------------------------
(1,000's)
----------------------------------------------------------------
Interest income:
Interest on loans $ 1,662 $ 1,162 $ 1,581 $ 1,464
Interest on investments 565 543 798 713
--------- --------- --------- ---------
Total interest income 2,227 1,705 2,379 2,177
--------- --------- --------- ---------
Interest expense:
Interest on deposits 1,227 1,022 1,416 1,263
Interest on Employee Stock Ownership Plan 16 0 0 0
--------- --------- --------- ---------
Total interest expense 1,243 1,022 1,416 1,263
--------- --------- --------- ---------
Net interest income 984 683 963 914
Provision for loan losses 15 0 50 0
--------- --------- --------- ---------
Net interest income after provision for loan losses 969 683 913 914
--------- --------- --------- ---------
Non-interest income:
Net gain on sale of interest-earning assets 0 0 0 81
Other fees 21 31 22 21
Insurance commissions 2 0 8 7
Other 23 6 8 10
--------- --------- --------- ----------
Total non-interest income 46 37 38 119
--------- --------- --------- ---------
Non-interest expense:
Compensation and employee benefits 307 189 554 234
Occupancy and equipment 74 39 63 56
Data processing 59 54 69 62
Audit, legal and other professional 17 19 26 21
SAIF deposit insurance 65 64 85 86
Advertising 31 23 30 34
Other 121 68 56 57
--------- --------- --------- ---------
Total non-interest expense 674 456 883 550
--------- --------- --------- ---------
Income before income taxes 341 264 68 483
Provision for income taxes 103 105 7 164
--------- --------- --------- ---------
Net income $ 238 $ 159 $ 61 $ 319
========= ========= ========= =========
Earnings per share: $0.52 $ N/A $ N/A $ N/A
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-4
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized
Gain
Unearned (Loss) on
Employee Securities
Stock Available
Common Paid-in Retained Ownership For
Stock Capital Earnings Plan Sale, Net Total
-------- --------- -------- ---------- ----------- ----------
(1,000's)
----------------------------------------------------------------
Balance at June 30,
1993 (Audited) $ 0 $ 0 $ 2,458 $ 0 $ 0 $ 2,458
Unrealized gain on securities
available for sale 0 0 0 0 73 73
Net income 0 0 319 0 0 319
Change in unrealized gain on
securities available for sale 0 0 0 0 24 24
------- -------- -------- ------- ------- -------
Balance at June 30,
1994 (Audited) 0 0 2,777 0 97 2,874
Net income 0 0 61 0 0 61
Change in unrealized gain
on securities available for sale 0 0 0 0 24 24
------- -------- -------- ------- ------- -------
Balance at June 30,
1995 (Audited) 0 0 2,838 0 121 2,959
Net income 0 0 238 0 0 238
Change in unrealized gain on
securities available for sale 0 0 0 0 62 62
Conversion to a
stock savings bank 503 4,060 0 (390) 0 4,173
------- -------- -------- ------- ------- -------
Balance at March 31,
1996 (Unaudited) $ 503 $ 4,060 $ 3,076 ($390) $ 183 $ 7,432
======= ======== ======== ======= ======= =======
F-5
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended Years Ended
March 31, June 30,
--------------------------------- --------------------------------
1996 1995 1995 1994
--------------- ---------------- ----------------- -------------
(Unaudited) (Audited)
-------------------------------- --------------------------------
(1,000's)
-------------------------------------------------------------------
Operating activities:
Net income $ 238 $ 174 $ 61 $ 319
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for depreciation 23 14 21 19
Provision for loan losses 15 0 50 0
Net amortization and accretion of securities 4 7 2 46
Decrease (increase) in accrued interest receivable 6 33 ( 25) ( 8)
Decrease (increase) in other assets 75 ( 35) ( 170) ( 5)
(Decrease) increase in accrued interest payable ( 29) 70 86 8
Increase (decrease) in accrued income taxes 71 ( 62) (71) 45
Increase (decrease) in deferred income taxes 58 ( 2) ( 65) 7
(Decrease) increase in other liabilities ( 74) ( 22) 228 ( 14)
Federal Home Loan Bank stock dividends 0 0 ( 3) 0
Dividends on investments ( 62) ( 69) ( 91) ( 56)
Gain on sale of investments 0 0 0 ( 81)
----------- ---------- ----------- ----------
Net cash provided by operating activities 325 108 23 280
----------- ---------- ----------- ----------
Investing activities:
Sale of securities 0 0 0 87
Proceeds from securities held to maturity
and certificates of deposit 3,122 5,128 6,243 1,094
Proceeds from securities available for sale 799 0 0 0
Purchase of securities held to maturity
and certificates of deposit ( 1,374) ( 7,300) ( 7,510) ( 2,457)
Purchase of securities available for sale ( 1,075) 0 0 0
(Increase) decrease in loans receivable ( 8,179) 621 (696) ( 1,466)
Purchase of mortgage loans ( 500) 0 0 0
Repayment of mortgage-backed securities 431 221 370 1,044
Sale of originated loans 0 51 51 400
Purchase of premises and equipment ( 681) ( 63) (92) ( 10)
Redemption of Federal Home Loan Bank stock 0 0 0 115
----------- ---------- ----------- ----------
Net cash used in investing activities ( 7,457) ( 1,342) ( 1,634) ( 1,193)
----------- ---------- ----------- ----------
F-6
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended Years Ended
March 31, June 30,
----------------------- --------------------------
1996 1995 1995 1994
---------- --------- ---------- ----------
(Unaudited) (Audited)
----------------------- --------------------------
(1,000's)
------------------------------------------------------
Financing activities:
Net increase (decrease) in deposits $ 2,660 ($ 204) $ 916 ($ 970)
Decrease in advances from borrowers
for taxes and insurance ( 207) ( 52) ( 4) 171
Proceeds from Employee Stock Ownership Plan note 402 0 0 0
Repayment Employee Stock Ownership Plan loan ( 30) 0 0 0
Proceeds from issuance of common stock 4,563 0 0 0
Purchase of employee stock ownership plan stock ( 402) 0 0 0
Allocated shares of ESOP stock 12 0 0 0
---------- --------- ---------- ----------
Net cash provided by (used in) financing activities 6,998 ( 256) 912 ( 799)
---------- --------- ---------- ----------
Decrease in cash and cash equivalents ( 134) ( 1,490) ( 699) ( 1,712)
Cash and cash equivalents at beginning of period 1,590 2,289 2,289 4,001
---------- --------- ---------- ----------
Cash and cash equivalents at end of period $ 1,456 $ 799 $ 1,590 $ 2,289
========== ========= ========== ==========
Supplemental Disclosures:
Additional Cash Flows Information:
Cash paid for:
Interest on deposits, advances and other borrowings $ 845 $ 621 $ 1,330 $ 1,255
Income taxes $ 11 $ 86 204 101
Schedule of Noncash Investing Activities:
Stock dividends were distributed by the
Federal Home Loan Bank of Chicago $ 0 $ 0 $ 3 $ 0
F-7
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Description of the Business
Illinois Guarantee Savings Bank, FSB (the Bank) is a federal chartered mutual
savings bank with offices located in Effingham County. The Bank's deposits
are insured by the Federal Deposit Insurance Corporation (FDIC) through the
Savings Association Insurance Fund (SAIF) up to $100,000. The Bank is
subject to the regulations of certain federal agencies and undergoes periodic
examinations by those agencies.
Basis of Financial Statement Presentation
The accounting and reporting policies of Illinois Guarantee Savings Bank, FSB
(the Bank) follow the accrual basis of accounting and conform to generally
accepted accounting principles and to general practice within the financial
institution industry. The consolidated financial statements include the
accounts of the Bank and its wholly owned subsidiary IGSL Service
Corporation, which was incorporated to provide insurance services. All
material intercompany transactions and accounts have been eliminated. All
amounts at March 31, 1996 and for the nine months ended March 31, 1996 and
1995 are unaudited.
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 statements of consolidated financial
condition and revenues and expenses for the year. Actual results could
differ significantly from those estimates. Information at March 31, 1996 and
1995 for the nine-month periods then ended is unaudited. The unaudited
information reflects all adjustments, which consist solely of normal
recurring accruals, which are in the opinion of management, necessary to a
fair presentation of the financial position at March 31, 1996 and the results
of operations and of cash flows for the nine-month periods ended March 31,
1996 and 1995. The results of the nine-month periods are not necessarily
indicative of the results which may be expected for the entire fiscal year
1996.
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 loan losses and foreclosed real estate, management obtains
independent appraisals for significant properties.
Management believes the allowance for loan losses and real estate owned is
adequate. 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 Bank's allowances for losses on loans and foreclosed
real estate. Such agencies may require the Bank to recognize additions to
the allowances based on their judgments about information available to them
at the time of their examination.
Cash Equivalents
Cash equivalents of $1,602,000, $1,175,000, and $1,881,000 at March 31, 1996,
June 30, 1995 and 1994, respectively, consist of interest bearing deposits.
For purposes of the consolidated statements of cash flows, the Bank considers
all highly liquid debt instruments with original maturities of three months
or less to be cash equivalents.
F-8
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Securities
Securities available for sale are carried at market value at March 31, 1996,
June 30, 1995 and 1994. Net unrealized gains and losses, net of tax effect,
are credited or charged to retained earnings. Securities held to maturity
are carried at amortized cost. The Bank has adequate liquidity and capital,
and it's management's intention, to hold such assets to maturity. Gains and
losses on sales of securities are recognized at the time of sale and are
calculated based on the specific identification method. Premiums and
discounts are amortized using the interest method over the term of the
securities.
Loans and Allowance for Loan Losses
Loans are considered a held-to-maturity asset and, accordingly, are carried
at historical cost. Loans are stated at the amount of unpaid principal,
reduced by unearned discounts, allowances for loan losses, loans in process,
loans participated to other financial institutions, and deferred loan
origination fees. Unearned discounts on nonmortgage installment loans are
recognized as income over the term of the loan by the interest method.
Interest on all other mortgage and nonmortgage loans is calculated by using
the simple interest method on the unpaid principal outstanding. An allowance
for loan losses has been established for loans through a provision for loan
losses charged to operations. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the principal
is unlikely. The allowance is an amount that management believes will be
adequate to absorb probable losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors
as changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions
that may affect the borrowers' ability to pay.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments of information available to them at the
time of their examination.
Allowance for Credit Losses
The allowance for credit losses is a reserve for estimated credit losses and
other credit-related charges. Actual credit losses and other charges, net of
recoveries, are deducted from the allowance for credit losses. A provision
for loan losses, which is a charge against earnings, is added to the
allowance based on a quarterly assessment of the portfolio. While management
has attributed reserves to various portfolio segments, the allowance is
general in nature and is available for the credit portfolio in its entirety.
The Bank adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures", which requires loans to be measured for impairment using
one of three methods when it is probable that all amounts, including
principal and interest, will not be collected in accordance with the
contractual terms of the loan agreement. The amount of impairment and any
subsequent changes are recorded through the provision for credit losses as an
adjustment to the allowance for credit losses. SFAS No. 114 applies to all
loans, whether collateralized or uncollateralized, except for large groups of
smaller-balance, homogeneous loans that are collectively evaluated for
impairment (residential mortgage and consumer nonaccrual loans), loans that
are measured at fair value. Finally, loans restructured prior to the
effective date of SFAS No. 114 that are performing in accordance with their
restructured terms are not evaluated for impairment under SFAS No. 114.
F-9
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
As required by SFAS No. 114, the Bank generally measures impairment based
upon the present value of a loans' expected future cash flows, except where
foreclosure or liquidation is probable or when the primary source of
repayment is provided by real estate collateral. In these circumstances,
impairment is measured based upon the fair value of the collateral less
estimated selling and disposal costs. The present value of a loan's expected
future cash flows is calculated using the loan's effective interest rate
based on the original contractual terms. In addition, when quoted market
prices are available, impairment is based on the loan's observable market
value less estimated selling and disposal costs. Generally the Bank evaluates
a loan for impairment in accordance with SFAS No. 114 when it is placed on
nonaccrual status and a portion is internally risk rated as substandard or
doubtful.
The adoption of SFAS No. 114 had no impact on the overall allowance for
credit losses and did not affect the Bank's charge-off or income recognition
policies.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired. Any unpaid interest previously accrued on those loans is reversed
from income. Interest income generally is not recognized on specific
impaired loans unless the likelihood of further loss is remote. Income is
subsequently recognized only to the extent that cash payments are received
until, in management's judgment, the borrower's ability to make periodic
interest and principal payments is back to normal, in which case the loan is
returned to accrual status.
Fees and Related Costs
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the contractual
term of the related loans using the interest method. Amortization of deferred
loan fees is discontinued when a loan is placed on nonaccrual status.
Mortgage-Backed Securities
Mortgage-backed securities are carried at market value at March 31, 1996.
Mortgage-backed securities are carried at amortized cost at June 30, 1995 and
1994.
Real Estate Held for Investment and Foreclosed Real Estate
Direct investments in real estate properties held for investment are carried
at the lower of cost, including cost of improvements and amenities subsequent
to acquisition, or net realizable value. The real estate held for investment
as of March 31, 1996, June 30, 1995 and 1994 consists of undeveloped lots
which, in accordance with OTS regulations, are considered as a real estate
equity investment because of the holding period.
Foreclosed real estate held for sale is carried at the lower of cost or
estimated fair market value, net of estimated selling costs. Costs of
holding foreclosed property are charged to expense in the current period,
except for significant property improvements, which are capitalized to the
extent that carrying value does not exceed estimated fair market value.
Premises and Equipment
Land is carried at cost. Buildings and furniture, fixtures, and equipment
are carried at cost, less accumulated depreciation and amortization.
Buildings and furniture, fixtures, and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets. The
estimated useful lives are seven to forty years for buildings and
improvements and five to twelve years for equipment.
F-10
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Income Taxes
Income taxes provided in the consolidated statements of income includes
deferred income tax provisions or benefits for all significant temporary
differences in recognizing income and expenses for financial reporting and
income tax purposes.
Earnings Per Share
The 502,550 shares of common stock were issued on September 28, 1995;
accordingly, earnings per share for the periods prior to September 30, 1995
are not applicable. Only ESOP shares that are committed to be released are
considered outstanding for earnings per share calculations. Earnings per
share have been calculated based on 462,946 weighted average shares for the
period ending March 31, 1996. This computation does not reflect the pro
forma effects of the investment income that would have been earned had the
net proceeds from the stock offering been received at the beginning of the
year. The effect on earnings per share for the post conversion period for
September 28, 29 and 30, 1995 was considered insignificant. Earnings per
share amounts have not been presented for the nine months ended March 31,
1995 and the years ended June 30, 1995 and 1994, which were prior to the
stock conversion.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business the Bank has entered into off-balance-
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of credit and
standby letters of credit. Such instruments are recorded in the consolidated
financial statements when they become payable.
Reclassifications
Amounts presented in prior year consolidated financial statements have been
reclassified to conform to the current year presentation.
New Accounting Standards
Accounting for Postretirement and Postemployment Benefits
SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than
Pensions," was issued by the FASB in December 1990. The statement is
effective for fiscal years beginning after December 15, 1992, except that
the application of the statement for certain small nonpublic enterprises
such as the Bank and certain other entities is delayed to fiscal years
beginning after December 15, 1994. SFAS No. 112 "Employers' Accounting for
Postemployment Benefits" was issued by the FASB in November 1992. The
statement is effective for fiscal years beginning after December 15, 1994.
The statements generally require a calculation of the actuarial present
value of anticipated benefits to be provided and an accrual and allocation
of those benefits through a charge to operating expense in the periods in
which employees must render the services to receive such benefits.
Currently, the Bank does not offer any postretirement benefit plans or
postemployment benefit plans, except as disclosed in Note O. However, in
the future, such plans may be offered and the provisions of SFAS Nos. 106
and 112 would apply.
F-11
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Disclosures of Fair Value of Financial Instruments
In December 1991, the Financial Accounting Standards Board issued SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS
107 requires that the Bank disclose estimated fair values for its
financial instruments. The effective date of SFAS 107, for entities with
less than $150,000,000 in total assets, is for financial statements
issued for fiscal years ending after December 15, 1995. The Bank has not
adopted SFAS 107.
Accounting for Derivative Financial Instruments
In October 1994, the FASB issued SFAS No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments"
and is effective for financial statements issued for fiscal years ending
after December 15, 1995 for entities with less than $150 million in total
assets in the current statement of financial position. The statement
generally addresses required disclosures for derivative instruments held
or issued for trading purposes and for purposes other than trading. The
Bank currently has no derivative financial instruments.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock
Based Compensation". SFAS No. 123 establishes a fair value-based method
of accounting for stock options and other equity instruments. It requires
the use of that method for transactions with other than employees and
encourages its use for transactions with employees. It permits entities
to continue to use the intrinsic- value method included in Accounting
Principles Board-25 (Accounting for Stock Issued to Employees), but
regardless of the method used to account for the compensation cost
associated with stock options and similar plans, it requires employers to
disclose information in accordance with SFAS No. 123. The general
principle underlying SFAS No. 123 is that equity instruments are
recognized at the fair value of the consideration received for them. If
the fair value of the consideration received cannot be reasonably
determined, the fair value of the equity instrument itself may be used.
The fair value method of accounting for stock options and other
instruments applies this general principle, measuring compensation cost
for employers as the excess of the fair value of the equity instrument
over the amount paid by the employee. This statement is applicable for
financial statements for fiscal years beginning after December 15, 1995.
Note B. Securities
Securities available for sale are summarized as follows:
March 31, 1996
-----------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- -----------
(Unaudited)
-----------------------------------------------
(1,000's)
-----------------------------------------------
Asset Management Adjustable Rate Fund $ 1,500 $ 0 $ 9 $ 1,491
Asset Management Short-Term Fund 2,243 0 0 2,243
FHLMC stock 12 244 0 256
FHLB stock, at cost 214 0 0 214
U.S. Treasury 2,088 6 1 2,093
Obligations of other
U.S. government agencies 997 3 4 996
State and municipal obligations 477 1 1 477
--------- ---------- ---------- -----------
$ 7,531 $ 254 $ 15 $ 7,770
========= ========== ========== ===========
F-12
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B. Securities
June 30, 1995
----------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
(1,000's)
----------------------------------------------
Asset Management Adjustable Rate Fund $ 1,500 $ 0 $ 7 $ 1,493
Asset Management Short-Term Fund 91 0 0 91
FHLMC stock 12 194 0 206
FHLB stock, at cost 214 0 0 214
--------- ---------- ---------- -----------
$ 1,817 $ 194 $ 7 $ 2,004
========= ========== ========== ===========
June 30, 1994
----------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
(1,000's)
----------------------------------------------
Asset Management Adjustable Rate Fund $ 1,500 $ 0 $ 20 $ 1,480
Asset Management Short-Term Fund 70 0 0 70
FHLMC stock 12 170 0 182
FHLB stock, at cost 210 0 0 210
--------- ---------- ---------- -----------
$ 1,792 $ 170 $ 20 $ 1,942
========= ========== ========== ===========
The Bank exercised a one-time option to transfer all of its securities
from held to maturity to available for sale. This transfer was done in
December, 1995 and the amortized cost and approximate market value at
time of transfer was $4,308,000 and $4,321,000, respectively, which
reduced stockholders' equity by $9,000, net of income tax..
The amortized cost and approximate market value of securities available
for sale by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because securities may have a call
provision.
March 31, 1996 June 30, 1995 June 30, 1994
---------------------- ---------------------- ----------------------
Approximate Approximate Approximate
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- ----------- --------- ----------- --------- -----------
(Unaudited)
----------------------
(1,000's)
----------------------------------------------------------------------
Due within
one year $5,580 $5,581 $ 91 $ 91 $ 70 $ 70
Due after one
year through
five years 215 218 0 0 0 0
Due after five
years through
ten years 10 10 0 0 0 0
Due after
ten years 1,726 1,961 1,726 1,913 1,722 1,872
------ ------ ------ ------ ------ ------
$7,531 $7,770 $1,817 $2,004 $1,792 $1,942
====== ====== ====== ====== ====== ======
F-13
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B. Securities
Securities held to maturity are summarized as follows:
At March 31, 1996, securities held to maturity represent an investment in
the Boston Capital Corporate Tax Credit Fund V, A Limited Partnership.
The amortized cost and approximate value is $299,000. The total projected
investment for this partnership is $750,000.
June 30, 1995
----------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
(1,000's)
----------------------------------------------
U.S. Treasury $ 3,737 $ 12 $ 2 $ 3,747
Obligations of other
U.S. government agencies 1,495 1 20 1,476
State and municipal obligations 513 0 0 513
--------- ---------- ----------- ---------
$ 5,745 $ 13 $ 22 $ 5,736
========= ========== =========== =========
June 30, 1994
----------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
(1,000's)
----------------------------------------------
U.S. Treasury $ 4,382 $ 4 $ 18 $ 4,368
Obligations of other
U.S. government agencies 992 0 12 980
State and municipal obligations 602 0 0 602
--------- ---------- ----------- ---------
$ 5,976 $ 4 $ 30 $ 5,950
========= ========== =========== =========
The amortized cost and approximate market value of securities held to
maturity, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because securities may have a call
provision.
March 31, 1996 June 30, 1995 June 30, 1994
---------------------- ---------------------- ----------------------
Approximate Approximate Approximate
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- ----------- --------- ----------- --------- -----------
(Unaudited)
----------------------
(1,000's)
----------------------------------------------------------------------
Due within
one year $ 0 $ 0 $ 2,489 $ 2,489 $ 2,256 $ 2,257
Due after one
year through
five years 0 0 2,756 2,752 3,665 3,638
Due after five
years through
ten years 0 0 0 0 55 55
Due after
ten years 299 299 500 495 0 0
--------- ----------- --------- ----------- --------- -----------
$ 299 $ 299 $ 5,745 $ 5,736 $ 5,976 $ 5,950
========= =========== ========= =========== ========= ===========
F-14
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B. Securities
Securities at March 31, 1996 and June 30, 1995 and 1994 were as follows:
Nine Months Ended Years Ended
March 31, June 30,
----------------- -------------------
1996 1995 1995 1994
-------- -------- -------- --------
(Unaudited)
-----------------
(1,000's)
--------------------------------------
Proceeds from sales $ 0 $ 0 $ 0 $ 87
======== ======== ======== ========
Gross gains $ 0 $ 0 $ 0 $ 81
======== ======== ======== ========
Gross losses $ 0 $ 0 $ 0 $ 81
======== ======== ======== ========
In addition, FHLB stock was sold at amortized cost of $115,000 during the
year ended June 30, 1994.
Securities at March 31, 1996, June 30, 1995 and 1994, respectively, with
carrying amounts of $502,000, $505,000 and $509,000, and approximate
market value of $504,000, $504,000, and $508,000 were pledged to secure
public deposits and for other purposes as required or permitted by law.
Note C. Mortgage-Backed Securities
The amortized cost and approximate market values of mortgage-backed
securities are summarized as follows:
March 31, 1996
------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ------------
(Unaudited)
-----------
(1,000's)
-------------------------------------------------
GNMA certificates $ 995 $32 $0 $1,027
FNMA certificates 251 3 0 254
FHLMC certificates 644 8 5 647
------ --- -- ------
$1,890 $43 $5 $1,928
====== === == ======
June 30, 1995
------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ----------- ---------- ------------
(1,000's)
------------------------------------------------
GNMA certificates $1,053 $39 $0 $1,092
FNMA certificates 260 7 0 267
FHLMC certificates 1,013 15 8 1,020
------ --- -- ------
$2,326 $61 $8 $2,379
====== === == ======
F-15
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note C. Mortgage-Backed Securities
June 30, 1994
-----------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ------------
(1,000's)
-----------------------------------------------
GNMA certificates $ 1,202 $ 21 $ 19 $ 1,204
FNMA certificates 272 0 8 264
FHLMC certificates 1,222 13 23 1,212
--------- ---------- ---------- -----------
$ 2,696 $ 34 $ 50 $ 2,680
========= ========== ========== ===========
The weighted average interest rates on mortgage-backed securities at
March 31, 1996, June 30, 1995 and 1994, were 7.78%, 7.57% and 7.44%,
respectively.
The Bank had no gross realized gains and losses on mortgage-backed
securities for the nine-month periods ended March 31, 1996 and 1995 and
for the years ended June 30, 1995 and 1994, respectively.
The Bank exercised a one-time option to transfer all of its mortgage-
backed securities from held to maturity to available for sale. This
transfer was done in December, 1995 and the amortized cost and
approximate market value at time of transfer was $2,056,000 and
$2,103,000, respectively, which reduced stockholders' equity by $31,000,
net of income tax.
Note D. Loans Receivable
Loans receivable consisted of the following:
March 31, June 30,
----------- ------------------------
1996 1995 1994
----------- ----------- -----------
(Unaudited)
-----------
(1,000's)
-------------------------------------
Real estate loans:
One to four family residential $ 20,310 $ 16,982 $ 17,515
Multi-family residential 1,044 392 407
Agricultural 425 600 578
Commercial 3,297 2,182 2,275
Construction 871 40 0
---------- ----------- -----------
25,947 20,196 20,775
Other loans:
Commercial 985 180 0
Automobile 3,348 1,427 396
Mobile home 25 36 47
Educational 23 34 102
Deposit accounts 79 102 119
Other 387 182 104
---------- ----------- -----------
30,794 22,157 21,543
Less:
Loans in process 92 118 144
Allowance for losses 169 175 125
Deferred loan fees 23 18 23
---------- ----------- -----------
$ 30,510 $ 21,846 $ 21,251
========== =========== ===========
F-16
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note D. Loans Receivable
In January 1995, the Bank sold $51,000 of educational loans to the
Student Loan Marketing Association.
The Bank participated 50% of a commercial real estate loan with an
original participation amount of $400,000. The balance on this
participation at March 31, 1996 was $319,000.
Changes in allowance for loan losses are as follows:
March 31, June 30,
----------- ----------------------
1996 1995 1994
----------- ---------- ----------
(Unaudited)
-----------
(1,000's)
-----------------------------------
Balance $ 175 $ 125 $ 125
Amount charged to provision 15 50 0
Recoveries 0 0 0
Loans charged off ( 21) 0 0
---------- ---------- ----------
Balance $ 169 $ 175 $ 125
========== ========== ==========
Principal balance of loans for which interest has been reserved totaled
approximately $41,000, $42,000 and $31,000 at March 31, 1996, June 30,
1995 and 1994, respectively. The interest is reserved when the loan
becomes more than ninety days past due and in management's judgment the
collection of interest is impaired. The amount of interest reserved was
$2,000, $2,000, $1,000, and $1,000 for the nine-month periods ended March
31, 1996, 1995 and for the years ended June 30, 1995 and 1994,
respectively, and was offset against accrued interest receivable. In
addition, the Bank had residential real estate loans accruing which were
90 or more days past due of $131,000, $29,000, and $44,000 as of March
31, 1996 and June 30, 1995 and 1994, respectively. The Bank had $24,000
of commercial real estate at June 30, 1995 and $4,000 of consumer and
other loans at June 30, 1994, which were still accruing and were 90 or
more days past due.
Weighted average interest rates on loans consisted of the following:
March 31, June 30,
----------- ------------------
1996 1995 1994
----------- -------- --------
(Unaudited)
-----------
Mortgage loans 7.88% 7.79% 7.05%
Nonmortgage loans 8.82% 8.78% 7.96%
Total loans 8.02% 7.99% 7.08%
Note E. Accrued Interest Receivable
Accrued interest receivable consisted of the following:
March 31, June 30,
----------- ------------------
1996 1995 1994
----------- ------- --------
(Unaudited)
-----------
(1,000's)
--------------------------------
Mortgage loans $ 143 $ 124 $ 106
Nonmortgage loans 33 17 8
Mortgage-backed securities 12 16 20
Securities 81 106 104
---------- -------- --------
$ 269 $ 263 $ 238
========== ======== ========
F-17
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note F. Premises and Equipment
Premises and equipment consisted of the following:
March 31, June 30,
----------- ----------------------
1996 1995 1994
----------- ---------- ---------
(Unaudited)
-----------
Land $ 445 $ 70 $ 70
Office building 371 296 295
Furniture and equipment 498 288 212
----------- --------- ---------
1,314 654 577
Accumulated depreciation ( 341) ( 339) ( 333)
----------- --------- ---------
$ 973 $ 315 $ 244
=========== ========= =========
Depreciation included in the consolidated statements of income amounted
to $23,000 and $14,000 for the nine-month periods ended March 31, 1996
and 1995, respectively, and $21,000, and 19,000 for the years ended June
30, 1995 and 1994, respectively.
On March 24, 1995, the Bank entered into a purchase option agreement for
the acquisition of land to construct a branch facility in Effingham. The
option amount was $1,000 and the option was exercised in June of 1995.
Total purchase price of the land is $375,000 and projected branch cost is
an additional $1,300,000, with $473,000 of this cost incurred as of March
31, 1996. The branch is expected to be completed subsequent to June 30,
1996. Expected sources of funds to construct this branch will come from
proceeds on stock conversion and deposit growth.
Note G. Deposit Analysis
Deposits and weighted average interest rates are summarized as follows:
March 31, June 30,
-------------- ------------------------------
1996 1995 1994
-------------- -------------- --------------
Amount Rate Amount Rate Amount Rate
------- ----- ------- ----- ------- -----
(Unaudited)
--------------
1,000's 1,000's 1,000's
-------------- -------------- --------------
Non-interest bearing $ 862 .00% $ 503 .00% $ 325 .00%
NOW accounts 1,301 2.91% 376 2.75% 380 2.75%
Money market 2,549 4.04% 2,265 4.26% 1,940 3.00%
Passbook 4,267 3.29% 4,464 3.00% 6,119 3.00%
Certificates 26,384 5.40% 25,095 5.42% 23,023 4.39%
------- ------- -------
Totals $35,363 4.82% $32,703 4.89% $31,787 3.97%
======= ======= =======
F-18
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note G. Deposit Analysis
Certificates had the following remaining maturities:
March 31, 1996
------------------------------------------------------
One Two After
Less Than to Two to Three Three
Rate One Year Years Years Years Totals
---- ---------- -------- -------------- ------- ------
(1,000's)
------------------------------------------------------
2 - 3.99% $ 2 $ 0 $ 0 $ 0 $ 2
4 - 5.99% 16,405 4,479 1,665 215 22,764
6 - 7.99% 1,469 312 966 829 3,576
8 - 9.99% 0 00 42 0 42
--------- -------- -------------- ------- -------
$ 17,876 $ 4,791 $ 2,673 $ 1,044 $26,384
========= ======== ============== ======= =======
June 30, 1995
------------------------------------------------------
One Two After
Less Than to Two to Three Three
Rate One Year Years Years Years Totals
---- ---------- -------- -------------- ------- ------
(1,000's)
------------------------------------------------------
2 - 3.99% $ 378 $ 0 $ 0 $ 0 $ 378
4 - 5.99% 13,669 2,012 1,242 593 17,516
6 - 7.99% 6,385 202 121 341 7,049
8 - 9.99% 110 0 42 0 152
--------- -------- -------------- ------- -------
$ 20,542 $ 2,214 $ 1,405 $ 934 $25,095
========= ======== ============== ======= =======
June 30, 1994
------------------------------------------------------
One Two After
Less Than to Two to Three Three
Rate One Year Years Years Years Totals
---- ---------- -------- -------------- ------- ------
(1,000's)
------------------------------------------------------
2 - 3.999 $ 7,050 $ 414 $ 0 $ 0 $ 7,464
4 - 5.99% 8,273 4,629 883 714 14,499
6 - 7.99% 141 131 129 0 401
8 - 9.99% 503 98 0 58 659
--------- -------- -------------- ------- -------
$ 15,967 $ 5,272 $ 1,012 $ 772 $23,023
========= ======== ============== ======= =======
F-19
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note G. Deposit Analysis
Interest expense on deposits is summarized as follows:
Nine-Months Ended Years Ended
March 31, June 30,
------------------- -------------------
1996 1995 1995 1994
-------- -------- -------- --------
(Unaudited)
-------------------
(1,000's)
----------------------------------------
Passbook $ 96 $ 119 $ 152 $ 197
Demand deposits 394 53 74 68
Certificates 737 850 1,190 998
-------- -------- -------- --------
$ 1,227 $ 1,022 $ 1,416 $ 1,263
======== ======== ======== ========
At March 31, 1996, June 30, 1995 and 1994, the Bank had $1,960,000,
$1,527,000 and $1,310,000, respectively, of deposit accounts with
balances of $100,000 or more. The Bank did not have brokered deposits at
March 31, 1996, June 30, 1995 and 1994. Deposits in excess of $100,000
are not federally insured.
The Bank has pledged mortgage-backed certificates and securities, when
requested by depositors, for deposits of $100,000 or more.
Note H. Retained Earnings
The Bank as a member of the Federal Home Loan Bank System is required to
hold a specified number of shares of capital stock, which is carried at
cost, in the Federal Home Loan Bank of Chicago. In addition, the Bank is
required to maintain cash and liquid assets in an amount equal to 5% of
its deposit accounts and other obligations due within one year. The Bank
has met these requirements.
Federal savings banks are required to satisfy three capital requirements:
(i) a requirement that "tangible capital" equal or exceed 1.5% of
adjusted total assets, (ii) a requirement that "core-capital" equal or
exceed 3% of adjusted total assets, and (iii) a risk-based capital
standard of 8% of "risk-adjusted" assets. At March 31, 1996, June 30,
1995 and 1994 the Bank met each of the three capital requirements.
The following table demonstrates, as of March 31, 1996, the extent to
which the Bank exceeds in dollars and in percent the three minimum
capital requirements:
Regulatory Capital
-------------------------------
Actual Requirement Excess
-------- ----------- --------
(Unaudited)
-------------------------------
(1,000's)
-------------------------------
Tangible capital:
Dollar amount $ 7,200 $ 651 $ 6,549
Percent of tangible assets 16.58% 1.50% 15.08%
Core capital:
Dollar amount $ 7,200 $ 1,302 $ 5,898
Percent of tangible assets 16.58% 3.00% 13.58%
Risk-based capital:
Dollar amount $ 7,313 $ 2,128 $ 5,185
Percent of risk-weighted assets 27.49% 8.00% 19.49%
The Bank's total risk-weighted assets at March 31, 1996, were
approximately $26,604,000.
F-20
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H. Retained Earnings
Failure to comply with applicable regulatory capital requirements can
result in capital directives from regulatory agencies, restrictions on
growth, and other limitations on a savings bank's operations.
In November of 1994, the OTS changed the determination of regulatory
capital to not include any unrealized gains or losses on securities
available for sale. As of March 31, 1996 and June 30, 1995, Generally
Accepted Accounting Principles (GAAP) capital was increased by $183,000
and $121,000, respectively. In addition, for regulatory capital, real
estate held for sale of $49,000 has been netted against GAAP capital.
Consistent with the increased capital requirements imposed by regulators
of national banks, the core capital requirement for most savings
institutions, including the Bank, is expected to rise to a level ranging
from 3% to 5% of adjusted total assets. A proposed regulation requiring
such a change was issued by the Office of Thrift Supervision (OTS) in
April 1991.
Retained earnings at March 31, 1996 includes approximately $436,000 for
which federal income tax has not been provided, which is adjusted
annually. The Bank is allowed a special bad debt deduction limited
generally to 8 percent of otherwise taxable income and subject to certain
limitations based on aggregate loans and savings account balances at the
end of the year. If the amounts that qualify as deductions for federal
income tax purposes are later used for purposes other than for bad debt
losses, they will be subject to federal income tax at the then current
corporate rate. The unrecorded deferred tax liability on the above amount
is approximately $81,000.
Note I. Income Tax
The components of the provision for income taxes are summarized as
follows:
Nine Months Ended
March 31, Years Ended June 30,
------------------ --------------------
1996 1995 1995 1994
-------- -------- -------- --------
(Unaudited)
------------------
(1,000's)
------------------------------------------
Currently payable: Federal $ 71 $ 93 $ 86 $ 137
State 2 7 0 16
Deferred: Federal 28 4 ( 73) 9
State 2 1 ( 6) 2
-------- -------- -------- --------
$ 103 $ 105 $ 7 $ 164
======== ======== ======== ========
F-21
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note I. Income Tax
Income tax expense for the nine-month periods ended March 31, 1996 and
1995 and for the years ended June 30, 1995 and 1994 has been provided at
an effective rate of approximately 30.41%, 35.94%, 10.38%, and 34.83%,
respectively. An analysis of such expense setting forth the reasons for
the variations from the federal statutory rates is as follows:
Nine Months Years Ended
Ended March 31, June 30,
------------------ ------------------
1996 1995 1995 1994
-------- -------- -------- --------
(Unaudited)
--------------------------------------
(1,000's)
--------------------------------------
Computed tax at statutory rates $ 115 $ 95 $ 12 $ 164
Increase (decrease) in tax expense
resulting from:
State income tax, net 0 8 0 12
Other ( 4) 5 0 ( 4)
Tax exempt income - net ( 8) ( 3) ( 5) ( 8)
-------- -------- -------- --------
Income tax expense $ 103 $ 105 $ 7 $ 164
======== ======== ======== ========
The tax effects of temporary differences that give rise to the deferred
tax assets and deferred tax liabilities at March 31, 1996, June 30, 1995
and 1994 are as follows:
March 31, June 30,
----------- ------------------
1996 1995 1994
----------- -------- --------
(Unaudited)
-----------
(1,000's)
-------------------------------
Deferred tax assets:
Deferred loan fees $ 7 $ 6 $ 9
Severance agreement 71 79 0
Other 1 1 1
----------- -------- --------
79 86 10
----------- -------- --------
Deferred tax liabilities:
Allowance for unrealized gains on
securities available for sale 94 66 53
FHLB stock 14 14 14
Premises and equipment 17 13 7
Allowance for loan losses 23 8 20
Other 10 6 2
----------- -------- --------
158 107 96
----------- -------- --------
Net deferred tax liabilities $ 79 $ 21 $ 86
=========== ======== ========
No valuation allowance was required for deferred tax assets at March 31,
1996 and June 30, 1995 and 1994.
F-22
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note J. Employee Benefit Plans
The Bank has established a profit sharing plan and defined contribution
pension plan that covers substantially all employees. Contributions to
the profit sharing plan are at the discretion of the Board of Directors.
Contributions to the defined contribution pension plan are based on a
percentage of eligible compensation. Pension cost for both plans include
current service costs, which are accrued and funded on a current basis.
Pension expense for both plans charged to operations for the nine-month
periods ended March 31, 1996 and 1995 was $0 and $14,000, respectively
and for the years ended June 30, 1995 and 1994 was $29,000 and $26,000,
respectively.
Note K. Economic Dependency
The Bank is a nondiscriminatory lender in their market area as defined by
their Community Reinvestment Act. The Bank is a full service bank in
Effingham County. The Bank has no economic dependency other than the
general market area. Concentration of credit risk has been disclosed in
Note D concerning lending portfolio.
Note L. Commitments and Contingencies
In the ordinary course of business, the Bank has various outstanding and
contingent liabilities that are not reflected in the accompanying
consolidated financial statements. In addition, the Bank is a defendant
in certain claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal
counsel, the ultimate disposition of these matters is not expected to
have a material effect on the consolidated financial statements of the
Bank.
The Bank had outstanding firm commitments to originate mortgage loans as
follows:
March 31,
1996
-----------
(Unaudited)
-----------
(1,000's)
-----------
Fixed rate $ 386
Adjustable rate 0
----------
$ 386
==========
Interest rates range for fixed rate loan commitments at March 31, 1996
were 7.75% to 8.25%. As of March 31, 1996 the Bank had no unused lines of
credit.
There were no outstanding commitments to purchase or sell securities at
March 31, 1996.
The Bank 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. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amounts recognized in the
consolidated statements of financial condition.
F-23
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note L. Commitments and Contingencies
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit
is represented by the contractual notional amount of these instruments.
The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount and type of collateral obtained, if deemed necessary by the Bank
upon extension of credit, varies and is based on management's credit
evaluation of the counterparty.
Note M. Related Parties
The Bank has entered into transactions with its directors, key management
and their affiliates (Related Parties). Such transactions were made in
the ordinary course of business on substantially the same terms and
conditions, including interest rates and collateral, as those prevailing
at the same time for comparable transactions with other customers, and
did not, in the opinion of management, involve more than normal credit
risk or present other unfavorable features. A summary of loans to related
parties is as follows:
March 31, June 30,
----------- --------------------
1996 1995 1994
----------- --------- ---------
(Unaudited)
-----------
(1,000's)
---------------------------------
Balance $ 160 $ 152 $ 147
New loans 0 99 33
Repayment (6) (91) (28)
----------- --------- ---------
Balance $ 154 $ 160 $ 152
=========== ========= =========
Note N. Stockholders' Equity
Stock Conversion
On April 7, 1994, the board of directors of the Bank adopted a plan of
conversion whereby the Bank would convert to a federal stock savings
bank. The conversion was completed on September 28, 1995 with the
issuance of 502,550 shares of the Company's common stock at a price of
$10.00 per share. Total proceeds from the conversion of $4,563,000, net
of costs relating to the conversion of $462,500, have been recorded as
common stock and additional paid-in capital.
The Company's articles of incorporation authorizes the issuance of up to
1,000,000 shares of serial preferred stock, which may be issued with
certain rights and preferences. As of March 31, 1996, no preferred stock
has been issued.
In order to grant a priority to eligible account holders in the event of
future liquidation, the Bank, at the time of conversion, established a
liquidation account equal to its regulatory capital as of September 30,
1995. In the event of future liquidation of the Bank, an eligible account
holder who continues to maintain their deposit account shall be entitled
to receive a distribution from the liquidation account. The total amount
of the liquidation account will be decreased as the balance of eligible
account holders are reduced subsequent to the conversion, based on an
annual determination of such balance.
F-24
ILLINOIS GUARANTEE SAVINGS BANK, FSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note O. Severance Agreement
On June 16, 1995, the Bank and the past Chief Executive Officer (CEO)
entered into a separation agreement. This agreement included the CEO
retaining the company car, cash payments for the first three years of the
agreement of $64,000 and the next seven years of $14,000 on an annual
basis. These payments are to be made monthly, starting in July of 1995,
except for the first year in which $20,000 was paid in June of 1995.
Health benefits included in the agreement were that the Bank would pay
the group health, medical, and life insurance benefits for the CEO that
are currently provided to the Bank's employees. These benefits would
cease when the CEO attains age 65. The Bank's cost of this termination
agreement amounted to a net present value of $191,000 and $226,000, at an
8% discount rate, as of March 31, 1996 and June 30, 1995. This amount is
included in other liabilities at March 31, 1996 and June 30, 1995.
Note P. Employee Stock Ownership Plan (ESOP)
In connection with the conversion to the stock form of ownership, the
Board of Directors established an employee stock ownership plan (ESOP)
for the exclusive benefit of participating employees. Employees age 21 or
older who have completed one year of service are eligible to participate.
Upon the issuance of the common stock, the ESOP acquired 40,204 shares of
$1 par value common stock at the subscription price of $10.00 per share.
The Savings Bank makes contributions to the ESOP equal to the ESOP's debt
service less dividends received by the ESOP. All dividends received by
the ESOP are used to pay debt service. The ESOP shares initially were
pledged as collateral for its debt. As the debt is repaid, shares are
released from collateral and allocated to active employees, based on the
proportion of debt service paid in the year. The Savings Bank accounts
for its ESOP in accordance with Statement of Position 93-6. Accordingly,
the debt of the ESOP is recorded as debt and the shares pledged as
collateral are reported as unearned ESOP shares in the consolidated
balance sheets. As shares are released from collateral, the Savings Bank
reports compensation expense equal to the current market price of the
shares, and the shares become outstanding for earnings-per-share
calculations. Dividends on allocated shares are recorded as a reduction
of retained earnings; dividends on unallocated ESOP shares are recorded
as a reduction of debt or accrued interest. ESOP compensation expense was
$12 for the nine-month period ended March 31, 1996.
The ESOP shares at March 31, 1996 were as follows:
Allocated shares $ 1,200
Shares released for allocation 0
Unallocated shares 39,004
----------
Total ESOP shares $ 40,204
==========
Fair value of unallocated shares $ 448,546
==========
Note Q. Stock Plans
The Bank will propose at a future stockholders' meeting the following
stock plans:
Management Recognition Plan (MRP) which is anticipated to provide for the
grant of 10,102 shares of stock to eligible directors and officers of the
Bank which vest over a five-year period at the rate of 20% per year.
Stock Option Plan (SOP) which is anticipated to provide the grant of an
option on 80,408 shares of stock. The purpose of the SOP is to retain and
attract key personnel for the Bank.
F-25
- --------------------------------------------------------------------------------
EXPERTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Illinois Guarantee Savings
Bank, FSB and Subsidiary, as of June 30, 1995, 1994 and March 31, 1996, for each
of the years in the three year period ended June 30, 1994 and for the nine
months ended March 31, 1996 and 1995, have been included herein and elsewhere in
the Proxy Statement/Prospectus in reliance upon the report of Larsson, Woodyard
& Henson, independent certified public accountants appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Special Meeting other than those matters described above in this Proxy
Statement/Prospectus. However, if any other matters should properly come before
the Special Meeting, it is intended that proxies in the accompanying form will
be voted in respect thereof in accordance with the judgment of the person or
persons voting the proxies, including matters relating to the conduct of the
Special Meeting.
The cost of solicitation of proxies will be borne by the Bank. The Bank
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy material to the
beneficial owners of common stock. In addition to solicitations by mail,
directors, officers and regular employees of the Bank may solicit proxies
personally, by telegraph or telephone without additional compensation.
- --------------------------------------------------------------------------------
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
Any proposal intended to be presented by any stockholders for action at
the 1996 annual meeting of stockholders of the Bank, or of the Holding Company
if the Reorganization is consummated, must be received by the Bank, or the
Holding Company, as appropriate, at 210 East Fayette Avenue, Effingham, Illinois
62401-3613 not later than June 1, 1996 in order for the proposal to be
considered for inclusion in the proxy statement and proxy relating to the 1996
annual meeting. Nothing in this paragraph shall be deemed to require the Bank or
the Holding Company to include in its proxy statement and proxy relating to the
1996 annual meeting any stockholder proposal which does not meet all of the
requirements for inclusion established by the OTS (or, in the event the
Reorganization has been completed, the SEC) in effect at the time such proposal
is received.
BY ORDER OF THE BOARD OF DIRECTORS
Ronald R. Schettler
Secretary
June __, 1996
Effingham, Illinois
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO SIGN
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
- --------------------------------------------------------------------------------
ANNUAL REPORT ON FORM 10-KSB
- --------------------------------------------------------------------------------
A COPY OF THE BANK'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED JUNE 30, 1995 (WITHOUT EXHIBITS) AS FILED WITH THE OFFICE OF THRIFT
SUPERVISION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD
DATE UPON WRITTEN REQUEST TO THE PRESIDENT OF THE BANK, 210 EAST FAYETTE AVENUE,
EFFINGHAM, ILLINOIS 62401-3613.
- --------------------------------------------------------------------------------
EXHIBIT A
ILLINOIS GUARANTEE SAVINGS BANK, FSB
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, dated February 20, 1996, by and
among ILLINOIS GUARANTEE SAVINGS BANK, FSB, a federal stock savings bank
("Illinois Guarantee"); Illinois Community Bancorp, Inc., an Illinois
corporation ("Holding Company"), and ILLINOIS GUARANTEE INTERIM SAVINGS BANK,
FSB a to-be-formed interim stock savings bank ("Interim Savings").
The parties hereto desire to enter into an Agreement and Plan of
Reorganization whereby the corporate structure of Illinois Guarantee will be
reorganized into the holding company form of ownership. The result of such
reorganization will be that, immediately after the Effective Date (as defined in
Article V below), all of the issued and outstanding shares of common stock,
$1.00 par value per share, of Illinois Guarantee ("Illinois Guarantee Common
Stock") will be held by Holding Company, and the holders of the issued and
outstanding shares of Illinois Guarantee Common Stock will become the holders of
the issued and outstanding shares of the common stock, $0.01 par value per
share, of Holding Company ("Holding Company Common Stock").
The reorganization of Illinois Guarantee will be accomplished by the
following steps: (1) the formation by Illinois Guarantee of a wholly-owned,
service corporation or operating subsidiary, Holding Company, incorporated under
the laws of the State of Illinois for the primary purpose of becoming the sole
stockholder of a newly formed interim federal stock savings bank, and
subsequently becoming the sole holder of the capital stock of Illinois
Guarantee, which formation shall include the issuance of up to 100,000 shares of
Holding Company Common Stock to Illinois Guarantee for a price of $1.00 per
share or for such other consideration in excess of the aggregate par value of
such 100,000 shares as the Office of Thrift Supervision ("OTS") shall approve;
(2) the formation of an interim federal stock savings association, Interim
Savings, which will be wholly-owned by Holding Company; and (3) the merger of
Interim Savings into Illinois Guarantee, with Illinois Guarantee as the
surviving corporation. Pursuant to such merger: (i) all of the issued and
outstanding shares of Illinois Guarantee Common Stock (other than shares as to
which dissenter's rights of appraisal have been elected and perfected) will
automatically be converted by operation of law on a one-for-one basis into an
equal number of issued and outstanding shares of Holding Company Common Stock;
and (ii) all of the issued and outstanding shares of common stock of Interim
Savings will automatically be converted by operation of law on a one-for-one
basis into an equal number of issued and outstanding shares of Illinois
Guarantee Common Stock, which will be all of the issued and outstanding capital
stock of Illinois Guarantee.
NOW, THEREFORE, in order to consummate this Agreement and Plan of
Reorganization, and in consideration of the mutual covenants herein set forth,
the parties agree as follows:
ARTICLE I
MERGER OF INTERIM SAVINGS INTO
ILLINOIS GUARANTEE AND RELATED MATTERS
--------------------------------------
1.1 The Merger. On the Effective Date, Interim Savings will be merged
with and into Illinois Guarantee (the "Merger") and the separate existence of
Interim Savings shall cease, and all assets and property (real, personal and
mixed, tangible and intangible, chooses in action, rights and credits) then
owned by Interim Savings, or which would inure to it, shall immediately and
automatically, by operation of law and without any conveyance, transfer, or
further action, become the property of Illinois Guarantee. Illinois Guarantee
shall be deemed to be a continuation of Interim Savings, and Illinois Guarantee
shall succeed to the rights and obligations of Interim Savings.
A-1
1.2 Continued Existence of Illinois Guarantee. Following the Merger, the
existence of Illinois Guarantee shall continue unaffected and unimpaired by the
Merger, with all the rights, privileges, immunities and powers, and subject to
all the duties and liabilities, of a corporation organized under the laws of the
United States with a Federal Stock Charter and Bylaws in the form approved by
the OTS. The Federal Charter and Bylaws of Illinois Guarantee, as presently in
effect, shall continue in full force and effect and shall not be changed in any
manner whatsoever by the Merger.
1.3 Continued Business of Illinois Guarantee. From and after the
Effective Date, and subject to the actions of the Board of Directors of Illinois
Guarantee, the business presently conducted by Illinois Guarantee (whether
directly or through its subsidiary) will continue to be conducted by it, as a
wholly-owned subsidiary of Holding Company and the present directors and
officers of Illinois Guarantee will continue in their present positions. The
number of directors shall be 7. The offices of Illinois Guarantee in existence
immediately prior to the Effective Date shall continue to be the offices of
Illinois Guarantee from and after the Effective Date.
1.4 Savings Accounts. The issuance of savings accounts and other
instruments and obligations by Illinois Guarantee shall not be affected by the
Merger.
1.5 Liquidation Account. The liquidation account for the benefit of
Illinois Guarantee's savings account holders as of March 31, 1993 and March 31,
1995, created in connection with the conversion of Illinois Guarantee from
mutual to stock form, shall not be affected by the Merger.
1.6 Further Assurances. Illinois Guarantee and Interim Savings each
agree that at any time, or from time to time, as and when requested by Illinois
Guarantee or by its successors or assigns, Interim Savings will execute and
deliver, or cause to be executed and delivered, in its name by its last acting
officers or by the corresponding officers of Illinois Guarantee (Interim Savings
hereby authorizing such officer so to act in its name), all such conveyances,
assignments, transfers, deeds and other instruments, and will take or cause to
be taken such further or other action as Illinois Guarantee or its successors or
assigns may deem necessary or desirable in order to carry out the vesting,
perfecting, confirming, assignment, devolution or other transfer of the
interests, property, privileges, powers, immunities, franchises and other rights
referred to in this Article I, or otherwise to carry out the intents and
purposes of this Agreement.
ARTICLE II
CONVERSION OF STOCK
-------------------
2.1 Conversion of Stock. The terms and conditions of the Merger, the
mode of carrying the same into effect, and the manner and basis of converting
the respective shares of common stock of the parties to this Agreement shall be
as follows:
2.1.1 Holding Company Common Stock. On the Effective Date, all shares of
Holding Company Common Stock held by Illinois Guarantee immediately prior to the
Effective Date shall be cancelled and shall no longer be deemed outstanding for
any purposes.
2.1.2 Illinois Guarantee Common Stock. On the Effective Date, each share
of Illinois Guarantee Common Stock issued and outstanding immediately prior to
the Effective Date (other than shares as to which the holders thereof have
properly exercised dissenters' rights of appraisal under Section 552.14 of the
Regulations for Federal Savings Associations (the "Appraisal Regulation") shall
automatically by operation of law and without any action on the part of the
holder thereof be converted into and shall become one share of Holding Company
Common Stock. On the Effective Date, each share of Illinois Guarantee Common
Stock issued and outstanding as to which the dissenters' rights of appraisal
shall have been elected and perfected shall not be converted into shares of
Holding Company Common Stock but shall thereafter represent only the right to
receive the fair or appraised value of such
A-2
shares in accordance with the Appraisal Regulation. If any such holder shall
have failed to perfect or shall have effectively withdrawn or otherwise lost
such appraisal rights, such shares of Illinois Guarantee Common Stock shall
thereupon be deemed to have been converted into and to have become shares of
Holding Company Common Stock as to the Effective Date.
2.1.3 Interim Savings Common Stock. Each share of common stock of Interim
Savings issued and outstanding immediately prior to the Effective Date shall, on
the Effective Date, automatically by operation of law and without any action on
the part of the holder thereof be converted into and shall become one share of
Illinois Guarantee Common Stock and shall not be further converted into shares
of Holding Company Common Stock, so that from and after the Effective Date, all
of the issued and outstanding shares of Illinois Guarantee Common Stock shall be
held by Holding Company.
2.1.4 Exchange of Illinois Guarantee Common Stock. From and after the
Effective Date, each holder of an outstanding certificate or certificates which,
prior thereto, represented shares of Illinois Guarantee Common Stock, shall,
upon surrender of the same to the designated agent of Illinois Guarantee
("Exchange Agent"), be entitled to receive, in exchange therefore, a certificate
or certificates representing the number of whole shares of Holding Company
Common Stock into which the shares theretofore represented by the certificate or
certificates so surrendered shall have been converted, as provided in the
foregoing provisions of this Article II. Until so surrendered, each such
outstanding certificate which, prior to the Effective Date, represented shares
of Illinois Guarantee Common Stock shall be deemed for all corporate purposes to
evidence the ownership of the number of whole shares of Holding Company Common
Stock (other than shares as to which the holders thereof have properly exercised
dissenter's rights of appraisal shall have been elected and perfected) into
which such shares of Illinois Guarantee Common Stock shall have been so
converted.
2.1.5 Full Satisfaction. All shares of Holding Company Common Stock into
which shares of Illinois Guarantee Common Stock shall have been converted
pursuant to this Article II shall be deemed to have been issued in full
satisfaction of all rights pertaining to such converted shares.
2.1.6 Sole Rights, Etc. On the Effective Date, the holders of certificates
formerly representing Illinois Guarantee Common Stock outstanding on the
Effective Date shall cease to have any rights with respect to the Illinois
Guarantee Common Stock, and their sole rights shall be with respect to the
Holding Company Common Stock into which their shares of Illinois Guarantee
Common Stock shall have been converted by the Merger or, in the case of shares
as to which the holders thereof have properly exercised dissenters' rights of
appraisal, the right to receive the fair or appraised value of such shares in
accordance with the Appraisal Regulation.
2.2. Continued Effectiveness of Stock Option Plan. On the Effective Date,
the Illinois Guarantee Savings Bank, FSB 1996 Stock Option and Incentive Plan
(the "Option Plan") shall automatically, by operation of law, be continued as
and become the stock option plan of Holding Company. On the Effective Date, each
unexercised option to purchase shares of Illinois Guarantee Common Stock under
the Option Plan outstanding at that time will be automatically converted into an
unexercised option, with identical price, terms and conditions, to purchase an
identical number of shares of Holding Company Common Stock in lieu of shares of
Illinois Guarantee Common Stock, and Holding Company shall assume all of
Illinois Guarantee's obligations with respect to the Option Plan. By approving
this Agreement, stockholders of Illinois Guarantee will be approving the
adoption by Holding Company of the Option Plan as the stock option plan of
Holding Company.
A-3
ARTICLE III
CONDITIONS TO THE OBLIGATIONS
OF ILLINOIS GUARANTEE,
HOLDING COMPANY AND INTERIM SAVINGS
-----------------------------------
3.1 Conditions. The obligations of Illinois Guarantee, Holding Company
and Interim Savings to effect the Merger and otherwise consummate the
transactions which are the subject matter hereof shall be subject to
satisfaction of the following conditions:
3.1.1 Stockholder Approvals. To the extent required by applicable law,
rules, and regulations, the holders of the outstanding shares of Illinois
Guarantee Common Stock shall, at a meeting of the stockholders of Illinois
Guarantee duly called, have approved this Agreement by the affirmative vote of
fifty percent of the outstanding shares of Illinois Guarantee Common Stock plus
one affirmative vote.
3.1.2 Registration. The shares of Holding Company Common Stock to be
issued to holders of Illinois Guarantee Common Stock pursuant to the Merger
shall, to the extent required under applicable law, have been duly registered
pursuant to Section 5 of the Securities Act of 1933, as amended, and Holding
Company shall have complied with all applicable state securities or "blue sky"
laws relating to the issuance of the Holding Company Common Stock.
3.1.3 Approvals, Consents. Any and all approvals from the OTS, the Federal
Deposit Insurance Corporation, the Securities and Exchange Commission and any
other governmental agency having jurisdiction necessary for the lawful
consummation of the Merger and the issuance and delivery of Holding Company
Common Stock as contemplated by this Agreement shall have been obtained.
Furthermore, any approvals from the OTS necessary, to the extent required by the
Federal Stock Charter or otherwise, to effect the amendment of the Federal Stock
Charter specified in this Article III shall have been obtained.
3.1.4 Tax Status. Illinois Guarantee shall have received either (i) a
ruling from the Internal Revenue Service or (ii) an opinion from its legal
counsel or independent auditors, to the effect that the Merger will be treated
as a non-taxable transaction under applicable provisions of the Internal Revenue
Code of 1986, as amended and that no gain or loss will be recognized by the
holders of Illinois Guarantee Common Stock upon the exchange of Illinois
Guarantee Common Stock held by them solely for Holding Company Common Stock.
3.1.5 Dissenter and Appraisal Rights. The holders of not more than ten
percent (10%) of the outstanding shares of Illinois Guarantee Common Stock shall
have elected to exercise dissenting shareholder rights under the Appraisal
Regulation unless waived by the parties hereto, to the extent such rights are
available.
ARTICLE IV
TERMINATION; EXPENSES
---------------------
4.1 Termination. This Agreement may be terminated at any time prior to
the Effective Date, at the election of any of the parties hereto if any one or
more of the conditions to the obligations of any of them hereunder shall not
have been satisfied and shall have become incapable of fulfillment and shall not
be waived. This Agreement may also be terminated at any time prior to the
Effective Date by the mutual consent of the respective Boards of Directors of
the parties.
4.2 No Further Obligation. In the event of the termination of this
Agreement pursuant to this Article IV, this Agreement shall be void and of no
further force or effect, and there shall be no further liability or obligation
of any nature by reason of this Agreement or the termination hereof on the part
of any of the parties hereto or their respective directors, officers, employees,
agents or stockholders.
A-4
4.3 Costs and Expenses. Illinois Guarantee shall pay all costs and
expenses incurred by it, Holding Company and Interim Savings in connection with
this Agreement and the transactions contemplated hereunder.
ARTICLE V
EFFECTIVE DATE OF MERGER
------------------------
Upon satisfaction or waiver (in accordance with the provisions of this
Agreement) of each of the conditions set forth in Article III, the parties
hereto shall execute and cause to be filed Articles of Combination, and such
certificates or further documents as shall be required by the OTS, with the
Secretary of the OTS and shall cause to be filed with such other federal or
state regulatory agencies all such certificates and other documents as may be
required in the opinion of counsel to Illinois Guarantee and Holding Company.
Upon approval by the OTS and endorsement of such Articles of Combination by the
Secretary of the OTS, the Merger and other transactions contemplated by this
Agreement shall become effective. The Effective Date for all purposes hereunder
shall be the date of such endorsement by the Secretary of the OTS.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 Waiver. Any of the terms or conditions of this Agreement which may
legally be waived may be waived at any time by any party hereto which is
entitled to the benefit thereof, or any of such terms or conditions may be
amended or modified in whole or in part at any time, to the extent authorized by
applicable law, by an agreement in writing, executed in the same manner as this
Agreement.
6.2 Amendment. Any of the terms or conditions of this Agreement may be
amended or modified in whole or in part at any time, to the extent permitted by
applicable law, rules, and regulations, by an amendment in writing, provided
that any such amendment or modification is not materially adverse to Illinois
Guarantee, Holding Company or their stockholders. In the event that any
governmental agency requests or requires that the transactions contemplated
herein be modified in any respect as a condition of providing a necessary
regulatory approval or favorable ruling, or that in the opinion of counsel to
Illinois Guarantee such modification is necessary to obtain such approval or
ruling, this Agreement may be modified, at any time before or after adoption
thereof by the stockholders of Illinois Guarantee, by an instrument in writing,
provided that the effect of such amendment would not be materially adverse to
Illinois Guarantee, Holding Company or their stockholders.
6.3 Counterparts. This Agreement may be executed by the parties hereto
in any number of separate counterparts, each of which shall be an original, but
such counterparts together shall constitute but one and the same instrument.
6.4 Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not be deemed to be part of this
Agreement.
6.5 Execution by Interim Savings. Illinois Guarantee and Holding Company
acknowledge that, as of the date hereof, the charter of Interim Savings has not
been issued by the OTS and therefore Interim Savings does not have the legal
capacity to execute this Agreement. Holding Company, as the organizer and sole
shareholder of Interim Savings, agrees to cause Interim Savings to execute this
Agreement promptly following the issuance of Interim Savings's charter by the
OTS. Illinois Guarantee and Holding Company agree to be bound by this Agreement
prior to and following such execution by Interim Savings.
A-5
6.6 Offices. A list of the locations of the offices of Illinois
Guarantee is attached hereto as Schedule A and is incorporated herein by
reference.
6.7 Directors. A list of the directors of Illinois Guarantee, their
residence addresses, and terms of office is attached hereto as Schedule B and is
incorporated herein by reference.
6.8 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Illinois, except insofar as the federal law of
the United States is deemed to preempt such law or otherwise apply.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
and Plan of Reorganization as of the date first above written.
ILLINOIS GUARANTEE SAVINGS BANK, FSB
By:___________________________________________
Douglas A. Pike
President
ILLINOIS GUARANTEE INTERIM SAVINGS BANK, FSB
(in formation)
By:___________________________________________
Douglas A. Pike
President
ILLINOIS COMMUNITY BANCORP, INC.
By:___________________________________________
Douglas A. Pike
President
A-6
SCHEDULE A
OFFICES OF ILLINOIS GUARANTEE
Main Office: Illinois Guarantee Savings Bank, FSB
210 E. Fayette Avenue
Effingham, Illinois 62401-3613
Telephone: (217) 347-7127
Origination Offices: Illinois Guarantee Savings Bank, FSB
A-7
SCHEDULE B
DIRECTORS OF ILLINOIS GUARANTEE
Name Residence Address
---- -----------------
Gerald E. Ludwig 1010 Parkview, P.O. Box 207, Effingham, IL 62401
Garrett M. Andes, II 1016 Wenthe Drive, Effingham, IL 62401
Ernest E. Garbe RR 1 Box 99, Dieterich, IL 62424
Milton Hinkle 12 N. Lakewood, Effingham, IL 62401
Frederick C. Schaefer 1 Country Est., Effingham, IL 62401
Michael F. Sehy 2402 S. Fourth, P.O. Box 544, Effingham, IL 62401
Douglas A. Pike 1003 Northwood, Effingham, IL 62401
A-8
EXHIBIT B
ARTICLES OF INCORPORATION
OF
ILLINOIS COMMUNITY BANCORP, INC.
ARTICLE I
NAME
The name of the corporation is Illinois Community Bancorp, Inc. (herein the
"Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's initial registered office in the State of
Illinois is 210 East Fayette Avenue, in the City of Effingham, County of
Effingham, State of Illinois. The name of the Corporation's initial registered
agent at such address is Douglas A. Pike.
ARTICLE III
POWERS
The purpose for which the Corporation is organized is to act as a savings
institution holding company and to transact all other lawful business for which
corporations may be incorporated. The Corporation shall have all the powers of a
corporation organized under the Illinois Business Corporation Act.
ARTICLE IV
TERM
The Corporation is to have perpetual existence .
ARTICLE V
INCORPORATOR
The name and address of the incorporator are as follows :
Douglas A. Pike
210 East Fayette Avenue
Effingham, Illinois 62401-3613
B-1
ARTICLE VI
INITIAL DIRECTORS
The number of directors constituting the initial board of directors of the
Corporation is seven (7), and the names and addresses of the persons who are to
serve as directors until their successors are elected and qualified.
Name Address
---- -------
Gerald E. Ludwig 1010 Parkview
P.O. Box 207
Effingham, IL 62401
Garret M. Andes, II 1016 Wenthe Drive
Effingham, IL 62401
Earnest E. Garbe RR 1, Box 99
Dietrich, IL 62424
Milton Hinkle 12 N. Lakewood
Effingham, IL 62401
Frederick C. Schaefer RR 5, Box 22A
Effingham, IL 62401
Michael F. Sehy 2402 South Fourth Street
Effingham, IL 62401
Douglas A. Pike 1003 Northwood
Effingham, IL 62401
ARTICLE VII
CAPITAL STOCK
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is 5,000,000 of which 4,000,000 are to be
shares of common stock, $.01 par value per share, and of which 1,000,000 are to
be shares of serial preferred stock, $.01 par value per share. The shares may be
issued by the Corporation from time to time as approved by the board of
directors of the Corporation without the approval of the stockholders except as
otherwise provided in this Article VII or the applicable rules of any securities
exchange on which a class of the Corporation's capital stock is listed or of any
interdealer securities system on which a class of the Corporation's capital
stock is admitted to trading. The consideration for the issuance of the shares
shall be paid to or received by the Corporation in full before their issuance
and shall not be less than the par value per share. The consideration for the
issuance of the shares shall be cash, labor or services actually performed for
the Corporation, other property (tangible or intangible), real property, leases
of real property or any combination of the foregoing. In the absence of actual
fraud in the transaction and subject to any other requirements of the Illinois
Business Corporation Act, the judgment of the board of directors as to the value
of such consideration shall be conclusive. Upon payment of such consideration,
such shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend or stock split, the part of the surplus of the Corporation which
is transferred to paid-in capital upon the issuance of shares as a stock
dividend or stock split shall be deemed to be the consideration for their
issuance. Without further report to the Illinois Secretary of State, the
Corporation proposes to issue up to 100,000
B-2
shares of Common Stock to Illinois Guarantee Savings Bank, FSB (the "Bank") for
net consideration after expense of $100,000 or for such other consideration in
excess of the par value of such 100,000 shares as the Office of Thrift
Supervision shall approve in connection with the Bank's reorganization into the
holding company form of ownership.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. Common Stock. Except as provided in these Articles or in the resolution
------------
or resolutions of the board of directors providing for the issuance of serial
preferred stock, the holders of the common stock shall exclusively possess all
voting power. Each holder of shares of common stock shall be entitled to one
vote for each share held by such holder, except as otherwise expressly set forth
in these Articles.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and sinking fund or retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock, and on any class or
series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only when and as
declared by the board of directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the common stock in any such event, the full preferential amounts to which
they are respectively entitled, the holders of the common stock and of any class
or series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of the Corporation, to receive the remaining assets
of the Corporation available for distribution, in cash or in kind.
Each share of common stock shall have the same relative powers, preferences
and rights as, and shall be identical in all respects with, all the other shares
of common stock of the Corporation, except as otherwise expressly set forth in
these Articles.
B. Serial Preferred Stock. Except as provided in these Articles, the board
----------------------
of directors of the Corporation is authorized, by resolution or resolutions from
time to time adopted, to provide for the issuance of serial preferred stock in
series and to fix and state the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series, and the qualifications, limitations or restrictions thereof, including,
but not l imited to determination of any of the following:
(1) the distinctive serial designation and the number of shares
constituting such series;
(2) the dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date or dates, the payment date or dates for
dividends, and the participating or other special rights, if any,
with respect to dividends;
(3) the voting powers, full or limited, if any, of the shares of such
series;
(4) whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions upon
which such shares may be redeemed;
(5) the amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;
(6) whether the shares of such series shall be entitled to the benefits
of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and, if so entitled, the amount of such
B-3
fund and the manner of its application, including the price or
prices at which such shares may be redeemed or purchased through
the application of such funds;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion
price or prices, or the rate or rates of exchange, and the
adjustments thereof, if any, at which such conversion or exchange
may be made, and any other terms and conditions of such conversion
or exchange;
(8) the subscription or purchase price and form of consideration for
which the shares of such series shall be issued; and
(9) whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series,
except as otherwise expressly set forth in these Articles.
ARTICLE VIII
PREEMPTIVE RIGHTS
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of any class or series or carrying
any right to purchase stock of any class or series; but any such unissued stock,
bonds, certificates or indebtedness, debentures or other securities convertible
into or exchangeable for stock or carrying any right to purchase stock may be
issued pursuant to resolution of the board of directors of the Corporation to
such persons, firms, corporations or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the board of
directors in the exercise of its sole discretion.
ARTICLE IX
REPURCHASE OF SHARES
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences of indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law.
B-4
ARTICLE X
MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING; QUORUM REQUIREMENT
A. Notwithstanding any other provision of these Articles or the bylaws of
the Corporation or any provision of the Illinois Business Corporation Act, no
action required to be taken or which may be taken at any annual or special
meeting of stockholders of the Corporation may be taken without a meeting, and
the power of stockholders to consent in writing, without a meeting, to the
taking of any action is specifically denied.
B. Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the president, the board of directors
of the Corporation, or by a committee of the board of directors which has been
duly designated by the board of directors and whose powers and authorities, as
provided in a resolution of the board of directors or in the bylaws of the
Corporation, include the power and authority to call such meetings, or by the
holders of not less than one-fifth of all the outstanding shares entitled to
vote on the matter for which the meeting is called, but such special meetings
may not be called by any other person or persons.
C. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
D. Meetings of stockholders may be held at such place as the bylaws may
provide.
E. Quorum. One-third of the outstanding shares of the Corporation entitled
------
to vote, represented in person or by proxy, shall constitute a quorum at a
meeting of stockholders. If less than one-third of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
ARTICLE XI
NOTICE FOR NOMINATIONS AND PROPOSALS
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of stockholders may be
made by the board of directors of the Corporation or by any stockholder of the
Corporation entitled to vote generally in the election of directors. In order
for a stockholder of the Corporation to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than thirty days nor more than sixty days prior to the date
of any such meeting; provided, however, that if less than forty days' notice of
the meeting is given to stockholders, such written notice shall be delivered or
mailed, as prescribed, to the Secretary of the Corporation not later than the
close of business on the tenth day following the day on which notice of the
meeting was mailed to stockholders. Each such notice given by a stockholder with
respect to nominations for the election of directors shall set forth (i) the
name, age, business address and, if known, residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment of each
such nominee, and (iii) the number of shares of stock of the Corporation which
are beneficially owned by each such nominee. In addition, the stockholder making
such nomination shall promptly provide any other information reasonably
requested by the Corporation.
B. Each such notice given by a stockholder to the Secretary with respect to
business proposals to be brought before a meeting shall set forth in writing as
to each matter: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
(ii) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number
B-5
of shares of the Corporation which are beneficially owned by the stockholder;
and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in these Articles to the contrary, no new business
shall be conducted at the meeting except in accordance with the procedures set
forth in this Article.
C. The Chairman of the annual or special meeting of stockholders may, if
the facts warrant, determine and declare to such meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if he
should so determine, he shall so declare to the meeting that the defective
nomination or proposal shall be disregarded and laid over for action at the next
succeeding special or annual meeting of the stockholders taking place thirty
days or more thereafter. This provision shall not require the holding of any
adjourned or special meeting of stockholders for the purpose of considering such
defective nomination or proposal.
ARTICLE XII
DIRECTORS
A. Number; Vacancies. The number of directors of the Corporation shall be
-----------------
such number, not less than six (6) nor more than fifteen (15) (exclusive of
directors, if any, to be elected by holders of preferred stock of the
Corporation, voting separately as a class), as shall be set forth from time to
time in the bylaws, provided that no action shall be taken to decrease or
increase the number of directors unless at least two-thirds of the directors
then in office shall concur in said action. Vacancies in the board of directors
of the Corporation, however caused, and newly created directorships shall be
filled by a vote of two-thirds of the directors then in office, whether or not a
quorum, and any director so chosen shall hold office for a term expiring at the
next meeting of stockholders at which directors are to be elected.
B. Classified Board. The board of directors of the Corporation shall be
----------------
divided into three classes of directors which shall be designated Class I, Class
II and Class III. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. Such classes shall
be as nearly equal in number as the then total number of directors constituting
the entire board of directors shall permit, with the terms of office of all
members of one class expiring each year. When the number of directors is
changed, the board of directors shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned; provided
that the directors in each class shall be as nearly equal in number as possible;
provided, further, that no decrease in the number of directors shall affect the
term of any director then in office. At the first annual meeting of
stockholders, directors of Class I shall be elected to hold office for a term
expiring at the third succeeding annual meeting thereafter. At the second annual
meeting of stockholders, directors of Class II shall be elected to hold office
for a term expiring at the third succeeding annual meeting thereafter. At the
third annual meeting of stockholders, directors of Class III shall be elected to
hold office for a term expiring at the third succeeding annual meeting
thereafter. Thereafter, at each succeeding annual meeting, directors of each
class whose terms are expiring shall be elected for three year terms.
Notwithstanding the foregoing, the director whose term shall expire at any
annual meeting shall continue to serve until such time as his successor shall
have been duly elected and shall have qualified unless his position on the board
of directors shall have been abolished by action taken to reduce the size of the
board of directors prior to said meeting.
Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the board of directors shall consist of said
directors so elected in addition to the number of directors fixed as provided in
this Article XII. Notwithstanding the foregoing, and except as otherwise may be
required by law or by the terms and provisions of the preferred stock of the
Corporation, whenever the holders of any one or more series of preferred stock
of the Corporation shall have the right, voting separately as a class, to elect
one or more directors of the Corporation, the terms of the director or directors
elected by such holders shall expire at the next succeeding annual meeting of
stockholders.
B-6
ARTICLE XIII
REMOVAL OF DIRECTORS
Notwithstanding any other provision of these Articles or the bylaws of the
Corporation, any director or the entire board of directors of the Corporation
may be removed, at any time, but only for cause and only by the affirmative vote
of the holders of at least 80% of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the stockholders called for
that purpose. Notwithstanding the foregoing, whenever the holders of any one or
more series of preferred stock of the Corporation shall have the right, voting
separately as a class, to elect one or more directors of the Corporation, the
preceding provisions of this Article XIII shall not apply with respect to the
director or directors elected by such holders of preferred stock.
ARTICLE XIV
ACQUISITIONS OF CAPITAL STOCK
A. Five-Year Prohibition. For a period of five years from the effective
---------------------
date of the completion of the conversion of Illinois Guarantee Savings Bank,
FSB, Effingham, Illinois (the "Bank"), from mutual to stock form (which entity
shall become a wholly owned subsidiary of the Corporation upon completion of the
Bank's reorganization into the holding company form of ownership), no person
shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of equity security of the Corporation,
unless such offer or acquisition shall have been approved in advance by a two-
thirds vote of the Continuing Directors, as defined in Article XV. In addition,
for a period of five years from the completion of the conversion of the Bank
from mutual to stock form, and notwithstanding any provision to the contrary in
these Articles or in the bylaws of the Corporation, where any person directly or
indirectly acquires beneficial ownership of more than 10% of any class of equity
security of the Corporation in violation of this Article XIV, the securities
beneficially owned in excess of 10% shall not be counted as shares entitled to
vote, shall not be voted by any person or counted as voting shares in connection
with any matter submitted to the stockholders for a vote, and shall not be
counted as outstanding for purposes of determining a quorum or the affirmative
vote necessary to approve any matter submitted to the stockholders for a vote.
B. Prohibition after Five Years. If, at any time after five years from
----------------------------
the effective date of the completion of the conversion of the Bank from mutual
to stock form, any person shall acquire the beneficial ownership of more than
10% of any class of equity security of the Corporation without the prior
approval by a two-thirds vote of the Continuing Directors, as defined in Article
XV, then the record holders of voting stock of the Corporation beneficially
owned by such acquiring person shall have only the voting rights set forth in
this paragraph B on any matter requiring the vote or consent of shareholders.
With respect to each vote in excess of 10% of the voting power of the
outstanding shares of voting stock of the Corporation which such record holders
would otherwise be entitled to cast without giving effect to this paragraph B,
the record holders in the aggregate shall be entitled to cast only one-hundredth
of a vote, and the aggregate voting power of such record holders, so limited for
all shares of voting stock of the Corporation beneficially owned by such
acquiring person, shall be allocated proportionately among such record holders.
For each such record holder, this allocation shall be accomplished by
multiplying the aggregate voting power, prior to imposing the limitations of
this paragraph B, of the outstanding shares of voting stock of the Corporation
beneficially owned by such record holder by a fraction whose numerator is the
number of votes equal to 10% of the shares of voting stock of the Corporation
and whose denominator is the total number of votes represented by the shares of
voting stock of the Corporation that are beneficially owned by such acquiring
person; any share held by such record holder in excess of the allocated amount
as determined in accordance with the previous clause shall be entitled to cast
one-hundredth of a vote. A person who is a record owner of shares of voting
stock of the Corporation that are beneficially owned simultaneously by more than
one person shall have, with respect to such shares, the right to cast the least
number of votes that such person would be entitled to cast under this paragraph
B by virtue of such shares being so beneficially owned by any of such acquiring
persons.
B-7
C. Definitions. The term "person" means an individual, a group acting
-----------
in concert, a corporation, a partnership, an association, a joint stock company,
a trust, an unincorporated organization or similar company, a syndicate or any
other group acting in concert formed for the purpose of acquiring, holding,
voting or disposing of securities of the Corporation. The term "acquire"
includes every type of acquisition, whether effected by purchase, exchange,
operation of law or otherwise. The term group "acting in concert" includes (a)
knowing participation in a joint activity or conscious parallel action towards a
common goal whether or not pursuant to an express agreement, and (b) a
combination or pooling of voting or other interest in the Corporation's
outstanding shares for a common purpose, pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. The term "beneficial ownership" shall have the meaning defined in
Rule 13d-3 of the General Rules and Regulations under the Securities and
Exchange Act of 1934, as amended, as in effect on the date of filing of these
Articles.
D. Exclusion for Employee Benefit Plans, Directors, Officers, Employees
--------------------------------------------------------------------
and Certain Proxies. The restrictions contained in this Article XIV shall not
- -------------------
apply to (i) any underwriter or member of an underwriting or selling group
involving a public sale or resale of securities of the Corporation or a
subsidiary thereof; provided, however, that upon completion of the sale or
resale of such securities, no such underwriter or member of such selling group
is a beneficial owner of more than 10% of any class of equity security of the
Corporation, (ii) any proxy granted to one or more Continuing Directors, as
defined in Article XV, by a stockholder of the Corporation or (iii) any employee
benefit plans of the Corporation or a subsidiary thereof. In addition, the
Continuing Directors of the Corporation, the officers and employees of the
Corporation and its subsidiaries, the directors of subsidiaries of the
Corporation, the employee benefit plans of the Corporation and its subsidiaries,
entities organized or established by the Corporation or any subsidiary thereof
pursuant to the terms of such plans and trustees and fiduciaries with respect to
such plans acting in such capacity shall not be deemed to be a group with
respect to their beneficial ownership of voting stock of the Corporation solely
by virtue of their being directors, officers or employees of the Corporation or
a subsidiary thereof or by virtue of the Continuing Directors of the
Corporation, the officers and employees of the Corporation and its subsidiaries
and the directors of subsidiaries of the Corporation being fiduciaries or
beneficiaries of an employee benefit plan of the Corporation or a subsidiary of
the Corporation. Notwithstanding the foregoing, no director, officer or employee
of the Corporation or any of its subsidiaries or group of any of them shall be
exempt from the provisions of this Article XIV should any such person or group
become a beneficial owner of more than 10% of any class of equity security of
the Corporation.
E. Determinations. A majority of the Continuing Directors, as defined
--------------
in Article XV, shall have the power to construe and apply the provisions of this
Article XIV and to make all determinations necessary or desirable to implement
such provisions, including but not limited to matters with respect to (a) the
number of shares beneficially owned by any person, (b) whether a person has an
agreement, arrangement or understanding with another as to the matters referred
to in the definition of beneficial ownership, (c) the application of any other
definition or operative provision of this Article XIV to the given facts or (d)
any other matter relating to the applicability or effect of this Article XIV.
Any constructions, applications, or determinations made by the Continuing
Directors pursuant to this Article XIV in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon the Corporation and its stockholders.
B-8
ARTICLE XV
APPROVAL OF CERTAIN BUSINESS COMBINATIONS
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
A. (1) Except as otherwise expressly provided in this Article XV, the
affirmative vote of the holders of (i) at least 80% of the outstanding
shares entitled to vote thereon (and, if any class or series of shares is
entitled to vote thereon separately, the affirmative vote of the holders of
at least 80% of the outstanding shares of each such class or series), and
(ii) at least a majority of the outstanding shares entitled to vote
thereon, not including shares deemed beneficially owned by a Related Person
(as hereinafter defined), shall be required in order to authorize any of
the following:
(a) any merger, consolidation or share exchange of the
Corporation with or into a Related Person (as hereinafter defined);
(b) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of
transactions) of all or any Substantial Part (as hereinafter
defined) of the assets of the Corporation (including without
limitation any voting securities of a subsidiary) or of a
subsidiary, to a Related Person;
(c) any merger, consolidation or share exchange of a
Related Person with or into the Corporation or a subsidiary of the
Corporation;
(d) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of
transactions) of all or any Substantial Part of the assets of a
Related Person to the Corporation or a subsidiary of the
Corporation;
(e) the issuance of any securities of the Corporation or a
subsidiary of the Corporation to a Related Person;
(f) the acquisition by the Corporation or a subsidiary of
the Corporation of any securities of a Related Person;
(g) any reclassification of the common stock of the
Corporation, or any recapitalization involving the common stock of
the Corporation; and
(h) any agreement, contract or other arrangement providing
for any of the transactions described in this Article XV.
(2) Such affirmative vote shall be required notwithstanding any
other provision of these Articles, any provision of law, or any agreement
with any regulatory agency or any securities exchange or interdealer
securities system which might otherwise permit a lesser vote or no vote.
(3) The term "Business Combination" as used in this Article XV shall
mean any transaction which is referred to in any one or more of
subparagraphs A(1)(a) through (h) above.
B. The provisions of paragraph A shall not be applicable to any particular
Business Combination, and such Business Combination shall require only such
affirmative vote as is required by any other provision of these Articles of
Incorporation, any provision of law, or any agreement with any regulatory agency
or any securities exchange or
B-9
interdealer securities system, if the Business Combination shall have been
approved by a two-thirds vote of the Continuing Directors (as hereinafter
defined); provided, however, that such approval shall only be effective if
obtained at a meeting at which a Continuing Director Quorum (as hereinafter
defined) is present.
C. For the purposes of this Article XV the following definitions apply:
(1) The term "Related Person" shall mean and include (a) any
individual, corporation, partnership or other person or entity which
together with its "affiliates" (as that term is defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of
1934, as amended), "beneficially owns" (as that term is defined in
Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended) in the aggregate 10% or more of the
outstanding shares of the common stock of the Corporation; and (b) any
"affiliate" (as that term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended) of any such individual, corporation,
partnership or other person or entity. Without limitation, any shares of
the common stock of the Corporation which any Related Person has the right
to acquire pursuant to any agreement, or upon exercise or conversion
rights, warrants or options, or otherwise, shall be deemed "beneficially
owned" by such Related Person.
(2) The term "Substantial Part" shall mean more than 25 percent of the
total assets of the Corporation, as of the end of its most recent fiscal
year ending prior to the time the determination is made.
(3) The term "Continuing Director" shall mean any member of the board of
directors of the Corporation who is unaffiliated with the Related Person
and was a member of the board prior to the time that the Related Person
became a Related Person, and any successor of a Continuing Director who is
unaffiliated with the Related Person and is recommended to succeed a
Continuing Director by a majority of Continuing Directors then on the
board.
(4) The term "Continuing Director Quorum" shall mean two-thirds of the
Continuing Directors capable of exercising the powers conferred on them.
D. In addition to Paragraphs (A) through (C) of this Article XV, the
provisions of the Illinois Business Corporation Act set forth in Article 7
Section 7.85 shall apply to the Corporation.
ARTICLE XVI
EVALUATION OF BUSINESS COMBINATIONS
In connection with the exercise of its judgment in determining what is in
the best interests of the Corporation and of the shareholders, when evaluating a
Business Combination (as defined in Article XV) or a tender or exchange offer,
the board of directors of the Corporation may, in addition to considering the
adequacy of the amount to be paid in connection with any such transaction,
consider all of the following factors and any other factors which it deems
relevant: (i) the social and economic effects of the transaction on the
Corporation and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities in which the
Corporation and its subsidiaries operate or are located; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity,
including, but not limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
acquisition and other likely financial obligations of the acquiring person or
entity and the possible effect of such conditions upon the Corporation and its
subsidiaries and the other elements of the communities in which the Corporation
and its subsidiaries operate or are located; and (iii) the competence,
experience, and integrity of the acquiring person or entity and its or their
management.
B-10
ARTICLE XVII
INDEMNIFICATION
A. Persons. The Corporation shall indemnify, to the extent provided in
-------
paragraphs B, D or F:
(1) any person who is or was a director, officer, employee, or agent of
the Corporation; and
(2) any person who serves or served at the Corporation's request as a
director, officer, employee, agent, partner or trustee of another
corporation, partnership, joint venture, trust or other enterprise.
B. Extent -- Derivative Suits. In case of a threatened, pending or completed
--------------------------
action or suit by or in the right of the Corporation against a person named in
paragraph A by reason of his holding a position named in paragraph A, the
Corporation shall indemnify him if he satisfies the standard in paragraph C, for
expenses (including attorneys' fees but excluding amounts paid in settlement)
actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit.
C. Standard -- Derivative Suits. In case of a threatened, pending or
----------------------------
completed action or suit by or in the right of the Corporation, a person named
in paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the subject of
the suit or action, and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, including, but not limited
to, the taking of any and all actions in connection with the Corporation's
response to any tender offer or any offer or proposal of another party to
engage in a Business Combination (as defined in Article XV) not approved by
the board of directors. However, he shall not be indemnified in respect of any
claim, issue or matter as to which he has been adjudged to have been liable to
the Corporation unless, and only to the extent that, the court in which the
suit was brought shall determine, upon application, that despite the
adjudication but in view of all the circumstances, he is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending or
-----------------------------
completed suit, action or proceeding (whether civil, criminal, administrative or
investigative), other than a suit by or in the right of the Corporation,
together hereafter referred to as a nonderivative suit, against a person named
in paragraph A by reason of his holding a position named in paragraph A, the
Corporation shall indemnify him if he satisfies the standard in paragraph E, for
amounts actually and reasonably incurred by him in connection with the
nonderivative suit, including, but not limited to (i) expenses (including
attorneys' fees), (ii) amounts paid in settlement, (iii) judgments, and (iv)
fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
-------------------------------
person named in paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the subject of
the nonderivative suit and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, including, but not limited
to, the taking of any and all actions in connection with the Corporation's
response to any tender offer or any offer or proposal of another party to
engage in a Business Combination (as defined in Article XV) not approved by
the board of directors and, with respect to any criminal action or proceeding,
he had no reasonable cause to believe his conduct was unlawful. The
termination of a nonderivative suit by judgment, orde r, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, in
---- ----------
itself, create a presumption that the person failed to satisfy the standard of
this subparagraph E(2).
B-11
F. Determination That Standard Has Been Met. A determination that the
----------------------------------------
standard of paragraph C or E has been satisfied may be made by a court, or,
except as stated in subparagraph C(2) (second sentence), the determination may
be made by:
(1) the board of directors by a majority vote of a quorum consisting
of directors of the Corporation who were not parties to the action, suit or
proceeding; or
(2) independent legal counsel (appointed by a quorum of the
disinterested directors of the Corporation) in a written opinion; or
(3) the stockholders of the Corporation.
G. Proration. Anyone making a determination under paragraph F may determine
---------
that a person has met the standard as to some matters but not as to others, and
may reasonably prorate amounts to be indemnified.
H. Advance Payment. The Corporation shall pay in advance any expenses
---------------
(including attorneys' fees) which may become subject to indemnification under
paragraphs A through G if:
(1) the board of directors authorizes the specific payment; and
(2) the person receiving the payment undertakes in writing to repay
the same if it is ultimately determined that he is not entitled to
indemnification by the Corporation under paragraphs A through G.
I. Nonexclusive. The indemnification and advance payment of expenses
------------
provided by paragraphs A through H shall not be exclusive of any other rights to
which a person may be entitled by law, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
J. Continuation. The indemnification and advancement of expenses provided
------------
by this Article XVII shall be deemed to be a contract between the Corporation
and the persons entitled to indemnification thereunder, and any repeal or
modification of this Article XVII shall not affect any rights or obligations
then existing with respect to any state of facts then or theretofore existing or
any action, suit or proceeding theretofore or thereafter brought based in whole
or in part upon any such state of facts. The indemnification and advance payment
provided by paragraphs A through H shall continue as to a person who has ceased
to hold a position named in paragraph A and shall inure to his heirs, executors
and administrators.
K. Insurance. The Corporation may purchase and maintain insurance on behalf
---------
of any person who holds or who has held any position named in paragraph A,
against any liability incurred by him in any such position, or arising out of
his status as such, whether or not the Corporation would have power to indemnify
him against such liability under paragraphs A through H.
L. Intention and Savings Clause. It is the intention of this Article XVII
----------------------------
to provide for indemnification to the fullest extent permitted by the Illinois
Business Corporation Act, and this Article XVII shall be interpreted
accordingly. If this Article XVII or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director, officer, employee, and agent of the
Corporation as to costs, charges, and expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement with respect to any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
including an action by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article XVII that shall not have
been invalidated and to the full extent permitted by applicable law. If the
Illinois Business Corporation Act is amended, or other Illinois law is enacted,
to permit further or additional indemnification of the persons defined in this
Article XVII.A, then the indemnification of such persons shall be to the fullest
extent permitted by the Illinois Business Corporation Act, as so amended, or
such other Illinois law.
B-12
ARTICLE XVIII
LIMITATIONS ON DIRECTORS' LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(iii) under Section 8.65 of the Illinois Business Corporation Act, or (iv) for
any transaction from which the director derived any improper personal benefit.
If the Illinois Business Corporation Act or other Illinois law is amended or
enacted after the date of filing of these Articles to further eliminate or limit
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Illinois Business Corporation Act, as so amended, or such other Illinois
law. Any repeal or modification of this paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
ARTICLE XIX
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the Corporation is expressly authorized to adopt,
repeal, alter, amend and rescind the bylaws of the Corporation by a vote of two-
thirds of the board of directors. Notwithstanding any other provision of these
Articles or the bylaws of the Corporation (and notwithstanding the fact that
some lesser percentage may be specified by law), the bylaws shall not be
adopted, repealed, altered, amended or rescinded by the stockholders of the
Corporation except by the vote of the holders of not less than 80% of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose (provided
that notice of such proposed adoption, repeal, alteration, amendment or
rescission is included in the notice of such meeting), or, as set forth above,
by the board of directors.
ARTICLE XX
AMENDMENT OF ARTICLES OF INCORPORATION
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in these Articles in the manner now or hereafter prescribed
by law, and all rights conferred on stockholders herein are granted subject to
this reservation. Notwithstanding the foregoing, the provisions set forth in
Articles X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII, XIX and this Article XX
may not be repealed, altered, amended or rescinded in any respect unless the
same is approved by the affirmative vote of the holders of not less than 80% of
the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as a single
class) cast at a meeting of the stockholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or rescission is
included in the notice of such meeting); except that such repeal, alteration,
amendment or rescission may be made by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors (considered for this purpose as a
single class) if the same is first approved by a majority of the Continuing
Directors, as defined in Article XV of these Articles.
B-13
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the Illinois Business Corporation
Act, do make these Articles, hereby declaring and certifying that this is my act
and deed and the facts herein stated are true, and accordingly have hereunto set
my hand this _____ day of _________, 1996.
-------------------------------------------------
Douglas A. Pike
Incorporator
Attest: ____________________________________________
B-14
EXHIBIT C
BYLAWS
OF
ILLINOIS COMMUNITY BANCORP, INC.
ARTICLE I
PRINCIPAL EXECUTIVE OFFICE
The principal executive office of Illinois Community Bancorp, Inc. (the
"Corporation") shall be at 210 East Fayette Avenue, Effingham, Illinois 62401-
3613. The Corporation may also have offices at such other places within or
without the State of Illinois as the board of directors shall from time to time
determine.
ARTICLE II
STOCKHOLDERS
SECTION 1. Place of Meetings. All annual and special meetings of
-----------------
stockholders shall be held at the principal executive office of the Corporation
or at such other place within or without the State of Illinois as the board of
directors may determine and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the
--------------
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the stockholders for any
----------------
purpose or purposes may be called at any time by the president, the board of
directors or by a committee of the board of directors in accordance with the
provisions of the Corporation's Articles of Incorporation or by the holders of
not less than one-fifth of all the outstanding shares entitled to vote on the
matter for which the meeting is called.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
-------------------
conducted in accordance with these Bylaws or as otherwise prescribed by the
board of directors. The chairman or the chief executive officer of the
Corporation shall preside at such meetings.
SECTION 5. Notice of Meeting. Written notice stating the place, day and
-----------------
hour of the meeting and the purpose or purposes for which the meeting is called
shall be mailed by the secretary or the officer performing his duties, not less
than ten days nor more than sixty days before the meeting or, in the case of a
merger, consolidation, share exchange, dissolution or sale, lease or exchange of
assets, not less than twenty nor more than sixty days before the date of the
meeting, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the stockholder at his address as it appears on the
stock transfer books or records of the Corporation as of the record date
prescribed in Section 6 of this Article II, with postage thereon prepaid. If a
stockholder is present at a meeting, unless the person at the meeting objects to
the holding of the meeting because proper notice was not given, or in writing
waives notice thereof before or after the meeting, notice of the meeting to such
stockholder shall be unnecessary. When any stockholders' meeting, either annual
or special, is adjourned for thirty days or more, notice of the adjourned
meeting shall be given as in the case of an original meeting. It shall not be
necessary to give any notice of the time and place of any meeting adjourned for
less than thirty days or of the business to be transacted at such adjourned
meeting, other than an announcement at the meeting at which such adjournment is
taken.
C-1
SECTION 6. Fixing of Record Date. For the purpose of determining
---------------------
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of stockholders. Such date in any case shall be
not more than sixty days, and in the case of a meeting of stockholders not less
than ten days, or in the case of a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of assets not less than twenty days,
prior to the date on which the particular action requiring such determination of
stockholders is to be taken. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as provided in this section,
such determination shall apply to any adjournment thereof.
SECTION 7. Voting Lists. The officer or agent having charge of the stock
------------
transfer books for shares of the Corporation shall make, within twenty days
after the record date for a meeting of stockholders or ten days before each
meeting of stockholders, whichever is earlier, a complete list of the
stockholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order with the address of and the number of shares held
by each. Such list, for a period of ten days before such meeting, shall be kept
on file at the registered office of the Corporation, and shall be subject to
inspection by any stockholder, and to copying at the stockholder's expense, at
any time during usual business hours. Such list shall also be produced and kept
open at the time and place of the meeting and shall be subject to the inspection
of any stockholder during the whole time of the meeting. The original stock
ledger or transfer books, or a duplicate thereof kept in this state, shall be
prima facie evidence as to who are the stockholders entitled to examine such
ledger or transfer books or to vote at any meeting of stockholders.
SECTION 8. Proxies. At all meetings of stockholders, a stockholder may
-------
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after eleven months from the date of its execution unless a future date is
provided in the proxy.
SECTION 9. Voting. Subject to the provisions of the Corporation's
------
Articles of Incorporation, at each election for directors every stockholder
entitled to vote at such election shall be entitled to one vote for each share
of stock held. Unless otherwise provided by the Articles of Incorporation, by
statute or by these Bylaws, a majority of those votes cast by stockholders at a
lawful meeting and entitled to vote on a matter shall be the act of the
stockholders.
SECTION 10. Voting of Shares in the Name of Two or More Persons. When
---------------------------------------------------
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
stockholders of the Corporation, any one or more of such stockholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose name shares of stock stand, the vote or votes to
which these persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
SECTION 11. Voting of Shares by Certain Holders. Shares standing in the
-----------------------------------
name of another corporation may be voted by any officer, agent, proxy, or other
legal representative authorized to vote such shares under the law of
incorporation of such corporation. Shares held by an administrator, executor,
guardian or conservator may be voted by him, either in person or by proxy,
without a transfer of such shares into his name. Shares standing in the name of
a trustee may be voted by him, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him without a transfer of such shares
into his name. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
is contained in an appropriate order of the court or other public authority by
which such receiver was appointed.
C-2
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
SECTION 12. Inspectors of Election. In advance of any meeting of
----------------------
stockholders, the chairman of the board or the board of directors may, or upon
the request of any shareholder shall, appoint any persons, other than nominees
for office, as inspectors of election to act at such meeting or any adjournment
thereof. The number of inspectors shall be either one or three. If the board
of directors so appoints either one or three inspectors, that appointment shall
not be altered at the meeting. If inspectors of election are not so appointed,
the chairman of the board may make such appointment at the meeting. In case any
person appointed as inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment in advance of the meeting or at the meeting
by the chairman of the board or the president.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents and reporting the results; and such acts as may
be proper to conduct the election or vote with fairness to all stockholders.
Each report of an inspector shall be in writing and signed by him or her or by a
majority of them if there be more than one inspector acting at such meeting.
SECTION 13. Nominating Committee. The board of directors or a committee
--------------------
appointed by the board of directors shall act as a nominating committee for
selecting the management nominees for election as directors. Except in the case
of a nominee substituted as a result of the death or other incapacity of a
management nominee, the nominating committee shall deliver written nominations
to the secretary at least twenty days prior to the date of the annual meeting.
Provided such committee makes such nominations, no nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by stockholders are made in writing and
delivered to the secretary of the Corporation in accordance with the provisions
of the Corporation's Articles of Incorporation.
SECTION 14. New Business. Any new business to be taken up at the annual
------------
meeting shall be stated in writing and filed with the secretary of the
Corporation in accordance with the provisions of the Corporation's Articles of
Incorporation. This provision shall not prevent the consideration and approval
or disapproval at the annual meeting of reports of officers, directors and
committees, but in connection with such reports no new business shall be acted
upon at such annual meeting unless stated and filed as provided in the
Corporation's Articles of Incorporation.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
--------------
shall be under the direction of its board of directors. The chairman shall
preside at all meetings of the board of directors.
SECTION 2. Number, Term and Election. The board of directors shall
-------------------------
consist of seven (7) members and shall be divided into three classes as nearly
equal in number as possible. The members of each class shall be elected for a
term of three years and until their successors are elected or qualified. The
board of directors shall be classified in accordance with the provisions of the
Corporation's Articles of Incorporation.
C-3
SECTION 3. Regular Meetings. A regular meeting of the board of directors
----------------
shall be held at such time and place as shall be determined by resolution of the
board of directors without other notice than such resolution.
SECTION 4. Special Meetings. Special meetings of the board of directors
----------------
may be called by or at the request of the chairman, the chief executive officer
or one-third of the directors. The person calling the special meetings of the
board of directors may fix any place as the place for holding any special
meeting of the board of directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.
SECTION 5. Notice. Written notice of any special meeting shall be given
------
to each director at least two days previous thereto delivered personally or by
telegram or at least seven days previous thereto delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid if mailed or when delivered to the telegraph
company if sent by telegram. Any director may waive notice of any meeting by a
writing filed with the secretary. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the board of
directors need be specified in the notice or waiver of notice of such meeting.
SECTION 6. Quorum. A majority of the number of directors fixed by
------
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 5 of this Article III.
SECTION 7. Manner of Acting. The act of the majority of the directors
----------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by these Bylaws, the
Articles of Incorporation, or the Illinois Business Corporation Act.
SECTION 8. Action Without a Meeting. Any action required or permitted
------------------------
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
SECTION 9. Resignation. Any director may resign at any time by sending a
-----------
written notice of such resignation to the board of directors, its chairman, or
to the president or secretary of the Corporation. Unless a future date is
specified therein, such resignation shall take effect upon receipt thereof.
SECTION 10. Vacancies. Any vacancy occurring in the board of directors
---------
shall be filled in accordance with the provisions of the Corporation's Articles
of Incorporation. Any directorship to be filled by reason of an increase in the
number of directors may be filled by the affirmative vote of two-thirds of the
directors then in office or by election at an annual meeting or at a special
meeting of the stockholders held for that purpose. The term of such director
shall be in accordance with the provisions of the Corporation's Articles of
Incorporation.
SECTION 11. Removal of Directors. Any director or the entire board of
--------------------
directors may be removed only in accordance with the provisions of the
Corporation's Articles of Incorporation.
SECTION 12. Compensation. Directors, as such, may receive compensation
------------
for service on the board of directors. Members of either standing or special
committees may be allowed such compensation as the board of directors may
determine.
C-4
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, as they may determine to be necessary
or appropriate for the conduct of the business of the Corporation, and may
prescribe the duties, constitution and procedures thereof. Each committee shall
consist of two or more directors of the Corporation appointed by a majority of
the whole board. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
The board shall have power at any time to change the members of, to fill
vacancies in, and to discharge any committee of the board. Any member of any
such committee may resign at any time by giving notice to the Corporation;
provided, however, that notice to the board, the chairman of the board, the
chief executive officer, the chairman of such committee, or the secretary shall
be deemed to constitute notice to the Corporation. Such resignation shall take
effect upon receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed
at any time, either with or without cause, by the affirmative vote of a majority
of the authorized number of directors at any meeting of the board called for
that purpose.
ARTICLE V
OFFICERS
SECTION 1. Positions. The officers of the Corporation shall be a
---------
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
designate one or more vice presidents as executive vice president or senior vice
president. The board of directors may also elect or authorize the appointment of
such other officers as the business of the Corporation may require. The officers
shall have such authority and perform such duties as the board of directors may
from time to time authorize or determine. In the absence of action by the board
of directors, the officers shall have such powers and duties as generally
pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the Corporation
---------------------------
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of the stockholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as possible. Each officer shall hold office until his successor
shall have been duly elected and qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Election
or appointment of an officer, employee or agent shall not of itself create
contract rights. The board of directors may authorize the Corporation to enter
into an employment contract with any officer in accordance with state law; but
no such contract shall impair the right of the board of directors to remove any
officer at any time in accordance with Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by vote of two-thirds of
-------
board of directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be fixed
------------
from time to time by the board of directors, and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the Corporation.
C-5
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. To the extent permitted by applicable law, and
---------
except as otherwise prescribed by the Corporation's Articles of Incorporation or
these Bylaws with respect to certificates for shares, the board of directors or
the executive committee may authorize any officer, employee, or agent of the
Corporation to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation. Such authority may be general or
confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
-----
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for
-------------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees or
agents of the Corporation in such manner, including in facsimile form, as shall
from time to time be determined by resolution of the board of directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the Corporation in any of
its duly authorized depositories as the board of directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. The shares of the Corporation shall
-----------------------
be represented by certificates signed by the chairman of the board of directors
or the president or a vice president and by the treasurer or an assistant
treasurer or the secretary or an assistant secretary of the Corporation, and may
be sealed with the seal of the Corporation or a facsimile thereof. Any or all of
the signatures upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee of the Corporation. If any officer who has
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before the certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
date of its issue.
SECTION 2. Form of Share Certificates. All certificates representing
--------------------------
shares issued by the Corporation shall set forth upon the face or back that the
Corporation will furnish to any stockholder upon request and without charge a
full statement of the designations, preferences, qualifications, limitations,
restrictions and special or relative rights of the shares of each class
authorized to be issued, the variations in the relative rights and preferences
between the shares of each series of any preferred or special class so far as
the same have been fixed and determined, and the authority of the board of
directors to fix and determine the relative rights and preferences of subsequent
series.
Each certificate representing shares shall state upon the face thereof:
that the Corporation is organized under the laws of the State of Illinois; the
name of the person to whom issued; the number and class of shares, the
designation of the series, if any, which such certificate represents; and the
par value of each share represented by such certificate, or a statement that the
shares are without par value. Other matters in regard to the form of the
certificates shall be determined by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued for any
------------------
share until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the
--------------------------
issuance of shares shall be paid in accordance with the provisions of the
Corporation's Articles of Incorporation.
C-6
SECTION 5. Transfer of Shares. Transfer of shares of capital stock of the
------------------
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Corporation. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Corporation shall be deemed by the Corporation
to be the owner thereof for all purposes.
SECTION 6. Lost Certificates. The board of directors may direct a new
-----------------
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 30th of June of each
year. The Corporation shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the board of directors.
ARTICLE IX
DIVIDENDS
Dividends upon the stock of the Corporation, subject to the provisions of
the Articles of Incorporation, if any, may be declared by the board of directors
at any regular or special meeting, pursuant to law. Dividends may be paid in
cash, in property or in the Corporation's own stock.
ARTICLE X
CORPORATION SEAL
The corporate seal of the Corporation shall be in such form as the board of
directors shall prescribe.
ARTICLE XI
AMENDMENTS
In accordance with the Corporation's Articles of Incorporation, these
Bylaws may be repealed, altered, amended or rescinded by the stockholders of the
Corporation only by vote of not less than 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, the board of directors may repeal, alter, amend or
rescind these Bylaws by vote of two-thirds of the board of directors at a legal
meeting held in accordance with the provisions of these Bylaws.
C-7
EXHIBIT D
DISSENTER AND APPRAISAL RIGHTS
Dissenter and appraisal rights in a federal stock savings and loan
association are governed by Section 552.14 of Title 12 of the Code of Federal
Regulations, the text of which is reproduced below:
(S)552.14 DISSENTER AND APPRAISAL RIGHTS.
(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with (S)552.13 of this part shall have the
right to demand payment of the fair or appraised value of his stock: Provided,
That such stockholder has not voted in favor of the combination and complies
with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to (S)552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.
(c) Procedure -- (1) Notice. Each constituent Federal stock association
shall notify all stockholders entitled to rights under this section, not less
than twenty days prior to the meeting at which the combination agreement is to
be submitted for stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a copy of this
section. Such written notice shall be mailed to stockholders of record and may
be part of management's proxy solicitation for such meeting.
(2) Demand for appraisal and payment. Each stockholder electing to make
a demand under this section shall deliver to the Federal stock association,
before voting on the combination, a writing identifying himself or herself and
stating his or her intention thereby to demand appraisal of and payment for his
or her shares. Such demand must be in addition to and separate from any proxy or
vote against the combination by the stockholder.
(3) Notification of effective date and written offer. Within ten days
after the effective date of the combination, the resulting association shall:
(i) Give written notice by mail to stockholders of constituent Federal
stock associations who have complied with the provisions of paragraph (c)(2) of
this section and have not voted in favor of the combination, of the effective
date of the combination;
(ii) Make a written offer to each stockholder to pay for dissenting
shares at a specified price deemed by the resulting association to be the fair
value thereof; and
(iii) Inform them that, within sixty days of such date, the respective
requirements of paragraphs (c)(5) and (c)(6) of this section (set out in the
notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and statement of
income of the association the shares of which the dissenting stockholder holds,
for a fiscal year ending not more than sixteen months before the date of notice
and offer, together with the latest available interim financial statements.
D-1
(4) Acceptance of offer. If within sixty days of the effective date of
the combination the fair value is agreed upon between the resulting association
and any stockholder who has complied with the provisions of paragraph (c)(2) of
this section, payment therefor shall be made within ninety days of the effective
date of the combination.
(5) Petition to be filed if offer not accepted. If within sixty days of
the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of the
stock of all such stockholders. A stockholder entitled to file a petition under
this section who fails to file such petition within sixty days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
(6) Stock certificates to be noted. Within sixty days of the effective
date of the combination, each stockholder demanding appraisal and payment under
this section shall submit to the transfer agent his certificates of stock for
notation thereon that an appraisal and payment have been demanded with respect
to such stock and that appraisal proceedings are pending. Any stockholder who
fails to submit his stock certificates for such notation shall no longer be
entitled to appraisal rights under this section and shall be deemed to have
accepted the terms offered under the combination.
(7) Withdrawal of demand. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.
(8) Valuation and payment. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value arising
from the accomplishment or expectation of the combination. Appropriate staff of
the Office shall review and provide an opinion on appraisals prepared by
independent persons as to the suitability of the appraisal methodology and the
adequacy of the analysis and supportive data. The Director after consideration
of the appraisal report and the advice of the appropriate staff shall, if he or
she concurs in the valuation of the shares, direct payment by the resulting
association of the appraised fair market value of the shares, upon surrender of
the certificates representing such stock. Payment shall be made, together with
interest from the effective date of the combination, at a rate deemed equitable
by the Director.
(9) Costs and expenses. The costs and expenses of any proceeding under
this section may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this determination
the Director shall consider whether any party has acted arbitrarily,
vexatiously, or not in good faith in respect to the rights provided by this
section.
(10) Voting and distribution. Any stockholder who has demanded appraisal
rights as provided in paragraph (c)(2) of this section shall thereafter neither
be entitled to vote such stock for any purpose nor be entitled to the payment of
dividends or other distributions on the stock (except dividends or other
distribution payable to, or a vote to be taken by stockholders of record at a
date which is on or prior to, the effective date of the combination): Provided,
That if any stockholder becomes unentitled to appraisal and payment of appraised
value with respect to such stock and accepts or is deemed to have accepted the
terms offered upon the combination, such stockholder shall thereupon be entitled
to vote and receive the distributions described above.
(11) Status. Shares of the resulting association into which shares of
the stockholders demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
D-2
EXHIBIT E
ILLINOIS COMMUNITY BANCORP, INC.
1996 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of this Plan is to advance the interests of the Company through
providing select key Employees and Directors of the Company, and its Affiliates
with the opportunity to acquire Shares. By encouraging such stock ownership,
the Company seeks to attract, retain and motivate the best available personnel
for positions of substantial responsibility and to provide additional incentive
to Directors and key Employees of the Company or any Affiliate to promote the
success of the business.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered into in accordance
with Paragraph 5(c).
(c) "Awards" shall mean, collectively, Options and SARs, unless the
context clearly indicates a different meaning.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with Paragraph 5(a) hereof.
(g) "Common Stock" shall mean the common stock of the Company.
(h) "Company" shall mean Illinois Community Bancorp, Inc. (and any
successor in interest).
(i) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the case
of sick leave, military leave or any other leave of absence approved by the
Company or in the case of transfers between payroll locations of the Company or
an Affiliate or a successor, or in the case of a Director's performance of
services in an emeritus or advisory capacity.
(j) "Director" shall mean any member of the Board (excluding Directors
Emeritus), and any member of the board of directors of any Affiliate that the
Board has by resolution designated as being eligible for participation in this
Plan.
(k) "Disability" means a physical or mental condition of a Participant
resulting from bodily injury, disease, or mental disorder which renders him
incapable of continuing any gainful occupation and which condition constitutes
total disability under the Federal Social Security Acts.
(l) "Disinterested Person" shall mean any member of the Board who, at the
time discretion under the Plan is exercised, is a "disinterested person" within
the meaning of Rule 16b-3.
E-1
(m) "Effective Date" shall mean the date specified in Paragraph 14 hereof.
(n) "Employee" shall mean any person employed by the Company or an
Affiliate.
(o) "Exercise Price" shall mean the price per Optioned Share at which an
Option or SAR may be exercised.
(p) "ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan, and which is intended to be and is
identified as an "incentive stock option" within the meaning of Section 422 of
the Code.
(q) "Market Value" shall mean the fair market value of the Common Stock,
as determined under Paragraph 7(b) hereof.
(r) "Non-ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan but which is not intended to be and is not
identified as an ISO.
(s) "OTS" means the Office of Thrift Supervision of the United States
Department of the Treasury.
(t) "Option" means an ISO and/or a Non-ISO.
(u) "Optioned Shares" shall mean Shares subject to an Award granted
pursuant to this Plan.
(v) "Participant" shall mean any person who receives an Award pursuant to
the Plan.
(w) "Plan" shall mean this Illinois Community Bancorp, Inc. 1996 Stock
Option and Incentive Plan.
(x) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(y) "Share" shall mean one share of Common Stock.
(z) "SAR" (or "Stock Appreciation Right") means a right to receive the
appreciation in value, or a portion of the appreciation in value, of a specified
number of shares of Common Stock.
(aa) "Year of Service" shall mean a full twelve-month period, measured from
the date of an Award and each annual anniversary of that date, during which a
Participant has not terminated Continuous Service for any reason.
3. TERM OF THE PLAN AND AWARDS.
(a) Term of the Plan. The Plan shall continue in effect for a term of ten
years from the Effective Date, unless sooner terminated pursuant to Paragraph 16
hereof. No Award shall be granted under the Plan after ten years from the
Effective Date.
(b) Term of Awards. The term of each Award granted under the Plan shall be
established by the Committee, but shall not exceed 10 years; provided, however,
that in the case of an Employee who owns Shares representing more than 10% of
the outstanding Common Stock at the time an ISO is granted, the term of such ISO
shall not exceed five years. This subsection 3(b) shall not be construed to
cause the acceleration of the vesting of Awards.
E-2
4. SHARES SUBJECT TO THE PLAN.
(a) General Rule. Except as otherwise required by the provisions of
Paragraph 11 hereof, the aggregate number of Shares deliverable pursuant to
Awards shall not exceed 50,255 Shares. Such Shares may either be authorized but
unissued Shares, Shares held in treasury, or Shares held in a grantor trust
created by the Company. If any Awards should expire, become unexercisable, or
be forfeited for any reason without having been exercised, the Optioned Shares
shall, unless the Plan shall have been terminated, be available for the grant of
additional Awards under the Plan.
(b) Special Rule for SARs. The number of Shares with respect to which an
SAR is granted, but not the number of Shares which the Company delivers or could
deliver to an Employee or individual upon exercise of an SAR, shall be charged
against the aggregate number of Shares remaining available under the Plan;
provided, however, that in the case of an SAR granted in conjunction with an
Option, under circumstances in which the exercise of the SAR results in
termination of the Option and vice versa, only the number of Shares subject to
the Option shall be charged against the aggregate number of Shares remaining
available under the Plan. The Shares involved in an Option as to which option
rights have terminated by reason of the exercise of a related SAR, as provided
in Paragraph 10 hereof, shall not be available for the grant of further Options
under the Plan.
5. ADMINISTRATION OF THE PLAN.
(a) Composition of the Committee. The Plan shall be administered by the
Committee, which shall consist of not less than three (3) members of the Board
who are Disinterested Persons. Members of the Committee shall serve at the
pleasure of the Board. In the absence at any time of a duly appointed
Committee, the Plan shall be administered by those members of the Board who are
Disinterested Persons.
(b) Powers of the Committee. Except as limited by the express provisions
of the Plan or by resolutions adopted by the Board, the Committee shall have
sole and complete authority and discretion, subject to applicable OTS
regulations (i) to select Participants and grant Awards, (ii) to determine the
form and content of Awards to be issued in the form of Agreements under the
Plan, (iii) to interpret the Plan, (iv) to prescribe, amend and rescind rules
and regulations relating to the Plan, and (v) to make other determinations
necessary or advisable for the administration of the Plan. The Committee shall
have and may exercise such other power and authority as may be delegated to it
by the Board from time to time. A majority of the entire Committee shall
constitute a quorum and the action of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by a majority
of the Committee without a meeting, shall be deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee. Each such
Agreement shall constitute a binding contract between the Company and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The
terms of each such Agreement shall be in accordance with the Plan, but each
Agreement may include such additional provisions and restrictions determined by
the Committee, in its discretion, provided that such additional provisions and
restrictions are not inconsistent with the terms of the Plan. In particular,
the Committee shall set forth in each Agreement (i) the Exercise Price of an
Option or SAR, (ii) the number of Shares subject to, and the expiration date of,
the Award, (iii) the manner, time and rate (cumulative or otherwise) of exercise
or vesting of such Award, and (iv) the restrictions, if any, to be placed upon
such Award, or upon Shares which may be issued upon exercise of such Award.
The Chairman of the Committee and such other Directors and officers as
shall be designated by the Committee are hereby authorized to execute Agreements
on behalf of the Company and to cause them to be delivered to the recipients of
Awards.
(d) Effect of the Committee's Decisions. All decisions, determinations
and interpretations of the Committee shall be final and conclusive on all
persons affected thereby.
E-3
(e) Indemnification. In addition to such other rights of indemnification
as they may have, the members of the Committee shall be indemnified by the
Company, in connection with any claim, action, suit or proceeding relating to
any action taken or failure to act under or in connection with the Plan or any
Award, granted hereunder to the full extent provided for under the Company's
governing instruments with respect to the indemnification of Directors.
6. GRANT OF OPTIONS.
(a) General Rule. Only Employees shall be eligible to receive
discretionary Awards. In selecting those Employees to whom Awards will be
granted and the number of shares covered by such Awards, the Committee shall
consider the position, duties and responsibilities of the eligible Employees,
the value of their services to the Company and its Affiliates, and any other
factors the Committee may deem relevant. Notwithstanding the foregoing, (i) the
Committee shall automatically make the Awards specified in Sections 6(b) and 9
hereof, and (ii) no Employee shall receive Options to purchase more than 25% of
the Shares reserved under Paragraph 4(a), and no non-Employee Director shall
receive Options on the Effective Date to purchase more than 5% of the Shares
reserved under Paragraph 4(a), with all non-Employee Directors as a group
receiving Options on the Effective Date to purchase no more than 30% of the
Shares reserved under Paragraph 4(a).
(b) Automatic Grants to Employees. On the Effective Date, each of the
following Employees shall receive an Option (in the form of an ISO, to the
extent permissible under the Code) to purchase the number of Shares listed
below, at an Exercise Price per Share equal to the Market Value of a Share on
the Effective Date; provided that such grant shall not be made to an Employee
whose Continuous Service terminates on or before the Effective Date:
Percentage of Shares
Participant Reserved under Paragraph 4(a)
----------- -----------------------------
Doug Pike 24%
Ron Schettler 18%
John Collier 4%
Sandy Goeckner 3%
Cindy Hinterscher 3%
Colette Meyer 3%
Karol Kowalczyk 3%
Wanda Tabbert 3%
Lisa Canull 2%
Tama Anderson 2%
Linda Jansen 2%
With respect to each of the above-named Participants, the Option granted to
the Participant hereunder (i) shall vest in accordance with the general rule set
forth in Paragraph 8(a) of the Plan, (ii) shall have a term of ten years from
the Effective Date, and (iii) shall be subject to the general rule set forth in
Paragraph 8(c) with respect to the effect of a Participant's termination of
Continuous Service on the Participant's right to exercise his Options.
(c) Special Rules for ISOs. The aggregate Market Value, as of the date the
Option is granted, of the Shares with respect to which ISOs are exercisable for
the first time by an Employee during any calendar year (under all incentive
stock option plans, as defined in Section 422 of the Code, of the Company or any
present or future Affiliate of the Company) shall not exceed $100,000.
Notwithstanding the foregoing, the Committee may grant Options in excess of the
foregoing limitations, in which case such Options granted in excess of such
limitation shall be Options which are Non-ISOs.
E-4
7. EXERCISE PRICE FOR OPTIONS.
(a) Limits on Committee Discretion. The Exercise Price as to any
particular Option shall not be less than 100% of the Market Value of the
Optioned Shares on the date of grant. In the case of an Employee who owns
Shares representing more than 10% of the Company's outstanding Shares of Common
Stock at the time an ISO is granted, the Exercise Price shall not be less than
110% of the Market Value of the Optioned Shares at the time the ISO is granted.
(b) Standards for Determining Exercise Price. If the Common Stock is
listed on a national securities exchange (including the NASDAQ National Market
System) on the date in question, then the Market Value per Share shall be the
average of the highest and lowest selling price on such exchange on such date,
or if there were no sales on such date, then the Exercise Price shall be the
mean between the bid and asked price on such date. If the Common Stock is
traded otherwise than on a national securities exchange on the date in question,
then the Market Value per Share shall be the mean between the bid and asked
price on such date, or, if there is no bid and asked price on such date, then on
the next prior business day on which there was a bid and asked price. If no
such bid and asked price is available, then the Market Value per Share shall be
its fair market value as determined by the Committee, in its sole and absolute
discretion.
8. EXERCISE OF OPTIONS.
(a) Generally. Each Option shall become exercisable with respect to
twenty percent (20%) of the Optioned Shares upon the Participant's completion of
each of five Years of Service, provided that an Option shall become fully (100%)
exercisable immediately upon termination of a Participant's Continuous Service
due to the Participant's Disability or death. An Option may not be exercised for
a fractional Share.
(b) Procedure for Exercise. A Participant may exercise Options, subject
to provisions relative to its termination and limitations on its exercise, only
by (1) written notice of intent to exercise the Option with respect to a
specified number of Shares, and (2) payment to the Company (contemporaneously
with delivery of such notice) in cash, in Common Stock, or a combination of cash
and Common Stock, of the amount of the Exercise Price for the number of Shares
with respect to which the Option is then being exercised. Each such notice (and
payment where required) shall be delivered, or mailed by prepaid registered or
certified mail, addressed to the Treasurer of the Company at its executive
offices. Common Stock utilized in full or partial payment of the Exercise Price
for Options shall be valued at its Market Value at the date of exercise, and may
consist of Shares subject to the Option being exercised.
(c) Period of Exercisability. Except to the extent otherwise provided in
the terms of an Agreement, an Option may be exercised by a Participant only
while he is an Employee and has maintained Continuous Service from the date of
the grant of the Option, or within three months after termination of such
Continuous Service (but not later than the date on which the Option would
otherwise expire), except if the Employee's Continuous Service terminates by
reason of -
(1) "Just Cause" which for purposes hereof shall have the meaning set
forth in any unexpired employment or severance agreement between the
Participant and the Company (and, in the absence of any such agreement,
shall mean termination because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order), then the Participant's
rights to exercise such Option shall expire on the date of such
termination;
(2) death, then to the extent that the Participant would have been
entitled to exercise the Option immediately prior to his death, such Option
of the deceased Participant may be exercised within two years from the date
of his death (but not later than the date on which the Option would
otherwise expire) by the
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personal representatives of his estate or person or persons to whom his
rights under such Option shall have passed by will or by laws of descent
and distribution;
(3) Disability, then to the extent that the Participant would have been
entitled to exercise the Option immediately prior to his or her Disability,
such Option may be exercised within one year from the date of termination
of employment due to Disability, but not later than the date on which the
Option would otherwise expire.
Notwithstanding the provisions of any Option which provide for its exercise
in installments or based on the Participant's future Continuous Service, such
Option shall become immediately and fully exercisable upon the Participant's
death or Disability.
(d) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
9. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Automatic Grants. Notwithstanding any other provisions of this Plan,
each Director who is not an Employee and has more than two years of Continuous
Service on the Effective Date shall receive, on said date, Non-ISOs to purchase
the lesser of 5% of the number of Shares reserved under Paragraph 4(a) hereof or
the quotient obtained by dividing --
(i) thirty percent (30%) of the number of Shares reserved under Paragraph
4(a) hereof, by
(ii) the number of Directors entitled to receive an Option on the Effective
Date, pursuant to this Paragraph 9(a).
Such Non-ISOs shall have an Exercise Price per Share equal to the Market Value
of a Share on the date of grant.
Each Director who joins the Board either within the two-year period before
the Effective Date or after the Effective Date and who is not then an Employee
shall receive, on the Effective Date or, if later, the date of joining the
Board, Non-ISOs to purchase two percent (2%) of the Shares reserved under
Paragraph 4(a) of the Plan (or such lesser number of Shares as are available
hereunder), at an Exercise Price per Share equal to its Market Value on the date
of grant.
(b) Terms of Exercise. Options received under the provisions of this
Paragraph will become exercisable in accordance with the general rule set forth
in Paragraph 8(a) hereof, and may be exercised from time to time by (a) written
notice of intent to exercise the Option with respect to all or a specified
number of the Optioned Shares, and (b) payment to the Company (contemporaneously
with the delivery of such notice), in cash, in Common Stock, or a combination of
cash and Common Stock, of the amount of the Exercise Price for the number of the
Optioned Shares with respect to which the Option is then being exercised. A
Director who exercises Options pursuant to this Paragraph may satisfy all
applicable federal, state and local income and employment tax withholding
obligations, in whole or in part, by irrevocably electing to have the Company
withhold shares of Common Stock, or to deliver to the Company shares of Common
Stock that he already owns, having a value equal to the amount required to be
withheld; provided that to the extent not inconsistent herewith, such election
otherwise complies with those requirements of Paragraphs 8 and 19 hereof.
Options granted under this Paragraph shall have a term of ten years,
provided that Options granted under this Paragraph shall expire one year after
the date on which a Director terminates Continuous Service on the Board, but in
no event later than the date on which such Options would otherwise expire. In
the event of such Director's death during the term of his or her directorship,
Options granted under this Paragraph may be exercised within two years from the
date of his or her death by the personal representatives of his estate or person
or persons to whom
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his rights under such Option shall have passed by will or by laws of descent and
distribution, but in no event later than the date on which such Options would
otherwise expire. In the event of such Director's Disability during his or her
directorship, then the Director's Option shall become immediately exercisable,
and such Option may be exercised within one year of the termination of
directorship due to Disability, but not later than the date that the Option
would otherwise expire. Unless otherwise inapplicable or inconsistent with the
provisions of this Paragraph, the Options to be granted to Directors hereunder
shall be subject to all other provisions of this Plan.
(c) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
10. SARS (STOCK APPRECIATION RIGHTS)
(a) Granting of SARs. In its sole discretion, the Committee may from time
to time grant SARs to Employees either in conjunction with, or independently of,
any Options granted under the Plan. An SAR granted in conjunction with an
Option may be an alternative right wherein the exercise of the Option terminates
the SAR to the extent of the number of shares purchased upon exercise of the
Option and, correspondingly, the exercise of the SAR terminates the Option to
the extent of the number of Shares with respect to which the SAR is exercised.
An SAR may not be granted in conjunction with an ISO under circumstances in
which the exercise of the SAR affects the right to exercise the ISO or vice
versa, unless the SAR, by its terms, meets all of the following requirements:
(1) The SAR will expire no later than the ISO;
(2) The SAR may be for no more than the difference between the Exercise
Price of the ISO and the Market Value of the Shares subject to the ISO at
the time the SAR is exercised;
(3) The SAR is transferable only when the ISO is transferable, and under
the same conditions;
(4) The SAR may be exercised only when the ISO may be exercised; and
(5) The SAR may be exercised only when the Market Value of the Shares
subject to the ISO exceeds the Exercise Price of the ISO.
(b) Exercise Price. The Exercise Price as to any particular SAR shall not
be less than the Market Value of the Optioned Shares on the date of grant.
(c) Timing of Exercise. Any election by a Participant to exercise SARs
shall be made during the period beginning on the 3rd business day following the
release for publication of quarterly or annual financial information and ending
on the 12th business day following such date. This condition shall be deemed to
be satisfied when the specified financial data is first made publicly available.
In no event, however, may an SAR be exercised within the six-month period
following the date of its grant.
The provisions of Paragraph 8 regarding vesting and the period of
exercisability of Options are incorporated by reference herein, and shall
determine the vesting and the period of exercisability of SARs.
(d) Exercise of SARs. An SAR granted hereunder shall be exercisable at
such times and under such conditions as shall be permissible under the terms of
the Plan and of the Agreement granted to a Participant, provided that an SAR may
not be exercised for a fractional Share. Upon exercise of an SAR, the
Participant shall be entitled to receive, without payment to the Company except
for applicable withholding taxes, an amount equal to the excess of (or, in the
discretion of the Committee if provided in the Agreement, a portion of) the then
aggregate Market Value of the number of Optioned Shares with respect to which
the Participant exercises the SAR, over the aggregate
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Exercise Price of such number of Optioned Shares. This amount shall be payable
by the Company, in the discretion of the Committee, in cash or in Shares valued
at the then Market Value thereof, or any combination thereof.
(e) Procedure for Exercising SARs. To the extent not inconsistent
herewith, the provisions of Paragraph 8(b) as to the procedure for exercising
Options are incorporated by reference, and shall determine the procedure for
exercising SARs.
11. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN.
(a) Recapitalizations; Stock Splits, Etc. The number and kind of shares
reserved for issuance under the Plan, and the number and kind of shares subject
to outstanding Awards, and the Exercise Price thereof, shall be proportionately
adjusted for any increase, decrease, change or exchange of Shares for a
different number or kind of shares or other securities of the Company which
results from a merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of shares, or similar
event in which the number or kind of shares is changed without the receipt or
payment of consideration by the Company.
(b) Transactions in which the Company is Not the Surviving Entity. In the
event of (i) the liquidation or dissolution of the Company, (ii) a merger or
consolidation in which the Company is not the surviving entity, or (iii) the
sale or disposition of all or substantially all of the Company's assets (any of
the foregoing to be referred to herein as a "Transaction"), all outstanding
Awards, together with the Exercise Prices thereof, shall be proportionately
adjusted for any increase, decrease, change or exchange of Shares for a
different number or kind of Shares or other securities which results from a
transaction.
(c) Special Rule for ISOs. Any adjustment made pursuant to subparagraphs
(a) or (b) hereof shall be made in such a manner as not to constitute a
modification, within the meaning of Section 424(h) of the Code, of outstanding
ISOs.
(d) Conditions and Restrictions on New, Additional, or Different Shares or
Securities. If, by reason of any adjustment made pursuant to this Paragraph, a
Participant becomes entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the Shares pursuant to the Award before the adjustment was made.
(e) Other Issuances. Except as expressly provided in this Paragraph, the
issuance by the Company or an Affiliate of shares of stock of any class, or of
securities convertible into Shares or stock of another class, for cash or
property or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect, and no adjustment
shall be made with respect to, the number, class, or Exercise Price of Shares
then subject to Awards or reserved for issuance under the Plan.
(f) Certain Special Dividends. The Exercise Price of shares subject to
outstanding Awards shall be proportionately adjusted upon the payment of a
special large and nonrecurring dividend that has the effect of a return to
capital to the stockholders, except that this subparagraph (f) shall not apply
to any dividend which is paid to the Participant pursuant to Paragraph 8(b) or
9(b) hereof.
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12. NON-TRANSFERABILITY OF AWARDS.
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution. Notwithstanding any other provision of this Plan to the contrary,
to the extent permissible under Rule 16b-3, a Participant who is granted Non-
ISOs pursuant to this Plan may transfer such Non-ISOs to his or her spouse,
lineal ascendants, lineal descendants, or to a duly established trust, provided
that Non-ISOs so transferred may not again be transferred other than to the
Participant originally receiving the grant of Non-ISOs or to an individual or
trust to whom such Participant could have transferred Non-ISOs pursuant to this
Paragraph 12. Non-ISOs which are transferred pursuant to this Paragraph 12
shall be exercisable by the transferee subject to the same terms and conditions
as would have applied to such Non-ISOs in the hands of the Participant
originally receiving the grant of such Non-ISOs.
13. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be the later of the
date on which the Committee makes the determination of granting such Award, and
the Effective Date. Notice of the determination shall be given to each
Participant to whom an Award is so granted within a reasonable time after the
date of such grant.
14. EFFECTIVE DATE.
The Plan shall become effective immediately upon its approval by a
favorable vote of stockholders holding at least a majority of the votes eligible
to be cast at a duly called meeting of the Company's stockholders held in
accordance with applicable laws, provided that the Plan shall not be submitted
for such approval within the six-month period after the Company completes its
mutual-to-stock conversion. No Awards may be made prior to approval of the Plan
by the stockholders of the Company.
15. MODIFICATION OF AWARDS.
At any time, and from time to time, subject to OTS regulations, the Board
may authorize the Committee to direct execution of an instrument providing for
the modification of any outstanding Award, provided no such modification shall
confer on the holder of said Award any right or benefit which could not be
conferred on him by the grant of a new Award at such time, or impair the Award
without the consent of the holder of the Award.
16. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the Plan and, with
respect to any Shares at the time not subject to Awards, suspend or terminate
the Plan; provided that the provisions of Paragraph 9 may not be amended more
than once every six months (other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder).
No amendment, suspension or termination of the Plan shall, without the
consent of any affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
17. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Compliance with Securities Laws. Shares of Common Stock shall not be
issued with respect to any Award unless the issuance and delivery of such Shares
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities law, and the requirements of any
stock exchange upon which the Shares may then be listed.
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(b) Special Circumstances. The inability of the Company to obtain approval
from any regulatory body or authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of such
Shares. As a condition to the exercise of an Option or SAR, the Company may
require the person exercising the Option or SAR to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.
(c) Committee Discretion. Subject to OTS regulations, the Committee shall
have the discretionary authority to impose in Agreements such restrictions on
Shares as it may deem appropriate or desirable, including but not limited to the
authority to impose a right of first refusal or to establish repurchase rights
or both of these restrictions.
18. RESERVATION OF SHARES.
The Company, during the term of the Plan, will reserve and keep available a
number of Shares sufficient to satisfy the requirements of the Plan.
19. WITHHOLDING TAX.
The Company's obligation to deliver Shares upon exercise of Options and/or
SARs shall be subject to the Participant's satisfaction of all applicable
federal, state and local income and employment tax withholding obligations. The
Committee, in its discretion, may permit the Participant to satisfy the
obligation, in whole or in part, by irrevocably electing to have the Company
withhold Shares, or to deliver to the Company Shares that he already owns,
having a value equal to the amount required to be withheld. The value of Shares
to be withheld, or delivered to the Company, shall be based on the Market Value
of the Shares on the date the amount of tax to be withheld is to be determined.
As an alternative, the Company may retain, or sell without notice, a number of
such Shares sufficient to cover the amount required to be withheld.
20. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's or Director's eligibility to participate or
participation in the Plan create or be deemed to create any legal or equitable
right of the Employee, Director, or any other party to continue service with the
Company or an Affiliate. Except to the extent provided in Paragraphs 6(b) and
9(a), no Employee or Director shall have a right to be granted an Award or,
having received an Award, the right to again be granted an Award. However, an
Employee or Director who has been granted an Award may, if otherwise eligible,
be granted an additional Award or Awards.
21. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws of
the State of Illinois, except to the extent that federal law shall be deemed to
apply.
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EXHIBIT F
ILLINOIS COMMUNITY BANCORP, INC.
MANAGEMENT RECOGNITION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.01 The Company hereby establishes this Plan upon the terms and
conditions hereinafter stated.
1.02 Through acceptance of their appointment to the Committee, each member
of the Committee hereby accepts his or her appointment hereunder upon the terms
and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain personnel of
experience and ability in key positions of responsibility by providing Employees
and Directors of the Company, and its Affiliates with a proprietary interest in
the Company, and as compensation for their past contributions to the Company,
and as an incentive to make such contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, shall have the meanings set forth below unless the context
clearly indicates otherwise. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424(e) and
(f), respectively, of the Internal Revenue Code of 1986, as amended.
3.02 "Beneficiary" means the person or persons designated by a Participant
to receive any benefits payable under the Plan in the event of such
Participant's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if any
or if none, his estate.
3.03 "Board" means the Board of Directors of the Company (excluding
Directors Emeritus).
3.04 "Committee" means the Management Recognition Plan Committee appointed
by the Board pursuant to Article IV hereof.
3.05 "Common Stock" means shares of the common stock, $.01 par value per
share, of the Company.
3.06 "Company" means Illinois Community Bancorp, Inc. (and any successor
in interest).
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3.07 "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the case
of sick leave, military leave or any other leave of absence approved by the
Company or in the case of transfers between payroll locations of the Company or
between the Company, an Affiliate or a successor, or in the case of a Director's
performance of services in an emeritus or advisory capacity.
3.08 "Date of Conversion" means the date of the conversion of the Bank
from mutual to stock form.
3.09 "Director" means a member of the Board.
3.10 "Disability" means a physical or mental condition of a Participant
resulting from bodily injury, disease, or mental disorder which renders him
incapable of continuing any gainful occupation and which condition constitutes
total disability under the Federal Social Security Acts.
3.11 "Disinterested Person" means any member of the Board who, at the time
discretion under the Plan is exercised, is a "disinterested person" within the
meaning of Rule 16b-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended.
3.12 "Effective Date" means the date on which the Plan first becomes
effective, as determined under Section 8.07 hereof.
3.13 "Employee" means any person who is employed by the Company or an
Affiliate.
3.14 "OTS" shall mean the Office of Thrift Supervision of the United
States Department of the Treasury.
3.15 "Participant" means an Employee or Director who holds a Plan Share
Award.
3.16 "Plan" means this Illinois Community Bancorp, Inc. Management
Recognition Plan.
3.17 "Plan Shares" means shares of Common Stock held in the Trust which
are awarded or issuable to a Participant pursuant to the Plan.
3.18 "Plan Share Award" means a right granted under this Plan to receive
Plan Shares.
3.19 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.02 and 5.03.
3.20 "Share" means one share of Common Stock.
3.21 "Trust" and "Trust Agreement" mean that agreement entered into
pursuant to the terms hereof between the Company and the Trustee, and "Trust"
means the trust created thereunder.
3.22 "Trustee" means that person(s) or entity appointed by the Board
pursuant to the Trust Agreement to hold legal title to the Plan assets for the
purposes set forth herein.
3.23 "Year of Service" shall mean a full twelve-month period, measured
from the date of a Plan Share Award and each annual anniversary of that date,
during which a Participant's Continuous Service has not terminated for any
reason.
F-2
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE AND POWERS OF THE COMMITTEE. The Plan shall be administered
and interpreted by the Committee, which shall consist of not less than three
non-employee members of the Board who are Disinterested Persons. In the absence
at any time of a duly appointed Committee, the Plan shall be administered by
those members of the Board who are Disinterested Persons, and by the Board if
there are less than three Disinterested Persons.
The Committee shall have all of the powers allocated to it in this and
other Sections of the Plan. Except as limited by the express provisions of the
Plan or by resolutions adopted by the Board, the Committee shall have sole and
complete authority and discretion, subject to applicable OTS regulations (i) to
make Plan Share Awards to such Employees as the Committee may select, (ii) to
determine the form and content of Plan Share Awards to be issued under the Plan,
(iii) to interpret the Plan, (iv) to prescribe, amend and rescind rules and
regulations relating to the Plan, and (v) to make other determinations necessary
or advisable for the administration of the Plan. The Committee shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. Subject to Section 4.02, the interpretation and
construction by the Committee of any provisions of the Plan or of any Plan Share
Award granted hereunder shall be final and binding. The Committee shall act by
vote or written consent of a majority of its members, and shall report its
actions and decisions with respect to the Plan to the Board at appropriate
times, but in no event less than one time per calendar year. The Committee may
recommend to the Board one or more persons or entity to act as Trustee(s) in
accordance with the provisions of this Plan and the Trust.
4.02 ROLE OF THE BOARD. The members of the Committee shall be appointed
or approved by, and will serve at the pleasure of, the Board. The Board may in
its discretion from time to time remove members from, or add members to, the
Committee. The Board shall have all of the powers allocated to it in this and
other Sections of the Plan, may take any action under or with respect to the
Plan which the Committee is authorized to take, and may reverse or override any
action taken or decision made by the Committee under or with respect to the
Plan, provided, however, that the Board may not take any action that would
constitute a violation of OTS regulations or revoke any Plan Share Award already
made or impair a participant's vested rights under a Plan Share Award, except as
provided in Section 8.02 herein. Members of the Board who are eligible for or
who have been granted Plan Share Awards (other than pursuant to Section 6.04)
may not vote on any matters affecting the administration of the Plan or the
grant of Plan Shares or Plan Share Awards (although such members may be counted
in determining the existence of a quorum at any meeting of the Board during
which actions with regard thereto are taken). Further, with respect to all
actions taken by the Board in regard to the Plan, such action shall be taken by
a majority of the Board where such a majority of the directors acting in the
matter are Disinterested Persons.
4.03 LIMITATION ON LIABILITY. No member of the Board or the Committee or
the Trustee(s) shall be liable for any determination made in good faith with
respect to the Plan or any Plan Shares or Plan Share Awards granted under it.
In addition to such other rights of indemnification as they may have, the
members of the Committee shall be indemnified by the Bank, in connection with
any claim, action, suit or proceeding, relating to any action taken or failure
to act under or in connection with the Plan or any Award, granted hereunder to
the full extent provided for under the Company's governing instruments with
respect to the indemnification of Directors.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine the
amounts (or the method of computing the amounts) to be contributed by the
Company to the Trust, provided that Illinois Guarantee Savings Bank, FSB may
also make contributions to the Trust. Such amounts shall be paid to the Trustee
at the time of contribution and shall not exceed amounts permitted under OTS
regulations. No contributions to the Trust by Employees shall be permitted.
F-3
5.02 INVESTMENT OF TRUST ASSETS; MAXIMUM AWARDS. The Trustee shall invest
Trust assets only in accordance with the Trust Agreement; provided that the
Trust shall not purchase, and Plan Share Awards shall not be made with respect
to, more than 20,102 Shares, which equals four percent (4%) of the number of
Shares issued on the Date of Conversion.
5.03 EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON PLAN SHARE
RESERVES. Upon the allocation of Plan Share Awards under Section 6.02, the Plan
Share Reserve shall be reduced by the number of Shares subject to the Awards so
allocated. Any Shares subject or attributable to an Award which may not be
earned because of a forfeiture by the Participant pursuant to Section 7.01 shall
be added to the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 ELIGIBILITY. Only Employees shall be eligible to receive
discretionary Plan Share Awards. In selecting those Employees to whom Plan
Share Awards will be granted and the number of shares covered by such Awards,
the Committee shall consider the position, duties and responsibilities of the
eligible Employees, the value of their services to the Bank and its Affiliates,
and any other factors the Committee may deem relevant. Notwithstanding the
foregoing, (i) the Committee shall automatically make the Plan Share Awards
specified in Sections 6.04 and 6.05 hereof; and (ii) no Employee shall receive
Plan Share Awards relating to more than 25% of the Plan Shares reserved under
Section 5.02, and no non-employee Director shall receive Plan Share Awards
relating to more than 5% of the Plan Shares reserved under Section 5.02, with
all non-employee Directors as a group receiving Plan Share Awards on the
Effective Date relating to no more than 30% of the Plan Shares reserved under
Section 5.02.
6.02 ALLOCATIONS. The Committee will determine which of the Employees
referenced in Section 6.01 above will be granted Plan Share Awards, and the
number of Shares covered by each Plan Share Award, provided that in no event
shall any Awards be made which will violate the Charter, Bylaws or Plan of
Conversion of the Bank or its subsidiaries or any applicable federal or state
law or regulation. In the event Plan Shares are forfeited for any reason or
additional shares of Common Stock are purchased by the Trustee, the Committee
may, from time to time, determine which of the Employees referenced in Section
6.01 above will be granted additional Plan Share Awards to be awarded from the
forfeited or acquired Plan Shares.
6.03 FORM OF ALLOCATION. As promptly as practicable after a determination
is made pursuant to Section 6.02 that a Plan Share Award is to be made, the
Committee shall notify the Participant in writing of the grant of the Award, the
number of Plan Shares covered by the Award, and the terms upon which the Plan
Shares subject to the Award may be earned. The date on which the Committee so
notifies the Participant shall be considered the date of grant of the Plan Share
Awards. The Committee shall maintain records as to all grants of Plan Share
Awards under the Plan.
6.04 AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS. Notwithstanding any
other provisions of this Plan, each Director who has more than two years of
Continuous Service as of the Effective Date and who is not an Employee but is a
Director on the Effective Date shall receive, on said date, a Plan Share Award
for a number of Shares equal to the lesser of 5% of the number of Plan Shares
which the Trust is authorized to purchase pursuant to Section 5.02 of the Plan
or the quotient obtained by dividing --
(i) thirty percent (30%) of the number of Plan Shares which the Trust is
authorized to purchase pursuant to Section 5.02 of the Plan, by
(ii) the number of Directors entitled to receive Plan Share Awards on the
Effective Date, pursuant to this Section 6.04.
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Each Director who joins the Board either within the two-year period before
the Effective Date or after the Effective Date shall receive, on the Effective
Date, or if later, the date the Director joins the Board, a Plan Share Award of
two percent (2%) of the number of Plan Shares which the Trust is authorized to
purchase pursuant to Section 5.02 of the Plan (or such lesser number as are
available hereunder for Plan Share Awards). Plan Share Awards received under
the provisions of this Section shall become vested and nonforfeitable according
to the general rules set forth in subsections (a) and (b) of Section 7.01, and
the Committee shall have no discretion to alter or accelerate said vesting
requirements. Unless otherwise inapplicable or inconsistent with the provisions
of this Section, the Plan Share Awards to be granted hereunder shall be subject
to all other provisions of this Plan.
6.05 AUTOMATIC GRANTS TO EMPLOYEES. On the Effective Date, each of the
following individuals shall receive a Plan Share Award as to the number of Plan
Shares listed below, provided that such award shall not be made to an individual
who is not an Employee on the Effective Date:
Employee Shares Subject to Plan Share Award
-------- ----------------------------------
Doug Pike 15%
Ron Schettler 12%
John Collier 5%
Sandy Goeckner 5%
Cindy Hinterscher 5%
Wanda Tabbert 5%
Lisa Canull 3%
Karol Kowalczyk 3%
Colette Meyer 3%
Tama Anderson 2%
Linda Jansen 2%
Plan Share Awards received under the provisions of this Section shall
become vested and nonforfeitable according to the general rules set forth in
subsections (a) and (b) of Section 7.01, and the Committee shall have no
discretion to alter said vesting requirements. Unless otherwise inapplicable or
inconsistent with the provisions of this Section, the Plan Share Awards to be
granted to hereunder shall be subject to all other provisions of this Plan.
6.06 ALLOCATIONS NOT REQUIRED. Notwithstanding anything to the contrary
in Sections 6.01 and 6.02, but subject to Sections 6.04 and 6.05, no Employee or
Director shall have any right or entitlement to receive a Plan Share Award
hereunder, such Awards being at the total discretion of the Committee, nor shall
any Employees or Directors as a group have such a right. The Committee may,
with the approval of the Board (or, if so directed by the Board) return all
Common Stock in the Plan Share Reserve to the Bank at any time, and cease
issuing Plan Share Awards.
ARTICLE VII
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Twenty percent (20%) of the Plan Shares subject to a
Plan Share Award shall be earned and become non-forfeitable by a Participant
upon his or her completion of each of five Years of Service.
(b) EXCEPTION FOR TERMINATIONS DUE TO DEATH OR DISABILITY.
Notwithstanding the general rule contained in Section 7.01(a) above, all Plan
Shares subject to a Plan Share Award held by a Participant whose service with
the Company or an Affiliate terminates due to the Participant's death or
Disability shall be deemed earned as of the Participant's last day of service
with the Company or an Affiliate and shall be distributed as soon as practicable
thereafter.
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7.02 ACCRUAL OF DIVIDENDS. Whenever Plan Shares are paid to a Participant
or Beneficiary under Section 7.03, such Participant or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid an amount equal to (i)
any cash dividends (including the payment of a special large and nonrecurring
dividend including one that has the effect of a return to capital to the
stockholders), and (ii) a number of shares of Common Stock equal to any stock
dividends, declared and paid with respect to a share of Common Stock between the
date the relevant Plan Share Award was initially granted to such Participant and
the date the Plan Shares are being distributed. There shall also be distributed
an appropriate amount of net earnings, if any, of the Trust with respect to any
cash dividends so paid out.
7.03 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Except as provided in
Subsections (c), (d) and (e) below, the Trustee shall distribute Plan Shares and
accumulated cash from dividends and interest to the Participant or his
Beneficiary, as the case may be, as soon as practicable after they have been
earned. No fractional shares shall be distributed.
(b) FORM OF DISTRIBUTION. The Trustee shall distribute all Plan Shares,
together with any shares representing stock dividends, in the form of Common
Stock. One share of Common Stock shall be given for each Plan Share earned.
Payments representing cash dividends (and earnings thereon) shall be made in
cash.
(c) WITHHOLDING. The Trustee shall withhold from any cash payment made
under this Plan sufficient amounts to cover any applicable withholding and
employment taxes, and if the amount of such cash payment is not sufficient, the
Trustee shall require the Participant or Beneficiary to pay to the Trustee the
amount required to be withheld as a condition of delivering the Plan Shares.
The Trustee shall pay over to the Company or Affiliate which employs or employed
such Participant any such amount withheld from or paid by the Participant or
Beneficiary.
(d) TIMING: EXCEPTION FOR 10% SHAREHOLDERS. Notwithstanding Subsections
(a) and (b) above, no Plan Shares may be distributed prior to the date which is
five (5) years from the Date of Conversion to the extent the Participant or
Beneficiary, as the case may be, would after receipt of such Shares own in
excess of ten percent (10%) of the issued and outstanding shares of Common Stock
unless such action is approved in advance by a majority vote of disinterested
directors of the Board. To the extent this limitation would delay the date on
which a Participant receives Plan Shares, the Participant may elect to receive
from the Trust, in lieu of such Plan Shares, the fair market value thereof, as
determined by the Committee. Any Plan Shares remaining undistributed solely by
reason of the operation of this Subsection (d) shall be distributed to the
Participant or his Beneficiary on the date which is five years from the Date of
Conversion, provided that the Participant is vested as to those Plan Shares
pursuant to Section 7.01(a) hereof.
(e) REGULATORY EXCEPTIONS. No Plan Shares shall be distributed unless and
until all of the requirements of all applicable law and regulation shall have
been fully complied with, including the receipt of approval of the Plan by the
stockholders of the Company by such vote, if any, as may be required by
applicable law and regulation.
7.04 VOTING OF PLAN SHARES. All shares of Common Stock held by the Trust
(whether or not subject to a Plan Share Award) shall be voted by the Trustee in
the same proportion as the trustee of the Illinois Guarantee Savings Bank, FSB
Employee Stock Ownership Plan votes Common Stock held in the trust associated
therewith, and in the absence of any such voting, shall be voted in the manner
directed by the Board.
ARTICLE VIII
MISCELLANEOUS
8.01 ADJUSTMENTS FOR CAPITAL CHANGES.
(a) RECAPITALIZATIONS; STOCK SPLITS, ETC. The number and kind of shares
which may be purchased under the Plan, and the number and kind of shares subject
to outstanding Plan Share Awards, shall be proportionately adjusted for any
increase, decrease, change or exchange of shares of Common Stock for a different
number or kind
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of shares or other securities of the Company which results from a merger,
consolidation, recapitalization, reorganization, reclassification, stock
dividend, split-up, combination of shares, or similar event in which the number
or kind of shares is changed without the receipt or payment of consideration by
the Company.
(b) TRANSACTIONS IN WHICH THE COMPANY IS NOT THE SURVIVING ENTITY. In the
event of (i) the liquidation or dissolution of the Company, (ii) a merger or
consolidation in which the Company is not the surviving entity, or (iii) the
sale or disposition of all or substantially all of the Company's assets (any of
the foregoing to be referred to herein as a "Transaction"), all outstanding Plan
Share Awards shall be proportionately adjusted for any increase, decrease,
change or exchange of shares of Common Stock for a different number or kind of
shares or other securities of the Company which results from the Transaction.
(c) CONDITIONS AND RESTRICTIONS ON NEW, ADDITIONAL, OR DIFFERENT SHARES OR
SECURITIES. If, by reason of any adjustment made pursuant to this Section, a
Participant becomes entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the shares pursuant to the Plan Share Award before the adjustment
was made. In addition, the Committee shall have the discretionary authority to
impose on the Shares subject to Plan Share Awards such restrictions as the
Committee may deem appropriate or desirable, including but not limited to a
right of first refusal, or repurchase option, or both of these restrictions.
(d) OTHER ISSUANCES. Except as expressly provided in this Section, the
issuance by the Bank or an Affiliate of shares of stock of any class, or of
securities convertible into shares of Common Stock or stock of another class,
for cash or property or for labor or services either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, shall not affect, and
no adjustment shall be made with respect to, the number or class of shares of
Common Stock then subject to Plan Share Awards or reserved for issuance under
the Plan.
8.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution, at
any time amend or terminate the Plan; provided that (i) the provisions of
Section 6.04 may not be amended more than once every six months (other than to
comport with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder), and (ii) no amendment or termination
of the Plan shall, without the written consent of a Participant, impair any
rights or obligations under a Plan Share Award theretofore granted to the
Participant.
The power to amend or terminate the Plan in accordance with this Section
8.02 shall include the power to direct the Trustee to return to the Company all
or any part of the assets of the Trust, including shares of Common Stock held in
the Plan Share Reserve. However, the termination of the Trust shall not affect
a Participant's right to earn Plan Share Awards and to receive a distribution of
Common Stock relating thereto, including earnings thereon, in accordance with
the terms of this Plan and the grant by the Committee or the Board.
8.03 NONTRANSFERABILITY. Plan Share Awards may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent and distribution. Notwithstanding any other
provision of this Plan to the contrary, to the extent permissible under Rule
16b-3, a Participant who is granted Plan Share Awards pursuant to this Plan may
transfer such Plan Share Awards to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust, provided that Plan Share Awards so
transferred may not again be transferred other than to the Participant
originally receiving the grant of Plan Share Awards or to an individual or trust
to whom such Participant could have transferred Plan Share Awards pursuant to
this Section 8.03. Plan Share Awards which are transferred pursuant to this
Section 8.03 shall be exercisable by the transferee subject to the same terms
and conditions as would have applied to such Plan Share Awards in the hands of
the Participant originally receiving the grant of such Plan Share Awards.
8.04 NO EMPLOYMENT OR OTHER RIGHTS. Neither the Plan nor any grant of a
Plan Share Award or Plan Shares hereunder nor any action taken by the Trustee,
the Committee or the Board in connection with the Plan shall create any right,
either express or implied, on the part of any Employee or Director to continue
in the service of the Bank, or an Affiliate thereof.
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8.05 VOTING AND DIVIDEND RIGHTS. No Participant shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Section 7.02
above, prior to the time said Plan Shares are actually distributed to him.
8.06 GOVERNING LAW. The Plan and Trust shall be governed and construed
under the laws of the State of Illinois to the extent not preempted by Federal
law.
8.07 EFFECTIVE DATE. The Plan shall become effective immediately upon its
approval by a favorable vote of stockholders of the Company who hold at least a
majority of the total votes eligible to be cast at a duly called meeting of the
Company's stockholders held in accordance with applicable laws, provided that
the Plan shall not be submitted for such approval within the six-month period
after the Date of Conversion. In no event shall Plan Share Awards be made prior
to the Effective Date.
8.08 TERM OF PLAN. This Plan shall remain in effect until the earlier of
(i) termination by the Board, or (ii) the distribution of all assets of the
Trust. Termination of the Plan shall not affect any Plan Share Awards
previously granted, and such Awards shall remain valid and in effect until they
have been earned and paid, or by their terms expire or are forfeited.
8.09 TAX STATUS OF TRUST. It is intended that (i) the Trust associated
with the Plan be treated as a grantor trust of the Company under the provisions
of Section 671 et seq. of the Internal Revenue Code, as the same may be amended
-- ---
from time to time, and (ii) that in accordance with Revenue Procedure 92-65,
Participants have the status of general unsecured creditors of the Bank, the
Plan constitutes a mere unfunded promise to make benefit payments in the future,
the Plan is unfunded for tax purposes and for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as amended, and the Trust has
been and will continue to be maintained in conformity with Revenue Procedure 92-
64.
F-8
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
The following is a summary of the general effect of the indemnification
provisions of the Company's Articles of Incorporation and of the indemnification
provided for under Illinois law. All statements made herein, which are only
intended to summarize the above-referenced provisions, are qualified in their
entirety by reference to the Company's Articles of Incorporation and the
Illinois Business Corporation Act.
ARTICLES OF INCORPORATION. Article XVII of the Company's Articles of
Incorporation provides for indemnification of the Company's directors and
officers. In the case of a threatened, pending or completed action or suit by or
in the name of the Company (a "derivative suit"), the Company shall indemnify a
director or officer for amounts actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if the director
or officer: (i) is successful on the merits or otherwise; or (ii) acted in good
faith in the transaction which is the subject of the suit or action, and in a
manner he reasonably believed to be in, or not opposed to, the best interest of
the Company. However, no indemnification will be made in respect of any claim,
issue or matter as to which such person has been adjudged liable to the Company,
unless the court in which the action is brought determines that indemnification
is proper.
In the case of a threatened, pending or completed action or proceeding
(whether civil, criminal, administrative or investigative), other than a suit by
or in the right of the Company (a "nonderivative suit"), against an officer or
director, the Company shall indemnify the director or officer for amounts
reasonably incurred by him in connection with the defense or settlement of the
nonderivative suit if the director or officer: (i) is successful on the merits
or otherwise; or (ii) acted in good faith in the transaction which is the
subject of the nonderivative suit and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Company.
ILLINOIS BUSINESS CORPORATION ACT. A corporation may, under Illinois law,
indemnify a director or officer threatened to be or made a party to a proceeding
whether criminal, civil, administrative, or investigative (other than a
derivative suit) because such person is or was a director or officer of the
corporation against expenses (including attorneys' fees) judgments, fines and
amounts paid in settlement if such person acted in good faith in a manner he
reasonably believed to be in, or not opposed to the best interest of the
corporation, and, with respect to a criminal action or proceed, had no
reasonable cause to believe his conduct was unlawful.
In the case of a derivative suit, a corporation may indemnify a director
or officer threatened to be or made a party to any threatened, pending or
completed action or suit because such person is or was a director of officer of
the corporation, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, if such person acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, provided that no indemnification shall be made with respect to any
claim, issue, or matter as to which such person has been adjudged to have been
liable to the corporation, unless, and only to the extent that the court in
which such action or suit was brought determines that indemnification is
proper.
To the extent a director or officer has been successful on the merits or
otherwise in the defense of any action or proceeding (whether a derivative suit
or a nonderivative suit) or in defense of any claim issue or matter therein, he
must be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred in connection therewith.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules filed as part of this
Registration Statement are as follows:
(a) Exhibits
The following is a list and index of the exhibits filed with this
Registration Statement.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
* 2 Agreement and Plan of Reorganization (attached as Exhibit A to the
Proxy Statement/Prospectus filed as part of this registration
statement).
* 3.1 Articles of Incorporation of Illinois Community Bancorp, Inc.
(attached as Exhibit B to the Proxy Statement/Prospectus filed as part
of this registration statement).
* 3.2 Bylaws of Illinois Community Bancorp, Inc. (attached as Exhibit C to
the Proxy Statement/Prospectus filed as part of this registration
statement).
* 5.1 Opinion of Housley Kantarian & Bronstein, P.C. regarding legality of
securities.
8 Tax Opinion of Housley Kantarian & Bronstein, P.C.
* 10.1 Illinois Guarantee Savings Bank, FSB Retirement Plan for Non-Employee
Directors.
* 10.2 Illinois Community Bancorp, Inc. 1996 Stock Option and Incentive Plan
(attached as Exhibit E to the Proxy Statement/Prospectus filed as part
of this registration statement).
* 10.3 Illinois Community Bancorp, Inc. Management Recognition Plan (attached
as Exhibit F to the Proxy Statement/Prospectus filed as part of this
registration statement).
* 10.4 Form of Employment Agreements between Illinois Guarantee Savings Bank,
FSB and each of Douglas A. Pike and Ronald R. Schettler
23.1 Consents of Housley Kantarian & Bronstein, P.C. (contained in its
opinions filed as Exhibits 5.1 and 8).
23.2 Consent of Larsson, Woodyard & Henson, LLP
* 24 Power of Attorney
27 Financial Data Schedule
* 99 Form of proxy to be mailed to stockholders of Illinois Guarantee
Savings Bank, FSB
_________________
* Previously filed.
II-2
(b) Financial Statement Schedules
Not applicable.
(c) Report or Appraisal
Not applicable.
ITEM 22. UNDERTAKINGS
(a) Rule 415 Offering. The undersigned registrant hereby undertakes:
-----------------
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to;
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation or Registration Fee" table in
the effective registration statement.
(iii) include any additional or changed material information on
the plan of distribution.
(2) That, for purposes of determining any liability under the
Securities Act of 1933, to treat each such post-effective amendment as a new
registration statement of the securities offered, and the offering of such
securities at that time shall be deemed to be a bona fide offering.
(3) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(b) Indemnification. Insofar as indemnification for liabilities arising
---------------
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable."
(c) Form S-4 Undertakings. The undersigned registrant hereby undertakes
---------------------
to respond to requests for information that is incorporated by reference into
the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not subject of and included in the
registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this amended registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Effingham,
Illinois as of May 31, 1996.
ILLINOIS COMMUNITY BANCORP, INC.
Date: May 31, 1996 By: /s/ Gerald E. Ludwig
------------------------------------
Gerald E. Ludwig
Chairman and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amended registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gerald E. Ludwig Chief Executive Officer and May 31, 1996
- -----------------------
Gerald E. Ludwig Chairman of the Board
/s/ Douglas A. Pike President, Chief Financial and May 31, 1996
- ----------------------
Douglas A. Pike Accounting Officer and Director
* Vice Chairman of the Board
- ----------------------
Michael F. Sehy
* Director
- ----------------------
Milton Hinkle
* Director
- ----------------------
Frederick C. Schaefer
* Director
- ----------------------
Ernest E. Garbe
* Director
- ----------------------
Garrett M. Andes, II
* By:/s/ Gerald E. Ludwig
--------------------
Gerald E. Ludwig
Attorney-in-Fact
II-4