UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission File Number: 0-30031
MAIN STREET TRUST, INC.
-----------------------------
(Exact name of Registrant as specified in its charter)
Illinois 37-1338484
---------------- ----------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
100 West University, Champaign, Illinois 61820
(Address of principal executive offices) (Zip Code)
(217) 351-6500
(Registrant's telephone number, including area code)
Indicate by "X" whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
----- ---------
Indicate the number of shares outstanding of the registrant's common stock, as
of November 9, 2000:
Main Street Trust, Inc. Common Stock 10,528,904
<PAGE>
Table of Contents
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures 32
About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 2. Changes in Securities 33
Item 3. Defaults Upon Senior Securities 33
Item 4. Submission of Matters to a Vote of Security Holders 33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33
SIGNATURES 34
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
(Unaudited in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 45,325 $ 48,328
Federal funds sold and interest earning deposits 14,516 39,022
Investments in debt and equity securities:
Available-for-sale, at fair value 209,058 206,844
Held-to-maturity, at cost (fair value of $86,228 and
$87,780 at September 30, 2000 and December 31, 1999, respectively) 87,640 89,935
Non-marketable equity securities 4,218 3,261
Loans, net of allowance for loan losses of $9,067 and $8,682 at September 30,
2000 and December 31, 1999,
respectively 638,394 601,888
Mortgage loans held for sale 2,066 1,393
Premises and equipment 21,150 22,505
Accrued interest receivable 9,623 9,182
Other assets 12,978 13,388
------------- ---------------
Total assets $ 1,044,968 $ 1,035,746
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 84,218 $ 82,955
Demand, interest bearing 230,816 230,394
Savings 140,082 143,133
Time, $100 and over 94,532 92,382
Other time 253,719 246,211
------------- ---------------
Total deposits 803,367 795,075
Federal funds purchased, repurchase agreements,
and notes payable 63,786 79,140
Federal Home Loan Bank advances and other borrowings 40,993 32,058
Accrued interest payable 4,260 4,019
Other liabilities 10,600 9,373
------------ ---------------
Total liabilities 923,006 919,665
------------ ---------------
Stockholders' equity:
Preferred stock, no par value; 2,000,000 shares authorized - -
Common stock, $0.01 par value; 15,000,000 shares authorized;
10,582,484 and 10,578,772 shares issued at September 30, 2000 and
December 31, 1999, respectively 106 106
Paid in capital 44,309 44,310
Retained earnings 80,031 75,027
Accumulated other comprehensive loss (1,442) (3,362)
-------------- --------------
123,004 116,081
Less: treasury stock, at cost, 54,583 and 0 shares
at September 30, 2000 and December 31, 1999, respectively (1,042) -
-------------- --------------
Total stockholders' equity 121,962 116,081
------------- --------------
Total liabilities and stockholders' equity $ 1,044,968 $ 1,035,746
============= ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
Interest income: 2000 1999
---- ----
<S> <C> <C>
Loans and fees on loans $ 40,436 $ 34,355
Investments in debt and equity securities
Taxable 11,661 12,968
Tax-exempt 1,498 1,447
Federal funds sold and interest earning deposits 1,187 846
------------- -------------
Total interest income 54,782 49,616
Interest expense:
Demand, savings, and other time deposits 18,383 16,629
Time deposits $100 and over 3,822 3,305
Federal funds purchased, repurchase agreements, and notes payable 2,895 2,283
Federal Home Loan Bank advances and other borrowings 1,554 1,221
------------- -------------
Total interest expense 26,654 23,438
------------- -------------
Net interest income 28,128 26,178
Provision for loan losses 458 408
------------- -------------
Net interest income after provision for loan losses 27,670 25,770
Non-interest income:
Remittance processing 5,168 6,146
Trust and brokerage fees 4,117 3,695
Service charges on deposit accounts 1,595 1,475
Securities transactions, net 17 146
Gain on sales of mortgage loans, net 122 485
Other 1,335 1,702
------------- -------------
Total non-interest income 12,354 13,649
Non-interest expenses:
Salaries and employee benefits 13,848 13,620
Merger related professional fees 2,454 0
Occupancy 1,681 1,797
Equipment 2,861 2,345
Data processing 1,073 1,171
Office supplies 897 805
Service charges from correspondent banks 793 1,059
Other 3,117 3,449
------------- ---------------
Total non-interest expenses 26,724 24,246
Income before income taxes 13,300 15,173
Income taxes 4,845 4,742
------------- ---------------
Net income $ 8,455 $ 10,431
============= ==============
Per share data:
Basic earnings per share $ 0.80 $ 0.98
Weighted average shares of common stock outstanding 10,563,458 10,597,478
Diluted earnings per share $ 0.78 $ 0.96
Weighted average shares of common stock and dilutive potential
common shares outstanding 10,785,317 10,840,385
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net Income $ 8,455 $ 10,431
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period, net of tax of
$995 and ($2,089), for September 30, 2000 and 1999, respectively 1,931 (4,055)
Less: reclassification adjustment for gains (losses) included in net income, net of
tax of ($6) and ($35) for September 30, 2000 and 1999, respectively (11) (69)
-------------- --------------
Other comprehensive income (loss), net of tax 1,920 (4,124)
------------- ---------------
Comprehensive Income $ 10,375 $ 6,307
============== ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Three Months Ended September 30, 2000 and 1999
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
Interest income: 2000 1999
---- ----
<S> <C> <C>
Loans and fees on loans $ 14,222 $ 12,176
Investments in debt and equity securities
Taxable 3,809 4,069
Tax-exempt 522 485
Federal funds sold and interest earning deposits 325 256
------------- -------------
Total interest income 18,878 16,986
Interest expense:
Demand, savings, and other time deposits 6,524 5,601
Time deposits $100 and over 1,451 1,201
Federal funds purchased, repurchase agreements, and notes payable 915 773
Federal Home Loan Bank advances and other borrowings 635 449
------------- -------------
Total interest expense 9,525 8,024
------------- -------------
Net interest income 9,353 8,962
Provision for loan losses 191 126
------------- -------------
Net interest income after provision for loan losses 9,162 8,836
Non-interest income:
Remittance processing 1,633 2,073
Trust and brokerage fees 1,335 1,265
Service charges on deposit accounts 555 510
Securities transactions, net 31 103
Gain on sales of mortgage loans, net 63 119
Other 360 534
------------- -------------
Total non-interest income 3,977 4,604
Non-interest expenses:
Salaries and employee benefits 4,079 4,521
Merger related professional fees 2 0
Occupancy 564 613
Equipment 1,384 780
Data processing 298 496
Office supplies 307 249
Service charges from correspondent banks 218 347
Other 1,137 1,264
------------- ---------------
Total non-interest expenses 7,989 8,270
Income before income taxes 5,150 5,170
Income taxes 1,606 1,623
------------- ---------------
Net income $ 3,544 $ 3,547
============= ==============
Per share data:
Basic earnings per share $ 0.34 $ 0.34
Weighted average shares of common stock outstanding 10,542,254 10,576,181
Diluted earnings per share $ 0.33 $ 0.33
Weighted average shares of common stock and dilutive potential
common shares outstanding 10,738,489 10,822,321
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Three Months Ended September 30, 2000 and 1999
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net Income $ 3,544 $ 3,547
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period, net of tax of
$879 and ($379), for September 30, 2000 and 1999, respectively 1,706 (734)
Less: reclassification adjustment for gains (losses) included in net income, net of
tax of ($11) and ($21), for September 30, 2000 and 1999, respectively (20) (41)
-------------- ---------------
Other comprehensive income (loss), net of tax 1,686 (775)
-------------- ---------------
Comprehensive Income $ 5,230 $ 2,772
============== ===============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ending September 30, 2000 and 1999
(Unaudited, in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,455 $ 10,431
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,119 1,985
Amortization of bond premiums, net 187 660
Provision for loan losses 458 408
Securities transactions, net (17) (146)
Gain on sales of mortgage loans, net (122) (485)
Write down of premises and equipment 587 0
Other, net (874) 1,531
Proceeds from sales of mortgage loans originated for sale 15,089 53,474
Mortgage loans originated for sale (15,640) (42,156)
-------------- ---------------
Net cash provided by operating activities 10,242 25,702
-------------- ---------------
Cash flows from investing activities:
Net increase in loans (36,971) (78,097)
Proceeds from maturities and calls of investments in debt securities:
Held-to-maturity 2,592 16,563
Available-for-sale 24,123 77,582
Proceeds from sales of investments:
Available-for-sale 5,301 32,670
Purchases of investments in debt and equity securities:
Held-to-maturity (3,633) (21,608)
Available-for-sale (30,943) (74,146)
Non-marketable (753) (41)
Principal paydowns from mortgage-backed securities:
Held-to-maturity 3,291 2,720
Available-for-sale 2,080 3,360
Purchases of premises and equipment (1,332) (3,167)
-------------- --------------
Net cash used in investing activities (36,245) (44,164)
-------------- --------------
Cash flows from financing activities:
Net increase in deposits 8,292 3,923
Net (decrease) increase in federal funds purchased,
repurchase agreements and notes payable (15,354) 27,814
Net increase in Federal Home Loan Bank advances
and other borrowings 8,935 3,168
Cash dividends paid (2,372) (2,375)
MSTI stock transactions, net (1,007) (1,272)
-------------- --------------
Net cash (used in) provided by financing activities (1,506) 31,258
-------------- --------------
Net (decrease) increase in cash and cash equivalents (27,509) 12,796
Cash and cash equivalents at beginning of year 87,350 68,954
-------------- ---------------
Cash and cash equivalents at end of period $ 59,841 $ 81,750
============== ===============
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 26,413 $ 23,494
Income taxes 4,892 4,961
Real estate acquired through or in lieu of foreclosure 7 410
Dividends declared not paid 1,053 444
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE>
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements for Main
Street Trust, Inc. have been prepared in accordance with the instructions to
Form 10-Q and therefore do not include all information and footnotes necessary
for fair presentation of financial position, results of operations, and cash
flows in conformity with generally accepted accounting principles. These
financial statements should be read in conjunction with the audited consolidated
financial statements and related notes as of and for the year ended December 31,
1999, and schedules included in BankIllinois Financial Corporation's Form 10-K
filed on March 22, 2000, and in Main Street Trust's Form 8-K filed on May 10,
2000 with respect to First Decatur Bancshares Inc. audited financial statements.
In the opinion of management, the consolidated financial statements of
Main Street Trust, Inc. (the "Company") and its subsidiaries, as of September
30, 2000 and for the three-month and nine-month periods ended September 30, 2000
and 1999, include all adjustments necessary for a fair presentation of the
results of those periods. All such adjustments are of a normal recurring nature.
Results of operations for the three-month and nine-month periods ended
September 30, 2000 are not necessarily indicative of the results which may be
expected for the year ended December 31, 2000.
For purposes of the consolidated statements of cash flows, cash and
cash equivalents include cash and due from banks and federal funds sold.
Generally, federal funds are sold for one-day periods.
Certain amounts in the 1999 consolidated financial statements have been
reclassified to conform with the 2000 presentation. Such reclassifications have
no effect on previously reported net income.
Note 2. Business Combination
On August 12, 1999, BankIllinois Financial Corporation and First
Decatur Bancshares, Inc. entered into an Agreement and Plan of Merger which
provided for a "merger of equals" between the two companies, structured as a
merger of the two companies into the Company. The merger, which was completed on
March 23, 2000, has been accounted for as a pooling of interests and,
accordingly, all prior financial statements have been restated to include both
companies. As a result of the merger, former stockholders of BankIllinois
Financial Corporation and First Decatur Bancshares, Inc. received 5,550,724 and
4,526,332 shares of Company common stock, respectively.
The Company operates 19 banking centers and is the parent company of
BankIllinois, First National Bank of Decatur, First Trust Bank of Shelbyville
and FirsTech, Inc., a retail payment processing company.
9
<PAGE>
Note 3. Stock Dividend
At its regular board meeting on August 16, 2000, the Board of Directors
of the Company declared a one-for-twenty, or five percent, common stock
dividend. The record date of the stock dividend was September 1, 2000, and the
distribution date was September 21, 2000. The accompanying unaudited condensed
consolidated financial statements have been restated to take the stock dividend
into account.
Note 4. New Accounting Rules and Regulations
In June 1998, Statement on Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued,
which originally required the Statement to be adopted in years beginning after
June 15, 1999. The Statement permits early adoption as of the beginning of any
fiscal quarter after its issuance. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. In July 1999, the Statement on Financial Accounting
Standards No. 137 was issued. This Statement delayed the implementation of
Statement No. 133 until fiscal years beginning after June 15, 2000. In June
2000, the Statement on Financial Accounting Standards No. 138 was issued to
modify and clarify various provisions of Statement No. 133. The Company expects
to adopt Statement No. 133, as amended by Statements No. 137 and 138, effective
January 1, 2001. Management does not anticipate that the adoption of the new
Statement will have a significant effect on the Company's earnings or financial
position.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 summarizes some of the staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
The Company will adopt SAB No. 101 when required in the fourth quarter of 2000.
Management believes the adoption of SAB No. 101 will not have a significant
effect on its financial statements.
In September 2000, Statement on Financial Accounting Standards
No. 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" was issued to replace Statement on Financial
Accounting Standards No. 125 which was issued in June 1996. Statement No. 125
addressed issues related to transfers of financial assets in which the
transferor has some continuing involvement with the transferred assets or with
the transferee. Statement No. 140 resolves implementation issues which arose as
a result of Statement No. 125, but carries forward most of Statement No. 125's
provisions. Statement No. 140 is effective for transfers occurring after March
31, 2001 and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. Management does not
believe the adoption of Statement No. 140 will have a significant impact on its
financial statements.
10
<PAGE>
Note 5. Income per Share
Net income per common share has been computed as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $8,455,000 $ 10,431,000 $ 3,544,000 $ 3,547,000
========== ================ =========== ============
Shares:
Weighted average common shares outstanding 10,563,458 10,597,478 10,542,254 10,576,181
Dilutive effect of outstanding options, as determined
by the application of the treasury stock method 205,886 227,197 179,251 230,099
Dilutive effect of outstanding SARs, as determined
by the application of the treasury stock method 15,973 15,710 16,984 16,041
---------- --------------- ----------- ------------
Weighted average common shares outstanding,
as adjusted 10,785,317 10,840,385 10,738,489 10,822,321
========== =============== =========== ============
Basic earnings per share $ 0.80 $ 0.98 $ 0.34 $ 0.34
========== =============== =========== ============
Diluted earnings per share $ 0.78 $ 0.96 $ 0.33 $ 0.33
========== =============== =========== ============
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
--------------------------------------------------------------------------------
Financial Condition
Assets and Liabilities
Total assets increased $9,222,000, or 0.9%, to $1,044,968,000 at
September 30, 2000 from $1,035,746,000 at December 31, 1999. Increases in loans,
investments in debt and equity securities available-for-sale, investments in
non-marketable equity securities, mortgage loans held for sale and accrued
interest receivable were partially offset by decreases in federal funds sold and
other interest earning deposits, cash and due from banks, investments in debt
and equity securities held-to-maturity, premises and equipment and other assets.
Loans increased $36,506,000, or 6.1%, to $638,394,000 at September 30,
2000 from $601,888,000 at December 31, 1999. Included in this change were
increases of $17,028,000, or 5.8% in real estate loans, $15,556,000, or 8.3%, in
commercial, financial and agricultural loans and $4,307,000, or 3.4%, in
installment and consumer loans.
Investments in non-marketable equity securities increased $957,000, or
29.3%, to $4,218,000 at September 30, 2000 from $3,261,000 on December 31, 1999.
This increase was primarily attributed to a $753,000 investment in a venture
capital fund.
Mortgage loans held for sale increased $673,000, or 48.3%, to
$2,066,000 at September 30, 2000 from $1,393,000 at December 31, 1999. This
increase was primarily due to a slight seasonal increase in demand.
Federal funds sold and other interest earning deposits decreased
$24,506,000, or 62.8%, from $39,022,000 at December 31, 1999 to $14,516,000 at
September 30, 2000. This decrease was primarily the result of excess federal
funds sold being used to fund the increase in loans.
11
<PAGE>
Cash and due from banks decreased $3,003,000, or 6.2%, from $48,328,000
at December 31, 1999 to $45,325,000 at September 30, 2000. This decrease was
primarily attributable to lower cash on hand. Cash on hand had been increased at
December 31, 1999, in preparation for potential Year 2000 needs.
Premises and equipment decreased $1,355,000, or 6.0%, from $22,505,000
at December 31, 1999 to $21,150,000 at September 30, 2000. The Company wrote
down computer equipment with a book value of approximately $587,000 in
preparation of moving more of the Company's data processing to a service bureau
environment. The remainder of the decrease can be attributed to depreciation
expense, offset somewhat by purchases.
Other assets decreased $410,000, or 3.1%, from $13,388,000 at December
31, 1999 to $12,978,000 at September 30, 2000. Contributing to this decrease
were decreases in capitalized merger costs of $698,000 at December 31, 1999,
which were expensed during March 2000, a decrease in FirsTech's accounts
receivable of $378,000 and a decrease in the Company's net tax asset position.
Somewhat offsetting these decreases was an increase of $1,463,000 in accrued
trust income.
Investments in securities held-to-maturity decreased $2,295,000, or
2.6%, from $89,935,000 at December 31, 1999 to $87,640,000 at September 30,
2000. Investments in securities available-for-sale increased $2,214,000, or
1.1%, to $209,058,000 at September 30, 2000 from $206,844,000 at December 31,
1999.
Total liabilities increased $3,341,000, or 0.4%, to $923,006,000 at
September 30, 2000 from $919,665,000 at December 31, 1999. Increases in Federal
Home Loan Bank advances and other borrowings, total deposits, accrued interest
payable, and other liabilities were somewhat offset by a decrease in federal
funds purchased, repurchase agreements, and notes payable.
Federal Home Loan Bank advances and other borrowings increased
$8,935,000, or 27.9%, to $40,993,000 at September 30, 2000 from $32,058,000 at
December 31, 1999. This increase consisted of two $5,000,000 borrowings, both
maturing in 2001, which were used to fund loan growth.
Total deposits increased $8,292,000, or 1.0%, to $803,367,000 at
September 30, 2000 from $795,075,000 at December 31, 1999. The increase in
deposits included an increase of $7,508,000, or 3.0%, in other time deposits, an
increase of $2,150,000, or 2.3%, in time deposits $100,000 and over, an increase
of $1,263,000, or 1.5%, in non-interest bearing demand deposits and an increase
of $422,000, or 0.2%, in interest bearing demand deposits. Somewhat offsetting
these increases was a decrease of $3,051,000, or 2.1%, in savings deposits.
Other liabilities increased $1,227,000, or 13.1%, to $10,600,000 at
September 30, 2000 from $9,373,000 at December 31, 1999. The primary cause of
this change was an increase in dividends payable of $609,000.
Federal funds purchased, repurchase agreements, and notes payable
decreased $15,354,000, or 19.4%, from $79,140,000 at December 31, 1999 to
$63,786,000 at September 30, 2000. Included in this change were decreases in
repurchase agreements of $14,975,000 and federal funds purchased of $679,000,
slightly offset by a $300,000 increase in notes payable.
12
<PAGE>
Investment Securities
The carrying value of investments in debt and equity securities was as
follows for September 30, 2000 and December 31, 1999:
Carrying Value of Securities
(in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
September 30, 2000 December 31, 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Available-for-sale:
U.S. Treasury $25,190 $37,601
Federal agencies 151,060 139,812
Mortgage-backed securities 11,956 14,870
State and municipal 14,083 10,220
Corporate and other obligations 293 320
Marketable equity securities 6,476 4,021
-------------------------------------------------------------------------------------------------------------
Total available-for-sale $209,058 $206,844
=============================================================================================================
Held-to-maturity:
Federal agencies $30,426 $28,994
Mortgage-backed securities 23,867 27,193
State and municipal 33,347 33,748
-------------------------------------------------------------------------------------------------------------
Total held-to-maturity $87,640 $89,935
=============================================================================================================
Non-marketable equity securities $4,218 $3,261
-------------------------------------------------------------------------------------------------------------
Total securities $300,916 $300,040
=============================================================================================================
</TABLE>
13
The following table shows the maturities and weighted-average yields of
investment securities at September 30, 2000. Mortgage-backed securities are
placed in maturity categories based on expected payments. All other securities
are shown at their contractual maturity.
Maturities and Weighted Average Yields of Debt Securities
(dollars in thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
September 30, 2000
----------------------------------------------------------------------------------------------------------------------------
1 year 1 to 5 5 to 10 Over
or less years years 10 years Total
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $16,479 5.72% $ 8,711 6.05% $ - - $ - - $ 25,190 5.84%
Federal agencies 21,779 5.47% 91,142 6.10% 34,154 6.29% 3,985 7.47% 151,060 6.09%
Mortgage-backed securities 1,977 6.71% 7,339 6.83% 1,707 6.76% 933 6.72% 11,956 6.79%
State and municipal 50 3.55% 2,743 5.48% 5,600 4.86% 5,690 4.97% 14,083 5.02%
Other securities - - 293 7.85% - - - - 293 7.85%
Marketable equity securities1 - - - - - - - - 6,476 -
----------------------------------------------------------------------------------------------------------------------------
Total $40,285 $110,228 $41,461 $10,608 $209,058
----------------------------------------------------------------------------------------------------------------------------
Average Yield 5.63% 6.13% 6.12% 6.06% 6.03%
============================================================================================================================
Securities held-to-maturity
Federal agencies $2,000 5.77% $24,996 5.71% $ 3,430 6.86%$ - - $30,426 5.84%
Mortgage-backed securities 6,119 5.67% 16,269 5.69% 1,156 5.90% 323 6.08% 23,867 5.70%
State and municipal 1,710 4.61% 17,295 4.28% 13,262 4.95% 1,080 5.72% 33,347 4.61%
----------------------------------------------------------------------------------------------------------------------------
Total $9,829 $58,560 $17,848 $1,403 $87,640
----------------------------------------------------------------------------------------------------------------------------
Average Yield 5.51% 5.28% 5.38% 5.80% 5.34%
============================================================================================================================
Non-marketable equity securities1 - - - - - - - - $ 4,218 -
============================================================================================================================
</TABLE>
1 Due to the nature of these securities, they do not have a stated maturity date
or rate.
14
<PAGE>
Loans
The following tables present the amounts and percentages of loans for
September 30, 2000 and December 31, 1999 according to the categories of
commercial, financial and agricultural; real estate; and installment and
consumer loans.
Amount of Loans Outstanding
(dollars in thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
September 30, 2000 December 31, 1999
-------------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $203,986 31.50% $188,430 30.86%
Real estate 311,083 48.05% 294,055 48.16%
Installment and consumer1 132,392 20.45% 128,085 20.98%
-------------------------------------------------------------------------------------------------------------
Total loans $647,461 100.00% $610,570 100.00%
=============================================================================================================
</TABLE>
1Net of unearned discount
The balance of loans outstanding as of September 30, 2000 by maturity
is shown in the following table:
Maturity of Loans Outstanding
(dollars in thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
September 30, 2000
----------------------------------------------------------------------------------------------------------------------------
1 year 1-5 Over 5
or less years years Total
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $106,594 $73,301 $24,091 $203,986
Real estate 50,199 136,776 124,108 311,083
Installment and consumer1 30,021 98,452 3,919 132,392
----------------------------------------------------------------------------------------------------------------------------
Total $186,814 $308,529 $152,118 $647,461
============================================================================================================================
Percentage of total loans outstanding 28.85% 47.65% 23.50% 100.00%
============================================================================================================================
</TABLE>
1 Net of unearned discount
15
<PAGE>
Capital
Total stockholders' equity increased $5,881,000 from December 31, 1999
to September 30, 2000. The change is summarized as follows:
(in thousands)
--------------
Stockholders' equity, December 31, 1999 $116,081
Net income 8,455
Issuance of common stock 31
Treasury stock transactions, net (1,029)
Stock appreciation rights (62)
Purchase of fractional shares related to merger (4)
Purchase of fractional shares related to 5% stock dividend (5)
Cash dividends declared (1,053)
Cash dividends paid (2,372)
Other comprehensive income 1,920
---------
Stockholders' equity, September 30, 2000 $121,962
=========
On September 19, 2000, the board of directors of the Company declared
a cash dividend of $0.10 per share of the Company's common stock. The dividend
of $1,053,000 was paid on October 19, 2000 to holders of record on October 6,
2000.
The Company and its subsidiary banks are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and its subsidiary banks' financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, banks must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Company's and its subsidiary banks' capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and its subsidiary banks to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined). Management believes,
as of September 30, 2000, that the Company and its subsidiary banks exceeded all
capital adequacy requirements to which they are subject.
As of September 30, 2000, the most recent notifications from primary
regulatory agencies categorized all the Company's subsidiary banks as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, banks must maintain minimum total capital to
risk-weighted assets, Tier I capital to risk-weighted assets, and Tier I capital
to average assets ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed any of the
Company's subsidiary banks' categories.
16
<PAGE>
The Company's, BankIllinois' and First National Bank of Decatur's actual capital
amounts and ratios are presented in the following table (in thousands):
<TABLE>
<CAPTION>
To be well
Capitalized under
For capital prompt corrective
Actual Adequacy purposes: action provisions:
-------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 2000:
Total capital
(to risk-weighted assets)
Consolidated $131,684 18.9% $55,746 8.0% N/A
BankIllinois $64,566 16.6% $31,050 8.0% $38,813 10.0%
First National Bank of Decatur $42,368 16.0% $21,201 8.0% $26,502 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated $123,150 17.7% $27,873 4.0% N/A
BankIllinois $59,670 15.4% $15,525 4.0% $23,288 6.0%
First National Bank of Decatur $39,054 14.7% $10,601 4.0% $15,901 6.0%
Tier I capital
(to average assets)
Consolidated $123,150 11.7% $42,024 4.0% N/A
BankIllinois $59,670 10.9% $21,937 4.0% $27,422 5.0%
First National Bank of Decatur $39,054 9.5% $16,495 4.0% $20,619 5.0%
</TABLE>
Interest Rate Sensitivity
The concept of interest rate sensitivity attempts to gauge exposure of
the Company's net interest income to adverse changes in market driven interest
rates by measuring the amount of interest-sensitive assets and
interest-sensitive liabilities maturing or subject to repricing within a
specified time period. Liquidity represents the ability of the Company to meet
the day-to-day demands of deposit customers balanced by its investments of these
deposits. The Company must also be prepared to fulfill the needs of credit
customers for loans with various types of maturities and other financing
arrangements. The Company monitors its interest rate sensitivity and liquidity
through the use of static gap reports which measure the difference between
assets and liabilities maturing or repricing within specified time periods as
well as financial forecasting/budgeting/reporting software packages.
17
<PAGE>
The following table presents the Company's interest rate sensitivity
at various intervals at September 30, 2000:
<TABLE>
<CAPTION>
Rate Sensitivity of Earning Assets and Interest Bearing Liabilities
(dollars in thousands)
------------------------------------------------------------------------------------------------------------------------------------
1-30 31-90 91-180 181-365 Over
Days Days Days Days 1-year Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold
and interest earning deposits $ 14,516 $ - $ - $ - $ - $ 14,516
Debt and equity securities * 9,247 14,818 12,131 22,548 242,172 300,916
Loans ** 85,691 73,997 26,594 55,658 407,587 649,527
------------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $ 109,454 $ 88,815 $ 38,725 $ 78,206 $649,759 $ 964,959
------------------------------------------------------------------------------------------------------------------------------------
Interest bearing liabilities:
Savings and interest-bearing
demand deposits*** $ 11,727 $ 1,458 $ 2,160 $ 4,263 $164,036 $183,644
Money market savings deposits 143,964 - - - - 143,964
Time deposits 28,313 37,845 63,353 109,681 109,059 348,251
Federal funds purchased,
repurchase agreements, and notes
payables 56,687 122 125 6,267 585 63,786
FHLB advances and
other borrowings 5 10 200 6,030 34,748 40,993
------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities $ 240,696 $ 39,435 $ 65,838 $ 126,241 $308,428 $780,638
------------------------------------------------------------------------------------------------------------------------------------
Net asset (liability) funding ($131,242) $ 49,380 ($27,113) ($48,035) $341,331 $184,321
gap
------------------------------------------------------------------------------------------------------------------------------------
Repricing gap 0.45 2.25 0.59 0.62 2.11 1.24
Cumulative repricing gap 0.45 0.71 0.69 0.67 1.24 1.24
====================================================================================================================================
</TABLE>
* Debt and equity securities include securities available-for-sale,
securities held to maturity, and non-marketable equity securities.
** Loans are gross and include mortgage loans held-for-sale.
*** The total of savings and interest-bearing demand deposits does not include
$43,290,000 of non-transactional accounts which are savings accounts that
are non-interest bearing.
Included in the 1-30 day category of savings and interest-bearing demand
deposits are non-core deposits plus a percentage, based upon
industry-accepted assumptions and Company analysis, of the core deposits.
"Core deposits" are the lowest average balance of the prior twelve months
for each product type included in this category. "Non-core deposits" are
the difference between the current balance and core deposits. The time
frames include a percentage, based upon industry-accepted assumptions and
Company analysis, of the core deposits, as follows:
<TABLE>
<CAPTION>
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
--------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Savings and interest-bearing
demand deposits 0.45% 0.85% 1.25% 2.45% 95.0%
</TABLE>
18
<PAGE>
At September 30, 2000, the Company was liability-sensitive due to the
levels of savings and interest bearing demand deposits, short-term time
deposits, and short-term borrowings. As such, the effect of a decrease in the
interest rate for all interest earning assets and interest bearing liabilities
of 100 basis points would increase annualized net interest income by
approximately $1,312,420 in the 1-30 days category and $818,620 in the 1-90 days
category assuming no management intervention. An increase in interest rates
would have the opposite effect for the same time periods.
In addition to managing interest rate sensitivity and liquidity through
the use of gap reports, the Company has provided for emergency liquidity
situations with informal agreements with correspondent banks which permit the
Company to borrow federal funds on an unsecured basis. Additionally, the Company
can borrow approximately $23,869,000 from the Federal Home Loan Bank on a
secured basis.
The Company uses financial forecasting/budgeting/reporting software
packages to perform interest rate sensitivity analysis for all product
categories. The Company's primary focus of its analysis is on the effect of
interest rate increases and decreases on net interest income. Management
believes that this analysis reflects the potential effects on current earnings
of interest rate changes. Call criteria and prepayment assumptions are taken
into consideration for investments in debt and equity securities. All of the
Company's financial instruments are analyzed by a software database which
includes each of the different product categories which are tied to key rates
such as prime, Treasury Bills, or the federal funds rate. The relationships of
each of the different products to the key rate that the product is tied to is
proportional. The software reprices the products based on current offering
rates. The software performs interest rate sensitivity analysis by performing
rate shocks of plus or minus 200 basis points in 100 basis point increments.
The following table shows projected results at September 30, 2000 and
December 31, 1999 of the impact on net interest income from an immediate change
in interest rates. The results are shown as a percentage change in net interest
income over the next twelve months.
Basis Point Change
------------------
+200 +100 -100 -200
September 30, 2000 (0.6%) (0.3%) 0.3% 0.6%
December 31, 1999 (0.7%) (0.4%) 0.4% 0.7%
As shown in the above table, there was only a slight change on the
impact of interest rate changes on net interest income at September 30, 2000
compared to December 31, 1999. The Company continues to remain liability
sensitive, causing a projected decrease in net interest income from an increase
in interest rates, and having an opposite affect from a decrease in interest
rates.
The foregoing computations are based on numerous assumptions, including
relative levels of market interest rates, prepayments and deposit mix. The
computed estimates should not be relied upon as a projection of actual results.
Despite the limitations on preciseness inherent in these computations,
management believes that the information provided is reasonably indicative of
the effect of changes in interest rate levels on the net earning capacity of the
Company's current mix of interest earning assets and interest bearing
liabilities. Management continues to use the results of these computations,
along with the results of its computer model projections, in order to maximize
current earnings while positioning the Company to minimize the effect of a
prolonged shift in interest rates that would adversely affect future results of
operations.
At the present time, the most significant market risk affecting the
Company is interest rate risk. Other market risks such as foreign currency
exchange risk and commodity price risk do not
19
<PAGE>
occur in the normal business of the Company. The Company also is not currently
using trading activities or derivative instruments to control interest rate
risk.
Liquidity and Cash Flows
The Company was able to meet liquidity needs during the first nine
months of 2000. A review of the consolidated statements of cash flows included
in the accompanying financial statements shows that the Company's cash and cash
equivalents decreased $27,509,000 from December 31, 1999 to September 30, 2000.
This decrease came from net cash used in investing and financing activities
offset by net cash provided by operating activities.
There were differences in sources and uses of cash during the first
nine months of 2000 compared to the first nine months of 1999. Less cash was
used in the area of financing activities during the first nine months of 2000
compared to the first nine months of 1999. This was primarily due to the
decrease in volume of federal funds purchased, repurchase agreements, and notes
payable during the first nine months of 2000 compared to an increase in volume
during the first nine months of 1999. Less cash was provided by operating
activities during the first nine months of 2000 compared to the first nine
months of 1999, primarily due to a lower volume of loans originated for sale as
well as the corresponding lower proceeds from those loans. Less cash was used in
investing activities during the first nine months of 2000 as compared to the
first nine months of 1999. Less cash was used to purchase investment securities
during the first nine months of 2000 compared to the first nine months of 1999;
but the cash provided by proceeds from sales, maturities and calls of investment
securities was also down in the first nine months of 2000 as compared to the
same period in 1999. As was the case during the first nine months of 1999, there
has been an increase in loan growth during the first nine months of 2000.
However, the volume of loan growth, and thus the cash used, during this period
in 2000 was smaller than in 1999.
Provision and Allowance for Loan Losses
The provision for loan losses is based on management's evaluation of
the loan portfolio in light of national and local economic conditions, changes
in the composition and volume of the loan portfolio, changes in the volume of
past due and nonaccrual loans, and other relevant factors. The allowance for
loan losses, which is reported as a deduction from loans, is available for loan
charge-offs. The allowance is increased by the provision charged to expense and
is reduced by loan charge-offs net of loan recoveries. The balance of the
allowance for loan losses was $9,067,000 at September 30, 2000 compared to
$8,682,000 at December 31, 1999, as net charge-offs were $73,000 and provisions
totaled $458,000 during the first nine months of 2000. The allowance for loan
losses as a percentage of gross loans, including loans held-for-sale, was 1.40%
at September 30, 2000, compared to 1.42% at December 31, 1999 as gross loans,
including loans held-for-sale, increased from $611,963,000 to $649,527,000. Net
charge-offs of $73,000 during the first nine months included a $300,000 recovery
associated with a commercial credit.
The allowance for loan losses as a percentage of non-performing loans
was 728% at September 30, 2000. Non-performing loans, while increasing from
$552,000 at December 31, 1999, remained at an acceptable level of $1,246,000.
The $694,000 increase in non-performing loans during the first nine months
resulted from a $718,000 increase in loans over 90 days past due, which was
partially offset by a $24,000 decrease in non-accruals. The allowance for loan
losses increased from $8,682,000 at December 31, 1999, to $9,067,000 at
September 30, 2000 primarily due to the $300,000 commercial credit recovery
discussed above. Although unforeseen market conditions could result in
significant adjustments in the future, management believes that problem assets
have been effectively identified and that the allowance for loan losses is
adequate to absorb possible losses in the portfolio which are reasonably
anticipated.
20
<PAGE>
The following table summarizes changes in the allowance for loan losses
by loan categories for each period and additions to the allowance for loan
losses which have been charged to operations.
<TABLE>
<CAPTION>
Allowance for Loan Losses
(dollars in thousands)
-------------------------------------------------------------------------------------------------
September 30, 2000 September 30, 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses at
beginning of year $8,682 $8,852
-------------------------------------------------------------------------------------------------
Charge-offs during period:
Commercial, financial and agricultural ($25) ($23)
Residential real estate (33) (428)
Installment and consumer (573) (399)
-------------------------------------------------------------------------------------------------
Total ($631) ($850)
-------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural $424 $137
Residential real estate 7 52
Installment and consumer 127 155
-------------------------------------------------------------------------------------------------
Total $558 $344
-------------------------------------------------------------------------------------------------
Net (charge-offs) recoveries ($73) ($506)
Provision for loan losses 458 408
-------------------------------------------------------------------------------------------------
Allowance for loan losses at end of quarter $9,067 $8,754
=================================================================================================
Ratio of net (charge-offs) recoveries to
average net loans 0.01% 0.09%
=================================================================================================
</TABLE>
21
<PAGE>
The following table shows the allocation of the allowance for loan
losses allocated to each category.
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses
---------------------------------------------------------------------------------------------------
September 30, 2000 December 31, 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Allocated:
Commercial, financial and agricultural $3,382 $3,476
Residential real estate 823 790
Installment and consumer 556 452
Installment and consumer 1,326 1,258
---------------------------------------------------------------------------------------------------
Total allocated allowance $5,531 $5,524
Unallocated allowances 3,536 3,158
---------------------------------------------------------------------------------------------------
Total $9,067 $8,682
===================================================================================================
</TABLE>
The following table presents the aggregate amount of loans considered
to be nonperforming for the periods indicated. Nonperforming loans include loans
accounted for on a nonaccrual basis, accruing loans contractually past due 90
days or more as to interest or principal payments and loans which are troubled
debt restructurings as defined in Statement of Financial Accounting Standards
No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings."
Nonperforming Loans (in thousands)
-------------------------------------------------------------------------------
September 30, 2000 December 31, 1999
===============================================================================
Nonaccrual loans1 $88 $112
===============================================================================
Loans past due 90 days or more $1,158 $440
===============================================================================
Renegotiated loans $91 $104
===============================================================================
1Includes $88,000 at September 30, 2000 and $112,000 at December 31, 1999
of real estate and consumer loans which management does not consider
impaired as defined by the Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114).
Results of Operations
Results of Operations For the Nine Months Ended September 30, 2000
The merger of equals to create the Company, which occurred near the end
of the first quarter of 2000, resulted in significant merger related costs which
were expensed during the first nine months. These expenses had a significant
effect on the reported net income of the combined entity. Net income for the
first nine months of 2000 was $8,455,000, a $1,976,000, or 18.9%, decrease from
$10,431,000 during the first nine months of 1999. Basic earnings per share
decreased $0.18, or 18.4%, to $0.80 in the first nine months of 2000 from $0.98
in the same period of 1999. Diluted earnings per share decreased $0.18, or
18.8%, to $0.78 in the first nine months of 2000 from $0.96 in the same period
of 1999.
22
<PAGE>
Operating earnings for the nine months ended September 30, 2000, were
$11,861,000 compared to $10,431,000 for the same period in 1999, an increase of
$1,430,000 or 13.7%. Basic operating earnings per share increased $0.14, or
14.3%, to $1.12 in the first nine months of 2000 from $0.98 during the first
nine months of 1999. Diluted operating earnings per share increased $0.14, or
14.6%, to $1.10 in the first nine months of 2000 from $0.96 in the same period
of 1999. The difference between operating and net earnings was due to merger
related expenses, net of tax, of $3,406,000 affecting the first nine months of
2000. The merger related expenses consisted of $2,454,000 of professional fees,
$941,000 of early retirement and termination of employment contracts, and
$587,000 of expense related to computer equipment write-down, offset by $576,000
of tax benefit. The Company anticipates additional non-recurring merger related
expenses, which have not been quantified, during the remainder of 2000 as it
positions itself for 2001 and beyond.
23
<PAGE>
The following schedule "Consolidated Average Balance Sheet and Interest
Rates" provides details of average balances, interest income or interest
expense, and the average rates for the Company's major asset and liability
categories.
<TABLE>
<CAPTION>
Consolidated Average Balance Sheet and Interest Rates
(dollars in thousands)
---------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
---------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Taxable investment securities1 $261,845 $11,661 5.94% $298,237 $12,968 5.80%
Tax-exempt investment securities1 (TE) 43,858 2,270 6.90% 42,475 2,192 6.88%
Federal funds sold and interest earning
Deposits2 23,903 1,187 6.62% 22,200 846 5.08%
Loans3,4 (TE) 614,571 40,469 8.78% 535,653 34,389 8.56%
---------------------------------------------------------------------------------------------------------------------
Total interest earning assets
and interest income (TE) $944,177 $55,587 7.85% $898,565 $50,395 7.48%
---------------------------------------------------------------------------------------------------------------------
Cash and due from banks $49,155 $59,790
Premises and equipment 21,642 21,439
Other assets 21,574 20,821
---------------------------------------------------------------------------------------------------------------------
Total assets $1,036,548 $1,000,615
=====================================================================================================================
Liabilities and Stockholders' Equity
Interest bearing demand deposits $222,768 $6,435 3.85% $266,153 $6,415 3.21%
Savings 92,386 1,510 2.18% 57,036 915 2.14%
Time deposits 341,964 14,260 5.56% 318,548 12,604 5.28%
Federal funds purchased, repurchase
agreements, and notes payable 73,576 2,895 5.25% 73,836 2,283 4.12%
FHLB advances and other borrowings 35,474 1,554 5.84% 28,427 1,221 5.73%
---------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities and interest
expense $766,168 $26,654 4.64% $744,000 $23,438 4.20%
---------------------------------------------------------------------------------------------------------------------
Noninterest bearing demand deposits $88,402 $116,954
Noninterest bearing savings deposits5 49,205 12,070
Other liabilities 13,730 12,282
---------------------------------------------------------------------------------------------------------------------
Total liabilities $917,505 $885,306
Stockholders' equity 119,043 115,309
---------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,036,548 $1,000,615
=====================================================================================================================
Interest spread (average
rate earned minus
average rate paid) (TE) 3.21% 3.28%
=====================================================================================================================
Net interest income (TE) $28,933 $26,957
=====================================================================================================================
Net yield on interest
Earning assets (TE) 4.09% 4.00%
=====================================================================================================================
</TABLE>
Notes:
1Investments in debt securities are included at carrying value.
2Federal funds sold and interest earning deposits include approximately
$119,000 and $105,000 in 2000 and 1999, respectively, of interest income
from third party processing of cashier checks.
3Loans are net of allowance for loan losses. Nonaccrual loans are included
in the total.
4Loan fees of approximately $699,000 and $803,000 in 2000 and 1999,
respectively, are included in total loan income.
5See definition of deposit accounts in the "Analysis of Volume and Rate
Changes" discussion below.
24
<PAGE>
Net interest income, the most significant component of the Company's
earnings, is the difference between interest received or accrued on the
Company's earning assets--primarily loans and investments--and interest paid or
accrued on deposits and borrowings. In order to compare the interest generated
from different types of earning assets, the interest income on certain
tax-exempt investment securities and loans is increased for analysis purposes to
reflect the income tax savings provided by these tax-exempt assets. The
adjustment to interest income for tax-exempt investment securities and loans was
calculated based on the federal income tax statutory rate of 34%. The following
table presents, on a tax equivalent (TE) basis, an analysis of changes in net
interest income resulting from changes in average volumes of earning assets and
interest bearing liabilities and average rates earned and paid. The change in
interest due to the combined rate/volume variance has been allocated to rate and
volume changes in proportion to the absolute dollar amounts of change in each.
<TABLE>
<CAPTION>
Analysis of Volume and Rate Changes
(in thousands)
-------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2000
-------------------------------------------------------------------------------------------------------------
Increase
(Decrease)
from
Previous Due to Due to
Year Volume Rate
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Taxable investment securities ($1,307) ($1,615) $308
Tax-exempt investment
securities (TE) 78 71 7
Federal funds sold and interest earning deposits 341 69 272
Loans (TE) 6,080 5,177 903
-------------------------------------------------------------------------------------------------------------
Total interest income (TE) $5,192 $3,702 $1,490
-------------------------------------------------------------------------------------------------------------
Interest Expense
Interest bearing demand and savings deposits1 $615 ($186) $801
Time deposits 1,656 955 701
Federal funds purchased,
repurchase agreements, and notes payable 612 (8) 620
FHLB advances and other borrowings 333 309 24
-------------------------------------------------------------------------------------------------------------
Total interest expense $3,216 $1,070 $2,146
-------------------------------------------------------------------------------------------------------------
Net Interest Income (TE) $1,976 $2,632 ($656)
=============================================================================================================
</TABLE>
Notes:
1Due to deposit reclassifications described below, interest bearing demand
and savings deposits are included in the same line for comparability.
Net interest income on a tax equivalent basis was $1,976,000, or 7.3%,
higher for the first nine months of 2000 compared to 1999. Total tax-equivalent
interest income was $5,192,000, or 10.3%, higher in 2000 compared to 1999, and
interest expense increased $3,216,000, or 13.7%. The increase in interest income
was mainly due to an increase in average earning assets as well as higher
interest rates. The increase in interest expense was primarily due to higher
interest rates as well as an increase in average interest bearing liabilities.
The higher interest rates during the first nine months of 2000 were reflective
of the economy and the interest rate environment generally, as the prime rate
and other leading indicators increased.
The increase in total interest income was due to increases in interest
income from loans, federal funds sold and interest earning deposits, and
tax-exempt investment securities. These increases were somewhat offset by a
decrease in taxable investment securities interest. The increase
25
<PAGE>
in interest income from loans was primarily due to an increase in average loans
outstanding during the first nine months of 2000 compared to the first nine
months of 1999. The increase in interest from federal funds sold and interest
earning deposits was primarily due to an increase in rates. The increase in
tax-exempt investment securities was primarily due to an increase in the balance
of tax-exempt investment securities. The decrease in taxable investment interest
income was mainly due to a decrease in average taxable investments, offset
somewhat by higher yields. The decrease in the total average investment
portfolio was primarily caused by shifting assets to fund loan growth.
The increase in total interest expense was due to an increase in
interest from all interest bearing liability categories, as shown in the
"Consolidated Average Balance Sheet and Interest Rates" table. Interest expense
on time deposits increased during the first nine months of 2000 compared to the
first nine months of 1999 because of both higher volume and higher rates.
Interest expense on federal funds purchased, repurchase agreements, and notes
payable increased during the first nine months of 2000 compared to the same
period in 1999 primarily due to higher rates, offset somewhat by a slight
decrease in volume. Also contributing to the increase in total interest expense
was an increase in interest on interest bearing demand and savings deposits,
which was due to an increase in rates on these accounts, offset somewhat by a
decrease in the average balances. Interest expense on FHLB advances and other
borrowings increased in the first nine months of 2000 compared to the first nine
months of 1999 primarily due to an increase in volume. The lower average balance
of interest bearing demand deposits and the higher average balance of savings
deposits in the first nine months of 2000 compared to the first nine months of
1999, as shown in the "Consolidated Average Balance Sheet and Interest Rates"
table above, was partially caused by reclassifying non-transactional interest
bearing demand deposits into the savings category during 2000. A portion of the
Company had already performed this reclassification in September 1999. Accounts
identified as transactional remained in the demand categories, while accounts
identified as non-transactional were reclassified into the savings categories.
The classification was based upon whether the account balance was fluctuating or
whether it exhibited stable balance portions which were called
non-transactional. Banks are required to hold balances at the Federal Reserve
Bank based upon transactional account balances. By identifying these accounts as
non-transactional, the Company was able to reduce the balances required to be
held at the Federal Reserve Bank in a non-interest bearing reserve account.
The provision for loan losses recorded was $458,000 during the first
nine months of 2000. This was $50,000, or 12.3%, higher than the $408,000
recorded during the first nine months of 1999. The provision during both periods
was based on management's analysis of the loan portfolio, as discussed in the
provision and allowance for loan losses section above.
Total non-interest income decreased $1,295,000, or 9.5%, during the
first nine months of 2000 compared to the first nine months of 1999. Included in
this decrease was a decrease of $978,000, or 15.9%, in remittance processing
income. Although the number of items processed was comparable between 2000 and
1999, there was a shift from lockbox payments to mechanized payments which have
both lower revenue streams as well as lower costs. Other non-interest income
decreased $367,000, or 21.6%. This decrease was due, in part, to consulting
revenue of $159,000 in 1999. Gains on sales of mortgage loans held-for-sale
decreased $363,000, or 74.8%. This decrease reflected a $35,342,000, or 69.1%,
decrease in funded mortgage loans held-for-sale during the first nine months of
2000 compared to the first nine months of 1999 when interest rates were lower.
Also contributing to the decrease in total non-interest income was a decrease of
$129,000, or 88.4%, in income from securities transactions. This was mainly the
result of selling an equity investment during the third quarter of 1999 for a
gain of $100,000. Somewhat offsetting these decreases was a $422,000, or 11.4%,
increase in trust and brokerage fees. The majority of this increase was due to
the addition of new accounts. Higher market values during the first nine months
of 2000 also added to the increase in assets under management upon which fees
are based. An increase of $120,000, or 8.1%, in service charges on deposit
accounts also somewhat offset the overall decrease in total non-interest income
from 1999 to 2000.
26
<PAGE>
Total non-interest expense increased $2,478,000, or 10.2%, during the
first nine months of 2000 compared to the first nine months of 1999. Of this
increase, $3,982,000 was due to merger related expenses. One such expense,
merger related professional fees, accounted for $2,454,000 of the total related
expenses. Equipment expense increased $516,000, or 22.0%, during the first nine
months of 2000 compared to the first nine months of 1999. Included in this
increase was $587,000 due to a merger related write-down of computer equipment
and software. Salaries and employee benefits expense increased $228,000, or
1.7%, during the first nine months of 2000 compared to the first nine months of
1999. Included in this increase was $941,000 due to expense related to early
retirement and termination of employment contracts as a result of the merger.
Somewhat offsetting this increase was a decrease in salaries and employee
benefits for FirsTech, which closed its Hammond processing center as well as
reduced its number of employees. Office supplies increased $92,000, or 11.4%
during the first nine months of 2000 compared to the same period of 1999. These
increases were somewhat offset by a decrease in other non-interest expense of
$332,000, or 9.6%. This was due to an increase in other real estate income of
$461,000 during the first nine months of 2000 compared to the first nine months
of 1999 mainly due to the sale of a property during 2000 which had previously
been written down. Service charges from correspondent banks decreased $266,000
or 25.1%, during the first nine months of 2000 compared to the same period in
1999 mainly due to a lower volume of lockbox processing for FirsTech as
mentioned above, therefore resulting in lower service charges from correspondent
banks. There were also decreases in occupancy expense of $116,000, or 6.5%, and
in data processing expense of $98,000, or 8.4%
Income tax expense increased $103,000, or 2.2%, during the first nine
months of 2000 compared to the first nine months of 1999. This was due to an
increase of $679,000 from higher operating income in 2000 resulting in more
taxable income, somewhat offset by $576,000 of tax benefit on expenses related
to the merger. The effective tax rate increased from 31.3% during the first nine
months of 1999 to 36.4% during the first nine months of 2000 due to $2,454,000
of merger related professional fees for which the Company has not recognized a
tax benefit.
Results of Operations For the Three Months Ended September 30, 2000
Although the merger of equals to create the Company occurred during the
first quarter of 2000, some additional merger related costs were expensed during
the third quarter. These expenses had an effect on the reported net income of
the combined Company, although not as significant as for the first quarter. Net
income for the third quarter of 2000 was $3,544,000, a $3,000, or 0.1%, decrease
from $3,547,000 during the third quarter of 1999. Both basic earnings per share
and diluted earnings per share remained unchanged during the third quarter of
2000 compared to the third quarter of 1999 at $0.34 and $0.33 respectively.
Operating earnings for the third quarter of 2000, were $3,934,000
compared to $3,547,000 for the same period in 1999, an increase of $387,000, or
10.9%. Basic operating earnings per share increased $0.03, or 8.8%, to $0.37 in
the third quarter of 2000 from $0.34 in the third quarter of 1999. Diluted
operating earnings per share increased $0.04, or 12.1%, to $0.37 in the third
quarter 2000 from $0.33 in the third quarter of 1999. The difference between
operating and net earnings was due to merger related expenses, net of tax, of
$390,000 affecting the third quarter of 2000. The merger related expenses
consisted of $587,000 of equipment expense related to the write-down of computer
equipment and software, and $2,000 of merger related professional fees, net of a
$199,000 tax benefit. The Company anticipates additional non-recurring merger
related expenses, which have not been quantified, during the remainder of 2000
as it positions itself for 2001 and beyond.
27
<PAGE>
The following schedule "Consolidated Average Balance Sheet and Interest
Rates" provides details of average balances, interest income or interest
expense, and the average rates for the Company's major asset and liability
categories.
<TABLE>
<CAPTION>
Consolidated Average Balance Sheet and Interest Rates
(dollars in thousands)
---------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30,
---------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Taxable investment securities1 $256,043 $3,809 5.95% $282,778 $4,069 5.76%
Tax-exempt investment securities1 (TE) 45,684 791 6.93% 43,388 735 6.77%
Federal funds sold and interest earning
Deposits2 7,590 325 17.13% 10,163 256 10.08%
Loans3,4 (TE) 632,468 14,232 9.00% 563,805 12,184 8.64%
---------------------------------------------------------------------------------------------------------------------
Total interest earning assets
and interest income (TE) $941,785 $19,157 8.14% $900,134 $17,244 7.66%
---------------------------------------------------------------------------------------------------------------------
Cash and due from banks $49,488 $66,338
Premises and equipment 21,491 21,939
Other assets 22,427 20,797
---------------------------------------------------------------------------------------------------------------------
Total assets $1,035,191 $1,009,208
=====================================================================================================================
Liabilities and Stockholders' Equity
Interest bearing demand deposits $218,254 $2,339 4.29% $268,044 $2,235 3.34%
Savings 92,465 531 2.30% 55,039 302 2.19%
Time deposits 344,773 5,105 5.92% 322,031 4,265 5.30%
Federal funds purchased, repurchase
agreements, and notes payable 72,998 915 5.01% 86,230 773 3.59%
FHLB advances and other borrowings 41,500 635 6.12% 29,079 449 6.18%
---------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities and interest
expense $769,990 $9,525 4.95% $760,423 $8,024 4.22%
---------------------------------------------------------------------------------------------------------------------
Noninterest bearing demand deposits $86,640 $111,891
Noninterest bearing savings deposits5 43,654 10,580
Other liabilities 14,788 10,562
---------------------------------------------------------------------------------------------------------------------
Total liabilities $915,072 $893,456
Stockholders' equity 120,119 115,752
---------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,035,191 $1,009,208
=====================================================================================================================
Interest spread (average
rate earned minus
average rate paid) (TE) 3.19% 3.44%
=====================================================================================================================
Net interest income (TE) $9,632 $9,220
=====================================================================================================================
Net yield on interest
earning assets (TE) 4.09% 4.10%
=====================================================================================================================
</TABLE>
Notes:
1Investments in debt securities are included at carrying value.
2Federal funds sold and interest earning deposits include approximately
$41,000 and $37,000 in 2000 and 1999, respectively, of interest income from
third party processing of cashier checks.
3Loans are net of allowance for loan losses. Nonaccrual loans are included in
the total.
4Loan fees of approximately $269,000 and $221,000 in 2000 and 1999,
respectively, are included in total loan income.
5See definition of deposit accounts in the "Analysis of Volume and Rate
Changes" discussion below.
28
<PAGE>
The following table presents, on a tax equivalent basis, an analysis of
changes in net interest income resulting from changes in average volumes of
earning assets and interest bearing liabilities and average rates earned and
paid. The change in interest due to the combined rate/volume variance has been
allocated to rate and volume changes in proportion to the absolute dollar
amounts of change in each.
<TABLE>
<CAPTION>
Analysis of Volume and Rate Changes
(in thousands)
-------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 2000
-------------------------------------------------------------------------------------------------------------
Increase
(Decrease)
from
Previous Due to Due to
Year Volume Rate
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Taxable investment securities ($260) ($398) $138
Tax-exempt investment
securities (TE) 56 38 18
Federal funds sold and interest earning deposits 69 (77) 146
Loans (TE) 2,048 1,529 519
-------------------------------------------------------------------------------------------------------------
Total interest income (TE) $1,913 $1,092 $821
-------------------------------------------------------------------------------------------------------------
Interest Expense
Interest bearing demand and savings deposits1 $333 ($100) $433
Time deposits 840 317 523
Federal funds purchased,
repurchase agreements, and notes payable 142 (132) 274
FHLB advances and other borrowings 186 190 (4)
-------------------------------------------------------------------------------------------------------------
Total interest expense $1,501 $275 $1,226
-------------------------------------------------------------------------------------------------------------
Net Interest Income (TE) $412 $817 ($405)
=============================================================================================================
</TABLE>
Notes:
1Due to deposit reclassifications described below, interest bearing demand
and savings deposits are included in the same line for comparability.
Net interest income on a tax equivalent basis was $412,000, or 4.5%,
higher for the third quarter of 2000 compared to the third quarter of 1999.
Total tax-equivalent interest income was $1,913,000, or 11.1%, higher in 2000
compared to 1999, and interest expense increased $1,501,000, or 18.7%. The
increase in interest income was primarily due to an increase in volume, as well
as an increase in interest rates. The increase in interest expense was primarily
due to an increase in interest rates.
The increase in total interest income was due to increases in interest
income from loans, federal funds sold and interest earning deposits, and
tax-exempt investment securities. These increases were somewhat offset by a
decrease in taxable investment securities interest. The increase in interest
income from loans was primarily due to an increase in average loans outstanding,
as well as higher interest rates during the third quarter of 2000 compared to
the third quarter of 1999. The increase in interest from federal funds sold and
interest earning deposits was due to an increase in rates, somewhat offset by a
decrease in average balances during the period. The increase in tax-exempt
investment interest income was due both to an increase in average tax-exempt
investments, as well as to higher yields. The decrease in interest from taxable
investments was caused by a decrease in average taxable investments, somewhat
offset by higher yields. The decrease in the total average investment portfolio
was primarily caused by shifting assets to fund loan growth.
29
<PAGE>
The increase in total interest expense was due to an increase in
interest from all interest bearing liability categories as shown in the table.
Interest expense on time deposits increased during the third quarter of 2000
compared to the third quarter of 1999 mainly because of increased rates as well
as a higher average balance. The increase in interest expense on interest
bearing demand and savings deposits was due to an increase in the overall rates
on these accounts, offset somewhat by a decrease in the average balances.
Interest expense on FHLB advances and other borrowings increased in the third
quarter of 2000 compared to the third quarter of 1999 mainly due to an increase
in volume in this category. Interest expense on federal funds purchased,
repurchase agreements, and notes payable increased during the third quarter of
2000 compared to the same period of 1999 due to higher rates, offset somewhat by
lower average balances. The lower average balance of interest bearing demand
deposits and the higher average balance of savings deposits in the third quarter
of 2000 compared to the third quarter of 1999 as shown in the "Consolidated
Average Balance Sheet and Interest Rates" table above, was partially caused by
reclassifying non-transactional interest bearing demand deposits into the
savings category during 2000. A portion of the Company had already performed
this reclassification in September 1999. Accounts identified as transactional
remained in the demand categories, while accounts identified as
non-transactional were reclassified into the savings categories. The
classification was based upon whether the account balance was fluctuating or
whether it exhibited stable balance portions which were called
non-transactional. Banks are required to hold balances at the Federal Reserve
Bank based upon transactional account balances. By identifying these accounts as
non-transactional, the Company was able to reduce the balances required to be
held at the Federal Reserve Bank in a non-interest bearing reserve account.
The provision for loan losses recorded was $191,000 during the third
quarter of 2000. This was a $65,000, or 51.6%, increase over the same period in
1999. The provision during both periods was based on management's analysis of
the loan portfolio, as discussed in the provision and allowance for loan losses
section above.
Total non-interest income decreased $627,000, or 13.6%, during the
third quarter of 2000 compared to the third quarter of 1999. Included in this
decrease was a decrease of $440,000, or 21.2%, in remittance processing income
due to a shift from lockbox payments to mechanized payments which have both
lower revenue streams as well as lower costs. Other non-interest income
decreased $174,000, or 32.6%. A decrease of $72,000, or 69.9% occurred in income
from securities transactions during the third quarter of 2000 compared to the
third quarter of 1999. This included a $100,000 gain from the sale of an equity
investment in the third quarter of 1999. Gains on sales of mortgage loans
held-for-sale decreased by $56,000, or 47.1%,during the third quarter of 2000
compared to the same period in 1999. This decrease reflected a $2,310,000, or
22.0%, decrease in funded mortgage loans held-for-sale during the third quarter
of 2000 compared to the same period in 1999 when interest rates were lower.
Somewhat offsetting these decreases was a $70,000, or 5.5%, increase in trust
and brokerage fees. The majority of this increase was due to the addition of new
accounts. Higher market values during the third quarter of 2000 compared to 1999
also added to the increase in assets under management upon which fees are based.
An increase of $45,000, or 8.8%, in service charges on deposit accounts also
somewhat offset the overall decrease in total non-interest income.
Total non-interest expense decreased $281,000, or 3.4%, during the
third quarter of 2000 compared to the third quarter of 1999. Salaries and
employee benefits decreased $442,000, or 9.8%, during the third quarter of 2000
compared to the third quarter of 1999. Contributing to this decrease was a
decrease in salaries and employee benefits for FirsTech which closed its Hammond
processing center as well as reduced its number of employees. Data processing
expense decreased $198,000, or 39.9%, during the third quarter of 2000 compared
to the same period in 1999. Service charges from correspondent banks decreased
$129,000, or 37.2%, in the third quarter of 2000 compared to the same period in
1999, due mainly to a lower volume of lockbox processing for FirsTech as
mentioned above, therefore resulting in lower service charges from correspondent
banks. Other non-interest expense decreased $127,000, or 10.0%. Occupancy
expense decreased
30
<PAGE>
$49,000, or 8.0%, during the third quarter of 2000 compared to the third quarter
of 1999. Somewhat offsetting these decreases was a $604,000, or 77.4%, increase
in equipment expense. The main reason for this increase was a $587,000 merger
related write-down of computer equipment. An increase in office supply expense
of $58,000, or 23.3%, also partially offset the overall decrease in non-interest
expenses.
Income tax expense decreased $17,000, or 1.0%, during the third quarter
of 2000 compared to the third quarter of 1999. This was due to an increase of
$182,000 from higher operating income in 2000 resulting in more taxable income,
somewhat offset by $199,000 of tax benefit on expenses related to the merger.
The effective tax rate remained stable at 31.2% during the third quarter of 1999
and 31.4% during the third quarter of 2000.
Business Segment Information
The Company currently operates in two industry segments. The primary
business involves providing banking services to central Illinois. BankIllinois,
First National Bank of Decatur and First Trust Bank of Shelbyville offer a full
range of financial services to business and individual customers. These services
include demand, savings, time and individual retirement accounts; commercial,
consumer (including automobile loans and personal lines of credit),
agricultural, and real estate lending; safe deposit and night depository
services; farm management; full service trust departments; discount brokerage
services and purchases of installment obligations from retailers, primarily
without recourse. The other industry segment involves retail payment processing.
FirsTech provides the following services to electric, water and gas utilities,
telecommunication companies, cable television firms and charitable
organizations: retail lockbox processing of payments delivered by mail to the
biller; processing of payments delivered by customer to pay agents such as
grocery stores, convenience stores and currency exchanges; and concentration of
payments delivered by the Automated Clearing House network, money management
software such as Quicken and through networks such as Visa e-Pay and Mastercard
RPS. The following is a summary of selected data for the various business
segments as of and for the nine months ending September 30:
<TABLE>
<CAPTION>
Banking Remittance
Services Services Company Eliminations Total
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Total interest income $ 54,831 $ 100 $ 139 $ (288) $ 54,782
Total interest expense 26,942 - - (288) 26,654
Provision for loan losses 458 - - - 458
Total non-interest income 7,370 5,823 136 (975) 12,354
Total non-interest expense 18,738 4,587 4,374 (975) 26,724
Income before income tax 16,063 1,336 (4,099) - 13,300
Income tax expense 5,008 461 (624) - 4,845
Net income 11,055 875 (3,475) - 8,455
Total assets 1,034,334 6,382 126,422 (122,170) 1,044,968
Depreciation and amortization 1,709 392 18 - 2,119
1999
Total interest income $ 49,637 $ 78 $ 125 $ (224) $ 49,616
Total interest expense 23,662 - - (224) 23,438
Provision for loan losses 408 - - - 408
Total non-interest income 7,660 6,533 99 (643) 13,649
Total non-interest expense 18,756 5,740 393 (643) 24,246
Income before income tax 14,471 871 (169) - 15,173
Income tax expense 4,503 296 (57) - 4,742
Net income 9,968 575 (112) - 10,431
Total assets 1,007,693 6,625 117,319 (115,106) 1,016,531
Depreciation and amortization 1,664 303 18 - 1,985
</TABLE>
31
<PAGE>
Recent Regulatory Developments
The Gramm-Leach-Bliley Act (the "Act"), which was enacted in November,
1999, allows eligible bank holding companies to engage in a wider range of
nonbanking activities, including greater authority to engage in securities and
insurance activities. Under the Act, an eligible bank holding company that
elects to become a financial holding company may engage in any activity that the
Board of Governors of the Federal Reserve System (the "Federal Reserve"), in
consultation with the Secretary of the Treasury, determines by regulation or
order is financial in nature, incidental to any such financial activity, or
complementary to any such financial activity and does not pose a substantial
risk to the safety or soundness of depository institutions or the financial
system generally. National banks are also authorized by the Act to engage,
through "financial subsidiaries," in certain activity that is permissible for
financial holding companies (as described above) and certain activity that the
Secretary of the Treasury, in consultation with the Federal Reserve, determines
is financial in nature or incidental to any such financial activity.
Although various bank regulatory agencies have issued regulations as
mandated by the Act, except for the jointly issued privacy regulations, the Act
and its implementing regulations have had little impact on the daily operations
of the Company and its subsidiary banks and, at this time, it is not possible to
predict the impact the Act and its implementing regulations may have on the
Company or its subsidiary banks. As of the date of this filing, the Company has
not applied for or received approval to operate as a financial holding company.
In addition, the Company's subsidiary banks have not applied for or received
approval to establish any financial subsidiaries. Less than 10% of all bank
holding companies have elected to become financial holding companies.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
--------------------------------------------------------------------------------
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Company and its subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area, our implementation of new technologies, our ability
to develop and maintain secure and reliable electronic systems, and accounting
principles, policies and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See the "Interest Rate Sensitivity" section above.
32
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The are no material pending legal proceedings to which the Company or its
subsidiaries is a party other than ordinary routine litigation incidental to
their respective businesses.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27. Financial Data Schedule
b. Reports
None
33
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAIN STREET TRUST, INC.
Date: November 13, 2000
By: /s/ David B. White
Executive Vice President
and Chief Financial Officer
By: /s/ Van A. Dukeman
President
and Chief Executive Officer
