<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report MAY 10, 2000
(Date of earliest event reported)
MAIN STREET TRUST, INC.
(Exact name of Registrant as specified in its charter)
ILLINOIS
(State or other jurisdiction of incorporation)
333-91759 37-13338484
(Commission File Number) (I.R.S. Employer Identification Number)
100 W. University Ave., Champaign, Illinois 61820-4028
(Address of principal executive offices) (Zip Code)
(217) 351-6500
(Registrant's telephone number, including area code)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
In connection with the merger of BankIllinois Financial Corporation
and First Decatur Bancshares, Inc. ("First Decatur") with and into Main
Street Trust, Inc., effective March 23, 2000, attached as Exhibit 99.1 is a
copy of First Decatur's consolidated balance sheet as of December 31, 1998
and 1999, and the related consolidated financial statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999.
(b) PRO FORMA FINANCIAL INFORMATION.
None.
(c) EXHIBITS.
Exhibit 99.1 - See financial statements described above in
Item 7(a).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MAIN STREET TRUST, INC.
Dated: May 10, 2000 By: /s/ Van A. Dukeman
----------------------------
Van A. Dukeman
President
2
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND
SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999 and 1998
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
First Decatur Bancshares, Inc.
Decatur, Illinois
We have audited the accompanying consolidated balance sheet of First Decatur
Bancshares, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of First
Decatur Bancshares, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ Olive LLP
Decatur, Illinois
January 28, 2000
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 33,061,487 $ 30,114,165
Federal funds sold 4,900,000 13,255,000
----------------------------------
Cash and cash equivalents 37,961,487 43,369,165
Investment securities
Available for sale 130,546,474 137,688,906
Held to maturity (fair value of $20,307,489 and $26,150,193) 20,383,900 25,567,253
----------------------------------
Total investment securities 150,930,374 163,256,159
Loans, net of allowance for loan losses of $3,623,213 and $3,573,320 252,732,072 214,812,279
Premises and equipment 9,508,120 9,081,662
Other assets 12,880,583 11,173,097
----------------------------------
Total assets $464,012,636 $441,692,362
==================================
LIABILITIES
Deposits
Noninterest bearing $ 69,316,506 $ 65,893,829
Interest bearing 304,954,916 289,874,276
----------------------------------
Total deposits 374,271,422 355,768,105
Short-term borrowings 12,890,978 10,277,956
Federal Home Loan Bank advances 17,851,042 17,904,373
Other liabilities 6,600,628 4,373,600
----------------------------------
Total liabilities 411,614,070 388,324,034
----------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, no par value
Authorized and unissued -- 200,000 shares
Common stock, $0.01 par value
Authorized -- 5,000,000 shares
Issued -- 2,909,397, of which 144,427 shares and 140,455 shares
were held as treasury stock 29,094 29,094
Additional paid-in capital 8,027,249 8,094,003
Retained earnings 51,316,014 48,617,866
Accumulated other comprehensive income (loss) (2,701,501) 621,819
----------------------------------
56,670,856 57,362,782
Treasury stock, at cost (4,272,290) (3,994,454)
----------------------------------
Total stockholders' equity 52,398,566 53,368,328
----------------------------------
Total liabilities and stockholders' equity $464,012,636 $441,692,362
==================================
</TABLE>
See notes to consolidated financial statements.
(2)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C>
Loans receivable
Taxable $19,211,016 $17,461,029 $17,766,929
Tax exempt 97,490 108,009 103,761
Investment securities
Taxable 8,036,120 7,917,093 7,018,176
Tax exempt 1,129,890 1,057,645 782,958
Federal funds sold 604,997 955,222 587,597
Other interest income 67,938 107,776 62,010
--------------------------------------------------
Total interest income 29,147,451 27,606,774 26,321,431
--------------------------------------------------
INTEREST EXPENSE
Deposits 11,994,616 11,672,926 11,117,142
Federal funds purchased and securities sold under repurchase
agreements 298,012 326,315 304,524
Federal Home Loan Bank advances 993,609 805,663 201,017
U.S. Treasury demand notes 107,071 95,286 93,522
--------------------------------------------------
Total interest expense 13,393,308 12,900,190 11,716,205
--------------------------------------------------
NET INTEREST INCOME 15,754,143 14,706,584 14,605,226
Provision for loan losses 213,000 274,000 432,000
--------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,541,143 14,432,584 14,173,226
--------------------------------------------------
OTHER INCOME
Remittance processing income 8,159,739 5,164,537 4,240,590
Fiduciary activities 1,912,483 1,724,297 1,623,343
Service charges on deposit accounts 956,630 1,002,295 1,063,557
Loan servicing fees 126,853 67,868 154,180
Net realized gains on sales of securities available for sale 53,790 65,988 11,019
Net gains on loan sales 248,897 506,535 282,356
Other income 1,272,815 1,087,248 985,487
--------------------------------------------------
Total other income 12,731,207 9,618,768 8,360,532
--------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 10,312,501 8,465,898 7,864,296
Termination of pension plan and benefit costs 742,724
Net occupancy expenses 1,201,322 1,118,471 1,136,502
Equipment expenses 2,432,579 2,050,050 2,179,185
Service charges from corresponding banks 1,347,672 755,281 497,987
Reconciliation liability 2,500,000
Supplies 580,370 477,523 408,707
Professional fees 450,622 410,440 366,143
Postage 486,898 361,772 371,910
Other expenses 2,429,095 2,404,670 2,298,009
--------------------------------------------------
Total other expenses 22,483,783 16,044,105 15,122,739
--------------------------------------------------
INCOME BEFORE INCOME TAX 5,788,567 8,007,247 7,411,019
Income tax expense 1,652,359 2,395,823 2,317,961
--------------------------------------------------
NET INCOME $ 4,136,208 $ 5,611,424 $ 5,093,058
=====================================================
BASIC EARNINGS PER SHARE $ 1.50 $ 1.95 $ 1.77
=====================================================
DILUTED EARNINGS PER SHARE $ 1.49 $ 1.94 $ 1.76
=====================================================
</TABLE>
See notes to consolidated financial statements.
(3)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------
ADDITIONAL
SHARES PAID-IN COMPREHENSIVE RETAINED
ISSUED AMOUNT CAPITAL INCOME EARNINGS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1997 2,909,397 $29,094 $7,999,499 $40,797,815
Comprehensive income
Net income $5,093,058 5,093,058
Other comprehensive income, net of
tax
Unrealized gains on securities,
net of reclassification
adjustment 247,468
-----------------
Comprehensive income $5,340,526
=================
Cash dividends ($.48 per share) (1,384,837)
Phantom stock 20,608
Net treasury stock transactions 4,315
------------------------------------------------ ---------------
BALANCES, DECEMBER 31, 1997 2,909,397 29,094 8,024,422 44,506,036
Comprehensive Income
Net income $5,611,424 5,611,424
Other comprehensive income, net of
tax
Unrealized gains on securities,
net of reclassification
adjustment 241,685
-----------------
Comprehensive income $5,853,109
=================
Cash dividends ($.52 per share) (1,499,594)
Phantom stock 53,620
Net treasury stock transactions 15,961
------------------------------------------------ ---------------
BALANCES, DECEMBER 31, 1998 2,909,397 29,094 8,094,003 48,617,866
Comprehensive Income
Net income $ 4,136,208 4,136,208
Other comprehensive income (loss),
net of tax
Unrealized losses on securities,
net of reclassification
adjustment (3,323,320)
-----------------
Comprehensive income $ 812,888
=================
Cash dividends ($.52 per share) (1,438,060)
Reclassification of phantom stock (220,090)
Net treasury stock transactions 153,336
------------------------------------------------ ---------------
BALANCES, DECEMBER 31, 1999 2,909,397 $ 29,094 $ 8,027,249 $ 51,316,014
================================================ ===============
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TREASURY
INCOME (LOSS) STOCK TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCES, JANUARY 1, 1997 $ 132,666 $ (464,764) $48,494,310
Comprehensive income
Net income 5,093,058
Other comprehensive income, net of
tax
Unrealized gains on securities,
net of reclassification
adjustment 247,468 247,468
Comprehensive income
Cash dividends ($.48 per share) (1,384,837)
Phantom stock 20,608
Net treasury stock transactions (175,719) (171,404)
------------------------------------------------
BALANCES, DECEMBER 31, 1997 380,134 (640,483) 52,299,203
Comprehensive Income
Net income 5,611,424
Other comprehensive income, net of
tax
Unrealized gains on securities,
net of reclassification
adjustment 241,685 241,685
Comprehensive income
Cash dividends ($.52 per share) (1,499,594)
Phantom stock 53,620
Net treasury stock transactions (3,353,971) (3,338,010)
------------------------------------------------
BALANCES, DECEMBER 31, 1998 621,819 (3,994,454) 53,368,328
Comprehensive Income
Net income 4,136,208
Other comprehensive income (loss),
net of tax
Unrealized losses on securities,
net of reclassification
adjustment (3,323,320) (3,323,320)
Comprehensive income
Cash dividends ($.52 per share) (1,438,060)
Reclassification of phantom stock (220,090)
Net treasury stock transactions (277,836) (124,500)
------------------------------------------------
BALANCES, DECEMBER 31, 1999 $(2,701,501) $(4,272,290) $52,398,566
================================================
</TABLE>
See notes to consolidated financial statements.
(4)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,136,208 $ 5,611,424 $ 5,093,058
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 213,000 274,000 432,000
Amortization of goodwill 26,232 26,232 28,015
Depreciation 1,453,485 1,300,489 1,461,133
Deferred income tax (362,923) 24,758 322,598
Investment securities amortization, net 389,111 16,201 176,280
Investment securities (gains) losses (53,790) (65,988) (11,019)
Gains on loan sales (121,384) (251,794) (151,706)
Loans originated for resale (12,751,300) (25,374,060) (13,066,120)
Proceeds from sales of loans originated for resale 12,872,684 25,625,854 13,217,826
Net change in
Other assets 20,887 (3,139,101) (375,523)
Other liabilities 2,327,269 20,882 174,114
-----------------------------------------------------
Net cash provided by operating activities 8,149,479 4,068,897 7,300,656
-----------------------------------------------------
INVESTING ACTIVITIES
Purchases of securities available for sale (51,719,209) (92,658,212) (47,977,838)
Proceeds from maturities of securities available for sale 32,577,788 54,480,067 29,986,637
Proceeds from sales of securities available for sale 20,974,515 7,570,408 5,993,748
Purchases of securities held to maturity (1,547,739) (4,826,700)
Proceeds from maturities of securities held to maturity 5,122,037 7,674,064 9,807,164
Net change in loans (38,132,793) (18,563,872) (440,846)
Purchases of premises and equipment (1,879,943) (1,110,887) (566,350)
-----------------------------------------------------
Net cash used by investing activities (33,057,605) (44,156,171) (8,024,185)
-----------------------------------------------------
FINANCING ACTIVITIES
Net change in
Demand and savings deposits 5,900,730 36,982,578 9,701,278
Certificates of deposit 12,602,587 (2,342,343) (8,735,499)
Short-term borrowings 2,613,022 (1,321,121) (7,703,123)
Federal Home Loan Bank advances 15,000,000 3,000,000
Repayment of Federal Home Loan Bank advances (53,331) (49,767) (2,545,860)
Cash dividends (1,438,060) (1,499,594) (1,384,837)
Net cash purchase of treasury stock (124,500) (3,338,010) (171,404)
-----------------------------------------------------
Net cash provided (used) by financing activities 19,500,448 43,431,743 (7,839,445)
-----------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (5,407,678) 3,344,469 (8,562,974)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 43,369,165 40,024,696 48,587,670
-----------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $37,961,487 $43,369,165 $40,024,696
=====================================================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $13,302,574 $12,805,990 $11,773,964
Income tax paid 2,686,000 2,324,000 1,902,061
</TABLE>
See notes to consolidated financial statements.
(5)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIEs
The accounting and reporting policies of First Decatur Bancshares, Inc.
(Company), and its wholly owned subsidiaries, The First National Bank of Decatur
(Decatur Bank), FirsTech, Inc. (FirsTech), and First Trust Bank of Shelbyville
(Shelby Bank), conform to generally accepted accounting principles and reporting
practices followed by the banking industry. The more significant of the policies
are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The Company is a holding company whose principal activity is the ownership and
management of the subsidiaries. Decatur Bank operates under a national charter
and provides full banking services, including trust services. As a national
bank, Decatur Bank is subject to regulation by the Office of the Comptroller of
the Currency and the Federal Deposit Insurance Corporation (FDIC). Shelby Bank
operates under a state bank charter and provides full banking services,
including trust services. As a state bank, Shelby Bank is subject to regulation
by the Office of Banks and Real Estate, State of Illinois, and the FDIC.
The Banks generate commercial, mortgage and consumer loans and receive deposits
from customers located primarily in Central Illinois. The Banks' loans are
generally secured by specific items of collateral including real property,
consumer assets and business assets. FirsTech is a remittance processing company
that provides various remittance processing services primarily for several large
utility companies.
CONSOLIDATION--The consolidated financial statements include the accounts of the
Company and the subsidiaries after elimination of all material intercompany
transactions and accounts.
INVESTMENT SECURITIES--Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. Debt
securities not classified as held to maturity are classified as available for
sale. Securities available for sale are carried at fair value with unrealized
gains and losses reported as part of accumulated other comprehensive income in
stockholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
MORTGAGE SERVICING RIGHTS on originated loans are capitalized by allocating the
total cost of the mortgage loans between the mortgage servicing rights and the
loans based on their relative fair values. Capitalized servicing rights are
amortized in proportion to and over the period of estimated servicing revenues.
(6)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans, except for installment loans with
add-on interest, for which a method that approximates the level yield method is
used. In applying the provisions of Statement of Financial Accounting Standards
(SFAS) No. 114, the Company considers its investments in 1-4 residential loans
and consumer installment loans to be homogeneous and therefore excluded from
separate identification for valuation of impairment. The accrual of interest on
impaired loans is discontinued when, in management's opinion, the borrower may
be unable to meet payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed when considered
uncollectible. Interest income is subsequently recognized only to the extent
cash payments are received.
ALLOWANCE FOR LOAN LOSSES is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolios and its
judgment as to the impact of economic conditions on the portfolios. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolios, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1999, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline in
the area within which the Company operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using primarily the straight-line method based
principally on the estimated useful lives of the assets. Maintenance and repairs
are expensed as incurred while major additions and improvements are capitalized.
Gains and losses on dispositions are included in current operations.
INTANGIBLE ASSETS are being amortized on a straight-line basis over fifteen
years. Such assets are periodically evaluated as to the recoverability of their
carrying value.
TREASURY STOCK is stated at cost. Cost is determined by the first-in, first-out
method.
INCOME TAX in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiaries.
EARNINGS PER SHARE - Basic earnings per share have been computed based upon the
weighted average common shares outstanding during each year. Diluted earnings
per share reflect the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
Company.
RECLASSIFICATIONS of certain amounts in the 1998 and 1997 consolidated financial
statements have been made to conform to the 1999 presentation.
(7)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -- MERGER AGREEMENt
On August 12, 1999, the Company's Board of Directors approved a merger agreement
between BankIllinois Financial Corporation (BankIllinois) and the Company that
would result in a tax-free merger into a new company known as Main Street Trust,
Inc. Under the terms of this agreement, each BankIllinois share and each Company
share issued and outstanding prior to the effective date of the merger shall be
converted into shares of Main Street Trust, Inc. It is anticipated that this
transaction will be completed during the first quarter of 2000. However, it is
subject to several conditions including approval of BankIllinois shareholders,
Company shareholders and various regulatory authorities. At December 31, 1999,
BankIllinois had total assets of $571,777,000, total deposits of $420,803,000
and total stockholders' equity of $63,725,000.
NOTE 3 -- RESTRICTION ON CASH AND DUE FROM BANKs
The Banks are required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at December 31, 1999, was
$1,393,000.
NOTE 4 -- INVESTMENT SECURITIEs
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury $ 16,374,515 $ 24,873 $ (110,159) $ 16,289,229
Federal agencies 96,061,440 13,408 (3,480,102) 92,594,746
State and municipal 10,623,304 108 (403,303) 10,220,109
Mortgage-backed securities 11,580,398 7,496 (145,504) 11,442,390
-------------------------------------------------------------------------------
Total available for sale 134,639,657 45,885 (4,139,068) 130,546,474
-------------------------------------------------------------------------------
Held to maturity
State and municipal 15,510,425 74,120 (95,431) 15,489,114
Mortgage-backed securities 4,873,475 4,809 (59,909) 4,818,375
-------------------------------------------------------------------------------
Total held to maturity 20,383,900 78,929 (155,340) 20,307,489
-------------------------------------------------------------------------------
Total investment securities $ 155,023,557 $124,814 $(4,294,408) $150,853,963
===============================================================================
</TABLE>
(8)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury $ 26,992,024 $ 576,631 $ 27,568,655
Federal agencies 91,550,844 501,485 $(152,169) 91,900,160
State and municipal 6,316,397 115,757 (13,521) 6,418,633
Mortgage-backed securities 11,887,491 46,443 (132,476) 11,801,458
-------------------------------------------------------------------------------
Total available for sale 136,746,756 1,240,316 (298,166) 137,688,906
-------------------------------------------------------------------------------
Held to maturity
U.S. Treasury 749,341 12,768 762,109
Federal agencies 500,461 6,569 507,030
State and municipal 17,520,927 518,534 (1,850) 18,037,611
Mortgage-backed securities 6,796,524 46,919 6,843,443
-------------------------------------------------------------------------------
Total held to maturity 25,567,253 584,790 (1,850) 26,150,193
-------------------------------------------------------------------------------
Total investment securities $162,314,009 $1,825,106 $(300,016) $163,839,099
===============================================================================
</TABLE>
The amortized cost and fair value of securities held to maturity and available
for sale at December 31, 1999, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
-------------------------------------------------------------------------------
FAIR FAIR
AMORTIZED COST VALUE AMORTIZED COST VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within one year $ 1,946,182 $ 1,950,960 $ 10,240,531 $ 10,208,848
One to five years 5,367,743 5,392,304 57,281,345 56,063,013
Five to ten years 6,654,137 6,624,229 45,482,687 43,350,575
After ten years 1,542,363 1,521,621 10,054,696 9,481,648
-------------------------------------------------------------------------------
15,510,425 15,489,114 123,059,259 119,104,084
Mortgage-backed securities 4,873,475 4,818,375 11,580,398 11,442,390
-------------------------------------------------------------------------------
Totals $20,383,900 $20,307,489 $134,639,657 $130,546,474
===============================================================================
</TABLE>
Securities with a carrying value of approximately $89,698,000 and $66,954,000
were pledged at December 31, 1999 and 1998 to secure certain deposits and for
other purposes as permitted or required by law.
Proceeds from sales of securities available for sale during 1999, 1998 and 1997
were $20,974,515, $7,570,408, and $5,993,748. Gross gains of $71,312, $65,988,
and $11,019, and gross losses of $17,522, $0, and $0 were realized on those
sales.
There were no sales of securities held to maturity or transfers between
classifications during 1999, 1998 or 1997.
(9)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
With the exception of securities of the U.S. Treasury and other U.S. Government
agencies and corporations, the Company did not hold any securities of a single
issuer, payable from and secured by the same source of revenue or taxing
authority, the book value of which exceeds 10% of stockholders' equity at
December 31, 1999.
NOTE 5 -- LOANS AND ALLOWANCE
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial loans $ 49,602,371 $ 35,997,500
Real estate loans 133,138,631 107,609,951
Construction loans 9,280,807 7,587,662
Agricultural production financing and other loans to farmers 10,879,849 11,497,710
Individuals' loans for household and other personal expenditures
and other loans 53,077,780 55,692,188
Tax-exempt loans 1,724,955 1,514,039
---------------------------------------
257,704,393 219,899,050
Unearned interest on loans (1,349,108) (1,513,451)
Allowance for loan losses (3,623,213) (3,573,320)
---------------------------------------
Total loans $252,732,072 $214,812,279
=======================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for loan losses
Balances, January 1 $3,573,320 $3,530,749 $3,381,519
Provision for losses 213,000 274,000 432,000
Recoveries on loans 121,425 104,982 325,499
Loans charged off (284,532) (336,411) (608,269)
-----------------------------------------------------
Balances, December 31 $3,623,213 $3,573,320 $3,530,749
=====================================================
</TABLE>
The amounts of impaired loans outstanding at December 31, 1999, 1998 and 1997
and during 1999, 1998 and 1997 were immaterial.
(10)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -- PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,655,652 $ 1,655,652
Buildings and improvements 7,520,851 7,520,851
Equipment 10,977,460 9,428,578
------------------------------------
Total cost 20,153,963 18,605,081
Accumulated depreciation (10,645,843) (9,523,419)
------------------------------------
Net $ 9,508,120 $ 9,081,662
====================================
</TABLE>
NOTE 7 -- LOAN SERVICING
Loans serviced for others are not included in the accompanying consolidated
balance sheet. The unpaid principal balances of loans serviced for others
totaled $67,861,000, $69,354,000, and $67,022,000, at December 31, 1999, 1998,
and 1997.
The aggregate fair value of capitalized mortgage servicing rights at December
31, 1999, 1998 and 1997 totaled $429,161, $358,417 and $210,234. Comparable
market values were used to estimate fair value. For purposes of measuring
impairment, risk characteristics including product type, investor type, and
interest rates were used to stratify the originated mortgage servicing rights.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage Servicing Rights
Balances, January 1 $358,417 $ 210,234 $101,279
Servicing rights capitalized 127,513 254,740 130,650
Amortization of servicing rights (56,769) (106,557) (21,695)
-----------------------------------------------------
Balances, December 31 $429,161 $ 358,417 $210,234
=====================================================
</TABLE>
NOTE 8 -- DEPOSITS
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Demand deposits $158,978,255 $148,655,592
Savings deposits 57,561,396 61,983,329
Certificates and other time deposits of $100,000 or more 56,040,251 45,103,602
Other certificates and time deposits 101,691,520 100,025,582
---------------------------------------
Total deposits $374,271,422 $355,768,105
=======================================
</TABLE>
(11)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Certificates and other time deposits maturing in years ending December 31,
<S> <C>
2000 $110,517,159
2001 43,987,356
2002 1,939,260
2003 1,238,820
2004 49,176
--------------------
$157,731,771
====================
</TABLE>
NOTE 9 -- SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under repurchase agreements $ 7,590,804 $ 9,371,310
U. S. Treasury demand notes 5,300,174 891,646
Federal funds purchased 15,000
------------------------------------
Total short-term borrowings $12,890,978 $10,277,956
====================================
</TABLE>
Securities sold under agreements to repurchase consist of obligations of the
Company to other parties. The obligations are secured by various investment
securities and such collateral is held by various institutions in safekeeping.
The maximum amount of outstanding agreements at any month-end during 1999 and
1998 totaled $23,709,515 and $18,328,019 and the daily average of such
agreements totaled $11,572,390 and $11,499,753. The agreements at December 31,
1999, mature within twelve months.
NOTE 10 -- FEDERAL HOME LOAN BANK ADVANCES
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank advances, rates ranging from 5.05% to 6.84%, due at various
dates through June, 2008 $17,851,042 $17,904,373
====================================
</TABLE>
The Federal Home Loan Bank advances are secured by first-mortgage loans totaling
$64,242,000. Advances are subject to restrictions or penalties in the event of
repayment.
(12)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Maturities in years ending December 31
<S> <C>
2000 $ 57,149
2001 61,240
2002 65,625
2003 70,324
2004 75,359
Thereafter 17,521,345
-------------------
$17,851,042
===================
</TABLE>
NOTE 11 -- STOCKHOLDERS' EQUITY
The Company has an employee stock option plan (Plan) which is accounted for in
accordance with Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and accordingly, no compensation expense for the stock
option grants has been recognized. Under this plan, the Company grants selected
key officers stock option awards which vest and become fully exercisable after
the fifth anniversary of date of the grant. Stock options granted under this
plan shall expire ten years from date of grant. At December 31, 1999, there were
options outstanding (not intended to be incentive stock options) for 17,250
shares. These options were granted on December 31, 1993, with an exercise price
of $16.67 per share and have a remaining contractual life of four years as of
December 31, 1999. During 1999, all 17,250 shares became vested and exercisable.
No shares have been exercised pursuant to the Plan.
The Company has a deferred compensation plan for nonemployee directors of the
Company in which a participating director may defer directors fees in a fixed
income fund or, alternatively, in the form of "phantom stock units." For
directors electing to receive phantom stock, a deferred compensation account,
included in other liabilities on the consolidated balance sheet, is credited
with phantom stock units. Phantom stock units shall also be increased by any
stock dividends or stock splits declared by the Company. At December 31, 1999
and 1998, $265,511 and $220,090 had been deferred from this plan, which
represented 11,716 and 10,205 phantom stock units.
(13)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 -- INCOME TAX
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense
Currently payable
Federal $2,013,482 $2,369,359 $1,988,381
State 1,800 1,706 6,982
Deferred
Federal (362,923) 24,758 322,598
-----------------------------------------------------
Total income tax expense $1,652,359 $2,395,823 $2,317,961
=====================================================
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $1,968,113 $2,722,464 $2,519,746
Tax exempt interest (360,399) (356,022) (266,477)
Nondeductible expenses 24,028 31,821 22,320
Effect of state income taxes 1,188 1,126 4,608
Other 19,429 (3,566) 37,764
-----------------------------------------------------
Actual tax expense $1,652,359 $2,395,823 $2,317,961
=====================================================
</TABLE>
A cumulative net deferred tax asset (liability) is included in other assets
(liabilities). The components are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Loan losses $ 532,886 $ 515,922
Equipment sales 26,083 8,029
Net unrealized loss on securities available for sale 1,391,682
Other employee benefits 189,279 79,257
Other 12,608 16,642
------------------------------------
Total assets 2,152,538 619,850
------------------------------------
LIABILITIES
Depreciation (663,408) (634,585)
Pension plan (252,526)
Net unrealized gain on securities available for sale (320,331)
Discount accretion (10,664) (30,647)
Mortgage servicing rights (145,915) (121,862)
Installment sales (13,768) (16,052)
------------------------------------
Total liabilities (833,755) (1,376,003)
====================================
$1,318,783 $ (756,153)
====================================
</TABLE>
(14)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The income tax expense attributed to net gains on sales of securities available
for sale during 1999, 1998, and 1997 was approximately $18,289, $22,436, and
$3,747.
NOTE 13 -- OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
1999
-----------------------------------------------------
TAX
BENEFIT
YEAR ENDED DECEMBER 31 BEFORE-TAX AMOUNT (EXPENSE) NET-OF-TAX AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized losses on securities:
Unrealized holding losses arising during the year $(4,981,543) $1,693,724 $(3,287,819)
Less: reclassification adjustment for gains realized in net income 53,790 (18,289) 35,401
-----------------------------------------------------
Other comprehensive income $(5,035,333) $1,712,013 $(3,323,320)
=====================================================
1998
-----------------------------------------------------
TAX
YEAR ENDED DECEMBER 31 BEFORE-TAX AMOUNT EXPENSE NET-OF-TAX AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized gains on securities:
Unrealized holding gains arising during the year $432,177 $(146,940) $285,237
Less: reclassification adjustment for gains realized in net income 65,988 (22,436) 43,552
-----------------------------------------------------
Other comprehensive income $366,189 $(124,504) $241,685
=====================================================
1997
-----------------------------------------------------
TAX
YEAR ENDED DECEMBER 31 BEFORE-TAX AMOUNT EXPENSE NET-OF-TAX AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized gains on securities:
Unrealized holding gains arising during the year $375,199 $(120,459) $254,740
Less: reclassification adjustment for gains realized in net income 11,019 (3,747) 7,272
-----------------------------------------------------
Other comprehensive income $364,180 $(116,712) $247,468
=====================================================
</TABLE>
NOTE 14 -- COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Banks' exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Banks use the same credit policies in making such commitments
as they do for instruments that are included in the consolidated balance sheet.
(15)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments whose contract amount represents credit risk as of
December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $67,998,372 $57,150,000
Standby letters of credit 1,027,847 1,224,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Banks' upon extension of credit, is based on management's
credit evaluation. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third party.
The Company and subsidiaries are involved in various legal proceedings, claims
and litigation arising out of the ordinary course of business. As previously
reported, management has become aware of possible liabilities regarding
reconciliation differences which involve the Company's subsidiary, FirsTech,
Inc. in connection with its commercial remittance processing services. Following
the completion of the Company's investigation of such matter, and after
consultation with its professional advisors, the Company's Board of Directors
directed that a liability in the amount of $1.65 million, net of income taxes,
be recorded in the fourth quarter of 1999. At this time, no claim has been made,
nor is management aware of any threatened claim by any of the Company's current
or former remittance processing customers. Therefore, the amount of ultimate
liability with respect to this matter may differ somewhat from the amount
recorded.
It is the opinion of management that the disposition or ultimate resolution of
any other claims and lawsuits arising out of the ordinary course of business
will not have a material adverse effect on the consolidated financial position
of the Company.
NOTE 15 -- DIVIDENDS AND CAPITAL RESTRICTIONS
Without prior approval of the Comptroller of the Currency, Decatur Bank is
restricted by national banking laws as to the maximum amount of dividends it can
pay in any calendar year to Decatur Bank's retained net profits (as defined) for
that year and the two preceding years. At January 1, 2000, Decatur Bank had
available retained earnings of approximately $4,064,000 for the payment of
dividends without obtaining prior regulatory approval.
(16)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Without prior approval, Shelby Bank is restricted by Illinois law and
regulations of the Office of Banks and Real Estate, State of Illinois, and the
FDIC as to the maximum amount of dividends it can pay to its parent to the
balance of the retained earnings account, adjusted for defined bad debts. At
January 1, 2000, Shelby Bank had available retained earnings of approximately
$11,276,000 for the payment of dividends.
As a practical matter, the Banks restrict dividends to a lesser amount because
of their goal to maintain a strong capital structure.
NOTE 16 -- REGULATORY CAPITAl
The Company and Banks are subject to various regulatory capital requirements
administered by the federal banking agencies and are assigned to a capital
category. The assigned capital category is largely determined by three ratios
that are calculated according to the regulations: total risk adjusted capital,
Tier 1 capital, and Tier 1 leverage ratios. The ratios are intended to measure
capital relative to assets and credit risk associated with those assets and
off-balance sheet exposures of the entity. The capital category assigned to an
entity can also be affected by qualitative judgments made by regulatory agencies
about the risk inherent in the entity's activities that are not part of the
calculated ratios.
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At December 31, 1999, the Company
and Banks are categorized as well capitalized and met all subject capital
adequacy requirements. There are no conditions or events since December 31, 1999
that management believes have changed the Company's or Banks' classification.
The Company's and Banks' actual and required capital amounts and ratios are as
follows:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------------
REQUIRED FOR ADEQUATE TO BE WELL
ACTUAL CAPITAL (1) CAPITALIZED (1)
--------------------------------------------------------------------------------
DECEMBER 31 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital (1) (to risk-weighted assets)
Consolidated $58,151,000 21.8% $21,378,000 8.0% N/A
Decatur Bank 39,249,000 16.8 18,677,000 8.0 $23,346,000 10.0%
Shelby Bank 12,223,000 34.7 2,816,000 8.0 3,520,000 10.0
Tier I capital (1) (to risk-weighted assets)
Consolidated 54,807,000 20.5 10,689,000 4.0 N/A
Decatur Bank 36,325,000 15.6 9,338,000 4.0 14,007,000 6.0
Shelby Bank 12,019,000 34.1 1,408,000 4.0 2,112,000 6.0
Tier I capital (1) (to average assets)
Consolidated 54,807,000 11.2 19,538,000 4.0 N/A
Decatur Bank 36,325,000 8.9 16,371,000 4.0 20,464,000 5.0
Shelby Bank 12,019,000 17.3 21,786,000 4.0 3,482,000 5.0
</TABLE>
(17)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------------------------
REQUIRED FOR ADEQUATE TO BE WELL
ACTUAL CAPITAL (1) CAPITALIZED (1)
--------------------------------------------------------------------------------
DECEMBER 31 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital (1) (to risk-weighted assets)
Consolidated $55,398,000 23.8% $18,653,000 8.0% N/A
Decatur Bank 36,340,000 17.5 16,595,000 8.0 $20,744,000 10.0%
Shelby Bank 11,402,000 40.2 2,272,000 8.0 2,840,000 10.0
Tier I capital (1) (to risk-weighted assets)
Consolidated 52,475,000 22.5 9,327,000 4.0 N/A
Decatur Bank 33,757,000 16.3 8,297,000 4.0 12,446,000 6.0
Shelby Bank 11,243,000 39.6 1,136,000 4.0 1,704,000 6.0
Tier I capital (1) (to average assets)
Consolidated 52,475,000 12.4 16,886,000 4.0 N/A
Decatur Bank 33,757,000 9.0 14,977,000 4.0 18,722,000 5.0
Shelby Bank 11,243,000 16.1 2,799,000 4.0 3,499,000 5.0
</TABLE>
NOTE 17 -- EMPLOYEE BENEFIT PLANs
The Company's defined-benefit pension plan covered substantially all of Decatur
Bank's and FirsTech's employees. Effective January 1, 1999, employees of the
Shelby Bank were eligible, subject to vesting, to participate in the plan. The
Company terminated the Plan on December 31, 1999 and determined that the Plan
assets exceeded the obligation to the plan participants. As a result of the
termination of the Plan, the Company recorded an estimated settlement loss of
$2,139,256, recorded a gain on curtailment of $1,587,104 and reduced the related
prepaid pension asset in accordance with Statement of Financial Accounting
Standards No. 88, EMPLOYERS' ACCOUNTING FOR SETTLEMENTS AND CURTAILMENTS OF
DEFINED BENEFIT PENSION PLANS AND FOR TERMINATION OF BENEFITS. These events
resulted in a net charge to earnings of $742,724, including the 1999 net
periodic benefit cost. Final distributions will be paid to all remaining
participants in the form of lump-sum settlements. The following table sets forth
the plan's funded status and amounts recognized in the consolidated financial
statements:
(18)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 9,871,856 $ 7,329,830 $ 7,143,765
Service cost 591,115 333,557 313,654
Interest cost 642,736 515,981 481,060
Actuarial (gain) loss (539,008) 2,025,857 (320,464)
Benefits paid (520,005) (333,369) (288,185)
-----------------------------------------------------
Benefit obligation at end of year before consideration of the plan
of termination 10,046,694 9,871,856 7,329,830
Adjustment due to the termination of the pension plan
(i.e., curtailment) (1,402,067)
-----------------------------------------------------
Benefit obligation at end of year after consideration of the plan
curtailment 8,644,627 9,871,856 7,329,830
Adjustment due to the remeasurement of the obligation before the
settlement 2,516,720
Adjustment due to the termination of the pension plan
(i.e., settlement) (11,161,347)
-----------------------------------------------------
Benefit obligation at end of year after consideration of the plan
settlement 0 9,871,856 7,329,830
-----------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year 10,856,192 9,606,834 8,315,335
Actual return on plan assets 825,160 1,582,727 1,579,684
Benefits paid (520,005) (333,369) (288,185)
-----------------------------------------------------
Fair value of plan assets at end of year before consideration
of the plan termination 11,161,347 10,856,192 9,606,834
Adjustment due to the termination of the pension plan
(i.e., settlement) (11,161,347)
-----------------------------------------------------
Fair value at end of year after consideration of the plan settlement 0 10,856,192 9,606,834
-----------------------------------------------------
Funded status 1,114,653 984,336 2,277,004
Unrecognized net actuarial (gain) loss (165,330) 288,888 (954,917)
Unrecognized prior service cost (185,037) (212,302) (238,038)
Unrecognized transition asset (212,134) (318,198) (424,262)
-----------------------------------------------------
Prepaid benefit cost 552,152 742,724 659,787
Effect of the Curtailment and Settlement Associated with the Plan
Termination Pursuant to FAS 88
Amount recognized into earnings due to the curtailment 1,587,104
Amount recognized into earnings due to the settlement (2,139,256)
-----------------------------------------------------
Prepaid benefit cost $ 0 $ 742,724 $ 659,787
=====================================================
</TABLE>
(19)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Components of net periodic pension cost
Service Cost $ 591,115 $ 333,557 $ 313,654
Interest Cost 642,736 515,981 481,060
Expected return on plan assets (909,950) (799,956) (691,077)
Amortization of prior service cost (27,265) (25,736) (19,455)
Amortization of transitional asset (106,064) (106,064) (106,064)
Recognized net actuarial (gain) loss (719)
----------------------------------------------------
Net periodic (benefit) cost $ 190,572 $ (82,937) $ (21,882)
=====================================================
Assumptions used in the accounting were:
Discount Rate 7.00% 7.00% 7.25%
Rate of increase in compensation 5.00% 5.00% 5.00%
Expected long-term rate of return on assets 8.50% 8.50% 8.50%
</TABLE>
Effective June 1, 1999, the Company effected a plan-to-plan transfer with the
First Decatur Bancshares, Inc. Employee 401(k) Savings Plan and the First
National Bank of Decatur Employee Stock Ownership Plan. Shelby Bank's profit
sharing plan assets were also rolled into this new plan at June 1, 1999. The new
plan is named The First Decatur Bancshares Employee Savings and Stock Ownership
Plan. The participant account balances in each fund were transferred pursuant to
the First Decatur Bancshares Employee Savings and Stock Ownership Plan Trust
Agreement for Company Stock, adopted June 1, 1999. All eligible employees of the
Company and subsidiaries can participate in this plan. The Plan contains 401(k)
features that qualify the plan under Section 401(a) of the Internal Revenue
Code. The vesting of participant accounts will remain to be based on years of
continuous service.
The cost of this amended plan is borne by the Company through contributions in
amounts determined by the Board of Directors. The Company's expense for the plan
was $252,000 for 1999. At December 31, 1999, approximately 126,915 shares of
Company stock were held by the Plan.
Prior to June 1, 1999, Decatur Bank and FirsTech were included in the First
Decatur Bancshares, Inc. Employee 401(k) savings plan in which substantially all
employees participated. Under this plan, employees were able to make payroll
deferrals not to exceed 15% of a participant's compensation. No matching
contributions were made by the Company. Decatur Bank and FirsTech were also
included in the First National Bank of Decatur Employee Stock Ownership Plan
covering substantially all employees. The cost of the plan was borne by Decatur
Bank and FirsTech through contributions to an Employee Stock Ownership Trust in
amounts determined by the Board of Directors. Effective January 1, 1999, Shelby
Bank employees were allowed to participate in the plan. Contributions to the
plan in 1998 and 1997 were $185,000 and $173,000.
Prior to June 1, 1999, Shelby Bank had a profit sharing plan covering
substantially all employees. Profit sharing expense for this plan was $54,488,
and $46,902, for 1998 and 1997.
(20)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 -- RELATED PARTY TRANSACTIONS
The Banks have entered into transactions with certain directors, executive
officers, significant stockholders and their affiliates or associates (related
parties). Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features.
The aggregate amount of loans, as defined, to such related parties were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Balances, January 1, 1999 $ 6,244,090
New loans, including renewals 5,981,925
Payments, etc., including renewals (3,994,574)
---------------
Balances, December 31, 1999 $ 8,231,441
===============
</TABLE>
Deposits from related parties held by the Banks at December 31, 1999 and 1998
totaled 3,129,422 and $3,418,000.
NOTE 19 -- EARNINGS PER SHARE
Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------------
Weighted Per Weighted Per Weighted Per
Average Share Average Share Average Share
Income Shares Amount Income Shares Amount Income Shares Amount
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available to
common stockholders $4,136,208 2,765,241 $1.50 $5,611,424 2,882,370 $1.95 $5,093,058 2,885,090 $1.77
EFFECT OF DILUTIVE SECURITIES
Stock options 7,251 7,351 3,557
-----------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Income available to
common stockholders and
assumed conversions $4,136,208 2,772,492 $1.49 $5,611,424 2,889,721 $1.94 $5,093,058 2,888,647 $1.76
=====================================================================================================
</TABLE>
NOTE 20 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS -- The fair value of cash and cash equivalents
approximates carrying value.
SECURITIES AND MORTGAGED-BACKED SECURITIES -- Fair values are based on quoted
market prices.
(21)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOANS -- For both short-term loans and variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are based
on carrying values. The fair value for other loans is estimated using discounted
cash flow analyses using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
INTEREST RECEIVABLE/PAYABLE -- The fair values of interest receivable/payable
approximate carrying values.
DEPOSITS -- The fair values of demand and savings accounts are equal to the
amount payable on demand at the balance sheet date. The carrying amounts for
variable rate, fixed-term certificates and other time deposits approximate their
fair values at the balance sheet date. Fair values for fixed-rate certificates
and other time deposits are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on such time deposits.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS--Federal
funds purchased and securities sold under repurchase agreements are short-term
borrowing arrangements. The rates at December 31, 1999 and 1998 approximate
market rates, thus, the fair value approximates carrying value.
U.S. TREASURY DEMAND NOTES -- The fair value of U.S. Treasury demand notes
approximates carrying value.
FHLB ADVANCES -- The fair value of these borrowings is estimated using
discounted cash flow analysis using interest rates currently available for FHLB
advances with similar terms.
OFF-BALANCE SHEET COMMITMENTS -- Commitments include commitments to extend
credit and standby letters of credit and are generally of a short-term nature.
The fair value of such commitments are based on fees currently charged to enter
into similar arrangements, taking into account the remaining terms of the
agreements and the counterparties' credit standings.
(22)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------------
CARRYING FAIR Carrying Fair
DECEMBER 31 AMOUNT VALUE Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $37,961,487 $37,961,487 $43,369,165 $43,369,165
Investment securities
Available for sale 130,546,474 130,546,474 137,688,906 137,688,906
Held to maturity 20,383,900 20,307,489 25,567,253 26,150,193
Loans 252,732,072 246,254,118 214,812,279 227,500,454
Interest receivable 4,926,871 4,926,871 4,258,552 4,258,552
LIABILITIES
Deposits 374,271,422 372,149,677 355,768,105 356,726,544
Federal funds purchased and securities sold under
repurchase agreements 7,590,804 7,590,804 9,386,310 9,386,310
U.S. Treasury demand notes 5,300,174 5,300,174 891,646 891,646
FHLB advances 17,851,042 17,846,240 17,904,373 18,090,023
Interest payable 2,578,715 2,578,715 2,487,981 2,487,981
OFF-BALANCE SHEET ASSETS (LIABILITIES)
Commitments to extend credit 0 0 0 0
Standby letters of credit 0 0 0 0
</TABLE>
NOTE 21 -- BUSINESS INDUSTRY SEGMENTS
The Company currently operates in two industry segments. The primary business
involves providing the typical banking services of generating loans and
receiving deposits from customers. The Company also provides remittance
processing and remittance collection services. The following is a summary of
selected data for the various business segments:
<TABLE>
<CAPTION>
BANKING REMITTANCE
SERVICES SERVICES COMPANY (1) ELIMINATIONS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Total interest income $ 29,147,451 $ 105,623 $ (105,623) $ 29,147,451
Total non-interest income 4,551,515 8,718,326 $ 135,266 (673,900) 12,731,207
Total interest expense 13,498,931 (105,623) 13,393,308
Total non-interest expense 12,172,254 7,568,421 3,417,008 (673,900) 22,483,783
Income before income tax 7,814,781 1,255,528 (3,281,742) 5,788,567
Income tax expense 2,342,161 425,998 (1,115,800) 1,652,359
Total assets 458,185,569 6,565,120 54,353,460 (55,091,513) 464,012,636
Capital expenditures 676,173 1,203,750 1,879,943
Depreciation and amortization 1,018,897 436,700 24,120 1,479,717
</TABLE>
(23)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BANKING REMITTANCE
SERVICES SERVICES COMPANY (1) ELIMINATIONS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Total interest income $27,606,774 $ 126,510 $ (126,510) $27,606,774
Total non-interest income 4,400,676 5,753,214 $ 140,889 (676,011) 9,618,768
Total interest expense 13,026,700 (126,510) 12,900,190
Total non-interest expense 11,265,806 5,317,631 136,679 (676,011) 16,044,105
Income before income tax 7,440,944 562,093 4,210 8,007,247
Income tax expense 2,199,453 194,938 1,432 2,395,823
Total assets 438,563,027 5,331,970 53,359,620 (55,562,255) 441,692,362
Capital expenditures 836,694 274,193 1,110,887
Depreciation and amortization 970,601 332,000 24,120 1,326,721
1997
Total interest income $ 26,321,431 $ 68,781 $ (68,781) $ 26,321,431
Total non-interest income 3,984,798 4,769,532 $ 140,654 (534,452) 8,360,532
Total interest expense 11,784,986 (68,781) 11,716,205
Total non-interest expense 11,352,176 4,202,700 102,315 (534,452) 15,122,739
Income before income tax 6,737,067 635,613 38,339 7,411,019
Income tax expense 2,078,283 226,643 13,035 2,317,961
Total assets 389,659,511 5,225,033 52,300,955 (54,948,133) 392,237,366
Capital expenditures 299,553 266,797 566,350
Depreciation and amortization 1,080,848 384,300 24,000 1,489,148
</TABLE>
Information related to services or transfers between business segments is not
reflected because such items are immaterial.
NOTE 22 -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
DECEMBER 31 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 571,074 $ 978,217
Investment in Banks 45,935,679 45,536,165
Investment in FirsTech 6,112,414 5,462,609
Other assets 1,734,293 1,443,047
---------------------------------
Total assets $54,353,460 $53,420,038
=================================
LIABILITIES $ 1,954,894 $ 51,710
STOCKHOLDERS' EQUITY 52,398,566 53,368,328
---------------------------------
Total liabilities and stockholders' equity $54,353,460 $53,420,038
=================================
</TABLE>
(24)
<PAGE>
FIRST DECATUR BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
INCOME
<S> <C> <C> <C>
Dividends from Banks $ 1,258,337 $ 5,312,239 $ 1,397,837
Dividends from FirsTech 179,723 187,355 187,102
Other income 135,266 140,889 140,654
-------------------------------------------------
Total income 1,573,326 5,640,483 1,725,593
-------------------------------------------------
EXPENSES
Reconciliation liability 2,500,000
Termination of pension plan and benefit costs 742,724
Other expense 174,305 136,679 102,315
-------------------------------------------------
Total other expense 3,417,029 136,679 102,315
Income (loss) before income tax and equity in undistributed income
of subsidiaries (1,843,703) 5,503,804 1,623,278
Income tax expense (benefit) (1,115,800) 1,432 13,035
-------------------------------------------------
Income (loss) before equity in undistributed income of subsidiaries (727,903) 5,502,372 1,610,243
Equity in undistributed income of subsidiaries 4,864,111 109,052 3,482,815
-------------------------------------------------
NET INCOME $ 4,136,208 $ 5,611,424 $ 5,093,058
=================================================
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,136,208 $ 5,611,424 $ 5,093,058
Adjustments to reconcile net income to net cash provided by
operating activities
Equity in undistributed income of subsidiaries (4,864,111) (109,052) (3,482,815)
Depreciation 24,120 24,120 24,000
Net changes in
Other assets (43,984) (15,476) 86,420
Liabilities 1,903,184 2,110 22,138
-------------------------------------------------
Net cash provided by operating activities 1,155,417 5,513,126 1,742,801
FINANCING ACTIVITIES
Dividends paid (1,438,060) (1,499,594) (1,384,837)
Net treasury stock transactions (124,500) (3,338,010) (171,404)
-------------------------------------------------
Net cash used by financing activities (1,562,560) (4,837,604) (1,556,241)
-------------------------------------------------
NET CHANGE IN CASH (407,143) 675,522 186,560
CASH AT BEGINNING OF YEAR 978,217 302,695 116,135
-------------------------------------------------
CASH AT END OF YEAR $ 571,074 $ 978,217 $ 302,695
=====================================================
</TABLE>
(25)
