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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number [ ]
FIRST DECATUR BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-80333 37-1085161
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
130 NORTH WATER STREET, DECATUR, IL 62523
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 217-424-1111
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 ninety days.
Yes X No
2,878,487 shares of the Registrant's common stock, par value $.01 per share,
were outstanding at September 30, 1997.
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FIRST DECATUR BANCSHARES, INC.
FORM 10-Q FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
INDEX
PAGE
PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . 1
Item 1. Condensed Consolidated Financial Statements . . . . 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 6
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 11
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 11
Item 2. Changes in Securities . . . . . . . . . . . . . . . 11
Item 3. Defaults upon Senior Securities . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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PART 1 - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FIRST DECATUR BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
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(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 29,210 $ 32,818
Federal funds sold 11,475 15,770
-------------- --------------
Cash and cash equivalents 40,685 48,588
Securities available for sale 89,116 94,352
Securities held to maturity 34,244 36,790
Loans, net 204,211 196,514
Premises and equipment 9,378 10,166
Other assets 8,974 7,713
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Total assets $ 386,608 $ 394,123
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Liabilities
Deposits
Noninterest bearing $ 49,507 $ 54,673
Interest bearing 263,196 265,489
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Total Deposits 312,703 320,162
Federal funds purchases and securities sold under
repurchase agreements 12,598 16,969
Federal Home Loan Bank loans 2,966 2,500
U.S. Treasury demand notes 3,096 2,333
Other liabilities 3,972 3,664
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Total liabilities 335,335 345,628
Stockholders' Equity
Preferred stock, no par value. Authorized 200,000
shares, none issued or outstanding
Common stock, $.01 par value. Authorized 5,000,000
shares; Issued 2,909,397 shares of which 30,910
shares and 22,361 shares were held as treasury
stock 29 29
Surplus 7,858 7,854
Paid-in-capital - phantom stock 184 146
Retained earnings 43,498 40,798
Net unrealized gain on securities available for sale 344 133
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51,913 48,960
Treasury stock, at cost (640) (465)
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Total stockholders' equity 51,273 48,495
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Total liabilities and
stockholders' equity $ 386,608 $ 394,123
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</TABLE>
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FIRST DECATUR BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income
Interest on loans $ 4,461 $ 4,299 $ 13,287 $ 12,481
Interest on investments 1,894 2,027 5,812 6,124
Interest on federal funds sold 112 126 289 266
Other interest income 30 25 96 86
------------ ------------ ------------ ------------
Total interest income 6,497 6,477 19,484 18,957
------------ ------------ ------------ ------------
Interest Expense
Interest on deposits 2,833 2,836 8,235 8,317
Interest on borrowings 96 104 319 312
------------ ------------ ------------ ------------
Total interest expense 2,929 2,940 8,554 8,629
------------ ------------ ------------ ------------
Net Interest Income 3,568 3,537 10,930 10,328
Provision for loan losses 137 77 369 229
------------ ------------ ------------ ------------
Net Interest Income After Provision for
Loan Losses 3,431 3,460 10,561 10,099
------------ ------------
Other Income
Trust fees 384 368 1,132 1,083
Loan fee income 147 65 333 224
Remittance processing fees 1,046 1,355 3,136 4,605
Service charges on deposit accounts 260 287 794 833
Security transactions, net 15 17 43 6
Other 254 210 770 594
------------ ------------ ------------ ------------
Total other income 2,106 2302 6,208 7,345
------------ ------------ ------------ ------------
Other Expenses
Salaries and employee benefits 1,997 1,987 6,036 6,320
Net occupancy 299 279 847 864
Equipment expenses 524 596 1,718 1,891
Professional fees 107 200 292 625
Data processing fees 60 139 208 274
Supplies 107 90 300 361
Service charges from corresponding banks 125 191 390 635
Other operating expenses 510 559 1,574 1,612
------------ ------------ ------------ ------------
Total other expenses 3,729 4,041 11,365 12,582
------------ ------------ ------------ ------------
Income Before Income Tax 1,808 1,721 5,404 4,862
Income tax expense 567 611 1,694 1,599
------------ ------------ ------------ ------------
Net Income $ 1,241 $ 1,110 $ 3,710 $ 3,263
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net Income Per Share $ 0.43 $ 0.38 $ 1.29 $ 1.12
Dividends Per Share 0.13 0.11 0.35 0.33
Weighted Average Shares Outstanding 2,881,265 2,902,542 2,887,315 2,902,098
</TABLE>
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FIRST DECATUR BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
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<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 4,343 $ 4,283
Cash flows from investing activities:
Purchases of securities available for sale (19,696) (12,535)
Proceeds from maturities of securities available for sale 19,090 8,166
Proceeds from sales of securities available for sale 5,994 3,991
Purchases of securities held to maturity (4,343) (1,996)
Proceeds from maturities of securities held to maturity 6,443 9,018
Net change in loans (7,596) (13,913)
Disposal of premises and equipment 0 1,514
Purchases of premises and equipment (351) (601)
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Net cash used by investing activities (459) (6,356)
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Cash flows from financing activities:
Net change in
Noninterest-bearing, interest-bearing demand and savings
deposits (2,211) (14,403)
Certificates of deposit (5,248) 6,209
Federal funds purchased and securities sold under repurchase
agreements (4,371) 9,187
Federal Home Loan Bank loans 466 2,500
U.S. Treasury demand notes 763 2,352
Cash dividends (1,011) (959)
Net cash from (purchase) sale of treasury stock (175) 30
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Net cash provided (used) by financing activities (11,787) 4,916
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Net increase (decrease) In cash and cash equivalents (7,903) 2,843
Cash and cash equivalents, beginning of period 48,588 38,572
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Cash and cash equivalents, end of period $ 40,685 $ 41,415
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,554 $ 8,784
Income taxes $ 1,432 $ 1,828
</TABLE>
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FIRST DECATUR BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The interim financial statements have been prepared by First Decatur
Bancshares, Inc. ("Bancshares") pursuant to the rules and regulations of the
Securities and Exchange Commission applicable to quarterly reports on Form 10-
Q. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
financial statements should be read in conjunction with the audited
consolidated financial statements and related notes and schedules included in
Bancshares' Form 10-K for 1996 filed on March 31, 1997, registration statement
filed on Form S-4 dated February 6, 1996, and Form 8-K for the acquisition of
First Shelby Financial Group, Inc. filed on April 1, 1996.
The results for the interim periods are not necessarily indicative of the
results of operations that may be expected for the fiscal year. In the opinion
of management, the information furnished reflects all adjustments which are of
a normal recurring nature and are necessary for a fair presentation of
Bancshares' financial position, results of operations and cash flows for the
period presented. Such adjustments were of a normal recurring nature.
The consolidated financial statements include the accounts of Bancshares
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
ACQUISITION
On April 1, 1996, Bancshares completed the acquisition of First Shelby
Financial Group, Inc. ("First Shelby"), a bank holding company located in
Shelbyville, Illinois, and its subsidiary bank, First Trust Bank of Shelbyville
("Shelby Bank"). Bancshares issued 695,852 shares of its common stock in
exchange for all of the issued and outstanding shares of First Shelby. Cash of
$124,200 was paid to one First Shelby dissenting shareholder for 5,481 shares.
No other cash, except for fractional shares, was paid in the transaction.
This transaction has been accounted for as a pooling of interest and
accordingly, financial information preceding the date of acquisition has been
restated to include the financial position and results of operations of First
Shelby Financial Group, Inc. and its subsidiary First Trust Bank of
Shelbyville.
On May 13, 1997, First Shelby was dissolved and its subsidiary, First
Trust Bank of Shelbyville, is now a wholly owned subsidiary of Bancshares. The
net assets of First Shelby totaled $11,492,000 on May 13, 1997 and were
transferred to Bancshares.
NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1996, Bancshares adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage
Servicing Rights". This statement requires the capitalization of retained
mortgage servicing rights on originated or purchased loans by allocating the
total cost of the mortgage loans between the mortgage servicing
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rights and the loans (without the servicing rights) based on their fair values.
SFAS No. 122 was superseded during 1996 by SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinquishment of Liabilities".
SFAS No. 125 (as did SFAS No. 122) requires the assessment of impairment of
capitalized mortgage servicing rights and requires that impairment be recognized
through a valuation allowance based on the fair value of those rights. The
adoption of SFAS No. 125 by Bancshares resulted in $101,000 of mortgage
servicing rights being capitalized, net of amortization for the year ended
December 31, 1996. For the nine months ended September 30, 1997, an
additional $69,000, net of amortization, has been capitalized.
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 123,
"Accounting for Stock-based Compensation". SFAS No. 123 encourages, but does
not require, companies to recognize compensation expense for grants of stock,
stock options and other equity instruments based on the fair value of those
instruments. SFAS No. 123 permits a company to continue the accounting for
stock-based compensation prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees". If a company elects to stay
with Opinion No. 25, pro forma disclosures of net income are required in the
notes to the financial statements as if the provisions of SFAS No. 123 had been
used to measure stock-based compensation. Bancshares has elected to continue
to measure compensation costs using Opinion No. 25. There are no pro forma
disclosures required pursuant to SFAS No. 123, as no awards were granted in
1996. Also, no awards were granted in the first three quarters of 1997.
SFAS No. 125 provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are considered borrowings
as well as provides detailed measurement standards for assets and liabilities
included in these transactions. The Statement supersedes FASB Statements No.
76, "Extinguishment of Debt" and No. 77, "Reporting by Transferors for
Transfers of Receivables with Recourse" and No. 122, "Accounting for Mortgage
Servicing Rights", and amends FASB Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", in addition to clarifying or
amending a number of other statements and technical bulletins. Except as
amended by Statement No. 127, this Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996 and is to be applied prospectively. Earlier or
retroactive application is not permitted.
The FASB was made aware that the volume of certain transactions and the
related changes to information systems and accounting processes that are
necessary to comply with the requirements of Statement No. 125 would make it
extremely difficult, if not impossible, for some affected enterprises to apply
the transfer and collateral provisions of Statement No. 125 to those
transactions as soon as January 1, 1997. As a result, SFAS No. 127 defers for
one year the effective date (a) of paragraph 15 of Statement No. 125 and (b)
for repurchase agreement, dollar-roll, securities lending, and similar
transactions, of paragraphs 9-12 and 237(b) of Statement No. 125.
Statement No. 127 provides additional guidance on the types of
transactions for which the effective date of Statement No. 125 has been
deferred. It also requires that if it is not possible to determine whether a
transfer occurring during calendar-year 1997 is part of a repurchase agreement,
dollar-roll, securities lending, or similar transaction, then paragraphs 9-12
of Statement No. 125 should be applied to that transfer. All provisions of
Statement No. 125 should continue to be applied prospectively, and earlier or
retroactive application is not permitted.
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The FASB has issued SFAS No. 128, "Earnings per Share". SFAS No. 128
requires the disclosure on the face of the income statement of basic earnings
per share and, for entities with complex capital structures, diluted earnings
per share. The objective of this Statement is to simplify the computation of
earnings per share and to make the U.S. standard more compatible with the
earnings per share standards of other countries and the International
Accounting Standards Committee. This Statement is effective for periods
ending after December 15, 1997.
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income". SFAS
No. 130 requires the reporting and display of all components of comprehensive
income. Comprehensive income includes foreign currency translation
adjustments, minimum pension liability adjustments and unrealized gains and
losses on securities available for sale. The Standard requires that an
institution display comprehensive income and its components in a financial
statement that is displayed with the same prominence as other financial
statements that constitute a full set of financial statements. SFAS No. 130 is
effective for years beginning after December 15, 1997.
The FASB has issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 defines the appropriate
basis for defining segments, describes which accounting principles and
allocations to be used, lists the specific items of information that should be
disclosed and discusses the disclosures for condensed financial statements for
interim periods. SFAS No. 131 applies only to public business enterprises with
more than one segment. Public business enterprises include those that have
debt or equity securities that are traded in a public market, including local
or regional markets, and those that provide financial statements for the
purpose of issuing any class of securities in a public market. This Statement
is effective for fiscal years beginning after December 15, 1997.
COMMON SHARES
During the third quarter of 1996, Bancshares' Board of Directors approved
a stock repurchase program which authorizes the repurchase of common shares to
be used for the issuance of shares under Bancshares' employee stock option
plan. The shares will be repurchased from time to time in the open market or
in private transactions. At September 30, 1997, 24,054 shares had been
repurchased.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion represents management's analysis of Bancshares'
results of operations for the three and nine month periods ended September 30,
1997 and 1996 and its consolidated financial condition at September 30, 1997 as
compared to December 31, 1996. This discussion should be read in conjunction
with Bancshares' unaudited condensed consolidated financial statements and
notes thereto.
On April 1, 1996, Bancshares completed the acquisition of First Shelby and
the Shelby Bank. As a result of the merger, First Shelby and the Shelby Bank
became wholly owned subsidiaries of Bancshares. The acquisition was accounted
for as a pooling of interests and, accordingly, the financial condition and
results of operations of Bancshares, First Shelby and the Shelby Bank have been
combined as if the combination had been in effect for each of the periods
presented. Effective May 13, 1997, First Shelby was dissolved, with the net
assets transferred to Bancshares.
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RESULTS OF OPERATIONS
SUMMARY OF OPERATIONS
Net income in the third quarter of 1997 increased to $1,241,000, up 12%
from $1,110,000 earned in the same quarter of 1996. Earnings per share for the
quarterly period increased to 43 cents per share, up 13% from 38 cents per
share earned in the third quarter of 1996. For the nine months ended September
30, 1997, net income was $3,710,000, up 14% compared to $3,263,000 for the
first three quarters of 1996. Earnings per share for the nine month period
ended September 30, 1997 were $1.29, up 15% compared to $1.12 in the same
period in 1996. Higher earnings in both periods were primarily due to
increases in net interest income offset by an increase in the provision for
loan losses. Also, a reduction in FirsTech contracts resulted in lower
remittance processing fees and contributed to lower salaries, lower employee
benefits and lower correspondent bank charges.
NET INTEREST INCOME
For the nine months ended September 30, 1997, net interest income
increased $602,000 or 6% compared to 1996. The growth in net interest income
for the nine month period ended September 30, 1997, was mainly due to increases
in the volume of average earning assets, primarily in the loan area. For the
nine months ended September 30, 1997, average earning assets increased
$5,168,000 or 2% compared to the same period in 1996.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
Asset quality, particularly in the loan area, continues to be an important
concern of Bancshares' management. Both the Decatur Bank and the Shelby Bank
maintain a separate loan review department which continuously reviews problem
and significant loans and the adequacy of the allowance for loan losses.
Separate loan committees of the board of directors at the Decatur Bank and
Shelby Bank meet at least quarterly to review past due loans and problem
credits, lending policies and practices and results of the loan review
department's analyses. The allowance for loan losses is maintained at a level
management believes to be adequate to provide for known and potential risks
inherent in the loan portfolios.
The provision for loan losses during the third quarter of 1997 was
$137,000 compared to $77,000 in 1996. For the nine month period ended
September 30, 1997, the provision for loan losses were $369,000 compared to
$229,000 for the same period in 1996. The higher provisions for loan losses
were primarily due to higher net chargeoffs in the installment loan area and
the increase in total loans outstanding.
OTHER INCOME
Other income for the three months ended September 30, 1997, decreased
$196,000 or 9% compared to the same period in 1996. On a year-to-date basis,
other income decreased $1,137,000 or 15% compared to the nine month period in
1996. For both the three month and nine month periods, the decrease is
attributed to a reduction in remittance processing income generated by FirsTech
as the result of the loss of the Ameritech contracts offset by an increase in
loan fee income and other income.
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For the three and nine months ended September 30, 1997, remittance
processing and collecting income generated by FirsTech decreased by $309,000
(23%) and $1,469,000 (32%), respectively, compared to the same periods in 1996.
The decrease in 1997 is the result of the loss of the Ameritech contracts.
FirsTech's contracts to process payments for Ameritech expired in 1996 and were
not renewed.
Loan fee income for the three month period ended September 30, 1997,
increased $82,000 or 126% over the same period in 1996. On a year to date
basis, loan fee income increased $109,000 or 49% compared to the nine month
period in 1996. For the three month period, the increase is mainly attributed
to an increase in mortgage loan processing and servicing right income as a
result of the sale of residential mortgage loans in the secondary market to
Federal National Mortgage Association ("FNMA"). For the nine month period, the
increase is attributed to an increase in fees in the commercial and real estate
loan areas as a result of large dollar volume loans in the first half of 1997
as well as the sale of residential mortgage loans in the secondary market to
FNMA.
For the three months ended September 30, 1997, other income increased
$44,000 or 21% compared to the same period in 1996. Other income increased
$176,000 or 30% for the nine months ended September 30, 1997, compared to the
same period in 1996. The increase for both periods is mainly attributed to
gains on the sale of remittance processing machines by FirsTech and an increase
in brokerage commissions and ATM fees for the first nine months of 1997
compared to 1996.
OTHER EXPENSES
Other expenses decreased from $4,041,000 for the three months ended
September 30, 1996, to $3,729,000 for the three months ended September 30,
1997. This represents a $312,000 (8%) decrease and was attributed to decreases
in professional fees, equipment expenses, data processing fees and service
charges from corresponding banks. For the nine months ended September 30, 1997,
other expenses decreased $1,217,000 or 10% compared to the same period in 1996.
This decrease was attributed to decreases in salaries and employee benefits,
professional fees, equipment expenses, data processing fees, supplies, and
service charges from corresponding banks.
Salaries and employee benefits decreased $284,000 or 4% for the first nine
months of 1997 compared to the first nine months of 1996. This decrease is
mainly due to the reduction of staff at FirsTech during the first quarter of
1996 as a result of the loss of the Ameritech contracts. FirsTech's contracts
to process payments for Ameritech expired in 1996 and were not renewed.
Professional fees decreased $93,000 or 47% for the third quarter of 1997
compared to the third quarter of 1996. For the nine months ended September 30,
1997, professional fees decreased $333,000 or 53% compared to the same period
in 1996. The decrease for both periods was attributed to the professional fees
associated with the acquisition of First Shelby that were expensed on April 1,
1996, upon consummation of the acquisition.
Equipment expenses decreased $72,000 or 12% for the third quarter of 1997
compared to the third quarter of 1996. For the nine months ended September 30,
1997, equipment expenses decreased $173,000 or 9% compared to the same period
in 1996. The decrease in both periods is
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mainly attributed to a reduction in machine maintenance costs as the result of
lower usage of equipment due to loss of the Ameritech contracts. The additional
decrease in the third quarter of 1997 was the result of lower depreciation
due to the sale of remittance processing machines by FirsTech.
For the three months ended September 30, 1997, data processing fees
decreased $79,000 or 57% compared to the same period in 1996. Data processing
fees decreased $66,000 or 24% for the first nine months of 1997 compared to the
first nine months of 1996. Also, supplies decreased $61,000 or 17% for the
first nine months of 1997 compared to the first nine months of 1996. The
decrease in data processing fees and supplies is attributed to increased
efficiencies in technology related to the acquisition of an in-house computer
system for the Decatur Bank and image equipment and software for FirsTech.
For the three months ended September 30, 1997, service charges decreased
$66,000 or 35% compared to the same period in 1996. Service charges decreased
$245,000 or 39% for the first nine months of 1997 compared to the first nine
months of 1996. The decrease in both periods is attributed to a reduction in
the number of items processed by FirsTech as a result of the loss of the
Ameritech contracts.
INCOME TAXES
Income tax expense increased $95,000 or 6% for the first nine months of
1997, compared to the first nine months of 1996. Higher income tax expense was
principally due to the increase in pre-tax earnings. Bancshares' effective tax
rate (income tax expense divided by income before taxes) was 31% and 33%,
respectively, as of September 30, 1997 and 1996.
FINANCIAL CONDITION
Bancshares' total assets decreased $7,515,000 or 2% from December 31, 1996
to September 30, 1997. This decrease was primarily due to a decline in
deposits and short term borrowings of $7,500,000 and $3,100,000, respectively,
offset by a $2,800,000 increase in stockholders' equity due to earnings. This
decline in funding of $7,800,000 and the $7,700,000 loan growth resulted in a
decrease of liquid assets and investments of $7,900,000 and $7,800,000,
respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents decreased $7,903,000 from December 31, 1996 to
September 30, 1997. This change occurred due to a decrease in cash and due
from banks of $3,608,000 and a decrease in federal funds sold of $4,295,000.
See the consolidated statement of cash flows for the nine months ended
September 30, 1997, in the interim financial statements for the details
representing the decrease in cash and cash equivalents. Federal funds sold are
of a short-term nature and provide the needed liquidity to fund loan growth.
SECURITIES
Bancshares' overall investment goal is to maximize earnings while
maintaining liquidity in securities having minimal credit risk. The types and
maturities of securities purchases are primarily based on Bancshares' current
and projected liquidity and interest rate sensitivity positions. The
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carrying value of investment securities decreased by $7,782,000 from December
31, 1996 to September 30,1997. During the first nine months of 1997,
Bancshares purchased $24,039,000 ($19,696,000 classified as available-for-
sale), sold $5,994,000 of securities classified as available-for-sale, and had
$25,533,000 ($19,090,000 classified as available-for-sale) mature. The
decrease in investments was necessary to fund loan growth for the first nine
months ended September 30, 1997.
OTHER ASSETS
Other assets increased $1,261,000 from December 31, 1996 to September 30,
1997 due $800,000 in accrued trust fees at the First National Bank of Decatur
("Decatur Bank") and $750,000 in prepaid maintenance costs at FirsTech. The
Decatur Bank accrues trust income throughout the year and offsets the accrued
account when fees are collected. The majority of trust fees are collected
during the fourth quarter of each year. During April 1997, FirsTech purchased
a two year maintenance agreement to cover lockbox processing equipment and
personal computer equipment. The $750,000 will be amortized monthly until
April 1999.
LOANS
Total loans increased by $7,697,000 from December 31, 1996 to September
30, 1997 due mainly to an increase in commercial loans offset by a decrease in
consumer loans. Commercial loans increased by $11,821,000 due to increases in
construction and land development and a long term commercial real estate loan.
Consumer loans decreased by $3,555,000 as the result of reallocation of
resources from consumer loans to commercial loans to meet loan demand.
DEPOSITS
Total deposits decreased $7,459,000 from December 31, 1996 to September
30, 1997. This decrease is attributed to the redemption of a $4,000,000
certificate of deposit by the Decatur School District, the redemption of a
$1,500,000 certificate of deposit by the Village of Mt. Zion, and the
redemption of a $2,000,000 certificate of deposit by the State of Illinois.
FEDERAL FUNDS PURCHASES AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Federal funds purchases and securities sold under repurchase agreements
decreased $4,371,000 from December 31, 1996 to September 30, 1997. The
decrease is primarily attributed to a decrease in securities sold under
repurchase agreements of $4,223,000, a majority of which ($3,000,000) was a
short term deposit by one of the local hospitals.
STOCKHOLDERS' EQUITY
Total stockholders' equity rose $2,778,000 or 6% from December 31, 1996 to
September 30, 1997. The increase is mainly attributed to net income of
$3,710,000 less cash dividends of $1,011,000.
The capital ratios of Bancshares are presently in excess of the
requirements necessary to meet the "well capitalized" capital category
established by bank regulators. At June 30, 1997, Bancshares' consolidated
Tier 1 and total risk-based capital ratios were 20.1% and 21.3%, respectively.
Bancshares' leverage ratio at June 30, 1997, was 13.0%.
Page 10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Bancshares is involved from time to time in routine litigation incidental
to its business. However, Bancshares' management believes that it is not a
party to any material pending litigation, which, if decided adversely to
Bancshares, would have a significant negative impact on the business, income,
assets or operation of Bancshares. Bancshares' management is not aware of any
other material threatened litigation which might involve Bancshares.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
NUMBER DESCRIPTION OF EXHIBIT
11 Computation of Per Share Income - Refer to the
Consolidated Statements of Income in the interim
financial statements
27 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
Page 11
<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, thereunto duly authorized.
FIRST DECATUR BANCSHARES, INC.
October 22, 1997 By: /s/ John Luttrell
-------------------------------------
John W. Luttrell
President and Chief Executive Officer
October 22, 1997 By: /s/ Craig A. Wells
-------------------------------------
Craig A. Wells
Principal Financial Officer
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