<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
Commission file number 0-13343
ILLINI CORPORATION
(Exact name of small business issuer as specified in its charter)
Illinois 37-1135429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 South Chatham Road, Springfield, Illinois 62704
(Address of principal executive offices)
(217) 787-1651
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
------ -----
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:448,456 shares of $10 par
value common stock as of October 31, 1996.
<PAGE>
ILLINI CORPORATION
INDEX TO FORM 10-QSB
September 30, 1996
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income
Three and Nine Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 7
PART II. OTHER INFORMATION 17
SIGNATURE PAGE 19
2
<PAGE>
ILLINI CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- --------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 6,005,253 $ 8,079,146
Interest bearing deposits in other banks 12,782 0
Investment in debt and marketable equity securities
available for sale, at estimated market value 41,578,015 34,967,265
Loans 94,936,505 100,999,481
Less: Unearned income 108,385 128,976
Allowance for loan losses 1,119,174 1,246,480
------------ ------------
Loans, net 93,708,946 99,624,025
------------ ------------
Premises and equipment 4,823,729 4,870,132
Accrued interest receivable 1,798,698 1,541,427
Other assets 1,810,838 1,287,201
------------ ------------
TOTAL ASSETS $149,738,261 $150,369,196
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
DEPOSITS:
Non-interest bearing demand deposits $ 18,715,235 $ 20,538,752
Interest bearing deposits:
NOW and money market accounts 27,278,242 27,223,687
Savings deposits 19,632,849 20,318,381
Time deposits, $100,000 and over 15,625,238 14,750,120
Other time deposits 48,180,978 50,481,132
------------ ------------
TOTAL DEPOSITS 129,432,542 133,312,072
Federal funds purchased 1,420,000 0
Securities sold under agreements to repurchase 250,000 650,000
Other short-term borrowings 3,000,000 0
Accrued interest payable 704,942 880,006
Other liabilities 808,631 920,763
------------ ------------
TOTAL LIABILITIES 135,616,115 135,762,841
------------ ------------
Stockholders' equity:
Common stock-authorized 800,000 shares of $10
par value; 448,456 shares issued and outstanding 4,484,560 4,484,560
Capital surplus 1,885,913 1,885,913
Retained earnings 8,256,342 8,209,528
Net unrealized holding gains (losses) on investments in debt and
marketable equity securities available for sale, net of tax (504,669) 26,354
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 14,122,146 14,606,355
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $149,738,261 $150,369,196
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
ILLINI CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1996 1995 1996 1995
----------------------- -----------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $2,231,256 $2,529,696 $6,699,258 $7,059,603
Interest on investment securities:
Taxable 454,165 269,597 1,185,814 1,139,467
Exempt from federal income taxes 162,855 123,972 530,644 375,257
Interest on short term investments 165 69,171 35,630 105,997
---------- ---------- ---------- ----------
Total interest income 2,848,441 2,992,436 8,451,346 8,680,324
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 1,193,731 1,319,827 3,658,645 3,727,179
Interest on federal funds purchased 38,282 0 68,220 33,108
Interest on securities sold under
agreements to repurchase 3,537 6,610 11,325 29,053
Interest on note payable 0 0 0 9,035
---------- ---------- ---------- ----------
Total interest expense 1,235,550 1,326,437 3,738,190 3,798,375
---------- ---------- ---------- ----------
Net interest income 1,612,891 1,665,999 4,713,156 4,881,949
Provision for loan losses 165,000 30,000 795,000 90,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,447,891 1,635,999 3,918,156 4,791,949
Noninterest income 497,171 449,320 1,242,233 1,230,496
Noninterest expense 1,594,059 1,640,926 4,817,867 4,940,004
---------- ---------- ---------- ----------
Income before income tax expense 351,003 444,393 342,522 1,082,441
Income tax expense (benefit) 128,718 156,300 (6,999) 306,900
---------- ---------- ---------- ----------
Net income $ 222,285 $ 288,093 $ 349,521 $ 775,541
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income per common share (based on
weighted average common shares
outstanding of 448,456 for 1996 and
1995): $ 0.50 $ 0.64 $ 0.78 $ 1.73
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE>
ILLINI CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 349,521 $ 775,541
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 420,205 363,474
Provision for loan losses 795,000 90,000
Securities (gains) losses, net (32,026) 4,036
Gain on sale of land (104,792) 0
Increase in accrued interest receivable (257,271) (385,694)
Increase (decrease) in accrued interest payable (175,064) 150,035
Other, net (360,835) (273,424)
Origination of secondary market mortgage loans (12,271,131) (7,188,143)
Proceeds from the sale of secondary market mortgage loans 12,121,631 7,188,143
------------ ------------
Net cash provided by operating activities 485,238 723,968
------------ ------------
Cash flows from investing activities:
Proceeds from sales of debt and marketable equity securities
available for sale 5,800,828 13,409,069
Proceeds from maturities and paydowns of debt securities
available for sale 7,666,533 2,478,079
Proceeds from maturities and paydowns of debt securities
held to maturity 0 235,000
Purchases of debt and marketable equity securities
available for sale (20,965,327) (287,573)
Net (increase) decrease in loans 5,269,579 (11,515,860)
Purchases of premises and equipment (643,597) (420,851)
Proceeds from sale of land 487,872 0
Proceeds from sales of other real estate 0 359,517
------------ ------------
Net cash provided by (used in) investing activities (2,384,112) 4,257,381
------------ ------------
Cash flows from financing activities:
Net decrease in non-interest bearing deposit accounts (1,823,517) (1,298,586)
Net decrease in savings, NOW and money market accounts (630,977) (4,493,474)
Net increase (decrease) in time deposits $100,000 and over 875,118 (2,383,179)
Net increase (decrease) in other time deposits (2,300,154) 9,287,518
Net increase (decrease) in federal funds purchased 1,420,000 (4,165,000)
Net decrease in securities sold under agreements
to repurchase (400,000) (391,419)
Net increase in short-term borrowings 3,000,000 0
Principal payments on note payable 0 (500,000)
Dividends paid (302,707) (302,707)
------------ ------------
Net cash used in financing activities (162,237) (4,246,847)
------------ ------------
Net increase (decrease) in cash and cash equivalents (2,061,111) 734,502
Cash and cash equivalents at beginning of period 8,079,146 7,762,207
------------ ------------
Cash and cash equivalents at end of period $ 6,018,035 $ 8,496,709
------------ ------------
------------ ------------
Supplemental Information:
Income taxes paid $ 145,000 $ 123,000
Interest paid $ 3,913,254 $ 3,648,340
------------ ------------
------------ ------------
Other non-cash investing activities:
Transfer of loans to other real estate $ 222,134 $ 191,495
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to interim consolidated financial statements.
5
<PAGE>
ILLINI CORPORATION AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and,
therefore, do not include all of the information and notes required by
generally accepted accounting principles for complete consolidated
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. For further information, refer to the
consolidated financial statements and footnotes included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995.
Results for the three and nine months ended September 30, 1996 may not be
indicative of the annual performance of Illini Corporation.
6
<PAGE>
ILLINI CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 1996
This discussion should be read in conjunction with the consolidated financial
statements, notes and tables included elsewhere in this report and in the
1995 Illini Corporation Annual Report on Form 10-KSB, and quarterly report on
Form 10-QSB for the quarters ended March 31, 1996, and June 30, 1996. Illini
Corporation cautions that any forward looking statements contained in this
report, in a report incorporated by reference to this report or made by
management of Illini Corporation involve risks and uncertainties and are
subject to change based on various factors. Actual results could differ
materially from those expressed or implied.
SUMMARY
<TABLE>
<CAPTION>
Quarter ended Nine months ended
September 30, September 30,
--------------- Percent ----------------- Percent
EARNINGS $(thousands, except per share data) 1996 1995 Change 1996 1995 Change
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue . . . . . . . . . . . . . . . $3,346 $3,442 (2.79%) $9,694 $9,911 (2.19%)
Net income . . . . . . . . . . . . . . . . . 222 288 (22.84%) 350 775 (54.93%)
Net income per share . . . . . . . . . . . . $0.50 $0.64 (22.84%) $0.78 $1.73 (54.93%)
KEY RATIOS Change Change
- -----------------------------------------------------------------------------------------------------
Return on average assets . . . . . . . . . . 0.59% 0.75% (0.16%) 0.31% 0.67% (0.36%)
Return on average equity . . . . . . . . . . 6.32% 8.29% (1.97%) 3.25% 7.71% (4.46%)
Average equity to assets . . . . . . . . . . 9.41% 9.04% 0.37% 9.56% 8.68% .88%
Tangible equity to net assets. . . . . . . . 9.29% 8.81% 0.48%
Tier I leverage ratio. . . . . . . . . . . . 9.70% 9.05% 0.65%
Total risk adjusted capital ratio. . . . . . 15.51% 13.63% 1.88%
Dividend payout ratio. . . . . . . . . . . . 45.41% 35.09% 10.32% 86.55% 39.08% 47.47%
Net interest margin. . . . . . . . . . . . . 4.92% 4.88% 0.04% 4.85% 4.78% 0.07%
Net funds function . . . . . . . . . . . . . 4.48% 4.83% (0.35%) 4.08% 4.68% (0.60%)
Efficiency ratio . . . . . . . . . . . . . . 72.53% 75.20% (2.67%) 77.16% 78.21% (1.05%)
</TABLE>
Net income was $0.2 million and $0.4 million for the three and nine months
ended September 30, 1996, compared with $0.3 million and $0.7 million for the
same periods in 1995. Results for 1996 have been significantly impacted by
an increase in loan losses as compared to 1995. Further discussion regarding
credit quality is presented on page 15.
7
<PAGE>
RESULTS OF OPERATION
NET INTEREST INCOME/NET INTEREST MARGIN
Interest income, on a fully taxable equivalent basis, was $2.9 million and
$8.7 million for the three and nine months ended September 30, 1996, compared
with $3.1 million and $8.9 million for the same periods in 1995. The net
interest margin was 4.92% and 4.85% for the three and nine months ended
September 30, 1996, compared with 4.88% and 4.78% for the same periods in
1995.
The decrease in interest income was primarily due to a decline in earning
assets associated with the sale of a branch in Coffeen, Illinois in November,
1995. Average earning asset balances decreased to $137.1 million and $137.4
million for the three and nine months ended September 30, 1996 as compared to
$141.1 million and $142.3 million for the same periods in 1995. The sale of
the Coffeen branch contributed to a decline in average earning assets of
$11.5 million for the three and nine months ended September 30, 1996.
Average loans declined to $95.8 million for the three months ended September
30, 1996, compared to $107.8 million for the same period in 1995. The
decline of $12.0 million for the three months ended September 30, 1996 as
compared to the same period for 1995 was due to a decrease of $4.0 million in
commercial loans, $3.7 million in residential real estate loans, $2.3 million
in commercial real estate loans, and $2.2 million in consumer loans. The
sale of loans from the Coffeen branch contributed to a decline in average
loans of $6.2 million for the three months ended September 30, 1996.
Average loans declined to $97.0 million for the nine months ended September
30, 1996, compared to $103.1 million for the same period in 1995. The
decline of $6.1 million for the nine months ended September 30, 1996 as
compared to the same period in 1995 was due to a decline of $4.5 million in
residential real estate loans and $1.2 million in commercial loans. The sale
of the loans from the Coffeen branch contributed to a decline of $6.2 million
in average loans outstanding for the nine months ended September 30, 1996.
Average investment securities increased $12.6 and $2.5 million for the three
and nine months ended September 30, 1996, as compared to the same period in
1995. Net investing activities (purchases, sales and maturities) resulted an
increase in the investment portfolio of $7.5 million for the nine months
ended September 30, 1996.
Interest expense was $1.2 million and $3.7 million for the three and nine
months ended September 30, 1996, down $0.1 million compared to the same
periods in 1995. The retail funding base decreased $8.6 million and $6.8
million for the three and nine months ended September 30, 1996, primarily due
to the sale of $12.6 million of deposits with the Coffeen branch in November,
1995.
Illini Corporation's policy is to manage interest rate risk to a level which
places limits on the sensitivity of its earnings to changes in market
interest rates. An explanation of the asset/liability management process is
found beginning on page 14 and in the Annual Report on Form 10-K for the year
ended December 31, 1995, beginning on page 11. Interest rate risk management
at Illini Corporation is executed by the use of on-balance sheet investment
products.
Net interest income is affected by the growth, pricing, mix and maturity of
interest earning assets and interest bearing liabilities, as well as other
factors including loan quality. Individual components of net interest income
and net interest margin are presented in the consolidated average balances,
interest income/expense and yield/rate table on pages 9 and 10, and a net
interest income rate/volume variance analysis is presented on page 11.
8
<PAGE>
CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELD/RATES
<TABLE>
<CAPTION>
Quarter ended September 30,
---------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
Percent Interest Percent Interest
Average of Total Income/ Yield/ Average of Total Income/ Yield/
Balance Assets Expense Rate Balance Assets Expense Rate
$ (thousands) -------- -------- -------- ------- -------- -------- -------- -------
--------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 22 0.0% $ 0 2.98% $ 4,892 3.2% $ 69 5.61%
Investment securities (3)
Taxable 29,213 19.5 454 6.22 19,493 12.7 269 5.53
Tax-exempt (1) 13,217 8.8 247 7.47 10,335 6.7 188 7.27
-------- ----- ------ -------- ------ ------
Total securities 42,430 28.3 701 6.61 29,828 19.4 457 6.13
Loans
Commercial (1) 13,329 8.9 287 8.53 17,284 11.3 399 9.16
Agriculture 5,980 4.0 129 8.55 5,556 3.6 129 9.23
Real estate
Commercial 28,335 18.9 671 9.39 30,585 19.9 716 9.29
Agriculture 2,602 1.8 60 9.21 3,310 2.2 73 8.71
Residential 27,122 18.1 628 9.18 30,788 20.1 723 9.32
Consumer, net 17,774 11.9 435 9.72 19,960 13.0 483 9.60
Credit card 652 0.5 26 15.96 362 0.2 11 11.68
-------- ------ -------- ------
Total loans 95,794 64.1 2,236 9.26 107,845 70.3 2,534 9.32
Reserve for loan losses (1,110) (0.7) (1,483) (1.0)
-------- ------ -------- ------
Net loans (1) (2) 94,684 63.4 2,236 9.37 106,362 69.3 2,534 9.45
-------- ---- ------ -------- ----- ------
Total interest earning assets 137,136 91.7 2,937 8.50 141,082 91.9 3,060 8.61
-------- ------ -------- ------
Cash and due from banks 4,838 3.2 5,200 3.4
Premises and equipment 5,000 3.3 4,206 2.7
Other assets (3) 2,644 1.8 3,092 2.0
-------- ------ -------- ------
TOTAL ASSETS $149,618 100.0% $153,580 100.0%
-------- ------ -------- ------
-------- ------ -------- ------
LIABILITIES
Deposits:
Non interest bearing deposits $ 18,919 12.6% $ 19,375 12.6%
Interest bearing demand 28,512 19.1 192 2.67 28,610 18.6 191 2.65
Savings 19,679 13.2 123 2.49 21,058 13.7 131 2.47
CD's less than $100,000 48,091 32.1 652 5.37 54,776 35.7 794 5.75
-------- ------ -------- ------
Total core deposits 115,201 77.0 967 3.33 123,819 80.6 1,116 3.58
CD's $100,000 and over 15,967 10.7 227 5.64 13,803 9.0 203 5.84
-------- ------ -------- ------
Total deposits 131,168 87.7 1,194 3.61 137,622 89.6 1,319 3.80
Borrowed funds:
Short-term 2,869 1.9 42 5.78 371 0.2 7 7.07
Long-term -- -- -- -- -- --
-------- ------ ------ -------- ------ ------
Total borrowed funds 2,869 1.9 42 5.78 371 0.2 7 7.07
Total interest bearing liabilities 115,118 77.0 1,236 4.26 118,618 77.2 1,326 4.44
Other liabilities 1,509 1.0 1,705 1.1
-------- ------ -------- ------
Total liabilities 135,546 90.6 139,698 90.9
Stockholders' Equity 14,072 9.4 13,882 9.1
-------- ------ -------- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $149,618 100.0% $153,580 100.0%
-------- ------ -------- ------
-------- ------ -------- ------
NET INTEREST MARGIN 1,701 4.92 1,734 4.88
Provision for loan losses (165) (0.48) (30) (0.09)
-------- ------ ------- -----
NET FUNDS FUNCTION $ 1,536 4.48% $1,704 4.83%
-------- ------ ------- ------
-------- ------ ------- ------
</TABLE>
(1) Fully taxable equivalent basis using the federal statutory rate of 34%.
(2) Nonaccrual loans are included in the loan balances. Interest income
includes related fee income of $61,000 in 1996 and $60,000 in 1995.
(3) Average securities balances are based on amortized historical cost,
excluding FASB 115 adjustments to fair value, which are included in other
assets.
9
<PAGE>
CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELD/RATES
<TABLE>
<CAPTION>
Quarter ended September 30,
---------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
Percent Interest Percent Interest
Average of Total Income/ Yield/ Average of Total Income/ Yield/
Balance Assets Expense Rate Balance Assets Expense Rate
$ (thousands) -------- -------- -------- ------- -------- -------- -------- ------
--------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 881 0.6% $ 36 5.39% $ 2,472 1.6% $ 106 5.73%
Investment securities (3)
Taxable 26,240 17.5 1,186 6.03 27,881 18.1 1,139 5.45
Tax-exempt 14,521 9.7 804 7.38 10,382 6.7 569 7.30
-------- ----- ------ -------- ------ ------
Total securities 40,761 27.2 1,990 6.51 38,263 24.8 1,708 5.95
Loans
Commercial (1) 14,474 9.7 938 8.63 15,749 10.2 1,061 9.01
Agriculture 5,433 3.6 341 8.35 4,915 3.2 336 9.14
Real estate
Commercial 28,896 19.3 2,007 9.25 29,341 19.0 2,011 9.17
Agriculture 2,770 1.8 189 9.09 3,473 2.3 226 8.69
Residential 26,864 17.9 1,876 9.30 31,380 20.3 2,138 9.11
Consumer, net 17,889 11.9 1,295 9.64 18,068 11.7 1,281 9.48
Credit card 628 0.4 67 14.31 176 0.1 18 13.48
-------- ------ -------- ------
Total loans 96,954 64.6 6,713 9.22 103,102 66.8 7,071 9.17
Reserve for loan losses (1,166) (0.8) (1,503) (1.0)
-------- ------ -------- ------
Net loans (1) (2) 95,788 63.8 6,713 9.34 101,599 65.8 7,071 9.31
-------- ----- ------ -------- ------ ------
Total interest earning assets 137,430 91.6 8,739 8.47 142,334 92.2 8,885 8.35
-------- ------ -------- ------
Cash and due from banks 4,937 3.3 5,261 3.4
Premises and equipment 4,923 3.3 4,234 2.7
Other assets (3) 2,649 1.8 2,604 1.7
-------- ------ -------- ------
TOTAL ASSETS $149,939 100.0% $154,433 100.0%
-------- ------ -------- ------
-------- ------ -------- ------
LIABILITIES
Deposits:
Non interest bearing deposits $ 18,846 12.6% $ 19,477 12.6%
Interest bearing demand 28,069 18.7 558 2.65 29,265 19.0 578 2.64
Savings 20,149 13.5 375 2.48 21,500 13.9 399 2.48
CD's less than $100,000 49,350 32.9 2,058 5.55 52,948 34.3 2,142 5.41
-------- ------ -------- ------
Total core deposits 116,414 77.7 2,991 3.42 123,190 79.8 3,119 3.38
CD's $100,000 and over 15,655 10.4 667 5.68 14,714 9.5 608 5.53
-------- ------ -------- ------
Total deposits 132,069 88.1 3,658 3.69 137,904 89.3 3,727 3.61
Borrowed funds:
Short-term 1,872 1.2 80 5.66 1,402 0.9 62 5.93
Long-term -- -- -- -- 89 0.1 9 9.00
-------- ----- ------ ----- -------- ------ ------
Total borrowed funds 1,872 1.2 80 5.66 1,491 1.0 71 6.38
Total interest bearing liabilities 115,095 76.7 3,738 4.33 119,918 77.7 3,798 4.23
Other liabilities 1,667 1.1 1,636 1.0
-------- ------ -------- ------
Total liabilities 135,608 90.4 141,031 91.3
Stockholders' Equity 14,331 9.6 13,402 8.7
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $149,939 100.0% $154,433 100.0%
-------- ------ -------- ------
-------- ------ -------- ------
NET INTEREST MARGIN 5,001 4.85 5,087 4.78
Provision for loan losses (795) (0.77) (90) (0.08)
-------- ------ ------- -----
NET FUNDS FUNCTION $4,206 4.08% $4,997 4.68%
-------- ------ ------- -----
-------- ------ ------- -----
</TABLE>
(1) Fully taxable equivalent basis using the federal statutory rate of 34%.
(2) Nonaccrual loans are included in the loan balances. Interest income
includes related fee income of $179,000 in 1996 and $169,000 in 1995.
(3) Average securities balances are based on amortized historical cost,
excluding FASB 115 adjustments to fair value, which are included in other
assets.
10
<PAGE>
NET INTEREST INCOME - RATE/VOLUME VARIANCE ANALYSIS
Quarter ending September 30, 1996-1995
--------------------------------------
Changes in Volume Rate
Income/Expense Effect Effect
$ (thousands) -------------- ------ -------
--------------
Federal funds sold (69) (47) (22)
Investment securities:
Taxable 185 147 38
Nontaxable 59 54 5
Loans (298) (276) (22)
----- ----- ----
Total interest income (123) (122) (1)
----- ----- ----
Savings and NOW accounts (7) (10) 3
Time deposits (118) (63) (55)
Federal funds purchased 38 38 0
Securities sold under repurchase
agreements (3) (2) (1)
----- ----- ----
Total interest expense (90) (37) (53)
----- ----- ----
Net interest income (33) (85) 52
----- ----- ----
----- ----- ----
Nine months ending September 30, 1996-1995
------------------------------------------
Changes in Volume Rate
Income/Expense Effect Effect
$ (thousands) -------------- ------ -------
--------------
Interest-bearing deposits with 1 1 0
other financial institutions
Federal funds sold (70) (64) (6)
Investment securities:
Taxable 46 (58) 104
Nontaxable 235 229 6
Loans (358) (380) 22
----- ----- ----
Total interest income (146) (272) 126
----- ----- ----
Savings and NOW accounts (44) (46) 2
Time deposits (25) (84) 59
Federal funds purchased 35 37 (2)
Securities sold under repurchase
agreements (17) (17) 0
Note payable (9) (5) (4)
----- ----- ----
Total interest expense (60) (115) 55
----- ----- ----
Net interest income (86) (157) 71
----- ----- ----
----- ----- ----
11
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
Three months ended Percent Nine months ended Percent
September 30, Change September 30, Change
------------------ --------- ----------------------- ---------
1996 1995 1996/1995 1996 1995 1996/1995
-------- -------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts. . . $264,340 $263,825 0.2 % $ 765,533 $ 795,648 (3.8)%
Securities gains (losses), net . . . . . 17,292 0 N/A 32,026 (4,036) (893.5)
Mortgage loan servicing fees . . . . . . 47,676 41,203 15.7 135,071 118,743 13.8
Gain on sale of mortgage loans . . . . . 9,074 40,168 (77.4) 49,076 66,972 (26.7)
Other income . . . . . . . . . . . . . . 158,789 104,124 52.5 260,527 253,169 2.9
-------- -------- ---------- ----------
$497,171 $449,320 10.6 % $1,242,233 $1,230,496 1.0 %
-------- -------- ------ ---------- ---------- -------
-------- -------- ------ ---------- ---------- -------
</TABLE>
Service charges for the Coffeen branch deposit accounts sold in November,
1995 were $16,000 and $46,000 for the three months and nine months ended
September 30, 1995, respectively, contributing to the decline in service
charges on deposit accounts of $30,000 for the nine months ended September
30, 1996, compared to the same period in the prior year.
The gain on the sale of securities totaling $17,000 for the three months
ended September 30, 1996 resulted from the sale of $1.4 million of small
variable-rate mortgage-backed securities. The gain on the sale of securities
totaling $32,000 for the nine months ended September 30, 1996 resulted from
the sale of the variable rate mortgage-backed securities and $2.2 million of
short-term municipal securities.
The increase in mortgage loan servicing fees of $6,000 and $16,000 for the
three and nine months ending September 30, 1996, compared to the same periods
in 1995, is primarily due to an increase in the origination of mortgage loans
for sale to $12.3 million for the nine months ended September 30, 1996 as
compared to $7.2 million for the same period the prior year.
The decline on the gain on sale of mortgage loans of $31,000 and $18,000 for
the three and nine months ending September 30, 1996 is due to a reduced
margin between mortgage rates offered to consumers and those realized at the
time of sale in order to be more competitive and expand market share.
The increase in other noninterest income for the three and nine months ended
September 30, 1996 is due to a gain of $105,000 on the sale of a lot held for
future expansion, which management concluded was no longer needed for that
purpose. Gains on the sale of other real estate for the three months and
nine months ended September 30, 1995 were $53,000 and $82,000 compared to no
gains realized on the sale of other real estate for the three or nine months
ended September 30, 1996.
12
<PAGE>
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Three months ended Percent Nine months ended Percent
September 30, Change September 30, Change
---------------------- --------- ----------------------- ---------
1996 1995 1996/1995 1996 1995 1996/1995
---------- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Salaries . . . . . . . . . . . $ 687,369 $ 667,809 2.9 % $2,032,071 $1,949,310 4.2 %
Benefits . . . . . . . . . . . 131,701 139,533 (5.6) 426,495 424,414 0.5
Occupancy expense . . . . . . 130,528 147,351 (11.4) 421,528 413,772 1.9
Equipment expense . . . . . . 112,734 118,424 (4.8) 327,385 351,797 (6.9)
Data processing . . . . . . . 88,924 96,071 (7.4) 278,553 280,161 (0.6)
Insurance . . . . . . . . . . 7,482 6,891 8.6 21,464 27,327 (21.5)
Directors' fees . . . . . . . 35,638 43,353 (17.8) 106,913 119,553 (10.6)
Audit fees . . . . . . . . . . 23,352 60,850 (61.6) 64,056 93,880 (31.8)
Legal fees . . . . . . . . . . 26,484 24,159 9.6 127,339 72,167 76.5
Consulting fees . . . . . . . 151 7,248 (97.9) 28,534 41,262 (30.8)
Regulatory fees . . . . . . . 6,136 (3,769) (262.8) 17,493 161,772 (89.2)
Supplies . . . . . . . . . . . 27,907 37,066 (24.7) 99,043 112,232 (11.8)
Postage . . . . . . . . . . . 21,768 28,787 (24.4) 77,138 88,440 (12.8)
Amortization . . . . . . . . . 13,476 22,810 (40.9) 40,429 68,430 (40.9)
Marketing and advertising . . 65,649 52,760 24.4 196,866 161,660 21.8
Other real estate expenses . . 11,999 884 1,257.4 16,576 11,091 49.5
Other expense . . . . . . . . 202,761 190,699 6.3 535,984 562,736 (4.8)
---------- ---------- --------- ---------- ---------- -------
$1,594,059 $1,640,926 (2.9)% $4,817,867 $4,940,004 (2.5)%
---------- ---------- --------- ---------- ---------- -------
---------- ---------- --------- ---------- ---------- -------
</TABLE>
Salaries and benefits increased $12,000 and $85,000 for the three months and
nine months ended September 30, 1996 as compared to the same period in the
prior year, due primarily to additional resources added for the production of
agricultural and residential mortgage loans. Salaries and benefits
attributable to the Coffeen branch sold in November, 1995 were $36,000 and
$88,000 for the three and nine months ended September 30, 1995.
Occupancy expense decreased $17,000 for the three months ended September 30,
1996, compared to the same period in the prior year, and increased $8,000 for
the nine months ended September 30, 1996, compared to the same period in the
prior year. The net present value of future lease payments for a building
lease was expensed in 1993. The expense associated with the lease is being
recaptured during the remaining lease term, which expires December 31, 1997.
Occupancy expense decreased $14,000 and $43,000 for the three months and nine
months ended September 30, 1996 as compared to the same periods in 1995 due
to the expense reduction associated with the lease in 1995 being recorded in
December, 1995 for the full year and being recorded ratably during the year
in 1996. The increase in occupancy expense for the nine months ended
September 30, 1996 is due to expenses of $35,000 associated with moving
leasehold improvements out of a building in which the lease had expired.
Audit fees decreased $37,000 and $30,000 for the three and nine months ended
September 30, 1996, compared to the same periods in the prior year, due to
additional costs incurred totaling $40,000 relating to an investigation of
suspected irregularities of a former branch manager in September, 1995.
Legal fees increased $2,000 and $55,000 for the three and nine months ended
September 30, 1996, compared to the same periods in the prior year. Costs
associated with the collection of nonperforming loans increased $10,000 and
13
<PAGE>
$28,000 for the three months and nine months ended September 30, 1996,
compared to the same periods in the prior year. Legal fees relating to
securities and regulatory matters decreased $7,000 for the three months ended
September 30, 1996, as compared to the same period in the prior year, and
increased $27,000 for the nine months ended September 30, 1996, as compared
to the same period the prior year.
Regulatory fees decreased $144,000 for the nine months ended September 30,
1996 as a result of the Federal Deposit Insurance Corporation's decision to
lower deposit insurance premiums. Regulatory fees increased $10,000 for the
three months ended September 30, 1996 as compared to the same period in the
prior year due to a credit recognized in the third quarter of 1995 for
insurance premiums expensed in prior quarters.
INCOME TAXES
The provision for income taxes was 36.7% of pretax income for the three
months ended September 30, 1996 as compared to 35.2% of pretax income for the
same period in 1995. An income tax benefit representing 2% of pretax income
was recorded for the nine months ended September 30, 1996, as compared to
income tax expense of 28.4% of pretax income for the same period in the prior
year. The income tax benefit for 1996 resulted from a net operating loss
incurred due to a greater provision for loan losses than expected at the time
of tax planning.
14
<PAGE>
CREDIT QUALITY
Illini Corporation's process for monitoring loan quality includes detailed
monthly analysis of delinquencies, non-performing assets, and potential
problem loans. Management extensively monitors credit through appraisals,
assessment of financial condition of borrowers, restrictions of out-of-area
lending, and avoidance of loan concentrations.
The provision for loan losses increased to $165,000 and $795,000 for the
three and nine months ended September 30, 1996, as compared to $30,000 and
$90,000 for the comparable periods in the prior year. Net charge-offs
increased to $168,000 and $922,000 for the three and nine months ended
September 30, 1996, as compared to $62,000 and $197,000 for the comparable
periods in the prior year. A problem agricultural credit was responsible for
$507,000 of the net charge-offs for the nine months ended September 30, 1996.
The remaining balance of this credit is $21,000 as of September 30, 1996,
and no further losses are anticipated for this credit.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
CREDIT QUALITY $(dollars in thousands) SEPTEMBER 30, SEPTEMBER 30,
- --------------------------------------- 1996 1995 1996 1995
--------- -------- ------ -------
<S> <C> <C> <C> <C>
Ending allowance for loan losses . . . . $1,119 $1,440
------ ------
Nonperforming assets
Nonaccrual . . . . . . . . . . . . . . 1,158 844
OREO . . . . . . . . . . . . . . . . . 697 507
------ ------
Total nonperforming assets . . . . . . $1,855 $1,351
------ ------
------ ------
Loans delinquent over 90 days . . . . . . $ 523 $ 386
Gross charge-offs . . . . . . . . . . . . 178 77 981 244
Less: recoveries . . . . . . . . . . . . . 10 15 59 47
------ ------ ---- ----
Net charge-offs . . . . . . . . . . . $ 168 $ 62 $922 $197
------ ------ ---- ----
------ ------ ---- ----
NET CHARGE-OFFS TO AVERAGE LOANS (1)
Commercial . . . . . . . . . . . . . . 0.47% 0.02% 4.10% 0.63%
Real Estate . . . . . . . . . . . . . 0.77 0.33 0.29 0.12
Installment . . . . . . . . . . . . . 0.60 0.08 1.09 0.24
Credit Cards . . . . . . . . . . . . 3.59 1.72 5.86 1.68
Totals 0.70% 0.23% 1.27% 0.25%
(1) Ratios are presented on an annualized
basis
KEY RATIOS
Allowance to ending loans . . . . . . 1.18% 1.31%
Nonperforming assets to ending loans . 1.96% 1.23%
Allowance to nonperforming loans . . . 0.47% 0.83%
90 days delinquent to ending loans . . 0.55% 0.35%
</TABLE>
15
<PAGE>
ASSET/LIABILITY MANAGEMENT
Asset/liability management is a function of the repricing characteristics of
Illini Corporation's portfolio of assets and liabilities. These repricing
characteristics are the time frame within which the interest bearing assets
and liabilities are subject to change in interest rates either at
replacement, repricing or maturity during the life of the instruments.
Interest rate sensitivity management focuses on repricing relationships of
assets and liabilities during periods of changes in market interest rates.
Effective interest rate sensitivity management seeks to ensure that both
assets and liabilities respond to changes in interest rates within an
acceptable time frame, thereby minimizing the effect of interest rate
movements on net interest income. Illini Corporation manages its interest
rate sensitivity using on-balance sheet investment products.
Economic value at risk is defined as the percentage change an economic value
of future earnings for a specified immediate change in rates. Economic value
at risk is an indicator of the sensitivity of longer term earnings to
interest rates. Illini Corporation measures economic value at risk by
determining the base line gauge of the economic value for future earnings to
be derived from the current balance sheet and then calculates the percentage
change in that value for a given change of rates. The following table
reflects economic value at risk at September 30, 1996:
Immediate Economic Value
Rate Change at Risk
- ----------- --------------
+2.00% (10.2%)
+1.50% (7.6%)
+1.00% (5.1%)
+.50% (2.5%)
-.50% 2.5%
-1.00% 4.5%
-1.50% 5.8%
-2.00% 6.9%
A major assumption used in measuring interest rate risk include the behavior
of loan and deposit repricing in volumes, prepayment on various fixed-rate
assets, and spread of elasticity of interest and non-interest bearing deposit
accounts which may not have contractually defined maturities. A significant
proportion of consumer deposits do not reprice or mature on a contractual
basis.
16
<PAGE>
PART II. OTHER INFORMATION
ILLINI CORPORATION AND SUBSIDIARY
September 30, 1996
Item 1 LEGAL PROCEEDINGS
(a) Illini Corporation, is a party to a pending legal proceeding.
(a)(1) The proceeding is pending in the Circuit Court of the Seventh
Judicial Circuit, Sangamon County, Illinois, No. 96-CH-0256.
(a)(2) The proceedings began (the Complaint was filed) on October 25,
1996.
(a)(3) The principal parties are:
PLAINTIFF: Mae H. Noll, (a shareholder in excess of 5% of the
outstanding securities of Illini Corporation) (Mae H. Noll also holds
the Power of Attorney for Jon Gray Noll who is a shareholder of
securities in excess of 5% of the outstanding securities of Illini
Corporation) as a shareholder of Illini Corporation on a derivative
basis for the benefit of Illini Corporation.
The attorney for Plaintiff, Mae H. Noll, is Charles H. Delano, III,
who is a shareholder of Illini Corporation and a principal of the
Delano Law Offices, P.C., which is also a shareholder of Illini
Corporation.
DEFENDANT: Thomas A. Black, individually and not in any corporate
capacity; and
Illini Corporation, an Illinois Corporation.
(a)(4) The facts underlying the proceeding are:
The Complaint alleges, among other things, the following took place:
A letter was sent by the law firm Vedder, Price, Kaufman and Kammholz
on behalf of Illini Corporation to the Federal Reserve Bank of
Chicago pertaining to a potential of alleged share acquisition
activities and other possible activities of Mae H. Noll, Ida R. Noll,
Nancy Noll Shaver, Robert W. Shaver, Conrad Noll, III, Judy C. Noll,
Jon Gray Noll and Thomas R. Beynon. The Complaint further alleges
that no action was taken by The Federal Reserve Bank of Chicago as a
result of the letter, and that the letter was inaccurate and
unwarranted.
(a)(5) Principle relief sought includes money damages for breach of
fiduciary duty by Thomas A. Black, an accounting of all sums
paid by Illini Corporation that pertain to the subject of
these proceedings, and for an injunction against Thomas A.
Black and the Board (and its committees) of Illini Corporation
to refrain from any future violations of corporate law.
Item 2 CHANGES IN SECURITIES - none
Item 3 DEFAULTS UPON SENIOR SECURITIES - none
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - none
17
<PAGE>
Item 5 OTHER INFORMATION
Illini Corporation has retained the law firm of Heyl Royster Voelker
& Allen in Springfield, Illinois, for general corporate, regulatory,
and securities matters, and has terminated the services of Vedder
Price Kaufman & Kammholz in Chicago, Illinois.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
September 30, 1996.
18
<PAGE>
ILLINI CORPORATION AND SUBSIDIARY
September 30, 1996
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Illini Corporation by
/s/Burnard K. McHone 11/13/96
- ----------------------------------- -------------------------
Burnard K. McHone Date signed
President
/s/Mark R. Edmiston 11/13/96
- ----------------------------------- -------------------------
Mark R. Edmiston Date signed
Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,005,253
<INT-BEARING-DEPOSITS> 12,782
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,578,015
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 94,828,120
<ALLOWANCE> 1,119,174
<TOTAL-ASSETS> 149,738,361
<DEPOSITS> 129,432,542
<SHORT-TERM> 4,670,000
<LIABILITIES-OTHER> 1,513,573
<LONG-TERM> 0
0
0
<COMMON> 4,484,560
<OTHER-SE> 9,637,586
<TOTAL-LIABILITIES-AND-EQUITY> 149,738,261
<INTEREST-LOAN> 6,699,258
<INTEREST-INVEST> 1,716,458
<INTEREST-OTHER> 35,630
<INTEREST-TOTAL> 8,451,346
<INTEREST-DEPOSIT> 3,658,645
<INTEREST-EXPENSE> 3,738,190
<INTEREST-INCOME-NET> 4,713,156
<LOAN-LOSSES> 795,000
<SECURITIES-GAINS> 32,026
<EXPENSE-OTHER> 4,817,867
<INCOME-PRETAX> 342,522
<INCOME-PRE-EXTRAORDINARY> 342,522
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 349,521
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
<YIELD-ACTUAL> 4.85
<LOANS-NON> 1,158,000
<LOANS-PAST> 523,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 893,800
<ALLOWANCE-OPEN> 1,246,480
<CHARGE-OFFS> 981,000
<RECOVERIES> 59,000
<ALLOWANCE-CLOSE> 1,119,174
<ALLOWANCE-DOMESTIC> 1,119,174
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
