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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (FEE REQUIRED)
Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1999
Commission file number 0-13343
ILLINI CORPORATION
(Name of small business issuer in its charter)
Illinois
(State of Incorporation)
37-1135429
(I.R.S. Employer I.D. No.)
3200 West Iles Avenue
Springfield, Illinois 62707
(Address of principal executive offices and zip code)
Issuer's telephone number
(217) 787-5111
Securities registered pursuant to Section
12(b) of the Exchange Act:
None
Securities registered pursuant to Section
12(g) of the Exchange Act:
Common Stock, par value $10.00 per share
(Title and Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. X
-----
The Registrant's revenues for fiscal year 1999 were $14,095,000.
On March 1, 2000, 571,789 shares of common stock were outstanding. The
aggregate market value of such shares held by non-affiliates of the
registrant was approximately $17,153,670 (based on the average of the bid and
asked prices of securities traded through Hillard Lyons & Associates,
Louisville, Kentucky).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's definitive proxy statement for the 2000 Annual
Meeting of Shareholders (the "Proxy Statement") are incorporated by reference
into Part III, hereof.
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TABLE OF CONTENTS
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PART I PAGE
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1. Description of Business.......................................................................................2
2. Properties....................................................................................................7
3. Legal Proceedings.............................................................................................8
4. Submission of Matters to a Vote of Security Holders...........................................................9
PART II
5. Market for Common Equity and Related Stockholder Matters.....................................................10
6. Management's Discussion and Analysis of Financial Condition & Results of Operations..........................10
7. Financial Statements.........................................................................................31
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................................................................52
PART III
9. Directors and Executive Officers of the Registrant...........................................................52
10. Executive Compensation.......................................................................................52
11. Security Ownership of Certain Beneficial Owners and Management...............................................52
12. Certain Relationships and Related Transactions...............................................................52
13. Exhibits and Reports on Form 8-K.............................................................................53
Signatures........................................................................................................54
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PART I
ITEM 1. - DESCRIPTION OF BUSINESS
Illini Corporation (or "Corporation"), a bank holding company as defined
in the Bank Holding Company Act of 1956, as amended, was incorporated under
the laws of the State of Illinois in 1983. Illini Corporation presently
operates two wholly owned subsidiary banks, Illini Bank, with 18 locations
throughout five counties in central Illinois, and Farmers State Bank of Camp
Point. Illini Corporation's executive offices are located at 3200 West Iles
Avenue, Springfield, Illinois 62707, and its telephone number is 217/787-5111.
Illini Corporation's management philosophy is to centralize overall
corporate policies, procedures, and administrative functions and to provide
operational support for the subsidiary banks. While each location is allowed
flexibility in responding to local market conditions and customer and
community needs, Illini Corporation operates as a single business segment.
Illini Corporation is committed to being a well managed, profitable financial
institution providing a broad range of financial services and products, as
well as contributing to the economic and social environment of its
communities.
Illini Bank ("Illini") is an Illinois state bank, which had total assets
of $180.9 million at December 31, 1999. Illini maintains 18 banking
facilities in the following Illinois communities: Springfield, Lincoln,
Petersburg, Auburn, Danvers, Dawson, Divernon, Elkhart, Greenview, Hudson,
Mechanicsburg, Owaneco, Sherman, Stonington, and Tallula. Farmers State Bank
of Camp Point ("Camp Point") is an Illinois state bank, which had total
assets of $35.7 million at December 31, 1999. Camp Point maintains one
banking facility located in Camp Point, Illinois.
Each Bank offers their customers a wide variety of financial services
and products. Deposit products include a variety of checking, NOW, money
market, savings, investment sweep accounts, and certificates of deposit.
Lending products include short, intermediate, and long-term business and
agricultural loans, commercial and residential real estate loans, personal
and consumer purchase loans, home equity loans, and personal secured and
unsecured lines of credit. Additional product offerings include letters of
credit, credit cards, notary services, safe deposit boxes, and check imaging.
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Illini and Camp Point's deposit accounts are insured by the Federal
Deposit Insurance Corporation (the "FDIC") under the Bank Insurance Fund
("BIF") to the maximum amount allowed by law. Illini Corporation is
supervised and regulated by the Board of Governors of the Federal Reserve
("FRB") and Illini and Camp Point are supervised and regulated by the FDIC
and the Office of Banks and Real Estate of the State of Illinois.
- - COMPETITION
The activities and geographic markets in which Illini and Camp Point are
engaged are highly competitive. Competition among financial institutions is
based upon interest rates offered on deposit accounts and on loans and other
credit and service charges, the quality of services rendered, the convenience
of banking facilities and, in the case of loans to large commercial
borrowers, relative lending limits.
Each bank competes with other banks, savings and loan associations,
credit unions, industrial loan associations, securities firms, insurance
companies, small loan companies, finance companies, mortgage companies,
certain governmental agencies, and credit organizations.
- - SUPERVISION AND REGULATION - GENERAL
Various federal and state banking laws and regulations affect the
business of Illini Corporation. Illini Corporation is subject to supervision,
regulation, and periodic examination by the Board of Governors of the FRB.
Illini Corporation's subsidiary banks are subject to supervision, regulation,
and periodic examinations by the Commissioner of Banks and Real Estate and
the FDIC. The following is a summary of certain statutes and regulations
affecting Illini Corporation, Illini and Camp Point. This summary is
qualified in its entirety by such statutes and regulations, which are subject
to change based on pending and future legislation and action by regulatory
agencies. Proposals to change the laws and regulations governing the
operation of banks and companies which control banks and other financial
institutions are frequently raised in Congress. The likelihood of any major
legislation and the impact such legislation might have on Illini Corporation,
Illini or Camp Point is, however, impossible to predict.
- - THE BANK HOLDING COMPANY ACT
As a bank holding company, Illini Corporation is subject to regulation
by the FRB under the Bank Holding Company Act of 1956, as amended (the
"BHCA"). The BHCA restricts the product range of a bank holding company by
circumscribing the types of businesses it may own or acquire. The BHCA limits
a bank holding company to owning and managing banks or companies engaged in
activities determined by the FRB to be closely related to banking. As
described more fully in the "Recent Developments" section immediately
following, a bank holding company that becomes a financial holding company
may engage in additional activities.
Among the activities that the FRB has determined are closely related to
banking are activities that are usual in connection with making, acquiring,
brokering or servicing loans, leasing personal or real property, engaging in
trust company functions, acting as investment or financial advisor, providing
securities brokerage services, certain management consulting and counseling
services, engaging in certain insurance agency activities and providing data
processing services.
The BHCA requires a bank holding company to obtain the prior approval of
the FRB before acquiring substantially all of the assets or direct or
indirect ownership or control of more than five percent of the voting shares
of a bank or a bank holding company or merging or consolidating with any
other bank holding company.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act"), since September 29, 1995, the FRB is permitted,
under specified circumstances, to approve the acquisition by a bank holding
company located in one state of a bank or a bank holding company located in
another state, without regard to most prohibitions contained in state law.
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The Riegle-Neal Act permits states to require that a target bank have
been in operation for a minimum period, up to five years, and to impose
non-discriminatory limits on the percentage of the total amount of deposits
with insured depository institutions in the state which may be controlled by
a single bank or bank holding company. In addition, the Riegle-Neal Act
imposes federal deposit concentration limits (10% of nationwide total
deposits, and 30% of total deposits in the host state on applications
subsequent to the applicant's initial entry to the host state), and adds new
statutory conditions to FRB approval, e.g., the applicant is adequately
capitalized and adequately managed.
The Riegle-Neal Act also authorized, effective June 1, 1997, the federal
banking regulators to approve applications for mergers of depository
institutions across state lines without regard to whether such activity is
contrary to state law. Any state could, however, by adoption of a
non-discriminatory law after September 29, 1994 and before June 1, 1997,
elect to opt-out of the provision. The effect of opting out is to prevent
banks chartered by, or having their main office located in, such state from
participating in any interstate branch merger. Each state was permitted to
retain a minimum age requirement of up to five years, a non-discriminatory
deposit cap, and non-discriminatory notice or filing requirements. The
responsible federal agency will apply the same federal concentration limits
and capital and management adequacy requirements noted above with respect to
BHCA applications. Only Texas opted-out of the interstate merger provision.
While Illinois adopted legislation to opt-in to the interstate merger
provision, unlike some states and as permitted by federal law, Illinois law
does not authorize the establishment of de novo branches or the purchase by
an out-of-state bank of one or more branches of a bank with its main office
in Illinois. Since the laws of the various states which do authorize de novo
branches or branch purchases normally have reciprocity provisions, Illinois
state-chartered banks generally are not able to establish or acquire branches
in other states except through the merger with a bank in another state.
Branches acquired in a host state by both out-of-state state-chartered
and national banks will be subject to community reinvestment, consumer
protection, fair lending, and interstate branching laws of the host state to
the same extent as branches of a national bank having its main office in the
host state. Among other things, the Riegle-Neal Act also preserves state
taxation authority, prohibits the operation by out-of-state banks of
interstate branches as deposit production office, imposes additional notice
requirements upon interstate banks proposing to close branch offices in a low
or moderate-income area, and creates new Community Reinvestment Act
evaluation requirements for interstate depository institutions.
- - RECENT DEVELOPMENTS
On November 12, 1999, President Clinton signed the Gramm-Leach-Bliley
Act ("GLB Act"). Under the GLB Act , bank holding companies that meet certain
standards are permitted to engage in a wider range of activities than has
been permitted up to now, including securities and insurance activities.
Specifically, a bank holding company that elects to become a "financial
holding company" may engage in any activity that the Federal Reserve Board,
in consultation with the Secretary of the Treasury, determines is (i)
financial in nature or incidental thereto, or (ii) complementary to any such
financial-in-nature activity, PROVIDED that such complementary activity does
not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally. A bank holding company may
elect to become a financial holding company only if each its depository
institution subsidiaries is well-capitalized, well-managed, and has a
Community Reinvestment Act rating of "satisfactory" or better at its most
recent examination.
This new law specifies many activities that are financial in nature,
including lending, exchanging, transferring, investing for others, or
safeguarding money or securities; underwriting and selling insurance;
providing financial, investment, or economic advisory services; underwriting,
dealing in, or making a market in securities; and those activities currently
permitted for bank holding companies that are so closely related to banking,
or managing or controlling banks, as to be proper incident thereto.
The GLB Act changes federal laws to facilitate affiliation between banks
and entities engaged in securities and insurance activities. The law also
establishes a system of functional regulation under which banking activities,
securities activities, and insurance activities conducted by financial
holding companies and their subsidiaries and affiliates will be separately
regulated by banking, securities, and insurance regulators, respectively.
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The GLB Act affects many other changes to federal law applicable to
Illini Corporation, Illini, and Camp Point. One of these changes is a
requirement that financial institutions take steps to protect customers'
"nonpublic personal information." The new law requires the promulgation of
several new regulations, which are expected to be finalized by November 12,
2000 (i.e., one year after passage of the law). At present, we are unable to
predict the impact the Gramm-Leach-Bliley Act will have on Illini Corporation
and its subsidiaries.
- - DIVIDEND RESTRICTIONS
Illini Corporation's principal source of income is the payment of
dividends on the stock of the banks owned by Illini Corporation. Illinois law
restricts the Bank's ability to pay these dividends. Under the Illinois
Banking Act, no dividend may be declared by an Illinois state-chartered bank
(i) except out of the bank's net profits and (ii) unless the bank has
transferred to surplus at least one-tenth of its net profits since the date
of the declaration of the last preceding dividend, until the amount of its
surplus is at least equal to its capital. Net profits under the Illinois
Banking Act must be adjusted for losses and bad debts (i.e. debts owing to
the bank on which interest is past due and unpaid for a period of six months
or more unless such debts are well secured and in the process of collection).
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), no insured depository institution may declare any dividend if,
following the payment of such dividend, the institution would be
undercapitalized.
- - TRANSACTIONS WITH AFFILIATES AND INSIDERS
Illini Bank, Camp Point and Illini Corporation are affiliates of each
other and, as such, are subject to certain federal restrictions on loans and
extensions of credit to Illini Corporation, on investments in Illini
Corporation and its affiliates' securities, on acceptance of such securities
as collateral for loans to any borrower and on leases and services and other
contracts between the banks and Illini Corporation. Additionally, regulations
allow each Bank to extend credit to the executive officers, directors, and
principal shareholders or their related interests only if the loan is made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with non-insiders.
Moreover, loans to insiders must not involve more than the normal risk or
repayment or present other unfavorable features and must, in certain
circumstances, be approved in advance by a majority of the entire board of
directors of each bank. The aggregate amount that can be lent to all insiders
is limited to each banks unimpaired capital and surplus. There are additional
limitations on the amount of loans that can be made to each banks executive
officers.
- - DEPOSIT INSURANCE
Deposits held by Illini and Camp Point are insured, to the extent
permitted by law, by the Bank Insurance Fund ("BIF") administered by the
FDIC. A minimum designated reserve ratio of 1.25 percent of insured deposits
has been established for the BIF. However, the FDIC may set a higher
designated reserve ratio if circumstances raise a significant risk of
substantial future losses to the BIF. Assessment rates are established
sufficient to maintain reserves at the designated reserve ratio or, if the
ratio is less than the designated ratio, to increase the ratio to the
designated ratio within a reasonable period of time.
As required under FDICIA, the FDIC has established a system of
risk-based deposit insurance premiums. Under this system each insured
institution's assessment is based on the probability that the BIF will incur
a loss related to that institution, the likely amount of the loss, and the
revenue needs of the BIF.
Under the current risk-based assessment system, a depository institution
pays an assessment of between 0 cents and 27 cents per $100 of insured
deposits based on its capital level and risk classification. To arrive at a
risk-based assessment for an insured institution, the FDIC places it in one
of nine risk categories using a two step analysis based first on capital
ratios and then on relevant supervisory information.
In addition, pursuant to the Deposit Insurance Funds Act of 1996, the
FDIC imposed a special assessment on bank deposits at a rate not tied to risk
classification in order to service debt on the Financing
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Corporation (FICO) bonds issued in connection with the federal government's
bail out of the thrift industry. Any further significant changes in the
deposit insurance assessment rate imposed by the FDIC could have a material
effect on the earnings of Illini Corporation.
- - CAPITAL REQUIREMENTS
The FRB has imposed risk-based capital guidelines applicable to Illini
Corporation. These guidelines require that bank holding companies maintain
capital commensurate with both on and off balance sheet credit and other
risks of their operations. Under the guidelines, a bank holding company must
have a minimum ratio of total capital to risk-weighted assets of 8 percent.
In addition, a bank holding company must maintain a minimum ratio of Tier 1
capital equal to 4 percent of risk-weighted assets. Tier 1 capital includes
common shareholders' equity, qualifying perpetual preferred stock and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill. As a supplement to risk-based capital requirements, the FRB has
also imposed leverage capital ratio requirements. The leverage ratio
requirements establish a minimum required ratio of Tier 1 capital to total
assets less goodwill of 3 percent for the most highly rated bank holding
companies. All other bank holding companies are required to maintain
additional Tier 1 capital yielding a leverage ratio of 4 percent to 5
percent, depending on the particular circumstances and risk profile of the
institution. Refer to the Capital Resources Section of Item 6 and Note 14
included under Item 7 for a summary of Illini Corporation's capital ratios as
of December 31, 1999 and 1998.
Each bank is also subject to risk-weighted capital standards and
leverage measures, which are similar, but in some cases not identical, to the
requirements for bank holding companies, which apply to Illini Corporation.
At December 31, 1999, Illini and Camp Point met all applicable capital
requirements. Under FDICIA, the federal bank regulators must take various
specified prompt corrective actions based on levels of an insured depository
institution's capital that are below the adequately capitalized level. These
prescribed actions increase restrictions on the institution as its capital
declines.
- - SAFETY AND SOUNDNESS GUIDELINES
As required by federal law, the federal banking regulators have adopted
interagency guidelines (the "Guidelines") establishing standards for safety
and soundness for depository institutions on matters such as internal
controls, internal audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth and quality, earnings, and
compensation and other benefits. In general, the Guidelines prescribe the
goals to be achieved in each area, and each institution will be responsible
for establishing its own procedures to achieve these goals. If an institution
fails to comply with any of the standards set forth in the Guidelines, the
institution's primary federal regulator may require the institution to submit
a plan for achieving and maintaining compliance. Failure to submit an
acceptable compliance plan, or failure to adhere to a compliance plan that
has been accepted by the appropriate regulator, would constitute grounds for
further enforcement action.
The Federal Deposit Insurance Act generally requires all depository
institutions to be examined annually by the banking regulators. Depository
institutions with assets of $250 million or less which are well capitalized,
well managed, have a CAMELS rating of 1 (or a CAMELS rating of 2 for
institutions with assets of $100 million or less), are not subject to a
formal enforcement proceeding or order and have not undergone a change in
control in the previous twelve months are eligible to be examined every
eighteen months. FDIC regulations also require insured depository
institutions having $500 million or more in total assets to prepare annual
financial statements which are audited by an independent public accountant,
to have an audit committee comprised solely of outside directors, and to hire
outside auditors to evaluate the institution's internal control structure.
For institutions that are subsidiaries of bank holding companies, the
financial statement requirement can be satisfied by audited financial
statements of the consolidated bank holding company. Other audit related
requirements for subsidiary institutions that have total assets of less than
$5 billion or assets of $5 billion or more and a composite CAMELS rating of 1
or 2 also may be satisfied by the parent bank holding company. The FDIC, in
adopting the regulations, reiterated its belief that every depository
institution, regardless of size, should have an annual independent audit and
an independent audit committee.
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- - MONETARY POLICY AND ECONOMIC CONDITIONS
The business of commercial banks, such as Illini and Camp Point is
affected by monetary and fiscal policies of various regulatory agencies,
including the FRB. Among the regulatory techniques available to the FRB are
open market operations in United States Government securities, changing the
discount rate for member bank borrowings, and imposing and changing the
reserve requirements applicable to member bank deposits and to certain
borrowings by member banks and their affiliates (including parent companies).
These policies influence to a significant extent the overall growth and
distribution of bank loans, investments and deposits and the interest rates
charged on loans, as well as the interest rates paid on savings and time
deposits.
The monetary policies of the FRB have had a significant effect on the
operating results of commercial banks in the past and are expected to
continue to do so in the future. In view of constantly changing conditions in
the national economy and the money market, as well as the effect of acts by
the monetary and fiscal authorities, including the FRB, no definitive
predictions can be made by Illini Corporation or the banks as to future
changes in interest rates, credit availability, deposit levels, or the effect
of any such changes on Illini Corporation's or the banks operations and
financial condition.
- - EMPLOYEES
As of December 31, 1999, Illini Corporation, Illini and Camp Point had
111 total employees and 81 full-time employees.
- - STATISTICAL DISCLOSURE
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PAGE(S)
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Consolidated Average Balances, Interest
Income/Expense and Yields/Rates......................................21 & 22
Rate/Volume Variance Analysis..................................................20
Investment Securities Available for Sale.......................................12
Investment Securities Available for Sale Maturity Schedule.....................13
Loan Portfolio.................................................................13
Selected Loan Maturity and Interest Rate Sensitivity...........................14
Nonperforming Assets...........................................................25
Summary of Loan Loss Experience................................................24
Allocation of Allowance for Loan Losses........................................24
Maturities of Time Deposits....................................................15
Return on Equity and Assets....................................................19
Interest Rate Sensitivity Analysis.............................................16
Noninterest Income.............................................................27
Noninterest Expense............................................................28
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ITEM 2. - DESCRIPTION OF PROPERTIES
Illini Corporation's corporate offices are located at 3200 West Iles
Avenue, Springfield, Illinois. Illini owns 15 and leases three of the banking
offices at which it operates. Operating leases are further discussed in "Item
7. Financial Statements-Note 5" which is incorporated by reference herein.
Illini operates four banking offices in Springfield, Illinois and one each in
the following Illinois communities: Auburn, Danvers, Dawson, Divernon,
Elkhart, Greenview, Hudson, Lincoln, Mechanicsburg, Owaneco, Petersburg,
Sherman, Stonington, and Tallula. Illini leases space for the banking offices
in Lincoln, Petersburg and 615 W. Jefferson, Springfield. Camp Point owns and
operates one office in Camp Point, Illinois, located at 206 E. Wood Street.
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ITEM 3. - LEGAL PROCEEDINGS
MARY QUINN V. ILLINI CORPORATION AND ILLINOIS STOCK TRANSFER CO.,
Sangamon County Case No. 98 CH 240
Illini Corporation adopted a Shareholder Rights Agreement on June
20, 1997, and named Illinois Stock Transfer Company ("ISTC") as its rights
agent thereunder. Illini Corporation was notified in May 1998 of a threatened
complaint against ISTC by an Illini Corporation shareholder. The shareholder,
Mary K. Quinn ("Quinn"), who owns 21 shares of stock in Illini Corporation,
filed suit against ISTC on June 9, 1998 in the Seventh Judicial Circuit
Court, Sangamon County, Illinois. Quinn sought to compel ISTC to distribute
rights certificates to Illini Corporation's shareholders and further sought
to certify all Illini Corporation shareholders as a class. Quinn asserted
that Ida R. Noll became an acquiring person under the Rights Agreement on
April 16, 1998, and that the Rights Agreement was triggered. ISTC is being
represented in the litigation by Howard & Howard, which vigorously contested
Quinn's assertions that Ida R. Noll was an acquiring person, that the Rights
Agreement had been triggered, and that ISTC had a duty to distribute rights
certificates.
On June 9, 1998, Quinn filed a Motion to Certify the Class, which
was granted on December 29, 1998. On January 13, 1999, Quinn filed an Amended
Complaint adding Illini Corporation as a defendant to her action. Illini
Corporation is represented in the litigation by Howard & Howard. Both Illini
Corporation and ISTC answered the Amended Complaint and denied that Ida R.
Noll was an acquiring person. Quinn asserted that she was entitled to recover
her attorneys' fees from Illini Corporation and ISTC.
Quinn filed a Motion for Summary Judgment that asked the Court to
determine as a matter of law that Ida R. Noll became an acquiring person on
April 16, 1998, that the Rights Agreement was triggered as a result and that
Illini Corporation and ISTC had a duty to distribute rights certificates to
all shareholders as of April 16, 1998, except for Ida R. Noll. Illini
Corporation opposed Quinn's Motion for Summary Judgment, which was heard by
the Court on June 18, 1999. On June 29, 1999, the Court entered an Opinion
and Order denying Quinn's Motion for Summary Judgment.
On or about May 6, 1999, counsel for Quinn advised Illini
Corporation's counsel of their intent to seek an injunction that would
preclude Illini Corporation from completing its acquisition of the Farmers
State Bank of Camp Point (Camp Point), pending further order of the Court.
Quinn subsequently filed a Motion for Preliminary Injunction and a Memorandum
of Law in Support of her Motion. Quinn argued that the class (consisting of
all Illini Corporation's shareholders as of April 16, 1998, except for Ida R.
Noll) would be irreparably harmed if the Camp Point merger closed prior to a
determination on the merits of her suit. Illini Corporation filed extensive
briefs in opposition to the Motion for Preliminary Injunction, and the Court
heard the Motion on July 1, 1999. The Court entered a written Order on July
13, 1999, denying the Motion for Preliminary Injunction.
Quinn's counsel filed a Motion for Reconsideration of the Orders
denying Quinn's Motion for Summary Judgment and Motion for Preliminary
Injunction. Illini Corporation and ISTC filed a Motion for Summary Judgment
on August 25, 1999. At a hearing held on October 18, 1999, the Court granted
Illini Corporation and ISTC's Motion for Summary Judgment and denied Quinn's
Motion for Reconsideration. An Order was subsequently entered on January 12,
2000.
Quinn's counsel announced on October 18, 1999, the intention to
petition the Court for an order directing Illini Corporation and ISTC to pay
Quinn's attorneys' fees pursuant to the attorney fee provision of the Rights
Agreement. Quinn's fee petition was heard and denied. Quinn has filed a
pending appeal as to all adverse orders.
IDA R NOLL V. ILLINI CORPORATION, ET AL.,
Sangamon County Case No. 98 MR 226
On or about July 17, 1998, Ida R. Noll ("Noll") filed a 14 count
complaint against Illini Corporation and all members of Illini Corporation's
Board of Directors serving at that time, except William Walschleger, Jr., in
the Seventh Judicial Circuit, Sangamon County, Illinois. On September 28,
1998, Judge Carmody dismissed the complaint and granted Noll 21 days to file
an Amended Complaint. Noll filed an Amended Complaint on October 19, 1998.
The Amended Complaint was also dismissed, but Noll
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was granted leave to file a Second Amended Complaint. Illini Corporation and
the directors answered the Second Amended Complaint.
The Second Amended Complaint arose out of Illini Corporation's
adoption of a Shareholder Rights Agreement on June 20, 1997, Illini
Corporation's subsequent adoption of a First Amendment to the Rights
Agreement on July 1, 1998, and the Noll's assertion that she became an
"acquiring person" under the Rights Agreement on April 16, 1998. Noll sought
declaratory and injunctive relief from Illini Corporation and the directors
regarding the alleged triggering of the Rights Agreement. Noll also
challenged the enforceability and validity of the First Amendment to the
Rights Agreement. Noll sought compensatory and punitive damages against the
directors arising out of the directors' alleged breaches of fiduciary duty
committed in connection with the Rights Agreement and the First Amendment to
the Rights Agreement. Noll sought recovery of her attorneys' fees and costs
in connection with her action, alleging attorneys' fees through October 23,
1998 of approximately $50,000 and expenses of approximately $5,000. Illini
Corporation and the directors vigorously contested and opposed the
allegations.
On July 6, 1999, Illini Corporation adopted a Second Amendment to
its Shareholder Rights Agreement. Illini Corporation moved on August 31,
1999, for summary judgment as to the counts of the Second Amended Complaint
directed against it. Illini Corporation's motion argued that the adoption of
the Second Amendment rendered the case against it moot. The Defendant
directors also filed on or about September 15, 1999, a Joint Motion for
Summary Judgment as to the counts directed against them. On October 18, 1999,
after denying Noll's motion to continue the hearing, the Court granted both
motions. Counsel for the Defendants submitted written orders granting the
Defendants' summary judgment motions, which were entered by the Court on
January 12, 2000.
Noll's counsel filed a petition for payment of her attorneys' fees
by Illini Corporation, which was heard on December 9, 1999. The Court denied
Noll's fee petition. Noll filed a Motion for Reconsideration of the Orders
granting the Defendants' Motions for Summary Judgment and denying attorneys'
fees. Hearing on that Motion will be held on April 11, 2000.
IDA R. NOLL V. ERNEST H. HULS, ILLINI CORPORATION, ET AL,
Sangamon County Case No. 99 CH 196
On or about April 22, 1999, Ida R. Noll ("Noll") filed a new lawsuit
against Illini Corporation, Illinois Stock Transfer Company, Ernest H. Huls
and Farmers State Bank of Camp Point in the Seventh Judicial Circuit Court,
Sangamon County, Illinois. The Complaint sought specific performance of the
Rights Agreement alleging that Ernest Huls became an acquiring person under
the Rights Agreement by reason of his right to receive shares of Illini
Corporation common stock pursuant to an Agreement and Plan of Reorganization
between Illini Corporation and the Farmers State Bank of Camp Point. Noll
sought to compel Illini Corporation and ISTC to distribute rights
certificates to all shareholders of Illini Corporation, except for Mr. Huls.
Illini Corporation strongly disputes Noll's assertion that Ernest Huls has
become an acquiring person under the Rights Agreement.
In June 1999, Illini Corporation and ISTC filed a joint Motion to
Dismiss Noll's Complaint on the grounds that the alleged acquiring person,
Ernest Huls, was not a beneficial owner of a substantial block of Illini
Corporation common stock. The Motion to Dismiss was scheduled for hearing on
July 20, 1999, but on July 16, 1999, Noll's counsel moved for a substitution
of judges. Illini Corporation and ISTC opposed substitution, but the court
granted the motion.
The case has been reassigned to Judge Tim Olson. Briefing of the
Motion to Dismiss was completed, but the Court continued the hearing on the
Motion to Dismiss. The presiding judge recused himself just prior to a
scheduled case management conference on March 9, 2000. We are awaiting
reassignment by the chief judge of the circuit to a new judge.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
9
<PAGE>
PART II.
ITEM 5. - MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Illini Corporation is traded on the Nasdaq over the
counter bulletin board (OTCBB). The following table sets forth the high and
low bid prices by calendar quarter of the common stock of Illini Corporation
as reported by Hillard Lyons & Associates, Dean Witter Reynolds, Inc. and
Howe Barnes Investments, Inc. in 1999 and 1998. The prices shown do not
reflect retail mark-ups, markdowns, or commissions and may not represent
actual transactions.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
1999 HIGH LOW DECLARED
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
1ST QUARTER $29.00 $28.75 $.25
2ND QUARTER 29.00 29.00 .25
3RD QUARTER 30.50 29.00 .25
4TH QUARTER 30.50 30.00 .25
</TABLE>
<TABLE>
<CAPTION>
CASH
DIVIDENDS
1998 HIGH LOW DECLARED
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
1st Quarter $28.50 $28.00 $.25
2nd Quarter 28.50 28.50 .25
3rd Quarter 28.75 28.50 .25
4th Quarter 28.75 28.75 .25
</TABLE>
As of December 31, 1999, there were 1,457 shareholders of record of
Illini Corporation common stock.
In 1999 and 1998, Illini Corporation issued $1.00 per share in
dividends, which resulted in $479,289.25 in 1999 and $448,456.00 in 1998. Due
to its status as a bank holding company, Illini Corporation's ability to
issue dividends is restricted by regulatory provisions set forth in "Item 1.
Description of Business--Supervision and Regulation--Dividend Restrictions"
which is incorporated by reference herein.
- -------------------------------------------------------------------------------
ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- - INTRODUCTION
The following discussion highlights the significant factors affecting
the operations and financial condition of Illini Corporation for the two
fiscal years ended December 31, 1999 and December 31, 1998. The discussion
should be read in conjunction with the consolidated financial statements,
accompanying notes, and selected financial data appearing set forth in "Item
7. Financial Statements" which is incorporated by reference herein.
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 involve estimates and uncertainties and are
subject to change based upon various important factors. Actual results for
2000 and beyond could differ materially from results expressed or implied by
forward looking statements in this report.
10
<PAGE>
- - SUMMARY
Management completed the reengineering of the Illini's operational
design that began in early 1998. Also, on November 19, 1999, the purchase of
Camp Point was completed. Camp Point had $33 million in total assets as of
November 19, 1999 and is located in Camp Point, Illinois. Net income for 1999
was $672,000 or $1.45 per share. This represents a 6.66% increase over 1998
net income of $630,000. The 1999 results were consistent with management's
estimates.
The modest increase in earnings resulted from the stabilizing of
Illini's overhead structure. Interest and fee income on loans increased
$1,390,000 in 1999 to $9,117,000, a result of a focused sales efforts that
increased loan balances and the efficiency of the centralized credit
department.
The increase in operating expenses was primarily in six areas. Increased
occupancy expense related to the increased cost of the new banking center,
increased equipment and communication expenses associated with Year 2000
upgrades, increased correspondent fees due to bank growth, and continued high
costs for attorneys and consultants assisting management with shareholder
related activities.
Non interest income decreased $372,000 in 1999. The decrease was the
result of a gain on other real estate owned of $460,000 in 1998.
Management continues to focus on maintaining high credit quality,
reduced operating costs, higher revenues through improved sales efforts, and
continued development of our associates in becoming a low cost, customer
first service provider.
The following table details changes in Illini Corporation's net income
per share over the last two fiscal years.
CHANGE IN EARNINGS PER SHARE (EPS)
FOR 1999 AND 1998
<TABLE>
<CAPTION>
1999-98 1998-97
------- -------
<S> <C> <C>
PER SHARE
Net income prior period $ 1.40 $ 1.45
Change in EPS attributable to change in:
Net interest income 1.52 (1.08)
Provision for loan losses (0.14) 0.22
Noninterest income (0.96) 1.45
Noninterest expense (0.02) (0.56)
Income tax expense (0.35) (0.08)
--------- --------
Net increase (decrease) 0.05 (0.05)
------- --------
Net income current period $ 1.45 $ 1.40
======= =======
</TABLE>
- - OVERVIEW-BALANCE SHEET REVIEW
Average assets were $173.3 million in 1999, an increase of $19.7
million, or 12.8%, from 1998. The acquisition of Camp Point contributed $4.1
million to the total increase of $19.7 million in average assets. Average
loans were $105.3 million in 1999, an increase of $21.3 million, or 25.4%,
from 1998. Management believes the increase in loan volume is an expected
outcome from the reengineering of the Corporation and efforts to aggressively
pursue new loan relationships in both consumer and commercial loan services.
Average deposits were $153.3 million in 1999, an increase of $16.7 million,
or 12.3%, from 1998. We believe this trend of growth will continue as our
product offerings become more sophisticated and the level of merger and
acquisition activity continues to rise.
11
<PAGE>
- - SECURITIES
Total securities as of December 31, 1999 were $57.0 million, an increase
of $3.7 million, or 6.9%, over the prior year-end. At December 31, 1999 and
1998, the total securities portfolio comprised 26.3% and 33.1% respectively
of total assets.
Illini Corporation's investment strategy is to maximize portfolio yields
commensurate with credit risk and liquidity considerations. The decision to
purchase or sell securities is based upon the current assessment of economic
and financial conditions, including the interest rate environment.
Approximately $8.1 million, or 14.2%, of the securities portfolio at December
31, 1999 matures or reprices within one year. Scheduled maturities and the
prepayment of mortgage-backed securities represent a source of liquidity for
Illini and Camp Point, as well as federal funds sold, federal funds purchased
lines, and lines of credit established at other banks which are discussed
further in the Liquidity section of this report.
Mortgage-backed securities as of December 31, 1999 totaled $31.3 million
and represent 54.9% of total securities. The distribution of mortgage-backed
securities include $18.6 million of U.S. government agency mortgage-backed
pass through securities and $12.7 million of private issue collateral
mortgage obligations, all of which are rated AAA.
At December 31, 1999, securities available for sale totaled $57.0
million. There were no securities classified as held to maturity or trading
at the end of 1999 or 1998. The securities available for sale portfolio at
the end of 1999 included gross unrealized gains of $107,000 and gross
unrealized losses of $1,228,000, of which the combined effect, net of tax, is
included as an unrealized loss in stockholders' equity. For comparative
purposes, at December 31, 1998, gross unrealized gains of $744,000 and gross
unrealized losses of $81,000 were included in the securities available for
sale portfolio, which is set forth in "Item 7. Financial Statements -Note 3"
which is incorporated by reference herein.
- - MATURITIES AND DURATION
The maturities and weighted average yields of the investment portfolio
at the end of 1999 are presented in the following table. Maturities of
private mortgage-backed securities are based on their average expected lives
and include the effects of anticipated prepayments. All other securities are
listed at their actual maturity or contractual repricing interval. The
amounts and yields disclosed reflect the net carrying value, which is the
same as fair value. Taxable equivalent adjustments, using a 34% tax rate,
have been made in calculating yields on tax-exempt obligations.
The securities portfolio at December 31, 1999, contained no securities
of any issuer with an aggregate book or market value in excess of 10% of
shareholders' equity of Illini Corporation, excluding those issued by the
United States government, or its agencies or corporations.
12
<PAGE>
- -------------------------------------------------------------------------------
MATURITIES AND YIELD OF SECURITIES
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
TOTAL TAX EQUIVALENT YIELD
----- --------------------
U.S. Treasury securities: (dollars in thousands)
<S> <C> <C>
0 to 1 year $ 200 5.77%
1 to 5 years 1,987 5.57
-----------
Total $ 2,187 5.59%
=========== ====
U.S. government agencies:
0 to 1 years $ 1,418 5.84%
1 to 5 years 10,153 6.45
5 to 10 years 1,886 6.12
-----------
Total $ 13,457 6.34%
=========== ====
Mortgage-backed securities and collateralized mortgage obligations:
0 to 1 year $ 7,267 6.09%
1 to 5 years 18,290 6.09
5 to 10 years 3,710 6.21
Over 10 years 1,988 6.18
-----------
Total $ 31,255 6.11%
=========== ====
States of the U.S. and political subdivisions:
0 to 1 year $ 936 7.20%
1 to 5 years 2,789 7.13
5 to 10 years 4,528 7.36
Over 10 years 994 8.21
-----------
Total $ 9,247 7.37%
=========== ====
Corporate Bonds
0 to 1 year $ 249 6.36%
FHLB stock and other
equity securities, no stated maturity $ 581 ----
Total securities:
0 to 1 year $ 10,070 6.16%
1 to 5 years 33,219 6.26
5 to 10 years 10,124 6.71
Over 10 years 2,982 6.86
No stated maturity 581
-----------
Total $ 56,976 6.35%
=========== ====
</TABLE>
- -------------------------------------------------------------------------------
- - LOANS
Illini Corporation's loan portfolio consists of a diverse variety of
loan types within the following major categories: commercial real estate,
residential real estate, consumer, commercial, and agricultural loans.
Net loans increased $48.2 million from $85.8 million as of December 31,
1998 to $134.0 million as of December 31, 1999. The acquisition of Camp Point
contributed $16.0 million to the total increase of $48.2
13
<PAGE>
million in net loans. Average total loans increased $21.3 million from $84.0
million in 1998 to $105.3 million in 1999. Growth in the loan portfolio
resulted primarily from management's priority on evaluating and managing
credit risk in existing loan relationships and new business development.
The largest increase was in commercial real estate loans for which the
average balance increased $11.1 million to $42.0 million in 1999. Residential
real estate loans increased $5.1 million to $25.9 million. Commercial loans
increased $4.2 million to $14.9 million and agricultural loans increased $1.1
million to $8.5 million. Agricultural real estate loans increased $1.0
million to $3.7 million. While consumer loans decreased $1.2 million to $9.6
million. The acquisition of Camp Point, completed on November 19, 1999, had a
minimal impact on the average balances.
All of Illini Corporation's loans are domestic. Illini Corporation does
not currently engage in foreign loans, lease financing, or loans to financial
institutions. Additionally, Illini Corporation does not have any
concentration of loans exceeding 10% of total loans, which are not otherwise
disclosed under "types of loans."
Each major type of loan will normally have different risk elements. Real
estate loans and installment loans to individuals can be affected by the
general strength of the economy in a given geographical area. A wide range of
economic and other factors can impact the businesses to which commercial
loans are extended. Such things as drought, floods, U.S. and foreign market
prices, and federal government subsidies and programs can affect agricultural
loans. Illini Corporation's susceptibility to these risk elements has
decreased as prior deficiencies in overall loan portfolio management and
credit risk management systems and controls have been corrected.
- - TYPES OF LOANS
A summary of loans by type as of December 31, 1999 and 1998 is set forth
in "Item 7. Financial Statements--Note 4" which is incorporated by reference
herein.
- - MATURITIES AND INTEREST RATE SENSITIVITY OF LOANS
$37.5 million, or 27.7%, of Illini and Camp Point's loan portfolios
reprice within one year. $119.4 million, or 88.0%, of the portfolio reprices
within five years. The relatively short duration of the loan portfolio
requires diligence on the part of management to replace and/or renew maturing
loans more frequently. However, it benefits the banks by decreasing its
susceptibility to rising interest rates and by allowing management more
frequent opportunities to reassess and adjust loan agreements with borrowers
and to exit deteriorating loan relationships. 54.2% of commercial, financial,
and agricultural loans mature within one year.
LOANS
<TABLE>
<CAPTION>
MATURITY
-----------------------------------------------------------
ONE YEAR ONE TO AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 16,616 $ 12,489 $ 1,535 $ 30,640
Real estate construction 8,159 499 525 9,183
---------- --------- ---------- ----------
$ 24,775 $ 12,988 $ 2,060 $ 39,823
========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
INTEREST SENSITIVITY
------------------------------------------------
FIXED FLOATING OR
INTEREST ADJUSTABLE
RATES INTEREST RATES TOTAL
---------- -------------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Loans due after one but within five years $ 10,609 $ 2,379 $ 12,988
Loans due after five years 901 1,159 2,060
--------- --------- ----------
$ 11,510 $ 3,538 $ 15,048
========= ========= ==========
</TABLE>
14
<PAGE>
DEPOSITS
<TABLE>
<CAPTION>
AVERAGE BALANCES OF DEPOSITS AND
COST OF FUNDS
------------------------------------------------------
1999 1998
AVERAGE AVERAGE
---------------------- ---------------------
BALANCE RATE BALANCE RATE
------- ---- ------- ----
(dollars in thousands)
<S> <C> <C> <C>
Noninterest bearing demand deposits $ 23,921 -- $ 21,103 --
NOW and money market deposit accounts 42,863 3.25% 35,319 3.61%
Savings deposits 17,382 2.01 17,474 2.41
Time deposits 69,158 5.26 62,676 5.53
---------- ----------
$ 153,324 3.51% $ 136,572 3.78%
========== ==== ========== ====
</TABLE>
<TABLE>
<CAPTION>
MATURITY OF TIME DEPOSITS GREATER THAN $100,000
AT DECEMBER 31, 1999
--------------------------------------------------
TIME OTHER
CERTIFICATES TIME
OF DEPOSIT DEPOSITS TOTAL
------------ -------- -----
(dollars in thousands)
<S> <C> <C> <C>
Three months or less $ 6,785 $ 2,100 $ 8,885
Three to six months 5,799 75 5,874
Six to twelve months 3,815 ---- 3,815
Over twelve months 4,978 ---- 4,978
--------- --------- ----------
$ 21,377 $ 2,175 $ 23,552
========= ========= ==========
</TABLE>
Average deposits increased $16.7 million, or 12.3%, to $153.3 million in
1999. Due to the increase in deposits required to fund loan growth,
management was required to increase deposit rates slightly. Although rates
were increased, Illini and Camp Point's overall cost of funds related to
deposits decreased 27 basis points to 3.51% in 1999. The overall decrease for
cost of funds is due to a higher number of new transactional accounts.
Noninterest bearing accounts increased $3.3 million to $29.5 million, NOW and
Money Market accounts were up $11.4 million to $50.3 million, and Time
Deposits increased $36.5 million to $97.3 million in 1999. Total deposits
increased $52.7 million, or 36.9%, to $195.7 million at December 31, 1999.
- - LIQUIDITY
Liquidity represents the availability of funding to meet obligations to
depositors, borrowers, and creditors at a reasonable cost without adverse
consequences. Accordingly, the liquidity position is influenced by the
funding base and asset mix.
Illini Corporation requires adequate liquidity to pay its expenses and
pay stockholder dividends. Liquidity is provided to Illini Corporation in the
form of dividends. In 1999, dividends from Illini amounted to $3.9 million
compared to $0.7 million in 1998. Illini and Camp Point's liquidity is
provided by bank cash balances, liquidation of short-term investments, loan
payments, an overnight federal funds line of credit, and borrowings on a line
of credit available with the Federal Home Loan Bank of Chicago. While the
banks are limited in the amount of dividends they pay, as of December 31,
1999, a combined
15
<PAGE>
$1.6 million was available for payment to Illini Corporation in the form of
dividends without prior regulatory approval.
Cash and cash equivalents, which include federal funds, increased $0.7
million to $13.0 million at December 31, 1999, compared to $12.3 million at
December 31, 1998.
The asset portion of the balance sheet provides liquidity primarily
through loan principal repayments, maturities of investment securities, and
sales of investment securities available for sale.
The liability portion of the balance sheet provides liquidity through
federal funds purchased, securities sold under agreements to repurchase, and
other short-term borrowings. As of December 31, 1999, Illini has established
an overnight federal funds line of credit with an unaffiliated financial
institution in the amount of $10.0 million, with the entire amount available
for borrowing. Illini is also a member of the Federal Home Loan Bank of
Chicago and has established a line of credit of approximately $18.2 million
as of December 31, 1999, with the entire amount available for borrowing. As
of December 31, 1999, Camp Point has established an overnight federal funds
line of credit with an unaffiliated financial institution in the amount of
$1.0 million, with the entire amount available for borrowing. The various
sources of liquidity available to the banks provide ample long-term as well
as short-term funding alternatives.
- - INTEREST RATE SENSITIVITY
In conjunction with maintaining a satisfactory level of liquidity,
management monitors the degree of interest rate risk assumed on the balance
sheet. Illini Corporation monitors its interest rate risk by the use of
static and dynamic gap models at the one-year interval. The static gap model
monitors the difference in interest rate sensitive assets and interest rate
sensitive liabilities that mature within the specified time frame as a
percentage of total interest earning assets. The dynamic gap model goes
further in that it assumes that interest rate sensitive assets and
liabilities will be reinvested. Illini Corporation uses a computerized model
to monitor its interest rate risk.
Illini and Camp Point's static interest rate gap position as of December
31, 1999 is presented below:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
-------------------------------------------------------------------
UP TO 3 4 TO TOTAL OVER
MONTHS 12 MONTHS 1 YEAR 1 YEAR TOTAL
--------- --------- --------- --------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 19,983 $ 17,558 $ 37,541 $ 98,175 $ 135,716
Debt and marketable equity securities 3,156 4,962 8,118 48,858 56,976
Federal funds sold 5,595 -- 5,595 -- 5,595
--------- --------- --------- --------- --------
Total interest-earning assets $ 28,734 $ 22,520 $ 51,254 $ 147,033 $ 198,287
Interest-bearing liabilities:
Savings, NOW, and money market (1) $ 34,414 $ -- $ 34,414 $ 34,414 $ 68,828
Time deposits 27,797 36,508 64,305 32,971 97,276
Federal funds purchased and securities
sold under agreements to repurchase 394 -- 394 -- 394
--------- --------- --------- --------- ---------
Total interest-bearing liabilities $ 62,605 $ 36,508 $ 99,113 $ 67,385 $ 166,498
Gap by period $ (33,871) $ (13,988) $ (47,859) $ 79,648 $ 31,789
Cumulative gap $ (33,871) $ (47,859) $ (47,859) $ 31,789 $ 31,789
Cumulative gap as a percent of earning assets -17.08% -24.14% -24.14% 16.03% 16.03%
</TABLE>
(1) Illini Corporation's experience with transactional interest bearing
demand, money market accounts, and savings accounts has been that these
deposits are subject to immediate withdrawal, or re-pricing, with portions of
the balances remaining relatively constant in periods of both rising and
falling rates. Therefore, a portion of these deposits is included in the over
1 year category. If these deposits were all included in the total 1 year or
less category the cumulative ratio of interest sensitive assets to interest
sensitive liabilities would be -41.49%.
16
<PAGE>
In June of 1998, Illini Corporation engaged consultants to assist in
asset/liability management efforts. Management believes that periodic reviews
will enable Illini Corporation to proactively react to financial conditions
in our market place. An asset/liability management policy was adopted October
15, 1998. There can be no assurance, however, that such steps will have the
desired result.
- - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative financial instruments include futures, forwards, interest
rate swaps, option contracts, and other financial instruments with similar
characteristics. Illini and Camp Point currently do not enter into futures,
forwards, swaps, or options. However, Illini and Camp Point are party to
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of
credit. These instruments involve to varying degrees elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
balance sheets. 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 and require
collateral from the borrower if deemed necessary by each bank. Standby
letters of credit are conditional commitments issued by each bank to
guarantee the performance of a customer to a third party up to a stipulated
amount and within specified terms and conditions.
Commitments to extend credit and standby letters of credit are not
recorded as an asset or liability by the banks until and unless the
instrument is exercised.
Each bank's exposure to market risk is reviewed by the Asset/Liability
Committee. Interest rate risk is the potential of economic losses due to
future interest rate changes. These economic losses can be reflected as a
loss of future net interest income and/or a loss of current fair market
values. The objective is to measure the effect on net interest income and to
adjust the balance sheet in order to minimize the inherent risk, while at the
same time maximize income. Management realizes certain risks are inherent,
such as the uncertainty of market interest rates, and that its goal is to
identify and minimize the risks. The primary tool management uses to monitor
and manage interest rate risk is a static gap report. Illini and Camp Point
have no market risk sensitive instruments held for trading purposes.
17
<PAGE>
The condensed gap report summarizing Illini and Camp Point's interest rate
sensitivity is as follows:
<TABLE>
<CAPTION>
MARKET RISK SENSITIVE INSTRUMENTS
---------------------------------------------------------------------
OVER 1 OVER 3
YEAR THROUGH YEARS THROUGH OVER
1 YEAR 3 YEARS 5 YEARS 5 YEARS TOTAL
------ ------- ------- ------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Debt and marketable equity securities $ 8,118 $ 9,911 $ 7,301 $ 31,646 $ 56,976
Loans 37,541 50,560 31,281 16,334 135,716
Federal funds sold 5,595 -- -- --- 5,595
-------- -------- --------- ---------- -----------
$ 51,254 $ 60,471 $ 38,582 $ 47,980 $ 198,287
======== ======== ========= ========== ==========
Liabilities:
Savings, NOW and money market (1) $ 34,414 $ 34,414 $ -- $ -- $ 68,828
Time deposits 64,305 32,081 890 -- 97,276
Federal funds purchased and securities
sold under agreements to repurchase 394 -- -- -- 394
-------- -------- --------- ---------- -----------
$ 99,113 $ 66,495 $ 890 $ -- $ 166,498
======== ======== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AVERAGE
TOTAL INTEREST RATE FAIR VALUE
----- ------------- ----------
<S> <C> <C> <C>
Assets:
Debt and marketable equity securities (2) $ 56,976 6.07% $ 56,976
Loans (2) 135,716 8.68 132,317
Federal funds sold 5,595 4.73 5,595
Liabilities:
Savings, NOW and money market $ 68,828 2.89% $ 68,828
Time deposits 97,276 5.26 97,276
Federal funds purchased and securities
sold under agreements to repurchase 394 5.10 394
</TABLE>
(1) Management's experience with interest bearing checking accounts, money
market and savings deposits has been that, although these deposits are
subject to immediate withdrawal or repricing, a portion of the balances has
remained relatively constant in periods of both rising and falling rates.
Therefore, a portion of these deposits is included in the over 1 year
through 3 years.
(2) Interest rates are presented on a fully taxable equivalent basis.
- - CAPITAL RESOURCES
Total shareholders' equity increased from $15.4 million at December 31,
1998 to $17.3 million at December 31, 1999. The primary source of capital of
Illini Corporation is retained earnings. Cash dividends per share were $1.00
for 1999 and 1998. Illini Corporation retained 28.7% of its earnings for 1999
and 28.9% for 1998.
Regulatory guidelines require bank holding companies, commercial banks,
and thrifts to maintain certain minimum ratios and define companies as "well
capitalized" that sufficiently exceed the minimum ratios. The banking
regulators may alter minimum capital requirements as a result of revising
their internal policies and their ratings of individual institutions. To be
"well capitalized," banks must maintain a Tier 1 leverage ratio of no less
than 5.0%, a Tier 1 risk based ratio of no less than 6.0%, and a total risk
based ratio of no less than 10.0%. Illini's ratios as of December 31, 1999
were 6.59%, 9.42%, and 10.63%, respectively, which meet the criteria for
"well capitalized." Camp Point's ratios as of December 31, 1999
18
<PAGE>
were 13.23%, 22.06%, and 22.86%, respectively, which meet the criteria for
"well capitalized." The Corporation's ratios as of December 31, 1999 were
7.32%, 10.86%, and 12.03%, respectively.
As of December 31, 1999, management is not aware of any current
recommendations by banking regulatory authorities which, if they were to be
implemented, would have or are reasonably likely to have a material adverse
impact on the Corporation's liquidity, capital resources, or operations.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
KEY RATIOS
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on average assets 0.39% 0.41% 0.44% 0.31% 0.89%
Return on average equity 4.31 4.19 4.44 3.25 10.08
Dividend payout ratio 71.30 71.15 69.00 91.17 29.29
Average equity to assets ratio 9.00 9.77 9.98 9.58 8.87
</TABLE>
- - NET INTEREST INCOME
Net interest income is the principal component of Illini Corporation's
net income stream and represents the difference between interest and fee
income generated from earning assets and interest expense paid on deposits
and borrowed funds. Fluctuations in interest rates, as well as volume and mix
changes in earning assets and interest bearing liabilities, can materially
impact net interest income. The discussion of net interest income is
presented on a taxable equivalent basis to facilitate performance comparisons
among various taxable and tax-exempt assets.
Interest income increased $1.2 million from 1998 to 1999. Interest
expense increased $0.3 million from 1998 to 1999, resulting in an increase in
net interest income. Our net interest margin fell from a three year high of
4.96% in 1997 to 4.36% in 1999. The decline in the interest margin from its
three year high in 1996 is due to the general decline in loan rates in the
markets Illini Corporation serves. The securities portfolio has a weighted
average tax equivalent yield of 6.07%, while our loan portfolio has an
average yield of 8.68%. With the acquisition of Camp Point and the balanced
increase in the loan balances of Illini, total earning assets increased to
$198.3 million. Management plans to utilize cash flow from securities as an
additional source of funds for loan growth.
The $0.3 million increase in interest expense was primarily the
result of a significant growth in the time deposits less than $100,000. Our
average interest bearing liabilities grew $15.9 million, while experiencing a
30 basis point decrease to our cost of funds. Management believes our
demonstrated ability to raise low cost funds together with our redesigned
lending environment will provide an excellent opportunity to increase net
interest income performance in 2000.
19
<PAGE>
NET INTEREST INCOME - RATE/VOLUME VARIANCE ANALYSIS
<TABLE>
<CAPTION>
1999-98 1998-97
------------------------------------------ ------------------------------------
CHANGES IN VOLUME RATE CHANGES IN VOLUME RATE
INCOME/EXPENSE EFFECT EFFECT INCOME/EXPENSE EFFECT EFFECT
------------------------------------------ ------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments $ (193) $ (183) $ (10) $ 175 $ 191 $ (16)
Investment securities:
Taxable 57 121 (64) 376 625 (249)
Nontaxable (*) (71) (33) (38) (252) (259) 7
Loans 1,383 1,934 (551) (479) (341) (138)
-------- --------- --------- --------- -------- --------
Total interest income $ 1,176 $ 1,839 $ (663) $ (180) $ 216 $ (396)
-------- --------- --------- --------- ------- --------
Savings and NOW accounts 48 270 (222) 446 214 232
Time deposits 169 359 (190) 54 6 48
Short-term borrowings 99 105 (6) (108) (107) (1)
Long-term borrowings 0 0 0 0 0 0
-------- --------- -------- -------- ------- -------
Total interest expense $ 316 $ 734 $ (418) $ 392 $ 113 $ 279
-------- --------- --------- -------- ------- -------
Net interest income $ 860 $ 1,105 $ (245) $ (572) $ 103 $ (675)
======== ========= ========= ======== ======= ========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(*) Fully taxable equivalent basis using the federal statutory rate of 34% for
all years presented. NOTE: The change in interest which can not be attributed to
only a change in volume or a change in rate, but instead represents a
combination of the two factors, has been allocated to the rate effect.
20
<PAGE>
CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELD/RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------------
PERCENT INTEREST AVERAGE PERCENT INTEREST AVERAGE
AVERAGE OF TOTAL INCOME/ YIELD/ AVERAGE OF TOTAL INCOME/ YIELD/
BALANCE ASSETS EXPENSE RATE BALANCE ASSETS EXPENSE RATE
-----------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Short-term investments $ 3,064 1.8% $ 145 4.73% $ 6,662 4.3% $ 338 5.08%
Investment securities (3)
Taxable 43,568 25.1 2,571 5.90 41,563 27.1 2,514 6.05
Tax-exempt (1) 7,350 4.2 520 7.07 7,873 5.1 591 7.51
---------- -------- --------- ------- -------- ------- ------ -------
Total securities 50,918 29.3 3,091 6.07 49,436 32.2 3,105 6.28
Loans
Commercial (1) 14,921 8.6 1,327 8.89 10,668 6.9 990 9.28
Agriculture 8,504 4.9 718 8.45 7,363 4.8 664 9.02
Real estate
Commercial 42,029 24.2 3,604 8.57 30,959 20.2 2,803 9.05
Agriculture 3,677 2.1 320 8.70 2,718 1.8 245 9.02
Residential 25,932 15.0 2,154 8.31 20,846 13.6 1,888 9.06
Consumer, net 9,646 5.5 909 9.43 10,797 7.0 1,060 9.82
Credit card 627 0.4 109 17.36 630 0.4 108 17.13
---------- --------- -------- ------
Total loans 105,336 60.7 9,141 8.68 83,981 54.7 7,758 9.24
Allowance for loan losses (1,434) (0.8) (1,331) (0.9)
---------- --------- --------
Net loans (1) (2) 103,902 59.9 9,141 8.80 82,650 53.8 7,758 9.39
---------- -------- --------- -------- ------- ------
Total interest
earning assets 157,884 91.0 12,377 7.84 138,748 90.3 11,201 8.07
---------- --------- -------- ------
Cash and due from banks 5,342 3.1 4,224 2.8
Premises and equipment 7,289 4.2 7,695 5.0
Other real estate owned 452 0.3 654 0.4
Other assets (3) 2,377 1.4 2,356 1.5
---------- -------- -------- -------
TOTAL ASSETS $ 173,344 100.0% $153,677 100.0%
========== ======== ======== =======
LIABILITIES
Deposits:
Non interest bearing
deposits $ 23,921 13.8% 21,103 13.7%
Interest bearing demand 42,863 24.7 $ 1,393 3.25% 35,319 23.0 $1.274 3.61%
Savings 17,382 10.0 350 2.01 17,474 11.4 421 2.41
Time deposits less
than $100,000 52,458 30.3 2,769 5.28 46,753 30.4 2,584 5.53
---------- --------- -------- ------
Total core deposits 136,624 78.8 4,512 3.30 120,649 78.5 4,279 3.55
Time deposits $100,000
and over 16,700 9.7 869 5.20 15,923 10.4 885 5.56
---------- --------- -------- ------
Total deposits 153,324 88.5 5,381 3.51 136,572 88.9 5,164 3.78
Short-term borrowings 2,251 1.3 115 5.10 292 0.2 16 5.38
--------- ------
Total interest bearing
liabilities 131,654 76.0 5,496 4.17 115,761 75.4 5,180 4.47
--------- ------
Other liabilities 2,166 1.2 1,792 1.1
---------- -------- -------- ------
Total liabilities 157,741 91.0 138,656 90.2
Shareholders' Equity 15,603 9.0 15,021 9.8
---------- -------- -------- ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 173,344 100.0% $153,677 100.0%
========== ======== ======== =======
NET INTEREST MARGIN $ 6,881 4.36% $6,021 4.34%
========= ====== ====== ======
</TABLE>
(1) Income amounts are presented on a fully taxable equivalent basis (FTE),
which is defined as income on earning assets that is subject to either a
reduced rate or zero rate of income tax, adjusted to give effect to the
appropriate incremental federal income tax rate and adjusted for
non-deductible carrying costs, where applicable. Where appropriate, yield
calculations include these adjustments. The federal statutory rate was
34% for all years presented.
(2) Nonaccrual loans are included in the loan balances. Interest income
includes related fee income of $293,000 in 1999 and $246,000 in 1998.
(3) Average securities balances are based on amortized historical cost,
excluding SFAS 115 adjustments to fair value, which are included in other
assets.
21
<PAGE>
CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELD/RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997
PERCENT INTEREST AVERAGE
AVERAGE OF TOTAL INCOME/ YIELD/
BALANCE ASSETS EXPENSE RATE
----------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Short-term investments $ 3,067 2.1% $ 163 5.32%
Investment securities (3)
Taxable 32,161 21.9 2,138 6.65
Tax-exempt (1) 11,357 7.8 843 7.43
----------- ---------- ---------- ----------
Total securities 43,518 29.7 2,981 6.85
Loans
Commercial (1) 15,089 10.3 1,466 9.72
Agriculture 5,716 3.9 526 9.20
Real estate
Commercial 24,554 16.7 2,251 9.17
Agriculture 2,370 1.6 217 9.14
Residential 24,680 16.8 2,267 9.19
Consumer, net 14,439 9.9 1,404 9.73
Credit card 637 0.4 106 16.60
----------- ----------
Total loans 87,485 59.6 8,237 9.42
Allowance for loan losses (1,246) (0.8)
----------- ----------
Net loans (1) (2) 86,239 58.8 8,237 9.55
----------- ----------
Total interest earning assets 132,824 90.6 11,381 8.57
----------
Cash and due from banks 4,570 3.1
Premises and equipment 6,512 4.4
Other real estate owned 583 0.4
Other assets (3) 2,183 1.5
----------- ----------
TOTAL ASSETS $ 146,672 100.0%
=========== ==========
LIABILITIES
Deposits:
Non interest bearing deposits $ 20,246 13.8%
Interest bearing demand 27,311 18.6 $ 798 2.92%
Savings 18,287 12.5 451 2.47
Time deposits less than $100,000 46,206 31.5 2,479 5.36
----------- ----------
Total core deposits 112,050 76.4 3,728 3.33
Time deposits $100,000 and over 16,327 11.1 936 5.74
----------- ----------
Total deposits 128,377 87.5 4,664 3.63
Short-term borrowings 2,103 1.4 124 5.89
----------
Total interest bearing liabilities 110,234 75.1 4,788 4.34
----------
Other liabilities 1,556 1.1
----------- ----------
Total liabilities 132,036 90.0
Shareholders' Equity 14,636 10.0
----------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 146,672 100.0%
=========== ==========
NET INTEREST MARGIN $ 6,593 4.96%
========== ==========
</TABLE>
(1) Income amounts are presented on a fully taxable equivalent basis (FTE),
which is defined as income on earning assets that is subject to either a
reduced rate or zero rate of income tax, adjusted to give effect to the
appropriate incremental federal income tax rate and adjusted for
non-deductible carrying costs, where applicable. Where appropriate, yield
calculations include these adjustments. The federal statutory rate was 34%
for all years presented.
(2) Nonaccrual loans are included in the loan balances. Interest income
includes related fee income of $242,000 in 1997.
(3) Average securities balances are based on amortized historical cost,
excluding SFAS 115 adjustments to fair value, which are included in other
assets.
22
<PAGE>
- - PROVISION FOR LOAN LOSSES, NET CHARGE-OFFS AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses charged to earnings was $0.3 million for
1999, an increase of $0.1 million, or 34.8%, from the $0.2 million in 1998.
During 1997, the provision for loan losses was $0.3 million. The ratio of net
charge-offs to average loans outstanding has improved from 0.29% to 0.16% to
0.09% for the years ended December 31, 1997, 1998 and 1999, respectively. The
provision for loan losses expense increased to $275,000 for 1999 from
$204,000 in 1998 primarily due to the growth of the loan portfolio.
Nonaccrual loans decreased to $559,000 at December 31, 1999, compared to
$1,029,000 at December 31, 1998. Net loan losses and other asset quality
indicators reflected continued improvement in the overall quality of the loan
portfolio during 1999.
The management of Illini Corporation considers a number of factors in
determining the amount of the allowance for loan losses. These factors
include, but are not limited to, the following:
- - Historical data and trends relating to net charge-offs, average loans,
and the level of the allowance for loan losses;
- - Other historical data and trends, including the allowance as a
percentage of total loans outstanding and loan volume;
- - Borrowers identified on Illini's and Camp Point's watch list, borrowers
with significant credit exposure, and loans that are past due or on
nonaccrual status;
- - The capability of management's credit risk management processes to
successfully underwrite credit and to identify and resolve problem
loans on an ongoing basis;
- - Results of continuing reviews of individual higher risk loans by
management personnel; and
- - Consideration as to the impact of present economic conditions on the
loan portfolio.
The allowance for loan losses as a percent of total loans decreased from
1.57% at December 31, 1998, to 1.25% at December 31, 1999. This percentage
has been adversely affected by the growth in all categories of the loan
portfolio. The allowance as a percent of nonperforming loans increased from
132.95% at December 31, 1998, to 286.97% at December 31, 1999, due to a
decrease in nonperforming loans. The overall quality of loans continues to
improve. After full consideration of these factors, with particular emphasis
on review of potential problem loans identified by management, Illini
Corporation's management concludes the allowance for loan losses is adequate
as of December 31, 1999.
23
<PAGE>
- - SUMMARY OF LOAN LOSS EXPERIENCE
The following summary presents the changes in the allowance for loan
losses for the years ended December 31, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------- --------------
(dollars in thousands)
<S> <C> <C> <C>
Average loans outstanding $ 105,336 $ 83,981 $ 87,485
============ ============ =============
Allowance for loan losses:
Balance at beginning of year $ 1,368 $ 1,302 $ 1,258
------------ ------------ -------------
Purchase of Camp Point 153
Loans charged-off:
Commercial, financial, and agricultural (57) (54) (48)
Real estate (58) (9) (136)
Consumer (87) (152) (180)
------------- --------------- ---------------
Total (202) (215) (364)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural 60 13 61
Real estate 5 31 8
Consumer 37 33 39
------------ ------------- --------------
Total 102 77 108
------------ ------------- --------------
Net charge-offs (100) (138) (256)
------------ --------------- ---------------
Provision charged to expense 275 204 300
------------ ------------- --------------
Balance at end of year $ 1,696 $ 1,368 $ 1,302
============ ============ =============
Ratio of net charge-offs to average loans
outstanding during the period 0.09 % 0.16 % 0.29 %
============ ============= ==============
</TABLE>
In 1999, as illustrated in the preceding chart, loan losses increased
slightly in all areas except consumer, which had a $65,000 decrease.
Commercial, financial, and agricultural loans ended the year with net
recoveries. An overall decrease in net charge-offs reflects improvement in
the overall quality of the loan portfolio resulting from decisive action
Illini Corporation's management has taken to improve credit quality over the
last two years.
Efforts continue to maintain this improved quality, and to enhance
credit quality processes and controls.
- - ALLOWANCE ALLOCATION
The risk of losses inherent in the loan portfolio is not precisely
attributable to a particular loan or category of loans. However, based on its
review for adequacy, management has estimated those portions of the allowance
that could be attributable to major categories of loans as follows:
24
<PAGE>
<TABLE>
<CAPTION>
1999 1998
------------------------------ -----------------------------
% OF TOTAL % OF TOTAL
LOANS, NET LOANS, NET
AMOUNT OF UED AMOUNT OF UED
----------- ---------- ----------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial, and agriculture $ 389 22.58% $ 430 23.58%
Real estate 397 69.14 203 65.32
Consumer 326 8.28 346 11.10
Unallocated 584 -- 389 --
----------- ---------- ----------- -------
Total allowance for loan losses $ 1,696 100.00% $ 1,368 100.00%
=========== ========== =========== =======
</TABLE>
These allocation estimates do not specifically represent that loan
charge-offs of that magnitude will be incurred, nor do these allocations
restrict future loan losses attributable to a particular category from being
absorbed by the allowance attributable to other categories or the unallocated
portion of the allowance. The risk factors considered when estimating the
allocations for major loan categories are the same as the factors considered
when determining the adequacy of the overall allowance as specified in the
allowance summary.
- - NONPERFORMING ASSETS
Nonperforming assets consist of nonaccrual loans, loans with
restructured terms and other real estate owned. Loans are generally
classified as nonaccrual when there are reasonable doubts as to the
collectibility of principal and interest or when payment becomes 90 days past
due, except loans which are well secured and in the process of collection.
Interest collection on nonaccrual loans for which the ultimate collectibility
of principal is uncertain is applied as principal reduction. Otherwise, such
collections are applied to interest when received. The following table
presents information concerning the aggregate amount of nonperforming assets
and loans 90 days or more past due but still accruing interest.
<TABLE>
<CAPTION>
December 31,
1999 1998
------------- ------------
(dollars in thousands)
<S> <C> <C>
Nonaccrual $ 559 $ 1,029
Renegotiated 32 0
Other real estate owned 618 366
------------- ------------
Nonperforming assets $ 1,209 $ 1,395
============= ============
Accruing loans past due 90 days $ 1 $ 0
============= ============
Nonperforming loans to total loans 0.41% 1.18%
============= ============
Nonperforming assets to total assets 0.56% 0.87%
============= ============
Accruing loans past due 90 days to total loans 0.00% 0.00%
============= ============
</TABLE>
Nonperforming assets totaled $1,209,000 as of year-end 1999, a decrease
of $186,000, or 13.3%, from the $1,395,000 at year-end 1998. Total
nonperforming assets represent 0.56% of total assets at December 31, 1999,
compared to 0.87% at December 31, 1998.
Nonperforming loans decreased $438,000, or 42.6%, to a total of $591,000
at year-end 1999. This is
25
<PAGE>
largely the result of three large loans totaling $378,000 that were in the
process of collection at December 31, 1998. As of December 31, 1999,
nonperforming loans to total loans were 0.41% compared to 1.18% at year-end
1998. Illini did not carry any loans past due more than 90 days and still
accruing interest as of December 31, 1999 and 1998. Camp Point carried one
small consumer loan, which totaled less than $1,000, past due more than 90
days and still accruing interest as of December 31, 1999. Individual
nonaccrual loans are written down to management's estimate of the net
realizable value of collateral and/or realistic estimates of other payments
from the borrower. Additionally, specific allocations to the allowance for
loan losses are made on loans where there may be uncertainties as to the
collection of the estimated value of collateral. Because these loans have
been written down and/or allocated for, the potential impact on future net
income is minimized. Additional interest income of $64,000 in 1999 and
$61,000 in 1998 would have been recognized had these nonaccrual loans
remained current.
Other real estate owned increased $252,000, or 68.9%, to $618,000 at
December 31, 1999, when compared to year-end 1998. Illini owns one property
which it has entered into an option agreement in 1998 to sell comprised
$298,000, or 48.2%, of the total other real estate owned. In September 1999,
the option to buy was extended for an additional six month period. Illini now
expects to complete this sale in 2000. The remaining $320,000 or 51.8%
represents real estate acquired in satisfaction of debts. Other real estate
owned is carried at the lower of cost or fair value. Management is actively
marketing these properties to minimize the potential affects of market
fluctuations so proceeds can be deployed to earning assets as soon as
possible.
As previously discussed, management has taken steps to improve credit
quality. In addition to the specific actions discussed in the PROVISION FOR
LOAN LOSSES, NET CHARGE-OFFS AND ALLOWANCE FOR LOAN LOSSES section, in late
1996, executive management empowered the credit administration function
developed in 1995 to monitor and enforce loan policy compliance, to
proactively identify and resolve problem loans, and to perform detailed
credit analyses on all significant loan relationships. These efforts have
improved Illini Corporation's ability to identify problem and potential
problem loans and has allowed management opportunities to resolve problem
loans while minimizing the potential loss to Illini Corporation.
- - POTENTIAL PROBLEM LOANS
As of December 31, 1999, there were no loans not included in the above
table identified by management as having potential weaknesses, which, if not
corrected, could affect the borrower's ability to comply with the current
loan repayment terms.
26
<PAGE>
- - NONINTEREST INCOME
The following table depicts the amount of and annual changes in
noninterest income categories:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENT CHANGE
------------------------------------- ------------------------
1999 1998 1997 1999/1998 1998/1997
---- ---- ---- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 1,305 $ 1,065 $ 1,054 22.5 % 1.0%
Other fee income 206 172 162 19.8 6.2
Mortgage loan servicing fees 222 264 198 (15.9) 33.3
Gains on sales of mortgage loans 42 216 105 (80.6) 105.7
Gains on sales of securities, net 6 8 50 (25.0) (84.0)
Gains (losses) on sales of other
real estate owned 25 460 (105) (94.6) 538.1
Other 97 90 54 7.8 66.7
------- ------- -------
$ 1,903 $ 2,275 $ 1,518 (16.4) 49.9
======= ======= =======
</TABLE>
Total noninterest income decreased $0.4 million from 1998 to 1999.
Service charges on deposit accounts and other fee income increased in
1999, as compared to 1998 and 1997. The increase is due to re-pricing of
products and services that went into effect January 1, 1999. Illini
Corporation realized net securities gains of $50,000 in 1997. Management took
steps in 1997 to shorten the duration of the investment portfolio and bring
its interest sensitivity gap back down to within its stated guidelines. Gains
realized in 1998 and 1999 were $8,000 and $6,000, respectively.
Due to declining long term rates on mortgage loans and effective
marketing strategies, Illini Corporation experienced a significant increase
in mortgage loan originations in 1998. This, in turn, led to an increase in
the gain of sale of mortgage loans to the secondary market and, to a lesser
extent, increased servicing income due to the increase in the servicing
portfolio. In 1999, the servicing income declined $42,000 and is a direct
result of softening in demand for mortgage loans.
Illini Corporation completed strategic planning in 1998 that, among
other subjects, covered the changing nature of the retail delivery systems of
financial institutions. During this planning, management identified
potentially significant opportunities for expense reductions in staffing and
occupancy achievable through more efficient use of retail bank space. As a
consequence, Illini Corporation completed two real estate transactions during
1998 resulting in substantial gains. A 22,000 square foot property the
Corporation owned in Springfield was sold for $1,350,000, and a lot in
Bloomington being held for future expansion was sold for $556,000, resulting
in a combined gain of $482,000. The transaction for the sale of the property
in Springfield is a sale-leaseback arrangement. The carrying value of the
property was $634,000, and Illini Bank recognized $460,000 as a gain in 1998
and deferred $256,000 to be recognized over the 10 year life of the lease.
27
<PAGE>
- - NONINTEREST EXPENSE
The following table depicts the amount of and annual changes in
noninterest expense categories:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENT CHANGE
------------------------------------- ------------------------
1999 1998 1997 1999/1998 1998/1997
---- ---- ---- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 3,102 $ 3,218 $ 3,246 (3.6)% (0.9)%
Net occupancy expense 835 692 666 20.7 3.9
Equipment expense 402 353 300 13.9 17.7
Data processing 653 708 614 (7.8) 15.3
Supplies 179 200 131 (10.5) 52.7
Communication and transportation 430 396 347 8.6 14.1
Marketing and advertising 88 19 253 363.2 (92.5)
Correspondent and processing fees 217 144 132 50.7 9.1
Loan and other real estate owned expenses 44 52 58 (15.4) (10.3)
Professional fees 1,007 875 573 15.1 52.7
Directors' and regulatory fees 181 192 163 (5.7) 17.8
Other 278 328 341 (15.2) (3.8)
------- ------- -------
Total noninterest expense $ 7,416 $ 7,177 $ 6,824 3.3 5.2
======= ======= =======
</TABLE>
Total noninterest expense increased $0.2 million to $7.4 million in
1999, compared to $7.2 million in 1998, and $6.8 million in 1997. The
increase is directly related to Year 2000 upgrades for communication,
equipment, transportation, marketing, advertising, correspondent processing
fees related to growth, and continued high professional fees to attorneys and
consultants to assist management with shareholder related activities. The
strategic plan started in 1998 was completed mid-year 1999. During the last
half of 1999 results of the plan implemented began to appear. Management
anticipates continued reductions to take place in non-interest expenses for
2000, resulting in improved earnings.
- - YEAR 2000 ISSUES
During 1999, the Corporation took the necessary steps to enable both new
and existing systems, applications, and equipment to effectively process
transactions up to and beyond Year 2000. The total cost of the Year 2000
readiness program was approximately $92,000.
The Corporation upgraded or replaced all mission critical applications
and equipment that were not Year 2000 compliant prior to year-end to ensure
that all applications would function in the Year 2000 and beyond. All
regulatory testing dates were met during the year. Operational contingency
plans were developed and tested to ensure that services could still be
provided to our customers in the event of Year 2000 failure or problems. The
Corporation has not experienced any Year 2000 failures or disruptions in
services to our customers, nor is the Corporation aware of any significant
Year 2000 issues incurred by borrowers or significant vendors used by the
Corporation. The Corporation will continue to monitor its information systems
to assess whether its systems are at risk of misinterpreting future dates.
- - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES (SFAS 133), which establishes standards
for derivative instruments, including certain derivative instruments embedded
in other contracts and for hedging activities. SFAS 133 requires an entity to
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. SFAS 133 is effective for
all fiscal periods beginning after June 15, 1999. Earlier application of
28
<PAGE>
SFAS 133 is encouraged but should not be applied retroactively to financial
statements of prior periods. In June 1999, the FASB issued SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF
THE EFFECTIVE DATE OF FASB STATEMENT NO. 133, which states SFAS 133 shall be
effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. The Corporation is currently evaluating the requirements and impact
of SFAS 133.
- - EFFECTS OF INFLATION
The effects of inflation on financial institutions are different from
the effects on other commercial enterprises due to making fewer significant
capital or inventory expenditures which are directly affected by changing
prices. Because bank assets and liabilities are virtually all monetary in
nature, inflation does not affect a financial institution as much as do
changes in interest rates. The general level of inflation does, in fact,
underlie the general level of most interest rates; however, interest rates do
not increase at the rate of inflation as do the prices of goods and services.
Rather, interest rates react more to the changes in the expected rate of
inflation and to changes in monetary and fiscal policy.
Inflation, however, does have an impact on the growth of total assets in
the banking industry, often resulting in a need to increase capital at higher
than normal rates to maintain an appropriate capital-to-asset ratio.
ITEM 7. - FINANCIAL STATEMENTS
Index to Illini Corporation's Consolidated Financial Statements.
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Independent Auditors' Report..............................................................................30
Consolidated Balance Sheets as of December 31, 1999 and 1998..............................................31
Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997...................32
Consolidated Statements of Changes in
Shareholders' Equity for the years ended December 31, 1999, 1998, and 1997...........................33
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997...............34
Notes to Consolidated Financial Statements.............................................................35-51
</TABLE>
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Illini Corporation:
We have audited the consolidated balance sheets of Illini Corporation
and subsidiaries (the Company) as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in shareholders' 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 referred to above
present fairly, in all material respects, the financial position of Illini
Corporation 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.
KPMG LLP
St. Louis, Missouri
March 10, 2000
30
<PAGE>
ILLINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
(dollars in thousands)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 7,383 $ 5,624
Interest-bearing deposits in other banks 28 19
Federal funds sold 5,595 6,675
--------------- ---------------
Cash and cash equivalents 13,006 12,318
Debt and marketable equity securities
available for sale, at fair value 56,976 53,276
Loans, net of allowance for loan losses 134,020 85,806
Premises and equipment 7,534 7,250
Accrued interest receivable 1,908 1,390
Other real estate owned 618 366
Other assets 3,033 359
--------------- ---------------
$ 217,095 $ 160,765
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Noninterest-bearing demand deposits $ 29,549 $ 26,190
Interest-bearing deposits:
NOW and money market accounts 50,301 38,877
Savings deposits 18,527 17,102
Time deposits, $100,000 and over 23,552 15,064
Other time deposits 73,724 45,726
--------------- ---------------
Total deposits 195,653 142,959
Securities sold under agreements to repurchase 394 290
Note payable 1,000 ----
Accrued interest payable 1,122 827
Other liabilities 1,600 1,270
--------------- ---------------
Total liabilities 199,769 145,346
--------------- ---------------
Shareholders' equity:
Common stock-authorized 800,000 shares of $10
par value; 571,789 and 448,456 shares issued and outstanding
as of December 31, 1999 and 1998, respectively 5,718 4,485
Capital surplus 3,358 1,886
Retained earnings 8,825 8,632
Accumulated other comprehensive income (loss) (575) 416
--------------- ---------------
Total shareholders' equity 17,326 15,419
--------------- ---------------
$ 217,095 $ 160,765
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
ILLINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ---------------
(dollars in thousands)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 9,117 $ 7,727 $ 8,200
Interest on debt and marketable equity securities:
Taxable 2,571 2,514 2,137
Exempt from federal income taxes 358 408 582
Interest on short-term investments 145 338 163
---------------- ---------------- ---------------
Total interest income 12,191 10,987 11,082
---------------- ---------------- ---------------
Interest expense:
Interest on deposits:
NOW and money market accounts 1,393 1,274 798
Savings deposits 350 421 451
Time deposits, $100,000 and over 869 885 936
Other time deposits 2,769 2,584 2,479
Interest on borrowings 115 16 124
---------------- ---------------- ---------------
Total interest expense 5,496 5,180 4,788
---------------- ---------------- ---------------
Net interest income 6,695 5,807 6,294
Provision for loan losses 275 204 300
---------------- ---------------- ---------------
Net interest income after provision for loan losses 6,420 5,603 5,994
---------------- ---------------- ---------------
Noninterest income:
Service charges on deposit accounts 1,305 1,065 1,054
Other fee income 206 172 162
Mortgage loan servicing fees 222 264 198
Gains on sales of mortgage loans 42 216 105
Gains on sales of securities, net 6 8 50
Gains (losses) on sales of other real estate owned 25 460 (105)
Other 97 90 54
---------------- ---------------- ---------------
Total noninterest income 1,903 2,275 1,518
---------------- ---------------- ---------------
Noninterest expense:
Salaries and employee benefits 3,102 3,218 3,246
Net occupancy expense 835 692 666
Equipment expense 402 353 300
Data processing 653 708 614
Supplies 179 200 131
Communication and transportation 430 396 347
Marketing and advertising 88 19 253
Correspondent and processing fees 217 144 132
Loan and other real estate owned expenses 44 52 58
Professional fees 1,007 875 573
Directors' and regulatory fees 181 192 163
Other 278 328 341
---------------- ---------------- ---------------
Total noninterest expense 7,416 7,177 6,824
---------------- ---------------- ---------------
Income before income tax expense 907 701 688
Income tax expense 235 71 38
---------------- ---------------- ---------------
Net income $ 672 $ 630 $ 650
================ ================ ===============
Basic earnings per share
(based on weighted average common shares outstanding
of 462,648 in 1999 and 448,456 in 1998 and 1997) $ 1.45 $ 1.40 $ 1.45
================ ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
ILLINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON CAPITAL RETAINED COMPREHENSIVE
STOCK SURPLUS EARNINGS INCOME (LOSS) TOTAL
----------- ---------- ----------- -------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 4,485 $ 1,886 $ 8,248 $ (106) $ 14,513
Comprehensive income:
Net income -- -- 650 -- 650
Change in unrealized gains (losses)
on securities available for sale, net -- -- -- 263 263
-----------
Total comprehensive income 913
-----------
Cash dividends paid $1.00 per share -- -- (448) -- (448)
----------- ---------- ---------- ----------- -----------
Balance at December 31, 1997 4,485 1,886 8,450 157 14,978
Comprehensive income:
Net income -- -- 630 -- 630
Change in unrealized gains (losses)
on securities available for sale, net -- -- -- 259 259
-----------
Total comprehensive income 889
-----------
Cash dividends paid $1.00 per share -- -- (448) -- (448)
----------- ---------- ---------- ----------- -----------
Balance at December 31, 1998 4,485 1,886 8,632 416 15,419
Comprehensive income:
Net income -- -- 672 -- 672
Change in unrealized gains (losses)
on securities available for sale, net -- -- -- (991) (991)
-----------
Total comprehensive income (loss) (319)
-----------
Issuance of common stock to acquire
Camp Point 1,233 1,472 -- -- 2,705
Cash dividends paid $1.00 per share -- -- (479) -- (479)
----------- ---------- ---------- ----------- -----------
Balance at December 31, 1999 $ 5,718 $ 3,358 $ 8,825 $ (575) $ 17,326
=========== ========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
ILLINI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ----------- ------------
(dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 672 $ 630 $ 650
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,099 978 738
Provision for loan losses 275 204 300
Gains on sales of securities, net (6) (8) (50)
Gain on sale of premises and equipment ---- (1) ----
Deferred tax expense (benefit) (8) 6 (78)
(Gains) losses on sales of other real estate owned 25 (460) 105
(Increase) decrease in accrued interest receivable (109) 110 (6)
Increase in accrued interest payable 169 43 91
Origination of secondary market mortgage loans (8,117) (44,152) (18,740)
Proceeds from the sales of secondary market mortgage loans 8,266 44,299 18,446
Other, net (531) 477 (474)
------------- ----------- ------------
Net cash provided by operating activities 1,735 2,126 982
------------- ----------- ------------
Cash flows from investing activities:
Proceeds from sales of debt and marketable equity securities
available for sale 7,721 2,028 20,530
Proceeds from maturities and paydowns of debt securities
available for sale 12,782 16,109 12,764
Purchases of debt and marketable equity securities
available for sale (9,502) (24,307) (39,318)
Net (increase) decrease in loans, net (35,913) (1,272) 7,295
Purchases of premises and equipment (550) (1,136) (3,346)
Proceeds from sale of premises and equipment ---- 1 ----
Net cash and cash equivalents paid for acquisition (841) ---- ----
Proceeds from sales of other real estate 71 2,066 331
------------- ----------- ------------
Net cash used in investing activities (26,232) (6,511) (1,744)
------------- ----------- ------------
Cash flows from financing activities:
Net increase in non-interest bearing deposit accounts 320 1,107 4,330
Net increase in savings, NOW and money market accounts 4,921 7,563 5,141
Net increase (decrease) in time deposits, $100,000 and over 5,064 (3,595) 3,738
Net increase (decrease) increase in other time deposits 14,556 308 (1,404)
Net decrease in federal funds purchased ---- ---- (1,130)
Net increase (decrease) in securities sold under
agreements to repurchase (197) (425) 215
Net increase in note payable 1,000 ---- ----
Net decrease in other short-term borrowings ---- ---- (3,000)
Cash dividends paid (479) (448) (448)
------------- ----------- ------------
Net cash provided by financing activities 25,185 4,510 7,442
------------- ----------- ------------
Net increase in cash and cash equivalents 688 125 6,680
Cash and cash equivalents at beginning of year 12,318 12,193 5,513
------------- ----------- ------------
Cash and cash equivalents at end of year $ 13,006 $ 12,318 $ 12,193
============= =========== ============
Supplemental information:
Interest paid $ 5,201 $ 5,137 $ 4,697
Income taxes paid 218 77 112
============= =========== ============
Other non-cash investing activities:
Transfer of premises to other real estate $ ---- $ 1,168 $ ----
Transfer of loans to other real estate 313 102 154
============= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
ILLINI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Illini Corporation, which operates as a single business segment,
provides a full range of banking services to individual, corporate, and
institutional customers through its 19 locations throughout central Illinois.
Illini Corporation and its banking subsidiaries, Illini Bank ("Illini") and
Farmers State Bank of Camp Point ("Camp Point"), are subject to competition
from other financial and nonfinancial institutions providing financial
products in central Illinois. Additionally, Illini Corporation, Illini, and
Camp Point are subject to the regulations of certain federal and state
agencies and undergo periodic examinations by those regulatory authorities.
The accounting and reporting policies of Illini Corporation conform to
generally accepted accounting principles within the banking industry. The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions, including the determination of the allowance for
loan losses, 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Following is a description of the more significant of these policies:
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Illini
Corporation, Illini, and Camp Point after elimination of all significant
intercompany accounts and transactions.
(b) CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, cash and
cash equivalents include cash and due from banks, interest-bearing deposits
in other banks, and federal funds sold, all of which are considered to be
highly liquid assets.
(c) DEBT AND MARKETABLE EQUITY SECURITIES
At the time of purchase, debt and equity securities are classified into
one of two categories: held to maturity or available for sale.
Investments in debt securities classified as held to maturity whereby
management has the positive ability and intent to hold to maturity are
stated at cost, adjusted for amortization of premiums and accretion of
discounts, using the interest method, over the period to maturity of the
respective securities.
Investment securities designated as available for sale, which include
any security which Illini Corporation has no immediate plan to sell but
which may be sold in the near future under different circumstances, are
stated at fair value. Amortization of premiums and accretion of discounts
on securities available for sale are recorded using the interest method
over the period to maturity of the respective security. Unrealized holding
gains and losses for available for sale securities are excluded from
earnings and reported as a net amount in a separate component of
shareholders' equity until realized.
Mortgage-backed securities represent a significant portion of the debt
security portfolio. Amortization of premiums and accretion of discounts on
mortgage-backed securities are analyzed in relation to the corresponding
prepayment rates, both historical and estimated, using a method which
approximates the interest method.
Transfers of securities between categories are recorded at fair value
at the date of transfer. Unrealized gains and losses associated with
transfers of securities from held to maturity to available for sale are
recorded as a separate component of shareholders' equity. The unrealized
gains or losses included in the separate component of shareholders' equity
for securities transferred from available for sale to held to maturity are
maintained and amortized into earnings over the remaining life of the
security as an adjustment to yield in a manner consistent with the
amortization or accretion of premium
35
<PAGE>
or discount on the associated security. Realized gains and losses for
securities are included in earnings using the specific identification
method for determining the cost basis of securities sold.
(d) LOAN INCOME
Interest income on certain installment loans is recognized using the
sum-of-the-years' digits method.
Interest on commercial, financial, agricultural, real estate, and all
other installment loans is recognized based on the principal amounts
outstanding using the simple-interest method. It is the policy of Illini
Corporation to discontinue, generally when a loan becomes ninety days past
due, the accrual of interest when full collectibility of principal or
interest on any loan is in doubt. Subsequent interest payments received on
such loans are applied to principal if there is any doubt as to the
collectibility of such principal. Otherwise, these receipts are recorded as
interest income. Accrual of interest may be resumed on a loan when
performance is in accordance with the contract, and the borrower
demonstrates the ability to pay and remain current.
Loan origination fees and certain direct loan origination costs are
deferred and recognized over the lives of the related loans as an
adjustment of the loan yield using a method approximating the interest
method on a loan-by-loan basis.
(e) ACCOUNTING FOR IMPAIRED LOANS
A loan is considered impaired when it is probable Illini Corporation
will be unable to collect all amounts due, both principal and interest,
according to the contractual terms of the loan agreement. When measuring
impairment, the expected future cash flows of an impaired loan are
discounted at the loan's effective interest rate. Alternatively, impairment
is measured by reference to an observable market price, if one exists, or
the fair value of the collateral for a collateral-dependent loan.
Regardless of the measurement method used historically, Illini Corporation
measures impairment based on the fair value of the collateral when
foreclosure is probable. Additionally, impairment of a restructured loan is
measured by discounting the total expected future cash flow at the loan's
effective rate of interest as stated in the original loan agreement.
Illini Corporation uses its existing nonaccrual methods for recognizing
interest on impaired loans.
(f) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to
operations and is available to absorb loan losses. Illini Corporation
utilizes a systematic, documented approach in determining the appropriate
level of the allowance for loan losses. Management's approach, which
provides for general and specific allowances, is based on current economic
conditions, past loan losses, collection experience, risk characteristics
of the portfolio, assessing collateral values by obtaining independent
appraisals for significant properties, and such other factors which, in
management's judgment, deserve recognition in estimating loan losses.
Management believes the allowance for loan losses is adequate to absorb
losses in the loan portfolio. While management uses available information
to recognize losses on loans, future additions to the allowance for loan
losses may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of the
examination process, periodically review Illini Corporation's allowance for
loan losses. Such agencies may require Illini Corporation to increase the
allowance for loan losses based on their judgment about and interpretation
of information available to them at the time of their examinations.
(g) SECONDARY MORTGAGE MARKET OPERATIONS
Illini Corporation originates Federal National Mortgage Association
("FNMA") mortgage loans for sale in the secondary market to FNMA. Mortgage
loans held for sale are recorded at the lower of cost or market value on an
individual loan basis. Deferred fees on loans held for sale are not
amortized. Gains and losses on the sale of these loans and loan origination
fees are recognized upon sale of the related loans and included in the
consolidated statements of income as noninterest income. Additionally, loan
administration fees, representing income earned from servicing these loans
sold in the secondary market to FNMA, are calculated on the outstanding
principal balances of the loans
36
<PAGE>
serviced and recorded as noninterest income as earned.
(H) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using primarily the straight-line
method. The estimated useful lives are 40 years for bank premises, 7 to 40
years for improvements to bank premises, and 3 to 20 years for furniture
and equipment. Costs for maintenance and repairs are expensed as incurred.
(i) INCOME TAXES
Illini Corporation, Illini, and Camp Point file a consolidated federal
income tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(j) INTANGIBLE ASSETS
The fair value of the individual assets acquired and liabilities
assumed through acquisitions accounted for under the purchase method of
accounting is recorded as an investment by Illini Corporation. The excess
of cash or market value of Illini Corporation's common stock over the fair
value of the net assets acquired is recorded as the excess of cost over
fair value of net assets acquired and is included in other assets on the
consolidated balance sheets. This amount is amortized on a straight-line
basis over various periods not exceeding 25 years. The premiums paid to
acquire the deposits of certain subsidiaries are being amortized over a
15-year period.
Illini Corporation assesses the recoverability of intangible assets by
determining whether the amortization of the balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation or deposits. The amount of impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting Illini Corporation's average cost of funds. The
assessment of the recoverability of intangibles will be impacted if
estimated future operating cash flows are not achieved.
(k) OTHER REAL ESTATE OWNED
Other real estate owned ("OREO") represents property acquired through
foreclosure or deeded to Illini Corporation in lieu of foreclosure on loans
on which the borrowers have defaulted. OREO also includes former bank
premises that management no longer intends to use as banking facilities.
OREO is recorded on an individual asset basis at the lower of fair
value less estimated disposal costs or cost. If the fair value less
estimated disposal costs is less than cost, the deficiency is recorded by a
direct write down of the individual OREO asset. Any subsequent write downs
to reflect current fair value are charged to noninterest expense.
(l) EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share gives effect to
potential common stock, such as stock options or convertible notes. Illini
Corporation has no instruments which are dilutive.
(m) FINANCIAL INSTRUMENTS
Financial instruments are defined as cash, evidence of an ownership
interest in an entity, a contract that both imposes on one entity a
contractual obligation to deliver cash or another financial instrument to a
second entity, to exchange other financial instruments on potentially
unfavorable terms with the second entity and conveys to that second entity
a contractual right to receive cash or another financial instrument from
the first entity or to exchange other financial instruments on potentially
favorable terms with the first entity.
37
<PAGE>
(n) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING Activities, which establishes standards for
derivative instruments, including certain derivative instruments embedded
in other contracts and for hedging activities. SFAS 133 requires an entity
to recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. SFAS 133 is effective
for all fiscal periods beginning after June 15, 1999. Earlier application
of SFAS 133 is encouraged but should not be applied retroactively to
financial statements of prior periods. In June 1999, the FASB issued SFAS
No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133, which states SFAS
133 shall be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company is currently evaluating the
requirements and impact of SFAS 133.
(o) RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 consolidated financial statements
have been reclassified to conform to the 1999 presentation. Such
reclassifications have no effect on previously reported consolidated net
income or shareholders' equity.
(2) ACQUISITION OF CAMP POINT
On November 19, 1999, Illini Corporation consummated its previously
announced agreement to acquire all of the outstanding shares of Camp Point
through the merger of Camp Point with a wholly-owned subsidiary of Illini
Corporation. As a result of the merger, the shareholders of Camp Point received
a total of 123,333 shares of Illini Corporation common stock and cash in the
amount of $3,256,260. At the date of acquisition, Camp Point had total assets
and deposits of $33.0 million and $28.1 million, respectively. The transaction
had a total value of approximately $6.4 million, and was accounted for under the
purchase method of accounting. Accordingly, the results of operations of Camp
Point have been included in the consolidated financial statements of Illini
Corporation since the date of acquisition. Under this method of accounting, the
purchase price is allocated to the respective assets acquired and liabilities
assumed based on their estimated fair values, net of applicable income tax
effects. The total purchase price of approximately $6.4 million was allocated to
the assets acquired and liabilities assumed as follows (in thousands):
<TABLE>
<S> <C>
Purchase price $ 6,363
Net asset value of Camp Point at acquisition (4,306)
Adjustment to Camp Point's historical carrying values of -
premises and equipment, net of tax (165)
---------
Excess of cost over fair value of net assets acquired $ 1,892
=========
</TABLE>
The intangible asset of approximately $1.9 million representing the excess
of cost over fair value of net assets acquired is included in other assets in
the consolidated balance sheets of Illini Corporation and is being amortized
over 15 years on a straight-line basis.
A summary of unaudited pro forma consolidated financial information for the
years ended December 31, 1999 and 1998 for Illini Corporation and Camp Point as
if the transaction had occurred on January 1, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net interest income $ 7,487 $ 6,661
Net income 687 730
Basic earnings per share 1.20 1.28
======= =======
</TABLE>
38
<PAGE>
(3) DEBT AND MARKETABLE EQUITY SECURITIES
The amortized cost and fair value of debt and marketable equity
securities classified as available for sale at December 31, 1999 and 1998 are
presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
United States Treasury and
United States agencies $ 15,940 $ 1 $ 297 $ 15,644
Mortgage-backed securities 19,047 30 508 18,569
Collateralized mortgage obligations 12,844 ---- 158 12,686
Obligations of state and
political subdivisions 9,225 60 38 9,247
Corporate bonds 249 ---- ---- 249
FHLB stock and other
equity securities 581 ---- ---- 581
--------- -------- -------- ----------
$ 57,886 $ 91 $ 1,001 $ 56,976
========= ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
United States Treasury and
United States agencies $ 19,397 $ 204 $ 30 $ 19,571
Mortgage-backed securities 16,828 69 19 16,878
Collateralized mortgage obligations 8,487 25 32 8,480
Obligations of state and
political subdivisions 7,448 446 -- 7,894
FHLB stock and other
equity securities 453 -- -- 453
--------- -------- -------- --------
$ 52,613 $ 744 $ 81 $ 53,276
========= ======== ======== ========
</TABLE>
As a member of the Federal Home Loan Bank System administered by the
Federal Housing Finance Board, Illini and Camp Point are required to maintain
an investment in the capital stock of the Federal Home Loan Bank of Chicago
(FHLB) in an amount equal to the greater of 1% of the aggregate outstanding
balance of loans secured by dwelling units at the beginning of each year, or
0.3% of the total assets. The stock is recorded at cost, which represents
redemption value, and is recalculated semi-annually. Each bank's portfolio of
residential real estate loans, subject to minor adjustments, is available to
secure advances from the FHLB. As of December 31, 1999, neither bank had any
borrowings outstanding from the FHLB.
The amortized cost and fair value of debt and marketable equity
securities classified as available for sale at December 31, 1999, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because certain issuers have the right to call or
prepay obligations with or without call or prepayment penalties.
39
<PAGE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
------------- -------------
(dollars in thousands)
<S> <C> <C>
Due in one year or less $ 2,558 $ 2,554
Due after one year through five years 15,098 14,929
Due after five years through ten years 6,551 6,414
Due after ten years 958 994
------------- -------------
25,165 24,891
Mortgage-backed securities 19,047 18,569
Collateralized mortgage obligations 12,844 12,686
Corporate bonds 249 249
FHLB stock and other equity
securities, no stated maturity 581 581
------------- -------------
$ 57,886 $ 56,976
============= =============
</TABLE>
Proceeds from sales of debt and marketable equity securities during
1999, 1998, and 1997 were $7.7 million, $2.0 million, and $20.5 million,
respectively. Gross gains of $11,000, $10,000, and $109,000 and gross losses
of $5,000, $2,000, and $59,000 for 1999, 1998, and 1997, respectively, were
realized on those sales. All sales during 1999, 1998, and 1997 were from the
available for sale category.
The market value of debt securities pledged to secure United States
government and other public deposits, securities sold under agreements to
repurchase, and for other purposes as required by law was approximately $20.7
million and $16.7 million at December 31, 1999 and 1998, respectively.
(4) LOANS
The loan portfolio at December 31, 1999 and 1998 is composed of the
following loan types:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
(dollars in thousands)
<S> <C> <C>
Commercial, financial, and agricultural $ 30,640 $ 20,553
Real estate:
Construction 9,183 7,104
Mortgage loans held for investment 84,509 49,592
Mortgage loans held for sale 142 245
Consumer, net of unearned income 11,242 9,680
------------- -------------
Total loans 135,716 87,174
Allowance for loan losses (1,696) (1,368)
------------- -------------
Net loans $ 134,020 $ 85,806
============= =============
</TABLE>
Loans serviced for others totaled approximately $79.5 million and
$87.7 million at December 31, 1999 and 1998, respectively.
Illini Corporation grants commercial, industrial, residential, and
consumer loans to customers in central Illinois through its network of
banking offices. Illini Corporation does not have any particular
concentration of credit in any one economic sector; however, a majority of
Illini Corporation's lending occurs in and around Springfield, Illinois, with
a substantial portion of such loans secured by real estate. As such, Illini
Corporation is susceptible to changes in the economic environment in the
Springfield, Illinois area.
40
<PAGE>
A summary of impaired loans, which includes nonaccrual loans, at
December 31, 1999, 1998, and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans $ 559 $ 1,029 $ 636
Impaired loans continuing to accrue interest ---- 300 50
------------- ------------- -------------
Total impaired loans $ 559 $ 1,329 $ 686
============= ============= =============
Allowance for losses on specific impaired loans $ 18 $ 25 $ 26
Impaired loans with no specific related allowance
for loan losses 499 1,268 595
Average balance of impaired loans during the year 1,033 1,074 977
============= ============= =============
</TABLE>
Additional interest income of $64,000 in 1999, $61,000 in 1998, and
$35,000 in 1997 would have been recognized had nonaccrual loans remained
current. The amount recognized as interest income on other impaired loans
continuing to accrue interest was $0 in 1999, $29,000 in 1998, and $5,000 in
1997. The amount recognized as interest income on nonaccrual loans was
$14,233, $9,679, and $13,300 for the years ended December 31, 1999, 1998, and
1997, respectively.
A summary of changes in the allowance for loan losses for the years
ended December 31, 1999, 1998, and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ---------------
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 1,368 $ 1,302 $ 1,258
Balance of allowance of Camp Point at acquisition date 153 ---- ----
Provision charged to expense 275 204 300
Loans charged off (202) (215) (364)
Recoveries of loans previously charged off 102 77 108
---------------- ---------------- ---------------
Net loan charge-offs (100) (138) (256)
---------------- ---------------- ---------------
Balance at end of year $ 1,696 $ 1,368 $ 1,302
================ ================ ===============
</TABLE>
The following table recaps the 1999 activity for loans made by Illini
and Camp Point to executive officers, directors, and principal shareholders
(insiders) of Illini Corporation, Illini, and Camp Point and/or their related
interests. Such loans were made in the normal course of business on
substantially the same terms, including interest rates and collateral
requirements, as those prevailing at the same time for comparable
transactions with other persons and did not involve more than normal credit
risk or present other unfavorable features.
<TABLE>
<CAPTION>
INSIDER LOANS
(dollars in thousands)
<S> <C>
Balance at December 31, 1998 $ 246
Purchase of Camp Point 11
Advances on existing loans 655
Payments received (63)
----------------
Balance at December 31, 1999 $ 849
================
</TABLE>
41
<PAGE>
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1999 and 1998 by
major category is as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(dollars in thousands)
<S> <C> <C>
Land $ 1,083 $ 1,043
Bank premises 7,339 6,549
Furniture and equipment 5,165 4,771
--------- ---------
13,587 12,363
Less accumulated depreciation 6,053 5,113
--------- ---------
$ 7,534 $ 7,250
========= =========
</TABLE>
Depreciation charged to noninterest expense amounted to $940,000, $795,000,
and $638,000 in 1999, 1998, and 1997, respectively.
Illini Corporation completed two real estate transactions during 1998
resulting in substantial gains. A 22,000 square foot property the Company
owned in Springfield was sold for $1,350,000, and a lot in Bloomington being
held for future expansion was sold for $556,000, resulting in a combined gain
of $482,000. The transaction for the sale of the property in Springfield is a
sale-leaseback arrangement. The carrying value of the property was $634,000,
and Illini Bank recognized $460,000 as a gain in 1998 and deferred $256,000
to be recognized over the 10 year life of the lease.
Illini Corporation leases certain premises and equipment under
noncancellable operating leases which expire at various dates through
September 2008. Such noncancellable operating leases also include options to
renew on an annual basis. Minimum rental commitments under all noncancellable
operating leases at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
(dollars in thousands)
<S> <C>
2000 $ 99
2001 88
2002 33
2003 33
2004 33
Thereafter 124
------------
$ 410
============
</TABLE>
Total rental income received in 1999, 1998, and 1997 was $0, $104,000,
and $177,000, respectively. Total rent expense charged to noninterest expense
in 1999, 1998, and 1997 was $106,000, $155,000, and $213,000, respectively.
42
<PAGE>
(6) DEPOSITS
At December 31, 1999, the scheduled maturities of time deposits are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
(dollars in thousands)
<S> <C>
2000 $ 64,304
2001 25,534
2002 6,587
2003 355
2004 466
Thereafter 30
--------------
$ 97,276
==============
</TABLE>
(7) NOTE PAYABLE
In connection with funding the acquisition of Camp Point, Illini
Corporation borrowed $1,000,000 under a note payable with an unaffiliated
bank, which is secured by all the issued and outstanding shares of common
stock of Illini and Camp Point. The rate of interest is the prime rate of
interest (8.50% at December 31, 1999). The note payable matures on December
1, 2000. The weighted average interest rate on the note payable was 8.50%
during 1999.
(8) INCOME TAXES
The components of income tax expense (benefit) for the years ended
December 31, 1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ---------------
(dollars in thousands)
<S> <C> <C> <C>
Current income taxes:
Federal $ 243 $ 122 $ 167
State ---- (57) (51)
Deferred income taxes (8) 6 (78)
---------------- ---------------- ---------------
$ 235 $ 71 $ 38
================ ================ ===============
</TABLE>
A reconciliation of expected income tax expense to federal income tax
expense, computed by applying the federal statutory rate of 34% to income
before income tax expense for the years ended December 31, 1999, 1998, and
1997 to reported income tax expense, is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ---------------
(dollars in thousands)
<S> <C> <C> <C>
Income tax expense at statutory rate $ 308 $ 239 $ 234
Increase (decrease) in income taxes resulting from:
Tax-exempt income (124) (137) (195)
Goodwill amortization 9 4 4
State income taxes, net of federal
income tax benefit ---- (38) (34)
Other, net 42 3 29
---------------- ---------------- ---------------
Income tax expense $ 235 $ 71 $ 38
================ ================ ===============
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1999 and 1998 are presented below:
43
<PAGE>
<TABLE>
<CAPTION>
1999 1998
---------------- --------------
(dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Loans, principally due to allowance for loan losses $ 260 $ 250
Alternative minimum tax carryforward 230 284
Debt and marketable equity securities, basis differences 76 ----
Available for sale securities market valuation 335 ----
Other 3 60
---------------- ---------------
Gross deferred tax assets 904 594
Less valuation allowance (60) (60)
---------------- ---------------
Deferred tax assets, net 844 534
---------------- ---------------
Deferred tax liabilities:
Available for sale securities market valuation ---- 247
Premises and equipment, basis differences 332 233
Cash to accrual conversion 59 ----
---------------- ---------------
Total gross deferred tax liabilities 391 480
---------------- ---------------
Net deferred tax asset $ 453 $ 54
================ ===============
</TABLE>
The alternative minimum tax carry forward has no expiration date. The
ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. A valuation allowance is provided on
deferred tax assets when it is more likely than not that some portion of the
assets will not be realized. Illini Corporation has established a valuation
allowance in the amount of $60,114 for deferred tax assets at December 31,
1999 and 1998.
(9) EMPLOYEE BENEFITS
Illini Corporation has a defined contribution 401(k) plan that covers
substantially all employees of Illini. Both Illini Corporation and employees
of Illini may contribute to the plan. Illini Corporation's contributions are
voluntary and at the discretion of the Board of Directors. All contributions
are subject to statutory restrictions. Illini made contributions of $40,000,
$37,000, and $48,000 to the plan in 1999, 1998, and 1997, respectively.
Camp Point maintains a Profit Sharing Plan for all employees meeting
certain eligibility requirements. Camp Point makes contributions to the plan
based on an annual election. The annual election amount is allocated to the
participants based on the percentage of their compensation compared to all
participants' compensation. All contributions are one-third, two-thirds, and
100% vested after one, two, and three years of service, respectively.
Contributions are made by Camp Point and subject to statutory restrictions.
Camp Point made a contribution for the period from November 19, 1999 through
December 31, 1999 in the amount of $3,000.
(10) OTHER COMPREHENSIVE INCOME
Illini Corporation's other comprehensive income for the years ended
December 31, 1999, 1998, and 1997 included the following components:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net realized and unrealized gains (losses)
on securities available for sale, net $(987) $ 264 $ 294
Less adjustment for net securities gains
realized in net income, net of tax (4) (5) (31)
------ -------- -------
Other comprehensive income (loss) $(991) $ 259 $ 263
====== ======== =======
</TABLE>
44
<PAGE>
(11) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Following are condensed balance sheets as of December 31, 1999 and 1998
and the related condensed schedules of income and cash flows for each of the
years in the three-year period ended December 31, 1999 of Illini Corporation
(parent company only):
CONDENSED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
(dollars in thousands)
ASSETS:
Cash $ 286 $ 315
Investment in subsidiaries 17,698 14,927
Excess of cost over fair value
of net assets acquired 311 124
Other assets 398 196
---------------- ---------------
$ 18,693 $ 15,562
================ ===============
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Note payable $ 1,000 $ ----
Other liabilities 367 143
Shareholders' equity 17,326 15,419
---------------- ---------------
$ 18,693 $ 15,562
================ ===============
</TABLE>
CONDENSED SCHEDULES OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ---------------
(dollars in thousands)
<S> <C> <C> <C>
REVENUE:
Dividends received from subsidiaries $ 3,881 $ 735 $ 900
Other ---- 4 ----
---------------- ---------------- ---------------
3,881 739 900
---------------- ---------------- ---------------
EXPENSES:
Interest expense 7 ---- ----
Professional fees 806 291 314
Other 76 89 140
---------------- ---------------- ---------------
889 380 454
---------------- ---------------- ---------------
Income before income tax benefit and
equity in undistributed income of subsidiaries 2,992 359 446
Income tax benefit 281 139 154
Equity in undistributed (distributed)
income of subsidiaries (2,601) 132 50
---------------- ---------------- ---------------
Net income $ 672 $ 630 $ 650
================ ================ ===============
</TABLE>
45
<PAGE>
CONDENSED SCHEDULES OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ---------------
(dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 672 $ 630 $ 650
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 13 35 75
Equity in (undistributed) distributed
income of subsidiaries 2,601 (132) (50)
Other, net (580) 40 (110)
---------------- ---------------- ---------------
Net cash provided by operating activities 2,706 573 565
Cash flows from investing activities:
Net cash paid for acquisition (3,256) ---- ----
Proceeds from sales of debt and marketable
equity securities available for sale ---- 4 ----
---------------- ---------------- ---------------
Net cash (used in) provided by investing activities (3,256) 4 ----
Cash flows from financing activities:
Proceeds from note payable 1,000 ---- ----
Cash dividends paid (479) (448) (448)
---------------- ---------------- ---------------
Net cash provided by (used in) financing activities 521 (448) (448)
Net increase (decrease) in cash (29) 129 117
Cash at beginning of year 315 186 69
---------------- --------------- --------------
Cash at end of year $ 286 $ 315 $ 186
=============== ================ ==============
Supplemental information:
Interest paid $ 7 $ ---- $ ----
Income taxes paid 218 77 112
================ ================ ===============
</TABLE>
46
<PAGE>
(12) DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
Illini Corporation is party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Such instruments may involve, to
varying degrees, elements of credit risk in excess of the amounts recognized
in the consolidated balance sheets. The contractual amounts of these
instruments reflect the extent of involvement Illini Corporation has in
particular classes of financial instruments.
Illini Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments
to extend credit and standby letters of credit is represented by the
contractual amount of these instruments. Illini Corporation uses the same
credit policies in making commitments and conditional obligations as it does
for financial instruments recorded in the consolidated balance sheets. The
off-balance-sheet financial instruments of Illini Corporation at December 31,
1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
----------------- ------------------
<S> <C> <C>
Financial instruments whose contractual (dollars in thousands)
amounts represent credit risk:
Commitments to extend credit $ 20,419 $ 11,050
Standby letters of credit 663 1,295
------------------ -----------------
$ 21,082 $ 12,345
================== =================
</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.
Of the total commitments to extend credit at December 31, 1999 and 1998,
approximately $8.0 million and $6.4 million, respectively, represent
fixed-rate loan commitments. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since
certain of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. Illini Corporation evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained upon extension of
credit is based on management's credit evaluation of the counterparty.
Collateral held varies, but generally includes residential or
income-producing commercial property, inventory, accounts receivable, and/or
equipment.
Standby letters of credit are conditional commitments issued by Illini
Corporation to guarantee the performance of a customer to a third party. The
credit risk involved in issuing such letters of credit is essentially the
same as that involved in extending other financing arrangements with
customers. Illini Corporation holds collateral to support such commitments
for which collateral is deemed necessary.
Illini Corporation has established overnight federal funds lines of
credit of $11.0 million with an unaffiliated bank. As a member of the FHLB,
Illini has a line of credit of approximately $18.2 million.
47
<PAGE>
Following is a summary of the carrying amounts and fair values of Illini
Corporation's financial instruments at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 CARRYING FAIR
AMOUNT VALUE
(dollars in thousands)
<S> <C> <C>
Balance sheet assets:
Cash and due from banks $ 7,383 $ 7,383
Interest-bearing deposits in other banks 28 28
Federal funds sold 5,595 5,595
Debt and marketable equity securities 56,976 56,976
Loans, net 134,020 132,317
Accrued interest receivable 1,908 1,908
---------------- ---------------
$ 205,910 $ 204,207
================ ===============
Balance sheet liabilities:
Deposits $ 195,653 $ 195,653
Securities sold under agreements to repurchase 394 394
Note payable 1,000 1,000
Accrued interest payable 1,122 1,122
---------------- ---------------
$ 198,169 $ 198,169
================ ===============
<CAPTION>
DECEMBER 31, 1998 Carrying Fair
Amount Value
---------------- ---------------
<S> <C> <C>
Balance sheet assets:
Cash and due from banks $ 5,624 $ 5,624
Interest-bearing deposits in other banks 19 19
Federal funds sold 6,675 6,675
Debt and marketable equity securities 53,276 53,276
Loans, net 85,806 85,921
Accrued interest receivable 1,390 1,390
---------------- ---------------
$ 152,790 $ 152,905
================ ===============
Balance sheet liabilities:
Deposits $ 142,959 $ 143,366
Securities sold under agreements to repurchase 290 290
Accrued interest payable 827 827
---------------- ---------------
$ 144,076 $ 144,483
================ ===============
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate such value:
CASH AND OTHER SHORT-TERM INSTRUMENTS
For cash due from banks, interest-bearing deposits in other banks,
federal funds sold, securities sold under agreements to repurchase, and note
payable, the carrying amount is a reasonable estimate of fair value, as such
instruments reprice in a short time period.
DEBT AND MARKETABLE EQUITY SECURITIES
Fair values of debt and marketable equity securities are based on quoted
market prices or dealer quotes.
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, and installment. Each
48
<PAGE>
loan category is further segmented into fixed- and adjustable-rate interest
terms and by performing and nonperforming categories.
For certain homogeneous categories of performing loans, such as certain
residential mortgages and other consumer loans, fair value is estimated using
the quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value of other types of loans
is estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities.
Fair value for nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discount rates are judgmentally determined using available market information
and specific borrower information.
ACCRUED INTEREST RECEIVABLE AND PAYABLE
For accrued interest receivable and payable, the carrying amount is a
reasonable estimate of fair value because of the short maturity for this
financial instrument.
DEPOSITS
The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, NOW and money market accounts, and
savings accounts is equal to the amounts payable on demand. The fair value of
time deposits is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for deposits of
similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit and standby letters of
credit are estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements, the
likelihood of the counterparties drawing on such financial instruments, and
the present creditworthiness of such counterparties. Illini Corporation
believes such commitments have been made on terms which are competitive in
the markets in which it operates; however, no premium or discount is offered
thereon, and accordingly, Illini Corporation has not assigned a value to such
instruments for purposes of this disclosure.
(13) LITIGATION
Various legal claims have arisen against Illini Corporation in the
normal course of business, which, in the opinion of Illini Corporation
management, will not result in any material liability to Illini Corporation.
Two complaints were filed against Illini in 1998. One complaint seeks to
compel Illinois Stock Transfer Company, Illini Corporation's transfer agent,
to distribute rights certificates to Illini Corporation's shareholders and
further seeks to certify all Illini Corporation shareholders as a class. The
other complaint seeks declaratory and injunctive relief from Illini
Corporation and its directors regarding an alleged triggering of the
Company's Shareholder Rights Agreement and the enforceability of an amendment
thereto. The plaintiff in the second complaint also seeks compensatory and
punitive damages arising out of the directors' alleged breach of fiduciary
duty. The plaintiffs in both actions seek to recover their attorneys' fees
from Illini Corporation. Illini Corporation obtained summary judgment in both
cases in January 2000. The directors also obtained summary judgment in the
second complaint in January 2000. An appeal has been filed in the first case,
and an appeal is anticipated in the second case.
A third complaint was filed in April 1999 relating to Illini
Corporation's Shareholder Rights Agreement. This suit seeks specific
performance of the Shareholder Rights Agreement. The suit alleges that the
Shareholder Rights Agreement was triggered and that Illini Corporation and
the Rights Agent, Illinois Stock Transfer Company, have a duty to distribute
rights certificates as a result of the execution of certain agreements
arising out of Illini Corporation's merger with Camp Point. The plaintiff in
this action seeks to recover her attorneys' fees from Illini Corporation
under the fee provision of the Shareholder Rights Agreement. Illini
Corporation has filed a Motion to Dismiss the complaint and intends to
vigorously contest the allegations made in this complaint.
49
<PAGE>
(14) REGULATORY RESTRICTIONS
Illini Corporation, Illini, and Camp Point are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory
and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on Illini Corporation's
consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Illini Corporation,
Illini, and Camp Point must meet specific capital guidelines that involve
quantitative measures of Illini Corporation, Illini, and Camp Point's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting principals. Illini Corporation, Illini, and Camp Point
capital amounts and classifications are also subject to qualitative judgments
by the regulators about components, risk-weightings, and other factors.
Quantitative measures established by regulations to ensure capital
adequacy require Illini Corporation, Illini, and Camp Point to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital to average assets (as defined). Management believes, as
of December 31, 1999, Illini Corporation, Illini, and Camp Point meet all
capital adequacy requirements to which they are subject.
As of September 30, 1999, the most recent notification from regulatory
agencies categorized Illini as well capitalized under the regulatory
framework for prompt corrective action. As of February 1998, the most recent
notification from regulatory agencies categorized Camp Point as well
capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized, each bank must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed Illini's or Camp Point's category.
Illini Corporation's, Illini's, and Camp Point's actual and required
capital amounts and ratios as of December 31, 1999 and Illini Corporation's
and Illini's actual and required capital amounts and ratios as of December
31, 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------------------
TO BE WELL CAPITALIZED
UNDER PROMPT CORRECTIVE
ACTUAL CAPITAL REQUIREMENTS ACTION PROVISIONS
------ -------------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to
risk-weighted assets):
Illini Corporation $ 17,410 12.03 % $ 11,580 8.00 % ---- ----
Illini 13,390 10.63 10,074 8.00 $ 12,593 10.00 %
Camp Point 4,703 22.86 1,646 8.00 2,058 10.00
Tier I capital (to
risk-weighted assets):
Illini Corporation 15,714 10.86 % 5,790 4.00 % ---- ----
Illini 11,857 9.42 5,037 4.00 7,556 6.00 %
Camp Point 4,540 22.06 823 4.00 1,235 6.00
Tier I capital (to
quarterly average assets):
Illini Corporation 15,714 7.32 % 6,440 3.00 % ---- ----
Illini 11,857 6.59 5,397 3.00 8,995 5.00 %
Camp Point 4,540 13.23 1,030 3.00 1,716 5.00
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------------
TO BE WELL CAPITALIZED
UNDER PROMPT CORRECTIVE
ACTUAL CAPITAL REQUIREMENTS ACTION PROVISIONS
------ -------------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to
risk-weighted assets):
Illini Corporation $ 16,247 15.87 % $ 8,189 8.00 % ---- ----
Illini 15,880 15.52 8,183 8.00 $ 10,229 10.00 %
Tier I capital (to
risk- weighted assets):
Illini Corporation 14,878 14.53 % 4,095 4.00 % ---- ----
Illini 14,511 14.19 4,091 4.00 6,137 6.00 %
Tier I capital (to
quarterly average assets):
Illini Corporation 14,878 9.57 % 4,663 3.00 % ---- ----
Illini 14,511 9.35 4,656 3.00 7,761 5.00 %
</TABLE>
Dividends from its subsidiaries are the principal source of funds for
payment of dividends by Illini Corporation to its shareholders.
Illini and Camp Point are subject to certain restrictions on the amount
of dividends that may be declared without prior regulatory approval. At
December 31, 1999, Illini had $1.6 million of retained earnings available for
dividends without prior regulatory approval. At December 31, 1999, Camp Point
had $48,000 of retained earnings available for dividends without prior
regulatory approval.
At December 31, 1999 and 1998, approximately $1,175,000 and $984,000,
respectively, of cash and due from banks represented required reserves on
deposits maintained by Illini Corporation in accordance with Federal Reserve
Bank requirements.
51
<PAGE>
ITEM 8. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
This information is omitted from this Form 10-KSB pursuant to General
Instructions E.(1) of Form 10-KSB as the Corporation has previously filed
with the Commission the Corporation's Form 8-K dated February 24, 2000, which
is hereby incorporated by reference, relating to a change in accountants.
PART III.
ITEM 9. - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information required by this Item is incorporated by reference from the
sections entitled "Election of Directors," "Directors and Executive
Officers," "Executive Officers," "Business Experience of Non-Director
Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement.
ITEM 10. - EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from the
sections entitled "Executive Compensation," "Employment Agreement" and
"Compensation of Directors" in the Proxy Statement.
ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the
section titled Transactions with Directors, Executive Officers and Associates
in the Proxy Statement.
52
<PAGE>
ITEM 13. - EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) The following exhibits have been filed with the Securities and Exchange
Commission as required:
<TABLE>
<S> <C>
(2) Not applicable.
(3) (1) Articles of Incorporation (incorporated by reference to
Illini's Form 10-KSB for the year ended December 31, 1984).
(2) Amended and Restated Bylaws of Illini Corporation,
effective October 30, 1998 (incorporated by reference as
Exhibit 99 to Registrant's Report on Form 8-K filed November
6, 1998).
(4) (1) Rights Agreement by and between Illini Corporation and
Illinois Stock Transfer Company, as rights agent (incorporated
by reference to Illini's Form 8-K filed on June 25, 1997).
(2) First Amendment to Rights Agreement dated July 1, 1998
(incorporated by reference to Illini's Form 8-K filed on July
13, 1998).
(3) Second Amendment to Rights Agreement dated July 6, 1999
(incorporated by reference to Illini Corporation's Form 8-K
filed on July 12, 1999).
(4) Third Amendment to Rights Agreement dated November 18,
1999 (incorporated by reference to Illini Corporation's Form
8-K filed on November 26, 1999).
(9) Not applicable.
(10) (1) Form of data processing agreement (incorporated by
reference to Illini's Form 10- KSB for the year ended December
31, 1996).
(2) Employment agreement by and between Illini Corporation and
Burnard K. McHone dated November 24, 1998 (incorporated by
reference to Illini Corporation's Form 10-KSB for the year
ended December 31, 1998).
(3) Employment agreement by and between Illini Corporation and
William B. Littreal dated November 24, 1998 (incorporated by
reference to Illini Corporation's Form 10-KSB for the year
ended December 31, 1998).
(4) Employment agreement by and between Illini Corporation and
Ronald W. Wenger dated November 24, 1998 (incorporated by
reference to Illini Corporation's Form 10-KSB for the year
ended December 31, 1998).
(5) Employment agreement by and between Illini Corporation and
James L. Adkins dated February 5, 1999.
(6) Employment agreement by and between Illini Corporation and
Douglas F. Finn dated March 2, 1999.
(7) Non-Compete, Standstill and Sale of Personal Goodwill
Agreement dated November 19, 1999 by and between Illini
Corporation and Ernest H. Huls (incorporated by reference to
Illini Corporation's Form 8-K filed on November 26, 2000).
(11) Statement regarding computation of earnings per share is
included in "Item 7. Financial Statements-Note 1(L)" which is
incorporated by reference herein.
(13) Not applicable.
(16) Letter from KPMG LLP regarding its concurrence with Illini
Corporation's statement regarding change of accountants
(incorporated by reference to Illini Corporation's Form 8-K
filed on February 24, 2000).
(18) Not applicable.
(21) Subsidiaries of the Registrant: Illini Bank, an Illinois state
chartered bank and Farmers State Bank of Camp Point, an
Illinois state chartered bank.
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) Financial data schedule.
(99) Not applicable.
</TABLE>
(b) The Corporation filed a Form 8-K dated November 26, 1999, in connection
with the consummation of its acquisition of Farmers State Bank of Camp Point
("Camp Point") that included as exhibits: the Financial Statements and Pro
Forma Financial Information of Camp Point; the Third Amendment to Rights
Agreement dated June 20, 1997 between Illini Corporation and Illinois Stock
Transfer Company; the Non-Compete, Standstill and Sale of Personal Goodwill
Agreement dated November 19, 1999 between Illini Corporation and Ernest H.
Huls; and Illini Corporation's Press Release dated November 24, 1999.
53
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 29, 2000
Illini Corporation, Registrant,
by /s/ Burnard K. McHone
Burnard K. McHone, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<S> <C>
/S/ THOMAS A. BLACK MARCH 29, 2000
Thomas A. Black, Chairman Date
/S/ RONALD E. CRAMER MARCH 29, 2000
Ronald E. Cramer, Director Date
/S/ LAWRENCE B. CURTIN MARCH 29, 2000
Lawrence B. Curtin, Director Date
/S/ CHARLES H. DELANO, III MARCH 29, 2000
Charles H. Delano, III, Director
/S/ KENNETH G. DEVERMAN MARCH 29, 2000
Kenneth G. Deverman, Director Date
/S/ WILLIAM N. ETHERTON MARCH 29, 2000
William N. Etherton, Director Date
/S/ WILLIAM B. MCCUBBIN MARCH 29, 2000
William B. McCubbin, Director Date
/S/ BURNARD K. MCHONE MARCH 29, 2000
Burnard K. McHone, Director & Pres. Date
(Principal Executive Officer)
/S/ ROBERT F. OLSON MARCH 29, 2000
Robert F. Olson, Director Date
/S/ JOHN H. PICKRELL MARCH 29, 2000
John H. Pickrell, Director Date
/S/ N. RONALD THUNMAN MARCH 29, 2000
N. Ronald Thunman, Director Date
/S/ WILLIAM G. WALSCHLEGER MARCH 29, 2000
William G. Walschleger, Director Date
/S/ PERRY WILLIAMS MARCH 29, 2000
Perry Williams, Director Date
/S/ C. DEANN HAGER MARCH 29, 2000
C. Deann Hager, Finance Manager Date
(Principal Financial and Accounting Officer)
</TABLE>
54
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
(10)(5) Employment agreement by and between Illini Corporation and
James L Adkins dated February 5, 1999.
(10)(6) Employment agreement by and between Illini Corporation and
Douglas F. Finn dated March 2, 1999.
(27) Financial data schedules.
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
ILLINI CORPORATION, ILLINI BANK AND
FARMERS STATE BANK OF CAMP POINT OFFICERS ILLINI BANK LOCATIONS
<S> <C> <C>
ILLINI CORPORATION 3200 West Iles Avenue 106 East Washington
Springfield Greenview
JEAN JACHINO, BANK MANAGER I KATHY TISDALE, BANK MANAGER
Burnard K. McHone
President
120 South Chatham Road 2201 Woodlawn, Ste. 100
James L. Adkins Springfield Lincoln
Sr. Vice President / Chief Operating Officer ANN COWHICK, BANK MANAGER SHARON AWE, BANK MANAGER
Ronald Wenger 615 West Jefferson St. 120 Governor Oglesby
Sr. Vice President / Credit Administration Springfield Elkhart
STEVE TATE, BANK MANAGER CONNIE WHITE, BANK MANAGER
Doug F. Finn
Vice President / Sales & Service 2120 Peoria Road 116 East Exchange
Springfield Danvers
C. Deann Hager TERESA MAYER, BANK MANAGER TOM CAISLEY, BANK MANAGER
Finance Manager
375 West Andrew Road 103 Franklin
ILLINI BANK Sherman Hudson
NANCY MANNING, BANK MANAGER GREG BIRKY, BANK MANAGER II
Burnard K. McHone
President 133 Dodds Street 100 East Third St.
Divernon Stonington
James L. Adkins VICKIE BLY, BANK MANAGER II CAROLYN WINN, BANK MANAGER
Sr. Vice President / Chief Operating Officer
Route 4 and Jefferson 130 Main St.
Ronald Wenger Auburn Dawson
Sr. Vice President / Credit Administration MOLLY APPELT, BANK MANAGER ANGELA FLECK, BANK MANAGER
Doug F. Finn West Main St. 101 Main St.
Vice President / Sales & Service Mechanicsburg Tallula
LORI JARRETT, BANK MANAGER JANE KING, BANK MANAGER
C. Deann Hager
Finance Manager 420 East Sangamon Lincoln & Douglas
Petersburg Owaneco
Nancy Richards JACKIE YOUNG, BANK MANAGER MARCIA BEAMAN, BANK MANAGER
Relationship Banker
Alan D. Fulk FARMERS STATE BANK OF CAMP POINT LOCATION
Relationship Banker -----------------------------------------
206 E. Wood Street
FARMERS STATE BANK OF CAMP POINT Camp Point
ANNE HUNSAKER, VICE PRESIDENT & CASHIER
Terry Reuschel
Vice President
Anne Hunsaker
Vice President / Cashier
STOCK TRANSFER AGENT
- -------------------------------------
Illinois Stock Transfer
209 West Jackson Blvd.
Suite 903
Chicago, IL 60606
1-800-757-5755
</TABLE>
56
<PAGE>
MANAGEMENT CONTINUITY AGREEMENT
This Management Continuity Agreement ("Agreement") is made and
entered into as of this 2nd day of March, 1999, by and between Illini
Corporation, an Illinois corporation with an office at 3200 West Iles
Avenue, Springfield, Illinois 62707 (the "Company"), and Douglas F.
Finn whose address is 1728 South Lowell, Springfield, Illinois 62704
(the "Officer").
WITNESSETH
WHEREAS, the Officer is employed by the Company and the
Company's subsidiary, Illini Bank, an Illinois banking corporation (the
"Bank"), as an officer of the Company and the Bank, respectively, with
the title and salary current at the date of this Agreement as set forth
in this Agreement; and
WHEREAS, the Company wishes to attract and retain highly
qualified executives and to achieve this goal it is in the best
interests of the Company and the Bank to secure the continued services
of the Officer regardless of a change in control of the Company; and
WHEREAS, the Company is willing, in order to provide the
Officer a measure of security with respect to his employment with the
Company and the Bank in the event of a change in control of the Company
so that the officer will be in a position to act with respect to a
possible change in control of the Company in the best interests of the
Company and its shareholders, without concern as to the Officer's own
financial security, and in order to induce the Officer to remain in
employment with the Company and the Bank, to agree that employment of
the Officer shall be terminable only for cause for a limited period
after a change in control of the Company.
NOW, THEREFORE, the Company and the Officer agree as follows:
SECTION 1
EMPLOYMENT
1.1 TERM. The Company shall continue to employ the Officer as
its Vice President of Sales & Service, and shall cause the Bank to
continue to employ the Officer as its Vice President of Sales & Service
and the Officer shall remain in employment with the Company and the
Bank until December 31, 2001 (the "Term") unless terminated prior to
the expiration of the Term pursuant to Section 2.
<PAGE>
1.2 COMPENSATION. As compensation for services provided to the
Company and the Bank by the Officer pursuant to this Agreement, the
Company shall cause the Bank to pay the Officer an annual base salary
of $60,000.00, which salary may be increased from time to time by the
Company or the Bank. The Officer shall also be eligible to actively
participate in any other compensation and benefit plans generally
available to executive employees of the Company or the Bank of like
grade and salary including, but not limited to, retirement plans, group
life, disability, accidental death and dismemberment, travel and
accident, and health and dental insurance plans, incentive compensation
plans, stock compensation plans, deferred compensation plans,
supplemental retirement plans and excess benefit plans. Such other
compensation and benefit plans are hereinafter referred to collectively
as the "Compensation and Benefits Plans".
1.3 DUTIES. The Officer shall perform such duties and
functions as are assigned to him by the bylaws of the Company and the
Bank, as amended or restated, the Boards of Directors of the Company
and the Bank, or by a duly authorized committee of the Boards of
Directors of the Company and the Bank. In the event of an actual or
potential Change in Control (as defined in Section 2.9), the Officer
shall perform his duties and function in a manner that is consistent
with the best interest of the Company and its shareholders, without
regard to the effect that the potential or actual Change in Control may
have on the Officer personally.
1.4 DUTY OF LOYALTY. The Officer shall work full-time for the
Company and the Bank only, provided that:
(a.) he may also engage in charitable, civic and
other similar activities;
(b.) with the consent of the Board of Directors of
the Company, he may serve as a director of a business
organization not competing with the Company; and
(c.) he may make such investments and reinvestment in
business activities as shall not require a
substantial portion of his time.
1.5 DUTY NOT TO DISCLOSE CONFIDENTIAL INFORMATION. The Officer
acknowledges that his relationship with the Company and the Bank is one
of high trust and confidence, and that he has access to Confidential
Information (as hereinafter defined) of the Company and the Bank. The
Officer shall not directly or indirectly, communicate, deliver, exhibit
or provide Confidential Information to any person,
<PAGE>
firm, partnership, corporation, organization or entity, except as
required in the normal course of the Officer's duties. The duties
contained in this paragraph shall be binding upon the Officer during
the time that he is employed by the Company and following the
termination of such employment. Such duties will not apply to any
such Confidential Information which is or becomes in the public
domain through no action on the part of the Officer, is generally
disclosed to third parties by the Company without restriction on
such third parties, or is approved for release by written
authorization of the Board of Directors of the Company. The term
"Confidential Information" shall mean any and all confidential,
proprietary, or secret information relating to the Company's or the
Bank's business, services, customers, business operations, or
activities and any and all trade secrets, products, methods of
conducting business, information, skills, knowledge, ideas, know-how
or devices used in, developed by, or pertaining to the Company's or
the Bank's business and not generally known, in whole or in part, in
any trade or industry in which the Company or the Bank is engaged.
SECTION 2
TERMINATION
2.1 TERMINATION OF AGREEMENT. Unless sooner terminated in
accordance with the terms of this Section 2, this Agreement shall
terminate at the expiration of the Term, and all obligations hereunder
shall terminate except as specifically set forth in Section 2.5. The
Officer may, with the consent of the Company, continue in the employ of
the Company and the Bank after the expiration of the Term on such terms
and conditions as may be agreed upon by the Company and Officer.
2.2 TERMINATION BY THE OFFICER. The officer may voluntarily
terminate this Agreement by providing thirty days notice to the
Company, in which event the Company shall have no further obligation to
the Officer hereunder from the date of such termination and the Officer
shall have no further obligation to the Company hereunder except the
duty to not disclose Confidential Information in accordance with
Section 1.5. In the event the Officer's employment with the Company and
the Bank is terminated due to the Officer's death, the Company shall
have no further obligation to the Officer, his heirs or legatees
hereunder from the date of such termination, except to pay any benefits
due under the Compensation and Benefit Plans. In the event the
Officer's employment with the Company and the Bank is terminated due to
<PAGE>
the Officer's Permanent Disability, the Company shall have no further
obligation to the Officer, hereunder from the date of such termination,
except, to pay benefits due under the Compensation and Benefit Plans.
For purposes of this Agreement, the term "Permanent
Disability" means a physical or mental condition of the Officer which:
(a) has continued uninterrupted for six months;
(b) is expected to continue indefinitely; and
(c) is determined by the Company to render the
Officer incapable of adequately performing
his duties under Section 1.3 of this
Agreement.
2.3 TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may
terminate this Agreement without cause prior to the Firm Term (as
hereinafter defined), by providing thirty days notice to the Officer.
In such event, the Officer shall have no further obligation to the
Company hereunder, except the duty to not disclose Confidential
Information in accordance with Section 1.5, and the Company shall have
no further obligation to the Officer hereunder from the date of such
termination except (i) to pay to the Officer the salary payments
described in Section 1.2, in the amount in effect on the date of
termination, for a period of six months from the date of termination,
(ii) to pay to the Officer any other benefits due under the
Compensation and Benefit Plans for a period of six months from the date
of termination, and (iii) to pay to the Officer reasonable expenses of
out placement within the financial institutions industry during the six
month period following the date of termination; provided, however, out
placement expenses shall be paid only upon actually incurring such
expense and Officer's furnishing of evidence thereof to the Company and
shall not include moving or relocation expense; and provided, however,
that any benefit to be provided by a Compensation and Benefit Plan may
be provided by the Company through cash of equivalent value or through
a nonqualified arrangement or arrangements if, in the judgment of the
Company, permitting the Officer to participate in such plan after the
date of termination would adversely affect the tax status of such plan.
2.4 TERMINATION BY THE COMPANY WITH CAUSE. Prior to or during
the Firm Term, the Company may terminate this Agreement for Cause. For
purposes of this Agreement, Cause shall mean;
<PAGE>
(a) the Officer's willful and material breach of
the provision of this Agreement after the
Board of Directors delivers a written demand
to cure such breach, which specifically
identifies the manner in which the Board of
Directors believes that the Office has not
substantially performed his duties, or
(b) the Officer willfully engages in illegal
conduct or gross misconduct which materially
and demonstrably injures the Company or the
Bank.
For purposes of determining whether "Cause" exists, no act or failure
to act, on the Officer's part shall be considered "willful," unless it
is done, or omitted to be done, by the Officer in bad faith or without
reasonable belief by the Officer that his action or omission was in the
best interest of the Company.
In the event of the Officer's termination for Cause, the
Company will have no further obligation to the Officer under the
Agreement from the date of such termination.
2.5 TERMINATION FOLLOWING CHANGE IN CONTROL. In the event
there is a Change in Control of the Company, as defined in Section 2.6,
during the Term, and:
(a) within the period commencing three months
prior to the date of a Change in Control and
ending six months following the date of the
Change in Control (the "Firm Term"), the
Officer's employment hereunder is terminated
by the Company other than for Cause, as
defined in Section 2.4; or
(b) within the Firm Term, the Officer resigns
from his employment hereunder upon thirty
days written notice given to the Company
within thirty days following a material
change in the Officer's title, authorities
or duties, in effect immediately prior to
the Change in Control, a reduction in the
compensation or a reduction in benefits
provided pursuant to this Agreement or the
Compensation and Benefit Plans below the
amount of compensation and benefits in
effect immediately prior to the Change in
Control, or a change of the Officer's
principal place of employment without his
consent to a city more than 25 miles from
Springfield, Illinois,
then the Officer shall have no further obligation to the Company
hereunder, except the duty not to disclose Confidential Information in
accordance with Section 1.5, and the Company shall have no further
obligation to the Officer hereunder from the date of termination except
(i) to pay to the Officer the salary payments described in Section 1.2,
in the amount in effect on the date of termination, for a period of
twelve months from the date of termination, (ii) to pay to the Officer
any other benefits due under the Compensation and Benefit Plans for a
period of twelve months from the date of termination and (iii) to pay
to the Officer
<PAGE>
reasonable expenses of out placement within the financial
institutions industry during the twelve month period following the
date of termination; provided, however, out placement expenses shall
be paid only upon actually incurring such expenses and Officer's
furnishing of evidence thereof to the Company and shall not include
moving or relocation expenses and provided, however, that any
benefit to be provided by a Compensation and Benefit Plan may be
provided by the Company through cash of equivalent value or through
a nonqualified arrangement or arrangements if, in the judgment of
the Company, permitting the Officer to participate in such plan
after the date of termination would adversely affect the tax status
of such plan.
2.6 CHANGE IN CONTROL DEFINED. A Change in Control of the Company shall
have occurred:
(a) on the fifth day preceding the scheduled
expiration date of a tender offer by, or
exchange offer by any corporation, person,
other entity or group (other than the
Company or any of its wholly owned
subsidiaries), to acquire Voting Stock of
the Company if:
(i) after giving effect to
such offer such
corporation, person, other
entity or group would own
50% or more of the Voting
Stock of the Company;
(ii) there shall have been
filed documents with the
Securities and Exchange
Commission in connection
therewith (or, if no such
filing is required, public
evidence that the offer
has already commenced);
and
(iii) such corporation, person,
other entity or group has
secured all required
regulatory approvals to
own or control 50% or more
of the Voting Stock of the
Company;
(b) if the shareholders of the Company approve a
definitive agreement to merge or consolidate
the Company with or into another corporation
in a transaction in which neither the
Company nor any of its wholly owned
subsidiaries will be the surviving
corporation, or to sell or otherwise dispose
of all of substantially all of the Company's
assets to any corporation, person, other
entity or group (other than the Company or
any of its wholly owned subsidiaries), and
such definitive agreement is consummated;
(c) if any corporation, person, other entity or
group (other than the Company or any of its
wholly owned subsidiaries) becomes the
Beneficial Owner (as that term is defined in
the Securities and Exchange Commission's
Rule 13d-3 under the Securities Exchange Act
of 1934) of stock representing 50% or more
of the Voting Stock of the Company; or
(d) if during any period of two consecutive
years Continuing Directors cease to comprise
a majority of the Company's Board of
Directors.
The term "Continuing Director' means:
<PAGE>
(a) any member of the Board of Directors of the
Company at the beginning of any period of
two consecutive years; and
(b) any person who subsequently becomes a member
of the Board of Directors of the Company,
if:
(i) such person's nomination for
election or election to the Board
of Directors of the Company is
recommended or approved by
resolution of a majority of the
Continuing Directors; or
(ii) such person is included as a
nominee in a proxy statement of the
Company distributed when a majority
of the Board of Directors of the
Company consists of Continuing
Directors.
"Voting Stock" shall mean those shares of the Company entitled
to vote generally in the election of directors.
2.7 TERMINATION OF RELATED OFFICERS. The parties agree that in
the event Officer's employment by the Company is terminated for any
reason, Officer will immediately resign from all other positions or
offices held with the Company, including any directorships with the
Company or the Bank.
2.8 OFFICER'S COSTS OF ENFORCEMENT. The Company shall pay all
expenses of the Officer, including but not limited to attorney's fees,
incurred in enforcing payments by the Company pursuant to this
Agreement.
SECTION 3
MISCELLANEOUS
3.1 ASSIGNMENT OF OFFICER'S RIGHTS. The Officer may not
assign, pledge or otherwise transfer any of the benefits of this
Agreement either before or after termination of employment, and any
purported assignment, pledge or transfer of any payment to be made by
the Company hereunder shall be void and of no effect. No payment to be
made to the Officer hereunder shall be subject to the claims of
creditors of the Officer.
3.2 AGREEMENTS BINDING ON SUCCESSORS. This Agreement shall be
binding and inure to the benefit of the parties hereto and their
respective successors, assigns, personal representatives, heirs,
legatees and beneficiaries.
3.3 NOTICES. Any notice required or desired to be given under
this Agreement shall be deemed given if in writing and sent by first
class mail to the Officer or the Company at his or its address as set
forth above, or to such other address of which either the Officer or
the Company shall notify the other in writing.
<PAGE>
3.4 WAIVER OF BREACH. The waiver by either party of a breach
of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach by either the Officer or the Company.
3.5 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties and supersedes the Personal Service
Contract between the Officer, the Company and the Bank, which was
effective October 30, 1996. It may be modified or amended only by an
agreement in writing signed by the party against whom enforcement of
any change or amendment is sought.
3.6 SEVERABILITY OF PROVISIONS. If for any reason any
paragraph, term or provision of this Agreement is held to be invalid or
unenforceable, all other valid provisions herein shall remain in full
force and effect and all paragraphs, terms and provisions of this
Agreement shall be deemed to be severable in nature.
3.7 GOVERNING LAW. This Agreement is made in, and shall be
governed by, the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first set forth above.
/s/ Douglas F. Finn
---------------------------
Officer
ILLINI CORPORATION
By: /s/ Thomas A. Black
---------------------------
Its: Chairman
<PAGE>
MANAGEMENT CONTINUITY AGREEMENT
This Management Continuity Agreement ("Agreement") is made and
entered into as of this 2nd day of March, 1999, by and between Illini
Corporation, an Illinois corporation with an office at 3200 West Iles
Avenue, Springfield, Illinois 62707 (the "Company"), and James L.
Adkins whose address is 309 South Vine, Box 334, Williamsville,
Illinois 62693 (the "Officer").
WITNESSETH
WHEREAS, the Officer is employed by the Company and the
Company's subsidiary, Illini Bank, an Illinois banking corporation (the
"Bank"), as an officer of the Company and the Bank, respectively, with
the title and salary current at the date of this Agreement as set forth
in this Agreement; and
WHEREAS, the Company wishes to attract and retain highly
qualified executives and to achieve this goal it is in the best
interests of the Company and the Bank to secure the continued services
of the Officer regardless of a change in control of the Company; and
WHEREAS, the Company is willing, in order to provide the
Officer a measure of security with respect to his employment with the
Company and the Bank in the event of a change in control of the Company
so that the officer will be in a position to act with respect to a
possible change in control of the Company in the best interests of the
Company and its shareholders, without concern as to the Officer's own
financial security, and in order to induce the Officer to remain in
employment with the Company and the Bank, to agree that employment of
the Officer shall be terminable only for cause for a limited period
after a change in control of the Company.
NOW, THEREFORE, the Company and the Officer agree as follows:
SECTION 1
EMPLOYMENT
1.1 TERM. The Company shall continue to employ the Officer as
its Vice President of Sales & Service, and shall cause the Bank to
continue to employ the Officer as its Vice President of Sales & Service
and the Officer shall remain in employment with the Company and the
Bank until December 31, 2001 (the "Term") unless terminated prior to
the expiration of the Term pursuant to Section 2.
<PAGE>
1.2 COMPENSATION. As compensation for services provided to the
Company and the Bank by the Officer pursuant to this Agreement, the
Company shall cause the Bank to pay the Officer an annual base salary
of $65,000.00, which salary may be increased from time to time by the
Company or the Bank. The Officer shall also be eligible to actively
participate in any other compensation and benefit plans generally
available to executive employees of the Company or the Bank of like
grade and salary including, but not limited to, retirement plans, group
life, disability, accidental death and dismemberment, travel and
accident, and health and dental insurance plans, incentive compensation
plans, stock compensation plans, deferred compensation plans,
supplemental retirement plans and excess benefit plans. Such other
compensation and benefit plans are hereinafter referred to collectively
as the "Compensation and Benefits Plans".
1.3 DUTIES. The Officer shall perform such duties and
functions as are assigned to him by the bylaws of the Company and the
Bank, as amended or restated, the Boards of Directors of the Company
and the Bank, or by a duly authorized committee of the Boards of
Directors of the Company and the Bank. In the event of an actual or
potential Change in Control (as defined in Section 2.9), the Officer
shall perform his duties and function in a manner that is consistent
with the best interest of the Company and its shareholders, without
regard to the effect that the potential or actual Change in Control may
have on the Officer personally.
1.4 DUTY OF LOYALTY. The Officer shall work full-time for the
Company and the Bank only, provided that:
(a.) he may also engage in charitable, civic and other similar
activities;
(b.) with the consent of the Board of Directors of the
Company, he may serve as a director of a business organization
not competing with the Company; and
(c.) he may make such investments and reinvestment in business
activities as shall not require a substantial portion of his
time.
1.5 DUTY NOT TO DISCLOSE CONFIDENTIAL INFORMATION. The Officer
acknowledges that his relationship with the Company and the Bank is one
of high trust and confidence, and that he has access to Confidential
Information (as hereinafter defined) of the Company and the Bank. The
Officer shall not directly or indirectly, communicate, deliver, exhibit
or provide Confidential Information to any person,
<PAGE>
firm, partnership, corporation, organization or entity, except as
required in the normal course of the Officer's duties. The duties
contained in this paragraph shall be binding upon the Officer during
the time that he is employed by the Company and following the
termination of such employment. Such duties will not apply to any
such Confidential Information which is or becomes in the public
domain through no action on the part of the Officer, is generally
disclosed to third parties by the Company without restriction on
such third parties, or is approved for release by written
authorization of the Board of Directors of the Company. The term
"Confidential Information" shall mean any and all confidential,
proprietary, or secret information relating to the Company's or the
Bank's business, services, customers, business operations, or
activities and any and all trade secrets, products, methods of
conducting business, information, skills, knowledge, ideas, know-how
or devices used in, developed by, or pertaining to the Company's or
the Bank's business and not generally known, in whole or in part, in
any trade or industry in which the Company or the Bank is engaged.
SECTION 2
TERMINATION
2.1 TERMINATION OF AGREEMENT. Unless sooner terminated in
accordance with the terms of this Section 2, this Agreement shall
terminate at the expiration of the Term, and all obligations hereunder
shall terminate except as specifically set forth in Section 2.5. The
Officer may, with the consent of the Company, continue in the employ of
the Company and the Bank after the expiration of the Term on such terms
and conditions as may be agreed upon by the Company and Officer.
2.2 TERMINATION BY THE OFFICER. The officer may voluntarily
terminate this Agreement by providing thirty days notice to the
Company, in which event the Company shall have no further obligation to
the Officer hereunder from the date of such termination and the Officer
shall have no further obligation to the Company hereunder except the
duty to not disclose Confidential Information in accordance with
Section 1.5. In the event the Officer's employment with the Company and
the Bank is terminated due to the Officer's death, the Company shall
have no further obligation to the Officer, his heirs or legatees
hereunder from the date of such termination, except to pay any benefits
due under the Compensation and Benefit Plans. In the event the
Officer's employment with the Company and the Bank is terminated due to
<PAGE>
the Officer's Permanent Disability, the Company shall have no further
obligation to the Officer, hereunder from the date of such termination,
except, to pay benefits due under the Compensation and Benefit Plans.
For purposes of this Agreement, the term "Permanent
Disability" means a physical or mental condition of the Officer which:
(a) has continued uninterrupted for six months;
(b) is expected to continue indefinitely; and
(c) is determined by the Company to render the
Officer incapable of adequately performing
his duties under Section 1.3 of this
Agreement.
2.3 TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may
terminate this Agreement without cause prior to the Firm Term (as
hereinafter defined), by providing thirty days notice to the Officer.
In such event, the Officer shall have no further obligation to the
Company hereunder, except the duty to not disclose Confidential
Information in accordance with Section 1.5, and the Company shall have
no further obligation to the Officer hereunder from the date of such
termination except (i) to pay to the Officer the salary payments
described in Section 1.2, in the amount in effect on the date of
termination, for a period of six months from the date of termination,
(ii) to pay to the Officer any other benefits due under the
Compensation and Benefit Plans for a period of six months from the date
of termination, and (iii) to pay to the Officer reasonable expenses of
out placement within the financial institutions industry during the six
month period following the date of termination; provided, however, out
placement expenses shall be paid only upon actually incurring such
expense and Officer's furnishing of evidence thereof to the Company and
shall not include moving or relocation expense; and provided, however,
that any benefit to be provided by a Compensation and Benefit Plan may
be provided by the Company through cash of equivalent value or through
a nonqualified arrangement or arrangements if, in the judgment of the
Company, permitting the Officer to participate in such plan after the
date of termination would adversely affect the tax status of such plan.
2.4 TERMINATION BY THE COMPANY WITH CAUSE. Prior to or during
the Firm Term, the Company may terminate this Agreement for Cause. For
purposes of this Agreement, Cause shall mean;
<PAGE>
(a) the Officer's willful and material breach of
the provision of this Agreement after the
Board of Directors delivers a written demand
to cure such breach, which specifically
identifies the manner in which the Board of
Directors believes that the Office has not
substantially performed his duties, or
(b) the Officer willfully engages in illegal
conduct or gross misconduct which materially
and demonstrably injures the Company or the
Bank.
For purposes of determining whether "Cause" exists, no act or failure
to act, on the Officer's part shall be considered "willful," unless it
is done, or omitted to be done, by the Officer in bad faith or without
reasonable belief by the Officer that his action or omission was in the
best interest of the Company.
In the event of the Officer's termination for Cause, the
Company will have no further obligation to the Officer under the
Agreement from the date of such termination.
2.5 TERMINATION FOLLOWING CHANGE IN CONTROL. In the event
there is a Change in Control of the Company, as defined in Section 2.6,
during the Term, and:
(a) within the period commencing three months
prior to the date of a Change in Control and
ending six months following the date of the
Change in Control (the "Firm Term"), the
Officer's employment hereunder is terminated
by the Company other than for Cause, as
defined in Section 2.4; or
(b) within the Firm Term, the Officer resigns
from his employment hereunder upon thirty
days written notice given to the Company
within thirty days following a material
change in the Officer's title, authorities
or duties, in effect immediately prior to
the Change in Control, a reduction in the
compensation or a reduction in benefits
provided pursuant to this Agreement or the
Compensation and Benefit Plans below the
amount of compensation and benefits in
effect immediately prior to the Change in
Control, or a change of the Officer's
principal place of employment without his
consent to a city more than 25 miles from
Springfield, Illinois,
then the Officer shall have no further obligation to the Company
hereunder, except the duty not to disclose Confidential Information in
accordance with Section 1.5, and the Company shall have no further
obligation to the Officer hereunder from the date of termination except
(i) to pay to the Officer the salary payments described in Section 1.2,
in the amount in effect on the date of termination, for a period of
twelve months from the date of termination, (ii) to pay to the Officer
any other benefits due under the Compensation and Benefit Plans for a
period of twelve months from the date of termination and (iii) to pay
to the Officer
<PAGE>
reasonable expenses of out placement within the financial
institutions industry during the twelve month period following the
date of termination; provided, however, out placement expenses shall
be paid only upon actually incurring such expenses and Officer's
furnishing of evidence thereof to the Company and shall not include
moving or relocation expenses and provided, however, that any
benefit to be provided by a Compensation and Benefit Plan may be
provided by the Company through cash of equivalent value or through
a nonqualified arrangement or arrangements if, in the judgment of
the Company, permitting the Officer to participate in such plan
after the date of termination would adversely affect the tax status
of such plan.
2.6 CHANGE IN CONTROL DEFINED. A Change in Control of the
Company shall have occurred:
(a) on the fifth day preceding the scheduled
expiration date of a tender offer by, or
exchange offer by any corporation, person,
other entity or group (other than the
Company or any of its wholly owned
subsidiaries), to acquire Voting Stock of
the Company if:
(i) after giving effect to such offer
such corporation, person, other
entity or group would own 50% or
more of the Voting Stock of the
Company;
(ii) there shall have been filed
documents with the Securities and
Exchange Commission in connection
therewith (or, if no such filing is
required, public evidence that the
offer has already commenced); and
(iii) such corporation, person, other
entity or group has secured all
required regulatory approvals to
own or control 50% or more of the
Voting Stock of the Company;
(b) if the shareholders of the Company approve a
definitive agreement to merge or consolidate
the Company with or into another corporation
in a transaction in which neither the
Company nor any of its wholly owned
subsidiaries will be the surviving
corporation, or to sell or otherwise dispose
of all of substantially all of the Company's
assets to any corporation, person, other
entity or group (other than the Company or
any of its wholly owned subsidiaries), and
such definitive agreement is consummated;
(c) if any corporation, person, other entity or
group (other than the Company or any of its
wholly owned subsidiaries) becomes the
Beneficial Owner (as that term is defined in
the Securities and Exchange Commission's
Rule 13d-3 under the Securities Exchange Act
of 1934) of stock representing 50% or more
of the Voting Stock of the Company; or
(d) if during any period of two consecutive
years Continuing Directors cease to comprise
a majority of the Company's Board of
Directors.
The term "Continuing Director' means:
<PAGE>
(a) any member of the Board of Directors of the
Company at the beginning of any period of
two consecutive years; and
(b) any person who subsequently becomes a member
of the Board of Directors of the Company,
if:
(i) such person's nomination for
election or election to the Board
of Directors of the Company is
recommended or approved by
resolution of a majority of the
Continuing Directors; or
(ii) such person is included as a
nominee in a proxy statement of the
Company distributed when a majority
of the Board of Directors of the
Company consists of Continuing
Directors.
"Voting Stock" shall mean those shares of the Company entitled
to vote generally in the election of directors.
2.7 TERMINATION OF RELATED OFFICERS. The parties agree that in
the event Officer's employment by the Company is terminated for any
reason, Officer will immediately resign from all other positions or
offices held with the Company, including any directorships with the
Company or the Bank.
2.8 OFFICER'S COSTS OF ENFORCEMENT. The Company shall pay all
expenses of the Officer, including but not limited to attorney's fees,
incurred in enforcing payments by the Company pursuant to this
Agreement.
SECTION 3
MISCELLANEOUS
3.1 ASSIGNMENT OF OFFICER'S RIGHTS. The Officer may not
assign, pledge or otherwise transfer any of the benefits of this
Agreement either before or after termination of employment, and any
purported assignment, pledge or transfer of any payment to be made by
the Company hereunder shall be void and of no effect. No payment to be
made to the Officer hereunder shall be subject to the claims of
creditors of the Officer.
3.2 AGREEMENTS BINDING ON SUCCESSORS. This Agreement shall be
binding and inure to the benefit of the parties hereto and their
respective successors, assigns, personal representatives, heirs,
legatees and beneficiaries.
3.3 NOTICES. Any notice required or desired to be given under
this Agreement shall be deemed given if in writing and sent by first
class mail to the Officer or the Company at his or its address as set
forth above, or to such other address of which either the Officer or
the Company shall notify the other in writing.
<PAGE>
3.4 WAIVER OF BREACH. The waiver by either party of a breach
of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach by either the Officer or the Company.
3.5 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties and supersedes the Personal Service
Contract between the Officer, the Company and the Bank, which was
effective October 30, 1996. It may be modified or amended only by an
agreement in writing signed by the party against whom enforcement of
any change or amendment is sought.
3.6 SEVERABILITY OF PROVISIONS. If for any reason any
paragraph, term or provision of this Agreement is held to be invalid or
unenforceable, all other valid provisions herein shall remain in full
force and effect and all paragraphs, terms and provisions of this
Agreement shall be deemed to be severable in nature.
3.7 GOVERNING LAW. This Agreement is made in, and shall be
governed by, the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first set forth above.
/s/ James L. Adkins
---------------------------
Officer
ILLINI CORPORATION
By: /s/ Thomas A. Black
---------------------------
Its: Chairman
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