<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from __________ to __________
Commission File Number: 333-57917
CARLINVILLE NATIONAL BANK SHARES, INC.
--------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 37-1125050
- --------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporated or organization)
WEST SIDE SQUARE, CARLINVILLE, ILLINOIS 62626
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
(217) 854-2674
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X .*
----- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of June 30, 1998, the
registrant had outstanding 186,498 shares of common stock, $1.00 par value per
share.
_____________________________
* Issuer became subject to the periodic reporting requirements of the
Securities Exchange Act of 1934 on August 12, 1998, the effective date of
the Issuer's Form S-4 Registration Statement.
<PAGE>
CARLINVILLE NATIONAL BANK SHARES, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
Page
Number
------
PART I
Item 1. Financial Statements (unaudited) 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II
Item 1. Legal Proceedings 28
Item 2. Changes in Securities 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
Form 10-Q Signature Page 30
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLINVILLE NATIONAL BANK SHARES, INC. AND SUBSIDIARIES
Interim Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
- ------ ------------ ------------
<S> <C> <C>
Cash and due from banks $ 3,623,609 $ 4,803,829
Federal funds sold 11,019,000 8,429,000
Investments in debt and equity securities:
Available-for-sale, at fair value 44,546,949 44,142,416
Held-to-maturity, at amortized cost (approximate fair
value of $16,070,000 and $19,238,450 at June 30, 1998 and
December 31, 1997, respectively) 15,405,530 18,875,321
Loans 118,303,459 111,925,209
Less:
Unearned discount (35,764) (47,060)
Reserve for possible loan losses (915,370) (1,098,038)
------------ ------------
Net loans 117,352,325 110,780,111
------------ ------------
Bank premises and equipment, net 2,324,705 2,421,358
Accrued interest receivable 2,545,933 2,619,870
Intangible assets 3,718,186 3,855,584
Other assets 1,193,431 1,253,401
------------ ------------
$ 201,729,668 $ 197,180,890
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 17,126,508 $ 16,442,262
Interest-bearing deposits 157,262,736 151,172,610
------------ ------------
Total deposits 174,389,244 167,614,872
Short-term borrowings 4,753,897 7,932,881
Accrued interest payable 1,029,999 966,818
Other liabilities 464,453 232,684
------------ ------------
Total liabilities 180,637,593 176,747,255
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; 310,000 shares
authorized at June 30, 1998, 210,000 shares
authorized at December 31, 1997; 200,000 shares
issued 200,000 200,000
Surplus 270,464 270,464
Retained earnings 20,582,809 19,758,353
Accumulated other comprehensive income - unrealized
holding gains and losses on available-for-sale
securities, net of tax 359,890 525,906
Treasury stock at cost - 13,502 shares (321,088) (321,088)
------------ ------------
Total stockholders' equity $ 21,092,075 20,433,635
------------ ------------
$ 201,729,668 $ 197,180,890
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.
1
<PAGE>
CARLINVILLE NATIONAL BANK SHARES, INC. AND SUBSIDIARIES
Interim Condensed Consolidated Statements of Income and Comprehensive Income
Three and six months ended June 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
Interest income: 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and fees on loans $ 2,569,521 $ 2,346,969 $ 5,061,209 $ 4,406,430
Interest and dividends on debt and equity securities:
Taxable 710,394 845,083 1,443,265 1,629,494
Exempt from Federal income taxes 177,889 192,041 354,728 379,741
Interest on short-term investments 198,089 131,181 351,192 313,234
------------ ------------ ----------- -----------
Total interest income 3,655,893 3,515,274 7,210,394 6,728,899
------------ ------------ ----------- -----------
Interest expense:
Interest on deposits 1,934,606 1,738,664 3,765,148 3,348,529
Interest on short-term borrowings 103,097 124,166 211,874 250,232
------------ ------------ ----------- -----------
Total interest expense 2,037,703 1,862,830 3,977,022 3,598,761
------------ ------------ ----------- -----------
Net interest income 1,618,190 1,652,444 3,233,372 3,130,138
Provision for possible loan losses 180,000 - 210,000 -
------------ ------------ ----------- -----------
Net interest income after provision
for possible loan losses 1,438,190 1,652,444 3,023,372 3,130,138
------------ ------------ ----------- -----------
Noninterest income:
Service charges on deposit accounts 138,873 116,981 270,012 219,263
Income from fiduciary activities 46,559 58,653 84,496 90,738
Net security sale gains 173,426 - 308,854 19,663
Net gain on sale of mortgage loans 44,399 16,052 68,538 16,052
Other noninterest income 89,359 64,049 178,477 128,507
------------ ------------ ----------- -----------
Total noninterest income 492,616 255,735 910,377 474,223
------------ ------------ ----------- -----------
Noninterest expense:
Salaries and employee benefits 654,002 593,811 1,299,428 1,165,520
Occupancy and equipment expense 192,394 167,174 356,451 330,828
Legal and professional fees 11,922 14,005 29,616 46,881
Postage, printing and supplies 53,785 64,526 128,234 143,420
FDIC insurance expense 9,532 24,756 16,488 47,610
Amortization of intangible assets 68,698 59,048 137,397 109,583
Other noninterest expense 252,364 219,941 472,403 431,641
------------ ------------ ----------- -----------
Total noninterest expense 1,242,697 1,143,261 2,440,017 2,275,483
------------ ------------ ----------- -----------
Income before applicable income taxes 688,109 764,918 1,493,732 1,328,878
Applicable income taxes 172,772 206,108 398,854 341,264
------------ ------------ ----------- -----------
Net income 515,337 558,810 1,094,878 987,614
------------ ------------ ----------- -----------
Other comprehensive income (loss), before tax:
Net unrealized gains (losses) on available-for-sale securities (63,068) 443,873 56,815 199,099
Less reclassification adjustment for gains included in net income (172,926) - (308,354) (19,663)
------------ ------------ ----------- -----------
Other comprehensive income (loss), before tax (235,994) 443,873 (251,539) 179,436
Income tax related to items of other comprehensive income (loss) (80,243) 111,525 (85,523) 61,008
------------ ------------ ----------- -----------
Other comprehensive income (loss), net of tax (155,751) 332,348 (166,016) 118,428
------------ ------------ ----------- -----------
Total comprehensive income $ 359,586 $ 891,158 $ 928,862 $ 1,106,042
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Net income per common share:
Average common shares outstanding 186,498 186,498 186,498 186,283
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Net income per common share $ 2.76 $ 3.00 $ 5.87 $ 5.30
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.
2
<PAGE>
CARLINVILLE NATIONAL BANK SHARES, INC. AND SUBSIDIARIES
Interim Condensed Consolidated Statements of Stockholders' Equity
Six months ended June 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Total
Accumulated stock-
Common Retained Treasury other compre- holders'
stock Surplus earnings stock hensive income equity
----- ------- -------- ----- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 200,000 $ 224,732 $ 18,420,545 $ (335,356) $ 75,858 $ 18,585,779
Issuance of 600 shares from treasury - 45,732 - 14,268 60,000
Net income - - 987,614 - 987,614
Cash dividends paid - $1.35 per share - - (251,774) - - (251,774)
Unrealized gains (losses) on
available-for-sale securities,
net of related tax effect - - - - 118,428 118,428
----------- ---------- ------------- ----------- ---------- -------------
Balance at June 30, 1997 $ 200,000 $ 270,464 $ 19,156,385 $ (321,088) $ 194,286 $ 19,500,047
----------- ---------- ------------- ----------- ---------- -------------
----------- ---------- ------------- ----------- ---------- -------------
Balance at December 31, 1997 $ 200,000 $ 270,464 $ 19,758,353 $ (321,088) $ 525,906 $ 20,433,635
Net income - - 1,094,878 - - 1,094,878
Cash dividends paid - $1.45 per share - - (270,422) - - (270,422)
Unrealized gains (losses)
on available-for-sale securities,
net of related tax effect - - - - (166,016) (166,016)
----------- ---------- ------------- ----------- ---------- -------------
Balance at June 30, 1998 $ 200,000 $ 270,464 $ 20,582,809 $ (321,088) $ 359,890 $ 21,092,075
----------- ---------- ------------- ----------- ---------- -------------
----------- ---------- ------------- ----------- ---------- -------------
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.
3
<PAGE>
CARLINVILLE NATIONAL BANK SHARES, INC. AND SUBSIDIARIES
Interim Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,094,878 987,614
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 329,003 326,615
Provision for possible loan losses 210,000 --
Decrease in accrued interest receivable 73,937 167,089
Net gains on security sales and calls (308,854) (19,663)
Increase in accrued interest payable 63,181 12,510
Other operating activities, net 377,756 454,842
------------ -----------
Net cash provided by operating activities 1,839,901 1,929,007
------------ -----------
Cash flows from investing activities:
Net cash and cash equivalents received from acquisitions -- 5,575,404
Proceeds from calls and maturities of and principal
payments on debt securities:
Available-for-sale 13,231,645 3,525,393
Held-to-maturity 2,978,262 2,217,685
Proceeds from sale of securities 709,312 1,556,987
Purchases of debt and equity securities:
Available-for-sale (13,831,001) (14,503,965)
Held-to-maturity -- (460,682)
Net increase in loans (6,782,214) (1,455,778)
Purchases of bank premises and equipment, net (61,091) (161,626)
------------ -----------
Net cash used in investing activities (3,755,087) (3,706,582)
------------ -----------
Cash flows from financing activities:
Net increase in deposits 6,774,372 1,541,390
Net increase (decrease) in short-term borrowings (3,178,984) 2,525,863
Proceeds from note payable -- 1,750,000
Principal payment on note payable -- (1,750,000)
Cash dividends paid (270,422) (251,774)
Sale of treasury stock -- 60,000
------------ -----------
Net cash provided by financing activities 3,324,966 3,875,479
------------ -----------
Net increase in cash and cash equivalents 1,409,780 2,097,904
Cash and cash equivalents at beginning of year 13,232,829 8,128,650
------------ -----------
Cash and cash equivalents at end of year $ 14,642,609 10,226,554
------------ -----------
------------ -----------
Supplemental information - cash paid for:
Interest $ 3,913,841 3,302,424
Income taxes 204,500 388,835
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to interim condensed consolidated financial statements.
4
<PAGE>
CARLINVILLE NATIONAL BANK SHARES, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
Carlinville National Bank Shares, Inc. (the "Company") provides a full range
of banking services to individual and corporate customers throughout
Macoupin, Montgomery, Christian, and Sangamon counties of central Illinois,
through the five locations of its wholly-owned subsidiary banks, Carlinville
National Bank and Palmer Bank (the "Banks"). The Company and the Banks are
subject to competition from other financial and nonfinancial institutions
providing financial products throughout the central Illinois area.
Additionally, the Company and the Banks are subject to the regulations of
certain Federal and state agencies and undergo periodic examinations by those
regulatory agencies. The Company also maintains a nonbanking subsidiary which
operates a tax return preparation service. The operations of the nonbanking
subsidiary are not material to the Company's consolidated results of
operations.
The accompanying unaudited interim condensed consolidated financial
statements as of June 30, 1998 and for the three and six months ended June
30, 1998 and 1997 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions outlined in Rule 10-01 of Regulation S-X of the Securities
Exchange Act of 1934. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation, have been included. Operating results for the periods ended
June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further information,
refer to the consolidated financial statements and footnotes thereto for the
year ended December 31, 1997.
NOTE 2 - IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("FAS 130"). FAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in financial statements. FAS 130 defines comprehensive income as the
change in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources,
including all changes in equity during a period, except those resulting from
investments by and distributions to owners.
FAS 130 requires that all items that are required to be recognized as
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. FAS 130 also
requires that an enterprise (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid in capital in the equity section of the consolidated balance
sheet.
FAS 130 is effective for fiscal years beginning after December 31, 1997, with
reclassification of financial statements of earlier periods required for
comparative purposes. The accompanying interim condensed consolidated
financial statements as of June 30, 1998 and for the three and six months
ended June 30, 1998 and 1997 have been prepared in accordance with FAS 130.
5
<PAGE>
CARLINVILLE NATIONAL BANK SHARES, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
(unaudited)
Earnings per common share is based on the weighted average number of common
shares outstanding during each year.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128")
which amends existing accounting requirements and establishes standards for
computing and presenting earnings per share for entities with publicly-held
common stock or potential common stock. FAS 128 simplifies the standards for
computing earnings per share, replacing the presentation of primary earnings
per share with basic earnings per share, which excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. FAS 128 also
requires dual presentation of basic and diluted earnings per share on the
face of the income statement for all entities with complex capital
structures, and requires a reconciliation of the numerator and denominator of
the basic earnings per share computation to the numerator and denominator of
the diluted earnings per share computation. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shares in the earnings
of the entity.
FAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, and requires restatement of all prior period earnings per
share information presented. At June 30, 1998 and 1997, the Company did not
maintain a complex capital structure as defined by FAS 128.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 125, "Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities" ("FAS 125"), on January 1, 1997. FAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial components approach that focuses on control. FAS
125 distinguishes transfers of financial assets that are sales from transfers
that are secured borrowings. Adoption of FAS 125 did not have a material
impact on the Company's financial position, results of operations, or
liquidity.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" ("FAS 129") which establishes standards for disclosing
information about an entity's capital structure. FAS 129 is effective for
financial statements for periods ending after December 15, 1997. Since FAS
129 is a disclosure requirement, it will have no impact on the Company's
consolidated financial position and results of operations.
NOTE 3 - ACQUISITIONS AND PENDING MERGERS
Effective January 24, 1997, the Company purchased 100% of the outstanding
capital stock of Lincoln Trail Bancshares, Inc. ("Lincoln Trail"), which
owned 100% of the outstanding common stock of Palmer Bank in Taylorville,
Illinois, in exchange for cash of $3,045,984. Total consolidated assets of
Lincoln Trail at January 24, 1997 were approximately $35.4 million. The
6
<PAGE>
CARLINVILLE NATIONAL BANK SHARES, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
(unaudited)
acquisition has been accounted for as a purchase transaction and,
accordingly, the consolidated operations of Lincoln Trail from January 24,
1997 forward are included in the consolidated results of operations of the
Company. The excess of cost over the fair value of net assets acquired,
which amounted to $2,048,407, is being amortized on a straight line basis
over 15 years.
The fair value of the consolidated net assets acquired from Lincoln Trail at
January 24, 1997 were as follows:
<TABLE>
<S> <C>
Cash and due from banks $ 983,388
Federal funds sold 7,638,000
Investment securities 3,477,228
Loans, net 21,659,223
Premises and equipment 1,055,763
Other assets 560,849
-----------
Total assets 35,374,451
-----------
Deposits 33,920,247
Other liabilities 456,627
-----------
Total liabilities 34,376,874
-----------
Net assets acquired 997,577
Cost of acquisition 3,045,984
-----------
Excess of cost over fair value of net assets acquired $ 2,048,407
-----------
-----------
</TABLE>
On March 27, 1998, the Company entered into a definitive agreement to acquire
all of the outstanding common stock of Shipman Bancorp, Inc. ("Shipman") and
its wholly-owned subsidiary, Citizens State Bank in Shipman, Illinois, which
had total consolidated assets of approximately $50 million at December 31,
1997. The transaction involves an exchange of two shares of Company common
stock or cash of $190 per share for each share of Shipman common stock,
provided that at least 70% of the Shipman common shares are exchanged for
Company common stock. Using the value derived from the $190 per share cash
price for Shipman, the transaction is valued at approximately $6,100,000.
The merger has received all of the necessary approvals from the various
regulatory authorities and Shipman shareholders, and is expected to close
early in the fourth quarter of 1998. The transaction will be accounted for
as a purchase.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Carlinville National Bank Shares, Inc. (the "Company") provides a full
range of financial services throughout Macoupin, Montgomery, Christian, and
Sangamon counties in central Illinois. The following discussion more fully
explains the changes in financial condition and results of operations for the
first six months of 1998 compared to the first six months of 1997, and for
the second quarter of 1998 compared to the second quarter of 1997. Such
information is provided on a consolidated basis for the Company, its two
wholly-owned banking subsidiaries (Carlinville National Bank and Palmer Bank,
referred to collectively as the "Banks"), and its wholly-owned nonbanking
subsidiary, Carlinville Tax Service, Inc.
NET INCOME
The Company had net income of $1,094,878 for the six months ended June 30,
1998, compared with $987,614 for the six months ended June 30, 1997,
representing an increase of $107,264 (10.86%). Net income per common share
for the first six months of 1998 was $5.87 per share, an increase of $0.57
(10.75%) over the $5.30 per share amount for the first six months of 1997.
The Company had net income of $515,337 for the three months ended June 30,
1998, which represented a decrease of $43,473 (7.78%) from the $558,810
earned for the three months ended June 30, 1997. Net income per common share
was $2.76 per share for the second quarter of 1998, compared with $3.00 per
share for the second quarter of 1997.
NET INTEREST INCOME
The Company's net interest income increased by $103,234 (3.30%) to
$3,233,372 for the first six months of 1998 from the $3,130,138 recorded for
the first six months of 1997. The net interest margin for the two periods
was comparable, with a net interest margin of 3.64% recorded for the first
six months of 1998, and 3.70% recorded for the first six months of 1997. The
Company's net interest income for the second quarter of 1998 decreased
$34,254 (2.07%) to $1,618,190 from the $1,652,444 earned for the second
quarter of 1997. The net interest margins for the second quarters of 1998
and 1997 were 3.57% and 3.83%, respectively.
The reduction in the Company's net interest margin was due primarily to the
Company's acquisition activities in December 1996 and January 1997. On
December 13, 1996, the Company's banking subsidiary, Carlinville National
Bank (the "Carlinville Bank"), purchased certain of the assets and assumed
the liabilities of a branch facility (the "Hillsboro Branch") in Hillsboro,
Illinois from an unaffiliated regional banking group. Approximately five
weeks later, on January 24, 1997, the Company purchased all of the
outstanding capital stock of Lincoln Trail Bancshares, Inc. ("Lincoln Trail")
and its wholly-owned banking subsidiary, Palmer Bank in Taylorville,
Illinois. As more fully discussed below, these acquisitions significantly
changed the composition of the Company's balance sheet and mix of
interest-earning assets and interest bearing liabilities, providing
significantly more deposits than loans, with a significant percentage of the
acquired deposits included in higher-rate certificates of deposits.
Additionally, with the wave of large bank mergers occurring in the Company's
market area for the past several years, the Company has had the opportunity
to expand its deposit base, as many banking customers
8
<PAGE>
have found the level of personal service at the larger non-locally-owned
consolidated banks diminished, and have sought banking relationships with
community banks such as Carlinville Bank and Palmer Bank. This deposit base
expansion has not come without a cost, however, as the competition among
community banks, as well as the larger consolidated banks seeking to retain
their customers, has resulted in a higher level of interest rates on
deposits, despite the relatively low interest rate environment in which the
Company and all financial institutions have been operating for several years.
The Company's primary goal in achieving a higher net interest margin is to
deploy these new deposits into quality loans, which is the Company's highest
earning asset. The Company's average loan-to-deposit ratio for the first six
months of 1998 was 67.05%, compared with 62.50% for the first six months of
1997.
As reflected in the tables below, average earning assets for the first six
months of 1998 increased by $8,725,051 (4.85%) to $188,630,239, from the
$179,905,188 of average earning assets for the first six months of 1997. The
percentage of average earning assets comprised of loans, increased to 61.29%
for the first six months of 1998, from 56.16% for the first six months of
1997.
Average earning assets for the second quarter of 1998 increased $9,483,749
(5.21%) to $191,536,691 from the $182,052,942 of average earning assets for
the second quarter of 1997. The percentage of average earning assets
comprised of loans, increased to 61.51% for the second quarter of 1998, from
57.80% for the second quarter of 1997.
The increase in loans in 1998 resulted from the Company's ability to make
larger commercial loans to individuals and small businesses in its market
area, with the increased lending limit available to a larger banking
organization resulting from the Company's recent acquisitions. Additionally,
loan growth occurred from new banking relationships with customers moving
their business out of the larger non-locally-owned consolidated banking
institutions in the Company's market area. Also, when the Company purchased
Lincoln Trail in January 1997, Palmer Bank had significant problems in its
loan portfolio. As the Company has worked out of such problems, Company
management has been able to concentrate more of its efforts on increasing the
loan portfolio in its new markets.
With the acquisition of the Hillsboro Branch in December 1996, the Company
assumed approximately $24.4 million of deposits and acquired approximately
$318,000 of loans. The net cash received of approximately $22 million was
invested at that time in taxable debt securities, many of which were callable
in late 1997 or early 1998. With the favorable interest rate environment
which has existed for the past several years, coupled with the current strong
bond market, many of these securities have been called or have matured.
Average taxable investment securities for the first six months of 1998
declined $6,189,246 (11.43%) to $47,956,362 from the average taxable
investment securities for the first six months of 1997 of $54,145,608. While
the average yield on such securities remained consistent at 6.07% for the two
periods, this decline in volume resulted in a decrease of the interest income
thereon of $186,229 for the first six months of 1998, from the interest
income earned thereon for the first six months of 1997.
9
<PAGE>
Average taxable investment securities for the second quarter of 1998
declined $5,983,764 (11.22%) to $47,364,928 from the average taxable
investment securities for the second quarter of 1997 of $53,348,692. The
average yield on such investments also declined in the second quarter of
1998, as compared with the second quarter of 1997, dropping 33 basis points
to 6.02%, reflecting the interest rate environment prevalent in the current
bond market. The combination of decreased volume and rate on taxable
investment securities for the comparable second quarter periods resulted in a
decrease in interest income of $134,689.
The Company's level of Federal funds sold is directly attributable to the
level of securities sold under repurchase agreements maintained with certain
customers of the Carlinville Bank. These customers invest on a short-term
basis, generally overnight, in securities sold under repurchase agreements by
the Carlinville Bank, thus providing a return on their excess funds. These
funds are invested by the Carlinville Bank in Federal funds sold to match the
maturities of the repurchase agreements, with the Carlinville Bank generally
earning approximately 50 basis points on each transaction. As the excess
funds of these customers fluctuate, so too has the Company's overall level of
Federal funds sold. The acquisitions of Lincoln Trail and the Hillsboro
Branch facility have also provided additional liquidity, as has the increased
deposit levels and the lack of more attractive investment options in the
current bond market.
Following is a summary of the average balances and weighted average
interest rates earned or paid on Federal funds sold and securities sold under
repurchase agreements for the first six months of 1998 and 1997:
<TABLE>
<CAPTION>
First Six Months
---------------------------------------------------
1998 1997
---------------------------------------------------
Average Average Average Average
Balance Rate Balance Rate
------- ------- ------- --------
<S> <C> <C> <C> <C>
Federal funds sold $12,956,437 5.47% $12,250,464 5.16%
Securities sold under
repurchase agreements 7,966,972 4.98% 8,824,299 4.63%
----------- ---- ----------- ----
----------- ---- ----------- ----
</TABLE>
Company management believes this cash management service will continue at a
consistent level, and the levels of additional Federal funds (over and above
the level of securities sold under repurchase agreements) will eventually be
invested in higher yielding loans and investment securities.
The Company experienced an increase in its cost of funds for the first six
months of 1998, as compared with the first six months of 1997. The average
cost of funds was 4.88% for the first six months of 1998, and 4.62% for the
first six months of 1997. This increase is even more pronounced when
comparing the second quarter of 1998 (with an average cost of funds of 4.91%)
with the second quarter of 1997 (with an average cost of funds of 4.70%).
Average interest-bearing deposits for the first six months of 1998 increased
$9,602,768 (6.57%) to $155,810,824 from the level of $146,208,056 for the
first six months of 1997. Average interest-bearing deposits for the second
quarter of 1998 increased $8,738,530 (5.85%) to $158,176,172 from the level
of $149,437,642 for the second quarter of 1997. The increases in
interest-bearing deposits from 1997 to 1998 has resulted from depositors
moving from financial institutions which have been sold or are in process of
being sold to larger, non-locally based financial institutions, as customers
are seeking more personal service than that offered by the larger
10
<PAGE>
banking institutions.
The Company's increase in its cost of funds is equally attributable to the
composition of its deposit mix, as the Company's banking subsidiaries have
experienced a general shift in deposits similar to most Midwestern financial
institutions, with certificates of deposits comprising a growing proportion
of its deposits. Following is an analysis of the change in average deposit
composition for the first six months of 1998 and 1997, and the second
quarters of 1998 and 1997:
<TABLE>
<CAPTION>
As a Percentage of Average Deposits
First Six Months
-----------------------------------
1998 1997
---- ----
<S> <C> <C>
Noninterest-bearing deposits 9.63% 9.56%
Interest-bearing transaction accounts 14.58 15.71
Savings accounts 12.79 12.78
Certificates of deposit:
$100,000 and over 10.27 7.93
Under $100,000 52.73 54.02
------- -------
100.00% 100.00%
------- ------
------- ------
Second Quarters
-----------------------------------
1998 1997
---- ----
Noninterest-bearing deposits 9.60% 9.49%
Interest-bearing transaction accounts 14.39 15.32
Savings accounts 12.77 12.91
Certificates of deposit:
$100,000 and over 10.56 7.94
Under $100,000 52.68 54.34
------- -------
100.00% 100.00%
------- -------
------- -------
</TABLE>
In addition to the interest paid on securities sold under repurchase
agreements, the Company also incurred interest on other short-term borrowings
of $15,194 and $47,620, for the first six months of 1998 and 1997,
respectively, and $7,270 and $17,613, for the second quarters of 1998 and
1997, respectively. These generally consist of borrowings under the Federal
Reserve Bank's treasury, tax and loan note option. Additionally, during the
first six months of 1997, the Company borrowed $1,750,000 from an
unaffiliated financial institution for approximately three months to
temporarily assist in funding the Lincoln Trail acquisition. This short-term
borrowing was repaid from additional dividends paid by the Carlinville Bank
to the Company in April, 1997.
11
<PAGE>
The following tables shows the condensed average balance sheets for the
periods reported and the percentage of each principal category of assets,
liabilities and stockholders' equity to total assets. Also shown is the
average yield on each category of interest-earning assets and the average
rate paid on each category of interest-bearing liabilities for each of the
periods reported.
<TABLE>
<CAPTION>
First Six Months of 1998
---------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans (1) (2) (3) $ 115,608,864 56.78% $ 5,095,997 8.89%
Investment securities, at amortized cost:
Taxable 47,956,362 23.55 1,443,265 6.07
Nontaxable (3) 12,108,576 5.95 489,750 8.16
Federal funds sold 12,956,437 6.36 351,192 5.47
------------- ------ -----------
Total earning assets 188,630,239 92.64 7,380,204 7.89
------------- ------ ----------- ----
------------- ------ ----------- ----
Nonearning assets:
Cash and due from banks 4,958,055 2.44
Reserve for possible loan losses (1,045,284) (0.51)
Premises and equipment 2,373,451 1.17
Available-for-sale investment
market valuation 733,974 0.36
Other assets 7,964,438 3.90
------------- ------
Total nonearning assets 14,984,634 7.36
------------- ------
Total assets $ 203,614,873 100.00%
------------- ------
------------- ------
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 25,146,410 12.35% 328,744 2.64%
Savings 22,056,317 10.83 357,026 3.26
Time deposits of $100,000 or more 17,701,531 8.69 492,547 5.61
Other time deposits 90,906,566 44.65 2,586,831 5.74
Securities sold under repurchase
agreements 7,966,972 3.91 196,680 4.98
Other short-term borrowings 549,924 0.28 15,194 5.57
------------- ------ -----------
Total interest-bearing liabilities 164,327,720 80.71 3,977,022 4.88
----------- ----
----
Noninterest-bearing deposits 16,602,187 8.15
Other liabilities 1,687,460 0.83
------------- ------
Total liabilities 182,617,367 89.69
SHAREHOLDERS' EQUITY 20,997,506 10.31
------------- ------
Total liabilities and shareholders' equity $ 203,614,873 100.00%
------------- ------
------------- ------
Net interest income/net yield
on earning assets $ 3,403,182 3.64%
----------- ----
----------- ----
</TABLE>
(Continued)
12
<PAGE>
<TABLE>
<CAPTION>
First Six Months of 1997
---------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans (1) (2) (3) $ 101,033,598 52.41% $ 4,424,784 8.83%
Investment securities, at amortized cost:
Taxable 54,145,608 28.08 1,629,494 6.07
Nontaxable (3) 12,475,518 6.47 529,004 8.55
Federal funds sold 12,250,464 6.36 313,234 5.16
------------- ------ -----------
Total earning assets 179,905,188 93.32 6,896,516 7.73
------------- ------ ----------- -----
------------- ------ ----------- -----
Nonearning assets:
Cash and due from banks 4,865,445 2.52
Reserve for possible loan losses (1,449,682) (0.75)
Premises and equipment 2,564,966 1.33
Available-for-sale investment
market valuation (51,111) (0.03)
Other assets 6,957,426 3.61
------------- ------
Total nonearning assets 12,887,044 6.68
------------- ------
Total assets $ 192,792,232 100.00%
------------- ------
------------- ------
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 25,395,269 13.17% 335,083 2.66%
Savings 20,657,818 10.72 315,300 3.08
Time deposits of $100,000 or more 12,812,654 6.65 341,153 5.37
Other time deposits 87,342,315 45.30 2,356,993 5.44
Securities sold under repurchase
agreements 8,824,299 4.58 202,612 4.63
Other short-term borrowings 1,917,835 0.99 47,620 5.01
------------- ------ -----------
Total interest-bearing liabilities 156,950,190 81.41 3,598,761 4.62
----------- -----
-----
Noninterest-bearing deposits 15,450,423 8.01
Other liabilities 1,281,875 0.67
------------- ------
Total liabilities 173,682,488 90.09
SHAREHOLDERS' EQUITY 19,109,744 9.91
------------- ------
Total liabilities and shareholders' equity $ 192,792,232 100.00%
------------- ------
------------- ------
Net interest income/net yield
on earning assets $ 3,297,755 3.70%
----------- -----
----------- -----
</TABLE>
(Continued)
13
<PAGE>
<TABLE>
<CAPTION>
Second Quarter of 1998
---------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans (1) (2) (3) $ 117,807,366 57.12% $ 2,590,280 8.82%
Investment securities, at amortized cost:
Taxable 47,364,928 22.97 710,394 6.02
Nontaxable (3) 12,169,254 5.90 245,747 8.10
Federal funds sold 14,195,143 6.88 198,089 5.60
-------------- ------- -----------
Total earning assets 191,536,691 92.87 3,744,510 7.84
-------------- ------- ----------- -----
-----
Nonearning assets:
Cash and due from banks 4,891,998 2.37
Reserve for possible loan losses (982,096) (0.48)
Premises and equipment 2,348,140 1.14
Available-for-sale investment
market valuation 636,400 0.31
Other assets 7,814,755 3.79
-------------- -------
Total nonearning assets 14,709,197 7.13
-------------- -------
Total assets $ 206,245,888 100.00%
-------------- -------
-------------- -------
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 25,183,069 12.21% 160,162 2.55%
Savings 22,350,759 10.84 184,395 3.31
Time deposits of $100,000 or more 18,460,106 8.95 260,666 5.66
Other time deposits 92,182,238 44.70 1,329,383 5.78
Securities sold under repurchase
agreements 7,770,376 3.77 95,827 4.95
Other short-term borrowings 514,435 0.24 7,270 5.67
-------------- ------- -----------
Total interest-bearing liabilities 166,460,983 80.71 2,037,703 4.91
----------- -----
-----
Noninterest-bearing deposits 16,792,492 8.14
Other liabilities 1,886,934 0.92
-------------- -------
Total liabilities 185,140,409 89.77
SHAREHOLDERS' EQUITY 21,105,479 10.23
-------------- -------
Total liabilities and shareholders' equity $ 206,245,888 100.00%
-------------- -------
-------------- -------
Net interest income/net yield
on earning assets $ 1,706,807 3.57%
----------- -----
----------- -----
</TABLE>
(Continued)
14
<PAGE>
<TABLE>
<CAPTION>
Second Quarter of 1997
---------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans (1) (2) (3) $ 105,224,434 53.87% $ 2,356,765 8.98%
Investment securities, at amortized cost:
Taxable 53,348,692 27.31 845,083 6.35
Nontaxable (3) 12,261,370 6.28 267,917 8.76
Federal funds sold 11,218,446 5.74 131,181 4.69
-------------- ------- ------------
Total earning assets 182,052,942 93.20 3,600,946 7.93
-------------- ------- ------------ -----
-----
Nonearning assets:
Cash and due from banks 4,851,686 2.48
Reserve for possible loan losses (1,156,634) (0.59)
Premises and equipment 2,506,645 1.28
Available-for-sale investment
market valuation 183,646 0.09
Other assets 6,887,452 3.54
-------------- -------
Total nonearning assets 13,272,795 6.80
-------------- -------
Total assets $ 195,325,737 100.00%
-------------- -------
-------------- -------
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 25,290,188 12.95% 177,246 2.81%
Savings 21,307,569 10.91 161,351 3.04
Time deposits of $100,000 or more 13,110,332 6.71 175,144 5.36
Other time deposits 89,729,553 45.94 1,224,923 5.48
Securities sold under repurchase
agreements 8,449,687 4.33 106,553 5.06
Other short-term borrowings 1,127,863 0.57 17,613 6.26
-------------- ------- ------------
Total interest-bearing liabilities 159,015,192 81.41 1,862,830 4.70
------------ -----
-----
Noninterest-bearing deposits 15,663,919 8.02
Other liabilities 1,123,732 0.57
-------------- -------
Total liabilities 175,802,843 90.00
SHAREHOLDERS' EQUITY 19,522,894 10.00
-------------- -------
Total liabilities and shareholders' equity $ 195,325,737 100.00%
-------------- -------
-------------- -------
Net interest income/net yield
on earning assets $ 1,738,116 3.83%
------------ -----
------------ -----
</TABLE>
- ----------------------------------
(1) Interest includes loan fees.
(2) Average balances include nonaccrual loans. The income on such loans is
included in interest, but is recognized only upon receipt.
(3) Interest yields are presented on a tax-equivalent basis. Nontaxable
income has been adjusted upward by the amount of Federal income tax that
would have been paid if the income would have been taxable at a rate of
34%, adjusted downward by the disallowance of the interest cost to carry
nontaxable loans and securities.
15
<PAGE>
The following tables set forth, on a tax-equivalent basis for the periods
indicated, a summary of the changes in interest income and interest expense
resulting from changes in volumes and changes in yields/rates.
<TABLE>
<CAPTION>
FIRST SIX MONTH PERIODS
----------------------------------------------------------------------------------
Amount of Increase (Decrease)
----------------------------------------------------------------------------------
Change From 1997 Change From 1996
to 1998 Due to to 1997 Due to
--------------------------------------- ----------------------------------------
Volume Yield/ Volume Yield/
(1) Rate (2) Total (1) Rate (2) Total
------- -------- ----- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 641,020 $ 30,193 $ 671,213 $ 1,008,899 $ 11,523 $ 1,020,422
---------- --------- ---------- ------------ --------- ------------
Investment securities:
Taxable (186,229) - (186,229) 839,880 11,802 851,682
Nontaxable (15,389) (23,865) (39,254) 34,840 (20,549) 14,291
---------- --------- ---------- ------------ --------- ------------
Total interest securities (201,618) (23,865) (225,483) 874,720 (8,747) 865,973
---------- --------- ---------- ------------ --------- ------------
Federal funds sold 18,584 19,374 37,958 102,619 (10,261) 92,358
---------- --------- ---------- ------------ --------- ------------
Total interest income 457,986 25,702 483,688 1,986,238 (7,485) 1,978,753
---------- --------- ---------- ------------ --------- ------------
INTEREST EXPENSE:
Interest bearing transaction
accounts (3,587) (2,752) (6,339) 107,373 - 107,373
Savings 22,394 19,332 41,726 99,982 7,150 107,132
Time deposits of $100,000
or more 135,521 15,873 151,394 29,762 2,285 32,047
Other time deposits 97,746 132,092 229,838 981,711 (46,964) 934,747
---------- --------- ---------- ------------ --------- ------------
Total deposits 252,074 164,545 416,619 1,218,828 (37,529) 1,181,299
Securities sold under
repurchase agreements (20,563) 14,631 (5,932) 52,132 (6,423) 45,709
Other short-term borrowings (37,241) 4,815 (32,426) 36,686 405 37,091
---------- --------- ---------- ------------ --------- ------------
Total interest expense 194,270 183,991 378,261 1,307,646 (43,547) 1,264,099
---------- --------- ---------- ------------ --------- ------------
Net interest income $ 263,716 $(158,289) $ 105,427 $ 678,592 $ 36,062 $ 714,654
---------- --------- ---------- ------------ --------- ------------
---------- --------- ---------- ------------ --------- ------------
</TABLE>
(Continued)
16
<PAGE>
<TABLE>
<CAPTION>
SECOND QUARTER PERIODS
----------------------------------------------------------------------------------
Amount of Increase (Decrease)
----------------------------------------------------------------------------------
Change From 1997 Change From 1996
to 1998 Due to to 1997 Due to
--------------------------------------- ----------------------------------------
Volume Yield/ Volume Yield/
(1) Rate (2) Total (1) Rate (2) Total
------- -------- ----- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 276,296 $ (42,781) $ 233,515 $ 614,563 $ 48,273 $ 662,836
---------- ---------- --------- ---------- --------- ----------
Investment securities:
Taxable (92,043) (42,646) (134,689) 437,852 6,562 444,414
Nontaxable (2,010) (20,160) (22,170) 17,922 (13,438) 4,484
---------- ---------- --------- ---------- --------- ----------
Total interest securities (94,053) (62,806) (156,859) 455,774 (6,876) 448,898
---------- ---------- --------- ---------- --------- ----------
Federal funds sold 38,647 28,261 66,908 29,465 7,639 37,104
---------- ---------- --------- ---------- --------- ----------
Total interest income 220,890 (77,326) 143,564 1,099,802 49,036 1,148,838
---------- ---------- --------- ---------- --------- ----------
INTEREST EXPENSE:
Interest bearing transaction
accounts (748) (16,336) (17,084) 55,510 10,265 65,775
Savings 8,189 14,855 23,044 55,291 1,786 57,077
Time deposits of $100,000
or more 75,207 10,315 85,522 21,627 12,179 33,806
Other time deposits 34,788 69,672 104,460 534,106 (24,651) 509,455
---------- ---------- --------- ---------- --------- ----------
Total deposits 117,436 78,506 195,942 666,534 (421) 666,113
Securities sold under
repurchase agreements (8,443) (2,283) (10,726) 23,886 4,649 28,535
Other short-term borrowings (8,815) (1,528) (10,343) 9,157 3,743 12,900
---------- ---------- --------- ---------- --------- ----------
Total interest expense 100,178 74,695 174,873 699,577 7,971 707,548
---------- ---------- --------- ---------- --------- ----------
Net interest income $ 120,712 $ (152,021) $ (31,309) $ 400,225 $ 41,065 $ 441,290
---------- ---------- --------- ---------- --------- ----------
---------- ---------- --------- ---------- --------- ----------
</TABLE>
- ----------------------------------
(1) Change in volume multiplied by yield/rate of prior year.
(2) Change in yield/rate multiplied by volume of prior year.
NOTE: The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
17
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES
A significant determinant of the Company's operating results is the level
of loan losses and the provision for possible loan losses charged to
operations. During the first six months of 1998, the Company recorded a
provision for possible loan losses of $210,000, with $180,000 of this amount
recorded in the second quarter of 1998. The Company did not record a
provision during the first six months of 1997. Following is a summary of the
activity in the Company's reserve for possible loan losses for the first six
months of 1998 and 1997, and the second quarters of 1998 and 1997:
<TABLE>
<CAPTION>
First Six Months Second Quarter
---------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 1,098,038 $ 800,418 $ 1,056,181 $ 1,330,464
Reserve for possible loan losses
of acquired subsidiary - 1,183,535 - -
Provision for possible loan losses
charged to operations 210,000 - 180,000 -
Charge-offs during period (457,494) (978,952) (361,634) (259,202)
Recoveries during period 64,826 100,673 40,823 34,412
----------- ----------- ------------ ------------
Balance at end of period $ 915,370 $ 1,105,674 $ 915,370 $ 1,105,674
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
In determining an adequate balance in the reserve for possible loan losses,
management places its emphasis as follows: evaluation of the loan portfolio
with regard to potential future exposure on loans to specific customers and
industries, including a formal internal loan review function; re-evaluation
of each nonperforming loan or loan classified by supervisory authorities; and
an overall review of the remaining portfolio in light of past loan loss
experience. Any problems or loss exposure estimated in these categories was
provided for in the total current period reserve.
The reserve for possible loan losses at June 30, 1998 was 0.77% of net
outstanding loans. Nonperforming loans totaled approximately $1,050,000 at
June 30, 1998, resulting in a reserve coverage of nonperforming loans of
87.18%. Total nonperforming loans at December 31, 1997 totaled $1,107,121,
with a reserve coverage on that date of 99.2%. Company management believes
the reserve for possible loan losses allocated for such loans is adequate
when the underlying collateral values on such credits is considered.
When the Company acquired Palmer Bank on January 24, 1997 in connection
with the acquisition of Lincoln Trail, the bank was undercapitalized, due
primarily to a significant level of problem loans in the Palmer Bank
portfolio made prior to the Company's acquisition thereof. Prior to the
acquisition, Palmer Bank increased its reserve for possible loan losses to
$1,183,535 or 5.18% of the net outstanding loans in the portfolio on the
acquisition date. In the ensuing months, as Company and Palmer Bank
management began to work through these problem loans, $968,372 of charge-offs
were recorded at Palmer Bank, with $115,275 of recoveries received, for the
year ended December 31, 1997. The level of nonaccrual loans at Palmer Bank
at December 31, 1997 was $545,949, compared with $1,494,585 on the
acquisition date. Nonaccrual loans at Palmer Bank at June 30, 1998 were
$283,000. While Company management believes this clean-up effort was
substantially completed by December 31, 1997, certain additional loans, all
of which had been identified and reserved for at December 31, 1997, were
charged off during the first six months of 1998. During the second quarter
of 1998, the Company recorded net charge-offs of $320,811, and replenished
the reserve for possible loan losses with a provision charged to
18
<PAGE>
expense of $180,000. Company management believes the reserve for possible
loan losses of $915,370 at June 30, 1998 is adequate to absorb the potential
exposure presently inherent in the loan portfolio.
The Company had no loans to any foreign countries at June 30, 1998, nor did
it have any concentration of loans to any industry, other than the
agricultural industry on June 30, 1998. The Company has also refrained from
financing speculative transactions such as highly leveraged corporate
buyouts. Additionally, the Company had no other interest-earning assets which
were considered to be risk element assets at June 30, 1998.
At June 30, 1998, the Company had loans outstanding to the agricultural
sector of approximately $38,122,000, which comprised 32.22% of the Company's
total loan portfolio. Additionally, the Company's direct financing leases
involve agricultural equipment which is being leased to local farmers. The
Company's agricultural credits are concentrated in Macoupin, Montgomery,
Christian, and Sangamon counties in central Illinois, and are generally
fully-secured with either growing crops, farmland, livestock, and/or
machinery and equipment. Additionally, the Company's lending personnel work
with their agricultural borrowers to monitor cash flow capabilities.
NONINTEREST INCOME
Total noninterest income for the first six months of 1998 increased
$436,154 (91.97%) to $910,377 from the $474,223 recorded for the first six
months of 1997. Total noninterest income for the second quarter of 1998
increased $236,881 (92.63%) to $492,616 from the $255,735 recorded for the
second quarter of 1997. Several factors caused these period-to-period
increases, including the following:
- The results for the first six months of 1997 included the operations of
Palmer Bank from January 24, 1997 fo rward. Accordingly, the first six
months of 1998 include a full period of Palmer Bank operations, while the
first six months of 1997 exclude the Palmer Bank operations for most of the
first month.
- During 1997, the Carlinville Bank introduced a fee-based commercial
checking product which has proven quite successful. This program was
in place for the entire 1998 period, while only being in place for a
small portion of the second quarter of 1997.
- In 1997, the Company established a mortgage banking department, which
originates loans for sale in the secon dary market. This program was in
place for the entire 1998 period, while only in a start-up mode during
the first six months of 1997.
- Other noninterest income for the first six months of 1998 and second
quarter of 1998 included $26,600 and $1 3,338, respectively, for the
increase in cash surrender value on life insurance policies purchased in
connection with the Directors' Incentive Deferral Plan adopted in
December 1997. This plan was adopted for certain of the Carlinville
Bank's directors, allowing such directors to defer their current
compensation earned as directors, with the Carlinville Bank agreeing to
pay to such directors, or their designated
19
<PAGE>
beneficiaries or survivors, the total amount of deferred compensation
plus accumulated interest at or following retirement. Under the plan,
interest is added to the accumulated deferred compensation at a periodic
compound rate equal to the Carlinville Bank's return on equity before
such interest charges. To fund the individual agreements with each
director covered under the plan, the Carlinville Bank purchased flexible
premium universal life insurance policies on the lives of such directors
(payable upon death to the Carlinville Bank), and paid a single one-time
premium at the inception of the policies totaling $910,000. No other
payments or premiums are required of the Carlinville Bank. Each life
insurance policy has a cash surrender value feature which allows the
Carlinville Bank to receive an amount in cash upon cancellation or lapse
of the policy. The cash surrender value of the policies, which is
included in other assets in the consolidated balance sheet, increases
monthly, based upon an interest factor, net of mortality, administration
and early termination costs that are inherent in the contracts.
- The Company had net security gains of $308,854 and $173,426 for the
first six months of 1998 and second quarter of 1998, respectively,
compared with only $19,663 of security sale gains for the first six
months of 1997, all of which occurred in the three months ended March
31, 1997. $4,812 of the gains recorded in the first six months of 1998,
$1,000 of which occurred in the second quarter of 1998, resulted from
early calls on securities held by the Company's banking subsidiaries.
Approximately $9,000 of the net gains for the first six months of 1997
were recorded at the Palmer Bank shortly after the Company's acquisition
thereof, on sales made to restructure the portfolio in line with the
Company's investment strategies. The Company recorded gains of $134,428
and $169,614, in the first and second quarters of 1998, respectively, on
two separate sales of a mutual fund investment made thereby. In late
1995 and throughout 1996, the Company invested a total of $1,000,000 in
a mutual fund comprised of regional bank stocks. With the banking
consolidation and strong market performance by regional banks occurring
during the past few years, this fund appreciated significantly. By
year-end 1996, the fund had appreciated to $1,215,719. By June 1997,
the fund had appreciated further to $1,446,915, and shortly thereafter,
the Company sold a portion of the fund to invest $450,000 in a similar
fund, recording a gain of $170,483 in the process. During the first
quarter of 1998, the Company sold $330,000 of the fund investment and
injected the proceeds into Palmer Bank to increase its capital,
recording a $134,428 gain on the sale. In the second quarter of 1998,
the Company sold an additional $375,000 of the funds, again injecting
the proceeds into Palmer Bank to increase its capital, recording a gain
of $169,614. The regional bank stock mutual fund investments are
included in the Company's available-for-sale securities and, at June 30,
1998, had a fair value and amortized cost of $1,244,147 and $830,635,
respectively.
NONINTEREST EXPENSE
Noninterest expense for the first six months of 1998 increased $164,534
(7.2%) to $2,440,017 from the $2,275,483 recorded for the first six months of
1997. Noninterest expense for the second quarter of 1998 increased $99,436
(8.70%) to $1,242,697 from the $1,143,261 recorded for the second quarter of
1997. Several factors caused these period-to-period increases, including the
following:
20
<PAGE>
- The results of the first six months of 1997 included the Palmer Bank
from January 24, 1997 forward. Accordi ngly, the first six months of
1998 included operating expenses of Palmer Bank for the entire period,
while the first six months of 1997 excluded the Palmer Bank operations
for the first 24 days of the period.
- During the second quarter of 1997, the Company established its mortgage
banking operations and the related e xpenses thereof are included for
only a short period of time in 1997, but for the entire period in 1998.
- During the second half of 1997, the Company upgraded its management
personnel at Palmer Bank, resulting in i ncreased operating expense.
INCOME TAXES
Applicable income taxes for the first six months of 1998 increased $57,590
(16.88%) to $398,854 from the $341,264 recorded for the first six months of
1997. Applicable income taxes for the second quarter of 1998 decreased
$33,336 to $172,772 from the $206,108 recorded for the second quarter of
1997. The effective tax rates for the first six months of 1998 and 1997 were
26.70% and 25.68%, respectively, and 25.11% and 26.95% for the second
quarters of 1998 and 1997, respectively. The changes in the levels of
effective tax related primarily to the level of state tax-exempt U.S. agency
securities on hand for the particular periods.
FINANCIAL CONDITION
The Company's total assets increased $4,548,778 (2.31%) to $201,729,668 at
June 30, 1998, from $197,180,890 at December 31, 1997. This increase was due
primarily to an influx of deposits.
Total deposits increased $6,774,372 (4.04%) to $174,389,244 at June 30,
1998 from $167,614,872 at December 31, 1997. This growth in deposits
resulted primarily from the influx of deposits of customers from larger
regional banks affected by the consolidation in the banking industry, as such
customers looked for a bank with more personal service.
Short-term borrowings decreased $3,178,984 (40.07%) to $4,753,897 at June
30, 1998 from $7,932,881 at December 31, 1997. These balances tend to have
significant fluctuations depending upon the cash levels of the customers
which use the cash management facilities of the Carlinville Bank through the
purchase of securities under repurchase agreements. The Company believes
these companies are experiencing strong operations again in 1998, resulting
in excess cash. The level of Federal funds sold generally tracks with the
level of securities sold under repurchase agreements; however, Federal funds
sold actually increased $2,590,000 (30.73%) at June 30, 1998 to $11,019,000
from $8,429,000 at December 31, 1997, as the funds available from the
reduction in the investment portfolio at June 30, 1998 more than offset the
reduction in short-term borrowings.
21
<PAGE>
Investment securities decreased $3,065,258 (4.86%) to $59,952,479 at June
30, 1998 from $63,017,737 at December 31, 1997. Proceeds from maturities and
calls of and principal payments on debt securities were $16,209,907 for the
first six months of 1998, of which $13,831,001 were reinvested in debt
securities. The low interest rate environment has provided the Company less
attractive investment opportunities and, as such, more funds have been
temporarily shifted to Federal funds sold, to be subsequently invested in
anticipated loan growth. The total fair value of the Company's investment
portfolio at June 30, 1998 was approximately $60,617,000, or 101% of the
portfolio's book value on that date. The market valuation of the Company's
investment securities portfolio at December 31, 1997 was 101% of the
portfolio's book value.
Total loans increased $6,378,250 (5.70%) to $118,303,459 at June 30, 1998
from $111,925,209 at December 31, 1997. This increase resulted from the
Company's increased lending capacity afforded a larger banking organization,
as well as loan growth coming from new customers shifting their banking
relationships away from the larger non-local banks in the Company's market
area.
The Company's capitalization remained at a strong level at June 30, 1998.
Total capital was $21,092,075 or 10.46% of total assets at June 30, 1998, as
compared with 10.36% at December 31, 1997.
The Federal Reserve Board has established risk-based capital guidelines for
bank holding companies, which require bank holding companies to maintain
minimum levels of "Tier 1 Capital" and "Total Capital." Tier 1 Capital
consists of common and qualifying preferred stockholders' equity and minority
interests in equity accounts of consolidated subsidiaries, less goodwill and
50% of investments in unconsolidated subsidiaries. Total Capital consists
of, in addition to Tier 1 Capital, mandatory convertible debt, preferred
stock not qualifying as Tier 1 Capital, subordinated and other qualifying
term debt and a portion of the reserve for possible loan losses, less the
remaining 50% of qualifying total capital. Risk-based capital ratios are
calculated with reference to risk-weighted assets, which include both on-and
off-balance sheet exposures. The minimum required ratio for qualifying Total
Capital is 8%, of which at least 4% must consist of Tier 1 Capital.
In addition, Federal Reserve Board guidelines require bank holding
companies to maintain a minimum ratio of Tier 1 Capital to average total
assets (net of goodwill) of 3.0%. The Federal Reserve Board guidelines state
that all of these capital ratios constitute the minimum requirements for the
most highly-rated banking organizations, and other banking organizations are
expected to maintain capital at higher levels.
As of June 30, 1998, the Company and each of its banking subsidiaries were
in compliance with the Tier 1 Capital ratio requirement and all other
applicable regulatory capital requirements, as calculated in accordance with
risk-based capital guidelines. The Company's Tier 1, Total Capital and
Leverage Ratios were 13.37%, 14.08% and 8.27%, respectively, at June 30, 1998.
22
<PAGE>
Federal law provides the Federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or ""critically
undercapitalized," which are defined by the regulators as follows:
<TABLE>
<CAPTION>
Minimum Capital Ratios
----------------------------------
Total Tier 1
Risk-Based Risk-Based Leverage
Ratio Ratio Ratio
---------- ---------- --------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8 4 4
Undercapitalized less than 8 less than 4 less than 4
Significantly undercapitalized less than 6 less than 3 less than 3
Critically undercapitalized * * *
</TABLE>
* A critically undercapitalized institution is defined as having a tangible
equity to total assets ratio of 2% or less
Depending upon the capital category to which an institution is assigned,
the regulators' corrective powers include: requiring the submission of a
capital restoration plan; placing limits on asset growth and restrictions on
activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting
transactions with affiliates; restricting the interest rate the institution
may pay on deposits; ordering a new election of directors of the institution;
requiring that senior executive officers or directors be dismissed;
prohibiting the institution from accepting deposits from correspondent banks;
requiring the institution to divest certain subsidiaries; prohibiting the
payment of principal or interest on subordinated debt; and ultimately,
appointing a receiver of the institution. The capital category of an
institution also determined in part the amount of the premiums assessed
against the institution for FDIC insurance. At June 30, 1998, each of the
Company's banking subsidiaries were considered "well capitalized."
LIQUIDITY AND RATE SENSITIVITY
Management of rate-sensitive earning assets and interest-bearing
liabilities remains a key to the Company's profitability. Management's
objective is to produce the optimal yield and maturity mix consistent with
interest rate expectations and projected liquidity needs.
Liquidity is a measurement of the Company's ability to meet the borrowing
needs and the deposit withdrawal requirements of its customers. The
composition of assets and liabilities is actively managed to maintain the
appropriate level of liquidity in the balance sheet. Management is guided by
regularly-reviewed policies when determining the appropriate portion of total
assets which should be comprised of readily-marketable assets available to
meet conditions that are reasonably expected to occur.
23
<PAGE>
Liquidity is primarily provided to the Company through earning assets,
including Federal funds sold and maturities and principal payments in the
investment portfolio, all funded through continued deposit growth. Secondary
sources of liquidity available to the Company include the sale of securities
included in the available-for-sale category (with a carrying value of
$44,546,949 at June 30, 1998), and borrowing capabilities through the Federal
Reserve Bank's seasonal borrowing privilege of $4.1 million maintained at the
Carlinville Bank. Additionally, maturing loans also provide liquidity on an
ongoing basis. Accordingly, the Company believes it has the liquidity
necessary to meet unexpected deposit withdrawal requirements or increases in
loan demand.
Each of the Company's banking subsidiaries controls its own
asset/liability mix within the constraints of its individual policies and
loan and deposit structure, with overall guidance from the Company.
The asset/liability management process, which involves structuring the
consolidated balance sheet to allow approximately equal amounts of assets and
liabilities to reprice at the same time, is a dynamic process essential to
minimize the effect of fluctuating interest rates on net interest income.
The following table reflects the Company's consolidated interest rate gap
(rate-sensitive assets minus rate-sensitive liabilities) analysis as of June
30, 1998, individually and cumulatively, through various time horizons (in
thousands of dollars):
<TABLE>
<CAPTION>
Remaining Maturity if Fixed Rate;
Earliest Possible Repricing Interval if Floating Rate
---------------------------------------------------------------------
3 Over 3 Over 1
months months year
or through through Over 5
less 12 months 5 years years Total
--------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned discount $ 37,193 $ 30,567 $ 49,432 $ 1,111 $ 118,303
Investment securities 7,732 9,178 21,966 21,076 59,952
Other interest-earning assets 11,019 - - - 11,019
--------- --------- --------- -------- ----------
Total interest-earnings assets $ 55,944 $ 39,745 $ 71,398 $ 22,187 $ 189,274
--------- --------- --------- -------- ----------
--------- --------- --------- -------- ----------
Interest-bearing liabilities:
Savings, and interest bearing
transaction accounts $ 47,452 $ - $ - $ - $ 47,452
Time certificates of deposit of
$100,000 or more 8,152 5,067 3,963 - 17,182
All other time deposits 25,502 33,940 33,187 - 92,629
Nondeposit interest-bearing
liabilities 4,754 - - - 4,754
--------- --------- --------- -------- ----------
Total interest-bearing
liabilities $ 85,860 $ 39,007 $ 37,150 $ - $ 162,017
--------- --------- --------- -------- ----------
--------- --------- --------- -------- ----------
Gap by period $ (29,916) $ 738 $ 34,348 $ 22,187 $ 27,257
--------- --------- --------- -------- ----------
--------- --------- --------- -------- ----------
Cumulative gap $ (29,916) $ (29,178) $ 5,070 $ 27,257 $ 27,257
--------- --------- --------- -------- ----------
--------- --------- --------- -------- ----------
Ratio of interest-sensitive
assets to interest-sensitive
liabilities 0.65x 1.02x 1.92x 1.17x
--------- --------- --------- ----------
--------- --------- --------- ----------
Cumulative ratio of interest-
sensitive assets to interest-
sensitive liabilities 0.65x 0.77x 1.03x 1.17x 1.17x
--------- --------- --------- -------- ----------
--------- --------- --------- -------- ----------
</TABLE>
24
<PAGE>
As indicated in this table, the Company operates on a short-term basis
similar to most other financial institutions, as its liabilities, with
savings and interest-bearing transaction accounts included, could reprice
more quickly than its assets. However, the process of asset/liability
management in a financial institution is dynamic. Company management
believes its current asset/liability management program will allow adequate
reaction time for trends in the marketplace as they occur, allowing
maintenance of adequate net interest margins. Additionally, the Company's
historical analysis of customer savings and interest-bearing transaction
accounts indicates that such deposits have certain "core deposit"
characteristics and are not as susceptible to changes in the marketplace.
TECHNOLOGY RISK
The Company utilizes and is dependent upon data processing hardware systems
and banking application software to conduct its business. The data
processing hardware systems and banking application software include those
developed and maintained by the Company's data processing hardware providers
and purchased banking application software which is run on in-house computer
networks. In 1997, the Company initiated a review and assessment of all
hardware and banking application software to confirm that it will function
properly in the Year 2000. The Company's data processing hardware providers,
banking application software providers, and other vendors which have been
contacted have indicated that their hardware and/or software will be Year
2000 compliant by the end of 1998, allowing the Company adequate time for
compliance testing in 1999. Additionally, alarms, heating and cooling systems
and other computer-controlled mechanical devices on which the Company relies
are being evaluated. Those found not to be in compliance will be modified or
replaced with compliant products. While there will be some incremental
expenses incurred during the next 1-1/2 years, the Company has not identified
any situations at this time that will require material expenditures to become
fully compliant with Year 2000. During the next 1-1/2 years, the Company's
credit risk assessment will also include a consideration of incremental risk
that may be posed by customers' inability, if any, to address Year 2000 issues.
ACCOUNTING PRONOUNCEMENTS
Several accounting rule changes which will or have gone into effect recently,
as promulgated by the Financial Accounting Standards Board, will have an effect
on the Company's financial reporting process. These accounting rule changes,
issued in the form of Financial Accounting Standards ("FAS") include the
following:
- FAS 125 - The Company adopted the provisions of Statement of Financial
Accounting Standards No. 125, "Transfer and Servicing of Financial
Assets and Extinguishments of Liabilities" ("FAS 125"), on January 1,
1997. FAS 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial components approach that
focuses on control. FAS 125 distinguishes transfers of financial assets
that are sales from transfers that are secured borrowings. Adoption of
FAS 125 did not have a material impact on the Company's financial
position, results of operations, or liquidity.
25
<PAGE>
- FAS 128 - In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("FAS 128") which amends existing accounting requirements and
establishes standards for computing and presenting earnings per share
for entities with publicly-held common stock or potential common stock.
FAS 128 simplifies the standards for computing earnings per share,
replacing the presentation of primary earnings per share with basic
earnings per share, which excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number
of common share outstanding for the period. FAS 128 also requires dual
presentation of basic and diluted earnings per share on the face of the
income statement for all entities with complex capital structures, and
requires a reconciliation of the numerator and denominator of the basic
earnings per share computation to the numerator and denominator of the
diluted earnings per share computation. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shares in
the earnings of the entity.
- FAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, and requires restatement of all prior period
earnings per share information presented. At June 30, 1998, the Company
did not maintain a complex capital structure as defined by FAS 128.
Accordingly, the basic earnings per share computed under FAS 128 does
not differ from the earnings per share presented herein for the three
and six month periods ended June 30, 1998 and 1997.
- FAS 130 - In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in financial statements. FAS 130
defines comprehensive income as the change in equity (net assets) of a
business enterprise during a period from transactions and other events
and circumstances from nonowner sources, including all changes in equity
during a period, except those resulting from investments by and
distributions to owners.
FAS 130 requires that all items that are required to be recognized as
comprehensive income be reported in a fi nancial statement that is
displayed with the same prominence as other financial statements. FAS
130 also requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid in capital in the equity
section of the consolidated balance sheet.
FAS 130 is effective for fiscal years beginning after December 15, 1997,
with reclassification of financial statements of earlier periods
required for comparative purposes. Accordingly, the Company has
implemented FAS 130 for all of the periods presented herein.
26
<PAGE>
EFFECTS OF INFLATION
Persistent high rates of inflation can have a significant effect on the
reported financial condition and results of operations of all industries.
However, the asset and liability structure of a bank holding company is
substantially different from that of an industrial company, in that virtually
all assets and liabilities of a bank holding company are monetary in nature.
Accordingly, changes in interest rates may have a significant impact on a
banking holding company's performance. Interest rates do not necessarily
move in the same direction, or in the same magnitude, as the prices of other
goods and services.
Inflation, however, does have an important impact on the growth of total
assets in the banking industry, often resulting in a need to increase equity
capital at higher than normal rates to maintain an appropriate equity-to-assets
ratio. One of the most important effects that inflation has had on the banking
industry has been to reduce the proportion of earnings paid out in the form of
dividends.
Although it is obvious that inflation affects the growth of total assets, it
is difficult to measure the impact precisely. Only new assets acquired each
year are directly affected, so a simple adjustment of asset totals by use of an
inflation index is not meaningful. The results of operations also have been
affected by inflation, but again, there is no simple way to measure the effect
on the various categories of income and expense.
Interest rates in particular are significantly affected by inflation, but
neither the timing nor the magnitude of the changes coincide with changes in
the consumer price index. Additionally, changes in interest rates on some
types of consumer deposits may be delayed. These factors, in turn, affect the
composition of sources of funds by reducing the growth of deposits that are
less interest-sensitive, and increasing the need for funds that are more
interest-sensitive.
RECENT REGULATORY DEVELOPMENTS/YEAR 2000
The Federal banking regulators have issued several statements providing
guidance to financial institutions on the steps the regulators expect
financial institutions to take to become Year 2000 compliant. Each of the
Federal banking regulators is also examining the financial institutions under
its jurisdiction to assess each institution's compliance with the outstanding
guidance. If an institution's progress in addressing the Year 2000 problem
is deemed by its primary Federal regulator to be less than satisfactory, the
institution will be required to enter into a memorandum of understanding with
the regulator which will, among other things, require the institution to
promptly develop and submit an acceptable plan for becoming Year 2000
compliant and to provide periodic reports describing the institution's
progress in implementing the plan. Failure to satisfactorily address the
Year 2000 problem may also expose a financial institution to other forms of
enforcement action that its primary Federal regulator deems appropriate to
address the deficiencies in the institution's Year 2000 remediation program.
27
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report contains certain forward-looking statements within the meaning
of Section 17A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project" or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material
adverse affect on the operations and future prospects of the Company and the
subsidiaries include, but are not limited to, changes in: interest rates,
general economic conditions, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles, policies and guidelines. These risks and
uncertainties should be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements.
Further information concerning the Company and its business, including
additional factors that could materially affect the Company's financial
results, is included in the Company's filings with the Securities and
Exchange Commission.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its
subsidiaries are a party other than ordinary routine litigation incidental to
their respective businesses.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
28
<PAGE>
ITEM 5. OTHER INFORMATION
The Company filed a Registration Statement on Form S-4 with the Securities and
Exchange Commission on June 26, 1998 (Registration No. 333-57917), relating to
the acquisition of Shipman Bancorp, Inc. ("Shipman"). The registration
statement was declared effective on August 12, 1998. The merger of Shipman
into a wholly-owned subsidiary of the Company was approved by stockholders of
Shipman at a special meeting held on September 15, 1998. The transaction is
expected to close at the beginning of the fourth quarter of 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27. Financial Data Schedule
Reports on Form 8-K
None
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARLINVILLE NATIONAL BANK SHARES, INC.
(Registrant)
James T. Ashworth
------------------------------------------------
President and Principal Executive, Financial and
Accounting Officer
Date: September 25, 1998
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 1998 AND CONSOLIDATED STATEMENTS OF INCOME,
STOCKHOLDERS' EQUITY AND CASHFLOWS FOR THREE AND SIX MONTH PERIODS ENDED JUNE
30, 1998 AND 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 3,623,609 3,623,609
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 11,019,000 11,019,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 44,546,949 44,546,949
<INVESTMENTS-CARRYING> 15,405,530 15,405,530
<INVESTMENTS-MARKET> 16,070,000 16,070,000
<LOANS> 118,267,695 118,267,695
<ALLOWANCE> 915,370 915,370
<TOTAL-ASSETS> 201,729,668 201,729,668
<DEPOSITS> 174,389,244 174,389,244
<SHORT-TERM> 4,753,897 4,753,897
<LIABILITIES-OTHER> 1,494,452 1,494,452
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 200,000 200,000
<OTHER-SE> 20,892,075 20,892,075
<TOTAL-LIABILITIES-AND-EQUITY> 201,729,668 201,729,668
<INTEREST-LOAN> 2,569,521 5,061,209
<INTEREST-INVEST> 888,283 1,797,993
<INTEREST-OTHER> 198,089 351,192
<INTEREST-TOTAL> 3,655,893 7,210,394
<INTEREST-DEPOSIT> 1,934,606 3,765,148
<INTEREST-EXPENSE> 2,037,703 3,977,022
<INTEREST-INCOME-NET> 1,618,190 3,233,372
<LOAN-LOSSES> 180,000 210,000
<SECURITIES-GAINS> 173,426 308,854
<EXPENSE-OTHER> 1,242,697 2,440,017
<INCOME-PRETAX> 688,109 1,493,732
<INCOME-PRE-EXTRAORDINARY> 515,337 1,094,878
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 515,337 1,094,878
<EPS-PRIMARY> 2.76 5.87
<EPS-DILUTED> 2.76 5.87
<YIELD-ACTUAL> 3.57 3.64
<LOANS-NON> 934,000 934,000
<LOANS-PAST> 116,000 116,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,056,181 1,098,038
<CHARGE-OFFS> 361,634 457,494
<RECOVERIES> 40,823 64,826
<ALLOWANCE-CLOSE> 915,370 915,370
<ALLOWANCE-DOMESTIC> 915,370 915,370
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
