<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 September 30, 1999
[ ] 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 X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of September
30, 1999, the registrant had outstanding 247,361 shares of common stock,
$1.00 par value per share.
<PAGE>
CARLINVILLE NATIONAL BANK SHARES, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I
Item 1. Financial Statements (unaudited) 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II
Item 1. Legal Proceedings 29
Item 2. Changes in Securities 29
Item 3. Defaults Upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
Form 10-Q Signature Page 30
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARLINVILLE NATIONAL BANK SHARES, INC. AND SUBSIDIARIES
Interim Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,553,251 $ 9,385,889
Interest-earning deposits in other financial institutions 74,901 1,000,197
Federal funds sold 994,000 15,997,000
Investments in debt and equity securities:
Available-for-sale, at fair value 69,065,575 61,380,481
Held-to-maturity, at amortized cost (approximate fair
value of $9,276,000 and $12,965,442 at September 30, 1999
and December 31, 1998, respectively) 9,325,294 12,605,746
Loans 159,983,124 153,180,069
Less:
Unearned discount (294,446) (580,377)
Reserve for possible loan losses (1,375,812) (1,641,212)
------------- -------------
Net loans 158,312,866 150,958,480
----------- -----------
Bank premises and equipment, net 3,750,284 3,782,400
Accrued interest receivable 3,773,647 3,503,844
Intangible assets 4,601,695 4,860,553
Other assets 3,133,211 2,580,689
------------- -------------
$ 260,584,724 $ 266,055,279
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 20,551,923 $ 24,938,780
Interest-bearing deposits 199,098,751 204,987,156
----------- -----------
Total deposits 219,650,674 229,925,936
Short-term borrowings 8,520,962 4,499,417
Accrued interest payable 1,342,074 1,404,827
Long-term borrowings 2,502,000 1,252,000
Other liabilities 1,173,687 1,218,976
------------- -------------
Total liabilities 233,189,397 238,301,156
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; 310,000 shares
authorized; 262,710 shares issued 262,710 262,710
Surplus 6,165,204 6,165,204
Retained earnings 22,521,747 21,150,744
Accumulated other comprehensive income - unrealized
holding gains and losses on available-for-sale
securities, net of tax (1,030,076) 496,553
Treasury stock at cost - 15,349 and 13,502 shares at
September 30, 1999 and December 31, 1998, respectively (524,258) (321,088)
-------------- --------------
Total stockholders' equity 27,395,327 27,754,123
------------ ------------
$ 260,584,724 $ 266,055,279
=========== ===========
</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 nine months ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,492,021 $ 2,685,585 $ 10,085,620 $ 7,746,794
Interest and dividends on debt and equity securities:
Taxable 982,841 728,699 2,868,795 2,171,964
Exempt from Federal income taxes 189,578 164,118 552,384 518,846
Interest on short-term investments 98,940 170,247 439,116 521,439
------------ ------------ ------------ ------------
Total interest income 4,763,380 3,748,649 13,945,915 10,959,043
------------ ------------ ------------ ------------
Interest expense:
Interest on deposits 2,301,803 1,960,437 6,937,103 5,725,585
Interest on short-term borrowings 104,311 85,316 283,105 297,190
Interest on long-term borrowings 22,154 - 62,649 -
------------ ------------ ------------ ------------
Total interest expense 2,428,268 2,045,753 7,282,857 6,022,775
------------ ------------ ------------ ------------
Net interest income 2,335,112 1,702,896 6,663,058 4,936,268
Provision for possible loan losses 60,000 30,000 390,000 240,000
------------ ------------ ------------ ------------
Net interest income after provision
for possible loan losses 2,275,112 1,672,896 6,273,058 4,696,268
------------ ------------ ------------ ------------
Noninterest income:
Service charges on deposit accounts 247,720 138,498 585,778 408,510
Income from fiduciary activities 59,977 40,047 161,904 124,543
Net security sale gains 186,370 3,589 216,348 311,943
Mortgage banking revenues 118,936 27,714 207,799 96,252
Other noninterest income 90,844 79,917 338,975 258,394
------------ ------------ ------------ ------------
Total noninterest income 703,847 289,765 1,510,804 1,199,642
------------ ------------ ------------ ------------
Noninterest expense:
Salaries and employee benefits 914,254 654,650 2,729,439 1,954,078
Occupancy and equipment expense 275,654 173,554 854,378 530,005
Legal and professional fees 20,181 14,240 101,678 43,856
Postage, printing and supplies 105,824 63,638 308,641 191,872
Amortization of intangible assets 106,408 68,699 305,067 206,096
Other noninterest expense 346,576 230,274 1,050,747 719,165
------------ ------------ ------------ ------------
Total noninterest expense 1,768,897 1,205,055 5,349,950 3,645,072
------------ ------------ ------------ ------------
Income before applicable income taxes 1,210,062 757,606 2,433,912 2,250,838
Applicable income taxes 314,993 210,479 691,722 609,333
------------ ------------ ------------ ------------
Net income 895,069 547,127 1,742,190 1,641,505
------------ ------------ ------------ ------------
Other comprehensive income (loss), before tax:
Net unrealized gains (losses) on available-for-sale securities (349,237) 160,122 (2,096,726) 216,937
Less reclassification adjustment for gains included in net income (186,370) (3,589) (216,348) (311,943)
------------ ------------ ------------ ------------
Other comprehensive income (loss), before tax (535,607) 156,533 (2,313,074) (95,006)
Income tax related to items of other comprehensive income (loss) (182,106) 53,221 (786,445) (32,302)
------------ ------------ ------------ ------------
Other comprehensive income (loss), net of tax (353,501) 103,312 (1,526,629) (62,704)
------------ ------------ ------------ ------------
Total comprehensive income $ 541,568 $ 650,439 $ 215,561 $ 1,578,801
============ ============ ============ ============
Net income per common share:
Average common shares outstanding 247,416 186,498 247,969 186,498
============ ============ ============ ============
Net income per common share $ 3.62 $ 2.93 $ 7.03 $ 8.80
============ ============ ============ ============
</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
Nine months ended September 30, 1999 and 1998
(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, 1997 $ 200,000 $ 270,464 $ 19,758,353 $ (321,088) $ 525,906 $ 20,433,635
Net income - - 1,641,505 - - 1,641,505
Cash dividends paid - $1.45 per share - - (270,422) - - (270,422)
Unrealized gains (losses)
on available-for-sale securities,
net of related tax effect - - - - (62,704) (62,704)
-------- ---------- ----------- ------- ----------- -------------
Balance at September 30, 1998 $ 200,000 $ 270,464 $ 21,129,436 $ (321,088) $ 463,202 $ 21,742,014
======= ========== ========== ======= ========== ==========
Balance at December 31, 1998 $ 262,710 $ 6,165,204 $ 21,150,744 $ (321,088) $ 496,553 $ 27,754,123
Net income - - 1,742,190 - - 1,742,190
Cash dividends paid - $1.50 per share - - (371,187) - - (371,187)
Purchase of 1,847 shares for treasury - - - (203,170) - (203,170)
Unrealized gains (losses)
on available-for-sale securities,
net of related tax effect - - - - (1,526,629) (1,526,629)
------- ---------- ----------- ------- --------- -----------
Balance at September 30, 1999 $262,710 $6,165,204 $22,521,747 $(524,258) $(1,030,076) $ 27,395,327
======= ========= ========== ======= ========= ==========
</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
Nine months ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,742,190 $ 1,641,505
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 979,255 490,770
Provision for possible loan losses 390,000 240,000
Increase in accrued interest receivable (269,803) (461,512)
Net gains on security sales and calls (216,348) (311,943)
Increase (decrease) in accrued interest payable (62,753) 180,310
Other operating activities, net (112,689) 382,933
------------ ------------
Net cash provided by operating activities 2,449,852 2,162,063
------------ ------------
Cash flows from investing activities:
Proceeds from calls and maturities of and principal payments on debt
securities:
Available-for-sale 13,051,971 20,283,829
Held-to-maturity 3,546,272 3,976,746
Proceeds from sale of securities 590,023 712,901
Purchases of available-for-sale debt and equity securities (23,673,348) (21,836,569)
Net increase in loans (7,728,332) (8,401,923)
Proceeds from sale of other real estate owned 10,200 -
Purchases of bank premises and equipment, net (429,498) (586,076)
------------ ------------
Net cash used in investing activities (14,632,712) (5,851,092)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits (10,275,262) 12,153,059
Net increase (decrease) in short-term borrowings 4,836,545 (4,515,164)
Proceeds from additional draw on long-term borrowings 1,250,000 -
Principal payment on note payable (815,000) -
Cash dividends paid (371,187) (270,422)
Purchase of treasury stock (203,170) -
------------ ------------
Net cash provided by (used in) financing activities (5,578,074) 7,367,473
------------ ------------
Net increase (decrease) in cash and cash equivalents (17,760,934) 3,678,444
Cash and cash equivalents at beginning of period 26,383,086 13,232,829
------------ ------------
Cash and cash equivalents at end of period $ 8,622,152 $ 16,911,273
============ ============
Supplemental information:
Cash paid for:
Interest $ 7,345,610 $ 5,792,465
Income taxes 715,000 544,500
Loans made to facilitate sale of other real estate 130,016 -
============ ============
</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
seven locations of its wholly-owned subsidiary banks, Carlinville National Bank,
Palmer Bank, and Citizens State 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 September 30, 1999 and for the three and nine months ended September 30,
1999 and 1998 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 September 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended December 31, 1998
included in the Company's Annual Report on Form 10-K.
NOTE 2 - ACQUISITIONS AND 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. The 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.
5
<PAGE>
CARLINVILLE NATIONAL BANK SHARES, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (CONTINUED)
(unaudited)
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 October 1, 1998, the Company purchased 100% of the outstanding capital stock
of Shipman Bancorp, Inc. ("Shipman") and its wholly-owned subsidiary, Citizens
State Bank in Shipman, Illinois, in exchange for 62,710 shares of Company common
stock and $287,926 of cash. The acquisition has been accounted for as a purchase
transaction and, accordingly, the consolidated operations of Shipman from
October 1, 1998 forward are included in the consolidated results of operations
of the Company. The excess of cost over the fair value of the net assets
acquired, which amounted to $1,224,712, is being amortized on a straight line
basis over 15 years.
The fair value of the consolidated net assets acquired from Shipman at October
1, 1998 were as follows:
<TABLE>
<S> <C>
Cash and due from banks $ 5,644,590
Federal funds sold 3,979,000
Investment securities 5,223,185
Loans, net 31,567,601
Premises and equipment 963,630
Other assets 1,969,711
-----------
Total assets 49,347,717
-----------
Deposits 41,463,171
Other liabilities 2,863,882
-----------
Total liabilities 44,327,053
-----------
Net assets acquired 5,020,664
Cost of acquisition 6,245,376
-----------
Excess of cost over fair value of net assets acquired $ 1,224,712
===========
</TABLE>
6
<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 nine months of 1999 compared to the first nine months of 1998, and for the
third quarter of 1999 compared to the third quarter of 1998. Such information is
provided on a consolidated basis for the Company, its three wholly-owned banking
subsidiaries (Carlinville National Bank, Palmer Bank, and Citizens State Bank,
referred to collectively as the "Banks"), and its wholly-owned nonbanking
subsidiary, Carlinville Tax Service, Inc.
RESULTS OF OPERATIONS
NET INCOME
The Company had net income of $1,742,190 for the nine months ended
September 30, 1999, compared with $1,641,505 for the nine months ended September
30, 1998, representing an increase of $100,685 (6.13%). Net income per common
share for the first nine months of 1999 was $7.03 per share, a decrease of $1.77
(20.11%) over $8.80 per share for the first nine months of 1998. The reduction
in the per share amounts for the nine month periods resulted from additional
shares being outstanding in 1999.
The Company had net income of $895,069 for the three months ended September
30, 1999, which represented an increase of $347,942 (63.59%) from the $547,127
earned for the three months ended September 30, 1998. Net income per common
share was $3.62 per share for the third quarter of 1999, compared with $2.93 per
share for the third quarter of 1998. The primary reason for the quarterly
increase in 1999 was a security sale gain recorded during the third quarter of
1999.
NET INTEREST INCOME
The Company's net interest income increased by $1,726,790 (34.98%) to
$6,663,058 for the first nine months of 1999 from the $4,936,268 recorded for
the first nine months of 1998. The net interest margin improved, with a net
interest margin of 3.74% achieved for the first nine months of 1999, compared
with 3.66% for the first nine months of 1998. The Company's net interest income
for the third quarter of 1999 increased $632,216 (37.13%) to $2,335,112 from the
$1,702,896 earned for the third quarter of 1998. The net interest margins for
the second quarters of 1999 and 1998 were 3.98% and 3.71%, respectively.
The primary reason for the significant increase in the Company's net
interest margin during the first nine months of 1999 was the acquisition of
Shipman Bancorp, Inc. ("Shipman") and its wholly-owned subsidiary Citizens State
Bank ("Citizens Bank"). This acquisition was completed on October 1, 1998, and
the Company's results of operations include the consolidated operations of
Shipman and Citizens Bank since the acquisition date. On October 1, 1998,
Citizens Bank had total interest earning assets of $41,413,212, and total
interest-bearing liabilities of $39,423,417. Additionally, the percentage of
interest-earning assets comprised of loans, which is the Company's highest
earning asset, increased in the third quarter of 1999.
7
<PAGE>
As reflected in the tables below, average earning assets for the first nine
months of 1999 increased by $57,116,791 (30.09%) to $246,911,137, from the
$189,794,346 of average earning assets for the first nine months of 1998. The
percentage of average earning assets comprised of loans increased to 62.77% for
the first nine months of 1999, from 61.56% for the first nine months of 1998.
Average earning assets for the third quarter of 1999 increased $54,535,659
(28.41%) to $246,461,730 from the $191,926,071 of average earning assets for the
third quarter of 1998. The percentage of average earning assets comprised of
loans, increased to 64.04% for the third quarter of 1999, from 62.08% for the
third quarter of 1998.
The increase in loans in 1999 resulted primarily from the Shipman
acquisition, and also 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.
Average taxable investment securities for the first nine months of 1999
increased $18,255,102 (37.95%) to $66,357,833 from the average taxable
investment securities for the first nine months of 1998 of $48,102,731. At
October 1, 1998, the fair value of the Shipman investment portfolio added to the
Company's consolidated investment portfolio was $5,223,185. The remaining growth
in the taxable investment portfolio resulted from an influx of new deposits and
the reinvestment of excess Federal funds.
Average taxable investment securities for the third quarter of 1999
increased $19,240,256 (39.80%) to $67,579,009 from the average taxable
investment securities for the third quarter of 1998 of $48,338,753. The average
yield on such investments declined in the third quarter of 1999, as compared
with the third quarter of 1998, dropping 28 basis points to 5.77%, reflecting
the interest rate environment prevalent in the current bond market. The
combination of increased volume and decreased rate on taxable investment
securities for the comparable third quarter periods resulted in an increase in
interest income of $254,142.
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 Carlinville National Bank (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. This general relationship has been modified in
recent quarters with the acquisitions of a branch facility in Hillsboro in 1996
(which added approximately $24.4 million of deposits), Palmer Bank in 1997, and
Shipman in 1998, as well as the influx in new deposits discussed below. Such
activities have provided significantly more liquidity for the Company, as has
the lack of more attractive investment options in the currently volatile bond
market.
8
<PAGE>
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 nine months of 1999 and 1998:
<TABLE>
<CAPTION>
FIRST NINE MONTHS
--------------------------------------------------------------
1999 1998
------------------------------ -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Federal funds sold $ 11,367,559 4.89% $ 12,800,773 5.47%
Securities sold under
repurchase agreements 7,133,729 4.44% 7,379,484 5.01%
============ ==== ============ ====
</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, as such
opportunities occur.
The Company experienced a decrease in its cost of funds for the first nine
months of 1999, as compared with the first nine months of 1998. The average cost
of funds was 4.54% for the first nine months of 1999, and 4.89% for the first
nine months of 1998. Average interest-bearing deposits for the first nine months
of 1999 increased $47,561,255 (30.23%) to $204,917,525 from the level of
$157,356,270 for the first nine months of 1998. Average interest-bearing
deposits for the third quarter of 1999 increased $43,576,863 (27.17%) to
$203,971,851 from the level of $160,394,988 for the third quarter of 1998. Total
interest-bearing deposits of Shipman added to the Company's consolidated deposit
base at October 1, 1998 were $37,564,417.
The remaining growth in deposits has resulted from depositors moving
from financial institutions which have been sold to larger, non-locally based
financial institutions, as customers are seeking more personal service than
that offered by the larger banking institutions. The wave of large bank
mergers which has occurred in the Company's market area during the past
several years has provided the Company the opportunity to expand its deposit
base, as many banking customers 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 the Company's subsidiary
banks. This influx of deposits has occurred even as the Company has reduced
the rates paid on deposits. The Company's increased liquidity has allowed for
the reduction of interest rates paid on deposits during the first nine months
of 1999, as well as serving to slow the recently growing percentage of
deposits comprised of higher rate certificates of deposits. This percentage
had been increasing significantly during the past two years; however, as
indicated in the following table, this percentage has actually decreased for
the first nine months and third quarter of 1999, when compared with the
corresponding periods of 1998. Following is an analysis of the change in
average deposit composition for the first nine months of 1999 and 1998, and
the third quarters of 1999 and 1998:
9
<PAGE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF AVERAGE DEPOSITS
FIRST NINE MONTHS
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
Noninterest-bearing deposits 9.76% 9.60%
Interest-bearing transaction accounts 15.15 14.64
Savings accounts 13.35 12.67
Certificates of deposit:
$100,000 and over 8.88 10.65
Under $100,000 52.86 52.44
------ ------
100.00% 100.00%
====== ======
<CAPTION>
THIRD QUARTERS
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
Noninterest-bearing deposits 9.55% 9.56%
Interest-bearing transaction accounts 15.13 14.73
Savings accounts 13.45 12.43
Certificates of deposit:
$100,000 and over 9.18 11.38
Under $100,000 52.69 51.90
------ ------
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
$46,314 and $21,735 for the first nine months of 1999 and 1998, respectively,
and $16,096 and $6,541 for the second quarters of 1999 and 1998, respectively.
These borrowings consisted of borrowings under the Federal Reserve Bank's
treasury, tax and loan note option and a short-term line of credit used by the
Company to fund holding company operations. The short-term line of credit was
paid off in the third quarter of 1999.
Long-term borrowings consist of borrowings by Citizens Bank from the
Federal Home Loan Bank in Chicago, which are matched against certain long-term
mortgage loans financed by Citizens Bank for its own portfolio. Interest expense
of $62,649 and $22,154 was incurred on such borrowings during the first nine
months and third quarter of 1999, respectively.
10
<PAGE>
The following tables show 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 Nine Months of 1999
-----------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
------- -------- -------- -------
ASSETS
S> <C> <C> <C> <C>
Earning assets:
Loans (1) (2) (3) $ 154,984,145 58.10% $ 10,124,202 8.73%
Investment securities, at amortized cost:
Taxable 66,357,833 24.87 2,868,795 5.78
Nontaxable (3) 13,583,018 5.09 760,617 7.49
Interest-bearing deposits in banks 618,582 0.23 23,087 4.99
Federal funds sold 11,367,559 4.26 416,029 4.89
----------- ----- ----------
Total earning assets 246,911,137 92.55 14,192,730 7.69
----------- ----- ---------- ----
----
Nonearning assets:
Cash and due from banks 6,731,849 2.52
Reserve for possible loan losses (1,456,794) (0.55)
Premises and equipment 3,851,945 1.44
Available-for-sale investment
market valuation (161,172) (0.06)
Other assets 10,908,235 4.10
----------- -------
Total nonearning assets 19,874,063 7.45
----------- -------
Total assets $ 266,785,200 100.00%
============= =======
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 34,406,301 12.91% 612,148 2.38%
Savings 30,317,796 11.36 704,684 3.11
Time deposits of $100,000 or more 20,172,939 7.56 788,314 5.22
Other time deposits 120,020,489 44.99 4,831,957 5.38
Securities sold under repurchase
agreements 7,133,729 2.67 236,791 4.44
Other short-term borrowings 936,158 0.35 46,314 6.61
Long-term borrowings 1,425,993 0.53 62,649 5.87
----------- ------- ---------
Total interest-bearing liabilities 214,413,405 80.37 7,282,857 4.54
Noninterest-bearing deposits 22,149,911 8.30 --------- ----
Other liabilities 2,634,443 0.99 ----
----------- ------
Total liabilities 239,197,759 89.66
SHAREHOLDERS' EQUITY 27,587,441 10.34
----------- ------
Total liabilities and shareholders' equity $ 266,785,200 100.00%
Net interest income/net yield ============= =======
on earning assets $ 6,909,873 3.74%
============ ======
(Continued)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
First Nine Months of 1998
-----------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
------- -------- -------- -------
ASSETS
<S> <C> <C> <C> <C>
Earning assets:
Loans (1) (2) (3) $ 116,837,878 57.02% $ 7,792,824 8.95%
Investment securities, at amortized cost:
Taxable 48,102,731 23.47 2,171,964 6.06
Nontaxable (3) 12,052,964 5.88 713,150 7.94
Federal funds sold 12,800,773 6.25 521,439 5.47
----------- ----- ----------
Total earning assets 189,794,346 92.62 11,199,377 7.92
----------- ----- ---------- ----
----
Nonearning assets:
Cash and due from banks 5,030,211 2.45
Reserve for possible loan losses (1,000,827) (0.49)
Premises and equipment 2,420,302 1.18
Available-for-sale investment
market valuation 653,387 0.32
Other assets 8,014,931 3.92
----------- -----
Total nonearning assets 15,118,004 7.38
----------- -----
Total assets $ 204,912,350 100.00%
============= =======
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 25,476,230 12.43% 495,655 2.61%
Savings 22,049,403 10.76 541,993 3.30
Time deposits of $100,000 or more 18,539,638 9.05 804,481 5.82
Other time deposits 91,290,999 44.55 3,883,456 5.71
Securities sold under repurchase
agreements 7,379,484 3.60 275,455 5.01
Other short-term borrowings 530,975 0.26 21,735 5.49
----------- ------- ----------
Total interest-bearing liabilities 165,266,729 80.65 6,022,775 4.89
---------- -----
Noninterest-bearing deposits 16,715,978 8.16 -----
Other liabilities 1,699,678 0.83
----------- -------
Total liabilities 183,682,385 89.64
SHAREHOLDERS' EQUITY 21,229,965 10.36
----------- -------
Total liabilities and shareholders' equity $ 204,912,350 100.00%
============= =======
Net interest income/net yield
on earning assets $ 5,176,602 3.66%
=========== ======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Third Quarter of 1999
-----------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
-------- -------- -------- -------
ASSETS
<S> <C> <C> <C> <C>
Earning assets:
Loans (1) (2) (3) $ 157,827,316 59.41% $3,552,601 8.93%
Investment securities, at amortized cost:
Taxable 67,579,009 25.43 982,841 5.77
Nontaxable (3) 13,946,830 5.25 265,039 7.54
Interest-bearing deposits in banks 533,412 0.20 9,062 6.74
Federal funds sold 6,575,163 2.47 89,878 5.42
----------- ----- ---------
Total earning assets 246,461,730 92.76 4,899,421 7.89
----------- ----- --------- ----
----
Nonearning assets:
Cash and due from banks 6,744,034 2.54
Reserve for possible loan losses (1,323,345) (0.50)
Premises and equipment 3,823,830 1.44
Available-for-sale investment
market valuation (1,011,586) (0.38)
Other assets 11,012,706 4.14
----------- -----
Total nonearning assets 19,245,639 7.24
----------- -----
Total assets $ 265,707,369 100.00%
============= =======
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 34,119,034 12.84% 207,542 2.41%
Savings 30,318,223 11.41 240,186 3.14
Time deposits of $100,000 or more 20,710,999 7.79 270,595 5.18
Other time deposits 118,823,595 44.72 1,583,480 5.29
Securities sold under repurchase
agreements 7,717,632 2.90 88,215 4.53
Other short-term borrowings 868,073 0.33 16,096 7.36
Long-term borrowings 1,768,304 0.67 22,154 4.97
----------- ----- ---------
Total interest-bearing liabilities 214,325,860 80.66 2,428,268 4.49
--------- ----
----
Noninterest-bearing deposits 21,523,750 8.10
Other liabilities 2,300,460 0.87
----------- -----
Total liabilities 238,150,070 89.63
SHAREHOLDERS' EQUITY 27,557,299 10.37
----------- -----
Total liabilities and shareholders' equity $ 265,707,369 100.00%
Net interest income/net yield ============= =======
on earning assets $2,471,153 3.98%
========== ======
(Continued)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Third Quarter of 1998
-----------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
------- -------- -------- -------
ASSETS
<S> <C> <C> <C> <C>
Earning assets:
Loans (1) (2) (3) $ 119,149,244 57.52% $2,696,847 9.08%
Investment securities, at amortized cost:
Taxable 48,338,753 23.33 728,699 6.05
Nontaxable (3) 11,943,552 5.77 223,379 7.50
Federal funds sold 12,494,522 6.03 170,247 5.47
----------- ----- ---------
Total earning assets 191,926,071 92.65 3,819,172 7.98
----------- ----- --------- -----
-----
Nonearning assets:
Cash and due from banks 5,129,133 2.48
Reserve for possible loan losses (913,362) (0.44)
Premises and equipment 2,512,756 1.21
Available-for-sale investment
market valuation 494,788 0.24
Other assets 8,007,228 3.86
----------- -----
Total nonearning assets 15,230,543 7.35
----------- -------
Total assets $ 207,156,614 100.00%
============= =======
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 26,125,115 12.61% 166,911 2.56%
Savings 22,035,801 10.64 184,967 3.37
Time deposits of $100,000 or more 20,188,521 9.75 291,934 5.80
Other time deposits 92,045,551 44.43 1,316,625 5.74
Securities sold under repurchase
agreements 6,223,666 3.00 78,775 5.08
Other short-term borrowings 493,694 0.24 6,541 5.31
----------- ------ ---------
Total interest-bearing liabilities 167,112,348 80.67 2,045,753 4.91
=========== ====== ========= ====
Noninterest-bearing deposits 16,949,629 8.18
Other liabilities 1,737,574 0.84
----------- ------
Total liabilities 185,799,551 89.69
SHAREHOLDERS' EQUITY 21,357,063 10.31
----------- ------
Total liabilities and shareholders' equity $ 207,156,614 100.00%
=========== =======
Net interest income/net yield
on earning assets $1,773,419 3.71%
========== =====
- -------------------------------------
(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.
</TABLE>
14
<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 NINE MONTH PERIODS
-----------------------------------------------------------------------------
AMOUNT OF INCREASE (DECREASE)
-----------------------------------------------------------------------------
CHANGE FROM 1998 CHANGE FROM 1997
TO 1999 DUE TO TO 1998 DUE TO
--------------------------------------- ----------------------------------
Volume Yield/ Volume Yield/
(1) Rate (2) Total (1) Rate (2) Total
--------- -------- ----- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 2,525,727 $(194,349) $ 2,331,378 $ 965,418 $ 30,670 $ 996,088
--------- ------- --------- ------- ------- -------
Investment securities:
Taxable 800,810 (103,979) 696,831 (266,049) 4,044 (262,005)
Nontaxable 88,908 (41,441) 47,467 (32,239) (54,538) (86,777)
--------- ------- --------- -------- ------- --------
Total interest securities 889,718 (145,420) 744,298 (298,288) (50,494) (348,782)
--------- ------- ------- ------- ------- -------
Interest-bearing deposits in banks 23,087 - 23,087 - - -
Federal funds sold (54,139) (51,271) (105,410) 90,244 16,177 106,421
--------- ------- --------- ------- ------- -------
Total interest income 3,384,393 (391,040) 2,993,353 757,374 (3,647) 753,727
--------- ------- --------- ------- ------- -------
INTEREST EXPENSE:
Interest bearing transaction
accounts 163,133 (46,640) 116,493 7,152 (15,338) (8,186)
Savings 195,364 (32,673) 162,691 39,943 34,703 74,646
Time deposits of $100,000
or more 69,225 (85,392) (16,167) 228,266 25,809 254,075
Other time deposits 1,182,072 (233,571) 948,501 185,880 78,439 264,319
--------- ------- --------- ------- ------- -------
Total deposits 1,609,794 (398,276) 1,211,518 461,241 123,613 584,854
Securities sold under
repurchase agreements (8,755) (29,909) (38,664) (41,194) 14,613 (26,581)
Other short-term borrowings 19,394 5,185 24,579 (26,357) (7,805) (34,162)
Long-term borrowings 62,649 - 62,649 - - -
--------- ------- --------- ------- ------- --------
Total interest expense 1,683,082 (423,000) 1,260,082 393,690 130,421 524,111
--------- ------- --------- ------- ------- -------
Net interest income $ 1,701,311 $ 31,960 $ 1,733,271 $ 363,684 $ (134,068) $ 229,616
========= ======== ========= ======= ======= =======
</TABLE>
(Continued)
15
<PAGE>
<TABLE>
<CAPTION>
THIRD QUARTER PERIODS
-----------------------------------------------------------------------------
AMOUNT OF INCREASE (DECREASE)
-----------------------------------------------------------------------------
CHANGE FROM 1998 CHANGE FROM 1997
TO 1999 DUE TO TO 1998 DUE TO
--------------------------------------- ----------------------------------
Volume Yield/ Volume Yield/
(1) Rate (2) Total (1) Rate (2) Total
--------- -------- ----- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 900,047 $ (44,293) $ 855,754 $ 319,643 $ 5,246 $ 324,889
--------- ------- --------- ------- ------- -------
Investment securities:
Taxable 288,793 (34,651) 254,142 (79,859) 4,083 (75,776)
Nontaxable 40,376 1,284 41,660 (19,319) (28,219) (47,538)
--------- ------- --------- ------- ------- --------
Total interest securities 1,159,430 (79,181) 1,080,249 292,720 (22,682) 270,038
--------- ------- ------- ------- ------- -------
Interest-bearing deposits in banks 9,062 - 9,062 - - -
Federal funds sold (78,848) (1,521) (80,369) 72,255 (3,792) 68,463
--------- ------- --------- ------- ------- -------
Total interest income 3,384,393 (391,040) 2,993,353 757,374 (3,647) 753,727
--------- ------- --------- ------- ------- -------
INTEREST EXPENSE:
Interest bearing transaction
accounts 50,681 (10,050) 40,631 10,724 (12,571) (1,847)
Savings 68,356 (13,137) 55,219 17,911 15,009 32,920
Time deposits of $100,000
or more 8,140 (29,479) (21,339) 81,219 1,462 82,681
Other time deposits 374,689 (107,834) 266,855 52,279 2,202 54,481
--------- ------- --------- ------- ------- -------
Total deposits 501,866 (160,500) 341,366 162,133 6,102 168,235
Securities sold under
repurchase agreements 18,398 (8,958) 9,440 (20,068) (581) (20,649)
Other short-term borrowings 6,332 3,223 9,555 (1,923) 187 (1,736)
Long-term borrowings 22,154 - 22,154 - - -
--------- ------- --------- ------- ------- -------
Total interest expense 548,750 (166,235) 382,515 140,142 5,708 145,850
--------- ------- --------- ------- ------- -------
Net interest income $ 610,680 $ 87,054 $ 697,734 $ 152,578 $ (28,390) $ 124,188
========= ======== ========= ======= ======= =======
</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.
16
<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 nine months of 1999, the Company recorded a provision for
possible loan losses of $390,000, with $60,000 of this amount recorded in the
third quarter of 1999. The Company recorded a provision of $240,000 and $30,000
during the first nine months and third quarter of 1998, respectively. Following
is a summary of the activity in the Company's reserve for possible loan losses
for the first nine months of 1999 and 1998, and the third quarters of 1999 and
1998:
<TABLE>
<CAPTION>
FIRST NINE MONTHS THIRD QUARTER
---------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 1,641,212 $ 1,098,038 $ 1,325,813 $ 915,370
Provision for possible loan losses
charged to operations 390,000 240,000 60,000 30,000
Charge-offs during period (859,297) (507,798) (153,485) (50,304)
Recoveries during period 203,897 81,108 143,484 16,282
---------- ----------- ---------- --------
Balance at end of period $ 1,375,812 $ 911,348 $ 1,375,812 $ 911,348
========= ========== ========= =======
</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, after considering the underlying collateral values securing such
loans, was provided for in the total current period reserve.
During the first nine months of 1999, the Company incurred $859,297 of
loan charge-offs, with $178,368 at the Carlinville Bank, $248,033 at Citizens
Bank, and $432,896 at Palmer Bank. The charge-offs at the Carlinville Bank
and Citizens Bank were comprised of previously identified problem loans for
which collection efforts have largely been exhausted. At Palmer Bank, the
Company continues to experience problems with loans that had been made prior
to the Company's acquisition of the Bank in 1997. Company management
continues to monitor the problem loans at Palmer Bank and believes that an
adequate reserve for possible loan losses has been established to cover all
known and expected losses in that Bank's portfolio, based on the composition
of the portfolio and the collateral values available. When the Company
acquired Palmer Bank on January 24, 1997, 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. 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 the 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.
However, nonaccrual loans at Palmer Bank at September 30, 1999 have increased
to $2,423,000.
17
<PAGE>
The reserve for possible loan losses at September 30, 1999 was 0.86% of
net outstanding loans. Nonperforming loans totaled approximately $4,154,000
at September 30, 1999, resulting in a reserve coverage of nonperforming loans
of 33.12%. Total nonperforming loans at December 31, 1998 totaled $1,772,786,
with a reserve coverage on that date of 92.58%. Company management believes
the reserve for possible loan losses allocated for such loans is adequate
when the underlying collateral values on such credits are considered.
The Company had no loans to any foreign countries at September 30, 1999,
nor did it have any concentration of loans to any industry, other than the
agricultural industry on September 30, 1999. 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 September 30, 1999.
At September 30, 1999, the Company had loans outstanding to the
agricultural sector of approximately $50,600,000, which comprised 31.63% 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. While the currently-depressed market for agricultural products
has caused several of the Company's agricultural borrowers to experience
tighter cash flows, Company management does not expect that such conditions
will result in significantly increased charge-offs in the near future.
NONINTEREST INCOME
- ------------------
Total noninterest income for the first nine months of 1999 increased
$311,162 (25.94%) to $1,510,804 from the $1,199,642 recorded for the first
nine months of 1998. Total noninterest income for the third quarter of 1999
increased $414,082 (142.90%) to $703,847 from the $289,765 recorded for the
third quarter of 1998. Excluding the effects of security sale and call gains,
the Company's total noninterest income increased $406,757 and $231,301 in the
first nine months and third quarter of 1999, respectively, as compared with
the corresponding periods of 1998. The primary reason for this increase was
the acquisition of Shipman on October 1, 1998. This acquisition was accounted
for as a purchase and thus, the operations of Shipman have been included in
1999 operations, but are excluded from the consolidated income statement for
the first nine months of 1998. Total noninterest income for Shipman for the
first nine months and third quarter of 1999 includes the following components:
<TABLE>
<CAPTION>
First Nine Third
Months of Quarter
1999 1999
----------- ---------
<S> <C> <C>
Service charge on deposits $ 112,596 $ 38,701
Mortgage banking revenue 87,265 33,546
Other noninterest income 93,406 33,392
-------- --------
$ 293,267 $ 105,639
======= =======
</TABLE>
18
<PAGE>
Net security gains totaled $216,348 and $186,370 for the first nine
months and third quarter of 1999, respectively, compared with $311,943 and
$3,589, respectively, for the corresponding periods in 1998. Included in
these net security gains for the nine months ended September 30, 1999 and
1998 are gains of $28,783 and $7,901, resulting from the early call of
certain debt securities. Gains (losses) from early calls for the third
quarters of 1999 and 1998 totaled $(1,195) and $3,589, respectively.
Additionally, during 1999 and 1998, the Company recorded gains from the sale
of a mutual fund investment purchased in 1995. 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 which occurred from 1995 to 1998, 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 fund, again injecting the proceeds into Palmer
Bank to increase its capital, recording a gain of $169,614. In the third
quarter of 1999, the Company sold the remaining portion of its initial mutual
fund investment, recording a gain of $187,565 thereon. The net proceeds of
$590,023 were used to pay off the Company's short-term line of credit. The
remaining mutual fund investment is included in the Company's
available-for-sale securities and, at September 30, 1999, had a fair value
and amortized cost of $474,377 and $461,274, respectively.
NONINTEREST EXPENSE
Noninterest expense for the first nine months of 1999 increased
$1,704,878 (46.77%) to $5,349,950 from the $3,645,072 recorded for the first
nine months of 1998. Noninterest expense for the third quarter of 1999
increased $563,842 (46.79%) to $1,768,897 from the $1,205,055 recorded for
the third quarter of 1998. Of these increases in noninterest expenses,
$1,126,904 for the first nine months of 1999 and $394,258 for the third
quarter of 1999 were attributable to Shipman, which had the following
noninterest expense components for these periods:
<TABLE>
<CAPTION>
First Nine Third
Months of Quarter
1999 1999
----------- ---------
<S> <C> <C>
Salaries and employee benefits $ 560,785 204,925
Occupancy and equipment expense 152,273 52,648
Postage, printing and supplies 57,267 26,156
Amortization of intangible assets 98,970 37,709
Other noninterest expense 257,609 72,820
---------- -------
$ 1,126,904 394,258
========= =======
</TABLE>
Excluding Shipman's noninterest expenses, the Company's noninterest
expenses for the first nine months and third quarter of 1999 increased
$577,974 and $169,584, respectively, when compared with the corresponding
periods of 1998. Salaries and employee benefits increased $214,576 and
$54,679 during the first nine months and third quarter of 1999, respectively,
over the expenses incurred in the corresponding periods for 1998, due
primarily to normal merit increases.
19
<PAGE>
Occupancy and equipment expenses increased $172,100 and $49,452 during the
first nine months and third quarter of 1999, respectively, over the expenses
incurred in the corresponding periods for 1998, due to the increased
equipment purchased in 1998 to convert all of the Banks to a new in-house
computer system. Legal and professional fees increased $57,822 and $5,941
during the first nine months and third quarter of 1999, respectively, over
the expenses incurred in the corresponding periods of 1998, due to costs
incurred in consolidating the activities of the Company's acquisitions.
INCOME TAXES
Applicable income taxes for the first nine months of 1999 increased
$82,389 (13.52%) to $691,722 from the $609,333 recorded for the first nine
months of 1998. The effective tax rates for the first nine months of 1999 and
1998 were 28.42% and 27.07%, respectively. Applicable income taxes for the
third quarter of 1999 increased $104,514 (49.66%) to $314,993 from the
$210,479 recorded for the third quarter of 1998. The effective tax rates for
the third quarters of 1999 and 1998 were 26.03% and 27.78%, respectively. The
changes in the levels of effective tax rates related primarily to the level
of state tax-exempt U.S. agency securities on hand and the interest earned on
the securities for the particular periods.
FINANCIAL CONDITION
The Company's total assets decreased $5,470,555 (2.06%) to $260,584,724
at September 30, 1999, from $266,055,279 at December 31, 1998. This decrease
was due primarily to a reduction of deposits.
Total deposits decreased $10,275,262 (4.47%) to $219,650,674 at
September 30, 1999 from $229,925,936 at December 31, 1998. Total deposits at
December 31, 1998 included a high-level of public funds (particularly from
Macoupin County), and an increased deposit level resulting from the timing of
social security deposits. These social security deposits are normally paid on
the third day of each month; however, when the third day is a nonbusiness day
(as was January 3, 1999), the payments revert back to the previous business
day, which in this case was December 31, 1998.
Short-term borrowings increased $4,021,545 (89.38%) to $8,520,962 at
September 30, 1999 from $4,499,417 at December 31, 1998. 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 level of
Federal funds sold generally tracks with the level of securities sold under
repurchase agreements; however, Federal funds sold actually decreased
$15,003,000 (93.79%) at September 30, 1999 to $994,000 from $15,997,000 at
December 31, 1998. Federal funds sold levels were inflated at December 31,
1998 by the increased level of deposits resulting from the timing of social
security deposits. Additionally, excess Federal funds were used to fund loan
growth and additional investment security purchases.
Investment securities increased $4,404,642 (5.95%) to $78,390,869 at
September 30, 1999 from $73,986,227 at December 31, 1998. Proceeds from
maturities and calls of and principal payments on debt securities were
$16,598,243 for the first nine months of 1999, while new investments
purchased in the first nine months of 1999 totaled $23,673,348. The total
fair value of the Company's investment portfolio at September 30, 1999 was
approximately $78,342,000, or 99.94% of the portfolio's book value on that
date. The market valuation of the Company's investment securities portfolio
at December 31, 1998 was 100.5% of the portfolio's book value. The Company
experienced a decline in the fair value of its available-for-sale securities
during the first nine months and third quarter of 1999, as the market
valuations for such securities
20
<PAGE>
during these periods declined $2,096,726 and $349,237, respectively,
resulting from a shift in the volatile bond market. The majority of this
market decline occurred near the end of the second quarter in conjunction
with speculation as to the Federal Reserve's expected increase in interest
rates (which occurred on June 30, 1999, and again on August 24, 1999). This
decline also affected accumulated other comprehensive income, as the net
decline in market valuation of available-for-sale securities is included, net
of related tax, in accumulated other comprehensive income within the
Company's stockholders' equity.
Total loans increased $6,803,055 (4.44%) to $159,983,124 at September
30, 1999 from $153,180,069 at December 31, 1998. Given the Company's
concentration of agricultural loans, the level of agricultural production
loans generally increases throughout the year, until crops and livestock are
sold late in the year.
The Company's capitalization remained at a strong level at September 30,
1999. Total capital was $27,395,327 or 10.51% of total assets at September
30, 1999, as compared with 10.43% at December 31, 1998.
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 September 30, 1999, 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 13.64%, 14.43% and 9.10%, respectively, at
September 30, 1999.
21
<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 determines in part the amount of the premiums assessed
against the institution for FDIC insurance. At September 30, 1999, 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.
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
$69,065,575
22
<PAGE>
at September 30, 1999), 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. The Company also maintains a short-term line of credit with an
unaffiliated financial institution of $2,500,000, of which the entire amount
was available at September 30, 1999.
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
minimizing 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
September 30, 1999, 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 $ 41,786 $ 37,288 $ 76,167 $ 4,448 $ 159,689
Investment securities 2,308 4,467 36,050 35,566 78,391
Other interest-earning assets 1,069 - - - 1,069
--------- --------- --------- --------- ---------
Total interest-earnings assets $ 45,163 $ 41,755 $ 112,217 $ 40,014 $ 239,149
========= ========= ========= ========= =========
Interest-bearing liabilities:
Savings, and interest bearing
transaction accounts $ 63,308 $ - $ - $ - $ 63,308
Time certificates of deposit of
$100,000 or more 9,002 7,662 2,403 - 19,067
All other time deposits 23,229 63,739 29,756 - 116,724
Nondeposit interest-bearing
liabilities 8,521 62 295 2,145 11,023
--------- --------- --------- --------- ---------
Total interest-bearing
liabilities $ 104,060 $ 71,463 $ 32,454 $ 2,145 $ 210,122
========= ========= ========= ========= =========
Gap by period $ (58,897) $ (29,708) $ 79,763 $ 37,869 $ 29,027
========= ========= ========= ========= =========
Cumulative gap $ (58,897) $ (88,605) $ (8,842) $ 29,027 $ 29,027
========= ========= ========= ========= =========
Ratio of interest-sensitive
assets to interest-sensitive
liabilities 0.43x 0.58x 3.46x 18.65x 1.14x
======== ======== ======== ======== =========
Cumulative ratio of interest-
sensitive assets to interest-
sensitive liabilities 0.43x 0.50x 0.96x 1.14x 1.14x
======== ======== ======== ======== =========
</TABLE>
23
<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.
YEAR 2000 COMPLIANCE
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. The Year 2000 has posed a unique set of challenges to those
industries reliant on information technology. As a result of methods employed
by early programmers, many software applications and operational programs may
be unable to distinguish the Year 2000 from the Year 1900. If not effectively
addressed, this problem could result in the production of inaccurate data, or
in the worst cases, the inability of the systems to continue to function
altogether. Financial institutions are particularly vulnerable due to the
industry's dependence on electronic data processing systems. In 1997, the
Company started the process of identifying the hardware and software issues
required to be addressed to assure Year 2000 compliance. The Company began by
assessing the issues related to the Year 2000 and the potential for those
issues to adversely affect the Company's operations and those of its
subsidiaries.
Since that time, the Company has established a Year 2000 management
committee to deal with this issue. The management committee meets with and
utilizes various representatives from key areas throughout the organization
to aid in analysis and testing. It is the mission of this committee to
identify areas subject to complications related to the Year 2000 and to
initiate remedial measures designed to eliminate any adverse effects on the
Company's operations. The committee has identified all mission-critical
software and hardware that may be adversely affected by the Year 2000 and has
required vendors to represent that the systems and products provided are or
will be Year 2000 compliant.
The Company licenses all software used in conducting its business from
third party vendors. None of the Company's software has been internally
developed. The Company has developed a comprehensive list of all software,
all hardware and all service providers used by the Company. Every vendor has
been contacted regarding the Year 2000 issue, and the Company continues to
closely track the progress each vendor is making in resolving the problems
associated with the issue. The Company's vendor of primary software
(Information Technologies, Inc. (ITI)) has maintained that its products have
been Year 2000 compliant since their inception. Nevertheless, testing
standards were formulated and comprehensive testing was successfully
performed on the ITI software in the fourth quarter of 1998. In addition, the
Company continues to monitor all other major vendors of services to the
Company for Year 2000 issues in order to avoid shortages of supplies and
services in the coming months. The Company has not had any material delay
regarding its information systems projects as a result of the Year 2000
project.
24
<PAGE>
The Company's main commercial banking relationship is with United
Missouri Bank in St. Louis (UMB). UMB correspondence indicates substantial
progress with Year 2000 readiness.
There are several third party utilities with which the Company has an
important relationship, i.e., PNG Communications (phone service), and
Illinois Power (electricity and natural gas). The Company has not identified
any practical, long-term alternatives to relying on these companies for basic
utility services. In the event that the utilities significantly curtailed or
interrupted their services to the Company, it would have a significant
adverse effect on the Company's ability to conduct its business.
The Company has also tested vault doors, alarm systems, networks, etc.
and is not aware of any significant problems with such systems.
The Company decided to consolidate computer processing among its three
banks and benefit from economies of scale and from savings derived through
conversion to check imaging. In the process, Year 2000 testing on new
equipment was actually simplified. Costs specific to Year 2000 remediation
and testing were not material. At the present time, no situations that will
require material cost expenditures to become fully compliant have been
identified. However, the Year 2000 problem is pervasive and complex and can
potentially affect any computer process. Accordingly, no assurance can be
given that Year 2000 compliance can be achieved without additional
unanticipated expenditures and uncertainties that might affect future
financial results.
It is not possible at this time to quantify the estimated future costs
due to possible business disruption caused by vendors, suppliers, customers,
and even the possible loss of electric power or phone service; however, such
costs could be substantial.
The Company is committed to a plan for achieving compliance, focusing
not only on its own data processing systems, but also on its loan customers.
The management committee has taken steps to educate and assist its customers
with identifying their Year 2000 compliance problems. In addition, the
management committee has proposed policy and procedure changes to help
identify potential risks to the Company and to gain an understanding of how
customers are managing the risks associated with the Year 2000. The Company
continues to assess the impact, if any, the Year 2000 will have on its credit
risk and loan underwriting.
The Company has developed contingency plans for various Year 2000
problems and continues to revise those plans based on testing results and
vendor notifications.
ACCOUNTING PRONOUNCEMENTS
Certain accounting rule changes which will or have gone into effect
recently, as promulgated by the Financial Accounting Standards Board (FASB),
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:
25
<PAGE>
- FAS 133 - In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (FAS 133), which
establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other
contracts, and for hedging activities. FAS 133 defines a derivative
instrument as a financial instrument or other contract with all three
of the following characteristics:
a. It has (1) one or more underlyings and (2) one or more notional
amounts or payment provisions or both. These terms determine the
amount of the settlement or settlements and, in some cases, whether
or not a settlement is required. An underlying is a specified
interest rate, security price, commodity price, foreign exchange
rate, index of prices or rates, or other variable. An underlying may
be a price or rate of an asset or liability but is not the asset or
liability itself. A notional amount is a number of currency units
specified in the contract. The settlement of a derivative instrument
with a notional amount is determined by interaction of that notional
amount with the underlying. A payment provision specifies a fixed or
determinable settlement to be made if the underlying behaves in a
specified manner.
b. It requires no initial net investment or an initial net investment
than would be required for other types of contracts that would be
expected to have a similar response to changes in market factors.
c. Its terms require or permit net settlement, it can readily be
settled by a means outside the contract, or it provides for delivery
of an asset that puts the recipient in a position not substantially
different than net settlement.
FAS 133 requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those
instruments at fair value. If certain conditions are met, a derivative
may be specifically designated as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable
cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
The accounting for changes in the fair value of a derivative (that is,
the gains and losses) depends on the intended use of the derivative and
the resulting designation. The Company and the Banks have not engaged
in any hedging activities during the three months ended March 31, 1999
and 1998. For a derivative not designated as a hedging instrument, the
gain or loss is recognized in earnings in the period of change.
FAS 133 was originally supposed to be effective for all fiscal quarters
of fiscal years beginning after June 15, 1999; however, the FASB has
deferred this effective date for an additional year. Company management
believes the implementation of FAS 133 will not have a material impact
on the Company's consolidated financial position, results of
operations, or liquidity. At September 30, 1999, the only financial
instruments meeting the above definition of a derivative instrument are
fixed rate loan commitments and standby letters of credit. The fair
values 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 credit worthiness of such counterparties.
The Company believes such commitments have been made on terms which are
competitive in the markets in which it operates and are
26
<PAGE>
relatively short-term in nature; however, no premium or discount
is offered thereon and, accordingly, the Company has not assigned
a value to such instruments.
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
PENDING LEGISLATION. On November 12, 1999, the President signed
legislation that will allow bank holding companies to engage in a wider
range of nonbanking activities, including greater authority to engage in
securities and insurance activities. Under the Gramm-Leach-Bliley Act (the
"Act"), 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 by regulation or
order is (i) financial in nature, (ii) incidental to any such financial
activity, or (iii) complementary to any such financial activity and does not
pose a substantial risk to the safety or soundness of depository institutions
or the financial system generally. The Act specifies certain activities that
are deemed to be 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 any activity currently permitted for bank holding companies
by the Federal Reserve Board under section 4(c)(8) of the Bank Holding
Company Act. A bank holding company may elect to be treated as a financial
holding company only if all depository institution subsidiaries of the
holding company are well-capitalized, well-managed and have at least a
satisfactory rating under the Community Reinvestment Act.
National banks are also authorized by the Act to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company (as described above) and any activity that the Secretary of
the Treasury, in consultation with the Federal Reserve,
27
<PAGE>
determines is financial in nature or incidental to any such financial
activity, except (i) insurance underwriting, (ii) real estate development or
real estate investment activities (unless otherwise permitted by law), (iii)
insurance company portfolio investments and (iv) merchant banking. The
authority of a national bank to invest in a financial subsidiary is subject
to a number of conditions, including, among other things, requirements that
the bank must be well-managed and well-capitalized (after deducting from
capital the bank's outstanding investments in financial subsidiaries). The
Act provides that state banks may invest in financial subsidiaries (assuming
they have the requisite investment authority under applicable state law)
subject to the same conditions that apply to national bank investments in
financial subsidiaries.
At this time, the Company is unable to predict the impact the Act may
have on the Company and its subsidiaries.
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.
28
<PAGE>
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.
ITEM 5. OTHER INFORMATION
None.
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)
/s/James T. Ashworth
-----------------------------------------------
James T. Ashworth
President and Principal Executive, Financial and
Accounting Officer
Date: November 12, 1999
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF CARLINVILLE NATIONAL BANK SHARES, INC. AND
SUBSIDIARIES AS OF SEPTEMBER 30, 1999 AND THE CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME, STOCKHOLDERS' EQUITY, AND FLOWS FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 7,553,251 7,553,251
<INT-BEARING-DEPOSITS> 74,901 74,901
<FED-FUNDS-SOLD> 994,000 994,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 69,065,575 69,065,575
<INVESTMENTS-CARRYING> 9,325,294 9,325,294
<INVESTMENTS-MARKET> 9,276,000 9,276,000
<LOANS> 159,983,124 159,983,124
<ALLOWANCE> 1,375,812 1,375,812
<TOTAL-ASSETS> 260,584,724 260,584,724
<DEPOSITS> 219,650,674 219,650,674
<SHORT-TERM> 8,520,962 8,520,962
<LIABILITIES-OTHER> 2,515,761 2,515,761
<LONG-TERM> 2,502,000 2,502,000
0 0
0 0
<COMMON> 262,710 262,710
<OTHER-SE> 27,132,617 27,132,617
<TOTAL-LIABILITIES-AND-EQUITY> 260,584,724 260,584,724
<INTEREST-LOAN> 3,492,021 10,085,620
<INTEREST-INVEST> 1,172,419 3,421,179
<INTEREST-OTHER> 98,940 439,116
<INTEREST-TOTAL> 4,763,380 13,945,915
<INTEREST-DEPOSIT> 2,301,803 6,937,103
<INTEREST-EXPENSE> 2,428,268 7,282,857
<INTEREST-INCOME-NET> 2,335,112 6,663,058
<LOAN-LOSSES> 60,000 390,000
<SECURITIES-GAINS> 186,370 216,348
<EXPENSE-OTHER> 1,768,897 5,349,950
<INCOME-PRETAX> 1,210,062 2,433,912
<INCOME-PRE-EXTRAORDINARY> 895,069 1,742,190
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 895,069 1,742,190
<EPS-BASIC> 3.62 7.03
<EPS-DILUTED> 3.62 7.03
<YIELD-ACTUAL> 3.98 3.74
<LOANS-NON> 4,058,000 4,058,000
<LOANS-PAST> 96,000 96,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 15,145,000 15,145,000
<ALLOWANCE-OPEN> 1,325,813 1,641,212
<CHARGE-OFFS> 153,485 859,297
<RECOVERIES> 143,484 203,897
<ALLOWANCE-CLOSE> 1,375,812 1,375,812
<ALLOWANCE-DOMESTIC> 1,275,812 1,275,812
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 100,000 100,000
</TABLE>
