<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
(Mark One)
[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
---------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ---------------
Commission file number 000-24149
---------------------------
Central Illinois Bancorp, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
The registrant is filing this amendment to its Form 10-Q for the quarter ended
June 30, 1998 to reflect a restatement of its previously filed consolidated
financial statements for the three and six months ended June 30, 1998. The
restatement was made to recognize non-cash compensation expense related to the
February 1998 extension of the expiration date of all previously issued and
unexpired stock options granted under the Company's stock option plans.
Illinois 37-1203599
------------------------------ ----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2913 W. Kirby Avenue, Champaign, Illinois 61821
----------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(217) 355-6200
----------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 report(s), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X No
---- ----
(2) Yes No X
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
At August 13, 1998 the Company had 107,088 shares
of $1.00 par value common stock outstanding
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CENTRAL ILLINOIS BANCORP, INC.
Consolidated Balance Sheets
(dollars in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31, June 30,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Cash and due from banks $ 13,550 $ 9,774 $ 8,105
Securities available for sale at fair value 72,301 54,347 49,855
Securities to be held to maturity (approximate
fair value of $112,958, $107,282, and
$96,486, respectively) 112,156 106,589 96,452
Federal funds sold 5,910 - 12,225
Loans - net of allowance for loan losses of
$8,429, $6,692 and $5,017, respectively 736,549 609,536 474,994
Premises and equipment - net 13,573 12,607 9,649
Other assets 17,127 14,470 11,334
-------- -------- --------
Total Assets $971,166 $807,323 $662,614
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 59,133 $ 54,474 $ 39,832
NOW accounts 27,891 31,875 21,699
Savings 88,855 64,812 53,827
Time 629,936 531,669 465,588
-------- -------- --------
Total Deposits 805,815 682,830 580,946
Federal funds purchased and repurchase agreements 3,680 12,886 8,924
Other borrowings 17,292 5,434 2,436
Accrued interest and other liabilities 6,201 5,441 4,014
-------- -------- --------
Total Liabilities 832,988 706,591 596,320
-------- -------- --------
Stockholders' Equity:
Common stock, par value $1; 50,000,000 shares
authorized, 107,088, 90,735 and 71,562
issued and outstanding, respectively 107 91 72
Capital surplus 120,261 86,241 54,918
Retained earnings 17,518 14,179 11,219
Accumulated other comprehensive income 292 221 85
-------- -------- --------
Total Stockholders' Equity 138,178 100,732 66,294
-------- -------- --------
Total Liabilities and Stockholders' Equity $971,166 $807,323 $662,614
======== ======== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
<PAGE> 3
CENTRAL ILLINOIS BANCORP, INC.
Consolidated Statements of Income and Comprehensive Income
(dollars in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended June 30, Six months ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 16,268 $10,984 $30,762 $20,853
Interest and dividends on securities:
Taxable 2,304 1,841 4,626 3,460
Tax-exempt 321 233 601 407
Dividends 104 40 104 90
Interest on Federal funds sold 114 170 417 288
-------- ------- ------- -------
Total interest income 19,111 13,268 36,510 25,098
-------- ------- ------- -------
Interest Expense:
Deposits 9,678 6,993 18,689 13,114
Federal funds purchased and
repurchase agreements 63 31 134 83
Other borrowed funds 329 136 549 276
-------- ------- ------- -------
Total interest expense 10,070 7,160 19,372 13,473
-------- ------- ------- -------
Net interest income 9,041 6,108 17,138 11,625
Provision for loan losses 1,105 465 2,013 1,692
-------- ------- ------- -------
Net interest income after provision
for loan losses 7,936 5,643 15,125 9,933
-------- ------- ------- -------
Other Income:
Trust Department 100 58 164 110
Service fees 1,134 707 2,355 1,255
Securities gains (losses) - - - -
Other 44 50 58 59
-------- ------- ------- -------
Total other income 1,278 815 2,577 1,424
-------- ------- ------- -------
Other Expenses:
Salaries and employees benefits 3,858 2,421 8,380 4,849
Occupancy expenses, net 963 670 1,778 1,299
Other operating expenses 1,209 996 2,561 1,825
-------- ------- ------- -------
Total other expense 6,030 4,087 12,719 7,973
-------- ------- ------- -------
Income before income taxes 3,184 2,371 4,983 3,384
Income tax expense 1,125 781 1,644 1,069
-------- ------- ------- -------
Net income 2,059 1,590 3,339 2,315
-------- ------- ------- -------
Other Comprehensive Income, net of tax: Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period (net of
tax of $44 and $96, respectively (9) 296 71 156
Less reclassification adjustment for
gains (losses) included in net
income - - - -
-------- ------- ------- -------
Other comprehensive income (loss) (9) 296 71 156
-------- ------- ------- -------
Comprehensive income $ 2,050 $ 1,886 $ 3,410 $ 2,471
======== ======= ======= =======
Earnings per share (net income):
Basic $ 21.31 $ 22.23 $ 35.64 $ 32.43
======== ======= ======= =======
Diluted $ 21.14 $ 22.07 $ 35.42 $ 32.27
======== ======= ======= =======
</TABLE>
See the accompanying notes to the consolidated financial statements.
<PAGE> 4
CENTRAL ILLINOIS BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
For the Six Month Period Ended June 30, 1998 and 1997
(dollars in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Capital Retained Comprehensive
Shares Par Value Surplus Earnings Income Total
------ --------- ------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 90,735 $ 91 $ 86,241 $ 14,179 $ 221 $100,732
-------- ------ --------
Comprehensive income:
Net income 3,339 - 3,339
Other comprehensive income - 71 71
-------- ------ --------
3,339 71 3,410
-------- ------ --------
Capital issuance 16,320 16 32,583 - - 32,599
Non-Cash Compensation - - 1,396 - - 1,396
Exercise of stock options,
net of tax 33 - 41 - - 41
------- ------ -------- -------- ------ --------
Balance, June 30, 1998 107,088 $ 107 $120,261 $ 17,518 $ 292 $138,178
======= ====== ======== ======== ====== ========
Balance, December 31, 1996 67,399 $ 67 $ 49,332 $ 8,904 $ (71) $ 58,232
-------- ------ --------
Comprehensive income:
Net income 2,315 - 2,315
Other comprehensive
income (loss) - 156 156
-------- ------ --------
2,315 156 2,471
-------- ------ --------
Capital issuance 4,043 5 5,470 - - 5,475
Exercise of stock options,
net of tax 120 - 116 - - 116
------- ------ -------- -------- ------ --------
Balance, June 30, 1997 71,562 $ 72 $ 54,918 $ 11,219 $ 85 $ 66,294
======= ====== ======== ======== ====== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
<PAGE> 5
CENTRAL ILLINOIS BANCORP, INC.
Consolidated Statements of Cash Flows
For the Six Month Period Ended June 30, 1998 and 1997
(dollars in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net cash provided (used) by operating activities $ 5,766 $ 3,155
--------- ---------
Cash flows from investing activities: Net (increase) decrease in:
Securities (23,563) (34,002)
Loans (129,199) (73,446)
Federal funds sold (5,910) (12,225)
Capital expenditures (1,604) (661)
--------- ---------
Net cash provided (used) by investing activities (160,276) (120,334)
--------- ---------
Cash flows from financing activities: Net increase (decrease) in:
Demand, NOW and savings accounts 24,718 5,275
Certificates of deposit 98,267 108,182
Repurchase agreements and Federal funds purchased (9,206) (5,034)
Net proceeds from other borrowings 11,858 (5,167)
Proceeds from capital issuance 32,649 5,591
--------- ---------
Net cash provided (used) by financing activities 158,286 108,847
--------- ---------
Net increase (decrease) in cash and cash equivalents 3,776 (8,332)
Cash and cash equivalents at beginning of period 9,774 16,437
--------- ---------
Cash and cash equivalents at end of period $ 13,550 $ 8,105
========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
<PAGE> 6
CENTRAL ILLINOIS BANCORP, INC.
Notes to Consolidated Financial Statements
June 30, 1998 and 1997
(dollars in thousands, except share amounts)
Note 1 - Basis of Presentation:
The accompanying financial statements are unaudited.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and general practices within the
banking industry.
The interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto presented in
Central Illinois Bancorp, Inc.'s ("Company") 1997 Annual Report. The
quarterly consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
results for interim periods. All such adjustments are of a normal recurring
nature. Certain prior year amounts have been reclassified to conform with
the current year presentation. The results for interim periods are not
necessarily indicative of results to be expected for the complete fiscal
year.
The Company restated its financial statements as of and for the three and
six month periods ended June 30, 1998 from those previously issued. The
restatement was made to recognize non-cash compensation expense related to
the February 1998 extension of the expiration date of all previously issued
and unexpired stock options granted under its stock option plans. As a
result of this restatement, which is reflected in the accompanying financial
statements, salaries and employee benefits expense for the three and six
month periods ended June 30, 1998, increased by $70, and $1,396, and net
income decreased by $43 and $843, respectively, from the amounts previously
reported. Basic earnings per share was reduced by $.45 and $9.00, and
diluted earnings per share was reduced by $.34 and $8.68, for the three and
six month periods ended June 30, 1998, respectively, from the amounts
previously reported.
Note 2 - Comprehensive Income:
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", was adopted by the Company on January 1, 1998. SFAS
130 establishes standards for reporting comprehensive income. Comprehensive
income includes net income and other comprehensive income which is defined
as non-owner related transactions in equity. Prior periods have been
reclassified to reflect the application of the provisions of SFAS No. 130.
Note 3 - Accounting Matters:
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", is effective for financial statements for periods beginning
after December 15, 1997. SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
to shareholders. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. Adoption of SFAS No. 131 will expand
disclosures related to the consolidated financial statements. The Company
adopted SFAS 131 on January 1, 1998, and is currently evaluating its
operations to determine the appropriate disclosures with respect to SFAS No.
131.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", revises and standardizes the disclosure
requirements for employers' pensions and other postretirement benefits
plans. This standard does not change the measurement or recognition of such
plans. SFAS No. 132 is effective for fiscal years beginning after December
15, 1997. Restatement of disclosures for earlier periods presented is
required unless the information is not readily available, in which case, all
available information and a description of the information not available
shall be included in the notes to the financial statements. The disclosure
requirements of SFAS No. 132 have been designed to provide information that
is more comparable, understandable, and concise for the users of this
information. The Company adopted SFAS 132 on January 1, 1998.
<PAGE> 7
CENTRAL ILLINOIS BANCORP, INC.
Notes to Consolidated Financial Statements
June 30, 1998 and 1997
(dollars in thousands, except share amounts)
Note 3 - Accounting Matters - Continued:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. SFAS No. 133 requires all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings
or other comprehensive income depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. The Company anticipates due to non-use of derivative
instruments, the adoption of SFAS No. 133 will not have any significant
effect on the results of operations.
Note 4 - Stock Offerings:
During the 2nd Quarter of 1998, the Company issued 16,320 shares of common
stock. The $32,599 will be used for additional investments in subsidiary
banks, potential acquisitions and working capital.
Note 5 - Subsequent Event:
On July 16, 1998, the Company purchased the deposits and certain assets of
the Gurnee, Illinois, Branch of Argo Federal Savings, FSB. Total deposits
acquired approximates $13,000.
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion presented below provides an analysis of Central Illinois Bancorp,
Inc.'s (the "Company") results of operations and financial condition for the
quarter and six months ended June 30, 1998 as compared to the same periods in
1997. Management's discussion and analysis should be read in conjunction with
the consolidated financial statements and accompanying notes presented elsewhere
in this report as well as the amended Form 10 which was filed by the Company on
June 25, 1998.
OVERVIEW
Net income for the second quarter of 1998 was $2,059,000 as compared to
$1,590,000 for the second quarter of 1997, representing a 29.5% increase. Basic
and diluted earnings per share were $21.31 and $21.14, respectively for the
three months ended June 30, 1998 as compared to $22.23 and $22.07, respectively
for the three months ended June 30, 1997. Basic earnings per share decreased
4.1% from the quarter ended June 30, 1997 to the quarter ended June 30, 1998 and
diluted earnings per share decreased 4.2% for the same period. The return on
average assets for the second quarter ended June 30, 1998 was 0.87% as compared
to 1.00% for the second quarter ended June 30, 1997. The return on average
equity for the second quarter ended June 30, 1998 was 6.04% as compared to 9.84%
for the second quarter ended June 30, 1997. The decrease in earnings per share
and the return on average equity is primarily a result of additional capital
raised during the second quarter of 1998 and the fourth quarter of 1997, which
significantly increased the average equity of the Company from $65,562,000
during the second quarter of 1997 to $136,730,000 during the second quarter of
1998. The Company anticipates that the return on equity will improve as the
Company continues to grow and utilizes this capital. Information regarding the
additional capital raised by the Company is contained within the amended Form 10
filed by the Company on June 25, 1998.
Net income for the six months ended June 30, 1998 was $3,339,000 as compared to
$2,315,000 for the six months ended June 30, 1997, representing a 44.2%
increase. Basic and diluted earnings per share were $35.64 and $35.42,
respectively for the six months ended June 30, 1998 as compared to $32.43 and
$32.27, respectively for the six months ended June 30, 1997. The return on
average assets for the six months ended June 30, 1998 was 0.76% and 0.76% for
the six months ended June 30, 1997. The return on average equity for the six
months ended June 30, 1998 was 6.22% as compared to 7.26% for the six months
ended June 30, 1997.
Net income for the six months ended June 30, 1998 included $1.4 million pre-tax
or $0.8 million after-tax, non-cash compensation expense related to the
extension of the expiration date of all previously issued and outstanding stock
options granted under the Company's stock option plans as of February 25, 1998.
Except where otherwise noted, the variances discussed in this section are the
result of the growth of the Company. Additional details on the items included in
the above summary, and the components of these items, are provided in the
following sections of this report.
The following table presents selected consolidated financial information for the
Company.
<PAGE> 9
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except share amounts)
<TABLE>
<CAPTION>
QUARTERS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C>
Interest income - tax equivalent $ 19,321 $ 13,427 $ 36,913 $ 25,360
Interest expense $ 10,070 $ 7,160 $ 19,372 13,473
--------- --------- --------- ---------
Net interest income - tax equivalent 9,251 6,267 17,541 11,887
Tax equivalent adjustment (210) (159) (403) (262)
--------- --------- --------- ---------
Net interest income 9,041 6,108 17,138 11,625
Provision for loan losses 1,105 465 2,013 1,692
--------- --------- --------- ---------
Net interest income after provision
for loan losses 7,936 5,643 15,125 9,933
Noninterest income 1,278 815 2,577 1,424
Noninterest expenses 6,030 4,087 12,719 7,973
--------- --------- --------- ---------
Income before income taxes 3,184 2,371 4,983 3,384
Income tax expense 1,125 781 1,644 1,069
--------- --------- --------- ---------
NET INCOME $ 2,059 $ 1,590 $ 3,339 $ 2,315
========= ========= ========= =========
PER SHARE DATA (1)
Earnings per share - Basic $ 21.31 $ 22.23 $ 35.64 $ 32.43
Earnings per share - Diluted 21.14 22.07 35.42 32.27
Cash dividends - - - -
Book Value per share 1,290.32 926.37 1,290.32 926.37
SELECTED ACTUAL BALANCES
Total assets $ 971,166 $ 662,614
Earning assets 935,633 638,557
Investment securities available -for-sale 72,301 49,855
Investment securities held-to-maturity 112,156 96,452
Loans 744,978 480,011
Allowance for loan losses (8,429) (5,017)
Total deposits 805,815 580,946
Noninterest-bearing demand deposits 59,133 39,832
Interest-bearing demand deposits 27,891 21,699
Savings deposits 88,855 53,827
Time deposits 629,936 465,588
Other borrowings 20,972 11,360
Stockholders' equity 138,178 66,294
SELECTED AVERAGE BALANCES
Total assets $ 946,945 $ 646,077 $ 891,340 $ 611,081
Earning assets 915,665 622,668 858,717 587,688
Securities 183,488 143,479 178,373 133,826
Loans 722,774 466,941 664,372 443,218
Allowance for loan losses (8,129) (4,773) (7,648) (4,518)
Total deposits 776,143 565,152 752,413 530,553
Noninterest-bearing demand deposits 55,426 37,577 56,114 36,497
Interest-bearing demand deposits 31,549 24,326 30,337 22,703
Savings deposits 82,711 54,334 81,701 51,546
Time deposits 606,457 448,915 584,261 419,807
Other borrowings 27,691 11,653 24,519 12,590
Stockholders' equity 136,730 65,562 108,179 64,343
RATIOS BASED ON AVERAGE BALANCES
Loans to deposits 93.12% 82.62% 88.30% 83.54%
Return on average assets 0.87% 1.00% 0.76% 0.76%
Return on average equity 6.04% 9.84% 6.22% 7.26%
Dividend payout ratio 0.00% 0.00% 0.00% 0.00%
Leverage capital ratio 14.23% 12.36% N/A N/A
Efficiency ratio (2) 57.27% 57.71% 63.22% 59.90%
OTHER DATA
Number of employees (FTE) 370 273 370 273
Shares outstanding 107,088 71,562 107,088 71,562
Weighted average shares outstanding - Basic (1) 96,586 71,512 93,682 71,395
Weighted average shares outstanding - Diluted (1) 97,397 72,016 94,277 71,744
Cash Dividends declared $ - $ - $ - $ -
</TABLE>
(1) Data has been adjusted where applicable to show effect of 1995 5 for 1
stock split
(2) Efficiency ratio calculated as follows: Non-Interest Expense divided by the
sum of net interest income (TE) and non-interest income net of gains and
losses on securities.
<PAGE> 10
NET INTEREST INCOME
Net interest income is the most significant component of the Company's earnings.
Net interest income is the difference between interest income (interest and fees
earned on earning assets, primarily loans and securities), and interest expense
(interest paid on deposits and other borrowed funds). The net interest margin is
this difference expressed as a percentage of average earning assets. Net
interest income is determined by several factors, including the volume of
earning assets and liabilities, the mix of earning assets and liabilities, and
interest rates. Although a certain number of these factors can be controlled by
management policies and actions, certain other factors, such as the general
level of credit demand, Federal Reserve Board monetary policy, and changes in
tax law are beyond the control of management.
Net interest income on a fully taxable equivalent basis totaled $9,251,000 for
the second quarter of 1998, representing a 47.6% increase over second quarter
1997 net interest income of $6,267,000. The increase in net interest income is
primarily the result of the growth in earning assets and the corresponding
interest earned on these assets, less the interest paid on the deposits and
other liabilities which were obtained to fund the growth in earning assets.
Average earning assets for the second quarter of 1998 were $915,665,000 compared
to $622,668,000 for the second quarter of 1997, representing a 44.2% increase.
The net interest margin for the second quarter of 1998 was 4.10% as compared to
4.08% for the second quarter of 1997.
Interest income, on a fully taxable equivalent basis, for the second quarter of
1998 was $19,321,000 an increase of $5,894,000 from the second quarter of 1997.
Increased volume in earning assets accounted for $6,641,000 of this increase
while lower rates earned on average earning assets offset this increase by
$746,000. Interest and fees on loans represent the primary component of interest
income. Average loans outstanding during the second quarter of 1998 were
$722,774,000 as compared to $466,941,000 for the second quarter of 1997,
representing a 54.8% increase. This increase in loans resulted in total interest
and fees on loans for the second quarter ended June 30, 1998 of $16,312,000
representing a 48.0% increase over second quarter 1997 interest and fees on
loans of $11,022,000. The increase in loan volume contributed the majority of
the increase in total interest earned for the quarter. Total interest earned on
securities also increased from $2,234,000 during the second quarter of 1997 to
$2,895,000 in the second quarter of 1998.
The growth in loans and other earning assets was primarily funded by increased
deposit liabilities. Average deposits outstanding for the second quarter of 1998
were $776,143,000 as compared to $565,152,000 for the second quarter of 1997,
representing a 37.3% increase. The increase in the volume of deposit liabilities
resulted in an increase in total interest expense on deposits of $2,685,000 from
the second quarter of 1997 to the second quarter of 1998. This increase was also
affected by an increase in the average rate paid on deposits which increased
from 5.38% in the second quarter of 1997 to 5.45%
<PAGE> 11
in the second quarter of 1998. Time deposits represent the largest component of
total deposit liabilities and average time deposits increased from $448,915,000
during the second quarter of 1997 to $606,457,000 during the second quarter of
1998.
For the six months ended June 30, 1998 net interest income on a fully taxable
equivalent basis totaled $17,541,000, representing a 47.6% increase over net
interest income of $11,887,000 for the six months ended June 30, 1997. The
increase in net interest income is primarily the result of the growth in earning
assets and the corresponding interest earned on these assets, less the interest
paid on the deposits and other liabilities which were obtained to fund the
growth in earning assets. Average earning assets for the six month period ended
June 30, 1998 were $858,717,000 compared to $587,688,000 for the six month
period ended June 30, 1997, representing a 46.1% increase. The net interest
margin for the six month period ended June 30, 1998 was 4.12% as compared to
4.08% for the six month period ended June 30, 1997.
Interest income, on a fully taxable equivalent basis, for the six month period
ended June 30, 1998 was $36,913,000, an increase of $11,553,000 from the six
month period ended June 30, 1997. Increased volume in earning assets accounted
for $11,964,000 of this increase while lower rates earned on average earning
assets offset this increase by $411,000. Interest and fees on loans represent
the primary component of interest income. Average loans outstanding during the
six month period ended June 30, 1998 were $664,372,000 as compared to
$443,218,000 for the six month period ended June 30, 1997, representing a 49.9%
increase. This increase in loans resulted in increased interest and fees on
loans. Interest and fees on loans for the six month period ended June 30, 1998
were $30,855,000 representing a 47.6% increase over six month period ended June
30, 1997 interest and fees on loans of $20,906,000. The increase in loan volume
contributed the majority of the increase in total interest earned for the six
month period. This increase was partially offset by an decrease in the average
rate earned on loans which decreased from 9.51% from the six month period ended
June 30, 1997 to 9.37% in the six month period ended June 30, 1998.
The growth in loans and other earning assets was primarily funded by increased
deposit liabilities. Average deposits outstanding for the six month period ended
June 30, 1998 were $752,413,000 as compared to $530,553,000 for the six month
period ended June 30, 1997, representing a 41.8% increase. The increase in the
volume of interest bearing liabilities resulted in an increase of $5,899,000 in
total interest expense in the six month period ended June 30, 1998 as compared
to the six month period ended June 30, 1997. This increase was further affected
by an increase in the average rate paid on deposits which increased from 5.36%
in the six month period ended June 30, 1997 to 5.42% in the six month period
ended June 30, 1998. Time deposits represent the largest component of total
deposit liabilities and average time deposits increased from $419,807,000 during
the six month period ended June 30, 1997 to $584,261,000 for the six month
period ended June 30, 1998.
<PAGE> 12
The following table sets forth information regarding average balances, interest
income and interest expense, and average rates for the Company's major asset and
liability categories, and stockholders' equity. In order to properly compare the
effective yield on earning assets, interest income presented in the following
table is expressed on a fully taxable equivalent (FTE) basis. Interest income on
tax-exempt loans and tax-exempt investment securities has been adjusted to
reflect the income tax savings provided by these tax-exempt assets. The tax
equivalent adjustment is based on a federal income tax rate of 34%.
AVERAGE BALANCES AND INTEREST RATES
(In thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
----------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS (TE)
Securities
Taxable $ 158,325 $ 2,409 6.17% $ 124,728 $ 1,881 6.12%
Tax-exempt 25,163 486 7.83% 18,751 353 7.63%
--------- --------- -------- --------- ------- -----
Total Securities 183,488 2,895 6.40% 143,479 2,234 6.31%
Loans (1)
Commercial and agricultural 653,913 14,847 9.21% 420,087 9,949 9.60%
Real estate 46,381 977 8.54% 27,103 618 9.25%
Installment and other consumer 22,480 488 8.80% 19,751 455 9.34%
--------- --------- -------- --------- ------- -----
Total loans 722,774 16,312 9.15% 466,941 11,022 9.57%
Federal funds sold 9,403 114 4.92% 12,248 171 5.66%
Other - - 0.00% - - 0.00%
--------- --------- -------- --------- ------- -----
TOTAL EARNING ASSETS (TE) 915,665 $ 19,321 8.56% 622,668 $13,427 8.75%
========= ===== ======= =====
NONINTEREST EARNING ASSETS
Cash and due from banks 10,716 8,309
Premises and equipment 13,550 9,842
Allowance for loan loss (8,129) (4,773)
Accrued interest and other assets 15,143 10,031
--------- ---------
Total Noninterest Earning Assets 31,280 23,409
--------- ---------
TOTAL ASSETS $ 946,945 $646,077
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Deposits
Interest-bearing demand deposits $ 31,549 $ 206 2.65% $ 24,326 $ 150 2.50%
Savings deposits 82,711 872 4.28% 54,334 530 3.96%
Time deposits 606,457 8,600 5.75% 448,915 6,313 5.70%
--------- --------- -------- --------- ------- -----
Total interest-bearing deposits 720,717 9,678 5.45% 527,575 6,993 5.38%
Fed funds purchased 525 7 5.41% 105 2 7.72%
Repurchase agreements outstanding 3,812 56 5.96% 1,930 29 6.09%
Federal Home Loan Bank borrowing 19,967 256 5.20% 9,424 134 5.77%
Treasury, tax and loan note 173 2 4.69% 194 2 4.18%
Other borrowings 3,214 71 8.96% - - 0.00%
--------- --------- -------- --------- ------- -----
Total borrowed funds 27,691 392 5.74% 11,653 166 5.78%
--------- --------- -------- --------- ------- =====
TOTAL INTEREST BEARING LIABILITIES 748,408 $ 10,070 5.46% 539,228 $ 7,160 5.39%
========= ======== ======= =====
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits 55,426 37,577
Accrued interest and other liabilities 6,381 3,710
Stockholders' equity 136,730 65,562
--------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 946,945 $ 646,077
========= =========
NET INTEREST INCOME AND
INTEREST RATE SPREAD (2) $ 9,251 3.10% $ 6,267 3.36%
========= ======== ======= =====
NET INTEREST MARGIN (3) 4.10% 4.08%
======== =====
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
------------------------------- ------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------------------------- ------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- -------
INTEREST EARNING ASSETS (TE)
Securities
<S> <C> <C> <C> <C> <C> <C>
Taxable $154,744 $ 4,730 6.16% $117,232 $ 3,550 6.11%
Tax-exempt 23,629 911 7.77% 16,594 616 7.49%
-------- ------- ----- -------- --------- -----
Total Securities 178,373 5,641 6.38% 133,826 4,166 6.28%
Loans (1)
Commercial and agricultural 594,240 27,921 9.48% 397,439 18,824 9.55%
Real estate 48,192 2,006 8.39% 26,791 1,227 9.24%
Installment and other consumer 21,940 928 8.53% 18,988 855 9.08%
-------- ------- ----- -------- --------- -----
Total loans 664,372 30,855 9.37% 443,218 20,906 9.51%
Federal funds sold 15,892 417 5.29% 10,644 288 5.46%
Other 80 - 0.00% - - 0.00%
-------- ------- ----- -------- --------- -----
TOTAL EARNING ASSETS (TE) 858,717 $36,913 8.67% 587,688 $ 25,360 8.70%
======= ===== ========= =====
NONINTEREST EARNING ASSETS
Cash and due from banks 11,573 8,790
Premises and equipment 13,217 9,663
Allowance for loan loss (7,648) (4,518)
Accrued interest and other assets 15,481 9,458
-------- --------
Total Noninterest Earning Assets 32,623 23,393
-------- --------
TOTAL ASSETS $891,340 $611,081
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES
Deposits
Interest-bearing demand deposits $ 30,337 $ 416 2.77% $ 22,703 $ 276 2.45%
Savings deposits 81,701 1,559 3.85% 51,546 998 3.90%
Time deposits 584,261 16,714 5.77% 419,807 11,840 5.69%
-------- ------- ----- -------- --------- -----
Total interest-bearing deposits 696,299 18,689 5.41% 494,056 13,114 5.35%
Fed funds purchased 987 28 5.72% 734 21 5.77%
Repurchase agreements outstanding 3,617 108 6.02% 2,024 61 6.08%
Federal Home Loan Bank borrowing 17,759 460 5.22% 9,537 271 5.73%
Treasury, tax and loan note 187 4 4.31% 295 6 4.10%
Other borrowings 1,969 83 8.50% - - 0.00%
-------- ------- ----- -------- --------- -----
Total borrowed funds 24,519 683 5.62% 12,590 359 5.75%
-------- ------- ----- -------- --------- -----
TOTAL INTEREST BEARING LIABILITIES 720,818 $19,372 5.42% 506,646 $ 13,473 5.36%
======= ===== ========= =====
NONINTEREST-BEARING LIABILITIES
Noninterest-bearing demand deposits 56,114 36,497
Accrued interest and other liabilities 6,229 3,595
Stockholders' equity 108,179 64,343
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $891,340 $611,081
======== ========
NET INTEREST INCOME AND
INTEREST RATE SPREAD (2) 17,541 3.25% $ 11,887 3.34%
======= ===== ========= =====
NET INTEREST MARGIN (3) 4.12% 4.08%
===== =====
</TABLE>
(TE) - Tax Equivalent Basis
(1) Loan balance totals include non-accruals and loan interest total include
fees
(2) Interest rate spread is the net of the average rate on interest earning
assets and interest bearing liabilities
(3) Net interest margin is the ratio of net interest income (TE) to average
earning assets
<PAGE> 14
The following Volume/Rate Variance Analysis table presents, on a fully taxable
equivalent basis, an analysis of the change in net interest income for each
period and details for each major asset and liability category the extent to
which such variances are attributable to changes in volume and changes in rate.
Variances which were not specifically attributable to volume or rate have been
allocated proportionately between rate and volume using the absolute values of
each as a basis for the allocation. Nonaccruing loans were included in the
average loan balances used in determining the yields.
VOLUME / RATE VARIANCE ANALYSIS
(In thousands)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND JUNE 30, 1997 JUNE 30, 1998 AND JUNE 30, 1997
------------------------------- -------------------------------
VARIANCE DUE TO VARIANCE DUE TO
--------------- ---------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- ------ ---- -----
INTEREST INCOME (TE)
<S> <C> <C> <C> <C> <C> <C>
Loans (including fees) $ 6,049 $(759) $ 5,290 $10,421 $(472) $ 9,949
Securities - Taxable 508 20 528 1,137 42 1,180
Securities Tax-exempt 122 11 133 263 31 295
------- ----- ------- ------- ----- -------
Total Securities 630 31 661 1,401 74 1,475
------- ----- ------- ------- ----- -------
Fed Funds Sold (38) (18) (56) 142 (13) 129
Other Earning Assets - - - - - -
TOTAL INTEREST INCOME (TE) 6,641 (746) 5,895 11,964 (411) 11,553
------- ----- ------- ------- ----- -------
INTEREST EXPENSE
Interest-bearing demand deposits 45 12 56 95 46 140
Savings deposits 282 60 342 584 (23) 561
Time deposits 2,215 72 2,287 4,652 223 4,874
Total Borrowings 228 (2) 226 340 (16) 324
------- ----- ------- ------- ----- -------
TOTAL INTEREST EXPENSE 2,770 141 2,911 5,670 229 5,899
------- ----- ------- ------- ----- -------
NET INTEREST INCOME (TE) $ 3,870 $(887) $ 2,984 $ 6,293 $(640) $ 5,654
======= ===== ======= ======= ===== =======
</TABLE>
(TE) - Tax Equivalent Basis
<PAGE> 15
NONINTEREST INCOME
Noninterest income for the second quarter of 1998 was $1,278,000, an increase
of $463,000 or 56.81% from the second quarter of 1997. The largest component of
noninterest income is service fees. Service fees increased 60.4% from $707,000
for the second quarter of 1997 to $1,134,000 for the second quarter of 1998.
The more significant components of services fees are service charges and fees
on deposit accounts and mortgage banking revenues. Service charges and fees on
deposit accounts increased during this period as a result of the deposit growth
of the Company and the corresponding increase in the number of deposit accounts
and the services provided to these accounts. Service charges on deposit
accounts were $320,000 for the second quarter ending June 30, 1998 as compared
to $242,000 for the same period in 1997. Mortgage banking revenues also
increased during this time period from $415,000 for the second quarter of 1997
to $675,000 for the second quarter of 1998. The increase in mortgage banking
revenue is a result in the increase in the volume of loans closed and sold into
the secondary market.
Trust income also increased during the second quarter of 1998 to $100,000 as
compared with $58,000 for the second quarter of 1997. Increased trust fees are
a result of growth in trust assets and a more aggressive sales program.
Noninterest income for the six month period ended June 30, 1998 was $2,577,000,
an increase of $1,153,000 or 80.9% from the second quarter of 1997. The
largest component of noninterest income is service fees. Service fees increased
87.6% from $1,255,000 for the second quarter of 1997 to $2,355,000 for the
second quarter of 1998. Service charges and fees on deposit accounts and
mortgage banking revenue, the largest components of service fees, were $628,000
and $1,522,000 respectively for the six months ended June 30, 1998 as compared
to $452,000 and $693,000 for the six month period ended June 30, 1997. Trust
income also increased during the six month period ended June 30, 1998 to
$164,000 as compared with $110,000 for the second quarter of 1997. The reasons
for the increase in noninterest income for the six month period generally
followed those described above for the second quarter.
NONINTEREST EXPENSE
Noninterest expense for the second quarter of 1998 was $6,030,000, an increase
of $1,943,000 or 47.5% from the second quarter of 1997. The increase in
noninterest expense is primarily a result of the growth of the Company and
includes the hiring of additional staff and the opening of new branch
facilities. In addition the acquisition costs and ongoing operational expenses
related to the acquisition of First Ozaukee Capital Corp., the formation of a de
novo bank in Indianapolis, Indiana, and the formation of Marine Trust and
Investment Company have resulted in additional operating expenses in the second
quarter of 1998 which were not incurred in the second quarter of
<PAGE> 16
1997. Salaries and employee benefits represent the largest component of interest
expense. Total salaries and benefits for the second quarter of 1998 were
$3,858,000 as compared to $2,421,000 for the second quarter of 1997. The
increase in salaries and benefits is a result of hiring additional personnel to
staff the new branch facilities and the hiring of additional personnel to
adequately manage the growth of the Company. Net occupancy expenses for the
second quarter of 1998 were $963,000 as compared to $670,000 for the second
quarter of 1997 and this increase is primarily a result of the opening of new
branch facilities. Other operating expenses also increased as a result of the
growth, from $996,000 for the second quarter of 1997 to $1,209,000 for the
second quarter of 1998.
Although total noninterest expenses have increased, the overall operating
efficiency of the Company has improved as measured by the overhead efficiency
ratio. The overhead efficiency ratio was 57.71% for the quarter ended June 30,
1997 and 57.27% for the quarter ended June 30, 1998.
Noninterest expense for the six month period ended June 30, 1998 was
$12,719,000, an increase of $4,746,000 or 59.5% from the six month period ended
June 30, 1997. The first six months of 1998 included $1.4 million in non-cash
compensation expense as a result of the extension, in February 1998, of the
expiration date of all previously issued and unexpired stock options granted
under its stock option plans. Had this non-cash compensation expense not been
incurred, the increase in the total noninterest expense would have been $3.4
million or 42.0%. Total salaries and benefits for the six month period ended
June 30, 1998 were $6,984,000, ignoring the non-cash compensation expenses, as
compared to $4,849,000 for the six month period ended June 30, 1997. Net
occupancy expenses for the six month period ended June 30,1998 were $1,778,000
as compared to $1,299,000 for the six month period ended June 30, 1997. Other
operating expenses also increased from $1,825,000 for the six month period ended
June 30, 1997 to $2,561,000 for the six month period ended June 30, 1998. The
reasons for the increase in noninterest expenses for the six month period,
ignoring the non-cash compensation expenses, generally followed those described
above for the second quarter.
The ratio of noninterest expense to average total assets was 2.61% for the six
month period ended June 30, 1997 and 2.85% for the six month period ended June
30, 1998. In addition, the overhead efficiency ratio was 59.90% for the six
month period ended June 30, 1997 and 63.22% for the six month period ended June
30, 1998.
The following table summarizes noninterest income and noninterest expenses for
the periods indicated.
<PAGE> 17
NONINTEREST INCOME AND EXPENSE
(In thousands)
<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- -------------------------------
1998 1997 % CHANGE 1998 1997 % CHANGE
---- ---- -------- ---- ---- --------
NONINTEREST INCOME
<S> <C> <C> <C> <C> <C> <C>
Trust Income $ 100 $ 58 72.41% $ 164 $ 110 49.09%
Service Fees 1,134 707 60.40% 2,355 1,255 87.65%
Net realized gain on securities - - - -
Other operating income 44 50 (12.00)% 58 59 (1.69)%
------ ------ ----- ------- ------ -----
TOTAL NONINTEREST INCOME $1,278 $ 815 56.81% $ 2,577 $1,424 80.97%
====== ====== ===== ======= ====== =====
NONINTEREST EXPENSE
Salaries and employee benefits $3,858 $2,421 59.36% $ 8,380 $4,849 72.82%
Occupancy expenses, net 963 670 43.73% 1,778 1,299 36.87%
Other operating expenses 1,209 996 21.39% 2,561 1,825 40.33%
------ ------ ----- ------- ------ -----
TOTAL NONINTEREST EXPENSE $6,030 $4,087 47.54% $12,719 $7,973 59.53%
====== ====== ===== ======= ====== =====
</TABLE>
<PAGE> 18
INCOME TAXES
Income tax expense totaled $1,125,000 for the quarter ended June 30, 1998
increasing from $781,000 for the same period in 1997 and reflects effective
income tax rates of 35.3% and 32.9% respectively. Income tax expense totaled
$1,644,000 for the six months ended June 30, 1998 increasing from $1,069,000 for
the same period in 1997 and reflects effective income tax rates of 33.0% and
31.6% respectively. The increase in income tax expense is primarily a result of
the growth of the Company and the corresponding increase in taxable income.
SECURITIES
Investment securities increased $38,150,000 or 26.1% from $146,307,000 at June
30, 1997 to $184,457,000 at June 30, 1998. The increase in the securities
portfolio is directly related to the growth of the Company. Because the
securities portfolio represents one of the primary sources of liquidity for the
Company, the size of the portfolio has been increased to maintain a relatively
proportionate ratio of securities to assets. The majority of the securities
portfolio is comprised of United States Treasury and Government Agency
securities. These securities represented approximately 84% of the securities
portfolio at June 30, 1998 and June 30, 1997. At June 30, 1998 approximately 39%
of the portfolio was designated as available for sale and 61% as held to
maturity. These ratios were approximately 34% and 66% respectively at June 30,
1997.
The following table presents a summary of the investment securities portfolio as
of the dates indicated.
INVESTMENT SECURITIES SUMMARY
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
----------------------------------- -------------------------------------
Amortized Net Unrealized Fair Amortized Net Unrealized Fair
Cost Gains (losses) Value Cost Gains (losses) Value
----------------------------------- -------------------------------------
SECURITIES AVAILABLE FOR SALE:
<S> <C> <C> <C> <C> <C> <C>
U.S. Government & Agencies (including
mortgage-backed securities) 65,561 411 65,972 49,121 88 49,209
States and political subdivisions 2,905 57 2,962 1,618 261 1,879
Other notes and bonds 672 - 672 677 8 685
Federal Home Loan Bank stock 2,694 - 2,694 2,574 - 2,574
TOTAL SECURITIES AVAILABLE-FOR-SALE 71,833 468 72,301 53,990 357 54,347
------- ----- ------- ------- ----- -------
SECURITIES HELD-TO-MATURITY:
U.S. Government & Agencies (including
mortgage-backed securities) 88,263 501 88,764 87,552 334 87,886
States and political subdivisions 23,443 301 23,744 18,587 359 18,946
Other notes and bonds 450 - 450 450 - 450
TOTAL SECURITIES HELD-TO-MATURITY 112,156 802 112,958 106,589 693 107,282
------- ----- ------- ------- ----- -------
TOTAL SECURITIES 183,989 1,270 185,259 160,579 1,050 161,629
======= ===== ======= ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------
Amortized Net Unrealized Fair
Cost Gains (losses) Value
-------------------------------------
SECURITIES AVAILABLE FOR SALE:
<S> <C> <C> <C>
U.S. Government & Agencies (including
mortgage-backed securities) 45,426 (85) 45,341
States and political subdivisions 1,589 212 1,801
Other notes and bonds 376 - 376
Federal Home Loan Bank stock 2,337 - 2,337
TOTAL SECURITIES AVAILABLE-FOR-SALE 49,728 127 49,855
------- ---- -------
SECURITIES HELD-TO-MATURITY:
U.S. Government & Agencies (including
mortgage-backed securities) 77,537 (63) 77,473
States and political subdivisions 17,954 98 18,052
Other notes and bonds 962 (1) 961
TOTAL SECURITIES HELD-TO-MATURITY 96,452 34 96,486
------- ---- -------
TOTAL SECURITIES 146,180 161 146,341
======= ==== =======
</TABLE>
<PAGE> 19
LOANS
The loan portfolio represents the primary earning asset of the Company. Total
loans as of June 30, 1998 were $744,978,000, representing a 55.2% increase as
compared to total loans outstanding at June 30, 1997. Commercial loans,
including commercial and industrial loans, agricultural loans, and commercial
real estate loans, represent the largest segment of the loan portfolio and were
equal to $562,118,000 or 75.5% of total loans outstanding at June 30, 1998. At
June 30, 1997 these numbers were $376,078,000 and 78.3% respectively. The
following table sets forth a summary of the loan portfolio, by category, for
each of the dates indicated.
<TABLE>
<CAPTION>
LOAN PORTFOLIO SUMMARY
(in thousands)
JUNE 30, 1998 DECEMBER 31, 1997 JUNE 30, 1997
------------- ----------------- -------------
<S> <C> <C> <C>
Commercial and industrial 231,455 197,227 157,370
Agricultural 8,258 9,558 7,017
Real estate - - -
1-4 family 56,430 61,115 42,832
Commercial 322,405 263,256 211,691
Construction 86,164 52,791 34,238
Consumer loans 18,931 18,688 14,945
Other 21,335 13,593 11,918
Total gross loans 744,978 616,228 480,011
------- ------- -------
Less: Allowance for loan losses 8,429 6,692 5,017
------- ------- -------
Net loans 736,549 609,536 474,994
======= ======= =======
</TABLE>
<PAGE> 20
PROVISION FOR LOAN LOSSES AND THE ALLOWANCE FOR LOAN LOSSES
The provision for loan losses represents charges made to earnings in order to
maintain an adequate allowance for loan losses ("allowance"). The provision for
loan losses was $1,105,000 for the second quarter of 1998 as compared to
$465,000 for the second quarter of 1997; and $2,013,000 for the six month period
ended June 30, 1998 as compared to $1,692,000 for the six month period ended
June 30, 1998. A significant portion of the increase in the provision between
each period is due to the growth in the loan portfolio and the Company's desire
to maintain an adequate allowance commensurate with this growth. Additional
charge-offs and an increase in nonperforming loans also contributed to this
increase.
The Company maintains its allowance at a level that is considered sufficient to
absorb potential losses in the loan portfolio. The allowance is increased by the
provision for loan losses as well as recoveries of previously charged-off loans,
and is decreased by loan charge-offs. The provision provides for current loan
losses and maintains the allowance at an adequate level commensurate with
management's evaluation of the risks inherent in the loan portfolio. A
comprehensive analysis of the allowance is performed on a quarterly basis by the
Company's loan review department. Various factors are taken into consideration
when the Company determines the amount of the provision and the adequacy of the
allowance. Some of the factors include: past due and nonperforming assets:
specific internal analysis of loans requiring special attention; the current
level of regulatory classified and criticized assets and the associated risk
factors with each; changes in the type and volume of the loan portfolio; net
charge-offs; and examinations and review by the Company's independent
accountants and internal loan review personnel.
The data collected from these sources is evaluated with regard to current
national and local economic trends, prior loss history, underlying collateral
values, credit concentrations, and industry risks. An estimate of potential
future loss on specific loans is developed in conjunction with an overall risk
evaluation of the total loan portfolio.
The following table summarizes the changes in the allowance for loan losses.
<PAGE> 21
<TABLE>
<CAPTION>
ANALYSIS OF ALLOWANCE FOR LOAN LOSS
(In thousands)
FOR THE QUARTERS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------ -----------------------------
1998 1997 1998 1997
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
BEGINNING BALANCE $ 7,622 $ 4,327 $ 6,692 $ 4,058
LOANS CHARGED OFF (337) (39) (347) (1,001)
- - - -
--------- --------- --------- ---------
TOTAL CHARGE-OFFS (337) (39) (347) (1,001)
--------- --------- --------- ---------
CHARGE-OFFS RECOVERED 39 264 71 268
--------- --------- --------- ---------
TOTAL RECOVERIES 39 264 71 268
--------- --------- --------- ---------
Adjustment incident to acquisition - - - -
Net loans charged-off (298) 225 (276) (733)
Current year provision 1,105 465 2,013 1,692
--------- --------- --------- ---------
ENDING BALANCE $ 8,429 $ 5,017 $ 8,429 $ 5,017
========= ========= ========= =========
Ending Loan Balance $ 744,978 $ 480,011 $ 744,978 $ 480,011
Ratio of allowance to ending loan
balance 1.13% 1.05% 1.13% 1.05%
Average loans $ 722,774 $ 466,941 $ 664,372 $ 443,218
Ratio of net loans charged-off
to average loans 0.05% 0.01% 0.05% 0.23%
Ratio of recoveries to
loans charged-off 11.57% 676.92% 20.46% 26.77%
</TABLE>
<PAGE> 22
At June 30, 1998 the allowance for loan losses was $8,429,000, equal to 1.13% of
total loans outstanding. These numbers were $5,017,000 and 1.05% at June 30,
1997. The allowance as a percentage of nonperforming assets was 106.2% at June
30, 1998 and 159.0% at June 30, 1997. Net charge-offs for the second quarter of
1998 were $298,000 or 0.05% of average loans outstanding for the period compared
to a net recovery in the second quarter of 1997 equal to $225,000. Net
charge-offs for the six month period ended June 30, 1998 were $276,000 or 0.05%
of average loans outstanding for the period compared to $733,000 and 0.23% for
the six month period ended June 30, 1997.
The Company will continue to monitor the allowance and make future adjustments
to the allowance through the provision for loan losses as conditions dictate.
Although the Company maintains the allowance at a level that it considers to be
adequate to provide for the inherent risk of loss in the loan portfolio, there
can be no assurance that future losses will not exceed estimated amounts or that
additional provisions will not be required in the future. In addition, the
Company's determination as to the adequacy of the allowance is subject to review
by the FDIC and state banking agencies, as part of their examination process,
which may result in an additional provision to the allowance upon completion of
their examination.
NONPERFORMING LOANS AND ASSETS
Nonperforming assets, including loans past due 90 or more days, totaled
$7,934,000 at June 30, 1998, representing 1.06% of total loans outstanding
compared to $3,155,000 and 0.66% as of June 30, 1997. Nonaccrual loans were the
largest component of nonperforming assets at June 30, 1998, and increased from
$1,101,000 at June 30, 1997 to $4,954,000 at June 30, 1998. This increase is
primarily as a result of the deterioration of the financial condition of two
borrowers. As of each reporting period noted above, no assets other than loans
were classified as nonperforming. The following table summarizes the composition
of the Company's nonperforming assets and related asset quality ratios as of the
dates indicated.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
(In thousands)
PRINCIPAL BALANCE JUNE 30, 1998 DECEMBER 31, 1997 JUNE 30, 1997
- ------------------------------------------------ ------------- ----------------- -------------
<S> <C> <C> <C>
Nonaccrual $ 4,954 $ 1,841 $ 1,101
Restructured - - -
90 days or more past due 2,699 1,349 1,920
Other real estate owned 281 281 134
------- ------- -------
TOTAL NONPERFORMING ASSETS $ 7,934 $ 3,471 $ 3,155
======= ======= =======
Nonperforming assets as a percent of total loans 1.06% 0.52% 0.66%
Allowance as a percent of
nonperforming assets 106.24% 209.78% 159.02%
</TABLE>
<PAGE> 23
DEPOSITS
At June 30, 1998 total deposits were equal to $805,815,000, representing a 38.7%
increase from total deposits of $580,946,000 at June 30, 1997. Time deposits
represent the largest component of deposits and were equal to $629,936,000, or
78% of total deposits at June 30, 1998. These numbers were $465,588,000 and 80%,
respectively at June 30, 1997. At June 30, 1998 demand deposits were equal to
$59,133,000, NOW accounts were equal to $27,891,000 and savings deposits were
equal to $88,855,000. These numbers were $39,832,000, $21,699,000 and
$53,827,000, respectively at June 30, 1997. Additional information regarding
average balances and rates paid on deposits is contained in the Average Balances
and Interest Rates table contained elsewhere within this document.
OTHER BORROWINGS
Other borrowings consisted mainly of borrowings from the Federal Home Loan
Bank of Chicago, federal funds purchased and repurchase agreements. Total other
borrowings were $20,972,000 at June 30, 1998 and $11,360,000 at June 30, 1997.
Other borrowings represented approximately 2% of total assets at June 30, 1998
and June 30, 1997.
CAPITAL
The Company and its subsidiary banks are subject to risk based capital
guidelines which have been established by the regulatory authorities. These risk
based capital guidelines establish minimum capital ratios in order to assess the
capital adequacy of banks and bank holding companies. The Company's risk based
capital ratios at June 30, 1998, December 31, 1997 and June 30, 1997 are
contained in the following table. As contained within the table, the Company's
capital levels are substantially in excess of the required regulatory minimums.
<PAGE> 24
RISK-BASED CAPITAL RATIOS
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997 JUNE 30, 1997
------------------------ ------------------------ --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
RISK WEIGHTED ASSETS $ 829,670 $ 669,975 $ 521,697
========= ========= =========
AVERAGE ASSETS (Quarter Only) (1) $ 946,945 $ 786,470 $ 646,077
========= ========= =========
CAPITAL COMPONENTS
Stockholders' equity $ 138,178 $ 100,732 $ 66,294
Less: Intangibles (3,178) (3,340) (2,041)
Add/less: Unrealized loss/(gain) on securities (292) (221) (85)
--------- --------- ---------
TIER 1 CAPITAL 134,708 97,171 64,168
Allowable allowance for loan losses 8,429 6,692 5,017
--------- --------- ---------
TOTAL RISK-BASED CAPITAL $ 143,137 $ 103,863 $ 69,185
========= ========= =========
TIER 1 CAPITAL
As of Quarter ending $ 134,708 16.24% $ 97,171 14.50% $ 64,168 12.30%
Minimum Required 33,187 4.00% 26,799 4.00% 20,868 4.00%
--------- ----- --------- ----- --------- ----
Amount in Excess of Minimum $ 101,521 12.24% $ 70,372 10.50% $ 43,300 8.30%
========= ===== ========= ==== ========= ====
TOTAL RISK-BASED CAPITAL
As of Quarter ending $ 143,137 17.25% $ 103,863 15.50% $ 69,185 13.26%
Minimum Required 66,374 8.00% 53,598 8.00% 41,736 8.00%
--------- ----- --------- ----- --------- ----
Amount in Excess of Minimum $ 76,763 9.25% $ 50,265 7.50% $ 27,449 5.26%
========= ===== ========= ==== ========= ====
LEVERAGE RATIO
As of Quarter ending $ 134,708 14.23% $ 97,171 12.36% $ 64,168 9.93%
Minimum Required 37,878 4.00% 31,459 4.00% 25,843 4.00%
--------- ----- --------- ----- --------- ----
Amount in Excess of Minimum $ 96,830 10.23% $ 65,712 8.36% $ 38,325 5.93%
========= ===== ========= ==== ========= ====
</TABLE>
(1) Average Assets as calculated for Risk-Based Capital (Deductions include
current period balances for goodwill and intangible assets)
<PAGE> 25
LIQUIDITY
Proper liquidity management ensures that the Company has adequate funds
available to fund various commitments, including loan demand, deposit
withdrawals, and other obligations and opportunities, in a timely manner. The
Company actively manages its liquidity position under the direction of the
Asset/Liability Management Committee which estimates, measures, and monitors the
sources and uses of funds and the Company's liquidity position. The Company's
sources of funding and liquidity includes both asset and liability components.
The Company's funding requirements are primarily met by the inflow of funds from
deposit growth and to a much lesser extent, by the inflow of funds from other
borrowings. Additional funding is provided by the repayment and maturities of
loans and investments. Additional sources of liquidity include cash and cash
equivalents, Federal funds sold, and investment securities. The statements of
cash flows contained in the consolidated financial statements provide an
indication of the sources and uses of cash as well as an indication of the
ability of the Company to meet its liquidity needs. Through proper management
and the development of various sources of funding, the Company has been able to
adequately meet its liquidity needs and expects that these needs will be met in
the future.
YEAR 2000
The Company utilizes and is dependent upon data processing systems and hardware
in every aspect of it's ongoing operation. Successfully addressing Year 2000
issues is of the highest importance to management. Although the nature of the
problem is such that there can be no complete assurance it will be successfully
resolved, a risk mitigation program is well under way. Year 2000 capability of
mission critical systems has been assessed. The main banking application
software and the computer hardware and operating system are Year 2000 compliant.
All other critical systems have been systematically identified for renovation or
replacement. A comprehensive testing plan has been implemented, with testing of
all critical systems to be completed by year-end 1998. Contingency plans have
been developed to address any system failures.
The company is also contacting borrowing customers to ascertain their level of
Year 2000 preparedness. A risk assessment will be performed, and an appropriate
provision made for any possible losses.
The estimated expense of the Company's Year 2000 project will not have a
material impact on earnings.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27A 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 contained
in the Private Securities Reform Act of 1995, and is including this statement
for purposes of these safe harbor provisions.
<PAGE> 26
Forward-looking statements are identified by statements containing words and
phrases such as "projected," "we are confident," "should be," "will be,"
"predicted," "believed," "planned," "expect," "estimate," "anticipate," and
similar expressions. These forward-looking statements reflect the Company's
current views with respect to future events and financial performance, but are
subject to many uncertainties and factors relating to the operations of the
Company and its subsidiaries and the business environment which could change at
any time and which could cause actual results to differ materially from those
expressed or implied by such forward-looking statements. There are inherent
difficulties in predicting important factors that may affect the accuracy of
such statements. Potential risks and uncertainties that may affect the
operations, performance, development, and results of the business of the Company
and its subsidiaries include the following: (a) the risk of adverse changes in
business conditions in the banking industry generally and in the specific
markets in which the Company's subsidiary banks operate; (b) changes in the
legislative and regulatory environment that negatively impact the Company and
its subsidiaries through increased operating expenses; (c) interest rates,
monetary and fiscal policies; (d) increased competition from other financial and
non-financial institutions; (e) the impact of technological advances; and (f)
other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission. These risks and uncertainties should be
considered in evaluating forward-looking statements, and undue reliance should
not be placed on such statements. The Company and its subsidiaries do not
undertake any obligation to update or revise any forward-looking statements
subsequent to the date on which they are made.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK SENSITIVITY
As described in the amended Form 10, filed on June 25, 1998, the Company manages
its interest rate risk through measurement techniques which include simulation
of earnings and gap analysis.
The following table illustrates the period and cumulative Interest Sensitivity
Gap for December 31, 1997 and June 30, 1998.
<TABLE>
<CAPTION>
CENTRAL ILLINOIS BANCORP, INC.
REPRICING INTEREST RATE SENSITIVITY ANALYSIS
JUNE 30, 1998
1-3 4-6 7-12 2-5 Over 5
(In thousands) Months Months Months Years Years Total
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest sensitivity GAP (by period) $10,400 ($38,858) ($ 55,994) $184,524 $ 30,388 $130,460
Interest sensitivity GAP (cumulative) 10,400 (28,458) (84,452) 100,072 130,460 130,460
======================================================================================================================
June 30, 1998
- --------------------------------------
Interest sensitivity GAP (by period) $89,934 ($40,134) ($125,413) $205,685 $ 37,620 $167,692
Interest sensitivity GAP (cumulative) 89,934 49,800 (75,613) 130,072 167,692 167,692
======================================================================================================================
</TABLE>
<PAGE> 27
The following table illustrates the expected percentage change in net interest
income over a one year period due to an immediate change in short term U.S.
prime rates as of interest December 31, 1997 and June 30, 1998.
<TABLE>
<CAPTION>
CENTRAL ILLINOIS BANCORP, INC.
FUTURE EARNINGS INTEREST RATE SENSITIVITY ANALYSIS
JUNE 30, 1998
Basis point changes
+200 -200 +100 -100
- ---------------------------------------------------------------------------------
December 31, 1997
- ----------------------------------------------
<S> <C> <C> <C> <C>
Net Interest Income change over one year 1.19% -2.46% .59% -1.21%
==============================================
June 30, 1998
- ----------------------------------------------
Net Interest Income change over one year 3.81% -4.84% 1.91% -2.37%
=================================================================================
</TABLE>
<PAGE> 28
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are not parties to , nor is any of their
property the subject of, any material or other pending legal proceeding, other
than ordinary routine proceedings incidental to their business.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a. Not Applicable
b. Not Applicable
c. Information regarding equity securities sold by the Company during the
period covered by this Form 10-Q, that were not registered under the
Securities Act has previously been reported within the amended Form 10
filed by the Company on June 25, 1998 and is incorporated by reference
herein. The proceeds of the offering were used to pay off Company debt,
provide additional capital to certain of the Company's subsidiaries, and
as working capital
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The Company held its Annual Meeting of Shareholders on April 30, 1998.
b. Matters related to the election of Directors
Votes cast for the election of four Directors to serve for a term of
three years were as follows:
<TABLE>
<CAPTION>
Broker
Director For Against Abstentions Non-vote
------------------ -------- --------- ----------- -------
<S> <C> <C> <C> <C>
Norman Baker 76,447 90 223 0
W. Scott Blake 76,447 90 223 0
Dean Katsaros 76,447 90 223 0
Donald Trilling 76,447 90 223 0
</TABLE>
Votes cast for the election of Mr. John Bean to the Board of Directors
to the serve the remaining two year term of the Board vacancy created
by the resignation of Mr. David Sinow were as follows:
Broker
For Against Abstentions Non-vote
--- ------- ----------- --------
75,551 477 732 0
The continuing Directors of the Company whose seats were not up for
election at the annual meeting are as follows:
Jose Araujo Steven Hillard
Jerry Maahs J. Michael Straka
Howard Zimmerman
<PAGE> 29
c. Other Matters
Votes cast to adopt the amended and restated Articles of Incorporation
of the Company were as follows:
Broker
For Against Abstentions Non-vote
--- ------- ----------- --------
76,234 175 351 0
Votes cast to adopt the amended and restated By-laws of the Company
were as follows:
Broker
For Against Abstentions Non-vote
--- ------- ----------- --------
76,234 175 351 0
Votes cast to approve the Non-qualified Employee Stock Option Plans
dated April 30, 1997, August 18, 1997, August 20, 1997, September 24,
1997 and February 25, 1998 were as follows:
Broker
For Against Abstentions Non-vote
--- ------- ----------- --------
74,060 1,453 1,247 0
Votes cast to approve the Non-qualified Director Stock Option Plan
dated February 25, 1998 for the Directors of the Company were as
follows:
Broker
For Against Abstentions Non-vote
--- ------- ----------- --------
73,870 1,788 1,102 0
Votes cast to approve the Non-qualified Director Stock Option Plan
dated February 25, 1998 for the Directors of the Company's subsidiaries
were as follows:
Broker
For Against Abstentions Non-vote
--- ------- ----------- --------
73,846 1,752 1,162 0
Votes cast to ratify the appointment by the Board of Directors of
Striegel Knobloch & Company as auditors for the Company for 1998 were
as follows:
Broker
For Against Abstentions Non-vote
--- ------- ----------- --------
76,173 180 407 0
Votes cast to approve the amendments to all previously issued Director
Stock Option Plans were as follows:
Broker
For Against Abstentions Non-vote
--- ------- ----------- --------
76,760 0 0 0
Item 5. OTHER INFORMATION
a. On July 8, 1998, the company merged two of its wholly-owned subsidiary
banks, Central Illinois Bank and Central Illinois Bank MC. Central
Illinois Bank MC was the surviving entity and has changed its name to
Central Illinois Bank.
b. On July 16, 1998 the Company purchased the deposits and certain assets
of the Gurnee, Illinois, Branch of Argo Federal Savings, FSB. Total
deposits acquired approximates $13,000.
<PAGE> 30
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 11 - Statement Re Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
b. No reports on Form 8-K have been filed during the quarter ended
June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Central
Illinois Bancorp, Inc. has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized, on this 25th day of June 1999.
/s/ STEVEN T. KLITZING
- --------------------------
Steven T. Klitzing
Senior Vice President,
Chief Financial Officer and duly authorized Officer
EXHIBIT INDEX
The following exhibits have been filed herewith:
Exhibit
Number Description
- ------ -----------
11 Statement Re Computation of Earnings Per Share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11 - STATEMENT RE COMPUTATION OF EARNINGS PER SHARE (In thousands,
except earnings per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------- --------------------------
1998 1997 1998 1997
------- -------- ------- ----------
<S> <C> <C> <C> <C>
Net income $ 2,059 $ 1,590 $ 3,339 $ 2,315
======= ======= ======= ==========
Weighted average shares outstanding:
Basic 96,586 71,512 93,682 71,395
======= ======= ======= ==========
Diluted 97,397 72,016 94,277 71,744
======= ======= ======= ==========
Earnings per common share - Basic $ 21.31 $ 22.23 $ 35.64 $ 32.43
Effect of stock options (0.17) (0.16) (0.22) (0.16)
------- ------- ------- ----------
Earnings per common share - Diluted $ 21.14 $ 22.07 $ 35.42 $ 32.27
======= ======= ======= ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) SEC FORM
10-Q/A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 13,550
<INT-BEARING-DEPOSITS> 288
<FED-FUNDS-SOLD> 5,910
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 72,301
<INVESTMENTS-CARRYING> 112,156
<INVESTMENTS-MARKET> 112,958
<LOANS> 744,978
<ALLOWANCE> 8,429
<TOTAL-ASSETS> 971,166
<DEPOSITS> 805,815
<SHORT-TERM> 20,972
<LIABILITIES-OTHER> 6,201
<LONG-TERM> 0
0
0
<COMMON> 107
<OTHER-SE> 138,071
<TOTAL-LIABILITIES-AND-EQUITY> 971,166
<INTEREST-LOAN> 30,762
<INTEREST-INVEST> 5,331
<INTEREST-OTHER> 417
<INTEREST-TOTAL> 36,510
<INTEREST-DEPOSIT> 18,689
<INTEREST-EXPENSE> 19,372
<INTEREST-INCOME-NET> 17,138
<LOAN-LOSSES> 2,013
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 12,719
<INCOME-PRETAX> 4,983
<INCOME-PRE-EXTRAORDINARY> 4,983
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,339
<EPS-BASIC> 35.64
<EPS-DILUTED> 35.42
<YIELD-ACTUAL> 4.10
<LOANS-NON> 4,954
<LOANS-PAST> 2,699
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,692
<CHARGE-OFFS> 347
<RECOVERIES> 71
<ALLOWANCE-CLOSE> 8,429
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,429
</TABLE>
