UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
Commission File Number: 33-90342
BANKILLINOIS FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 37-1338484
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
100 WEST UNIVERSITY, CHAMPAIGN, ILLINOIS 61820
(Address of principal executive offices) (Zip Code)
(217) 351-6500
(Registrant's telephone number, including area code)
Indicate by "X" whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of the registrant's common stock,
as of May 1, 1998:
BankIllinois Financial Corporation Common Stock 5,151,972
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TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote
of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BANKILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
Mar. 31, Dec. 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks $17,593 $28,958
Federal funds sold 10,075 19,600
Investments in debt and equity securities:
Available-for-sale, at estimated market value 130,493 135,317
Held-to-maturity, estimated market value of $26,639 and
$18,635 at March 31, 1998 and December 31, 1997,
respectively 26,611 18,519
Non-marketable equity securities 1,550 1,550
Mortgage loans held for sale 2,810 1,408
Loans, net of allowance for loan losses of $5,400 and
$5,306 at March 31, 1998 and December 31, 1997,
respectively 310,462 309,729
Premises and equipment 9,669 11,253
Accrued interest receivable 4,453 4,833
Other assets 8,970 8,199
Total assets $522,686 $539,366
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - noninterest bearing $54,732 $59,693
Demand - interest bearing 147,267 146,776
Savings 17,418 16,623
Time deposits $100,000 and over 43,351 41,196
Other time 149,126 152,866
Total deposits 411,894 417,154
Federal funds purchased and securities sold
under repurchase agreements 37,953 49,857
Federal Home Loan Bank advances 7,000 8,000
Accrued interest payable 1,544 1,736
Other liabilities 6,210 5,289
Total liabilities 464,601 482,036
Stockholders' equity:
Common stock, $0.01 par value; 6,500,000 shares authorized:
5,206,663 shares issued 52 52
Paid in capital 23,196 23,156
Retained earnings 35,288 34,733
Accumulated other comprehensive income 311 298
58,847 58,239
Less: treasury stock, at cost, 54,641 and 65,765 shares
at March 31, 1998 and December 31, 1997, respectively (762) (909)
Total stockholders' equity 58,085 57,330
Total liabilities and stockholders' equity $522,686 $539,366
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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BANKILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C> <C>
Interest income: 1998 1997
Interest and fees on loans $6,920 $6,350
Interest and dividends on investments in debt and equity securities
Taxable 2,319 2,464
Tax-exempt 85 75
Interest on federal funds sold and interest-bearing deposits 212 217
Total interest income 9,536 9,106
Interest expense:
Deposits 4,157 3,986
Federal funds purchased and securities sold under
repurchase agreements 555 536
Federal Home Loan Bank advances 122 147
Total interest expense 4,834 4,669
Net interest income 4,702 4,437
Provision for loan losses 165 75
Net interest income after provision for loan losses 4,537 4,362
Noninterest income:
Trust fees 555 496
Service charges on deposit accounts 155 165
Security transactions, net 27 3
Gain on sales of mortgage loans held-for-sale, net 119 44
Other 332 373
Total noninterest income 1,188 1,081
Noninterest expenses:
Salaries and employee benefits 2,483 2,006
Net occupancy 353 373
Equipment 217 222
Data processing 192 183
Federal deposit insurance premiums 12 11
Other 945 839
Total noninterest expenses 4,202 3,634
Income before income taxes 1,523 1,809
Income taxes 493 597
Net income $1,030 $1,212
Other Comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period 28 (674)
Less: reclassification adjustment for gains
included in net income (15) 0
Other comprehensive income, net of tax 13 (674)
Comprehensive Income $1,043 $538
Per share data:
Basic earnings per share $0.20 $0.24
Weighted average shares of common stock outstanding 5,146,460 5,147,955
Diluted earnings per share $0.20 $0.23
Weighted average shares of common stock and
dilutive potential common shares outstanding 5,276,673 5,247,320
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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BANKILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDING MARCH 31, 1998 AND 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<S> <C> <C>
1998 1997
Cash flows from operating activities:
Net income $1,030 $1,212
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 272 283
Amortization of bond premiums, net (6) 7
Provision for loan losses 165 75
Gain on security transactions (27) (3)
Gain on sales of loans, net (119) (44)
Loss on sale of premises and equipment, net 248 3
Change in valuation allowance of premises and equipment 0 131
Decrease (increase) in accrued interest receivable 380 (210)
Decrease in accrued interest payable (192) (51)
Increase in other assets (749) (42)
Increase in other liabilities 912 693
Stock appreciation rights 37 11
Proceeds from sales of loans originated for sale 11,938 3,409
Loans originated for sale (13,221) (2,908)
Net cash provided by operating activities 668 2,566
Cash flows from investing activities:
Net increase in loans (924) (13,284)
Proceeds from maturity of investments in debt securities:
Held-to-maturity 1,515 3,340
Available-for-sale 22,050 10,000
Purchases of investments in debt and equity securities:
Held-to-maturity (9,604) (5,477)
Available-for-sale (20,617) (22,440)
Principal paydowns from mortgage-backed and
mortgage-related securities:
Held-to-maturity 0 74
Available-for-sale 3,442 200
Purchases of premises and equipment (312) (185)
Proceeds from sale of premises and equipment 1,380 0
Net cash used in investing activities (3,070) (27,772)
Cash flows from financing activities:
Net decrease in demand and savings deposits (3,675) (3,185)
Net increase (decrease) in time deposits $100 and over 2,155 (2,034)
Net decrease in other time deposits (3,740) (3,031)
Net (decrease) increase in federal funds purchased and
securities sold under repurchase agreements (11,904) 2,036
Net decrease in Federal Home Loan Bank advances (1,000) 0
Cash dividends paid (411) 0
Treasury stock transactions, net 87 (216)
Net cash used in financing activities (18,488) (6,430)
Net decrease in cash and cash equivalents (20,890) (31,636)
Cash and cash equivalents at beginning of year 48,558 59,195
Cash and cash equivalents at end of year $27,668 $27,559
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $5,026 $4,720
Disposal of equipment subject to valuation allowance 304 0
Change in unrealized gain (loss) on securities
available-for-sale 22 (1,022)
Real estate acquired through or in lieu of foreclosure 26 8
Dividends declared not paid 412 0
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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BANKILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for fair
presentation of financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles.
In the opinion of management, the condensed consolidated financial
statements of BankIllinois Financial Corporation (the "Company") and
subsidiaries as of March 31, 1998 and for the three-month periods ended March
31, 1998 and 1997 include all adjustments necessary for fair presentation of
the results of those periods. All such adjustments are of a normal recurring
nature.
Results of operations for the three-month period ended March 31, 1998
are not necessarily indicative of the results which may be expected for the
year ended December 31, 1998.
NOTE 2. GAINS ON SECURITIES TRANSACTIONS
Gains on security transactions include proceeds from sales of available-
for-sale securities as well as calls and maturities of held-to-maturity
securities. Gross gains and losses are as follows:
Mar. 31, 1998 Mar. 31, 1997
Available-for-sale $22 $-
Held-to-maturity 5 3
$27 $3
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ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
ASSETS AND LIABILITIES
Total assets decreased $16,680,000, or 3.1%, from $539,366,000 at
December 31, 1997 to $522,686,000 at March 31, 1998. Decreases in cash and
due from banks, federal funds sold, securities available-for-sale and
premises and equipment, offset somewhat by increases in securities held-to-
maturity, mortgage loans held-for-sale, other assets, and loans resulted in
the decrease in assets.
The decrease in cash and due from banks of $11,365,000, or 39.2%, at
March 31, 1998 compared to December 31, 1997 was attributable to a smaller
dollar amount of deposit items in process of collection at March 31, 1998
compared to December 31, 1997.
Federal funds sold decreased $9,525,000, or 48.6%, at March 31, 1998
compared to December 31, 1997. This decrease was a result of excess federal
funds sold being used to purchase securities held-to-maturity as well as to
fund an increase in loans as the Company experienced a slight decrease in
deposits during the first quarter.
Investments in securities held-to-maturity increased $8,092,000, or
43.7%, at March 31, 1998 compared to December 31, 1997. Investments in
securities available-for-sale decreased $4,824,000, or 3.6%, at March 31,
1998 compared to December 31, 1997. The net increase in investments in debt
and equity securities was a result of management's decision to shift assets
into investment securities that yield a higher rate of return than federal
funds sold.
Premises and equipment decreased $1,584,000, or 14.1%, from December 31,
1997 to March 31, 1998. This decrease was primarily due to the sale of a
vacant building and the adjacent parking lot with a book value of $1,499,000.
Also included in the decrease was depreciation of $268,000, somewhat offset
by purchases made in the first quarter of 1998.
Mortgage loans held-for-sale increased $1,402,000 or 99.6%, from
December 31, 1997 to March 31, 1998. The increase was due to strong demand
in the mortgage loan area. A decrease in interest rates during the quarter
caused a large increase in refinancing as well as originating new mortgage
loans. Other loans increased $733,000, or 0.2%, from December 31, 1997 to
March 31, 1998. The categories comprising other loans remained relatively
stable during the quarter.
Other assets increased $771,000, or 9.4%, from December 31, 1997 to
March 31, 1998. This was primarily due to the purchase of property with a
book value of $613,000. This property was acquired as part of the agreement
to sell the building and parking lot included in premises and equipment. A
sale of this property is currently being negotiated.
Total liabilities decreased $17,435,000, or 3.6%, from 482,036,000 at
December 31, 1997 to $464,601,000 at March 31, 1998. Decreases in federal
funds purchased and securities
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sold under repurchase agreements, deposits, and Federal Home Loan Bank
advances, offset somewhat by an increase in other liabilities, resulted in
the decrease in liabilities.
Federal funds purchased and securities sold under repurchase agreements
decreased $11,904,000, or 23.9%, from $49,857,000 at December 31, 1997 to
$37,953,000 at March 31, 1998. Included in this change were decreases in
federal funds purchased of $6,275,000, daily repurchase agreements of
$5,456,000 and term repurchase agreements of $173,000.
Total deposits decreased $5,260,000, or 1.3%, from $417,154,000 at
December 31, 1997 to $411,894,000 at March 31, 1998. The decrease included a
$4,961,000, or 8.3%, decrease in noninterest bearing demand deposits and a
$3,740,000, or 2.4%, decrease in other time deposits. These decreases were
somewhat offset by an increase of $491,000, or 0.3%, in interest bearing
demand deposits, an increase of $795,000, or 4.8%, in savings deposits, and
an increase of $2,155,000, or 5.2%, in time deposits $100,000 and over. The
decrease in deposits was attributable to seasonal run-off. Total deposits
were $395,880,000 at March 31, 1997 compared to $411,894,000 at March 31,
1998, a 4.0% increase.
Federal Home Loan Bank advances decreased $1,000,000, or 12.5%, from
$8,000,000 at December 31, 1997 to $7,000,000 at March 31, 1998. The
decrease was the result of a $1,000,000 advance maturing during the first
quarter of 1998.
Other liabilities increased $921,000, or 17.4%, from $5,289,000 at
December 31, 1997 to $6,210,000 at March 31, 1998. Included in this increase
was $465,000 attributable to organizational changes implemented to improve
efficiency including plans to merge BankIllinois Trust Company into
BankIllinois. In addition, other liabilities increased $555,000 due to an
increase in federal income taxes payable because the first installment is
paid during the second quarter of 1998.
CAPITAL
Total stockholders' equity increased $755,000 from December 31, 1997 to
March 31, 1998. The change is summarized as follows:
(IN THOUSANDS)
Stockholders' equity, December 31, 1997 $57,330
Net income 1,030
Treasury stock transactions, net 87
Stock appreciation rights 37
Cash dividends declared (412)
Other comprehensive income 13
Stockholders' equity, March 31, 1998 $58,085
At its regular board meeting on March 17, 1998, the Board of Directors
of the Company declared a cash dividend of $0.08 per share of the Company's
common stock. The dividend of $412,000 was payable on April 17, 1998 to
holders of record on April 6, 1998.
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The Company and BankIllinois are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Company's and BankIllinois' financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, BankIllinois must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company's and BankIllinois' capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and BankIllinois to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital (as defined
in the regulations) to risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined). Management believes, as
of March 31, 1998, that the Company and BankIllinois meet all capital
adequacy requirements to which they are subject.
As of March 31, 1998, the most recent notification from its primary
regulatory agency categorized BankIllinois as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, BankIllinois must maintain minimum total capital to risk-
weighted assets, Tier I capital to risk-weighted assets, and Tier I capital
to average assets ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed
BankIllinois' category.
The Company's and BankIllinois' actual capital amounts and ratios are
presented in the following table (in thousands):
<TABLE>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes: action provisions:
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998:
Total capital
(to risk-weighted assets)
Consolidated $62,056 18.0% $27,547 8.0% N/A
BankIllinois $55,706 16.2% $27,446 8.0% $34,307 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated $57,738 16.8% $13,774 4.0% N/A
BankIllinois $51,404 15.0% $13,723 4.0% $20,584 6.0%
Tier I capital
(to average assets)
Consolidated $57,738 11.0% $20,966 4.0% N/A
BankIllinois $51,404 9.9% $20,847 4.0% $26,059 5.0%
</TABLE>
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The concept of interest sensitivity attempts to gauge exposure of
BankIllinois' net interest income to adverse changes in market driven
interest rates by measuring the amount of interest-sensitive assets and
interest-sensitive liabilities maturing or subject to repricing within a
specified time period. Liquidity represents the ability of BankIllinois to
meet the day-to-day demands of deposit customers balanced by its investments
of these deposits. BankIllinois must also be prepared to fulfill the needs
of credit customers for loans with various types of maturities and other
financing arrangements. BankIllinois monitors its interest rate sensitivity
and liquidity through the use of static gap reports which measure the
difference between assets and liabilities maturing or repricing within
specified time periods.
The following table presents the Company's interest rate sensitivity at
various intervals at March 31, 1998:
<TABLE>
RATE SENSITIVITY OF EARNING ASSETS AND INTEREST BEARING LIABILITIES
(dollars in thousands)
1-30 31-90 91-180 181-365 Over
Days Days Days Days 1-year Total
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold 10,075 -- -- -- -- 10,075
Debt and equity securities <F1> 8,414 6,813 15,120 30,194 98,113 158,654
Loans <F2> 75,932 23,517 20,914 40,232 158,0777 318,672
Total interest earning assets 94,421 30,330 36,034 70,426 256,190 487,401
Interest bearing liabilities:
Savings and interest-bearing
demand deposits 164,685 -- -- -- -- 164,685
Time deposits 19,397 39,266 44,503 32,272 57,039 192,477
Federal funds purchased and securities
sold under repurchase agreements 32,603 2,100 3,000 50 200 37,953
Federal Home Loan Bank advances -- -- -- 3,000 4,000 7,000
Total interest bearing liabilities 216,685 41,366 47,503 35,322 61,239 402,115
Net asset (liability) funding gap (122,264) (11,036) (11,469) 35,104 194,951 85,286
Repricing gap 0.44 0.73 0.76 1.99 4.18 1.21
Cumulative repricing gap 0.44 0.48 0.53 0.68 1.21 1.21
<FN>
<F1> Debt and equity securities include securities available-for-sale.
<F2> Loans include mortgage loans held-for-sale.
</FN>
</TABLE>
At March 31, 1998, the Company was liability-sensitive due to the levels
of savings and interest bearing demand deposits, short-term time deposits,
federal funds purchased and securities sold under repurchase agreements. As
such, the effect of a decrease in the interest rate for all interest earning
assets and interest bearing liabilities of 100 basis points would increase
annualized net interest income by approximately $1,223,000 in the 1-30 days
category
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and $1,333,000 in the 1-90 days category assuming no management intervention.
An increase in interest rates would have the opposite effect for the same
time periods.
LIQUIDITY
The Company was able to meet liquidity needs during the first three
months of 1998. A review of the condensed consolidated statements of cash
flows included in the accompanying financial statements shows that the
Company's cash and cash equivalents decreased $20,890,000 from December 31,
1997 to March 31, 1998. This decrease came from net cash used in financing
and investing activities offset by cash provided by operating activities.
There were differences in sources and uses of cash during the first
quarter of 1998 compared to the first quarter of 1997. The change in cash
used in operating activities was due to funding the increase in loan
originations. Less cash was used in investing activities because of a
moderation in loan growth in 1998 compared to rapid loan growth in 1997 as
well as increases in maturities of investments in debt and equity securities
available-for sale. The change in cash used in financing activities was due
to the decrease in federal funds purchased and securities sold under
repurchase agreements.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based on management's evaluation of the
loan portfolio in light of national and local economic conditions, changes in
the composition and volume of the loan portfolio, changes in the volume of
past due and nonaccrual loans, and other relevant factors. The allowance for
loan losses, which is reported as a deduction from loans, is available for
loan charge-offs. The allowance is increased by the provision charged to
expense and is reduced by loan charge-offs net of loan recoveries. The
balance of the allowance for loan losses was $5,400,000 at March 31, 1998
compared to $5,306,000 at December 31, 1997, as provisions of $165,000
exceeded net charge-offs of $71,000. The allowance for loan losses as a
percentage of total loans rose slightly to 1.69% at March 31, 1998, compared
to 1.68% at December 31, 1997.
The allowance for loan losses as a percentage of nonperforming loans
fell to 97% at March 31, 1998, compared to 180% at December 31, 1997. This
reduction was due to a $432,000 increase in loans 90 days past due and still
accruing and an increase of $2,198,000 in non-accrual loans. The increase of
$2,198,000 in non-accrual loans was primarily due to a placing of a
$2,700,000 loan to a printing company on non-accrual. The business assets
are currently in liquidation, and a specific loan loss allocation of $500,000
has been placed on this credit. Somewhat offsetting the $2,700,00 increase
in non-accrual loans was a $285,000 loan returned to accrual status. The
increase in loans 90 days past due and still accruing was due primarily to
the delinquencies of a car rental business, although partial payments
continue to be received, and a reduction in the number of days past due has
occurred since March 31, 1998. A specific loan loss allocation of $300,000
has been placed on this credit. Management believes that problem assets have
been effectively identified and that the allowance for loan losses is
adequate to absorb possible losses in the portfolio.
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RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
Net income for the first three months of 1998 was $1,030,000, a
$182,000, or 15.0%, decrease from the first three months of 1997. Basic
earnings per share decreased $0.04, or 16.7%, to $0.20 in the first three
months of 1998 from $0.24 in the same period of 1997. Diluted earnings per
share decreased $0.03, or 13.0%, to $0.20 in the first three months of 1998
from $0.23 in the same period of 1997.
Operating earnings for the quarter ended March 31, 1998, were $1,512,000
compared to $1,298,000 for the same period in 1997, a 16.5% increase. Both
basic and diluted earnings per share on operating earnings increased $0.04,
or 16.0%, to $0.29 in the first three months of 1998 from $0.25 in the same
period of 1997. Net income for the first quarter of 1998 and 1997 was
$1,030,000 and $1,212,000, respectively. The difference between operating
and net earnings was due to non-recurring items affecting each of these two
periods. The non-recurring expense items, net of tax, in the first quarter
of 1998 were $482,000. Included in these items was $317,000 related to
organizational changes implemented to improve efficiency, including plans to
merge BankIllinois Trust Company into BankIllinois. Also included was
$165,000 of expense related to a loss on disposal of property. The non-
recurring item, net of tax, in the first quarter of 1997 was $86,000 which
was attributable to the anticipation of a loss on the closing of the
Champaign Money Market branch in May 1997.
Net interest income was $265,000, or 6.0% higher for the first three
months of 1998 compared to 1997. Total interest income was $430,000, or 4.7%
higher in 1998 compared to 1997, and interest expense increased $165,000, or
3.5%. The increase in interest income was due to both an increase in average
earning assets and a shift of assets into higher yielding investments. The
increase in interest expense was primarily due to an increase in average
interest bearing liabilities as well as higher interest rates.
The increase in total interest income included an increase of $570,000,
or 9.0%, on loan interest income. This increase was primarily due to the
increase in average loans outstanding as well as higher interest rates during
the first quarter of 1998 compared to the first quarter of 1997. Somewhat
offsetting this increase was a decrease of $145,000, or 5.9%, on taxable
investments in debt and equity securities. This decrease was mainly
attributable to a decrease in taxable investments as well as lower interest
rates during the first quarter of 1998 compared to the first quarter of 1997.
The provision for loan losses recorded was $165,000 during the first
three months of 1998. This was $90,000, or 120.0%, higher than the amount
recorded during the first three months of 1997. The provision during the
first three months of 1998 was based on management's analysis of the loan
portfolio.
Total noninterest income increased $107,000, or 9.9%, during the first
three months of 1998 compared to the first three months of 1997. Included in
this increase was an increase of $75,000, or 170.5%, in gains on sales of
mortgage loans held-for-sale. This increase reflects an $8,529,000, or
250.2%, increase in mortgage loans held-for-sale which were closed during
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<PAGE>
the first quarter of 1998 compared to the first quarter of 1997. There was
also an increase of $59,000, or 11.9%, in trust fees which was due to both an
increase in the number of accounts as well as an increase in the market value
of the portfolio under management. Also contributing to the increase in
noninterest income was a $24,000, or 800.0%, increase in gains on sales of
debt securities. This increase was a result of the Company amortizing
discounts on securities to their maturity date. Due to decreasing interest
rates, several securities were called during the first quarter of 1998 prior
to maturity date which resulted in a gain being recognized. Somewhat
offsetting these increases was a decrease of $41,000, or 11.0%, in other
income. This decrease was mainly a result of some non-recurring items in the
first quarter of 1997 which included a prior period adjustment of $12,000
booked to Visa merchant fee income and $19,000 booked to income for the sale
of the East Central Illinois Proprietary Network ATM system. Also affecting
the decrease were lower service charges and fees in the first quarter of 1998
compared to 1997.
Total noninterest expenses increased $568,000, or 15.6%, during the
first three months of 1998 compared to the first three months of 1997.
Included in the increase were increases in salaries and employee benefits of
$477,000, or 23.8%. Of this increase, $472,000 was due to organizational
changes as discussed previously. Other expenses also increased $106,000, or
12.6%. Included in this increase was a loss on disposal of property of
$248,000 in 1998 compared to $131,000 of expense in anticipation of a loss on
the closing of the Champaign Money Market branch in May 1997. These
increases in noninterest expense were somewhat offset by a decrease in net
occupancy expense of $20,000, or 5.4%, which was due to lower maintenance and
repair costs in the first quarter of 1998 compared to 1997.
YEAR 2000
The federal banking regulators have issued several statements providing
guidance to financial institutions on the steps the regulators expect
financial institutions to take to become Year 2000 compliant. Each of the
federal banking regulators is also examining the financial institutions under
its jurisdiction to assess each institution's compliance with the outstanding
guidance. If an institution's progress in addressing the Year 2000 problem
is deemed by its primary federal regulator to be less than satisfactory, the
institution will be required to enter into a memorandum of understanding with
the regulator which will, among other things, require the institution to
promptly develop and submit an acceptable plan for becoming Year 2000
compliant and to provide periodic reports describing the institution's
progress in implementing the plan. Failure to satisfactorily address the
Year 2000 problem may also expose a financial institution to other forms of
enforcement action that its primary federal regulator deems appropriate to
address the deficiencies in the institution's Year 2000 remediation program.
The Company utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include those developed and maintained by the Company's data processing
provider and purchased software which is run on in-house computer networks.
In 1997, the Company initiated a review and assessment of all hardware and
software to confirm that it will function properly in the Year 2000. The
Company's data processing provider and those vendors which have been
contacted have indicated that their hardware and/or software will be Year
2000 compliant by the end of 1998. This will
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<PAGE>
allow time for compliance testing. Additionally, alarms, elevators, heating
and cooling systems, and other computer-controlled mechanical devices on
which the Company relies are being evaluated. Those found not to be in
compliance will be modified or replaced with a compliant product. While
there will be some expenses incurred during the next two years, the Company
has not identified any situations at this time that will require material
cost expenditures to become fully compliant. An unknown element at this time
is the impact of the Year 2000 on the Company's borrowing customers and their
ability to repay. The Company has initiated a program to communicate with
key bank customers to ensure they are properly prepared for the Year 2000 and
will not suffer serious adverse consequences.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
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
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 its
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.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The are no material pending legal proceedings to which the Company or its
subsidiaries is 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
a. Exhibits
27. Financial Data Schedule
b. Reports
None
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BANKILLINOIS FINANCIAL CORPORATION
Date: May 11, 1998
By: /s/ David B. White
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 17,593
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,075
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 132,043
<INVESTMENTS-CARRYING> 26,611
<INVESTMENTS-MARKET> 26,639
<LOANS> 313,272<F1>
<ALLOWANCE> 5,400
<TOTAL-ASSETS> 522,686
<DEPOSITS> 411,894
<SHORT-TERM> 37,953
<LIABILITIES-OTHER> 7,754
<LONG-TERM> 7,000
0
0
<COMMON> 52
<OTHER-SE> 58,033
<TOTAL-LIABILITIES-AND-EQUITY> 522,686
<INTEREST-LOAN> 6,920
<INTEREST-INVEST> 2,404
<INTEREST-OTHER> 212
<INTEREST-TOTAL> 9,536
<INTEREST-DEPOSIT> 4,157
<INTEREST-EXPENSE> 4,834
<INTEREST-INCOME-NET> 4,702
<LOAN-LOSSES> 165
<SECURITIES-GAINS> 27
<EXPENSE-OTHER> 4,202
<INCOME-PRETAX> 1,523
<INCOME-PRE-EXTRAORDINARY> 1,523
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,030
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
<YIELD-ACTUAL> 7.95
<LOANS-NON> 4,406
<LOANS-PAST> 1,179
<LOANS-TROUBLED> 138
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,306
<CHARGE-OFFS> 128
<RECOVERIES> 57
<ALLOWANCE-CLOSE> 5,400
<ALLOWANCE-DOMESTIC> 5,400
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> Includes mortgages available-for-sale and net of allowance for
loan losses of $5,400.
</FN>
</TABLE>
