SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File Number: 33-90342
BANKILLINOIS FINANCIAL CORPORATION
f/k/a CENTRAL ILLINOIS FINANCIAL CO., INC.
(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 61824-4028
(Address of principal executive offices) (Zip Code)
(217) 351-6500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
TITLE OF EXCHANGE CLASS ON WHICH REGISTERED
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The index to exhibits is located on page 68 of 69 total sequentially numbered
pages.
As of March 20, 1998, the Registrant had issued and outstanding 5,152,022
shares of the Registrant's Common Stock. The aggregate market value of the
voting stock held by non-affiliates of the Registrant as of March 20, 1998,
was $55,435,704.*
* Based on the last reported price ($21.75) of an actual transaction in
Registrant's Common Stock on March 20, 1998, and reports of beneficial
ownership filed by directors and executive officers of Registrant and by
beneficial owners of more than 5% of the outstanding shares of Common
Stock of Registrant; however, such determination of shares owned by
affiliates does not constitute an admission of affiliate status or
beneficial interest in shares of Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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BANKILLINOIS FINANCIAL CORPORATION
Form 10-K Annual Report
Table of Contents
Part I
Item 1. Description of Business 1
A. General
B. Business of the Company and Subsidiaries
C. Competition
D. Monetary Policy and Economic Conditions
E. Regulation and Supervision
F. Employees
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 8
Item 6. Selected Consolidated Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 27
Item 9 Changes in and Disagreements on Accounting
and Financial Disclosure 56
Part III
Item 10. Directors and Executive Officers of the Registrant 57
Item 11. Executive Compensation 61
Item 12. Security Ownership of Certain Beneficial Owners
and Management 64
Item 13. Certain Relationships and Related Transactions 65
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 66
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. GENERAL
BankIllinois Financial Corporation (the "Company"), a Delaware
corporation, is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). The Company was incorporated
on December 9, 1994, and on June 30, 1995, acquired all of the outstanding
stock of BankIllinois and The Champaign National Bank following the merger
(the "Merger") of Central Illinois Financial Corporation ("CIF") and
BankIllinois Financial Co. ("BKI"). On October 20, 1995, BankIllinois and
The Champaign National Bank were merged to form BankIllinois ("BankIllinois"
or the "Bank"), an Illinois chartered bank. The Company also has one non-
bank subsidiary, BankIllinois Trust Company ("BankIllinois Trust Company"),
an Illinois trust company. Effective February 27, 1998, the Company changed
its name to its present name from Central Illinois Financial Co., Inc.
B. BUSINESS OF THE COMPANY AND SUBSIDIARIES
GENERAL
The Company conducts the business of banking through BankIllinois, its
wholly owned subsidiary, and trust business through BankIllinois Trust
Company, also its wholly owned subsidiary. As of December 31, 1997, the
Company had consolidated total assets of $539.4 million, stockholders' equity
of $57.3 million and trust assets under administration of approximately
$325.3 million. Substantially all of the income of the Company is currently
derived from dividends received from BankIllinois. The amount of these
dividends is directly related to the earnings of BankIllinois and is subject
to various regulatory restrictions. See "Regulation and Supervision."
BankIllinois conducts a general banking business embracing most of the
services, both consumer and commercial, which banks may lawfully provide,
including the following principal services: the acceptance of deposits to
demand, savings and time accounts and the servicing of such accounts;
commercial, consumer and real estate lending, including installment loans and
personal lines of credit; safe deposit operations; and additional services
tailored to the needs of individual customers, such as the sale of traveler's
checks, cashier's checks and other specialized services. BankIllinois also
offers personalized financial planning services through the PrimeVest
Investment Center at BankIllinois, which services include a broad spectrum of
investment products, including stocks, bonds, mutual funds and tax advantaged
investments. In addition, BankIllinois Trust Company is a full service trust
company which offers a wide range of services such as acting as trustee,
consultant, guardian, executor and agent.
Commercial lending at BankIllinois covers such categories as
agriculture, manufacturing, capital, inventory, construction, real estate
development and commercial mortgages. Commercial lending, particularly loans
to small and medium sized businesses, accounts for a major portion of
BankIllinois' loan portfolio. BankIllinois' retail banking division offers a
Visa credit card and makes direct loans to consumers for various purposes,
including home equity and direct automobile loans. The consumer mortgage
loan department, which is part of the retail banking division, specializes in
real estate loans to individuals. BankIllinois also purchases installment
obligations from retailers, primarily without recourse.
BankIllinois' principal sources of income are interest and fees on
loans and investments and service fees. Its principal expenses are interest
paid on deposits and general operating expenses.
BankIllinois and BankIllinois Trust Company's primary service area is
Champaign County, Illinois.
LENDING ACTIVITIES
GENERAL. BankIllinois' primary source of revenue is interest revenue
from its lending activities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Results of Operations--Net
Interest Income."
LOAN PORTFOLIO COMPOSITION. BankIllinois' loan portfolio totaled
approximately $315.0 million at December 31, 1997, representing 58% of
BankIllinois' total assets at that date. At that date, BankIllinois' loan
portfolio included approximately $121.9 million of loans for commercial,
financial and agricultural purposes, $141.1 million for real estate purposes
and $52.0 million for installment and consumer purposes. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Results of Operations--Financial Condition--Loans."
For a discussion of risks with respect to BankIllinois' loan
portfolio, BankIllinois' strategies for addressing and managing such risks,
BankIllinois' non-performing loans and BankIllinois' allowance for losses on
loans, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Results of Operations--Allowance for Loan Losses and
Loan Quality" and "--Financial Condition--Loans."
INTEREST RATES AND FEES. Interest rates and fees charged on
BankIllinois' loans are affected primarily by the market demand for loans and
the supply of money available for lending purposes. These factors are
affected by, among other things, general economic conditions and the policies
of the Federal government, including the Board of Governors of the Federal
Reserve System, legislative tax policies and governmental budgetary matters.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Results of Operations--Net Interest Income."
INVESTMENT SECURITIES
The carrying value of the Company's securities at December 31, 1997
was approximately $155.4 million, representing 29% of the Company's total
assets. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Financial Condition--Investment Securities."
INTEREST RATE SENSITIVITY
For a discussion of BankIllinois' approach to managing its mix of
interest rate sensitive assets and liabilities, see "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Financial
Condition--Interest Rate Sensitivity."
C. COMPETITION
The Company faces strong competition both in originating loans and in
attracting deposits. Competition in originating real estate loans comes
primarily from other commercial banks, savings institutions and mortgage
bankers making loans secured by real estate located in the Company's market
area. Commercial banks and finance companies, including finance company
affiliates of automobile manufacturers, provide vigorous competition in
consumer lending. The Company competes for real estate and other loans
principally on the basis of the interest rates and loan fees it charges, the
types of loans it originates and the quality of services it provides to
borrowers.
The Company faces substantial competition in attracting deposits from
other commercial banks, savings institutions, money market and mutual funds,
credit unions and other investment vehicles. The ability of the Company to
attract and retain deposits depends on its ability to provide investment
opportunities that satisfy the requirements of investors as to rate of
return, liquidity, risk and other factors. The Company attracts a
significant amount of deposits through its branch offices, primarily from the
communities in which those branch offices are located; therefore, competition
for those deposits is principally from other commercial banks and savings
institutions located in the same communities. The Company competes for these
deposits by offering a variety of deposit accounts at competitive rates,
convenient business hours and convenient branch locations with interbranch
deposit and withdrawal privileges at each.
D. MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings of commercial banks and bank holding companies are
affected not only by general economic conditions, but also by the policies of
various governmental regulatory agencies. In particular, the Federal Reserve
Board (the "FRB") regulates money and credit conditions and interest rates in
order to influence general economic conditions and interest rates, primarily
through open market operations in U. S. government securities, varying the
discount rate on member banks and nonmember bank borrowings and setting
reserve requirements against bank deposits. Such FRB policies and acts have
a significant influence on overall growth and distribution of bank loans,
investments, deposits and related interest rates. The Company cannot
accurately predict the effect, if any, such policies and acts may have in the
future on its business or earnings.
E. REGULATION AND SUPERVISION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state law. As a result, the growth and earnings
performance of the Company can be affected not only by management decisions
and general economic conditions, but also by the requirements of applicable
state and federal statutes and regulations and the policies of various
governmental regulatory authorities including, but not limited to, the Board
of Governors of the FRB, the Federal Deposit Insurance Corporation (the
"FDIC"), the Internal Revenue Service and state taxing authorities and the
Securities and Exchange Commission. The effect of such statutes, regulations
and policies can be significant, and cannot be predicted with a high degree
of certainty.
Federal and state laws and regulations generally applicable to
financial institutions, such as the Company and its subsidiaries, regulate,
among other things, the scope of business, investments, reserves against
deposits, capital levels relative to operations, the nature and amount of
collateral for loans, the establishment of branches, mergers, consolidations
and dividends. The system of supervision and regulation applicable to the
Company and its subsidiaries establishes a comprehensive framework for their
respective operations and is intended primarily for the protection of the
FDIC's deposit insurance funds and the depositors, rather than the
shareholders, of financial institutions.
The following references to material statutes and regulations
affecting the Company and its subsidiaries are brief summaries thereof and do
not purport to be complete, and are qualified in their entirety by reference
to such statutes and regulations. Any change in applicable law or
regulations may have a material effect on the business of the Company and its
subsidiaries.
RECENT REGULATORY DEVELOPMENTS
PENDING LEGISLATION. Legislation is pending in Congress that would
allow bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. The expanded powers generally would be available to a bank
holding company only if the bank holding company and its bank subsidiaries
remain well-capitalized and well-managed. Additionally, the pending
legislation would eliminate the federal thrift charter and merge the FDIC's
Bank Insurance Fund ("BIF") and Savings Association Insurance Fund ("SAIF").
At this time, the Company is unable to predict whether the proposed
legislation will be enacted and, therefore, is unable to predict the impact
such legislation may have on the operations of the Company and the Bank.
THE COMPANY
GENERAL. The Company, as the sole stockholder of the Bank, is a bank
holding company. As a bank holding company, the Company is registered with,
and is subject to regulation by, the FRB under the BHCA. In accordance with
FRB policy, the Company is expected to act as a source of financial strength
to the Bank and to commit resources to support the Bank in circumstances
where the Company might not do so absent such policy. Under the BHCA, the
Company is subject to periodic examination by the FRB and is required to file
with the FRB periodic reports of its operations and such additional
information as the FRB may require. The Company is also subject to regulation
by the Commissioner under the Illinois Bank Holding Company Act, as amended.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company
must obtain FRB approval before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after such acquisition, it would own or control more than 5% of
such shares (unless it already owns or controls the majority of such shares);
(ii) acquiring all or substantially all of the assets of another bank; or
(iii) merging or consolidating with another bank holding company. Subject to
certain conditions (including certain deposit concentration limits
established by the BHCA), the FRB may allow a bank holding company to acquire
banks located in any state of the United States without regard to whether the
acquisition is prohibited by the law of the state in which the target bank is
located. In approving interstate acquisitions, however, the FRB is required
to give effect to applicable state law limitations on the aggregate amount of
deposits that may be held by the acquiring bank holding company and its
insured depository institution affiliates in the state in which the target
bank is located (provided that those limits do not discriminate against out-
of-state depository institutions or their holding companies) or which require
that the target bank have been in existence for a minimum period of time (not
to exceed five years) before being acquired by an out-of-state bank holding
company.
The BHCA also prohibits, with certain exceptions, the Company from
acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to banks and their subsidiaries. The principal exception
to this prohibition allows bank holding companies to engage in, and to own
shares of companies engaged in, certain businesses found by the FRB to be so
closely related to banking ... as to be a proper incident thereto. Under
current regulations of the FRB, the Company and its non-bank subsidiaries are
permitted to engage in, among other activities, such banking-related
businesses as the operation of a thrift, sales and consumer finance,
equipment leasing, the operation of a computer service bureau, including
software development, and mortgage banking and brokerage. The BHCA generally
does not place territorial restrictions on the domestic activities of non-
bank subsidiaries of bank holding companies.
Federal law also prohibits acquisition of control of a bank, such as
the Bank, or bank holding company, such as the Company, without prior notice
to certain federal bank regulators. Control is defined in certain cases as
the acquisition of 10% of the outstanding shares of a bank or bank holding
company.
CAPITAL REQUIREMENTS. Bank holding companies are required to
maintain minimum levels of capital in accordance with FRB capital adequacy
guidelines. If capital falls below minimum guideline levels, a bank holding
company, among other things, may be denied approval to acquire or establish
additional banks or non-bank businesses.
The FRB's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies: a risk-based
requirement expressed as a percentage of total risk-weighted assets, and a
leverage requirement expressed as a percentage of total assets. The risk-
based requirement consists of a minimum ratio of total capital to total risk-
weighted assets of 8%, at least one-half of which must be Tier 1 capital.
The leverage requirement consists of a minimum ratio of Tier 1 capital to
total assets of 3% for the most highly rated companies, with minimum
requirements of 4% to 5% for all others. For purposes of these capital
standards, Tier 1 capital consists primarily of permanent stockholders'
equity less intangible assets (other than certain mortgage servicing rights
and purchased credit card relationships) and total capital means Tier 1
capital plus certain other debt and equity instruments which do not qualify
as Tier 1 capital and a portion of the Company's allowance for loan losses.
The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking
organizations. For example, the FRB's capital guidelines contemplate that
additional capital may be required to take adequate account of, among other
things, interest rate risk, or the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. Further, any
banking organization experiencing or anticipating significant growth would be
expected to maintain capital ratios, including tangible capital positions
(i.e., Tier 1 capital less all intangible assets), well above the minimum
levels.
As of December 31, 1997, the Company had regulatory capital in excess
of the FRB's minimum requirements, with a risk-based capital ratio of 17.7%
and a leverage ratio of 10.9%.
DIVIDENDS. The FRB has issued a policy statement with regard to the
payment of cash dividends by bank holding companies. In the policy
statement, the FRB expressed its view that a bank holding company should not
pay cash dividends which exceed its net income or which can only be funded in
ways that weaken the bank holding company's financial health, such as by
borrowing. Additionally, the FRB possesses enforcement powers over bank
holding companies and their non-bank subsidiaries to prevent or remedy
actions that represent unsafe or unsound practices or violations of
applicable statutes and regulations. Among these powers is the ability to
proscribe the payment of dividends by banks and bank holding companies.
In addition to the restrictions on dividends that may be imposed by
the FRB, the Delaware General Corporation Law (the "DGCL") allows the Company
to pay dividends only out of its surplus (as defined and computed in
accordance with the provisions of the DGCL), or if the Company has no such
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year.
THE BANK
GENERAL. The Bank is an Illinois-chartered bank, the deposit accounts
of which are insured by the BIF of the FDIC. As a BIF-insured, Illinois-
chartered bank, the Bank is subject to the examination, supervision,
reporting and enforcement requirements of the Commissioner, as the chartering
authority for Illinois banks, and the FDIC, as administrator of the BIF.
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DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank is
required to pay deposit insurance premium assessments to the FDIC. The FDIC
has adopted a risk-based assessment system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their respective levels of capital and results of
supervisory evaluations. Institutions classified as well-capitalized (as
defined by the FDIC) and considered healthy pay the lowest premium while
institutions that are less than adequately capitalized (as defined by the
FDIC) and considered of substantial supervisory concern pay the highest
premium. Risk classification of all insured institutions is made by the FDIC
for each semi-annual assessment period.
During the year ended December 31, 1997, BIF assessments ranged from
0% of deposits to 0.27% of deposits. For the semi-annual assessment period
beginning January 1, 1998, BIF assessment rates will continue to range from
0% of deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written
agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of
insurance if the institution has no tangible capital. Management of the
Company is not aware of any activity or condition that could result in
termination of the deposit insurance of the Bank.
FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance
assessments paid by SAIF members has been used to cover interest payments due
on the outstanding obligations of the FICO, the entity created to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation, the
SAIF's predecessor insurance fund. Pursuant to federal legislation enacted
September 30, 1996, commencing January 1, 1997, both SAIF members and BIF
members became subject to assessments to cover the interest payments on
outstanding FICO obligations. Such FICO assessments are in addition to
amounts assessed by the FDIC for deposit insurance. Until January 1, 2000,
the FICO assessments made against BIF members may not exceed 20% of the
amount of the FICO assessments made against SAIF members. Between January 1,
2000 and the maturity of the outstanding FICO obligations in 2019, BIF
members and SAIF members will share the cost of the interest on the FICO
bonds on a pro rata basis. During the year ended December 31, 1997, the FICO
assessment rate for SAIF members was approximately 0.063% of deposits while
the FICO assessment rate for BIF members was approximately 0.013% of
deposits. During the year ended December 31, 1997, the Bank paid FICO
assessments totaling $48,000.
COMMISSIONER ASSESSMENTS. All Illinois banks are required to pay
supervisory fees to the Commissioner to fund the operations of the
Commissioner. The amount of such supervisory fees is based upon each
institution's total assets, including consolidated subsidiaries, as reported
to the Commissioner. During the year ended December 31, 1997, the Bank paid
supervisory fees to the Commissioner totaling $45,000.
CAPITAL REQUIREMENTS. The FDIC has established the following minimum
capital standards for state-chartered insured non-member banks, such as the
Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital
to total assets of 3% for the most highly-rated banks with minimum
requirements of 4% to 5% for all others, and a risk-based capital requirement
consisting of a minimum ratio of total capital to total risk-weighted assets
of 8%, at least one-half of which must be Tier 1 capital. For purposes of
these capital standards, Tier 1 capital and total capital consist of
substantially the same components as Tier 1 capital and total capital under
the FRB's capital guidelines for bank holding companies (see "--The Company--
Capital Requirements").
The capital requirements described above are minimum requirements.
Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual institutions. For example, the
regulations of the FDIC provide that additional capital may be required to
take adequate account of, among other things, interest rate risk or the risks
posed by concentrations of credit, nontraditional activities or securities
trading activities.
During the year ended December 31, 1997, the Bank was not required by
the FDIC to increase its capital to an amount in excess of the minimum
regulatory requirements. As of December 31, 1997, the Bank exceeded its
minimum regulatory capital requirements with a leverage ratio of 9.6% and a
risk-based capital ratio of 15.8%.
Federal law provides the federal banking regulators with broad power
to take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending
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upon the capital category to which an institution is assigned, the
regulators' corrective powers include: requiring the submission of a capital
restoration plan; placing limits on asset growth and restrictions on
activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting
transactions with affiliates; restricting the interest rate the institution
may pay on deposits; ordering a new election of directors of the institution;
requiring that senior executive officers or directors be dismissed;
prohibiting the institution from accepting deposits from correspondent banks;
requiring the institution to divest certain subsidiaries; prohibiting the
payment of principal or interest on subordinated debt; and ultimately,
appointing a receiver for the institution.
DIVIDENDS. Under the Illinois Banking Act, Illinois-chartered banks
may not pay dividends in excess of their adjusted profits.
The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital pursuant
to applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described
above, the Bank exceeded its minimum capital requirements under applicable
guidelines as of December 31, 1997. As of December 31, 1997, approximately
$1.6 million was available to be paid as dividends to the Company by the
Bank. Notwithstanding the availability of funds for dividends, however, the
FDIC may prohibit the payment of any dividends by the Bank if the FDIC
determines such payment would constitute an unsafe or unsound practice.
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to the Company and
its subsidiaries, on investments in the stock or other securities of the
Company and its subsidiaries and the acceptance of the stock or other
securities of the Company or its subsidiaries as collateral for loans.
Certain limitations and reporting requirements are also placed on extensions
of credit by the Bank to its directors and officers, to directors and
officers of the Company and its subsidiaries, to principal stockholders of
the Company, and to "related interests" of such directors, officers and
principal stockholders. In addition, federal law and regulations may affect
the terms upon which any person becoming a director or officer of the Company
or one of its subsidiaries or a principal stockholder of the Company may
obtain credit from banks with which the Bank maintains a correspondent
relationship.
SAFETY AND SOUNDNESS STANDARDS. The federal banking agencies have
adopted guidelines which establish operational and managerial standards to
promote the safety and soundness of federally insured depository
institutions. The guidelines set forth standards for internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees and
benefits, asset quality and earnings. In general, the guidelines prescribe
the goals to be achieved in each area, and each institution is responsible
for establishing its own procedures to achieve those goals. If an
institution fails to comply with any of the standards set forth in the
guidelines, the institution's primary federal regulator may require the
institution to submit a plan for achieving and maintaining compliance. The
preamble to the guidelines states that the agencies expect to require a
compliance plan from an institution whose failure to meet one or more of the
guidelines is of such severity that it could threaten the safety and
soundness of the institution. Failure to submit an acceptable plan, or
failure to comply with a plan that has been accepted by the appropriate
federal regulator, would constitute grounds for further enforcement action.
BRANCHING AUTHORITY. Illinois banks, such as the Bank, have the
authority under Illinois law to establish branches anywhere in the State of
Illinois, subject to receipt of all required regulatory approvals.
Effective June 1, 1997 (or earlier if expressly authorized by
applicable state law), the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act") allows banks to establish
interstate branch networks through acquisitions of other banks, subject to
certain conditions, including certain limitations on the aggregate amount of
deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of de novo interstate
branches or the acquisition of individual branches of a bank in another state
(rather than the acquisition of an out-of-state bank in its entirety) is
allowed by the Riegle-Neal Act only if specifically authorized by state law.
The legislation allows individual states to "opt-out" of certain provisions
of the Riegle-Neal Act by enacting appropriate legislation prior to June 1,
1997. Illinois has enacted legislation permitting interstate mergers
beginning on June 1, 1997, subject to certain conditions, including a
prohibition against interstate mergers unless any Illinois bank involved has
been in existence and continuous operation for more than five years.
STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC
insured state banks are prohibited, subject to certain exceptions, from
making or retaining equity investments of a type, or in an amount, that are
not permissible for a national bank. Federal law and FDIC regulations also
prohibit FDIC insured state banks and their subsidiaries, subject to certain
exceptions, from
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engaging as principal in any activity that is not permitted for a national
bank or its subsidiary, respectively, unless the bank meets, and continues to
meet, its minimum regulatory capital requirements and the FDIC determines the
activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member. Impermissible investments and activities must be
divested or discontinued within certain time frames set by the FDIC. These
restrictions have not had, and are not currently expected to have, a material
impact on the operations of the Bank.
FEDERAL RESERVE SYSTEM. FRB regulations, as presently in effect,
require depository institutions to maintain non-interest earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts), as follows: for transaction accounts aggregating $47.8 million or
less, the reserve requirement is 3% of total transaction accounts; and for
transaction accounts aggregating in excess of $47.8 million, the reserve
requirement is $1.293 million plus 10% of the aggregate amount of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances are exempted from the reserve requirements.
These reserve requirements are subject to annual adjustment by the FRB. The
Bank is in compliance with the foregoing requirements.
BANKILLINOIS TRUST COMPANY
BankIllinois Trust Company is an Illinois corporation which conducts a
full service trust business in the State of Illinois pursuant to a
certificate of authority issued to it by the Commissioner under the Illinois
Corporate Fiduciaries Act (the "Fiduciaries Act"). The Fiduciaries Act
requires BankIllinois Trust Company, among other things, to maintain a
minimum level of capital, as determined by the Commissioner, and to obtain
the approval of the Commissioner before opening branch offices or acquiring
another trust company. BankIllinois Trust Company is subject to periodic
examination by the Commissioner and the Commissioner has the authority to
take action against it to enforce compliance with the laws applicable to its
operations. BankIllinois Trust Company is also subject to supervision and
regulation by the FRB under the BHCA.
F. EMPLOYEES
The Company had a total of 227 employees at December 31, 1997,
consisting of 161 full-time employees and 41 part-time at BankIllinois and 23
full-time employees and 2 part-time at BankIllinois Trust Company. The
Company places a high priority on staff development which involves extensive
training, including customer service training. New employees are selected on
the basis of both technical skills and customer service capabilities. None
of the Company's employees are covered by a collective bargaining agreement
with the Company or its subsidiaries. The Company offers a variety of
employee benefits, and management considers its employee relations to be
excellent.
ITEM 2. PROPERTIES
BankIllinois owns the land and building at the Company's principal
executive offices at 100 West University, Champaign, Illinois, which is also
BankIllinois' main banking office. In addition, BankIllinois owns three
separate branch facilities, one a few blocks away, one approximately two
miles away from the main banking office of BankIllinois and the other
approximately five miles away. BankIllinois also leases space in two
supermarket stores and operates a branch facility at each store. One
supermarket branch is situated in Urbana, approximately three miles from
BankIllinois' main office. The second is located in Mahomet, approximately
ten miles from BankIllinois' home office. In addition, BankIllinois leases
three other branch facility locations, one approximately two miles southwest
of the main office, a second facility located two miles southeast of the main
office, and a third facility located two miles east of the main office
scheduled to open in May 1998. BankIllinois also leases approximately 13,000
square feet in a building located down the street from the main banking
office. This location had been used for operations and other support
services. During 1997, some of these functions were relocated to the Bank's
main office and a sublease entered into for a portion of this space.
BankIllinois also owns three other buildings and four parking lots
which are located within a mile of its main office. One of the buildings and
one parking lot was sold subsequent to year-end. The second building is
being managed as rental property. The third building is used for storage.
Three of the parking lots are partially leased and are also used by
BankIllinois employees. The fourth parking lot is for employee use only.
The Company believes that its facilities are adequate to serve its
present needs. The main office for the Company, BankIllinois and
BankIllinois Trust Company is owned in fee and is unencumbered.
Page 7
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In the course of business, the Company, BankIllinois and BankIllinois
Trust Company become involved in various lawsuits and claims that are
incidental to their respective businesses. As of the date of filing this
report, there were no causes of action which would have a material adverse
effect on the business or financial condition of the Company, BankIllinois or
BankIllinois Trust Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no items submitted to a vote of security holders in the
fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock was held by approximately 409 shareholders
of record as of March 16, 1998, and is traded in the over-the-counter market.
The following table shows, for the periods indicated, the range of
prices per share of the Company's Common Stock in the over-the-counter
market, as reported to the Company by the brokers known to the Company to
regularly follow the market for the Common Stock. Certain other private
transactions may have occurred during the periods indicated of which the
Company has no knowledge. The following prices represent inter-dealer prices
without retail markups, markdowns or commissions, and have not been adjusted
to reflect the 5% stock dividends paid by the Company on May 15, 1996 and
June 6, 1997.
1996
QUARTER ENDING: PRICE/SHARE
March 31, 1996 $13.00 - $13.25
June 30, 1996 $13.25 - $14.00
September 30, 1996 $13.25 - $13.75
December 31, 1996 $14.00 - $16.25
1997
QUARTER ENDING: PRICE/SHARE
March 31, 1997 $15.25 - $16.50
June 30, 1997 $15.87 - $17.00
September 30, 1997 $16.00 - $18.75
December 31, 1997 $18.00 - $21.75
The Company paid a 5% stock dividend in the second quarter of 1996 and
paid no dividends during the remaining quarters of the 1996 fiscal year. In
1997 the Company also paid a 5% stock dividend in the second quarter and in
the fourth quarter declared a $.08 per share cash dividend, payable January
16, 1998.
The ability of the Company to pay dividends in the future will be
primarily dependent upon its receipt of dividends from the Bank. In
determining cash dividends, the Board of Directors considers the earnings,
capital requirements, debt and dividend servicing requirements, financial
ratio guidelines it has established, the financial condition of the Company
and other relevant factors. The Bank's ability to pay dividends to the
Company and the Company's ability to pay dividends to its stockholders are
also subject to certain regulatory restrictions.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial
information for the Company for each of the five years ended December 31,
1997. The selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements of the Company, including the
related notes, presented elsewhere herein.
<TABLE>
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $37,346 $35,088 $35,903 $33,086 $33,273
Interest expense 19,410 17,825 17,689 14,487 15,688
Net interest income 17,936 17,263 18,214 18,599 17,585
Provision for loan losses 465 375 3,097 565 3,015
Net interest income after provision
for loan losses 17,471 16,888 15,117 18,034 14,570
Noninterest income 4,476 4,291 3,951 4,258 5,041
Noninterest expense 13,888 14,495 19,054 17,480 15,882
Income tax expense 2,659 2,183 248 1,466 1,062
Discontinued operations--gain on
disposal of subsidiary 0 0 570 4,634 3,244
Cumulative effect of change in
accounting principles 0 0 0 0 (220)
Net income $5,400 $4,501 $336 $7,980 $5,691
Basic earnings per share:
Income from continuing operations $1.05 $0.87 ($0.05) $0.64 $0.51
Discontinued operations--gain on
disposal of subsidiary 0.00 0.00 0.11 0.89 0.62
Cumulative effect of change in
accounting principles 0.00 0.00 0.00 0.00 (0.04)
Net income $1.05 $0.87 $0.06 $1.53 $1.09
Diluted earnings per share:
Income from continuing operations $1.03 $0.85 ($0.05) $0.64 $0.51
Discontinued operations--gain on
disposal of subsidiary 0.00 0.00 0.11 0.89 0.62
Cumulative effect of change in
accounting principles 0.00 0.00 0.00 0.00 (0.04)
Net income $1.03 $0.85 $0.06 $1.53 $1.09
Return on average total assets 1.05% 0.92% 0.07% 1.64% 1.18%
Return on average stockholders' equity 9.95% 9.00% 0.68% 18.19% 14.66%
Total assets $539,366 $515,440 $520,586 $495,313 $497,562
Investment in debt and equity
securities 155,386 153,492 97,304 106,034 120,650
Loans held for investment, net 309,729 280,281 311,519 326,204 304,749
Deposits 417,154 404,130 419,157 394,677 405,990
Borrowings 57,857 52,941 45,273 47,504 43,987
Total stockholders' equity 57,330 52,096 48,408 46,766 42,130
Total stockholders' equity to
total assets 10.63% 10.11% 9.30% 9.44% 8.47%
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is designed to provide the
reader with a comprehensive review of the consolidated results of operations
for 1997, 1996 and 1995 for the Company, including BankIllinois and
BankIllinois Trust Company, and an analysis of the Company's financial
condition at December 31, 1997 compared to December 31, 1996 and at December
31, 1996 compared to December 31, 1995. This discussion and analysis should
be read in conjunction with the consolidated financial statements and related
notes which begin at page 28 of this report.
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<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report contains certain forward-looking statements within the
meaning of Section 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 the
subsidiaries include, but are not limited to, changes in: interest rates,
general economic conditions, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles, policies and guidelines. These risks and
uncertainties should be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange
Commission.
OVERVIEW
The three years ended December 31, 1997 was a period of transition for
the Company involving fundamental reorganization of the consolidated
organization.
Effective February 27, 1998, the Company changed its corporate name to
BankIllinois Financial Corporation. Prior to that date, it operated under
the name of Central Illinois Financial Co., Inc.
On December 13, 1994, BankIllinois Financial Co. and Central Illinois
Financial Corporation entered into an agreement and plan of merger which
provided for a merger of the two companies into the Company. The merger,
which was accounted for as a pooling of interests, was completed on June 30,
1995. Accordingly, prior period consolidated financial statements have been
restated as though the prior entities had been consolidated for all periods
presented. On October 20, 1995 the two subsidiary banks, BankIllinois and
Champaign National Bank, were merged into a single resulting bank known as
BankIllinois. Additionally, on October 20, 1995 the Company transferred the
trust operations of each of its subsidiary banks to its newly-formed trust
company subsidiary known as BankIllinois Trust Company. Costs incurred
during 1995 associated with the merger were approximately $1,036,000. The
resulting effect of these costs on both basic and diluted earnings per share
was a decrease of approximately $0.20 for the year ended December 31, 1995.
In addition to the direct costs associated with the merger, the
Company also incurred non-recurring restructuring costs during 1995 of
approximately $1,786,000. Included in these restructuring costs were
expenses related to reduction in work force, computer related expenses,
adjustments to carrying value of premises and equipment deemed to be
unnecessary for the ongoing operation of the merged entity and the
consolidation of safe deposit boxes.
Management of the Company continues to spend significant time and
effort maintaining and improving asset quality. Changes in the loan policy
with an increased focus on credit analysis prior to loan approval and an
emphasis on early detection of problem assets instituted in 1995 contributed
to net loans charged off of $2,478,000 and the provision for loan losses of
$3,097,000 in 1995. The emphasis on loan quality resulted in net charge-offs
being reduced to $670,000 in 1996, $1,808,000 less than in 1995. 1997 net
charge-offs were $746,000, up slightly from 1996. The emphasis on loan
quality also resulted in a decrease in the provision for loan losses in 1996
by $2,722,000 from 1995 resulting in a $375,000 provision in 1996. The
provision for loan losses was $465,000 in 1997, up slightly from 1996. The
allowance for loan losses was $5,306,000, or 1.68% of loans, at December 31,
1997 compared to $5,587,000, or 1.95% of loans, at December 31, 1996.
RESULTS OF OPERATIONS
The Company earned $5,400,000 from continuing operations in 1997
compared to $4,501,000 in 1996 and a loss from continuing operations of
$234,000 in 1995. Included in continuing operations were merger expenses of
$1,036,000 and non-recurring restructuring costs of $1,786,000 in 1995.
Continuing operations does not include the gain on sale of a subsidiary, net
of tax of $570,000 in 1995.
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<PAGE>
The Company had net income (loss) of 1.05%, 0.92%, and (0.05%) from
operations on average assets in 1997, 1996 and 1995, respectively. Other
financial ratios follow:
FINANCIAL RATIOS
1997 1996 1995
Rate of return on continuing operations before discontinued
operations:
Average total assets 1.05% 0.92% (0.05%)
Average total stockholders' equity 9.95% 9.00% (0.47%)
Total rate of return on
Average total assets 1.05% 0.92% 0.07%
Average total stockholders' equity 9.95% 9.00% 0.68%
Average stockholders' equity to average
assets ratio 10.57% 10.18% 10.00%
The rate of return on continuing operations in 1997 improved
relative to 1996 and 1995. The 1995 results were affected by the merger and
non-recurring restructuring expenses incurred. Basic earnings (loss) per
share from continuing operations was $1.05, $0.87 and ($0.05) in 1997, 1996
and 1995, respectively. Total basic earnings per share included net income
per share of $0.11 in 1995 from discontinued operations--gain on sale of
subsidiary. Total basic earnings per share was $1.05, $0.87 and $0.06 in
1997, 1996 and 1995, respectively.
Diluted earnings (loss) per share from continuing operations was
$1.03, $0.85 and ($0.05) in 1997, 1996 and 1995, respectively. Total diluted
earnings per share included net income per share of $0.11 in 1995 from
discontinued operations gain on sale of subsidiary. Total diluted earnings
per share was $1.03, $0.85 and $0.06 in 1997, 1996 and 1995, respectively.
NET INTEREST INCOME
Net interest income, the most significant component of the
Company's earnings, is the difference between interest received or accrued on
the Company's earning assets--primarily loans and investments--and interest
paid or accrued on deposits and short-term borrowings. In order to compare
the interest generated from different types of earning assets, the interest
income on certain tax-exempt investment securities and loans is increased for
analysis purposes to reflect the income tax savings provided by these tax-
exempt assets. The adjustment to interest income for tax-exempt investment
securities and loans was calculated based on the federal income tax statutory
rate of 34%. The adjustment to net interest income for the tax effect of
tax-exempt assets is shown in the following schedule. Net tax equivalent
(TE) interest income of $18,105,000 in 1997 reflected an increase from the
$17,471,000 recorded in 1996, but a decrease from the $18,480,000 recorded in
1995.
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
(in thousands)
1997 1996 1995
Total interest income $37,346 $35,088 $35,903
Total interest expense 19,410 17,825 17,689
Net interest income $17,936 $17,263 $18,214
Tax equivalent adjustment:
Tax-exempt investments 156 196 252
Tax-exempt loans 13 12 14
Total adjustment 169 208 266
Net interest income (TE) $18,105 $17,471 $18,480
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<PAGE>
The following schedule "Consolidated Average Balance Sheet and
Interest Rates" provides details of average balances, interest income or
interest expense, and the average rates for the Company's major asset and
liability categories.
<TABLE>
CONSOLIDATED AVERAGE BALANCE SHEET AND INTEREST RATES
(dollars in thousands)
1997 1996 1995
AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCEINTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Taxable investment
securities<F1> $156,101 $9,796 6.28% $112,359 $6,797 6.05% $90,675 $4,992 5.51%
Tax-exempt investment
securities1 (T 6,674 458 6.86% 8,471 576 6.80% 10,919 741 6.79%
Federal funds sold 13,973 762 5.45% 34,723 1,874 5.40% 16,977 951 5.60%
Loans<F2><F3> (TE) 296,170 26,499 8.95% 294,384 26,049 8.85% 334,915 29,485 8.80%
Total interest earning
assets and interest
income (TE) $472,918 $37,515 7.93% $449,937 $35,296 7.84% $453,486 $36,169 7.98%
Cash and due from banks $17,919 $20,539 $21,202
Premises and equipment 10,971 10,802 11,213
Other assets 11,490 10,197 10,733
Total assets $513,298 $491,475 $496,634
Liabilities and Stockholders' Equity
Interest bearing demand
deposits $139,613 $5,087 3.64% $118,296 $3,745 3.17% $106,410 $2,927 2.75%
Savings 17,557 334 1.90% 20,358 379 1.86% 23,850 585 2.45%
Time deposits 192,253 11,122 5.79% 193,486 11,096 5.73% 210,699 11,698 5.55%
Short-term borrowings 42,984 2,275 5.29% 39,598 2,006 5.07% 34,903 1,882 5.39%
FHLB advances 8,942 592 6.62% 9,000 599 6.66% 9,000 597 6.63%
Total interest bearing
liabilities and
interest expense $401,349 $19,410 4.84% $380,738 $17,825 4.68% $384,862 $17,689 4.60%
Noninterest bearing
demand deposits $51,405 $54,229 $55,731
Other liabilities 6,288 6,489 6,370
Total liabilities $459,042 $441,456 $446,963
Stockholders' equity 54,256 50,019 49,671
Total liabilities
and stockholders'
equity $513,298 $491,475 $496,634
Interest spread (average
rate earned minus
average rate paid) (TE) 3.09% 3.16% 3.38%
Net interest income (TE) $18,105 $17,471 $18,480
Net yield on interest
earning assets (TE) 3.83% 3.88% 4.08%
Notes:
<FN>
<F1> Investments in debt securities are included at carrying value.
<F2> Loans are net of unearned discount and allowance for loan losses.
Nonaccrual loans are included in the total.
<F3> Loan fees of approximately $533,000, $473,000 and $499,000 in 1997,
1996 and 1995, respectively, are included in total loan income.
</FN>
</TABLE>
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<PAGE>
The following table presents, on a fully taxable equivalent basis,
an analysis of changes in net interest income resulting from changes in
average volumes of earning assets and interest bearing liabilities and
average rates earned and paid. The change in interest due to the combined
rate/volume variance has been allocated to rate and volume changes in
proportion to the absolute dollar amounts of change in each.
<TABLE>
ANALYSIS OF VOLUME AND RATE CHANGES
(in thousands)
1997 1996
INCREASE INCREASE
(DECREASE) (DECREASE)
FROM FROM
PREVIOUS DUE TO DUE TO PREVIOUS DUE TO DUE TO
YEAR VOLUME RATE YEAR VOLUME RATE
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Taxable investment securities $2,999 $2,733 $266 $1,805 $1,280 $525
Tax-exempt investment (118) (123) 5 (165) (166) 1
securities
Federal funds sold (1,112) (1,129) 17 923 958 (35)
Loans 450 157 293 (3,436) (3,601) 165
Total interest income $2,219 $1,638 $581 ($873)($1,529) $656
Interest Expense
Interest bearing demand deposits $1,342 $736 $606 $818 $346 $472
Savings (45) (53) 8 (206) (78) (128)
Time deposits 26 (78) 104 (602) (974) 372
Short-term borrowings 269 179 90 124 241 (117)
Federal Home Loan Bank advances (7) (4) (3) 2 0 2
Total interest expense $1,585 $780 $805 $136 ($465) $601
Net Interest Income (TE) $634 $858 ($224) ($1,009)($1,064) $55
</TABLE>
Total average earning assets increased from $449,937,000 in 1996 to
$472,918,000 in 1997, generating higher levels of interest income in 1997,
while interest expense also increased. Average investments in taxable
securities increased $43,742,000 and generated an additional $2,999,000 in
interest income, of which $2,733,000 was attributable to the volume increase.
Average loans increased $1,786,000, resulting in an increase of $450,000 in
interest income, of which $157,000 was attributable to an increase in the
volume of loans and $293,000 was due to rate changes. The Company continues
to emphasize credit quality and pricing. These increases were somewhat
offset by decreases in average federal funds sold and tax-exempt investment
securities. Average federal funds sold decreased $20,750,000 and contributed
$1,112,000 less to interest income in 1997 as compared to 1996. Of this
$1,112,000 decrease, $1,129,000 was due to volume, offset by $17,000 due to
rate. Interest income earned on tax-exempt securities decreased $118,000 in
1997 due to a change in volume. Total interest income decreased $873,000 in
1996 from 1995. This was caused by decreases in loan interest income of
$3,436,000 and tax-exempt investment securities income of $165,000 offset by
increases in taxable investment securities of $1,805,000 and federal funds
sold of $923,000. Of the $3,436,000 decrease in loan interest income,
$3,601,000 was attributable to a decrease in volume offset by $165,000
attributable to an increase in rate.
The Company establishes interest rates on loans and deposits based
on market rates--such as the 91-day Treasury Bill rate and the prime
rate--and interest rates offered by other financial institutions in the local
community. The level of risk and the value of collateral also are evaluated
when determining loan rates. Rates were slightly higher in 1997 as compared
to 1996. The average rate earned on loans increased slightly from 8.85% in
1996 to 8.95% in 1997. The yield on taxable investment securities increased
23 basis points from 6.05% for the year ended December 31, 1996 to 6.28% for
the year ended December 31, 1997. The yield on federal funds sold increased
5 basis points from the year ended December 31, 1996.
The actual balances of loans at December 31, 1997 were higher than
at December 31, 1996. Real estate loans, commercial, financial and
agricultural loans, and installment and consumer loans, increased
$13,367,000, $11,868,000 and $3,932,000, respectively. These increases were
due to increased loan demand and product marketing emphasis.
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<PAGE>
Interest expense increased $1,585,000 in 1997. This was primarily
caused by the increase of $1,342,000 of interest on interest bearing demand
deposits. Of this increase, $736,000 was attributable to an increase in
volume and $606,000 was attributable to rate, as the average rate paid
increased from 3.17% in 1996 to 3.64% in 1997. A primary cause for this
increase was the continued success of the Prime Investment account. This
account pays a higher rate of interest than a regular money market account on
balances of $25,000 and over and provides greater access to funds than a
certificate of deposit. At December 31, 1997, the Prime Investment product
accounted for $60,773,000, or 41.4%, of all interest bearing demand deposits
compared to $42,775,000, or 33.6%, at December 31, 1996.
Interest expense increased $136,000 in 1996. This was partly
caused by the increase of $818,000 of interest on interest bearing demand
deposits. Of this increase, $346,000 was attributable to an increase in
volume and $472,000 was attributable to rate, as the average rate paid
increased from 2.75% in 1995 to 3.17% in 1996. A primary cause for this
increase was the introduction of the Prime Investment account in 1996.
Interest expense on savings deposits decreased $45,000 in 1997
compared to 1996. Of this decrease, $53,000 was attributable to a decrease
in volume, offset by $8,000 which was attributable to an increase in rate.
The average interest rate paid increased from 1.86% in 1996 to 1.90% in 1997.
Interest expense on savings deposits decreased $206,000 in 1996
compared to 1995. Of this decrease, $78,000 was attributable to a decrease
in volume and $128,000 was attributable to a decrease in rate. The average
interest rate paid decreased from 2.45% in 1995 to 1.86% in 1996.
Interest expense on time deposits increased $26,000 in 1997
compared to 1996, reflecting the increase in average yield paid from 5.73% in
1996 to 5.79% in 1997, offset somewhat by the decrease in average time
deposits outstanding of $1,233,000. The decrease of $602,000 in interest
expense on time deposits in 1996 compared to 1995 was reflective of the
decrease in average deposits outstanding of $17,213,000, offset somewhat by
the increase in average yield paid from 5.55% in 1995 to 5.73% in 1996. Both
the decrease in outstanding balance and the increase in rate paid were
reflective of the local interest rate environment.
Interest expense on short-term borrowings increased $269,000 in
1997 over 1996. The increase was a result of average short-term borrowings
increasing $3,386,000 in 1997 to $42,984,000 from $39,598,000 in 1996, and
the interest rate increasing from 5.07% in 1996 to 5.29% in 1997. Included
in the average balance increase was an increase of $4,946,000 in daily
repurchase agreements. Somewhat offsetting this increase was a $1,056,000
decrease in average term repurchase agreements and a $504,000 decrease in
average federal funds purchased in 1997 compared to 1996.
Interest expense on short-term borrowings increased $124,000 in
1996 over 1995. The increase was a result of average short-term borrowings
increasing $4,695,000 in 1996 to $39,598,000 from $34,903,000 in 1995, offset
by the interest rate decrease from 5.39% in 1995 to 5.07% in 1996. Included
in the average balance increase was an increase of $4,836,000 in daily
repurchase agreements. Average federal funds purchased increased $1,844,000
in 1996 compared to 1995, offset by a decrease of $1,984,000 in term
repurchase agreements.
PROVISION FOR LOAN LOSSES
The quality of the Company's loan portfolio is of prime importance
to Company management and its Board of Directors, as loans are the largest
component of the Company's assets. BankIllinois maintains an independent
credit administration function which performs reviews of all large loans and
all loans which present indications of additional credit risk. Approval of
the senior loan committee, which meets weekly, is required prior to funding
of all secured credit relationships over $500,000 and all unsecured
relationships over $100,000. This committee also reviews nonaccrual loans
and other problem loans. The Board of Directors meets monthly to review
problem loans, BankIllinois' lending policies and practices, and the results
of credit administration analyses.
Continued emphasis on loan quality is reflected in net charge-offs
being only slightly higher in 1997 than 1996. Net charge-offs increased from
$670,000 in 1996 to $746,000 in 1997. The provision for loan losses
increased $90,000, from $375,000 in 1996 to $465,000 in 1997. (See the
section on Allowance for Loan Losses and Loan Quality elsewhere in this
report for further discussion relating to the adequacy of the allowance for
loan losses.) The Company charged off $998,000 in loans during 1997 compared
to $1,538,000 in 1996. The largest increase was in the area of installment
and consumer loans which increased from $725,000 in 1996 to $945,000 in 1997.
Included in 1997 charge-offs was $445,000 of Visa fraud charge-offs.
Recoveries of previously charged off loans were $252,000 in 1997 compared to
$868,000 in 1996. Net charge-offs decreased to $670,000 in 1996, $1,808,000
less than the $2,478,000 in 1995. A corresponding decrease in the provision
for loan losses in 1996 of $2,722,000 from 1995 also occurred. The resulting
1996 provision was $375,000. The Company charged off $1,538,000 in loans
during 1996 compared to $2,674,000 in 1995. Recoveries of previously charged
off loans were $868,000 in 1996 compared to $196,000 in 1995, with the
greatest recoveries coming in the area of commercial, financial and
agricultural loans, having recoveries of $647,000 in 1996. The Company
continues to emphasize credit analysis and early detection of problem loans.
Page 14
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<PAGE>
NONINTEREST INCOME
Noninterest income increased $185,000, or 4.3% from 1996 to 1997.
Included in this increase was an increase in trust fees of $95,000, or 4.9%.
The bulk of this increase was in the farm management area due to grain market
prices and the timing of sales. Net securities transactions increased
$42,000, or 1,050.0% from ($4,000) in 1996 to $38,000 in 1997. Due to
decreasing interest rates, some securities were called in 1997. The
unamortized discount on the called securities was taken into income at the
call date. Service charges and fees increased $27,000, or 1.5%, from
$1,839,0000 in 1996 to $1,866,000 in 1997. Contributing to the increase was
the opening of the Primevest Investment Center in 1996. Fees collected for
brokerage, mutual funds and annuity transactions were approximately $25,000
higher in 1997 than in 1996.
Noninterest income increased $340,000, or 8.6% from 1995 to 1996.
This was attributed to increases in trust fees of $331,000, or 20.7%, and
gains on sales of mortgage loans of $67,000, or 33.7%, offset by a decrease
in other noninterest income of $33,000. The increase in trust fees was due
to the transition to a higher quality based fee schedule. The increase in
gains on mortgage loans was due to the volume of loans sold increasing to
$17,726,000 in 1996 from $13,572,000 in 1995. The Company strives to
minimize interest rate risk on mortgage loans held for sale by selling loans
as soon after commitment as possible.
NONINTEREST EXPENSE
Total noninterest expense decreased $607,000, or 4.2%, to
$13,888,000 in 1997 from $14,495,000 in 1996. The 1996 expense was a
decrease of $4,559,000, or 23.9%, from 1995 noninterest expense of
$19,054,0000. During 1997, advertising and marketing expenses decreased
$264,000, or 32.1% from 1996, other noninterest expense decreased $231,000,
or 10.9%, office supplies decreased $85,000, or 14.4%, salaries and employee
benefits decreased $53,000, or 0.7%, and equipment decreased $47,000, or
4.9%. During the same period, federal deposit insurance premiums increased
$46,000, or 2,300%. The decrease in 1996 can be attributed to improved
efficiencies resulting from the merger and the absence of merger and
restructuring expenses incurred in 1995. The Company continued to experience
improved efficiencies during 1997.
During 1997, salaries and employee benefits decreased $53,000, or
0.7%, from $7,795,000 to $7,742,000 as continued efficiencies resulted in a
reduction of the number of employees from 1996 to 1997. During 1996,
salaries and employee benefits decreased $1,688,000, or 17.8%, from 1995.
This was primarily associated with improved efficiencies resulting in fewer
employees after the merger, the absence of severance expense which had been
incurred in 1995, and a reduction in profit sharing contribution from 7% to
5%. During 1995, salaries and employee benefits included $981,000 of
severance expenses related to the departure of certain employees during the
merger and restructuring of the Company and its subsidiaries.
Occupancy expense increased $10,000 in 1997 and $30,000 in 1996.
The 1996 increase included a full year of expense on BankIllinois' facility
in southwest Champaign which opened mid-year 1995.
Equipment expense decreased $47,000 in 1997 compared to 1996.
$39,000 of the decrease was due to lower depreciation expense in 1997.
Equipment expense decreased $183,000 in 1996. This was mostly due to a
decrease of $116,000 in depreciation expense and a decrease in maintenance
agreements because of converting more of the Company's computer applications
to a service bureau from an in-house computer system in the fourth quarter of
1995.
Advertising and marketing expense decreased $264,000, or 32.1% from
$822,000 in 1996 to $558,000 in 1997. The 1996 expense was an increase of
$191,000, or 30.3% from $631,000 in 1995. 1996 expenses were up due to
additional advertising to establish name recognition after the merger of
BankIllinois and Champaign National Bank in October 1995.
On August 8, 1995, the FDIC amended its regulations to change the
range of deposit insurance assessments charged to members of the Bank
Insurance Fund, such as the two former subsidiary banks which were recently
merged into BankIllinois, from the then-prevailing range of 0.23% to 0.31% of
deposits, to a range of 0.04% to 0.31% of deposits. The change in FDIC
assessments has significantly decreased the amount of deposit insurance
assessments that well capitalized and well managed BIF-insured institutions,
such as BankIllinois, pay to the FDIC. Additionally, because the change in
BIF assessments was applied retroactively to June 1, 1995, BIF-member
institutions, including BankIllinois, became entitled to a refund of the
difference between the amount of assessments previously paid at the higher
assessment rates for the period from June 30, 1995 through September 30, 1995
and the amount that would have been paid for that period at the new rates.
On September 15, 1995, BankIllinois received a refund of $247,000, of which
$61,000 represented the assessment overpayment for the quarter ended June 30,
1995, and $186,000 represented the assessment overpayment for the quarter
ended September 30, 1995. As a result of the 1995 amendment, BankIllinois,
being a well capitalized institution with a risk classification of 1A, was
assessed the minimum amount of $1,000 semiannually during 1996.
The Deposit Insurance Funds Act of 1996 (DIFA) eliminated the
minimum assessment. It established a Financing Corporation (FICO) rate that
is not tied to the FDIC risk classification. The FICO BIF annual rate was
1.298 basis points for the first half of 1997 and 1.262 basis points for the
second half of 1997. The FDIC insurance assessment is a combined rate of the
FICO
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<PAGE>
BIF and the FDIC risk classification. BankIllinois, being classified 1A,
incurred no FDIC risk classification expense. BankIllinois incurred $48,000
of FDIC insurance assessments during 1997.
Merger expenses include expenses directly related to the cost of
merging BankIllinois Financial Co. and Central Illinois Financial
Corporation, now known as BankIllinois Financial Corporation, on June 30,
1995 and merging Champaign National Bank and BankIllinois, now known as
BankIllinois, on October 20, 1995. These expenses included attorney fees,
accountant fees, other professional fees, postage, communication with
stockholders and various other miscellaneous expenses.
Office supplies decreased $85,000, or 14.4% from 1996 to 1997 and
decreased $151,000, or 20.4% from 1995 to 1996. 1995 and early 1996 office
supply expense was higher due to changing forms and re-stocking of supplies
following the merger.
The loss on other real estate for 1995 included write downs to
market value of $100,000 on a contract receivable and $150,000 on two other
pieces of real estate that were foreclosed on in previous years.
Other noninterest expense decreased $231,000 in 1997 and $1,035,000
in 1996. Included in the 1997 change was a decrease of $127,000 for director
fees (during the second quarter of 1997, a compensation plan using stock
options was adopted for directors of the Company and BankIllinois). Also
included in 1997 other expenses were $132,000 of expenses due to the closing
of the Champaign Money Market branch on May 10th. Included in 1995 other
expenses are restructuring costs, including write downs of the old Champaign
National Bank main bank building of $300,000 and $75,000 on computer
equipment. Total restructuring expenses amounted to $1,786,000 in 1995, most
of which has already been discussed in preceding paragraphs.
INCOME TAX EXPENSE--CONTINUING OPERATIONS
Income tax expense increased $476,000 in 1997 compared to 1996,
primarily due to higher income in 1997 resulting in more taxable income for
1997 compared to 1996. Income tax expense increased $1,935,000 in 1996
compared to 1995, primarily the result of lower expenses resulting in more
taxable income for 1996 compared to 1995.
The tax effects of temporary differences which gave rise to
significant portions of the deferred tax assets and deferred tax liabilities
at December 31, 1997 and 1996 are shown in note 12 in the Notes to
Consolidated Financial Statements.
DISCONTINUED OPERATIONS
On July 30, 1992, BankIllinois divested its interest in its wholly
owned subsidiary, BankIllinois Co., which was involved in the processing of
monthly telephone bills for cellular telephone companies. At the time of the
sale, BankIllinois received $1,000,000, which equalled BankIllinois' carrying
value of the subsidiary. The total sales price was based upon the annual
operating revenues of the former subsidiary from July 1, 1992 through June
30, 1995 up to a maximum of $15,000,000. Based upon operating revenues of
the former BankIllinois Co., the Company recorded a gain of $570,000 during
1995. The last payment on the sale was received early in 1995.
Through December 31, 1995, the maximum gross proceeds of
$15,000,000 related to the sale of BankIllinois Co. were realized by the
Company.
FINANCIAL CONDITION
Total assets of $539,366,000 were $23,926,000, or 5%, higher at
December 31, 1997 than at December 31, 1996. Included in the increase in
assets was an increase of $29,448,000, or 11%, in loans, net of allowance for
loan losses, an increase of $5,390,000, or 4%, in securities held for sale,
and an increase in other assets of $2,238,000, or 38%. These increases were
somewhat offset by a decrease of $8,400,000, or 30%, in fed funds sold, a
decrease of $3,351,000, or 15%, in investment securities, and a decrease of
$2,237,000, or 7%, in cash and due from banks. The increase in year-end
assets was partially a result of deposits being $13,024,000, or 3%, higher at
December 31, 1997 than at December 31, 1996. Short-term borrowings were
$5,916,000, or 13%, higher at December 31, 1997 than at December 31, 1996.
Average assets were also $21,823,000, or 4%, higher in 1997 than in 1996.
Included in the increase in average assets was an increase of $41,945,000, or
35%, in total investments in debt and equity securities, and an increase of
$1,786,000, or 1%, in average net loans including mortgage loans held for
sale. Somewhat offsetting this was a decrease of $20,750,000, or 60%, in
federal funds sold. The increase in average assets was a result of higher
deposits and short-term borrowings in 1997. Total average deposits increased
$14,459,000, or 4%, in 1997 from 1996. Included in this increase were some
shifts in the average deposit mix in 1997 versus 1996. Average interest
bearing demand deposits increased $21,317,000, or 18%, from 1996 to 1997.
Somewhat offsetting this increase were decreases of $2,824,000, or 5%, in
noninterest bearing demand deposits, decreases of $2,801,000, or 14%, in
savings deposits, and a decrease of $1,233,000, or 1%, in time deposits.
Much of the shift in deposits can be attributed to the Prime Investment
account.
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<PAGE>
INVESTMENT SECURITIES
The carrying value of investments in debt and equity securities was
as follows:
CARRYING VALUE OF SECURITIES
(in thousands)
December 31, 1997 1996 1995
Available-for-sale:
U.S. Treasury $40,530 $42,969 $42,288
Federal agencies 87,478 78,262 20,951
Mortgage-backed securities 6,242 8,226 9,190
Corporate and other obligations 1,067 470 1,027
Total available-for-sale $135,317 $129,927 $73,456
Held-to-maturity:
U.S. Treasury 1,897 2,004 $11,548
Federal agencies 9,615 12,039 0
Mortgage-backed securities 0 257 703
State and municipal 7,007 7,570 9,179
Total held-to-maturity $18,519 $21,870 $21,430
Non-marketable equity securities 1,550 1,695 2,418
Total securities $155,386 $153,492 $97,304
As of September 30, 1995, in conjunction with the merger of
BankIllinois Financial Co. and Central Illinois Financial Corporation, debt
securities with an amortized cost of $2,577,000 and an estimated market value
of $2,529,000 were transferred from held-to-maturity to available-for-sale.
A deferred tax asset of $16,000 was recorded to reflect the tax effect of the
market valuation adjustment and the net decrease resulting from the market
valuation adjustment of $32,000 was recorded to the separate component of
stockholders' equity.
As of December 31, 1995, in accordance with the provisions of a
special report issued by the Financial Accounting Standards Board (FASB) in
November 1995 entitled, "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities," debt
securities with an amortized cost of $11,208,000 and an estimated market
value of $11,371,000 were transferred from held-to-maturity to available-for-
sale. A deferred tax liability of $55,000 was recorded to reflect the tax
effect of the market valuation increase of these debt securities resulting in
a net market valuation adjustment of $108,000 being recorded to the separate
component of stockholders' equity.
The unrealized gain (loss) on securities available-for-sale, net of
tax effect, increased to a gain of $298,000 at December 31, 1997 from a net
loss of $109,000 at December 31, 1996.
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<PAGE>
The following table shows the maturities and weighted-average
yields of investment securities at December 31, 1997:
<TABLE>
MATURITIES AND WEIGHTED AVERAGE YIELDS OF DEBT SECURITIES
(dollars in thousands)
December 31, 1997
1 year 1 to 5 5 to 10 Over
or less years years 10 years Total
<S> <C> <C> <C> <C> <C>
Securities available-for-sale
U.S. Treasury $19,958 $20,572 $0 $0 $40,530
Federal agencies 11,426 69,942 6,110 0 87,478
Mortgage-backed securities 0 0 808 5,434 6,242
Other securities 745 322 0 0 1,067
Total $32,129 $90,836 $6,918 $5,434 $135,317
Average Yield (TE) 5.96% 6.15% 6.87% 6.41% 6.15%
Securities held-to-maturity
U.S. Treasury $1,000 $897 $0 $0 $1,897
Federal agencies 0 7,591 2,024 0 9,615
State and municipal 1,325 4,122 622 938 7,007
Total $2,325 $12,610 $2,646 $938 $18,519
Average Yield (TE) 6.33% 6.33% 6.86% 7.32% 6.45%
</TABLE>
LOANS
The following tables present the amounts and percentages of loans
at December 31 for the years indicated according to the categories of
commercial, financial and agricultural; real estate; and installment and
consumer loans.
<TABLE>
AMOUNT OF LOANS OUTSTANDING
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
Commercial, financial and
agricultural $121,927 $110,059 $121,180 $113,325 $118,906
Real estate 141,091 127,724 127,893 136,098 105,952
Installment and consumer 52,018 48,101 68,425 82,579 86,379
Subtotal $315,036 $285,884 $317,498 $332,002 $311,237
Less: Unearned discount 1 16 97 535 1,802
Total loans $315,035 $285,868 $317,401 $331,467 $309,435
</TABLE>
<TABLE>
PERCENTAGE OF LOANS OUTSTANDING
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
Commercial, financial and
agricultural 38.70% 38.50% 38.17% 34.14% 38.21%
Real estate 44.79% 44.68% 40.28% 40.99% 34.04%
Installment and consumer 16.51% 16.82% 21.55% 24.87% 27.75%
Total 100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
Total loans increased by $29,167,000 from December 31, 1996 to
December 31, 1997, with increases in commercial, financial and agricultural
loans, real estate loans and installment and consumer loans of $11,868,000,
$13,367,000 and $3,917,000, respectively. $4,487,000 of the commercial,
financial and agricultural loan increase was attributable to an increase in
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<PAGE>
dealer floor plan loans. The increase in real estate loans was attributable
to an increase of $17,066,000 in commercial real estate, offset by a decrease
of $3,699,000 in residential real estate. Strong loan demand was responsible
for the overall increase in loans.
Total loans decreased by $31,533,000 from December 31, 1995 to
December 31, 1996, with decreases in commercial, financial and agricultural
loans, real estate loans and installment and consumer loans of $11,121,000,
$169,000 and $20,324,000, respectively. $16,267,000 of the installment and
consumer loan decrease was attributable to a decrease in indirect auto
financing loans. The emphasis on loan quality and pricing, coupled with the
competitive nature of the market, was responsible for the decrease.
The balance of loans outstanding as of December 31, 1997 by
maturities is shown in the following table:
<TABLE>
MATURITY OF LOANS OUTSTANDING
(dollars in thousands)
December 31, 1997
1 year 1-5 over 5
or less years years Total
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $67,621 $36,076 $18,230 $121,927
Real estate 14,478 47,692 78,921 141,091
Installment and consumer 17,932 32,017 2,069 52,018
Total $100,031 $115,785 $99,220 $315,036
Percentage of total loans outstanding 31.75% 36.75% 31.50% 100.00%
</TABLE>
As of December 31, 1997, commercial, financial and agricultural
loans with maturities of greater than one year were comprised of $10,923,000
in fixed-rate loans and $43,383,000 in floating-rate loans. Real estate
loans with maturities greater than one year at December 31, 1997 included
$32,739,000 in fixed-rate loans and $93,874,000 in floating-rate loans.
ALLOWANCE FOR LOAN LOSSES AND LOAN QUALITY
The following table summarizes changes in the allowance for loan
losses by loan categories for each period and additions to the allowance for
loan losses which have been charged to operations.
<TABLE>
ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at
beginning of year $5,587 $5,882 $5,263 $4,686 $3,977
Charge-offs during period:
Commercial, financial and agricultural (53) ($610) ($1,827) ($159) ($1,818)
Real estate 0 (203) (186) (40) (77)
Installment and consumer (945) (725) (661) (434) (802)
Total ($998) ($1,538) ($2,674) ($633) ($2,697)
Recoveries of loans previously charged off:
Commercial, financial and agricultural $69 $647 $54 $350 $97
Real estate 15 37 24 159 24
Installment and consumer 168 184 118 136 270
Total $252 $868 $196 $645 $391
Net (charge-offs) recoveries ($746) ($670) ($2,478) $12 ($2,306)
Provision for loan losses 465 375 3,097 565 3,015
Allowance for loan losses at end of year $5,306 $5,587 $5,882 $5,263 $4,686
Ratio of net charge-offs to
average net loans 0.25% 0.23% 0.74% 0.00% 0.76%
</TABLE>
Management reviews criteria such as the customer's historic loan
payment performance, financial statements, financial ratios, cash flow, net
worth, collateral and guaranties, as well as local and national economic
factors, in determining whether
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<PAGE>
loans should be written off as uncollectible. The Company records a loss if
it is probable that a loss will occur and the amount can be reasonably
estimated.
The Company's risk of loan loss is dependent on many factors:
economic conditions, the extent and values of underlying collateral,
significant concentrations of loans within the portfolio, the ability and
willingness of borrowers to perform according to loan terms and management's
competence and judgement in overseeing lending, collecting and loan-
monitoring activities. The risk of loss from commercial, financial and
agricultural loans is significantly impacted by economic factors and how
these factors affect the particular industries involved. The local economy
has remained stable for the past several years.
An analysis of the allowance for loan loss adequacy is performed on
a quarterly basis by the Company's credit administration department. This
analysis is reported to executive management and discussed at a quarterly
meeting where specific allocations for problem credits, charge-offs and
monthly provisions for loan losses are reviewed and revised, as necessary.
The results are reported to the Board of Directors. The analysis includes
assessment of the allowance for loan loss adequacy based on historic loan
losses and current quality grades of specific credits reviewed, credit
concentrations, current delinquent and nonperforming loans, current economic
conditions, peer group information and results of recent audits or regulatory
examinations. A significant portion of the increased charge-offs during 1995
were a result of the emphasis placed on the early detection of problem
credits.
The following table shows the allocation of the allowance for loan
losses allocated to each category.
<TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Allocated:
Commercial, financial and agricultural $3,661 $3,799 $4,235 $2,210 $2,343
Real estate <F1> 424 503 470 895 562
Installment and consumer 478 559 706 684 609
Total allocated allowance $4,563 $4,861 $5,411 $3,789 $3,514
Unallocated allowances 743 726 471 1,474 1,172
Total $5,306 $5,587 $5,882 $5,263 $4,686
<FN>
<F1> Residential real estate only for 1997, 1996 and 1995.
</FN>
</TABLE>
The portion of the allowance for loan losses which was
unallocated increased to $743,000 at December 31, 1997 from
$726,000 a year earlier. There were slight decreases in the
dollars allocated to commercial, financial and agricultural,
residential real estate and installment and consumer loans. The
allocation of the allowance beginning in 1995 was based on a
different method than had been used by either the former
BankIllinois or Champaign National Bank in prior years.
Allocations were made based on loan portfolio balances
(commercial, financial and agricultural, including commercial
real estate; residential real estate; and installment and
consumer loans) applied to corresponding factors (dollars). The
increase in the dollar allocation to commercial, financial and
agricultural loans since December 31, 1994 and reduction in the
dollar allocation to real estate was due primarily to the
inclusion of commercial real estate in the commercial category
for 1995, 1996 and 1997.
The unallocated portion of the allowance for loan losses ($743,000)
at December 31, 1997 represented additional reserves available to cover
losses in any of the three categories listed in the table which may exceed
the allocated amount.
Management believes that nonperforming and potential problem loans
are appropriately identified and monitored based on the extensive loan
analyses performed by the credit administration department, the internal loan
committees and the Board of Directors. Historically, there has not been a
significant amount of loans charged off which had not been previously
identified as problem loans by the credit administration department or the
loan committees.
The following table presents the aggregate amount of loans
considered to be nonperforming for the periods indicated. Nonperforming
loans include loans accounted for on a nonaccrual basis, accruing loans
contractually past due 90 days or more as to interest or principal payments
and loans which are troubled debt restructurings as defined in Statement of
Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors
for Troubled Debt Restructurings."
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<PAGE>
<TABLE>
NONPERFORMING LOANS (IN THOUSANDS)
December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Nonaccrual loans <F1> $2,208 <F1> $2,135 <F1> $2,270 $2,327 $1,520
Loans past due 90 days or more $747 $384 $846 $144 $317
Renegotiated loans $140 $162 $179 $198 $522
<FN>
<F1> Includes $415,000 at December 31, 1997, $448,000 at December 31,
1996 and $109,000 at December 31, 1995 of real estate and consumer
loans which management does not consider impaired as defined by the
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS 114).
</FN>
</TABLE>
There were no other interest earning assets which would be required
to be disclosed as being nonperforming if such other assets were loans.
At December 31, 1997, BankIllinois had approximately $4,954,000 in
potential problem loans, excluding nonperforming loans. Potential problem
loans are those loans identified by management as being worthy of special
attention, and although currently performing, may have some underlying
weaknesses. Approximately $172,000 of these potential problem loans and
$1,793,000 of the non-performing loans were considered impaired as defined in
SFAS 114. The remaining $4,782,000 of the potential problem loans have
either had timely payments or were adequately secured and loss of principal
or interest was determined to be unlikely at that time.
Loans over 90 days past due which are not well secured and in the
process of collection are placed on nonaccrual status. The total of
$2,208,000 nonaccrual loans at December 31, 1997 was slightly higher than the
December 31, 1996 amount of $2,135,000. Loans past due 90 days or more but
still accruing increased by $363,000 in 1997 to a balance of $747,000 at
December 31, 1997.
The following table categorizes nonaccrual loans as of December 31,
1997 based on levels of performance and also details the allocation of
interest collected during the period in 1997 in which the loans were on
nonaccrual. Substantial performance, yet contractually past due, includes
borrowers making sizable periodic payments relative to the required periodic
payments due. A borrower that is not making substantial payments but is
making some periodic payments would be included in the limited performance
category.
<TABLE>
NONACCRUAL AND RELATED INTEREST PAYMENTS
(in thousands)
CASH INTEREST PAYMENTS APPLIED AS:
AT DECEMBER 31, 1997 RECOVERY OF REDUCTION
BOOK CONTRACTUAL INTEREST PRIOR PARTIAL OF
BALANCE BALANCE INCOME CHARGE-OFFS PRINCIPAL
<S> <C> <C> <C> <C> <C>
Contractually past due with:
Substantial performance $648 $767 $5 $0 $57
Limited performance 0 0 0 0 0
No performance 1,560 2,809 0 0 0
Total $2,208 $3,576 $5 $0 $57
</TABLE>
As shown in the table above, the nonaccrual loans with no
performance at December 31, 1997 made up the largest share of the total
(71%). The difference between the book balance and the contractual balance
represents charge-offs made since the loans were funded. Included in this
category was a $479,000 loan secured by a parking deck, a $266,000 loan which
is well secured by a first mortgage on residential real estate, and $540,000
in loans associated with an accounting practice which are partially secured
by residential real estate.
Loans which are 90 days or more past due that continue to accrue
interest increased by $363,000 from December 31, 1996 to a balance of
$747,000 at December 31, 1997 and consisted largely of commercial real estate
loans ($503,000) and personal installment loans ($73,000). These loans are
well secured and in the process of collection.
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<PAGE>
Management believes that the allowance for loan losses at December
31, 1997 was adequate to absorb credit losses in the total loan portfolio and
that the policies and procedures in place to identify potential problem loans
are being effectively implemented.
PREMISES AND EQUIPMENT
Total premises and equipment increased $536,000 in 1997 from 1996.
Included in the increase was the purchase of parking lots located near the
Bank's main offices for $420,000. Other purchases of premises and equipment,
including Main Bank remodeling, were somewhat offset by depreciation of
$1,105,000.
OTHER ASSETS
Other assets increased $2,238,000 in 1997 from 1996. The increase
was primarily due to an increase in other real estate. Approximately
$1,834,000, representing the value of an office building located adjacent to
the Bank's main offices, was transferred to other real estate. In addition,
approximately $513,000 of improvements were completed on this office
building.
DEPOSITS
The following table shows the average balance and weighted average
rate of deposits at December 31 for the years indicated:
<TABLE>
AVERAGE BALANCE AND WEIGHTED AVERAGE RATE OF DEPOSITS
(dollars in thousands)
1997 1996 1995
WEIGHTED WEIGHTED WEIGHTED
AVERAGEAVERAGE AVERAGE AVERAGE AVERAGEAVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
<S> <C> <C> <C> <C> <C> <C>
Demand
Noninterest bearing $51,405 0.00% $54,229 0.00% $55,731 0.00%
Interest bearing 139,613 3.64% 118,296 3.17% 106,410 2.75%
Savings 17,557 1.90% 20,358 1.86% 23,850 2.45%
Time
$100,000 and over 36,172 5.74% 30,715 5.41% 38,122 4.38%
Under $100,000 156,081 5.80% 162,771 5.80% 172,577 5.81%
Totals $400,828 $386,369 $396,690
</TABLE>
In analyzing its deposit activity, management has noted that
average total deposits increased $14,459,000 during 1997. Included in this
increase were shifts in the average deposit mix in 1997 versus 1996. Average
interest bearing deposits increased $21,317,000, or 18%. Somewhat offsetting
this increase were decreases in noninterest bearing deposits of $2,824,000,
or 5%, a decrease in savings deposits of $2,801,000, or 14%, and a decrease
of $1,233,000, or 1% in time deposits. The Prime Investment account
(included in interest bearing demand deposits) continued to be successful in
attracting deposits, increasing from $42,775,000 at December 31, 1996 to
$60,773,000 at December 31, 1997.
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<PAGE>
The table below sets forth the maturity of deposits greater than
$100,000 at December 31, 1997:
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
(in thousands)
TOTAL
MATURITY AT DECEMBER 31, 1997 CDS IRAS DEPOSITS
3 months or less $16,845 $1,056 $17,901
3 to 6 months 5,510 378 5,888
6 to 12 months 10,218 471 10,689
Over 12 months 5,614 1,104 6,718
Total $38,187 $3,009 $41,196
SHORT-TERM BORROWINGS
Short-term borrowings include federal funds purchased, which are
generally overnight transactions, and securities sold under repurchase
agreements, which mature from one day to three years from the date of sale.
The table in note 9 in the Notes to Consolidated Financial Statements shows
the balances of short-term borrowings at December 31, 1997 and 1996, the
average balance for the years ended December 31, 1997, 1996 and 1995, and the
maximum month-end value during each year.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments for which no
listed market exists and the fair values of investment securities, which are
based on listed market quotes at December 31, 1997 and 1996, are disclosed in
note 18 in the Notes to Consolidated Financial Statements.
CAPITAL
Total stockholders' equity rose $5,234,000 from $52,096,000 at
December 31, 1996 to $57,330,000 at December 31, 1997. The increase
represents net income of $5,400,000, a $108,000 increase from stock
appreciation rights, a $407,000 unrealized gain on investment in debt and
equity securities available-for-sale, net of tax, less cash dividends
totaling $412,000, net Treasury Stock transactions of $266,000 and the
purchase of $3,000 in fractional shares of common stock following the stock
dividend.
Financial institutions are required by regulatory agencies to
maintain minimum levels of capital based on asset size and risk
characteristics. Currently, the Company and BankIllinois are required by
their primary regulators to maintain adequate capital based on two
measurements: the total assets leverage ratio and the risk-weighted assets
ratio.
Based on Federal Reserve guidelines, a bank holding company
generally is required to maintain a leverage ratio of 3% plus an additional
cushion of at least 100 to 200 basis points. The Company's total assets
leverage ratio at December 31, 1997 and 1996 were 10.9% and 10.7%,
respectively. The leverage ratio for BankIllinois for the same periods were
9.6% and 10.2%--well above the regulatory minimum for both the Company and
BankIllinois.
The minimum risk-weighted assets ratio for bank holding companies
is 8%. The Company's total risk-weighted assets at December 31, 1997 and
1996 were 17.7% and 17.7%--significantly higher than the regulatory minimum.
BankIllinois' total risk-weighted assets were also significantly higher than
the regulatory minimum--15.8% and 17.0% for the years ended December 31, 1997
and 1996.
INFLATION AND CHANGING PRICES
Changes in interest rates and a bank's ability to react to interest
rate fluctuations have a much greater impact on a bank's balance sheet and
net income than inflation. A review of net interest income, liquidity and
rate sensitivity should assist in the understanding of how well the Company
is positioned to react to changes in interest rates.
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<PAGE>
LIQUIDITY AND CASH FLOWS
The Company requires cash to fund loan growth and deposit
withdrawals. Cash flows fluctuate with changes in economic conditions,
current interest rate trends and as a result of management strategies and
programs. The Asset Liability Committee ("ALCO") of BankIllinois, which
includes all executive managers, meets monthly to monitor the demand for cash
and initiates programs and policies as considered necessary to meet funding
gaps.
The Company was able to adequately fund loan demand and meet
liquidity needs in 1997. A review of the consolidated statement of cash
flows in the accompanying financial statements shows that the Company's cash
and due from banks and federal funds sold (cash) decreased $10,637,000 from
December 31, 1996 to December 31, 1997. The decrease resulted from net cash
used by investing activities, offset by cash provided by financing and
operating activities.
The Company's future short-term requirements for cash are not
expected to significantly change and will continue to be provided by
investment maturities, sales of loans and deposits. Cash required to meet
longer-term liquidity requirements will mostly depend on future goals and
strategies of management, the competitive environment, economic factors and
changes in the needs of customers. No outside borrowing is anticipated. The
Company expects to maintain FHLB advances near the current level. These
funds are matched to seven-year balloon and ten-year fixed-rate residential
mortgage loans booked in previous years. If current sources of liquidity
cannot provide needed cash in the future, the Company can obtain funds from
several sources. The Company is able to borrow funds on a temporary basis
from the Federal Reserve Bank, the FHLB and correspondent banks to meet
short-term requirements. With no parent company debt and sound capital
levels, the Company has several options for longer-term cash needs, such as
for future expansion and acquisitions.
Management is not aware of any current recommendations by the
Company's primary regulators which if implemented would have a material
effect on the Company's liquidity, capital resources or operations.
INTEREST RATE SENSITIVITY
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.
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<PAGE>
The following table presents the Company's interest rate
sensitivity position at various intervals at December 31, 1997:
<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
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $19,600 $0 $0 $0 $0 $19,600
Debt and equity securities<F1> 9,166 17,288 11,604 32,127 85,201 155,386
Loans<F2> 82,295 18,660 23,237 41,257 150,994 316,443
Total interest earning assets $111,061 $35,948 $34,841 $73,384 $236,195 $491,429
Interest bearing liabilities:
Savings and interest bearing
demand deposits $163,399 $0 $0 $0 $0 $163,399
Time deposits 22,289 19,290 44,166 56,330 51,987 194,062
Federal funds purchased and
securities sold under
repurchase agreements 44,334 200 2,100 3,223 0 49,857
Federal Home Loan Bank advances 0 1,000 0 2,000 5,000 8,000
Total interest bearing
liabilities $230,022 $20,490 $46,266 $61,553 $56,987 $415,318
Net asset (liability) funding gap ($118,961) $15,458 ($11,425) $11,831 $179,208 $76,111
Repricing gap 0.48 1.75 0.75 1.19 4.14 1.18
Cumulative repricing gap 0.48 0.59 0.61 0.71 1.18 1.18
<FN>
<F1> Debt and equity securities include available-for-sale securities.
<F2> Loans include held-for-sale mortgage loans.
</FN>
</TABLE>
At December 31, 1997, the Company tended to be liability sensitive
due to the levels of savings and interest bearing demand deposits, time
deposits, federal funds purchased and securities sold under repurchase
agreements. As such, the effect of a decrease in the prime rate of 100 basis
points would increase net interest income by approximately $1,190,000 in 30
days and $1,035,000 in 90 days assuming no management intervention. A rise
in interest rates would have the opposite effect for the same periods.
In addition to managing interest sensitivity and liquidity through
the use of gap reports, the Company has provided for emergency liquidity
situations with informal agreements with correspondent banks which permit the
Company to borrow federal funds on an unsecured basis and $4,060,000 from the
Federal Home Loan Bank on a secured basis.
The Company uses financial forecasting/budgeting/reporting software
packages to perform interest rate sensitivity analysis for all product
categories. Investments in debt and equity securities are analyzed by
performing duration calculations to determine price volatility for interest
rate shifts of plus or minus 300 basis points. Call criteria and prepayment
assumptions are taken into consideration. All other financial instruments
are analyzed by a software database which includes each of the different
product categories which are tied to key rates such as prime or the fed funds
rate. The relationships of each of the different products to the key rate
that the product is tied to is proportional. The software reprices the
products based on current offering rates. The current market value of loans
is computed by discounting cash flows at market rates as the discount rate.
Categories of cash, fed funds, demand deposits, accrued receivables and
payables, and other assets and other liabilities are priced at book value
regardless of the interest rate shock. The software performs interest rate
sensitivity analysis by performing rate shocks of plus or minus 300 basis
points in 100 basis point increments.
The market value volatility, risk, is a function of term. The
longer the term, the greater the volatility (risk). Balances with very short
terms, loans linked to prime or savings, have little market value risk, while
long-term balances--e.g., mortgages--have much greater market value risk.
Having short-term deposits and longer term assets results in a negative slope
in
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<PAGE>
the change in market value--i.e., decreasing market value as rates rise.
The steeper this slope, the greater the risk. Risk can be decreased by
shortening the mismatch between assets and liabilities.
The following table shows hypothetical results based on these shock
levels:
(dollars in millions)
MARKET
VALUE OF PORTFOLIO PERCENT
CHANGE IN INTEREST RATES EQUITY CHANGE CHANGE
300 basis point rise $36 ($20) (36%)
200 basis point rise 42 (14) (25%)
100 basis point rise 49 (7) (13%)
Base scenario 56 - -
100 basis point decline 62 6 11%
200 basis point decline 68 12 21%
300 basis point decline 75 19 34%
The foregoing computations are based on numerous assumptions,
including relative levels of market interest rates, prepayments and deposit
mix. The computed estimates should not be relied upon as a projection of
actual results. Despite the limitations on preciseness inherent in these
computations, management believes that the information provided is reasonably
indicative of the effect of changes in interest rate levels on the net
earning capacity of the Bank's current mix of interest earning assets and
interest bearing liabilities. Management continues to use the results of
these computations, along with the results of its computer model projections,
in order to maximize current earnings while positioning the Bank to minimize
the effect of a prolonged shift in interest rates that would adversely affect
future results of operations.
NEW ACCOUNTING RULES AND REGULATIONS
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income." This Statement requires an entity to include a
statement of comprehensive income in their full set of general-purpose
financial statements. Comprehensive income consists of the net income or
loss of the entity plus or minus the change in equity of the entity during
the period from transactions, other events, and circumstances resulting from
nonowner sources. Statement No. 130 is effective for years beginning after
December 15, 1997 and will require financial statements of earlier periods
that are presented for comparative purposes to be reclassified.
The FASB has also issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Statement No. 131
requires a publicly-held entity to disclose financial and other descriptive
information about all of its reportable operating segments. This Statement
will require disclosure of net income or loss, certain specific revenue and
expense items, and assets for each segment presented and disclosure of a
reconciliation of this information with the corresponding amounts recognized
in the financial statements of the entity. This Statement will also require
disclosure of other pertinent segment information, including the products and
services provided by its operating segments and the method by which the
operating segments were determined. Statement No. 131 is effective for
financial statements issued related to periods beginning after December 15,
1997 and will require comparative information of earlier years presented to
be restated.
YEAR 2000
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 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.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements begin on page 28.
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997, 1996 and 1995
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT 30
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 31
Consolidated Statements of Income 32
Consolidated Statements of Changes in Stockholders' Equity 33
Consolidated Statements of Cash Flows 34-35
Notes to Consolidated Financial Statements 36-55
</TABLE>
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<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
BankIllinois Financial Corporation
Champaign, Illinois:
We have audited the accompanying consolidated balance sheets of BankIllinois
Financial Corporation (formerly known as Central Illinois Financial Co.,
Inc.) and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders equity, and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. The consolidated financial statements of BankIllinois Financial
Corporation and subsidiaries, for the year ended December 31, 1995 was
audited by other auditors whose report expressed an unqualified opinion on
those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
BankIllinois Financial Corporation and subsidiaries as of December 31, 1997
and 1996, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
Champaign, Illinois
February 6, 1998
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(in thousands, except share data)
<TABLE>
<S> <C> <C>
1997 1996
Assets
Cash and due from banks $28,958 $31,195
Federal funds sold 19,600 28,000
Cash and cash equivalents 48,558 59,195
Investments in debt and equity securities:
Available-for-sale, at estimated market value 135,317 129,927
Held-to-maturity, estimated market value of $18,635
and $21,945 at December 31, 1997 and 1996, respectively 18,519 21,870
Non-marketable equity securities 1,550 1,695
Total investments in debt and equity securities 155,386 153,492
Mortgage loans held for sale 1,408 1,277
Loans, net of allowance for loan losses of $5,306 and
$5,587 at December 31, 1997 and 1996, respectively 309,729 280,281
Premises and equipment, net 11,253 10,717
Accrued interest receivable 4,833 4,517
Other assets 8,199 5,961
Total assets $539,366 $515,440
Liabilities and Stockholders' Equity
Deposits:
Demand, noninterest bearing $59,693 $64,837
Demand, interest bearing 146,776 127,414
Savings 16,623 17,787
Time, $100 and over 41,196 35,550
Other time 152,866 158,542
Total deposits 417,154 404,130
Short-term borrowings 49,857 43,941
Federal Home Loan Bank advances 8,000 9,000
Accrued interest payable 1,736 1,576
Other liabilities 5,289 4,697
Total liabilities 482,036 463,344
Stockholders' equity:
Preferred stock, no par value; 300,000 shares authorized 0 0
Common stock, $0.01 par value; 6,500,000 shares authorized;
5,206,663 and 5,206,835 shares issued at December 31, 1997
and 1996, respectively 52 52
Paid in capital 23,156 23,057
Retained earnings 34,733 29,745
Unrealized gain (loss) on securities available-for-sale 298 (109)
58,239 52,745
Less: treasury stock, at cost, 65,765 and 48,720 shares at
December 31, 1997 and 1996, respectively (909) (649)
Total stockholders' equity 57,330 52,096
Total liabilities and stockholders' equity $539,366 $515,440
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1997, 1996 and 1995
(in thousands, except share data)
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Interest income:
Interest and fees on loans $26,486 $26,037 $29,471
Interest and dividends on investments in debt
and equity securities:
Taxable 9,796 6,797 4,992
Tax-exempt 302 380 489
Interest on federal funds sold and interest-bearing deposits 762 1,874 951
Total interest income 37,346 35,088 35,903
Interest expense:
Interest on demand, savings, and other time deposits 14,466 13,558 13,541
Interest on time deposits $100 and over 2,077 1,662 1,669
Interest on short-term borrowings 2,275 2,006 1,882
Interest on Federal Home Loan Bank advances 592 599 597
Total interest expense 19,410 17,825 17,689
Net interest income 17,936 17,263 18,214
Provision for loan losses 465 375 3,097
Net interest income after provision for loan losses 17,471 16,888 15,117
Noninterest income:
Service charges and fees 1,866 1,839 1,857
Trust fees 2,026 1,931 1,600
Security transactions, net 38 (4) 3
Gains on sales of loans, net 271 266 199
Other 275 259 292
Total noninterest income 4,476 4,291 3,951
Noninterest expense:
Salaries and employee benefits 7,742 7,795 9,483
Occupancy 1,495 1,485 1,455
Equipment 920 967 1,150
Data processing fees 733 716 700
Advertising and marketing 558 822 631
Office supplies 506 591 742
Federal deposit insurance premiums 48 2 455
Loss on other real estate 0 0 250
Merger expenses 0 0 1,036
Other 1,886 2,117 3,152
Total noninterest expense 13,888 14,495 19,054
Income from continuing operations before income taxes 8,059 6,684 14
Income taxes 2,659 2,183 248
Income (loss) from continuing operations 5,400 4,501 (234)
Discontinued operations-gain on disposal of subsidiary, net of
applicable income taxes of $0, $0, and $293 respectively 0 0 570
Net income $5,400 $4,501 $336
Per share data:
Basic earnings (loss) per share from continuing operations $1.05 $0.87 ($0.05)
Basic earnings per share from discontinued operations 0.00 0.00 0.11
Net income $1.05 $0.87 $0.06
Diluted earnings (loss) per share from continuing operations $1.03 $0.85 ($0.05)
Diluted earnings per share from discontinued operations 0.00 0.00 0.11
Net income $1.03 $0.85 $0.06
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
(in thousands, except share data)
<TABLE>
Unrealized gain
Common Stock Paid-in Retained (loss) on securities Treasury Stock
Shares Amount capital earnings available-for-sale Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995, as
previously reported 4,951,258 $50 $18,974 $29,921 $(2,179) 0 $0 $46,766
Restated for 5% stock
dividend-1997 247,562 2 3,934 (3,936) 0 0 0 0
Balance, January 1, 1995, as
restated 5,198,820 52 22,908 25,985 (2,179) 0 0 46,766
Net income 0 0 0 336 0 0 0 336
Cash dividends of pooled
companies prior to merger 0 0 0 (321) 0 0 0 (321)
Cash dividends ($0.15 per share) 0 0 0 (756) 0 0 0 (756)
Issuance of common stock
of pooled companies
prior to merger 9,212 0 6 0 0 0 0 6
Fractional shares of common
stock purchased in merger (944) 0 (2) 0 0 0 0 (2)
Stock appreciation rights 0 0 88 0 0 0 0 88
Change in unrealized
gain (loss) on securities
available-for-sale 0 0 0 0 2,291 0 0 2,291
Balance, December 31, 1995 5,207,088 52 23,000 25,244 112 0 0 48,408
Net income 0 0 0 4,501 0 0 0 4,501
Fractional shares of common
stock purchased following
stock dividend (253) 0 (3) 0 0 0 0 (3)
Stock appreciation rights 0 0 60 0 0 0 0 60
Change in unrealized
gain (loss) on securities
available-for-sale 0 0 0 0 (221) 0 0 (221)
Treasury stock transactions, net 0 0 0 0 0 48,720 (649) (649)
Balance, December 31, 1996 5,206,835 52 23,057 29,745 (109) 48,720 (649) 52,096
Net Income 0 0 0 5,400 0 0 0 5,400
Cash dividends ($0.08 per share) 0 0 0 (412) 0 0 0 (412)
Fractional shares of common
stock purchased following
stock dividend (172) 0 (3) 0 0 0 0 (3)
Stock appreciation rights 0 0 108 0 0 0 0 108
Change in unrealized
gain (loss) on securities
available-for-sale 0 0 0 0 407 0 0 407
Treasury stock transactions, net 0 0 (6) 0 0 17,045 (260) (266)
Balance, December 31, 1997 5,206,663 $52 $23,156 $34,733 $298 65,765 $(909) $57,330
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Cash flows from operating activities:
Net income $5,400 $4,501 $336
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,144 1,157 1,214
Amortization of bond premiums, net 25 140 114
Provision for loan losses 465 375 3,097
Loss on other real estate 0 0 250
Deferred income taxes (27) 417 (1,633)
(Gain) loss on security transactions (38) 4 (3)
Gain on sales of loans, net (271) (266) (199)
Gain on sale of subsidiary 0 0 (570)
Change in valuation allowance of premises and equipment 0 0 375
Increase in accrued interest receivable (316) (74) (147)
Increase (decrease) in accrued interest payable 160 (388) 585
Other, net 44 (203) 92
Stock appreciation rights 108 60 88
Proceeds from sales of loans originated for sale 24,138 17,726 13,572
Loans originated for sale (23,998) (17,491) (20,003)
Net cash provided by (used in) operating activities 6,834 5,958 (2,832)
Cash flows from investing activities:
Net (increase) decrease in loans (32,236) 38,430 11,538
Proceeds from sale of subsidiary 0 0 4,065
Proceeds from maturities and calls of investments in debt securities:
Held-to-maturity 18,346 15,053 24,180
Available-for-sale 50,493 34,437 23,527
Proceeds from sales of investments in debt and equity securities:
Available-for-sale 0 2,000 2,717
Non-marketable 145 723 0
Purchases of investments in debt and equity securities:
Held-to-maturity (15,305) (16,038) (14,739)
Available-for-sale (59,134) (94,212) (24,244)
Principal paydowns from mortgage-backed and mortgage-related securities:
Held-to-maturity 257 446 626
Available-for-sale 3,933 926 46
Purchases of premises and equipment (1,642) (854) (2,108)
Proceeds from sale of premises and equipment 1 15 49
Net cash provided by (used in) investing activities (35,142) (19,074) 25,657
Cash flows from financing activities:
Net increase (decrease) in deposits 13,024 (15,027) 24,480
Net increase (decrease) in short-term borrowings 5,916 7,668 (2,231)
Net decrease in Federal Home Loan Bank advances (1,000) 0 0
Cash dividends paid 0 (378) (860)
Treasury stock transactions, net (266) (649) 0
Fractional shares purchased following stock dividend (3) (3) 0
Net cash provided by (used in) financing activities 17,671 (8,389) 21,389
Net increase (decrease) in cash and cash equivalents (10,637) (21,505) 44,214
Cash and cash equivalents at beginning of year 59,195 80,700 36,486
Cash and cash equivalents at end of year $48,558 $59,195 $80,700
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $19,250 $18,213 $17,104
Income taxes 2,060 1,748 3,115
Transfer of mortgage loans held-for-sale to loans 0 8,175 0
Transfer of debt and equity securities held-to-maturity to debt
and equity securities available-for-sale 0 0 13,785
Securitization of mortgage loans to investment in debt and equity securities
available-for-sale 0 0 1,417
Disposal of equipment subject to valuation allowance 0 71 0
Change in unrealized gain (loss) on securities available-for-sale (615) 333 (3,470)
Change in deferred taxes attributable to unrealized gain (loss) on securities
available-for-sale 208 (112) 1,179
Real estate acquired through or in lieu of foreclosure 2,323 608 50
Dividends declared not paid 412 0 378
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) ORGANIZATION
Effective February 27, 1998, the Company changed its corporate name to
BankIllinois Financial Corporation. Prior to that date, it operated under
the name of Central Illinois Financial Co., Inc.
On December 13, 1994, BankIllinois Financial Co. and Central Illinois
Financial Corporation entered into an Agreement and Plan of Merger which pro-
vided for a merger of the two companies into BankIllinois Financial
Corporation (the Company). The merger, which was accounted for as a pooling
of interests, was completed on June 30, 1995. As a result of the merger,
former stockholders of BankIllinois Financial Co. and Central Illinois
Financial Corporation received 2,781,056 and 2,426,285 shares of Company
common stock, respectively. On October 20, 1995 the two subsidiary banks,
BankIllinois and the Champaign National Bank, were merged into a single
resulting bank known as BankIllinois. Additionally, on October 20, 1995 the
Company transferred its trust operations to a newly formed trust company
subsidiary known as BankIllinois Trust Company.
The Company and its subsidiaries provide a full range of banking services to
individual and corporate customers located within Champaign, Illinois, and
the surrounding communities. BankIllinois and BankIllinois Trust Company are
subject to competition from other financial institutions and nonfinancial
institutions providing financial products. Additionally, the Company and its
subsidiaries are subject to the regulations of certain regulatory agencies
and undergo periodic examinations by those regulatory agencies.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company have been prepared in
conformity with generally accepted accounting principles and conform to
predominant practices within the banking industry. The preparation of the
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions,
including the determination of the allowance for loan losses and the
valuation of real estate acquired in connection with foreclosure or in
satisfaction of loans, that affect the reported amounts of assets and liabil-
ities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The significant accounting policies used by the Company in the preparation of
the consolidated financial statements are summarized below:
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, BankIllinois and BankIllinois Trust
Company. Significant intercompany accounts and transactions have been
eliminated in consolidation.
Property held by BankIllinois Trust Company in fiduciary or agency
capacities for its customers is not included in the accompanying
consolidated balance sheets, since such items are not assets of the
Company. Trust fees are recognized on the accrual basis.
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(b) INVESTMENTS IN DEBT AND EQUITY SECURITIES
Debt securities classified as held-to-maturity are those securities which
the Company has the ability and intent to hold until maturity. These
securities are carried at amortized cost, in which the amortization of
premiums and accretion of discounts, which are recognized as adjustments
to interest income, are recorded using methods which approximate the
interest method. These methods consider the timing and amount of
prepayments of underlying mortgages in estimating future cash flows on
individual mortgage-related securities. Unrealized holding gains and
losses for held-to-maturity securities are excluded from earnings and
stockholders' equity.
Debt and equity securities classified as available-for-sale are those
securities that the Company intends to hold for an indefinite period of
time but not necessarily to maturity. Any decision to sell a security
classified as available-for-sale would be based on various factors,
including significant movements in interest rates, changes in the
maturity mix of the Company's assets and liabilities, liquidity needs,
regulatory capital considerations, and other similar factors. Securities
available-for-sale are carried at fair value. The difference between
fair value and cost, adjusted for amortization of premium and accretion
of discounts, results in an unrealized gain or loss. Unrealized gains or
losses are reported as increases or decreases in stockholders' equity,
net of the related deferred tax effect. Gains or losses from the sale of
securities are determined using the specific identification method.
A decline in the market value of any available-for-sale or held-to-
maturity security below cost that is deemed other than temporary is
charged to earnings and results in the establishment of a new cost basis
for the security.
Non-marketable equity securities, including BankIllinois' required
investment in the capital stock of the Federal Home Loan Bank, are
carried at cost, as fair values are not readily determinable.
(c) LOANS
Loans are stated at the principal amount outstanding, net of unearned
discount and the allowance for loan losses. Interest on commercial,
financial, and agricultural; real estate; and selected installment loans
is credited to income as earned, based upon the principal amount
outstanding. Interest on the remaining installment loans is credited to
income using a method which approximates the interest method.
The accrual of interest on loans is discontinued when, in the opinion of
management, the borrower may be unable to meet payments as they become
due. Interest accrued in the current year is reversed against interest
income, and prior years' interest is charged to the allowance for loan
losses. Interest income on impaired loans is recognized to the extent
interest payments are received and the principal is considered fully
collectible.
Loan origination fees and costs are deferred at origination and are
recognized over the life of the loan as an adjustment to yield.
Mortgage loans held for sale are carried at the lower of aggregate cost
or estimated market value. Net unrealized losses are recognized in a
valuation allowance by charges to income. Gains or losses on sales of
loans held for sale are computed using the specific-identification method
and are reflected in income at the time of sale.
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(d) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to
operations and is reduced by loan charge-offs less recoveries.
Management utilizes a systematic, documented approach in determining the
appropriate level of the allowance for loan losses. Management's ap-
proach, which provides for general and specific valuation allowances, is
based on current economic conditions, past losses, collection experience,
risk characteristics of the portfolio, assessment of collateral values by
obtaining independent appraisals for significant properties, and such
other factors which, in management's judgment, deserve current
recognition in estimating loan losses.
The allowance for loan losses related to impaired loans that are
identified for evaluation is based on discounted cash flow using the
loans initial effective interest rate or the fair value, less selling
costs, of the collateral for collateral dependent loans.
Management believes the allowance for loan losses is adequate to absorb
possible losses in the loan portfolio. While management uses available
information to recognize loan losses, future additions to the allowance
for loan losses may be necessary based on changes in economic conditions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the adequacy of the allowance
for loan losses. Such agencies may require BankIllinois to recognize
additions to the allowance for loan losses based on their judgments of
information available to them at the time of their examination.
(e) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization applicable to furniture
and equipment and buildings and leasehold improvements is charged to
occupancy expense using straight-line and accelerated methods over the
estimated useful lives of the assets. Such lives are estimated to be
three to seven years for furniture and equipment and five to fifty years
for buildings and leasehold improvements. Maintenance and repairs are
charged to operations as incurred.
(f) OTHER REAL ESTATE
Other real estate, included in other assets in the accompanying
consolidated balance sheets, is initially recorded at fair value. If,
subsequent to foreclosure, the fair value is less than the carrying
amount, the difference is recorded as a valuation allowance through a
charge to income. Subsequent increases in fair value are recorded
through a reversal of the valuation allowance, but not below zero.
Expenses incurred in maintaining the properties are charged to
operations.
(g) MORTGAGE SERVICING RIGHTS
The cost of mortgage servicing rights is amortized in proportion to, and
over the period of, estimated net servicing revenues. Impairment of
mortgage servicing rights is assessed based on the fair value of those
rights. Fair values are estimated using discounted cash flows based on a
current market interest rate. For purposes of measuring impairment, the
rights are stratified primarily based on the contractual maturities of
the underlying mortgages. The amount of impairment recognized is the
amount by which the capitalized mortgage servicing rights for a stratum
exceed their fair value.
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<PAGE>
(h) INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(i) EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 128, "Earnings Per Share." Statement No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to
the previously reported fully diluted earnings per share. All earnings
per share amounts for all periods have been presented, and where
appropriate, restated to conform with Statement No. 128 requirements.
Basic earnings per share is computed by dividing net income by the
weighted average number of common stock shares outstanding. The weighted
average shares outstanding were 5,143,458, 5,185,994 and 5,203,175 for
1997, 1996 and 1995, respectively.
Diluted earnings per share is computed by dividing net income by the
weighted average number of common stock and dilutive potential common
shares outstanding. Options to purchase shares of the Company's common
stock and stock appreciation rights, as discussed in note 14 to the
consolidated financial statements, are the only dilutive potential
common shares. The weighted average number of dilutive potential common
shares is calculated using the treasury stock method. The weighted
average shares and dilutive potential common shares outstanding were
5,261,059, 5,273,107 and 5,256,202 for 1997, 1996 and 1995,
respectively.
(j) CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold.
Generally, federal funds are sold for one-day periods.
(k) STOCK DIVIDEND
During May 1996 and May 1997, the Company effected 5% stock dividends.
All references in the accompanying financial statements to number of
shares and per share amounts have been retroactively restated to reflect
the stock dividends.
(l) RECLASSIFICATION
Certain amounts in the 1996 and 1995 consolidated financial statements
have been reclassified to conform with the 1997 presentation. Such
reclassifications have no effect on previously reported net income.
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(m) EMERGING ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income." This Statement requires an entity to include a statement of
comprehensive income in their full set of general-purpose financial
statements. Comprehensive income consists of the net income or loss of
the entity plus or minus the change in equity of the entity during the
period from transactions, other events, and circumstances resulting from
nonowner sources. Statement No. 130 is effective for years beginning
after December 15, 1997 and will require financial statements of earlier
periods that are presented for comparative purposes to be reclassified.
The FASB has also issued Statement No. 131, "Disclosures About Segments
of an Enterprise and Related Information." Statement No. 131 requires a
publicly-held entity to disclose financial and other descriptive
information about all of its reportable operating segments. This
Statement will require disclosure of net income or loss, certain specific
revenue and expense items, and assets for each segment presented and
disclosure of a reconciliation of this information with the corresponding
amounts recognized in the financial statements of the entity. This
Statement will also require disclosure of other pertinent segment
information, including the products and services provided by its
operating segments and the method by which the operating segments were
determined. Statement No. 131 is effective for financial statements
issued related to periods beginning after December 15, 1997 and will
require comparative information of earlier years presented to be
restated.
(3) CASH AND DUE FROM BANKS
The compensating balances held at correspondent banks was $1,086,000 and
$632,000 at December 31, 1997 and 1996, respectively. BankIllinois maintains
such compensating balances with correspondent banks to offset charges for
services rendered by those banks. In addition, BankIllinois was required by
the Federal Reserve Bank to maintain reserves in the form of cash on hand or
balances at the Federal Reserve Bank. The balance of reserves required to be
held was $5,465,000 and $3,726,000 at December 31, 1997 and 1996, re-
spectively.
(4) INVESTMENTS IN DEBT AND EQUITY SECURITIES
The amortized cost and fair values of investments in debt and equity
securities (in thousands) were as follows:
December 31, 1997
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
Available-for-sale:
U.S. Treasury and other
government agencies $127,690 $470 $152 $128,008
Mortgage-backed securities 6,264 15 37 6,242
Other 912 155 0 1,067
$134,866 $640 $189 $135,317
Held-to-maturity:
U.S. Treasury and other
government agencies $11,512 $36 $0 $11,548
Obligations of states and
political subdivisions 7,007 80 0 7,087
$18,519 $116 $0 $18,635
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December 31, 1996
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
Available-for-sale:
U.S. Treasury and other
government agencies $121,311 $355 $435 $121,231
Mortgage-backed securities 8,364 1 138 8,227
Other 416 53 0 469
$130,091 $409 $573 $129,927
Held-to-maturity:
U.S. Treasury and other
government agencies $14,043 $32 $10 $14,065
Obligations of states and
political subdivisions 7,570 67 14 7,623
Mortgage-backed securities 257 0 0 257
$21,870 $99 $24 $21,945
Proceeds from sales of investments in debt and equity securities during 1997,
1996 and 1995 were $145,000, $2,723,000 and $2,717,000, respectively.
Proceeds from maturities and calls of investments in debt and equity
securities during 1997, 1996 and 1995 were $68,839,000, $49,490,000 and
$47,707,000, respectively. Gross gains (losses) of $38,000, ($4,000) and
$3,000, respectively, were realized on securities transactions.
Investments in debt and equity securities with a carrying value of
$91,474,000 and $76,885,000 were pledged at December 31, 1997 and 1996,
respectively, to secure public deposits, securities sold under agreements to
repurchase, and for other purposes as required by law.
The amortized cost and fair value of investments in debt and equity
securities (in thousands) at December 31, 1997, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in one year or less $31,943 $32,129 $2,325 $2,326
Due after one year through five years 90,582 90,836 12,610 12,680
Due after five years through ten years 6,077 6,110 2,646 2,672
Due after ten years 0 0 938 957
128,602 129,075 18,519 18,635
Mortgage-backed securities 6,264 6,242 0 0
Total debt securities $134,866 $135,317 $18,519 $18,635
</TABLE>
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(5) LOANS
A summary of loans (in thousands), by classification, at December 31, 1997
and 1996 is as follows:
1997 1996
Commercial, financial, and agricultural $121,927 $110,059
Real estate 141,091 127,724
Installment and consumer 52,018 48,101
315,036 285,884
Less:
Unearned discount 1 16
Allowance for loan losses 5,306 5,587
$309,729 $280,281
The Company makes commercial, financial, and agricultural; real estate; and
installment and consumer loans to customers located in east-central Illinois
and the surrounding communities. As such, the Company is susceptible to
changes in the economic environment in east-central Illinois.
During 1997, 1996 and 1995, the Company sold approximately $24,138,000,
$17,726,000, and $13,572,000, respectively, of residential mortgage loans in
the secondary market, primarily to the Federal National Mortgage Association
(FNMA). Gross gains of approximately $275,000, $315,000, and $229,000 and
gross losses of approximately $4,000, $49,000, and $30,000 were realized on
the sales during 1997, 1996 and 1995, respectively.
Mortgage loans serviced for others are not included in the accompanying
consolidated financial statements. The unpaid balances of these loans
consisted of the following (in thousands) at December 31, 1997 and 1996:
1997 1996
FHLMC $3,381 $4,558
FNMA 94,104 104,088
Illinois Housing Development Authority 3,848 3,718
In the normal course of business, loans are made to directors, executive
officers, and principal stockholders of the Company and to parties which the
Company or its directors, executive officers, and stockholders have the
ability to significantly influence its management or operating policies
(related parties). The terms of these loans, including interest rates and
collateral, are similar to those prevailing for comparable transactions with
other customers and do not involve more than a normal risk of collectibility.
Activity associated with loans (in thousands) made to related parties during
1997 was as follows:
1997
Balance, January 1 $15,287
New loans 6,551
Repayments (7,760)
Changes in relationship (3,025)
Balance, December 31 $11,053
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<PAGE>
Activity in the allowance for loan losses (in thousands) for 1997, 1996 and
1995 was as follows:
1997 1996 1995
Balance, beginning of year $5,587 $5,882 $5,263
Provision charged to expense 465 375 3,097
Loans charged off (998) (1,538) (2,674)
Recoveries on loans previously charged off 252 868 196
Balance, end of year $5,306 $5,587 $5,882
The following table presents summary data on nonaccrual and other impaired
loans (in thousands) at December 31, 1997, 1996 and 1995:
1997 1996 1995
Impaired loans on nonaccrual $1,793 $1,687 $2,161
Impaired loans continuing to accrue interest 172 751 1,534
Total impaired loans $1,965 $2,438 $3,695
Allowance for loan losses on impaired loans 773 644 862
Impaired loans for which there is no related
allowance for loan losses 0 0 0
Average recorded investment in impaired
loans 3,129 3,051 4,788
Interest income recognized from impaired
loans 98 106 201
Cash basis interest income recognized from
impaired loans 6 5 0
(6) PREMISES AND EQUIPMENT
A summary of premises and equipment (in thousands) at December 31, 1997 and
1996 is as follows:
1997 1996
Land $3,279 $2,825
Furniture and equipment 5,475 6,512
Buildings and leasehold improvements 13,390 12,736
22,144 22,073
Less accumulated depreciation and
amortization 10,891 11,356
$11,253 $10,717
Depreciation and amortization expense was $1,105,000, $1,114,000, and
$1,203,000 for 1997, 1996 and 1995, respectively.
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<PAGE>
The Company leases various operating facilities and equipment under
noncancellable operating lease arrangements. These leases expire at various
dates through November 2007 and have renewal options to extend the lease
terms for various dates through November 2017. The rental expense for these
operating leases was $199,000, $226,000, and $222,000 in 1997, 1996 and 1995,
respectively.
Minimum annual rental payments required under the operating leases (in
thousands), which have initial or remaining terms in excess of one year at
December 31, 1997 are as follows:
1998 $191
1999 172
2000 148
2001 148
2002 146
Thereafter 155
$960
As a result of the merger between BankIllinois Financial Co. and Central
Illinois Financial Corporation, certain banking facilities were deemed to be
unnecessary for the ongoing operations of the merged entity. Accordingly,
premises and equipment was identified to be disposed of and a charge of
$375,000 was recorded to other noninterest expense in 1995 to reduce the book
value of these assets. During 1996, certain data processing equipment was
disposed of, and bank premises with an amortized cost of $1,821,000 and a
corresponding valuation allowance of $304,000 as of December 31, 1997 are
currently held for sale.
(7) OTHER REAL ESTATE OWNED
On January 24, 1994, the Company entered into an agreement to sell the
BankIllinois Executive Center (Executive Center). During 1997, the borrower
defaulted on the loan and approximately $1,834,000 was transferred to other
real estate. Additionally, approximately $513,000 of improvements were
completed on this office building. It was 72% leased at December 31, 1997.
(8) DEPOSITS
As of December 31, 1997, the scheduled maturities of time deposits (in
thousands) were as follows:
1998 $142,082
1999 37,271
2000 13,087
2001 1,031
2002 and Thereafter 591
$194,062
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(9) SHORT-TERM BORROWINGS
A summary of short-term borrowings (in thousands) at December 31, 1997 and
1996 is as follows:
1997 1996
Federal funds purchased $8,400 $7,300
Securities sold under agreements to repurchase:
U.S. Treasury and other government agency securities
with carrying values of $64,559,000 and $60,641,000
and market values of $64,588,000 and $60,646,000
at December 31, 1997 and 1996, respectively 41,457 36,641
$49,857 $43,941
Information relating to short-term borrowings (dollars in thousands) is as
follows:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Federal funds purchased:
Average daily balance $3,763 $4,267 $2,423
Maximum balance at month-end (March
1997, September 1996 and January
1995) 9,100 7,650 6,600
Weighted average interest rate at year-end 5.15% 6.99% 5.50%
Weighted average interest rate for the year 5.35% 5.32% 5.82%
Securities sold under agreements to repurchase:
Average daily balance $39,221 $35,415 $32,480
Maximum balance at month-end
(December 1997, January 1996 and
August 1995) 41,457 38,277 36,268
Weighted average interest rate at year-end 5.43% 5.20% 5.00%
Weighted average interest rate for the year 5.29% 5.02% 5.36%
</TABLE>
The securities underlying the agreements to repurchase are under the control
of BankIllinois.
(10) FEDERAL HOME LOAN BANK ADVANCES
A summary of Federal Home Loan Bank (FHLB) advances (dollars in thousands) at
December 31, 1997 is as follows:
WEIGHTED
AVERAGE
AMOUNT RATE
Maturing in year ending:
1998 $3,000 6.49%
1999 3,000 6.51%
2000 1,000 6.57%
2001 1,000 6.76%
$8,000 6.54%
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<PAGE>
The terms of a security agreement with the FHLB require BankIllinois to
pledge as collateral for advances both qualifying first mortgage loans in an
amount equal to at least 167% of these advances and all stock of the FHLB.
Advances are subject to restrictions or penalties in the event of prepayment.
BankIllinois has a total remaining borrowing capacity with the FHLB of
approximately $4,060,000 at December 31, 1997 at a rate equal to the FHLB
current advance rates.
(11) LINE OF CREDIT
The Company has an unsecured line of credit of $2,000,000 from a third party
lender. As of December 31, 1997, the entire line was available.
(12) INCOME TAXES
Income tax expense (in thousands) for 1997, 1996 and 1995 is summarized as
follows:
1997 1996 1995
Federal:
Current $2,686 $1,766 $2,174
Deferred (27) 417 (1,633)
Total $2,659 $2,183 $541
Income taxes (in thousands) are included in the following categories:
1997 1996 1995
Income from continuing operations $2,659 $2,183 $248
Gain on disposal of subsidiary 0 0 293
$2,659 $2,183 $541
Actual income tax expense (in thousands) for 1997, 1996 and 1995 differ from
the "expected" income taxes (computed by applying the U.S. federal corporate
income tax rate of 34% to earnings before income taxes) as follows:
1997 1996 1995
Computed "expected" income taxes $2,740 $2,272 $298
Tax-exempt interest income, net of
disallowed interest expense (94) (113) (153)
Nondeductible merger-related expenses 0 0 360
Other, net 13 24 36
$2,659 $2,183 $541
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The tax effects of temporary differences (in thousands) that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
at December 31, 1997 and 1996 are as follows:
1997 1996
Deferred tax assets:
Unrealized holding loss on
available-for-sale securities $0 $55
Allowance for loan losses 973 976
Deferred compensation 901 814
Other real estate 0 184
Severance payable 112 181
Stock appreciation rights 87 50
Other 162 221
Total deferred tax assets $2,235 $2,481
Deferred tax liabilities:
Unrealized holding gain on
available-for-sale securities $(153) $0
Premises and equipment (827) (818)
Gain on sale of subsidiary 0 (83)
Other real estate (15) 0
Other (280) (439)
Total deferred tax liabilities $(1,275) $(1,340)
Net deferred tax assets $960 $1,141
A valuation allowance would be provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. The Company
has not established a valuation allowance as of December 31, 1997 or 1996,
due to management's belief that all criteria for asset recognition have been
met, including the existence of a history of taxes paid sufficient to support
the realization of the deferred tax assets.
(13) RETIREMENT PLANS
The Company has established a profit sharing plan and a 401(k) plan for sub-
stantially all employees who meet the eligibility requirements. The 401(k)
plan, allows for participants' contributions of up to 10% of gross salary,
the first 6% of which is available for the Company's 50% match. The profit
sharing plan is non-contributory. All contributions to the profit sharing
plan are at the discretion of the Company.
The Company has merged the profit sharing plan of the former Central Illinois
Financial Corporation and the defined contribution plan of the former
BankIllinois Financial Co., and 401(k) plans of both companies into the
respective Central Illinois Financial Co., Inc. profit sharing and 401(k)
plans. The assets of the plans were transferred during 1997.
Total contributions by the Company under the retirement plans discussed above
totaled $386,000, $379,000 and $493,000 for 1997, 1996 and 1995,
respectively.
Certain key officers and directors participate in various deferred
compensation or supplemental retirement agreements with the Company. The
Company accrues the liability for these agreements based on the present value
of the amount the employee or director is currently eligible to receive. The
Company recorded expenses of $236,000, $207,000 and $714,000 in 1997, 1996
and 1995, respectively, related to these agreements.
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<PAGE>
(14) STOCKHOLDERS' EQUITY
SHARE PURCHASE RIGHTS PLAN
Pursuant to the merger described in note 1 to the consolidated financial
statements, the Company established the Central Illinois Financial Co., Inc.
Rights Agreement (the Rights Agreement). The Rights Agreement gives the
holder of each share of common stock of the Company a purchase right to
acquire one one-hundredth of a share of the authorized no par value preferred
stock (Purchase Right). The Rights Agreement has the effect of substantially
diluting the percentage of ownership of certain acquirers of common stock of
the Company unless sale or merger of the Company is approved by certain
continuing directors of the Company. Each Purchase Right trades in tandem
with its respective share of common stock until the occurrence of certain
events, in which case it would separate and entitle the registered holder,
subject to the terms of the Rights Agreement, to purchase certain equity
securities at a price below market value.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
In 1994, the former BankIllinois Financial Co. established a stock incentive
plan, which provides for the granting of shares of the Company's common stock
to certain key managerial employees. These options vest and thus become
exercisable ratably over a three-year period from the date granted. In 1994,
the former Central Illinois Financial Corporation established a stock option
plan which provides for the granting of non-qualified stock options and stock
appreciation rights (SARs) to certain key managerial employees. The option
price must be at least 100% of the fair market value of the common stock on
the date the option is granted and the maximum option term cannot exceed 10
years. The plan allows for the granting of options in tandem with SARs.
Exercise of a SAR cancels the related option and entitles the holder to
receive a payment in return, equal to the excess of the fair market value of
the shares subject to the option surrendered over the exercise price.
Payment by the Company will be made in shares of the Company's common stock
with cash paid in lieu of fractional shares. The exercise of a SAR is
subject to all of the terms and conditions of the related option.
In 1996, BankIllinois Financial Corporation established a stock incentive
plan, which provides for the granting of shares of the Company's common stock
to certain directors, officers and employees.
The following is a summary of the changes in options outstanding under the
stock incentive and stock option plans:
<TABLE>
1997 1996 1995
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of year 276,122 $6.80 276,693 $6.80 276,693 $6.80
Granted ($14.64-$15.00 per share) 82,950 14.77 0 0.00 0 0.00
Exercised 1,284 8.41 571 8.41 0 0.00
Options outstanding, end of year 357,788 $8.64 276,122 $6.80 276,693 $6.80
Options exercisable, end of year 319,113 $7.91 273,482 $6.79 192,474 $6.87
Weighted average fair value of
options granted $5.76 N/A N/A
</TABLE>
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<PAGE>
<TABLE>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
<C> <C> <C> <C> <C> <C>
$6.52 233,608 $6.00 $6.52 233,608 $6.52
8.10 11,124 6.75 8.10 11,124 8.10
8.41 30,106 7.00 8.41 30,106 8.41
14.64 53,550 3.00 14.64 14,875 14.64
15.00 29,400 4.25 15.00 29,400 15.00
357,788 $5.51 $8.64 319,113 $7.91
</TABLE>
The fair value of the stock options granted has been estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions. The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions. In addition, such models require the use of subjective
assumptions, including expected stock price volatility. In management's
opinion, such valuation models may not necessarily provide the best single
measure of option value.
1997 1996 1995
Number of options granted $82,950 $N/A $N/A
Risk-free interest rate 5.58% N/A N/A
Expected life, in years 3.44 N/A N/A
Expected volatility 11.00% N/A N/A
Expected dividend yield 1.68% N/A N/A
Estimated fair value per option $5.76 N/A N/A
Grants under the stock incentive and stock option plans are accounted for
following APB Opinion No. 25 and related interpretations. Accordingly, no
compensation cost has been recognized for incentive stock option grants under
the plans. Had compensation cost for all of the stock-based compensation
plans been determined based on the fair values of awards (the method
described by Statement No. 123), on the grant date, reported income and
earnings per common share would have been reduced to the pro forma amounts
shown below:
1997 1996 1995
Net income on common stock:
As reported $5,400 $N/A $N/A
Pro forma 5,232 N/A N/A
Basic earnings per common share:
As reported 1.05 N/A N/A
Pro forma 1.02 N/A N/A
Diluted earnings per common share:
As reported 1.03 N/A N/A
Pro forma 0.99 N/A N/A
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<PAGE>
At December 31, 1997, 19,974 SARs remained outstanding.
(15) DIVIDEND RESTRICTIONS
Banking regulations and capital guidelines limit the amount of dividends that
may be paid by banks. Retained earnings of BankIllinois available for
payment of dividends, subject to maintenance of minimum capital requirements,
was $1,620,000 at December 31, 1997.
(16) DISCONTINUED OPERATIONS
On July 30, 1992, BankIllinois divested its interest in its wholly owned
subsidiary, BankIllinois Co., which was involved in the processing of monthly
telephone bills for cellular telephone companies. At the time of sale,
BankIllinois received $1,000,000, which equaled the carrying value of the
subsidiary. The total sales price was based upon the annual operating
revenues of the former subsidiary from July 1, 1992 through June 30, 1995 up
to a maximum of $15.0 million. Based upon operating revenues of the former
BankIllinois Co., the Company has recorded the following gain (in thousands)
during 1995:
Gross gain on sale $926
Expenses incurred in the sale (63)
Income tax effect (293)
Net gain on disposal $570
The maximum gross proceeds of $15.0 million have been realized by the Company
related to the sale of BankIllinois Co.
(17) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Following are the condensed balance sheets as of December 31, 1997 and 1996
and the related condensed statements of income and cash flows for 1997, 1996
and 1995 for BankIllinois Financial Corporation:
CONDENSED BALANCE SHEETS
(in thousands)
1997 1996
Assets:
Cash $4,409 $171
Investment in BankIllinois 50,375 49,643
Investment in BankIllinois Trust Company 2,204 2,097
Investment in equity securities 696 91
Organization costs, net 11 22
Other assets 261 164
$57,956 $52,188
Liabilities and stockholders' equity:
Dividends payable $412 $0
Other liabilities 214 92
Stockholders' equity 57,330 52,096
$57,956 $52,188
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<PAGE>
CONDENSED STATEMENTS OF INCOME
(in thousands)
1997 1996 1995
Revenue:
Dividends received from subsidiaries $5,200 $1,000 $4,085
Interest income on deposits 48 1 2
Dividend income on securities 2 0 0
5,250 1,001 4,087
Expenses:
Amortization of organization costs 11 11 11
Merger expenses 0 0 1,036
Other 502 471 315
513 482 1,362
Income before applicable income tax
benefit and equity in undistributed
income (loss) of subsidiaries 4,737 519 2,725
Applicable income tax benefit 158 163 110
Equity in undistributed income (loss) of
subsidiaries 505 3,819 (2,499)
Net income $5,400 $4,501 $336
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
1997 1996 1995
Cash flows from operating activities:
Net income $5,400 $4,501 $336
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed (income) loss
of subsidiaries (505) (3,819) 2,499
Amortization of organization costs 11 11 11
Stock appreciation rights 108 60 88
Other, net (12) 46 99
Net cash provided by operating
activities 5,002 799 3,033
Cash flows from investing activities:
Investment in BankIllinois Trust Company 0 0 (2,000)
Purchases of equity securities (495) (91) 0
Net cash used in investing
activities (495) (91) (2,000)
Cash flows from financing activities:
Treasury stock transactions, net (266) (649) 4
Fractional shares purchased following
stock dividend (3) (3) 0
Cash dividends paid 0 (378) (860)
Net cash used in financing
activities (269) (1,030) (856)
Cash at beginning of year 171 493 316
Cash at end of year $4,409 $171 $493
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<PAGE>
(18) DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its custom-
ers. These financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of amounts recognized in
the consolidated balance sheets. The contractual amounts of those instru-
ments reflect the extent of involvement the Company has in particular classes
of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
Management does not anticipate any significant losses as a result of these
transactions.
The following table summarizes these financial instruments and commitments
(in thousands) at December 31, 1997 and 1996:
1997 1996
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $63,913 $66,295
Standby letters of credit 3,379 2,765
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments, principally variable interest rates, generally have fixed
expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. For commitments to extend credit, the Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation. Collateral held varies,
but may include accounts receivable; inventory; property, plant and
equipment; and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers. The standby letters of credit are
unsecured.
The Company does not engage in the use of interest rate swaps, futures,
forwards or options contracts.
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<PAGE>
Following is a summary of the carrying amounts and fair values of the
Company's financial instruments at December 31, 1997 and 1996:
<TABLE>
1997 1996
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $48,558 $48,558 $59,195 $59,195
Investments in debt and equity securities 155,386 155,502 153,492 153,567
Mortgage loans held-for-sale 1,408 1,408 1,277 1,277
Loans 309,729 308,078 280,281 279,951
Accrued interest receivable 4,833 4,833 4,517 4,517
Liabilities:
Deposits $417,154 $417,267 $404,130 $404,712
Short-term borrowings 49,857 49,869 43,941 43,946
Federal Home Loan Bank advances 8,000 8,083 9,000 9,083
Accrued interest payable 1,736 1,736 1,576 1,576
</TABLE>
Management's fair value estimates, methods, and assumptions are set forth
below for the Company's financial instruments.
CASH AND CASH EQUIVALENTS
The carrying value of cash and cash equivalents approximates fair value due
to the relatively short period of time between the origination of the instru-
ment and its expected realization.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
The fair value of investments in debt and equity securities is estimated
based on bid prices received from securities dealers.
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, and consumer. Each loan category is
further segmented into fixed and adjustable rate interest terms and by
performing and nonperforming categories. The fair value of performing loans
is calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates equal to rates at which loans,
similar in type, would be originated at December 31, 1997 and 1996.
Estimated maturities are based upon the average remaining contractual lives
for each loan classification. Fair value for nonperforming loans is based on
the use of discounted cash flow techniques.
ACCRUED INTEREST RECEIVABLE
The carrying value of accrued interest receivable approximates fair value due
to the relatively short period of time between the origination of the
instrument and its expected realization.
DEPOSIT LIABILITIES
The fair value of deposits with no stated maturity, such as non-interest-
bearing and interest-bearing demand deposits and savings deposits is the
amount payable on demand. The fair value of time deposits is based on the
discounted value of contractual cash flows. The discount rate is estimated
using rates currently offered for deposits of similar remaining maturities.
The fair value estimates do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market nor the benefit derived from the customer
relationship inherent in existing deposits.
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<PAGE>
SHORT-TERM BORROWINGS
The fair value of federal funds purchased and securities sold under
agreements to repurchase is based on the discounted value of contractual cash
flows. The discount rate is estimated using current rates on federal funds
purchased and securities sold under agreements to repurchase with similar
remaining maturities.
FEDERAL HOME LOAN BANK ADVANCES
The fair value of FHLB advances is based on the discounted value of
contractual cash flows. The discount rate is estimated using rates on
current FHLB advances with similar remaining maturities.
ACCRUED INTEREST PAYABLE
The carrying value of accrued interest payable approximates fair value due to
the relatively short period of time between the origination of the instrument
and its expected realization.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit is generally estimated using
the fees currently charged to enter into similar agreements, taking into ac-
count the remaining terms of the agreements and the present creditworthiness
of the counterparties. For fixed rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties.
The estimated fair value of commitments to extend credit and standby letters
of credit approximates the balances of such commitments.
(19) LITIGATION
Various legal claims have arisen in the normal course of business, which, in
the opinion of Company management, will not result in any material liability
to the Company.
(20) REGULATORY CAPITAL
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 December
31, 1997, that the Company and BankIllinois meet all capital adequacy
requirements to which they are subject.
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<PAGE>
As of December 31, 1997, the most recent notification from the 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 as of
December 31, 1997 and 1996 are presented in the following tables:
<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 December 31, 1997:
Total capital
(to risk-weighted assets)
Consolidated $61,340 17.7% $27,746 8.0% N/A
BankIllinois $54,471 15.8% $27,673 8.0% $34,591 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated $56,993 16.4% $13,873 4.0% N/A
BankIllinois $50,135 14.5% $13,837 4.0% $20,755 6.0%
Tier I capital
(to average assets)
Consolidated $56,993 10.9% $20,974 4.0% N/A
BankIllinois $50,135 9.6% $20,860 4.0% $26,075 5.0%
</TABLE>
<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 December 31, 1996:
Total capital
(to risk-weighted assets)
Consolidated $56,104 17.7% $25,340 8.0% N/A
BankIllinois $53,691 17.0% $25,332 8.0% $31,665 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated $52,125 16.5% $12,670 4.0% N/A
BankIllinois $49,713 15.7% $12,666 4.0% $18,999 6.0%
Tier I capital
(to average assets)
Consolidated $52,125 10.7% $19,538 4.0% N/A
BankIllinois $49,713 10.2% $19,451 4.0% $24,313 5.0%
</TABLE>
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
<TABLE>
<S> <C> <C> <C> <S>
NAME DIRECTOR POSITION WITH THE COMPANY AND
(AGE) SINCE<F1> THE SUBSIDIARIES AND OCCUPATION
FOR THE LAST FIVE YEARS
CLASS I
(TERM EXPIRES 1999)
David J. Downey 1992 Director of the Company; President, The Downey
(Age 56) Group, Inc. (estate planning, wealth transfer
and executive compensation organization)
(1963-present)
Van A. Dukeman 1994 Director, President and Chief Operating Officer of
(Age 39) the Company and the Bank; Director and President of
BKI and BankIllinois (1994-1995); Executive Vice
President and Chief Investment Officer, First Busey
Trust & Investment Co. (1991-1993)
Gene A. Salmon 1991 Director of the Company; President, Cross
(Age 53) Construction, Inc. (1979-present)
James A. Sullivan 1984 Director of the Company; Chief Executive
(Age 70) Officer, Sullivan Chevrolet Company (1976-1997)
CLASS II
(TERM EXPIRES 2000)
Robert J. Cochran 1987 Director of the Company; Executive Vice President,
(Age 57) General Counsel and Secretary of the Company and the
Bank; President and Chief Executive Officer of
BankIllinois Trust Company; Senior Vice President,
Trust Officer, Secretary and General Counsel,
CIF (1987-1995)
Gregory B. Lykins 1994 Director, Chairman of the Board and Chief Executive
(Age 50) Officer of the Company and the Bank; Director,
Chairman of the Board and Chief Executive Officer of
BKI and BankIllinois (1994-1995); President and Chief
Financial Officer, First Busey Corporation (1984-
1993); Chairman, President and Chief Executive
Officer, First Busey Trust & Investment Co.
(1992-1993)
August C. Meyer, Jr. 1962 Director of the Company; President, Midwest
(Age 60) Television Inc. (1976-present)
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<PAGE>
CLASS III
(TERM EXPIRES 1998)
Roy V. Van Buskirk 1991 Director of the Company; President, Bacon and Van
(Age 67) Buskirk Glass Company and Danville Bacon and Van
Buskirk Glass Company, Inc. (1968-1997)
George T. Shapland 1994 Director of the Company; President, Shapland
(Age 67) Management Co. (1990-present)
Dean R. Stewart 1984 Director of the Company; Chairman of the Board, CIF
(Age 69) (1991-1995); Chairman and Chief Executive Officer,
Tri Star Marketing, Inc. (1974-present)
<FN>
<F1> Indicates year first elected to the board of directors of the Company,
the Bank or their predecessors.
</FN>
</TABLE>
All of the Company s directors will hold office for the terms indicated,
or until their respective successors are duly elected and qualified, and all
executive officers hold office for a term of one year. There are no
arrangements or understandings between any of the directors, executive
officers or any other person pursuant to which any of the Company s directors
or executive officers have been selected for their respective positions.
Non-employee directors of the Company received $6,250 in cash compensation,
representing their service for the first quarter of 1997. Effective April 1,
1997, these directors received fully vested options to purchase 4,200 shares
of Common Stock for serving on the Boards of Directors and committees of the
Company and certain of the subsidiaries for the remainder of 1997 through the
first quarter of 1998. It is anticipated that options will be granted to the
directors as compensation in the future on an annual basis. Directors of the
Company who are also employees of the Company were not separately compensated
for service on such Boards or committees.
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<PAGE>
BOARD COMMITTEES AND MEETINGS
A total of seven regularly scheduled and special meetings were held by
the Board of Directors of the Company during 1997. The Board of Directors of
the Company has established an Audit Committee, a Compensation Committee and
an Ad Hoc committee. During 1997, all directors attended at least 75 percent
of the meetings of the Board and the committees on which they served, except
Mr. Meyer, who attended 65% of such meetings.
Members of the Audit Committee are Messrs. Stewart (Chair), Meyer, Van
Buskirk and Sullivan, and Messrs. Lykins and Dukeman serve ex officio. The
Audit Committee reports to the Board of Directors and has the responsibility
to review and approve internal control procedures, accounting practices and
reporting activities of the Subsidiaries. The committee also has the
responsibility for establishing and maintaining communications between the
Board and the independent auditors and regulatory agencies. The Audit
Committee reviews with the independent auditors the scope of their
examinations, with particular emphasis on the areas to which either the Audit
Committee or the auditors believe special attention should be directed. It
also reviews the examination reports of regulatory agencies and reports to
the full Board regarding matters discussed therein. Finally, it oversees the
establishment and maintenance of effective controls over the business
operations of the Subsidiaries. The Audit Committee met four times in 1997.
The members of the Compensation Committee are Messrs. Van Buskirk
(Chair), Meyer, Stewart and Lykins, and Mr. Dukeman serves ex officio. The
Compensation Committee reports to the Board of Directors and has
responsibility for all matters related to compensation of executive officers
of the Company, including review and approval of base salaries, review of
salaries of executive officers compared to other financial services holding
companies in the region, fringe benefits, including modification of the
retirement plan, and incentive compensation. The Compensation Committee met
three times in 1997.
The members of the Ad Hoc Committee are Messrs. Van Buskirk (Chair),
Downey, Shapland, Stewart, and Lykins, and Mr. Dukeman serves ex officio.
The Ad Hoc Committee reviews compensation to be paid to the Company's
directors for service on the Board of Directors and attendance at Board and
committee meetings, reviews the Company's dividend policy and nominates
persons to serve on the Company's Board of Directors. The Ad Hoc Committee
will consider nominations to the Board of Directors submitted by stockholders
if such nominations are made in writing to the committee and otherwise comply
with Article 2, Section 14 of the Company's bylaws. The Ad Hoc Committee met
three times in 1997.
EXECUTIVE OFFICERS
The term of office for the executive officers of the Company is from the
date of election until the next annual organizational meeting of the Board of
Directors. The names and ages of the executive officers of the Company as of
December 31, 1997, as well as the offices held by these officers on that
date, other positions held with the Company and its subsidiaries and
principal occupations for the past five years are set forth below.
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<PAGE>
POSITION WITH THE COMPANY AND
NAME AGE SUBSIDIARIES AND PRINCIPAL OCCUPATION
<TABLE>
<S> <C> <C>
Gregory B. Lykins 50 Chairman of the Board and Chief Executive
Officer of the Company and BankIllinois;
Director of BankIllinois Trust Company.
Prior to the Merger, Mr. Lykins served as
Chairman of the Board and Chief Executive
Officer of BankIllinois Financial Co. and
BankIllinois. Mr. Lykins was President and
Chief Financial Officer of First Busey
Corporation, a bank holding company in
Urbana, Illinois, and had been Chairman,
President and Chief Executive Officer of
First Busey Trust & Investment Co., a trust
company subsidiary of First Busey
Corporation, prior to joining BankIllinois
Financial Co.
Van A. Dukeman 39 Director, President and Chief Operating
Officer of the Company and BankIllinois;
Director, BankIllinois Trust Company. Prior
to the Merger, Mr. Dukeman served as
President and director of BankIllinois
Financial Co. Mr. Dukeman was Executive Vice
President and Chief Investment Officer of
First Busey Trust & Investment Co. prior to
joining BankIllinois Financial Co.
Robert J. Cochran 57 Director of the Company and Executive Vice
President, Secretary and General Counsel of
the Company and BankIllinois and Chairman,
President and Chief Executive Officer of
BankIllinois Trust Company. Prior to the
Merger, Mr. Cochran served as Director,
Senior Vice President, Secretary and General
Counsel of Central Illinois Financial
Corporation and Senior Vice President, Trust
Officer, Secretary and General Counsel of The
Champaign National Bank.
David B. White 46 Executive Vice President and Chief Financial
Officer of the Company and BankIllinois.
Prior to the Merger, Mr. White served as
Executive Vice President and Chief Financial
Officer of BankIllinois. Mr. White was
Senior Vice President and Chief Financial
Officer of Bank One, Champaign-Urbana,
Illinois, prior to joining BankIllinois
Financial Co.
Charles R. Eyman 51 Executive Vice President of BankIllinois.
Prior to the Merger, Mr. Eyman served as
Senior Vice President of The Champaign
National Bank.
</TABLE>
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the compensation
earned during the three most recently completed fiscal years by the Chief
Executive Officer and the four other most highly compensated executive
officers of the Company (including those employed by the Company's
subsidiaries) whose 1997 salary and bonus exceeded $100,000:
<TABLE>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
(A) (B) (C) (D) (G) (I)
NAME AND SECURITIES ALL OTHER
PRINCIPAL SALARY UNDERLYING COMPENSATION
POSITION YEAR ($)<F1> BONUS ($) OPTIONS/SARS (#) ($)<F2>
<S> <C> <C> <C> <C> <C>
Gregory B. Lykins, 1995 $175,000 $55,000 -- $18,993
Chairman of the Board 1996 180,000 35,000 -- 17,177
and Chief Executive Officer 1997 180,000 40,000 3,150 18,550
Van A. Dukeman, 1995 $115,000 $40,000 -- $15,559
President and ChieF 1996 127,000 35,000 -- 12,540
Operating Officer 1997 127,000 40,000 3,150 13,445
Robert J. Cochran, 1995 $108,625 $15,000 -- $14,872
Executive Vice President 1996 118,500 12,000 -- 11,254
and General Counsel 1997 118,500 12,000 3,150 11,342
David B. White, 1995 $90,000 $16,350 -- $11,368
Executive Vice President 1996 95,000 12,000 -- 9,080
and Chief Financial Officer 1997 95,000 15,000 3,150 9,395
Charles R. Eyman, 1995 $91,500 $15,000 -- $13,540
Executive Vice President 1996 95,000 12,000 -- 9,208
1997 95,000 15,000 3,150 10,107
<FN>
<F1> Includes amounts deferred and, with respect to Mr. Lykins, includes
amounts received for service as Chairman of the Board of the Company.
<F2> The total amounts in this column reflect the Company's contributions
under its 401(K) Plan, Non-Qualified Retirement Plan, Profit Sharing Plan and
amounts paid for premiums on insurance policies with respect to each named
executive officer. These amounts were $4,500, $1,443, $10,500 and $2,550 for
Mr. Lykins for 1995, $3,238, $3,189, $7,500 and $3,250 for 1996, and $3,200,
$3,400, $8,000 and $3,950 for 1997; $3,820, $929, $10,500 and $310 for Mr.
Dukeman for 1995, $3,162, $1,493, $7,500 and $385 for 1996, and $3,200,
$1,810, $8,000 and $435 for 1997; $1,452, $0, $11,618 and $1,802 for Mr.
Cochran for 1995, $2,756, $1,517, $6,489 and $492 for 1996, and $2,610,
$1,762, $6,434 and $536 for 1997; $2,615, $1,255, $7,498 and $0 for Mr. White
for 1995, $2,248, $1,510, $5,045 and $277 for 1996 and $2,200, $1,705, $5,200
and $290 for 1997; and $1,247, $0, $9,978 and $2,315 for Mr. Eyman for 1995,
$2,254, $1,300, $5,268 and $386 for 1996 and $2,200, $1,705, $5,200 and
$1,002 for 1997.
</FN>
</TABLE>
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<PAGE>
STOCK OPTION INFORMATION
The following table sets forth certain information concerning the number
and value of stock options granted in the last fiscal year to the individuals
named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
(A) (B) (C) (D) (E) (F) (G)
% OF
TOTAL
OPTIONS
GRANTED TO EXERCISE
OPTIONS EMPLOYEES OR EXPIRATION
GRANTED IN FISCAL BASE PRICE ON
NAME (#)<F1><F2> YEAR<F2> ($/SH)<F2> DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Gregory B. Lykins 3,150 5.9% $14.64 03/01/07 $29,002 $73,497
Van A. Dukeman 3,150 5.9% 14.64 03/01/07 29,002 73,497
Robert J. Cochran 3,150 5.9% 14.64 03/01/07 29,002 73,497
David B. White 3,150 5.9% 14.64 03/01/07 29,002 73,497
Charles R. Eyman 3,150 5.9% 14.64 03/01/07 29,002 73,497
<FN>
<F1> Such options vest over a three-year period.
<F2> As adjusted for stock dividends.
</FN>
</TABLE>
The following table sets forth certain information concerning the
exercisable and nonexercisable stock options at December 31, 1997, held by
the individuals named in the Summary Compensation Table:
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
ON VALUE OPTIONS AT FY-END THE-MONEY OPTIONS
NAME EXERCISE REALIZED (#)(D) AT FY-END ($)(E)
(#)(A) (#)(B) ($)(C) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Gregory B. Lykins --- $--- 112,122 2,270 $1,392,138 $9,896.01
Van A. Dukeman --- --- 112,122 2,270 1,392,138 9,896.01
Robert J. Cochran --- --- 3,734 2,270 34,062 9,896.01
David B. White --- --- 12,004 2,270 142,666 9,896.01
Charles R. Eyman --- --- 3,734 2,270 34,062 9,896.01
</TABLE>
Page 62
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of
its executive officers, including each of the executive officers named in the
Summary Compensation Table. Each employment agreement provides for an
initial term of one year and, at the end of its initial term as well as any
subsequent term, is automatically extended for one year until either the
Company or the employee gives written notice to the contrary. Each agreement
terminates upon the employee's death, disability, discharge for cause or in
the event of "constructive discharge" or a change of control (as defined in
the employment agreements). The employment agreements are also terminable by
the employee upon 90 days' notice to the Company.
The employment agreements set forth the salaries, bonuses and
benefits to be provided to the respective officer and provide for severance
payments in the event employment is terminated by the Company without cause
or in the event of "constructively discharge" (as defined in the employment
agreements). The "severance payment" each officer would be entitled to
receive in such a case equals the sum of the applicable base salary, the
officer's most recent performance bonus and the value of contributions under
retirement and employee benefit plans that would have been made through the
term of the agreement. Mr. Lykins and Mr. Dukeman (or their estates) are
also entitled to receive such severance payment in the event of termination
because of disability or death.
In the event employment is terminated within one year of a change
of control (as defined in the agreements), or at any time by the Company or
its successor for any reason other than death or disability, the affected
officer would be entitled to receive similar amounts. The amounts payable
upon a change of control are subject to reduction, if necessary, to prevent
certain adverse tax treatment.
The employment agreements also provide that the respective officer
may not compete within a 50-mile radius of the Company's main office, or
against the Company or any successor, for one year following the termination
of their employment agreement. Each employment agreement also requires the
Company to indemnify and to advance certain legal expenses to the covered
employee to the maximum extent permitted by law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company establishes compensation
and benefits for the Chief Executive Officer and reviews and recommends
compensation and benefits for other officers and employees of the Bank.
During 1997, no executive officer of the Company served as a member of
(i) the compensation committee of another entity in which one of the
executive officers of such entity served on the Bank's Compensation
Committee, (ii) the Board of Directors of another entity in which one of the
executive officers of such entity served on the Bank's Compensation Committee
or (iii) the compensation committee of another entity in which one of the
executive officers of such entity served as a member of the Company's Board
of Directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's compensation program is administered by the
Compensation Committee (the "Committee"). The Chief Executive Officer serves
on this and all committees ex-officio, but on none as Chairman.
In determining appropriate levels of executive compensation, the
Committee has at its disposal independent reference information regarding
compensation ranges and levels for executive positions in comparable
companies. In determining compensation to be paid to executive officers,
primary consideration is given to quality, long-term earnings growth
accomplished by achieving both financial and non-financial goals such as
earnings per share, return on assets and return on equity. The objectives of
this philosophy are to: (i) encourage consistent and competitive return to
stockholders; (ii) reward Company and individual performances; (iii) provide
financial rewards for performance by those having a significant impact on
corporate profitability; and (iv) provide competitive compensation in order
to attract and retain key personnel.
There are three basic components to the total compensation of all
key executives -- base salary, incentive bonus and long-term incentive
compensation. The salary component is reflective of levels of
responsibility, authority and performance, relative to similar positions in
the banking industry. The incentive portion is directly related to financial
performance, as measured by net income, return on average assets, and other
financial factors. The long-term incentive compensation component is
currently composed of the 1996 Stock Option Plan adopted by the Company. The
Company maintains the stock option plan to reward senior executives of the
Company for outstanding performance and to help the Company attract and
retain qualified personnel in key positions. The stock option plan is
further designed to give key employees a proprietary interest in the Company
as an incentive to contribute to the
Page 63
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<PAGE>
success of the Company. Awards under the plan are determined by the
Compensation Committee based on each respective officer's level of
responsibility, overall performance and significance to the Company's future
growth and profitability.
Messrs. Van Buskirk (Chair), Downey, Shapland, Stewart and Lykins
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company s
Common Stock beneficially owned on March 17, 1998 with respect to all persons
known to the Company to be the beneficial owner of more than five percent of
the Company Common Stock, each director and nominee and all directors and
executive officers of the Company as a group.
<TABLE>
NAME OF INDIVIDUAL AND AMOUNT AND NATURE OF PERCENT
NUMBER OF PERSONS IN GROUP BENEFICIAL OWNERSHIP<F1> OF CLASS
DIRECTORS AND NOMINEES
<S> <C> <C>
Robert J. Cochran 40,922 <F2> *
David J. Downey 283,350 5.5%
Van A. Dukeman 169,243 3.2%
Gregory B. Lykins 390,613 <F3> 7.4%
August C. Meyer, Jr. 1,527,890 <F4> 29.6%
Gene A. Salmon 82,053 1.6%
George T. Shapland 283,020 5.5%
Dean R. Stewart 22,990 <F5> *
James A. Sullivan 25,593 *
Roy V. Van Buskirk 28,269 *
NAMED EXECUTIVE OFFICERS
Charles R. Eyman 11,313 *
David B. White 13,059 *
All directors and executive
officers as a group
(12 persons) 2,878,315 <F6> 53.0%
_____________
* Less than one percent.
<FN>
<F1> The information contained in this column is based upon information
furnished to the Company by the persons named above and the members of
the designated group. The nature of beneficial ownership for shares
shown in this column is sole voting and investment power, except as
set forth in the footnotes below. Pursuant to the rules of the
Securities and Exchange Commission, shares obtainable through the
exercise of options which are currently exercisable, or which will
become exercisable within 60 days of the date of the information
contained in this table, and are included as beneficially owned. The
number of shares obtainable through options and included in this table
are as follows: 4,123 shares for Messrs. Cochran and Eyman; 4,200
shares for Messrs. Downey, Meyer, Salmon, Shapland, Stewart, Sullivan
and Van Buskirk; 12,393 shares for Mr. White; and 112,511 shares for
Messrs. Dukeman and Lykins. Each director and officer has no voting
and sole investment power over such shares. Inclusion of shares shall
not constitute an admission of beneficial ownership or voting or
investment power over such shares.
<F2> Includes 1,820 shares held by Mr. Cochran's spouse, over which shares
Mr. Cochran has no voting or investment power.
<F3> Includes 16,865 shares over which Mr. Lykins has shared voting and
sole investment power.
<F4> Includes 1,289,751 shares held by certain trusts for which Mr. Meyer
serves as trustee. Mr. Meyer exercises sole voting and investment
power over such shares. Also includes 55,620 shares held by Mr.
Meyer's spouse. Mr. Meyer disclaims beneficial ownership over all
such shares.
<F5> Includes 9,710 shares held jointly with Mr. Stewart's spouse, over
which shares Mr. Stewart has shared voting and investment power.
<F6> Includes 275,061 shares obtainable through the exercise of options
considered presently exercisable.
</FN>
</TABLE>
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<PAGE>
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
Certain principal stockholders of the Company have executed an Amended and
Restated Shareholders' Agreement (the "Shareholders' Agreement"). The
Shareholders' Agreement affects the purchase and sale of the capital stock of
the Company owned by the parties thereto. The parties to the agreement are
August C. Meyer, Jr. and certain related entities, David J. Downey, George T.
Shapland, Gregory B. Lykins and Van A. Dukeman (the "Parties").
The Shareholders' Agreement provides that the Parties to the Shareholders'
Agreement may not make voluntary transfers of their shares of Company stock
except for transfers to each other, family transfers, certain pledges and
certain open market sales. In addition, involuntary transfers occurring upon
death are permitted. Parties to the Shareholders' Agreement are permitted to
sell shares on the open market, but only after the other Parties have elected
not to exercise a right of first refusal to purchase the shares. Also, in
the event any Party to the Shareholders' Agreement purchases shares from any
third party, the purchasing stockholder must allow the other Parties the
right to purchase a proportionate amount of such shares.
Commencing three years after the Merger, each Party to the Shareholders'
Agreement other than August C. Meyer Jr. will have the right to put his
shares to Mr. Meyer, in which event Mr. Meyer will be obligated to purchase
all such shares subject to the rights of the other Parties to join in the
purchase on a proportionate basis. Puts may be exercised prior to the
expiration of the three-year period following the Merger only in the event of
the death of a Party. In any case, if a put is exercised, and within 18
months thereafter there is a sale of the Company, any profits realized on the
sale of the put shares must be repaid to the Party that previously exercised
the put.
The Shareholders' Agreement will terminate ten years after it becomes
effective. It also will terminate upon a sale, dissolution or liquidation of
the Company or upon the written agreement of the Parties.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and officers of the Company and the Subsidiaries and their
associates were customers of, and had transactions with, the Company and the
Subsidiaries during 1997. Additional transactions may be expected to take
place in the future. All outstanding loans, commitments to loan,
transactions in repurchase agreements and certificates of deposit and
depository relationships, in the opinion of management, were made in the
ordinary course of business, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the normal risk
of collectibility or present other unfavorable features. Management believes
that the terms of these services were no less favorable to the Company than
would have been obtained from non-affiliated parties.
Page 65
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<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Index to Financial Statements
See page 29.
(a)(2) Financial Statement Schedules
N/A
(a)(3) Schedule of Exhibits
The Exhibit Index which immediately follows the signature pages to
this Form 10-K is incorporated by reference.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
fourth quarter of 1997.
(c) Exhibits
The exhibits required to be filed with this Form 10-K are included
with this Form 10-K and are located immediately following the Exhibit Index
to this Form 10-K.
(d) Financial Data Schedule
Exhibit 27.1
Page 66
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on March 30, 1998.
By: ____________________________ By: ____________________________
Gregory B. Lykins David B. White
Chairman and Executive Vice President and
Principal Executive Officer Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 1998.
______________________________
Gregory B. Lykins Chairman, CEO and Director
______________________________
Van A. Dukeman President, COO and Director
______________________________
Robert J. Cochran Executive Vice President and
Director
______________________________
David J. Downey Director
______________________________
August C. Meyer, Jr. Director
______________________________
Gene A. Salmon Director
______________________________
George T. Shapland Director
______________________________
Dean R. Stewart Director
______________________________
James A. Sullivan Director
______________________________
Roy V. Van Buskirk Director
______________________________
David B. White Executive Vice President and Chief
Financial Officer
Page 67
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K
<TABLE>
INCORPORATED
HEREIN BY FILED SEQUENTIAL
EXHIBIT NO. DESCRIPTION REFERENCE TO HEREWITH PAGE NO.
<S> <C> <C> <C>
3.1 Amended and Exhibit 3.1 to the Form
Restated Certificate 10-K filed with the
of Incorporation Commission April 1, 1996
(SEC File No. 33-90342)
3.2 Amendmente to Amended
and Restated Certificate
of Incorporation X
3.3 Bylaws Exhibit 3.2 to the Form
10-K filed with the
Commission April 1, 1996
(SEC File No. 33-90342)
4.1 Amended and Restated Exhibit 4.1 to the
Shareholders' Registration Statement on
Agreement, dated as Form S-4 filed with the
of December 13, 1994 Commission March 15, 1995,
as amended (SEC File
No. 33-90342)
10.1 Employment Agreement Exhibit 10.3 to the
for Gregory B. Lykins Registration Statement on
Form S-4 filed with the
Commission March 15, 1995,
as amended (SEC File No.
33-90342)
10.2 Employment Agreement Exhibit 10.4 to the
for Van A. Dukeman Registration Statement on
Form S-4 filed with the
Commission March 15, 1995,
as amended (SEC File No.
33-90342)
10.3 Employment Agreement Exhibit 10.5 to the
for David B. White Registration Statement on
Form S-4 filed with the
Commission March 15, 1995,
as amended (SEC File No.
33-90342)
10.4 Employment Agreement Exhibit 10.5 to the
for Robert J. Cochran Form 10-K filed with the
Commission on April 1, 1996
(SEC File No. 33-90342)
10.5 Employment Agreement Exhibit 10.8 to the
for Charles R. Eyman Form 10-K filed with the
Commission on April 1, 1996
(SEC File No. 33-90342)
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<PAGE>
21.1 Subsidiaries of the
Registrant X
23.1 Consent of KPMG
Peat Marwick LLP X
23.2 Consent of
McGladrey &
Pullen, LLP X
27.1 Financial Data
Schedule X
27.2 Financial Data Schedule
Restated for 1996 X
27.3 Financial Data Schedule
Restated for 1995 X
</TABLE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "CENTRAL ILLINOIS FINANCIAL CO., INC.", CHANGING ITS NAME FROM
"CENTRAL ILLINOIS FINANCIAL CO., INC." TO "BANKILLINOIS FINANCIAL
CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-SEVENTH DAY OF FEBRUARY,
A.D. 1998, AT 9 O'CLOCK A.M.
/s/EDWARD J. FREEL
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION: 8962018
DATE: 03/01/98
Page 1
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<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
CENTRAL ILLINOIS FINANCIAL CO. INC.
Central Illinois Financial Co., Inc. (hereinafter called the
"Corporation"), a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, as amended (the
"DGCL"), does hereby certify that:
1. The name of the Corporation is: Central Illinois Financial
Co., Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking out Article I thereof and by substituting in lieu of said
Article the following new Article I:
ARTICLE I
The name of the Corporation is: BankIllinois Financial Corporation.
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the DGCL.
Dated as of the 27th day of February, 1998.
CENTRAL ILLINOIS FINANCIAL CO., INC.
/S/Van A. Dukeman
Van A. Dukeman, President
SUBSIDIARIES OF THE REGISTRANT
1. BankIllinois, an Illinois chartered bank located in Champaign, Illinois.
2. BankIllinois Trust Company, an Illinois corporation located in
Champaign, Illinois.
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
Central Illinois Financial Co., Inc.:
We consent to incorporation by reference in the registration statements No.
33-94096 and No. 333-27797 on Form S-8 of BankIllinois Financial Corporation
(formerly Central Illinois Financial Co., Inc.) of our report dated March 1,
1996, relating to the consolidated statements of income, changes in
stockholders' equity, and cash flows of BankIllinois Financial Corporation
and subsidiaries for the year ended December 31,1995, which report appears in
the December 31, 1997 annual report on Form 10-K of BankIllinois Financial
Corporation.
KPMG Peat Marwick, LLP
St. Louis, Missouri
March 27, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 33-94096) of our report, dated February 6, 1998 on the
consolidated balance sheets of BankIllinois Financial Corporation as of
December 31, 1997 and 1996 and the related statements of income, changes in
stockholders' equity and cash flows for each of the two years in the period
ending December 31, 1997, appearing in the Annual Report on Form 10-K for the
year ended December 31, 1997.
McGLADREY & PULLEN
Champaign, Illinois
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 28,958
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 19,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 136,867
<INVESTMENTS-CARRYING> 18,519
<INVESTMENTS-MARKET> 18,635
<LOANS> 311,137<F1>
<ALLOWANCE> 5,306
<TOTAL-ASSETS> 539,366
<DEPOSITS> 417,154
<SHORT-TERM> 49,857
<LIABILITIES-OTHER> 7,025
<LONG-TERM> 8,000
0
0
<COMMON> 52
<OTHER-SE> 57,278
<TOTAL-LIABILITIES-AND-EQUITY> 539,366
<INTEREST-LOAN> 26,486
<INTEREST-INVEST> 10,098
<INTEREST-OTHER> 762
<INTEREST-TOTAL> 37,346
<INTEREST-DEPOSIT> 16,543
<INTEREST-EXPENSE> 19,410
<INTEREST-INCOME-NET> 17,936
<LOAN-LOSSES> 465
<SECURITIES-GAINS> 38
<EXPENSE-OTHER> 13,888
<INCOME-PRETAX> 8,059
<INCOME-PRE-EXTRAORDINARY> 8,059
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,400
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 7.93
<LOANS-NON> 2,208
<LOANS-PAST> 747
<LOANS-TROUBLED> 140
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,587
<CHARGE-OFFS> 998
<RECOVERIES> 252
<ALLOWANCE-CLOSE> 5,306
<ALLOWANCE-DOMESTIC> 5,306
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Net of allowance for loan losses of $5,306.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 31,195
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 28,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 131,622
<INVESTMENTS-CARRYING> 21,870
<INVESTMENTS-MARKET> 21,945
<LOANS> 281,558<F1>
<ALLOWANCE> 5,587
<TOTAL-ASSETS> 515,440
<DEPOSITS> 404,130
<SHORT-TERM> 43,941
<LIABILITIES-OTHER> 6,273
<LONG-TERM> 9,000
0
0
<COMMON> 52
<OTHER-SE> 52,044
<TOTAL-LIABILITIES-AND-EQUITY> 515,440
<INTEREST-LOAN> 26,037
<INTEREST-INVEST> 7,177
<INTEREST-OTHER> 1,874
<INTEREST-TOTAL> 35,088
<INTEREST-DEPOSIT> 15,220
<INTEREST-EXPENSE> 17,825
<INTEREST-INCOME-NET> 17,263
<LOAN-LOSSES> 375
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 14,495
<INCOME-PRETAX> 6,684
<INCOME-PRE-EXTRAORDINARY> 6,684
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,501
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.85
<YIELD-ACTUAL> 7.84
<LOANS-NON> 2,135
<LOANS-PAST> 384
<LOANS-TROUBLED> 162
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,882
<CHARGE-OFFS> 1,538
<RECOVERIES> 868
<ALLOWANCE-CLOSE> 5,587
<ALLOWANCE-DOMESTIC> 5,587
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Net of allowance for loan losses of $5,587.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 26,900
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 53,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 75,874
<INVESTMENTS-CARRYING> 21,430
<INVESTMENTS-MARKET> 21,528
<LOANS> 320,940<F1>
<ALLOWANCE> 5,882
<TOTAL-ASSETS> 520,586
<DEPOSITS> 419,157
<SHORT-TERM> 36,273
<LIABILITIES-OTHER> 7,748
<LONG-TERM> 9,000
0
0
<COMMON> 52
<OTHER-SE> 48,356
<TOTAL-LIABILITIES-AND-EQUITY> 520,586
<INTEREST-LOAN> 29,471
<INTEREST-INVEST> 5,481
<INTEREST-OTHER> 951
<INTEREST-TOTAL> 35,903
<INTEREST-DEPOSIT> 15,210
<INTEREST-EXPENSE> 17,689
<INTEREST-INCOME-NET> 18,214
<LOAN-LOSSES> 3,097
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 19,054
<INCOME-PRETAX> 14
<INCOME-PRE-EXTRAORDINARY> 14
<EXTRAORDINARY> 570
<CHANGES> 0
<NET-INCOME> 336
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<YIELD-ACTUAL> 7.98
<LOANS-NON> 2,270
<LOANS-PAST> 846
<LOANS-TROUBLED> 179
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,263
<CHARGE-OFFS> 2,674
<RECOVERIES> 196
<ALLOWANCE-CLOSE> 5,882
<ALLOWANCE-DOMESTIC> 5,882
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Net of allowance for loan losses of $5,882.
</FN>
</TABLE>
