UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File Number: 33-90342
BANKILLINOIS FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 37-1338484
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
100 WEST UNIVERSITY, CHAMPAIGN, ILLINOIS 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 69 of 70 total sequentially numbered
pages.
As of March 1, 2000, the Registrant had issued and outstanding 5,550,724
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 1, 2000,
was $62,368,120.*
* Based on the last reported price ($22.625) of an actual transaction in
Registrant's Common Stock on March 1, 2000, 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 Subsidiary
C. Competition
D. Monetary Policy and Economic Conditions
E. Regulation and Supervision
F. Employees
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 9
Item 6. Selected Consolidated Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 7a. Quantitative and Qualitative Disclosures about Market Risk 28
Item 8. Financial Statements and Supplementary Data 28
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 67
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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, the Company acquired all of the
outstanding stock of BankIllinois and The Champaign National Bank following
the merger (the "1995 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. On September 14,
1999, BankIllinois Trust Company, the Company's only non-bank subsidiary, was
merged into BankIllinois.
On August 12, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") by and among the Company, First Decatur
Bancshares, Inc. ("First Decatur") and Main Street Trust, Inc. ("Main
Street"). Pursuant to the terms of the Merger Agreement, the Company and
First Decatur will merge with and into Main Street. As a result of this
transaction, Main Street will continue as the surviving holding company, with
BankIllinois, First National Bank of Decatur, First Trust Bank of
Shelbyville, and FirsTech, Inc., the wholly owned subsidiaries of Main
Street. It is anticipated that this transaction will close and the merger
will become effective in the first quarter of 2000.
B. BUSINESS OF THE COMPANY AND SUBSIDIARY
GENERAL
The Company conducts the business of banking and offers trust services
through BankIllinois, its wholly owned subsidiary. As of December 31, 1999,
the Company had consolidated total assets of $571.8 million, stockholders'
equity of $63.7 million and trust assets under administration of
approximately $495.3 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, the trust & investments division offers a wide
range of services such as investment management and 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 makes
loans to consumers for various purposes, including home equity and 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' 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 $354.8 million at December 31, 1999, representing 62% of
BankIllinois' total assets at that date. At that date, BankIllinois' loan
portfolio included approximately $116.9 million of commercial, financial and
agricultural loans, $161.5 million of real estate loans and $76.4 million of
installment and consumer loans. 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 (the "Federal Reserve"), 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, 1999
was approximately $147.5 million, representing 26% 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.
Under the Gramm-Leach-Bliley Act of 1999, effective March 11, 2000,
securities firms and insurance companies that elect to become financial
holding companies may acquire banks and other financial institutions. The
Gramm-Leach-Bliley Act may significantly change the competitive environment
in which the Company and the Bank conduct business. The financial services
industry is also likely to become more competitive as further technological
advances enable more companies to provide financial services. These
technological advances may diminish the importance of depository institutions
and other financial intermediaries in the transfer of funds between parties.
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
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 Federal Reserve 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 the Illinois Commissioner of
Banks and Real Estate (the "Commissioner"), the Board of Governors of the
Federal Reserve System (the "Federal Reserve"), the Federal Deposit Insurance
Corporation (the "FDIC"), the Internal Revenue Service and state taxing
authorities and the Securities and Exchange Commission (the "SEC"). The
effect of applicable statutes, regulations and regulatory 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 subsidiary, 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 subsidiary 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 is a summary of the material elements of the regulatory
framework that applies to the Company and its subsidiary. It does not
describe all of the statutes, regulations and regulatory policies that apply
to the Company and its subsidiary, nor does it restate all of the
requirements of the statutes, regulations and regulatory policies that are
described. As such, the following is qualified in its entirety by reference
to the applicable statutes, regulations and regulatory policies. Any change
in applicable law, regulations or regulatory policies may have a material
effect on the business of the Company and its subsidiary.
RECENT REGULATORY DEVELOPMENTS
On November 12, 1999, President Clinton signed legislation that will
allow bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. Under the Gramm-Leach-Bliley Act (the "Act"), a bank holding
company that elects to become a financial holding company may engage in any
activity that the Federal Reserve, in consultation with the Secretary of the
Treasury, determines by regulation or order is (i) financial in nature, (ii)
incidental to any such financial activity, or (iii) complementary to any such
financial activity and does not pose a substantial risk to the safety or
soundness of depository institutions or the financial system generally. The
Act specifies certain activities that are deemed to be financial in nature,
including lending, exchanging, transferring, investing for others, or
safeguarding money or securities; underwriting and selling insurance;
providing financial, investment, or economic advisory services; underwriting,
dealing in or making a market in, securities; and any activity currently
permitted for bank holding companies by the Federal Reserve under section
4(c)(8) of the Bank Holding Company Act. A bank holding company may elect to
be treated as a financial holding company only if all depository institution
subsidiaries of the holding company are well-capitalized, well-managed and
have at least a satisfactory rating under the Community Reinvestment Act.
National banks are also authorized by the Act to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company (as described above) and any activity that the Secretary of
the Treasury, in consultation with the Federal Reserve, determines is
financial in nature or incidental to any such financial activity, except (i)
insurance underwriting, (ii) real estate development or real estate
investment activities (unless otherwise permitted by law), (iii) insurance
company portfolio investments and (iv) merchant banking. The authority of a
national bank to invest in a financial subsidiary is subject to a number of
conditions, including, among other things, requirements that the bank must be
well-managed and well-capitalized (after deducting from capital the bank's
outstanding investments in financial subsidiaries). The Act provides that
state banks may invest in financial subsidiaries (assuming they have the
requisite investment authority under applicable state law) subject to the
same conditions that apply to national bank investments in financial
subsidiaries.
At this time, the Company is unable to predict the impact the Act may
have on the Company and the Bank. Various bank regulatory agencies have
begun issuing proposed regulations as mandated by the Act. The Federal
Reserve has issued an interim rule that sets forth procedures by which bank
holding companies may become financial holding companies, the criteria
necessary for such a conversion, and the Federal Reserve's enforcement powers
should a holding company fail to maintain compliance with the criteria. The
Office of the Comptroller of the Currency has issued a final rule discussing
the procedures by which national banks may establish financial subsidiaries
as well as the qualifications and safeguards that will be required. In
addition, in February, 2000, all federal bank regulatory agencies jointly
issued a proposed rule that would implement the financial privacy provisions
of the Act.
THE COMPANY
GENERAL. The Company, as the sole shareholder 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 Federal Reserve under the Bank Holding
Company Act, as amended (the "BHCA"). In accordance with Federal Reserve
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 otherwise do so. Under the BHCA, the Company is
subject to periodic examination by the Federal Reserve. The Company is also
required to file with the Federal Reserve periodic reports of the Company's
operations and such additional information regarding the Company and its
subsidiary as the Federal Reserve 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 Federal Reserve approval before: (i) acquiring, directly or
indirectly, ownership or control of any voting shares of another bank or bank
holding company if, after the acquisition, it would own or control more than
5% of the shares of the other bank or bank holding company (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 Federal Reserve 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 Federal Reserve
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) and state laws 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 generally prohibits 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. This general prohibition is subject to a number of
exceptions. The principal exception allows bank holding companies to engage
in, and to own shares of companies engaged in, certain businesses found by
the Federal Reserve to be so closely related to banking ... as to be a
proper incident thereto. Under current regulations of the Federal Reserve,
the Company and its subsidiary are permitted to engage in a variety of
banking-related businesses, including 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.
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Federal law also prohibits any person or company from acquiring
control of a bank or a bank holding company without prior notice to the
appropriate federal bank regulator. 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 Federal Reserve 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 Federal Reserve'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 a
minimum requirement of 4% 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). Total capital consists primarily of
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
and lease losses.
The risk-based and leverage standards described above are minimum
requirements. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking
organizations. For example, the Federal Reserve'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, 1999, the Company had regulatory capital in excess
of the Federal Reserve's minimum requirements, with a risk-based capital
ratio of 17.3% and a leverage ratio of 11.6%.
DIVIDENDS. 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. Additionally, the Federal Reserve
has issued a policy statement with regard to the payment of cash dividends by
bank holding companies. The policy statement provides 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. The Federal Reserve also 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.
FEDERAL SECURITIES REGULATION. The Company's common stock is
registered with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Consequently, the Company is subject to the
information, proxy solicitation, insider trading and other restrictions and
requirements of the SEC under the Exchange Act.
THE BANK
GENERAL. The Bank is an Illinois-chartered bank, the deposit accounts
of which are insured by the FDIC's Bank Insurance Fund ("BIF"). 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, 1999, BIF assessments ranged from
0% of deposits to 0.27% of deposits. For the semi-annual assessment period
beginning January 1, 2000, 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 (i)
has engaged or is engaging in unsafe or unsound practices, (ii) is in an
unsafe or unsound condition to continue operations or (iii) 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 members of the FDIC's Savings Association Insurance Fund
("SAIF") has been used to cover interest payments due on the outstanding
obligations of the Financing Corporation ("FICO"). FICO was created in 1987
to finance the recapitalization of the Federal Savings and Loan Insurance
Corporation, the SAIF's predecessor insurance fund. As a result of federal
legislation enacted in 1996, beginning as of January 1, 1997, both SAIF
members and BIF members became subject to assessments to cover the interest
payments on outstanding FICO obligations. These FICO assessments are in
addition to amounts assessed by the FDIC for deposit insurance. Between
January 1, 2000 and the final 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, 1999, the
FICO assessment rate for SAIF members ranged between approximately 0.058% of
deposits and approximately 0.061% of deposits, while the FICO assessment rate
for BIF members ranged between approximately 0.0116% of deposits and
approximately 0.0122% of deposits. During the year ended December 31, 1999,
the Bank paid FICO assessments totaling $47,000.
SUPERVISORY ASSESSMENTS. All Illinois banks are required to pay
supervisory assessments to the Commissioner to fund the operations of the
Commissioner. The amount of the assessment is calculated based on the bank's
total assets, including consolidated subsidiaries, as reported to the
Commissioner. During the year ended December 31, 1999, the Bank paid
supervisory assessments to the Commissioner totaling $72,000.
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 a minimum
requirement of at least 4% 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 Federal Reserve'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, 1999, the Bank was not required by
the FDIC to increase its capital to an amount in excess of the minimum
regulatory requirement. As of December 31, 1999, the Bank exceeded its
minimum regulatory capital requirements with a leverage ratio of 9.7% and a
risk-based capital ratio of 14.7%.
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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," in each case as defined by regulation. Depending upon the
capital category to which an institution is assigned, the regulators'
corrective powers include: requiring the institution to submit a capital
restoration plan; limiting the institution's asset growth and restricting its
activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting
transactions between the institution and its 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.
As of December 31, 1999, the Bank was well capitalized, as defined by FDIC
regulations.
DIVIDENDS. Under the Illinois Banking Act, Illinois-chartered banks
may not pay, without prior regulatory approval, dividends in excess of their
net 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, 1999. As of December 31, 1999, approximately
$1.5 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 federal law on extensions of credit to the Company and its
subsidiary, on investments in the stock or other securities of the Company
and its subsidiary and the acceptance of the stock or other securities of the
Company or its subsidiary 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
subsidiary, 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 its subsidiary 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. Since the fourth quarter of 1998, and
through the first quarter of 2000, the federal banking regulators have issued
safety and soundness standards for achieving Year 2000 compliance, including
standards for developing and managing Year 2000 project plans, testing
remediation efforts and planning for contingencies.
In general, the safety and soundness 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. If an institution fails to
submit an acceptable compliance plan, or fails in any material respect to
implement a compliance plan that has been accepted by its primary federal
regulator, the regulator is required to issue an order directing the
institution to cure the deficiency. Until the deficiency cited in the
regulator's order is cured, the regulator may restrict the institution's rate
of growth, require the institution to increase its capital, restrict the
rates the institution pays on deposits or require the institution to take any
action the regulator deems appropriate under the circumstances. Noncompliance
with the standards established by the safety and soundness guidelines may
also constitute grounds for other enforcement action by the federal banking
regulators, including cease and desist orders and civil money penalty
assessments.
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.
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<PAGE>
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act"), both state and national banks are allowed 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 new
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 allowed 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 involving an Illinois bank
that has been in existence and continuous operation for fewer 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 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. These restrictions have not
had, and are not currently expected to have, a material impact on the
operations of the Bank.
FEDERAL RESERVE SYSTEM. Federal Reserve 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 $44.3
million or less, the reserve requirement is 3% of total transaction accounts;
and for transaction accounts aggregating in excess of $44.3 million, the
reserve requirement is $1.329 million plus 10% of the aggregate amount of
total transaction accounts in excess of $44.3 million. The first $5.0
million of otherwise reservable balances are exempted from the reserve
requirements. These reserve requirements are subject to annual adjustment by
the Federal Reserve. The Bank is in compliance with the foregoing
requirements.
F. EMPLOYEES
The Company had a total of 218 employees at December 31, 1999,
consisting of 171 full-time employees and 47 part-time. 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 subsidiary. 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 buildings at the Company's principal
executive offices in Champaign, Illinois. One building is BankIllinois' main
banking office, located at 100 W. University. The second building, located
adjacent to BankIllinois, is used for bank offices with excess space treated
as rental property. In addition, BankIllinois owns three separate branch
facilities, one a few blocks from the main banking office, one approximately
two miles from the main banking office of BankIllinois and the other
approximately five miles away.
BankIllinois also leases space in two supermarket stores where it
operates branch facilities. One supermarket branch is situated in Urbana,
Illinois, approximately three miles from BankIllinois' main office. The
second is located in Mahomet, Illinois, approximately ten miles from
BankIllinois' main banking office. In addition, BankIllinois leases three
other branch facility locations, one approximately two miles southwest of the
main banking office, a second facility located two miles southeast of the
main banking office, and a third facility located two miles east of the main
banking office. BankIllinois also leases approximately 13,000 square feet in
a building located at 206 North Randolph, within 1 block of 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 banking office, and the Bank entered into a sublease for a portion of
this space. During 1999, the Bank entered into a sublease for the entire
space.
BankIllinois also owns one other building and three parking lots which
are located within a mile of its main banking office. The building is used
for storage. The parking lots are partially leased and are also used by
BankIllinois employees.
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<PAGE>
The Company believes that its facilities are adequate to serve its
present needs. The main banking office complex for the Company is owned in
fee and is unencumbered.
ITEM 3. LEGAL PROCEEDINGS
In the course of business, the Company and the Bank 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 or the Bank.
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 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock was held by approximately 422 shareholders
of record as of March 1, 2000, 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 in 1998 and 1999.
1998 QUARTER ENDING: PRICE/SHARE
March 31, 1998 $18.57 - $20.95
June 30, 1998 $20.00 - $22.50
September 30, 1998 $21.75 - $24.00
December 31, 1998 $21.50 - $23.25
1999 QUARTER ENDING: PRICE/SHARE
March 31, 1999 $21.54 - $22.14
June 30, 1999 $21.78 - $24.37
September 30, 1999 $22.75 - $24.62
December 31, 1999 $22.56 - $23.43
The Company paid a 5% stock dividend in the second quarters of 1998
and 1999. The Company also paid $0.08 per share cash dividends in January,
April, July and October of 1998 and 1999. During the fourth quarter of 1999,
the Company declared an $0.08 per share cash dividend which was paid on
January 19, 2000.
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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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,
1999. 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. All references to numbers of
shares and per share amounts have been retroactively restated to reflect the
5% stock dividends in 1996, 1997, 1998 and 1999.
<TABLE>
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $38,016 $38,014 $37,346 $35,088 $35,903
Interest expense 18,433 18,962 19,410 17,825 17,689
Net interest income 19,583 19,052 17,936 17,263 18,214
Provision for loan losses 360 535 465 375 3,097
Net interest income after provision for
loan losses 19,223 18,517 17,471 16,888 15,117
Noninterest income 5,289 4,935 4,476 4,291 3,951
Noninterest expense 13,447 14,457 13,888 14,495 19,054
Income tax expense 3,513 2,921 2,659 2,183 248
Discontinued operations--gain on disposal
of subsidiary - - - - 570
Net income $7,552 $6,074 $5,400 $4,501 $336
Basic earnings per share:
Income from continuing operations $1.36 $1.07 $0.95 $0.79 ($0.04)
Discontinued operations--gain on disposal
of subsidiary - - - - 0.10
Net income $1.36 $1.07 $0.95 $0.79 $0.06
Diluted earnings per share:
Income from continuing operations $1.31 $1.04 $0.93 $0.77 ($0.04)
Discontinued operations--gain on disposal
of subsidiary - - - - 0.10
Net income $1.31 $1.04 $0.93 $0.77 $0.06
Return on average total assets 1.38% 1.15% 1.05% 0.92% 0.07%
Return on average stockholders' equity 12.19% 10.28% 9.95% 9.00% 0.68%
Cash dividends declared per common share <F1> $0.32 $0.30 $0.07 $ - $0.19
Total assets $571,777 $537,373 $539,366 $515,440 $520,586
Investment in debt and equity securities 147,501 191,136 155,386 153,492 97,304
Loans held for investment, net 349,778 287,306 309,729 280,281 311,519
Deposits 420,803 409,898 417,154 404,130 419,157
Borrowings 80,456 59,963 57,857 52,941 45,273
Total stockholders' equity 63,725 60,707 57,330 52,096 48,408
Total stockholders' equity to total assets 11.15% 11.30% 10.63% 10.11% 9.30%
Average stockholders' equity to average assets 11.36% 11.19% 10.57% 10.18% 10.00%
<FN>
<F1> Prior to the merger of CIF and BKI, only CIF paid cash dividends.
</FN>
</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 1999, 1998 and 1997 for the Company, including BankIllinois, and an
analysis of the Company's financial condition at December 31, 1999 compared
to December 31, 1998 and at December 31, 1998 compared to December 31,
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<PAGE>
1997. This discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes which begin at page 29 of
this report.
RESULTS OF OPERATIONS
The Company had record earnings of $7,552,000 from operations in 1999
compared to $6,074,000 in 1998 and $5,400,000 in 1997. The Company had net
income of 1.38%, 1.15% and 1.05%, from operations on average assets in 1999,
1998 and 1997, respectively. The rate of return on operations in 1999
improved relative to 1998 and 1997. Basic earnings per share from continuing
operations was $1.36, $1.07 and $0.95 in 1999, 1998 and 1997, respectively.
Diluted earnings per share from operations was $1.31, $1.04 and $0.93 in
1999, 1998 and 1997, 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 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 $20,007,000 in 1999 reflected an increase from the
$19,295,000 recorded in 1998, which was an increase from the $18,105,000
recorded in 1997.
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
(in thousands)
1999 1998 1997
Total interest income $38,016 $38,014 $37,346
Total interest expense 18,433 18,962 19,410
Net interest income 19,583 19,052 17,936
Tax equivalent adjustment:
Tax-exempt investments 421 236 156
Tax-exempt loans 3 7 13
Total adjustment 424 243 169
Net interest income (TE) $20,007 $19,295 $18,105
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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)
1999 1998 1997
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Taxable investment
securities <F1> $155,672 $8,767 5.63% $153,732 $9,115 5.93% $156,101 $9,796 6.28%
Tax-exempt investment
securities <F1> (TE) 19,379 1,236 6.37% 10,008 695 6.94% 6,674 458 6.86%
Federal funds sold 11,846 581 4.90% 17,900 945 5.28% 13,973 762 5.45%
Loans <F2><F3> (TE) 319,121 27,856 8.73% 306,120 27,502 8.98% 296,170 26,499 8.95%
Total interest earning
assets and interest
income (TE) $506,018 $38,440 7.60% $487,760 $38,257 7.84% $472,918 $37,515 7.93%
Cash and due from banks $16,508 $17,836 $17,919
Premises and equipment 12,614 9,984 10,971
Other assets 10,307 12,386 11,490
Total assets $545,447 $527,966 $513,298
Liabilities and Stockholders' Equity
Interest bearing demand
deposits $141,199 $4,927 3.49% $148,492 5,184 3.49% $139,613 $5,087 3.64%
Savings 32,194 559 1.74% 17,073 333 1.95% 17,557 334 1.90%
Time deposits 173,285 9,436 5.45% 183,346 10,471 5.71% 192,253 11,122 5.79%
Federal funds purchased and
securities sold under
repurchase agreements 58,930 2,820 4.79% 48,687 2,401 4.93% 42,984 2,275 5.29%
FHLB advances and other
borrowings 11,501 691 6.01% 8,962 573 6.39% 8,942 592 6.62%
Total interest bearing
liabilities and interest
expense $417,109 $18,433 4.42% $406,560 $18,962 4.66% $401,349 $19,410 4.84%
Noninterest bearing
demand deposits $46,222 $55,469 $51,405
Noninterest bearing
savings deposits <F4> 13,332 - -
Other liabilities 6,848 6,836 6,288
Total liabilities $483,511 $468,865 $459,042
Stockholders' equity 61,936 59,101 54,256
Total liabilities and
stockholders' equity $545,447 $527,966 $513,298
Interest spread (average
rate earned minus
average rate paid) (TE) 3.18% 3.18% 3.09%
Net interest income (TE) $20,007 $19,295 $18,105
Net yield on interest
earning assets (TE) 3.95% 3.96% 3.83%
<FN>
<F1> Investments in debt securities are included at carrying value.
<F2> Loans are net of allowance for loan losses and include mortgage loans
held for sale. Nonaccrual loans are included in the total.
<F3> Loan fees of approximately $864,000, $801,000 and $533,000 in 1999, 1998
and 1997, respectively, are included in total loan income.
<F4> See definition of deposit accounts in note 7 in the Notes to
Consolidated Financial Statements.
</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)
1999 1998
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 ($348) $114 ($462) ($681) ($146) ($535)
Tax-exempt investment securities 541 603 (62) 237 231 6
Federal funds sold (364) (301) (63) 183 208 (25)
Loans 354 1,148 (794) 1,003 912 91
Total interest income $183 $1,564 ($1,381) $742 $1,205 ($463)
Interest Expense
Interest bearing demand deposits ($257) ($254) ($3) $97 $313 ($216)
Savings 226 265 (39) (1) (10) 9
Time deposits (1,035) (560) (475) (651) (501) (150)
Federal funds purchased and securities
sold under repurchase agreements 419 492 (73) 126 288 (162)
Federal Home Loan Bank advances 118 155 (37) (19) 1 (20)
Total interest expense ($529) $98 ($627) ($448) $91 ($539)
Net Interest Income (TE) $712 $1,466 ($754) $1,190 $1,114 $76
</TABLE>
Total average earning assets increased from $487,760,000 in 1998 to
$506,018,000 in 1999, generating higher levels of interest income in 1999,
while interest expense decreased despite higher average interest bearing
liabilities. Average loans increased $13,001,000, resulting in an increase
of $354,000 in interest income, of which $1,148,000 was due to an increase in
volume, somewhat offset by $794,000 due to rate changes. Tax-exempt
investment securities increased $9,371,000, resulting in an increase of
$541,000 in interest income, of which $603,000 was due to an increase in
volume, offset slightly by $62,000 due to rate changes. There was also an
increase in taxable investment securities of $1,940,000. Despite this slight
increase, there was a decrease of $348,000 in interest income in this
category, of which $462,000 was due to lower rates, somewhat offset by
$114,000 due to the increase in volume. These increases in average balances
were somewhat offset by a decrease in federal funds sold of $6,054,000 which
resulted in $364,000 less interest income in 1999 compared to 1998. Of this
decrease, $301,000 was due to a decrease in volume as assets were shifted to
fund loan growth, and $63,000 was due to rate changes.
Total average earning assets increased from $472,918,000 in 1997 to
$487,760,000 in 1998, generating higher levels of interest income in 1998,
while interest expense decreased despite higher average interest bearing
liabilities. Average loans increased $9,950,000, resulting in an increase of
$1,003,000 in interest income, of which $912,000 was attributable to an
increase in the volume of loans and $91,000 was due to rate changes. Federal
funds sold increased $3,927,000, resulting in an increase of $183,000 in
interest income, of which $208,000 was attributable to an increase in volume
and was offset by a decrease of $25,000 due to lower interest rates. Tax-
exempt investment securities increased $3,334,000, resulting in an increase
of $237,000 in interest income of which $231,000 was attributable to an
increase in volume and $6,000 was due to rate changes. These increases were
somewhat offset by a decrease in taxable investment securities of $2,369,000
which generated $681,000 less in interest income. Of this decrease, $146,000
was attributable to the volume decrease and $535,000 was attributable to
lower interest rates.
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 somewhat lower in 1999 compared to
1998. The
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<PAGE>
average rate earned on loans decreased 25 basis points from 8.98% in 1998 to
8.73% in 1999. The yield on taxable investment securities decreased 30 basis
points from 5.93% for the year ended December 31, 1998 to 5.63% for the year
ended December 31, 1999. The yield on federal funds sold decreased 38 basis
points from 5.28% in 1998 to 4.90% in 1999.
The actual balances of loans at December 31, 1999 were higher than
at December 31, 1998. Installment and consumer loans, real estate loans, and
commercial, financial and agricultural loans increased $28,955,000,
$28,619,000, and $4,678,000, respectively. The increase in loans was due to
increased loan demand and product marketing emphasis.
Interest expense decreased $529,000 in 1999 compared to 1998. This
was mainly caused by a decrease of $1,035,000 of interest on time deposits.
Of this decrease, $560,000 was due to a decrease in volume and $475,000 was
due to a decrease in rate, as the average rate paid decreased from 5.71% in
1998 to 5.45% in 1999. Average interest bearing demand deposits decreased
from $148,492,000 in 1998 to $141,199,000 in 1999, and therefore caused a
decrease in interest expense of $257,000 in this category. Of this decrease,
$254,000 was caused by the decrease in volume and $3,000 was due to rate
changes. Somewhat offsetting these decreases was an increase in interest
expense on savings deposits. Average savings deposits increased from
$17,073,000 in 1998 to $32,194,000 in 1999 causing interest on savings
deposits to increase $226,000. Of this increase, $265,000 was due to the
increase in volume, offset somewhat by $39,000 due to rate, as the average
rate paid decreased from 1.95% in 1998 to 1.74% in 1999. The primary reason
for the change in volume and rates on interest bearing demand deposits and
savings deposits was the reclassification of non-transactional accounts in
1999 as explained further in note 7 in the Notes to Consolidated Financial
Statements. The average balance of interest bearing demand deposits
reclassified to savings deposits in 1999 was $14,105,000. Also offsetting
the decrease in interest expense was an increase of $419,000 in interest
expense on federal funds purchased and securities sold under repurchase
agreements in 1999 compared to 1998. Of this increase, $492,000 was due to
an increase in volume, offset somewhat by $73,000 due to rate changes, as the
average rate paid decreased from 4.93% in 1998 to 4.79% in 1999. Included in
the average balance increase were increases of $3,725,000 in daily repurchase
agreements, $3,688,000 in federal funds purchased, and $2,830,000 in term
repurchase agreements. The average balance of Federal Home Loan Bank
advances and other borrowings increased from $8,962,000 in 1998 to
$11,501,000 in 1999, resulting in an increase in interest expense of $118,000
from 1998 to 1999. Of this increase, $155,000 was due to the increase in
volume, somewhat offset by $37,000 due to rate changes.
Interest expense decreased $448,000 in 1998 compared to 1997. This
was primarily caused by the decrease of $651,000 of interest on time
deposits. Of this decrease, $501,000 was attributable to a decrease in
volume and $150,000 was attributable to rate, as the average rate paid
decreased from 5.79% in 1997 to 5.71% in 1998. Somewhat offsetting this
decrease was a $126,000 increase in interest expense on federal funds
purchased and securities sold under repurchase agreements in 1998 compared to
1997. Of this $126,000 increase, $288,000 was due to an increase in volume,
offset by $162,000 due to rate. Included in the average balance increase was
an increase of $6,027,000 in daily repurchase agreements and an increase of
$118,000 in federal funds purchased. Somewhat offsetting this increase was a
$442,000 decrease in average term repurchase agreements. Average interest
bearing demand deposits increased from $139,613,000 in 1997 to $148,492,000
in 1998 and increased interest expense by $97,000 in 1998 compared to 1997.
Of this increase, $313,000 was due to volume, offset by $216,000 due to rate,
as the average rate paid decreased from 3.64% in 1997 to 3.49% in 1998. A
primary cause of this increased volume was the movement of funds from time
deposits to the Prime Investment account because of the flat yield curve
during 1998. The Prime Investment account pays a higher rate of interest
than a regular money market account on balances of $10,000 and over and
provides greater access to funds than a certificate of deposit. At December
31, 1998, the Prime Investment product accounted for $75,136,000, or 47.8%,
of all interest bearing demand deposits compared to $60,773,000, or 41.4%, at
December 31, 1997.
PROVISION FOR LOAN LOSSES
The quality of the Company's loan portfolio is of prime importance
to the Company's 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 was reflected in the ratio of
net charge-offs to average net loans, which was 0.18% for both 1999 and 1998.
Although net charge-offs increased from $562,000 in 1998 to $580,000 in 1999,
the increase was proportional to the increase in average net loans for the
same period. The provision for loan losses decreased $175,000, from $535,000
in 1998 to $360,000 in 1999. (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
$971,000 in loans during 1999 compared to $811,000 in 1998. The largest
increase was in the area of commercial, financial, and agricultural loans
which increased $311,000 from 1998 to 1999. Included in this category was a
charge-off of $428,000, of which $300,000 was recovered
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<PAGE>
during the first quarter of 2000. Recoveries of previously charged off loans
increased to $391,000 in 1999 from $249,000 in 1998, with the largest
increase in the area of commercial, financial and agricultural loans which
increased $200,000 from 1998 to 1999. Net charge-offs decreased from
$746,000 in 1997 to $562,000 in 1998. The provision for loan losses
increased $70,000, from $465,000 in 1997 to $535,000 in 1998. The Company
charged off $811,000 in loans during 1998 compared to $998,000 in 1997. The
largest decrease was in the area of installment and consumer loans which
decreased from $945,000 in 1997 to $677,000 in 1998. Recoveries of
previously charged off loans were $249,000 in 1998 compared to $252,000 in
1997. The Company continues to emphasize credit analysis and early detection
of problem loans.
NONINTEREST INCOME
Noninterest income increased $354,000, or 7.2%, from 1998 to 1999.
This increase was primarily due to an increase in trust and brokerage fees of
$311,000, or 13.8%. This was the result of an increase in new accounts as
well as increased market values which generated larger fees in the trust and
brokerage area during 1999. The overall increase in this area was somewhat
offset by a decrease in farm fees from 1998 to 1999 of $78,000, or 25.6%, as
a result of the declining farm economy. Also contributing to the increase in
noninterest income was a $123,000, or 38.4%, increase in other income from
$320,000 in 1998 to $443,000 in 1999. This increase in other income included
consulting revenue of $159,000 in 1999. Also contributing to the increase
was an increase in Visa debit/interchange income of $58,000 from 1998 to 1999
due to a higher volume of cards issued as well as higher usage during 1999.
Somewhat offsetting these increases in other noninterest income was $104,000
recognized in September 1998 from the sale of the credit card portfolio.
Non-interest income was also positively affected by a $72,000, or 120.0%,
increase in income from securities transactions. This was mainly the result
of selling an equity investment during August 1999 for a gain of $100,000,
somewhat offset by less gains recorded in 1999 compared to 1998 on called
securities. The Company amortizes discounts on securities to their maturity
date, and in 1998, as a result of lower interest rates, several securities
were called prior to their maturity dates which resulted in gains being
recognized. An increase in service charges on deposit accounts of $37,000,
or 2.2%, also added to the increase in non-interest income. Somewhat
offsetting these increases was a decrease of $189,000, or 31.8%, from gains
on sales of mortgage loans held-for-sale. This decrease reflected a
$20,060,000, or 30.1%, decrease in funded mortgage loans held-for-sale during
1999 compared to 1998 when significant growth occurred in this area due to
lower interest rates.
Noninterest income increased $459,000, or 10.3%, from 1997 to 1998.
Included in this increase was an increase in gains on sales of loans of
$323,000, or 119.2%, from $271,000 in 1997 to $594,000 in 1998. This
increase reflected a $43,015,000, or 178.2%, increase in mortgage loans held-
for-sale which were closed during 1998 compared to 1997. The increase in
closed loans was attributable to a decrease in interest rates. Trust and
brokerage fees increased $162,000, or 7.7%, from $2,094,000 in 1997 to
$2,256,000 in 1998. This increase was a result of an increase in assets due
to new accounts. Other noninterest income increased $113,000, or 54.6%, from
$207,000 in 1997 to $320,000 in 1998. Included in this increase was a gain
of $104,000 booked on the sale of the credit card portfolio to a third party
during the third quarter of 1998. Also contributing to the increase in
noninterest income was a $22,000, or 57.9%, increase in net security
transactions from $38,000 in 1997 to $60,000 in 1998. This increase was a
result of the Company amortizing discounts on securities to their maturity
date. Due to decreasing interest rates, several securities were called
during 1998 prior to their maturity dates which resulted in a gain being
recognized. Somewhat offsetting this increase was a decrease in service
charges and fees of $161,000, or 8.6%, from $1,866,000 in 1997 to $1,705,000
in 1998. Included in this decrease, was a $100,000 decrease in mortgage
servicing income as a result of a large number of early payoffs due to the
low interest rate environment and a lower retention of servicing rights when
selling loans during 1998 compared to 1997. Lower service charges and fees
also affected other income in 1998 compared to 1997.
NONINTEREST EXPENSE
Total noninterest expense decreased $1,010,000, or 7.0%, to
$13,447,000 in 1999 from $14,457,000 in 1998. The 1998 expense was an
increase of $569,000, or 4.1%, from 1997 noninterest expense of $13,888,000.
During 1999, salaries and employee benefits decreased $531,000, or 6.4%, from
1998. During the same period, other noninterest expense decreased $505,000,
or 23.7%, and occupancy expense decreased $216,000, or 15.6%. Increases from
1998 to 1999 consisted of increases in office supplies of $87,000, or 18.6%,
equipment expense of $81,000, or 9.0%, data processing expense of $43,000, or
5.8%, and advertising and marketing expense of $31,000, or 5.6%. During
1998, salaries and employee benefits increased $541,000, or 7.0%, from 1997.
Other noninterest expense increased $222,000, or 11.6%, from 1997. During
the same period, occupancy expense decreased $137,000, or 9.0%, office
supplies decreased $37,000, or 7.3%, and equipment expense decreased $21,000,
or 2.3%.
Salaries and employee benefits decreased $531,000, or 6.4%, from
1998 to 1999. Of this decrease, $472,000 was due to non-recurring
organizational changes implemented during the first quarter of 1998 to
improve efficiency, including the merger of BankIllinois Trust Company into
BankIllinois. Also contributing to the decrease was lower compensation
expense for the mortgage
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<PAGE>
origination area in 1999 due to the decrease in funded mortgage loans held-
for-sale during 1999 compared to 1998 which experienced significant growth.
Salaries and employee benefits increased $541,000, or 7.0%, from $7,742,000
in 1997 to $8,283,000 in 1998. Of this increase, $472,000 was due to non-
recurring organizational changes during 1998 as explained above. Increases
in compensation expense related to the additional revenue generated by the
mortgage origination area also contributed to the increase. Other
noninterest expense decreased $505,000, or 23.7%, from $2,132,000 in 1998 to
$1,627,000 in 1999. Included in this decrease was a loss on disposal of
property of $250,000 in 1998 compared to none in 1999, a gain on disposal of
other real estate of $56,000 in 1999, and an $85,000 decrease in Visa credit
card expenses due to selling the portfolio in September 1998. Also
contributing to the decrease in other expenses was a decrease in legal
expenses in 1999 compared to 1998 when expenses related to organizational
changes in connection with the merger of the Company's two subsidiaries were
incurred. Other noninterest expense increased $222,000, or 11.6%, from
$1,910,000 in 1997 to $2,132,000 in 1998. Included in this increase was a
$250,000 loss on disposal of property in 1998 compared to a $131,000 loss on
the closing of the Champaign Money Market branch in May 1997. Also
contributing to the increase in other expenses was an increase in legal
expenses associated with organizational changes related to the merger of the
Company's two subsidiaries in 1998.
Occupancy expense decreased $216,000, or 15.6%, from $1,382,000 in
1998 to $1,166,000 in 1999. Included in occupancy expense in 1999 was rental
income on the Executive Center, which was net of maintenance and depreciation
expenses. This property was moved to premises and equipment from other
assets on December 31, 1998. Occupancy expense decreased $137,000, or 9.0%,
from $1,519,000 in 1997 to $1,382,000 in 1998. The 1998 decrease in
occupancy expense was primarily due to lower maintenance and repair costs as
well as lower real estate taxes, depreciation expense, and utility costs as a
result of the sale of a vacant building and the adjacent parking lot in March
1998.
Office supplies expense increased $87,000, or 18.6%, from $469,000
in 1998 to $556,000 in 1999. This increase included the purchase of office
supplies needed to implement check imaging as well as binders given to
customers for check image statement storage. Office supplies decreased
$37,000, or 7.3%, from $506,000 in 1997 to $469,000 in 1998.
Equipment expense increased $81,000, or 9.0%, from $899,000 in 1998
to $980,000 in 1999. This was primarily due to a $69,000 increase in
depreciation expense on furniture and equipment in 1999 compared to 1998,
mostly due to purchases of computer equipment, including imaging technology
in 1999. Equipment expense remained fairly stable from 1997 to 1998 with a
$21,000 decrease.
Data processing expense increased $43,000, or 5.8%, from $737,000
in 1998 to $780,000 in 1999. This was due to an increase in computer service
expense of approximately $34,000 which resulted from implementing a new
teller system and imaging technology in 1999 along with an increase due to
higher visa debit card processing resulting from higher usage in 1999. Data
processing expense remained stable from 1997 to 1998 with a $4,000 increase.
Advertising and marketing expense increased $31,000, or 5.6%, from
$555,000 in 1998 to $586,000 in 1999. This was mainly due to the purchase of
materials in 1999 related to the Sales Plus and Service Plus employee
training program. Advertising and marketing expense remained stable during
1998 with a $3,000 decrease compared to 1997.
INCOME TAX EXPENSE
Income tax expense increased $592,000, or 20.3%, in 1999 compared
to 1998, primarily due to lower expenses during 1999 resulting in more
taxable income for 1999 compared to 1998. Income tax expense increased
$262,000, or 9.9%, in 1998 compared to 1997, primarily due to higher income
in 1998 resulting in more taxable income for 1998 compared to 1997. The
Company's effective tax rate remained stable at 31.7%, 32.5% and 33.0% for
the years ended December 31, 1999, 1998 and 1997, respectively.
The tax effects of temporary differences which gave rise to
significant portions of the deferred tax assets and deferred tax liabilities
at December 31, 1999 and 1998 are shown in note 11 in the Notes to
Consolidated Financial Statements.
FINANCIAL CONDITION
Total assets increased $34,404,000, or 6%, from $537,373,000 at
December 31, 1998 to $571,777,000 at December 31, 1999. This increase in
total assets resulted from an increase of $62,472,000, or 22%, in loans, net
of allowance for loan losses, an increase of $27,500,000, or 423%, in federal
funds sold, an increase of $4,042,000, or 6%, in investment securities held-
to-maturity, an increase of $1,746,000, or 33%, in other assets, and an
increase in premises and equipment of $802,000, or 7%. These increases were
somewhat offset by a decrease of $47,708,000, or 38%, in securities
available-for-sale, a decrease of $10,180,000, or 93%, in mortgage loans
held-for-sale, a decrease in cash and due from banks of $3,691,000, or 19%,
and a decrease of $610,000, or 13% in accrued interest receivable. The
increase in year-end assets was partially a result of deposits being
$10,905,000, or 3%,
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<PAGE>
higher at December 31, 1999 than at December 31, 1998. Federal funds
purchased and securities sold under repurchase agreements was $16,286,000, or
33%, higher and Federal Home Loan Bank advances and other borrowings were
$4,207,000, or 42%, higher at December 31, 1999 than at December 31, 1998.
Average assets were $17,481,000, or 3%, higher in 1999 than in 1998.
Included in the increase in average assets was an increase of $13,001,000, or
4%, in average net loans including mortgage loans held for sale, an increase
in average tax-exempt investment securities of $9,371,000, or 94%, and a
slight increase in average taxable investment securities of $1,940,000, or
1%. These increases were somewhat offset by a decrease in average federal
funds sold of $6,054,000, or 34%. The increase in average assets was a
result of higher average federal funds purchased and securities sold under
repurchase agreements, Federal Home Loan Bank Advances and other borrowings,
and deposits in 1999. There was a slight increase in total average deposits
of $1,852,000 in 1999 from 1998. Included in this increase were some shifts
in the average deposit mix in 1999 versus 1998. Average interest-bearing
savings deposits increased $15,121,000, or 89%, while average savings
accounts classified as noninterest bearing savings deposits increased
$13,332,000. Somewhat offsetting this increase was a decrease in time
deposits of $10,061,000, or 5%, a decrease in noninterest bearing demand
deposits of $9,247,000, or 17%, and a decrease in interest bearing demand
deposits of $7,293,000, or 5%. The primary cause for the shift in deposits
between interest bearing and non-interest bearing demand deposits and savings
deposits was the reclassification of non-transactional deposit accounts in
1999 as described in note 7 in the Notes to Consolidated Financial
Statements. The average balance of interest bearing demand deposits
reclassified to savings deposits in 1999 was $14,105,000 and the average
balance of noninterest bearing demand deposits reclassified to savings
deposits in 1999 was $13,332,000.
INVESTMENT SECURITIES
The carrying value of investments in debt and equity securities was
as follows:
<TABLE>
CARRYING VALUE OF SECURITIES
(in thousands)
December 31, 1999 1998 1997
<S> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury $ 21,312 $ 37,526 $ 40,530
Federal agencies 47,217 77,012 87,478
Mortgage-backed securities 3,428 5,944 6,242
Corporate and other obligations 320 320 322
Marketable equity securities 4,070 3,253 745
Total $ 76,347 $124,055 $135,317
Securities held-to-maturity:
U.S. Treasury $ - $ 900 $ 1,897
Federal agencies 28,994 31,828 9,615
Mortgage-backed securities 22,319 14,167 -
State and municipal 18,238 18,614 7,007
Total $ 69,551 $ 65,509 $ 18,519
Non-marketable equity securities $ 1,603 $ 1,572 $ 1,550
Total securities $147,501 $191,136 $155,386
</TABLE>
The unrealized gain on securities available-for-sale, net of tax
effect, decreased $1,683,000, to a loss of $650,000 at December 31, 1999 from
a gain of $1,033,000 at December 31, 1998.
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<PAGE>
The following table shows the maturities and weighted-average
yields of investment securities at December 31, 1999:
<TABLE>
MATURITIES AND WEIGHTED AVERAGE YIELDS OF DEBT SECURITIES
(dollars in thousands)
December 31, 1999
1 year 1 to 5 5 to 10 Over
or less years years 10 Years Total
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury $14,319 5.62% $6,993 5.76% $ - - $ - - $21,312 5.67%
Federal agencies 13,456 5.65% 27,432 5.71% 6,329 5.47% - - 47,217 5.66%
Mortgage-backed securities 1,769 5.74% 955 7.06% 452 7.15% 252 7.12% 3,428 6.40%
Other securities 25 7.47% 295 7.85% - - - - 320 7.82%
Marketable equity securities <F1> - - - - - - - - 4,070 -
Total $29,569 5.64% $35,675 5.77% $6,781 5.58% $252 7.12% $76,347 5.71%
Securities held-to-maturity:
Federal agencies $ - - $26,994 5.72% $2,000 6.40% $ - - $28,994 5.77%
Mortgage-backed securities 2,906 5.58% 18,391 5.57% 842 5.73% 180 5.88% 22,319 5.58%
State and municipal 378 5.04% 10,705 3.86% 7,155 4.60% - - 18,238 4.19%
Total $3,284 5.52% $56,090 5.32% $9,997 5.06% $180 5.88% $69,551 5.29%
Non-marketable equity securities <F1> - - - - - - - - $1,603 -
<FN>
<F1> Due to the nature of these securities, they do not have a stated maturity
date or rate.
</FN>
</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)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $116,943 $112,265 $121,927 $110,059 $121,180
Real estate 161,538 132,919 141,091 127,724 127,893
Installment and consumer 76,356 47,401 52,017 48,085 68,328
Total loans $354,837 $292,585 $315,035 $285,868 $317,401
</TABLE>
<TABLE>
PERCENTAGE OF LOANS OUTSTANDING
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural 32.96% 38.37% 38.70% 38.50% 38.18%
Real estate 45.52% 45.43% 44.79% 44.68% 40.29%
Installment and consumer 21.52% 16.20% 16.51% 16.82% 21.53%
Total 100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
Total loans increased $62,252,000, or 21.3%, from December 31, 1998
to December 31, 1999, with increases in installment and consumer loans, real
estate loans, and commercial, financial and agricultural loans of
$28,955,000, $28,619,000 and
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<PAGE>
$4,678,000, respectively. The increase in installment and commercial loans
was mainly attributable to an increase in indirect loans of $27,655,000. The
increase in real estate loans was primarily due to an increase of $30,482,000
in commercial real estate, offset somewhat by a decrease in residential real
estate of $1,863,000. The commercial, financial and agricultural loan
increase was attributable to an increase of $7,383,000 in dealer floor plan
loans somewhat offset by decreases in other commercial loans. Although there
were increases in each loan category, the increase in commercial, financial
and agricultural loans was modest relative to the substantial growth in
installment and consumer loans, thus changing the percentage mix in the total
loan portfolio. Strong loan demand was responsible for the overall increase
in loans from 1998 to 1999.
Total loans decreased by $22,450,000, or 7.1%, from December 31,
1997 to December 31, 1998, with decreases in commercial, financial and
agricultural loans, real estate loans and installment and consumer loans of
$9,662,000, $8,172,000 and $4,616,000, respectively. $5,706,000 of the
commercial, financial, and agricultural loan decrease was attributable to a
decrease in dealer floor plan loans. The decrease in real estate loans was
mainly attributable to a decrease of $8,399,000 in residential real estate,
offset by slight increase in commercial real estate. The emphasis on loan
quality and pricing, coupled with the competitive nature of the market, was
responsible for the decrease in loans.
The balance of loans outstanding as of December 31, 1999 by
maturities is shown in the following table:
<TABLE>
MATURITY OF LOANS OUTSTANDING
(dollars in thousands)
December 31, 1999
1 year 1-5 over 5
or less years years Total
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $62,864 $36,210 $17,869 $116,943
Real estate 17,362 54,589 89,587 161,538
Installment and consumer 19,272 54,957 2,127 76,356
Total $99,498 $145,756 $109,583 $354,837
Percentage of total loans outstanding 28.04% 41.08% 30.88% 100.00%
</TABLE>
As of December 31, 1999, commercial, financial and agricultural
loans with maturities of greater than one year were comprised of $10,918,000
in fixed-rate loans and $43,161,000 in floating-rate loans. Real estate
loans with maturities greater than one year at December 31, 1999 included
$30,741,000 in fixed-rate loans and $113,435,000 in floating-rate loans.
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<PAGE>
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)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at
beginning of year $5,279 $5,306 $5,587 $5,882 $5,263
Charge-offs during period:
Commercial, financial and agricultural ($445) ($134) ($53) ($610) ($1,827)
Residential real estate - - - (203) (186)
Installment and consumer (526) (677) (945) (725) (661)
Total ($971) ($811) ($998) ($1,538) ($2,674)
Recoveries of loans previously charged off:
Commercial, financial and agricultural $216 $16 $69 $647 $54
Residential real estate 50 13 15 37 24
Installment and consumer 125 220 168 184 118
Total $391 $249 $252 $868 $196
Net charge-offs ($580) ($562) ($746) ($670) ($2,478)
Provision for loan losses 360 535 465 375 3,097
Allowance for loan losses at end of year $5,059 $5,279 $5,306 $5,587 $5,882
Ratio of net charge-offs to
average net loans 0.18% 0.18% 0.25% 0.23% 0.74%
</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 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 net charge-offs during 1995 were
a result of the emphasis placed on the early detection of problem credits.
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<PAGE>
The following table shows the allocation of the allowance for loan
losses to each loan category.
<TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(in thousands)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Allocated:
Commercial, financial and agricultural $2,723 $3,070 $3,661 $3,799 $4,235
Residential real estate 120 180 424 503 470
Installment and consumer 576 452 478 559 706
Total allocated allowance $3,419 $3,702 $4,563 $4,861 $5,411
Unallocated allowances 1,640 1,577 743 726 471
Total $5,059 $5,279 $5,306 $5,587 $5,882
</TABLE>
The portion of the allowance for loan losses which was unallocated
increased to $1,640,000 at December 31, 1999 from $1,577,000 a year earlier.
The decrease in the dollars allocated to commercial, financial and
agricultural, from December 31, 1998 to December 31, 1999 were due primarily
to a reduction in impaired loans from $720,000 to $0. The reduction in the
amount allocated to residential real estate was due largely to the decrease
in total residential real estate loans from $46,401,000 at December 31, 1998
to $44,537,000 at December 31, 1999. The increase in the amount of the
allowance for loan losses allocated to installment and consumer loans from
December 31, 1998 to December 31, 1999 was due to the increase in installment
and consumer loans from $47,401,000 to $76,356,000.
The unallocated portion of the allowance for loan losses,
$1,640,000 at December 31, 1999, 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."
<TABLE>
NONPERFORMING LOANS
(in thousands)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Nonaccrual loans <F1> $8 $1,126 $2,208 $2,135 $2,270
Loans past due 90 days or more $219 $415 $747 $384 $846
Renegotiated loans $104 $121 $140 $162 $179
<FN>
<F1> Includes $8,000 at December 31, 1999, $406,000 at December 31, 1998,
$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, 1999, BankIllinois had approximately $3,725,000 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. None of these potential problem loans were considered
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<PAGE>
impaired as defined in SFAS 114. The $3,725,000 of potential problem loans
have either had timely payments or are adequately secured and loss of
principal or interest is determined to be unlikely.
Loans over 90 days past due which are not well secured and in the
process of collection are placed on nonaccrual status. There were only
$8,000 of nonaccrual loans at December 31, 1999 compared to $1,126,000 at
December 31, 1998. Loans past due 90 days or more but still accruing were
reduced by $196,000 in 1999 to a balance of $219,000 at December 31, 1999.
These loans are well secured and in the process of collection.
The following table categorizes nonaccrual loans as of December 31,
1999 based on levels of performance and also details the allocation of
interest collected during the period in 1999 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, 1999 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 $8 $11 $- $- $2
Limited performance - - - - -
No performance - - - - -
Total $8 $11 $- $- $2
</TABLE>
The difference between the book balance and the contractual balance
represents charge-offs made since the loans were funded.
Management believes that the allowance for loan losses at December
31, 1999 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 $802,000 in 1999 from 1998.
This increase was primarily due to the purchase of a parking lot located at
the main bank facility with a book value of $266,000 and the purchase of
reader sorter and imaging equipment at a cost of $367,000 in 1999. In
addition, purchases of $2,048,000 were higher than 1998 purchases of $857,000
due to remodeling of the bank's main office complex as well as replacement of
computers during 1999. These were partially offset by higher depreciation
costs in 1999.
OTHER ASSETS
Other assets increased $1,746,000 in 1999 from 1998. Contributing
to the change was an increase of $867,000 in deferred taxes caused by the
change from an unrealized gain on securities available-for-sale at December
31, 1998, to an unrealized loss at December 31, 1999. Also contributing to
the change was $373,000 of capitalized merger costs during 1999 and a
$612,000 increase in deferred income taxes attributed to items other than the
deferred taxes on securties available-for-sale. The tax effects of temporary
differences which gave rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31, 1999 and 1998 are shown
in note 11 in the Notes to Consolidated Financial Statements. Somewhat
offsetting these increases in other assets was the sale of property during
1999 that had a book value of $613,000 at December 31, 1998. This property
had been acquired as part of the agreement to sell a vacant building and the
adjacent parking lot in 1998.
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<PAGE>
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)
1999 1998 1997
Weighted Weighted Weighted
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Demand
Noninterest bearing $46,222 - $55,469 - $51,405 -
Interest bearing 141,199 3.49% 148,492 3.49% 139,613 3.64%
Savings
Noninterest bearing 13,332 - - - - -
Interest bearing 32,194 1.74% 17,073 1.95% 17,557 1.90%
Time
$100,000 and over 35,820 5.33% 37,855 5.75% 36,172 5.74%
Under $100,000 137,465 5.48% 145,491 5.70% 156,081 5.8
Totals $406,232 $404,380 $400,828
</TABLE>
In analyzing its deposit activity, management has noted that
average total deposits increased $1,852,000 during 1999. Included in this
increase were shifts in the average deposit mix in 1999 versus 1998. Average
interest bearing savings deposits increased $15,121,000, or 89%, while
average noninterest bearing savings deposits increased $13,332,000. Somewhat
offsetting these increases was a decrease in average non-interest bearing
demand deposits of $9,247,000, or 17%. There was also a decrease in average
time deposits of $10,061,000, or 5%, and a decrease of $7,293,000, or 5%, in
interest bearing demand deposits. Much of the shift in the average deposit
mix and weighted average rates in 1999 was due to the reclassification of
non-transactional accounts from noninterest bearing and interest bearing
demand deposits to savings deposits. This is explained further in the
"Analysis of Volume and Rate Changes" section of this report as well as in
note 7 in the Notes to Consolidated Financial Statements.
The table below sets forth the maturity of deposits greater than
$100,000 at December 31, 1999:
<TABLE>
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
(in thousands)
Total Time
State of Illinois Deposits of
Maturity at December 31, 1999 Time Deposit CDs IRAs $100,000 or More
<S> <C> <C> <C> <C>
3 months or less $ - $9,200 $486 $9,686
3 to 6 months 2,000 3,490 384 5,874
6 to 12 months - 8,834 445 9,279
Over 12 months - 10,212 1,291 11,503
Total $2,000 $31,736 $2,606 $36,342
</TABLE>
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 8 in the Notes
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<PAGE>
to Consolidated Financial Statements shows the balances of short-term
borrowings at December 31, 1999 and 1998, the average balance for the years
ended December 31, 1999, 1998 and 1997, 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, 1999 and 1998, are disclosed in
note 16 in the Notes to Consolidated Financial Statements.
CAPITAL
Total stockholders' equity rose $3,018,000 from $60,707,000 at
December 31, 1998 to $63,725,000 at December 31, 1999. The increase
represents net income of $7,552,000 and a $15,000 increase from stock
appreciation rights. Decreases included a $1,683,000 decrease in accumulated
other comprehensive income (loss), cash dividends declared of $1,757,000, net
Treasury Stock transactions of $1,104,000 and the purchase of $5,000 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, 1999 and 1998 was 11.6% and 11.1%,
respectively. The leverage ratio for BankIllinois for the same periods was
9.7% and 9.8%--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 ratio at December 31, 1999
and 1998 was 17.3% and 19.1%--significantly higher than the regulatory
minimum. BankIllinois' total risk-weighted assets ratio was also
significantly higher than the regulatory minimum--14.7% and 17.2% for the
years ended December 31, 1999 and 1998.
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 (loss), liquidity
and rate sensitivity should assist in the understanding of how well the
Company is positioned to react to changes in interest rates.
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 1999. A review of the consolidated statement of cash
flows in the accompanying financial statements shows that the Company's cash
and cash equivalents increased $23,809,000 from December 31, 1998 to December
31, 1999. This increase included planning for any unusual cash needs related
to Year 2000. The increase resulted from net cash provided by financing and
operating activities, somewhat offset by cash used in investing activities.
There were differences in sources and uses of cash during 1999 compared to
1998. More cash was provided in the area of financing activities during 1999
compared to 1998 when cash was used in this area. This was primarily due to
an increase in deposits as well as an increase in federal funds purchased and
securities sold under repurchase agreements which were used to fund loan
growth in 1999. Also contributing to the increase in cash provided by this
area was a slight increase in Federal Home Loan Bank advances and other
borrowings. More cash was also provided by operating activities in 1999
compared to 1998 when cash was used in this area. This was mainly due to
less funds used for loans originated for sale, offset somewhat by less
proceeds from sales of loans originated for sale. Stronger earnings during
1999 compared to 1998 also contributed to the increase in cash provided by
operating activities. In the area of investing activities, more cash was
used in 1999 compared to 1998. This was primarily due to funding a higher
dollar amount of loans in 1999 due to loan growth. Paydowns on securities,
which are reflective of the current interest rate environment were also lower
in 1999. These were somewhat offset by less cash used in
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<PAGE>
purchasing investments in debt and equity securities. The investment
portfolio was decreased in 1999 to provide cash to fund the growth in loans.
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. 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. One way BankIllinois monitors its interest rate
sensitivity and liquidity is 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 shows the Company's interest rate sensitivity
position at various intervals at December 31, 1999:
<TABLE>
RATE SENSITIVITY OF EARNING ASSETS AND INTEREST BEARING LIABILITIES
(in thousands)
1-30 31-90 91-180 181-365 Over
Days Days Days Days 1 Year Total
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 34,000 $ - $ - $ - $ - $34,000
Debt and equity securities1 5,500 4,925 12,294 21,544 103,238 147,501
Loans2 79,200 20,328 22,507 41,681 191,892 355,608
Total interest earning assets $118,700 $25,253 $34,801 $63,225 $295,130 $537,109
Interest bearing liabilities:
Savings and interest bearing
demand deposits3 $5,774 $3,100 $4,845 $9,688 $38,942 $62,349
Money market savings deposits 109,881 - - - - 109,881
Time deposits 11,039 17,211 24,619 42,379 85,613 180,861
Federal funds purchased and securities
sold under repurchase agreements 58,049 5,000 3,000 200 - 66,249
FHLB Advances and other borrowings - 23 - 1,000 13,184 14,207
Total interest bearing
liabilities $184,743 $25,334 $32,464 $53,267 $137,739 $433,547
Net asset (liability) funding gap ($66,043) ($81) $2,337 $9,958 $157,391 $103,562
Repricing gap 0.64 1.00 1.07 1.19 2.14 1.24
Cumulative repricing gap 0.64 0.69 0.74 0.82 1.24 1.24
<FN>
<F1> Debt and equity securities include securities available-for-sale.
<F2> Loans include mortgage loans held-for-sale.
<F3> The total of savings and interest-bearing demand deposits does not include
$14,808,000 of non-transactional accounts which are savings accounts that
are non-interest bearing.
Included in the 1-30 day category of savings and interest-bearing demand
deposits is non-core deposits plus a percentage, based upon industry-
accepted assumptions, of the core deposits. "Core deposits" are the lowest
average balance of the prior twelve months for each product type included
in this category. "Non-core deposits" are the difference between the
current balance and core deposits. The time frames include a percentage,
based upon industry-accepted assumptions, of the core deposits, as follows:
1-30 DAYS 31-90 DAYS 91-180 DAYS 181-365 DAYS OVER 1 YEAR
Savings and interest-bearing
demand deposits 2.7% 5.3% 8.3% 16.7% 67.0%
</FN>
</TABLE>
At December 31, 1999, 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 $660,000 in 30
days and $661,000 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. Additionally, the
Company can borrow approximately $4,032,000 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. Previously, the Company disclosed the potential effects of
interest rate changes on the market value of equity. Effective with the
quarter ended June 30, 1999, the Company changed the primary focus of its
analysis to the effect of interest rate increases and decreases on net
interest income. Management believes that this change more directly reflects
the potential effects on current earnings of interest rate changes. Call
criteria and prepayment assumptions are taken into consideration
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<PAGE>
for investments in debt and equity securities. All of the Company's
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, Treasury Bills, or the federal 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 software performs interest rate sensitivity analysis by
performing rate shocks of plus or minus 200 basis points in 100 basis point
increments.
The following table shows projected results at December 31, 1999
and December 31, 1998 of the impact on net interest income from an immediate
change in interest rates. The results are shown as a percentage change in
net interest income over the next twelve months.
BASIS POINT CHANGE
+200 +100 -100 -200
December 31, 1999 (0.4%) (0.2%) 0.2% 0.4%
December 31, 1998 (3.5%) (1.7%) 1.7% 2.4%
As shown in the above table, the impact on net interest income from
an immediate change in interest rates is smaller, and therefore more
favorable, at December 31, 1999 compared to December 31, 1998.
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.
At the present time, the most significant market risk affecting the
Company is interest rate risk. Other market risks such as foreign currency
exchange risk and commodity price risk do not occur in the normal business of
the Company. The Company also is not currently using trading activities or
derivative instruments to control interest rate risk.
NEW ACCOUNTING RULES AND REGULATIONS
In June 1998, the Statement on Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," was
issued, which is required to be adopted in years beginning after June 15,
1999. The Statement permits early adoption as of the beginning of any fiscal
quarter after its issuance. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings
or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings. Management does not
anticipate that the adoption of the new Statement will have a significant
effect on the Company's earnings or financial position. In July 1999 the
Statement on Financial Accounting Standards No. 137 was issued. This
Statement delayed the implementation of Statement No. 133 until fiscal years
beginning after June 15, 2000. The Company expects to adopt the Statement
effective January 1, 2001.
YEAR 2000
The Year 2000 posed a unique set of challenges to those industries
reliant on information technology. Financial institutions are particularly
dependent on electronic data processing systems. In late 1996, the Company
started the process of identifying the hardware and software issues required
to be addressed to assure Year 2000 compliance. The Company began by
assessing the issues related to the Year 2000 and the potential for those
issues to adversely affect the Company's and the Bank's operations.
The Company's cumulative costs, including out-of-pocket
expenditures as well as indirect costs, of the Year 2000 project through the
end of 1999 were approximately $400,000. This included costs to upgrade
equipment specifically for the purpose of Year 2000 compliance and certain
administrative expenditures. Additional costs related to Year 2000 will be
limited to payment of invoices, if any, received in 2000.
As a result of the efforts of the Company's Year 2000 Committee,
the Company and the Bank experienced an uneventful transition from 1999 to
2000. There was no disruption of services to customers or with internal
operations. Among the benefits derived from the time, effort and costs
related to Year 2000 was a complete review and update of the Company's
disaster
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<PAGE>
recovery and contingency plans. As a result, the Company is now better
prepared to deal with technical or natural disasters which could threaten the
Company's operations. The Company will continue to remain aware of dates
during 2000 which are considered critical and will address issues should they
arise.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1996
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 1996, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project" or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material
adverse affect on the operations and future prospects of the Company and its
subsidiaries include, but are not limited to, changes in: interest rates,
general economic conditions, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area, our
implementation of new technologies, our ability to develop and maintain
secure and reliable electronic systems 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See pages 25 through 27.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements begin on page 29.
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARY
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Changes in Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-25
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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 and subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in stockholders
equity, and cash flows for each of the three years in the period ended
December 31, 1999. 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.
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 consolidated financial position
of BankIllinois Financial Corporation and subsidiary as of December 31, 1999
and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
Champaign, Illinois
February 3, 2000
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<PAGE>
<TABLE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
(in thousands, except share data)
1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $15,389 $19,080
Federal funds sold 34,000 6,500
Cash and cash equivalents 49,389 25,580
Investments in debt and equity securities:
Available-for-sale, at fair value 76,347 124,055
Held-to-maturity, at cost (fair value of $67,472
and $65,581 at December 31, 1999 and 1998, respectively) 69,551 65,509
Non-marketable equity securities, at cost 1,603 1,572
Total investments in debt and equity securities 147,501 191,136
Loans, net of allowance for loan losses of $5,059 and
$5,279 at December 31, 1999 and 1998, respectively 349,778 287,306
Mortgage loans held for sale 771 10,951
Premises and equipment 12,997 12,195
Accrued interest receivable 4,255 4,865
Other assets 7,086 5,340
Total assets $571,777 $537,373
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand, non-interest bearing $52,904 $63,002
Demand, interest bearing 139,632 157,052
Savings 47,406 17,748
Time, $100 and over 36,342 34,582
Other time 144,519 137,514
Total deposits 420,803 409,898
Federal funds purchased and securities sold under repurchase
agreements 66,249 49,963
Federal Home Loan Bank advances and other borrowings 14,207 10,000
Accrued interest payable 1,511 1,399
Other liabilities 5,282 5,406
Total liabilities 508,052 476,666
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, no par value; 300,000 shares authorized - -
Common stock, $0.01 par value; 6,500,000 shares authorized;
5,739,965 and 5,740,156 shares issued at December 31, 1999
and 1998, respectively 57 57
Paid in capital 35,384 35,374
Retained earnings 32,656 26,877
Accumulated other comprehensive income (loss) (650) 1,033
67,447 63,341
Less: treasury stock, at cost, 191,442 and 144,874 shares at
December 31, 1999 and 1998, respectively (3,722) (2,634)
Total stockholders' equity 63,725 60,707
Total liabilities and stockholders' equity $571,777 $537,373
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1999, 1998 and 1997
(in thousands, except share data)
1999 1998 1997
<S> <C> <C> <C>
Interest income:
Loans and fees on loans $27,853 $27,495 $26,486
Investments in debt and equity securities:
Taxable 8,767 9,115 9,796
Tax-exempt 815 459 302
Federal funds sold 581 945 762
Total interest income 38,016 38,014 37,346
Interest expense:
Demand, savings, and other time deposits 13,013 13,810 14,466
Time deposits $100 and over 1,909 2,178 2,077
Federal funds purchased and securities sold under repurchase
agreements 2,820 2,401 2,275
Federal Home Loan Bank advances and other borrowings 691 573 592
Total interest expense 18,433 18,962 19,410
Net interest income 19,583 19,052 17,936
Provision for loan losses 360 535 465
Net interest income after provision for
loan losses 19,223 18,517 17,471
Non-interest income:
Trust and brokerage fees 2,567 2,256 2,094
Service charges and fees 1,742 1,705 1,866
Securities transactions, net 132 60 38
Gain on sales of loans, net 405 594 271
Other 443 320 207
Total non-interest income 5,289 4,935 4,476
Non-interest expense:
Salaries and employee benefits 7,752 8,283 7,742
Occupancy 1,166 1,382 1,519
Equipment 980 899 920
Data processing fees 780 737 733
Advertising and marketing 586 555 558
Office supplies 556 469 506
Other 1,627 2,132 1,910
Total non-interest expense 13,447 14,457 13,888
Income before income taxes 11,065 8,995 8,059
Income taxes 3,513 2,921 2,659
Net income $7,552 $6,074 $5,400
Per share data:
Basic earnings per share 1.36 1.07 0.95
Weighted average shares of common stock outstanding 5,561,537 5,650,806 5,670,663
Diluted earnings per share 1.31 1.04 0.93
Weighted average shares of common stock and dilutive
potential common shares outstanding 5,765,842 5,833,963 5,800,318
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<TABLE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
(in thousands, except share data)
ACCUMULATED
OTHER
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE TREASURY STOCK
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997, as
previously reported 5,467,176 $55 $28,781 $24,018 ($109) 51,156 ($649) $52,096
Restated for 5% stock
dividend-1999 273,359 2 6,421 (6,423) - 2,557 - -
Balance, January 1, 1997, as
restated 5,740,535 57 35,202 17,595 (109) 53,713 (649) 52,096
Comprehensive Income:
Net income - - - 5,400 - - - 5,400
Net change in unrealized
gain (loss) on securities
available-for-sale, net of taxes
of $215 - - - - 420 - - 420
Reclassification adjustment,
net of tax of ($7) - - - - (13) - - (13)
Comprehensive Income 5,807
Fractional shares of common
stock purchased following
stock dividend (189) - (3) - - - - (3)
Stock appreciation rights - - 108 - - - - 108
Cash dividends ($0.07 per share) - - - (412) - - - (412)
Treasury stock transactions, net - - (6) - - 18,792 (260) (266)
Balance, December 31, 1997 5,740,346 57 35,301 22,583 298 72,505 (909) 57,330
Comprehensive Income:
Net income - - - 6,074 - - - 6,074
Net change in unrealized
gain (loss) on securities
available-for-sale, net of taxes
of $393 - - - - 765 - - 765
Reclassification adjustment,
net of tax of ($15) - - - - (30) - - (30)
Comprehensive Income 6,809
Fractional shares of common
stock purchased following
stock dividend (190) - (4) - - - - (4)
Stock appreciation rights - - 77 - - - - 77
Cash dividends ($0.30 per share) - - - (1,699) - - - (1,699)
Treasury stock transactions, net - - - (81) - 72,369 (1,725) (1,806)
Balance, December 31, 1998 5,740,156 57 35,374 26,877 1,033 144,874 (2,634) 60,707
Comprehensive Income:
Net income - - - 7,552 - - - 7,552
Net change in unrealized
gain (loss) on securities
available-for-sale, net of taxes
of ($836) - - - - (1,623) - - (1,623)
Reclassification adjustment,
net of tax of ($31) - - - - (60) - - (60)
Comprehensive Income 5,869
Fractional shares of common
stock purchased following
stock dividend (191) - (5) - - - - (5)
Stock appreciation rights - - 15 - - - - 15
Cash dividends ($0.32 per share) - - - (1,757) - - - (1,757)
Treasury stock transactions, net - - - (16) - 46,568 (1,088) (1,104)
Balance, December 31, 1999 5,739,965 $57 $35,384 $32,656 ($650) 191,442 ($3,722) $63,725
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<TABLE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $7,552 $6,074 $5,400
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,220 1,061 1,144
Amortization of bond premiums, net 394 77 25
Provision for loan losses 360 535 465
Deferred income taxes (612) (49) (27)
Gain on securities transactions, net (132) (60) (38)
Gain on sales of loans, net (405) (594) (271)
Loss on disposal of premises and equipment 27 - -
Decrease (increase) in accrued interest receivable 610 (32) (316)
Increase (decrease) in accrued interest payable 112 (337) 160
Other, net (1) 133 44
Stock appreciation rights 15 77 108
Proceeds from sales of loans originated for sale 47,013 67,153 24,138
Loans originated for sale (36,428) (76,102) (23,998)
Net cash provided by (used in) operating activities 19,725 (2,064) 6,834
Cash flows from investing activities:
Net (increase) decrease in loans (63,242) 21,862 (32,236)
Proceeds from maturities and calls of investments in debt securities:
Held-to-maturity 16,006 9,291 18,346
Available-for-sale 54,402 74,620 50,493
Proceeds from sales of investments in debt and equity securities:
Available-for-sale 13,599 - -
Non-marketable - 48 145
Purchases of investments in debt and equity securities:
Held-to-maturity (21,608) (56,369) (15,305)
Available-for-sale (25,904) (72,989) (59,134)
Non-marketable (41) (70) -
Principal paydowns from mortgage-backed securities:
Held-to-maturity 1,564 100 257
Available-for-sale 2,805 10,716 3,933
Purchases of premises and equipment (2,048) (857) (1,642)
Proceeds from sale of premises and equipment - 1,380 1
Net cash used in investing activities (24,467) (12,268) (35,142)
Cash flows from financing activities:
Net increase (decrease) in deposits 10,905 (7,256) 13,024
Net increase in federal funds purchased and securities sold
under repurchase agreements 16,286 106 5,916
Net increase (decrease) in Federal Home Loan Bank advances and other
borrowings 4,207 2,000 (1,000)
Cash dividends paid (1,738) (1,686) -
Treasury stock transactions, net (1,104) (1,806) (266)
Fractional shares purchased following stock dividend (5) (4) (3)
Net cash provided by (used in) financing activities 28,551 (8,646) 17,671
Net increase (decrease) in cash and
cash equivalents 23,809 (22,978) (10,637)
Cash and cash equivalents at beginning of year 25,580 48,558 59,195
Cash and cash equivalents at end of year $49,389 $25,580 $48,558
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $18,321 $19,299 $19,250
Income taxes 4,133 2,949 2,060
Disposal of property and equipment subject to valuation allowance - 304 -
Real estate acquired through or in lieu of foreclosure 410 26 2,323
Property plant and equipment transferred from other real estate - 2,500 -
Dividends declared not paid 444 425 412
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) ORGANIZATION
The Company and its subsidiary provide a full range of banking services to
individual and corporate customers located within Champaign, Illinois,
and the surrounding communities. BankIllinois is subject to
competition from other financial institutions and nonfinancial
institutions providing financial products. Additionally, the Company
and its subsidiary 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 liabilities 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 AND FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, BankIllinois. Sig-
nificant intercompany accounts and transactions have been
eliminated in consolidation. Based on the Company's approach to
decision making, it has decided that its business is comprised of
a single segment.
Property held by the Trust & Investments Division 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.
(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 accumulated other comprehensive
income (loss), net of the related deferred tax effect. Gains or
losses from the sale of securities are determined using the
specific identification method. Premiums and discounts are
recognized in interest income using methods which approximate the
interest method over their contractual lives.
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<PAGE>
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 the
allowance for loan losses. Interest is credited to income as
earned, based upon the principal amount outstanding.
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.
(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 an approach, which provides for general and
specific valuation allowances, is based on current economic condi-
tions, 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, to determine the
appropriate level of the allowance for 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.
Loans are categorized as "impaired" when, based on current information
or events, it is probable that the Company will be unable to
collect all amounts due, including principal and interest, in
accordance with the contractual terms of the loan agreement.
The Company reviews all non-accrual and substantially delinquent
loans, as well as problem loans identified by management, for
impairment as defined above. A specific reserve amount will be
established for impaired loans in which the present value of the
expected cash flows to be generated is less than the amount of the
loan recorded on the Company's books. As an alternative to
discounting, the Company may use the "fair value" of any
collateral supporting a collateral-dependent loan in reviewing the
necessity for establishing a specific loan loss reserve amount.
Specific reserves will be established for accounts having a
collateral deficiency estimated to be $50,000 or more. The
Company's general reserve is maintained at an adequate level to
cover accounts having a collateral deficiency of less than
$50,000.
Loans restructured prior to December 1994 and loans evaluated as
groups or homogeneous pools of loans will be excluded from this
analysis.
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<PAGE>
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 the Company 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 it will be held and used, or at its fair value less costs to
sell if it will be disposed of. 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.
(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
Basic earnings per share is computed by dividing net income by the
weighted average number of common stock shares outstanding.
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 13 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.
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<PAGE>
Net income per share has been computed as follows:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Net income $7,552,000 $6,074,000 $5,400,000
Shares:
Weighted average common shares outstanding 5,561,537 5,650,806 5,670,663
Dilutive effect of outstanding options, as determined
by the application of the treasury stock method 189,213 168,119 117,262
Dilutive effect of outstanding SARs, as determined
by the application of the treasury stock method 15,092 15,038 12,393
Weighted average common shares outstanding,
as adjusted 5,765,842 5,833,963 5,800,318
Basic earnings per share $1.36 $1.07 $0.95
Diluted earnings per share $1.31 $1.04 $0.93
</TABLE>
(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 1997, 1998 and 1999, 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 1997 and 1998 consolidated financial statements
have been reclassified to conform with the 1999 presentation.
Such reclassifications have no effect on previously reported net
income.
(m) EMERGING ACCOUNTING STANDARDS
In June 1998, the Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
was issued, which is required to be adopted in years beginning
after June 15, 1999. The Statement permits early adoption as of
the beginning of any fiscal quarter after its issuance. The
Statement will require the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change
in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. Management does not
anticipate that the adoption of the new Statement will have a
significant effect on the Company's earnings or financial
position. In July 1999, the Statement of Financial Accounting
Standards No. 137 was issued. This Statement delays
implementation of Statement No. 133 until fiscal years beginning
after June 15, 2000. The Company expects to adopt the Statement
effective January 1, 2001.
(3) CASH AND DUE FROM BANKS
The compensating balances held at correspondent banks were $804,000 and
$522,000 at December 31, 1999 and 1998, 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
$4,162,000 and $6,975,000 at December 31, 1999 and 1998, respectively.
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<PAGE>
(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:
<TABLE>
Available-for-Sale
Gross Gross
Amortized unrealized unrealized Fair
COST GAINS LOSSES VALUE
<C> <C> <C> <C> <C>
December 31, 1999
U.S. Treasury and other
government agencies $69,397 $9 $877 $68,529
Mortgage-backed securities 3,492 - 64 3,428
Other 4,443 405 458 4,390
$77,332 414 1,399 76,347
December 31, 1998
U.S. Treasury and other
government agencies $113,129 $1,420 $11 $114,538
Mortgage-backed securities 5,954 13 23 5,944
Other 3,407 281 115 3,573
$122,490 $1,714 $149 $124,055
</TABLE>
<TABLE>
Held-to-Maturity
Gross Gross
Amortized unrealized unrealized Fair
COST GAINS LOSSES VALUE
<C> <C> <C> <C> <C>
December 31, 1999
U.S. Treasury and other
government agencies $28,994 $- $1,002 $27,992
Obligations of states and
political subdivisions 18,238 6 487 17,757
Mortgage-backed securities 22,319 - 596 21,723
$69,551 $6 $2,085 $67,472
December 31, 1998
U.S. Treasury and other
government agencies $32,728 $83 $148 $32,663
Obligations of states and
political subdivisions 18,614 204 54 18,764
Mortgage-backed securities 14,167 9 22 14,154
$65,509 $296 $224 $65,581
</TABLE>
Proceeds from sales of investments in debt and equity securities during
1999, 1998 and 1997 were $13,599,000, $48,000 and $145,000,
respectively. Proceeds from maturities and calls of investments in
debt and equity securities during 1999, 1998 and 1997 were
$70,408,000, $83,911,000 and $68,839,000, respectively. Realized
gains and losses (in thousands) on sales, maturities and calls for
the years ended December 31, 1999, 1998 and 1997 were as follows:
1999 1998 1997
Gross gains $196 $61 $38
Gross losses (64) (1) -
Net gains $132 $60 $38
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<PAGE>
Investments in debt and equity securities with a carrying value of
$99,345,000 and $109,499,000 were pledged at December 31, 1999 and
1998, 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, 1999, 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 $32,038 $31,841 $378 $380
Due after one year through five years 35,245 34,720 37,699 36,503
Due after five years through ten years 6,547 6,329 9,155 8,866
Due after ten years 10 29 - -
73,840 72,919 47,232 45,749
Mortgage-backed securities 3,492 3,428 22,319 21,723
Total debt securities $77,332 $76,347 $69,551 $67,472
</TABLE>
(5) LOANS
A summary of loans (in thousands), by classification, at December 31, 1999
and 1998 is as follows:
1999 1998
Commercial, financial, and agricultural $116,943 $112,265
Real estate 161,538 132,919
Installment and consumer 76,356 47,401
354,837 292,585
Less:
Allowance for loan losses 5,059 5,279
$349,778 $287,306
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 1999, 1998 and 1997, the Company sold approximately $47,013,000,
$67,153,000 and $24,138,000, respectively, of residential mortgage
loans in the secondary market, primarily to Bank of America
(formerly NationsBanc). Gross gains of approximately $440,000,
$642,000 and $275,000, and gross losses of approximately $35,000,
$48,000 and $4,000, were realized on the sales during 1999, 1998
and 1997, 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,
1999 and 1998:
1999 1998
Fannie Mae $55,026 $68,137
Freddie Mac 1,432 1,944
Illinois Housing Development Authority 2,605 3,146
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
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<PAGE>
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 1999 was
as follows:
1999
Balance, January 1 $6,501
New loans 1,556
Repayments (587)
Balance, December 31 $7,470
Activity in the allowance for loan losses (in thousands) for 1999, 1998
and 1997 was as follows:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Balance, beginning of year $5,279 $5,306 $5,587
Provision charged to expense 360 535 465
Loans charged off (971) (811) (998)
Recoveries on loans previously charged off 391 249 252
Balance, end of year $5,059 $5,279 $5,306
</TABLE>
The following table presents summary data on nonaccrual and other
impaired loans (in thousands) at December 31, 1999, 1998 and 1997:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Impaired loans on nonaccrual $- $720 $1,793
Impaired loans continuing to accrue interest - - 172
Total impaired loans - 720 1,965
Other non-accrual loans not classified
as impaired 8 406 415
Allowance for loan losses on impaired loans - 377 773
Impaired loans for which there is no related
allowance for loan losses - - -
Average recorded investment in impaired
loans 217 2,240 3,129
Interest income recognized from impaired
loans - 5 98
Cash basis interest income recognized from
impaired loans 97 18 6
</TABLE>
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<PAGE>
(6) PREMISES AND EQUIPMENT
A summary of premises and equipment (in thousands) at December 31, 1999
and 1998 is as follows:
<TABLE>
1999 1998
<S> <C> <C>
Land $3,131 $2,865
Furniture and equipment 4,733 5,269
Buildings and leasehold improvements 14,693 13,762
22,557 21,896
Less accumulated depreciation and amortization 9,560 9,701
$12,997 $12,195
</TABLE>
During December 1998, the BankIllinois Executive Center was transferred
from other real estate owned to premises and equipment.
Depreciation and amortization expense was $1,219,000, $1,035,000 and
$1,105,000 for 1999, 1998 and 1997, respectively.
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 $209,000,
$222,000 and $199,000 in 1999, 1998 and 1997, 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, 1999 are as follows:
2000 $202
2001 202
2002 202
2003 96
2004 83
Thereafter 84
$869
(7) DEPOSITS
Due to current regulatory issues the Company was allowed to reclassify
certain demand deposits to savings deposits in 1999. This
reclassification was not performed in 1998. Accounts identified as
transactional remained in the demand categories, while accounts
identified as non-transactional were reclassified into the savings
categories. The classification was based upon whether the account
balance was fluctuating or whether it exhibited stable balance
portions which were called non-transactional. Banks are required
to hold balances at the Federal Reserve Bank based upon
transactional account balances. By identifying these accounts as
non-transactional, the Company was able to reduce the balances
required to be held at the Federal Reserve Bank in a non-interest
bearing reserve account.
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<PAGE>
As of December 31, 1999, the scheduled maturities of time deposits (in
thousands) were as follows:
2000 $95,248
2001 59,634
2002 24,005
2003 1,078
2004 896
$180,861
(8) SHORT-TERM BORROWINGS
A summary of short-term borrowings (in thousands) at December 31, 1999
and 1998 is as follows:
<TABLE>
1999 1998
<S> <C> <C>
Federal funds purchased $2,675 $4,550
Securities sold under agreements to repurchase:
U.S. Treasury and other government agency securities
with carrying values of $77,662,000 and $81,116,000
and market values of $76,800,000 and $81,129,000
at December 31, 1999 and 1998, respectively 63,574 45,413
$66,249 $49,963
</TABLE>
Information relating to short-term borrowings (dollars in thousands) is
as follows:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Federal funds purchased:
Average daily balance $7,569 $3,881 $3,763
Maximum balance at month-end 29,550 4,840 9,100
Weighted average interest rate at year-end 3.88% 3.44% 5.15%
Weighted average interest rate for the year 4.88% 5.11% 5.35%
Securities sold under agreements to repurchase:
Average daily balance $51,361 $44,806 $39,221
Maximum balance at month-end 63,574 53,080 41,457
Weighted average interest rate at year-end 5.21% 4.38% 5.43%
Weighted average interest rate for the year 4.77% 4.92% 5.29%
</TABLE>
The securities underlying the agreements to repurchase are under the
control of BankIllinois.
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<PAGE>
(9) FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
A summary of Federal Home Loan Bank (FHLB) advances and other borrowings
(dollars in thousands) at December 31, 1999 is as follows:
<TABLE>
Weighted
Other average
AMOUNT BORROWINGS TOTAL RATE
<S> <C> <C> <C> <C>
Maturing in year ending:
2000 $1,000 $23 $1,023 6.60%
2001 1,000 23 1,023 6.78%
2002 7,000 23 7,023 6.09%
2003 - 23 23 7.75%
2004 - 23 23 7.75%
2005 - 23 23 7.75%
2006 - 23 23 7.75%
2007 - 23 23 7.75%
2008 5,000 23 5,023 5.41%
$14,000 $207 $14,207 5.95%
</TABLE>
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 had a total
remaining borrowing capacity with the FHLB of approximately
$4,032,000 at December 31, 1999 at a rate equal to the FHLB current
advance rates.
The other borrowings were for the purchase of land at a cost of
$266,000. Principal of $23,033 and annual interest is due March
8th of each year until the balance has been paid in full. Interest
is based on the prime rate at March 8th of the previous year. The
rate at December 31, 1999 was 7.75%.
(10) LINE OF CREDIT
The Company has an unsecured line of credit of $5,000,000 from a third
party lender. As of December 31, 1999, the entire line was
available.
(11) INCOME TAXES
Federal income tax expense (in thousands) for 1999, 1998 and 1997 is
summarized as follows:
1999 1998 1997
Current $4,125 $2,970 $2,686
Deferred (612) (49) (27)
Total $3,513 $2,921 $2,659
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<PAGE>
Actual income tax expense (in thousands) for 1999, 1998 and 1997 differ
from the "expected" income taxes (computed by applying the maximum
U.S. federal corporate income tax rate of 35% to earnings before
income taxes) as follows:
1999 1998 1997
Computed "expected" income taxes $3,873 $3,148 $2,821
Tax-exempt interest income, net of
disallowed interest expense (232) (136) (97)
Income taxed at lower rates (100) (90) (81)
Other, net (28) (1) 16
$3,513 $2,921 $2,659
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, 1999 and 1998 are as follows:
1999 1998
Deferred tax assets:
Allowance for loan losses $1,539 $1,309
Deferred compensation 1,169 1,089
Other real estate 174 174
Severance payable 88 179
Stock appreciation rights 135 129
Unrealized holding loss on
available-for-sale securities 335 -
Other - -
Total deferred tax assets $3,440 $2,880
Deferred tax liabilities:
Unrealized holding gain on
available-for-sale securities $- $(532)
Premises and equipment (882) (1,054)
Deferred loan fees (122) (95)
Other (49) (221)
Total deferred tax liabilities ($1,053) ($1,902)
Valuation allowance (278) (348)
Net deferred tax assets $2,109 $630
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized.
(12) RETIREMENT PLANS
The Company has established a profit sharing plan and a 401(k) plan for
substantially 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.
Total contributions by the Company under the retirement plans discussed
above totaled $465,000, $409,000 and $386,000 for 1999, 1998 and
1997, respectively.
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<PAGE>
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
$260,000, $243,000 and $236,000 in 1999, 1998 and 1997,
respectively, related to these agreements.
(13) STOCKHOLDERS' EQUITY
SHARE PURCHASE RIGHTS PLAN
The Company has established the BankIllinois Financial Corporation
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
The Company has established a stock incentive plan, which provides for
the granting of both qualified and non-qualified options of the
Company's common stock to certain key managerial employees, and 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. As of December 31,
1997, all of these options were fully vested.
In 1996, the Company established a stock incentive plan, which provides
for the granting of options of the Company's common stock to
certain directors, officers and employees. This plan provides for
the granting of both qualified and non-qualified options which vest
and thus become exercisable ratably over a three-year period from
the date granted. All options granted subsequent to January 1,
1996 were issued from the 1996 plan.
The following is a summary of the changes in options outstanding under
the stock incentive and stock option plans:
<TABLE>
1999 1998 1997
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of year 454,736 $9.72 394,410 $7.83 304,400 $6.16
Granted ($13.28-$21.79 per share) 79,800 21.79 85,979 18.59 91,425 13.39
Exercised (10,982) 15.27 (21,873) 9.77 (1,415) 7.63
Options forfeited (3,115) 19.81 (3,780) 14.50 - -
Options outstanding, end of year 520,439 $11.39 454,736 $9.72 394,410 $7.83
Options exercisable, end of year 463,038 $10.28 399,055 $8.72 351,788 $7.17
Weighted average fair value of
options granted $3.98 $4.69 $5.23
</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>
$5.91 256,288 4.00 $5.91 256,288 $5.91
7.63 33,019 5.00 7.63 33,019 7.63
13.28 41,656 2.11 13.28 39,342 13.28
13.61 32,410 2.25 13.61 32,410 13.61
18.59 79,366 2.92 18.59 59,833 18.59
21.79 77,700 3.46 21.79 42,146 21.79
520,439 3.98 $11.39 463,038 $10.28
</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.
1999 1998 1997
Number of options granted 79,800 85,979 91,425
Risk-free interest rate 6.06% 4.59% 5.58%
Expected life, in years 3.46 3.47 3.44
Expected volatility 7.79% 7.57% 11.00%
Expected dividend yield 1.41% 1.41% 1.68%
Estimated fair value per option $3.98 $4.69 $5.23
Grants under the stock incentive and stock option plan 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 plan. Had compensation cost for all
of the stock-based compensation plan 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:
1999 1998 1997
Net income on common stock:
As reported $7,552 $6,074 $5,400
Pro forma 7,317 5,861 5,232
Basic earnings per share:
As reported $1.36 $1.07 $0.95
Pro forma 1.32 1.04 0.92
Diluted earnings per share:
As reported $1.31 $1.04 $0.93
Pro forma 1.27 1.00 0.90
At December 31, 1999, 13,362 SARs remained outstanding.
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<PAGE>
(14) 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 $1,543,000 at December 31, 1999.
(15) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Following are the condensed balance sheets as of December 31, 1999 and
1998 and the related condensed statements of income, comprehensive
income and cash flows for 1999, 1998 and 1997 for BankIllinois
Financial Corporation:
CONDENSED BALANCE SHEETS
(in thousands)
1999 1998
Assets:
Cash $6,779 $4,179
Investment in BankIllinois 53,177 53,629
Investment in equity securities 3,981 3,179
Other assets 421 337
$64,358 $61,324
Liabilities and stockholders' equity:
Dividends payable $444 $425
Other liabilities 189 192
Stockholders' equity 63,725 60,707
$64,358 $61,324
CONDENSED STATEMENTS OF INCOME
(in thousands)
1999 1998 1997
Revenue:
Dividends received from subsidiary $7,000 $6,000 $5,200
Interest income on deposits 100 126 48
Dividend income on securities 80 14 2
Securities gains/(losses) (9) - -
7,171 6,140 5,250
Expenses:
Amortization of organization costs - 11 11
Other 441 481 502
441 492 513
Income before applicable income tax
benefit and equity in undistributed
income of subsidiary 6,730 5,648 4,737
Applicable income tax benefit 91 119 158
Equity in undistributed income of
subsidiary 731 307 505
Net income $7,552 $6,074 $5,400
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<PAGE>
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
1999 1998 1997
Net income $7,552 $6,074 $5,400
Unrealized gain (loss) on securities
available-for-sale arising this year
net of tax of ($836), $393 and $215
in 1999, 1998 and 1997, respectively (1,623) 765 420
Less: reclassification adjustment for gains
included in net income, net of tax of ($31)
($15) and ($7) in 1999, 1998 and 1997,
respectively (60) (30) (13)
(1,683) 735 407
Comprehensive income $5,869 $6,809 $5,807
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
1999 1998 1997
Cash flows from operating activities:
Net income $7,552 $6,074 $5,400
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed income of
subsidiary (731) (307) (505)
Amortization of organization costs - 11 11
Stock appreciation rights - - 108
Other, net (343) (16) (12)
Net cash provided by operating
activities 6,478 5,762 5,002
Cash flows from investing activities:
Equity securities transactions, net (1,031) (2,496) (495)
Net cash used in investing
activities (1,031) (2,496) (495)
Cash flows from financing activities:
Treasury stock transactions, net (1,104) (1,806) (266)
Fractional shares purchased following
stock dividend (5) (4) (3)
Cash dividends paid (1,738) (1,686) -
Net cash used in financing
activities (2,847) (3,496) (269)
Cash at beginning of year 4,179 4,409 171
Cash at end of year $6,779 $4,179 $4,409
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<PAGE>
(16) 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 customers. 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 instruments 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, 1999 and 1998:
1999 1998
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $78,173 $66,927
Standby letters of credit 2,501 4,328
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 com-
mitment amounts do not necessarily represent future cash
requirements. For commitments to extend credit, the Company evalu-
ates 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 evalua-
tion. 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, 1999 and 1998:
<TABLE>
1999 1998
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $49,389 $49,389 $25,580 $25,580
Investments in debt and equity securities 147,501 145,422 191,136 191,208
Mortgage loans held-for-sale 771 771 10,951 10,953
Loans 349,778 345,247 287,306 290,227
Accrued interest receivable 4,255 4,255 4,865 4,865
Liabilities:
Deposits $420,803 $419,939 $409,898 $411,915
Federal funds purchased and securities sold
under repurchase agreements 66,249 66,228 49,963 49,976
FHLB advances and other borrowings 14,207 13,857 10,000 10,069
Accrued interest payable 1,511 1,511 1,399 1,399
</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 instrument 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, 1999 and 1998. 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>
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
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 (FHLB) ADVANCES AND OTHER BORROWINGS
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 account 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.
(17) 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.
(18) 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, 1999, that
the Company and BankIllinois meet all capital adequacy requirements
to which they are subject.
As of December 31, 1999, 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.
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<PAGE>
The Company's and BankIllinois' actual capital amounts and ratios as of
December 31, 1999 and 1998 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, 1999:
Total capital
(to risk-weighted assets)
Consolidated $69,317 17.3% $32,018 8.0% N/A
BankIllinois $58,366 14.7% $31,669 8.0% $39,586 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated $64,279 16.1% $16,009 4.0% N/A
BankIllinois $53,383 13.5% $15,834 4.0% $23,752 6.0%
Tier I capital
(to average assets)
Consolidated $64,279 11.6% $22,085 4.0% N/A
BankIllinois $53,383 9.7% $21,916 4.0% $27,395 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, 1998:
Total capital
(to risk-weighted assets)
Consolidated $63,933 19.1% $26,754 8.0% N/A
BankIllinois $56,835 17.2% $26,496 8.0% $33,119 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated $59,664 17.8% $13,377 4.0% N/A
BankIllinois $52,650 15.9% $13,248 4.0% $19,872 6.0%
Tier I capital
(to average assets)
Consolidated $59,664 11.1% $21,488 4.0% N/A
BankIllinois $52,650 9.8% $21,416 4.0% $26,770 5.0%
</TABLE>
(19) PENDING MERGER
On August 12, 1999, the Company's Board of Directors approved a merger
agreement between First Decatur Bancshares, Inc. and the Company
that would result in a tax-free merger into a new company known as
Main Street Trust, Inc. Under the terms of this agreement, each
First Decatur Bancshares, Inc. share and each Company share issued
and outstanding prior to the effective date of the merger shall be
converted into shares of Main Street Trust, Inc. It is
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<PAGE>
anticipated that this transaction will be completed during the
first quarter of 2000. However, it is subject to several
conditions including approval of First Decatur Bancshares, Inc.
shareholders, Company shareholders and various regulatory
authorities. At December 31, 1999, First Decatur Bancshares, Inc.
had total assets of $462,473,000, total deposits of $374,271,000
and total stockholders' equity of $52,399,000.
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ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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<PAGE> PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
DIRECTORS
<S> <C> <C>
POSITION WITH THE COMPANY AND
NAME DIRECTOR BANK AND OCCUPATION FOR THE
(AGE) SINCE<F1> LAST FIVE YEARS
CLASS I
(TERM EXPIRES 2002)
David J. Downey 1992 Director of the Company;
(Age 58) President, The Downey Group,
Inc. (estate planning, wealth
transfer and executive
compensation organization)
(1963-present)
Van A. Dukeman 1995 Director, President and Chief
(Age 41) Executive Officer of the
Company and the Bank; Director
and President of BIFC and
BankIllinois (1995-1996)
Gene A. Salmon 1991 Director of the Company;
(Age 55) President, Cross Construction,
Inc. (1979-present)
James A. Sullivan 1984 Director of the Company;
(Age 72) Retired Chief Executive
Officer, Sullivan Chevrolet
Company (1976-1998)
CLASS II
(TERM EXPIRES 2000)
Gregory B. Lykins 1995 Director, Chairman of the
(Age 52) Board of the Company and the
Bank; Director, Chairman of
the Board and Chief Executive
Officer of BIFC and
BankIllinois (1995-1996)
August C. Meyer, Jr. 1962 Director of the Company;
(Age 62) President, Midwest Television
Inc. (1976-present)
CLASS III
(TERM EXPIRES 2001)
Roy V. VanBuskirk 1991 Director of the Company;
(Age 69) Retired, Chief Executive
Officer, Bacon and VanBuskirk
Glass Company and Danville
Bacon and VanBuskirk Glass
Company, Inc. (1968-1998)
George T. Shapland 1995 Director of the Company;
(Age 69) President, Shapland Management
Co. (1990-present)
Dean R. Stewart 1984 Director of the Company;
(Age 71) Chairman of the Board, CIF
(1991-1996); 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>
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<PAGE>
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.
There are no family relationships between any director or executive officer.
Non-employee directors of the Company received during 1999 fully vested
options to purchase 4,000 shares of Common Stock for serving on the Boards of
Directors and committees of the Company and the Bank. Directors of the
Company who are also employees of the Company were not separately compensated
for service on such Boards or committees.
Currently, Mr. Lykins is serving on the board of directors of Main
Street. At the effective time of the merger of the Company and First Decatur
with and into Main Street, Main Street's board will be increased to include
Messrs. Downey, Dukeman, Meyer, Salmon, Shapland and VanBuskirk, and six
other directors from the current board of directors of First Decatur.
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<PAGE>
BOARD COMMITTEES AND MEETINGS
A total of thirteen regularly scheduled and special meetings were held
by the Board of Directors of the Company during 1999. The Board of Directors
of the Company has established an Audit Committee and a Compensation
Committee. During 1999, all directors attended at least 75% of the meetings
of the Board and the committees on which they served.
Members of the Audit Committee are Messrs. Stewart (Chair), Meyer,
VanBuskirk 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 Bank. 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 Bank. The Audit Committee met four times in 1999.
The members of the Compensation Committee are Messrs. VanBuskirk
(Chair), Meyer and Stewart, and Messrs. Lykins and Dukeman serve 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 also
reviews compensation to be paid to the Company's directors for service on the
Board of Directors and attendance at Board and Committee meetings. The
Compensation Committee met two times in 1999.
In May of 1999, at the Company's annual organizational meeting, the
Board of Directors of the Company decided not to establish a separate
Executive Committee as in the past. Matters previously reviewed by this
Committee included board compensation, the Company's dividend policy, and
nominations to the Company's Board of Directors. As discussed above, the
Compensation Committee will assume responsibility for reviewing Board
compensation. The Company's dividend policy will be reviewed by the Board of
Directors. The Board of Directors will also consider nominations to the
Board submitted by stockholders if such nominations are made in writing to
the Committee and otherwise comply with Article 2, Section 13 of the
Company's bylaws. The former Executive Committee did not meet in 1999.
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, 1999, as well as the offices held by these officers on that
date, other positions held with the Company and its subsidiary and principal
occupations for the past five years are set forth below.
POSITION WITH THE COMPANY AND
NAME AGE BANK AND PRINCIPAL OCCUPATION
Gregory B. Lykins 52 Chairman of the Board of the
Company and BankIllinois.
Prior to the 1995 Merger, Mr.
Lykins served as Chairman of
the Board and Chief Executive
Officer of BKI and
BankIllinois.
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<PAGE>
Van A. Dukeman 41 Director, President and Chief
Executive Officer of the
Company and BankIllinois.
Prior to the 1995 Merger, Mr.
Dukeman served as President
and director of BKI.
David B. White 48 Executive Vice President and
Chief Financial Officer of the
Company and BankIllinois.
Prior to the 1995 Merger, Mr.
White served as Executive Vice
President and Chief Financial
Officer of BankIllinois.
Charles R. Eyman 53 Executive Vice President of
BankIllinois. Prior to the
1995 Merger, Mr. Eyman served
as Senior Vice President of
The Champaign National Bank.
Robert F. Plecki, Jr. 39 Executive Vice President of
BankIllinois. Prior to his
current position, Mr. Plecki
served as Senior Vice
President and Vice President
of BankIllinois.
Leanne C. Heacock 34 Executive Vice President of
BankIllinois. Prior to her
current position, Ms. Heacock
served as Senior Vice
President of BankIllinois.
Prior to the 1995 Merger, Ms.
Heacock served as Assistant
Vice President and Operations
Officer for the Champaign
National Bank.
Mark J. Wisniewski 36 Senior Vice President of
BankIllinois. Prior to his
current position, Mr.
Wisniewski served as Vice
President of BankIllinois.
Mr. Wisniewski was Vice
President and Assistant Vice
President of First of America
prior to joining the Company.
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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
three other most highly compensated executive officers of the Company
(including those employed by the Company's subsidiaries) whose 1999 salary
and bonus exceeded $100,000:
<TABLE>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
(A) (B) (C) (D) (E) (G) (I)
SECURITIES
UNDERLYING ALL OTHER
NAME AND <F1> OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OTHER($) SARS <F2> ($) <F3>
<S> <C> <C> <C> <C> <C> <C>
Gregory B. Lykins, 1997 $180,000 $40,000 -- 3,472 $18,550
Chairman of the Board 1998 134,307 50,000 3,792 5,512 17,329
1999 102,962 100,000 3,937 5,250 18,966
Van A. Dukeman, 1997 $127,000 $40,000 -- 3,472 $13,445
President and Chief 1998 151,346 60,000 1,729 5,512 14,207
Executive Officer 1999 154,231 100,000 2,052 5,250 16,825
David B. White, 1997 $95,000 15,000 -- 3,472 $9,395
Executive Vice President 1998 107,115 22,000 1,625 3,307 10,639
and Chief Financial Officer 1999 107,962 25,000 1,895 3,150 12,012
Charles R. Eyman, 1997 $95,000 15,000 -- 3,472 $10,107
Executive Vice President 1998 107,115 22,000 4,119 3,307 11,115
1999 107,962 25,000 4,208 3,150 12,542
<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> As adjusted for stock dividends.
<F3> 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 $3,200, $3,400, $8,000
and $3,950 for Mr. Lykins for 1997, $1,590, $2,329, $8,800 and $4,610
for 1998, and $800, $5,288, $8,800 and $4,078 for 1999; $3,200, $1,810,
$8,000 and $435 for Mr. Dukeman for 1997, $1,787, $3,140, $8,800 and
$480 for 1998, and $800, $6,826, $8,800 and $399 for 1999; $2,200,
$1,705, $5,200 and $290 for Mr. White for 1997, $1,570, $2,072, $6,695
and $302 for 1998, and $665, $4,347, $6,685 and $315 for 1999; and
$2,200, $1,705, $5,200 and $1,002 for Mr. Eyman for 1997, $1,570,
$2,072, $6,695 and $778 for 1998, and $665, $4,351, $6,686 and $840 for
1999.
</FN>
</TABLE>
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<PAGE>
STOCK OPTION INFORMATION
The following table sets forth certain information concerning the
number and value of stock options granted in the last fiscal year to the
individuals named in the Summary Compensation Table:
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
(A) (B) (C) (D) (E) (F) (G)
% OF TOTAL
OPTIONS
OPTIONS GRANTED TO
GRANTED EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME (#) <F1><F2> FISCAL YEAR <F2> PRICE ($/Sh)<F2> DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Gregory B. Lykins 5,250 10.0% $21.79 03/15/04 $31,606 $69,841
Van A. Dukeman 5,250 10.0% 21.79 03/15/04 31,606 69,841
David B. White 3,150 6.0% 21.79 03/15/04 18,964 41,904
Charles R. Eyman 3,150 6.0% 21.79 03/15/04 18,964 41,904
<FN>
<F1> Such options vest over a three-year period. Options will vest in their
entirety upon the occurrence of a change in control, including the
approval of a merger by the Company's stockholders.
<F2> As adjusted for stock dividends.
</FN>
</TABLE>
The following table sets forth certain information concerning the
exercisable and nonexercisable stock options at December 31, 1999, held by
the individuals named in the Summary Compensation Table:
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
ON VALUE OPTIONS AT FY-END THE-MONEY OPTIONS
NAME EXERCISE REALIZED (#)(D) AT FY-END ($)(E)
(#)(A) (#)(B) ($)(C) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <S> <C> <C> <C> <C> <C>
Gregory B. Lykins --- $--- 130,633 6,245 $2,201,381 $18,966
Van A. Dukeman --- --- 130,633 6,245 2,201,381 18,966
David B. White 550 9,640 17,106 3,823 237,148 12,152
Charles R. Eyman --- --- 9,251 3,823 94,056 12,152
</TABLE>
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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. After the effectiveness of
the merger transaction with the Company and First Decatur with and into Main
Street, each of the employment agreements entered into between the Company
and the named executive officers will remain in full force and effect with
Main Street as the successor employer.
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 1999, 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
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<PAGE>
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
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.
Members of the Compensation Committee are Messrs. VanBuskirk
(Chair), Meyer and Stewart, and Messrs. Lykins and Dukeman serve ex officio.
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 1, 2000 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(1) OF CLASS
DIRECTORS AND NOMINEES
<S> <C> <C>
David J. Downey 338,929(2) 6.1%
Van A. Dukeman 193,770(3) 3.4%
Gregory B. Lykins 427,174(4) 7.5%
August C. Meyer, Jr. 1,648,575(5) 29.6%
Gene A. Salmon 99,072 1.8%
George T. Shapland 320,957(6) 5.8%
Dean R. Stewart 36,054(7) *
James A. Sullivan 35,600 *
Roy V. VanBuskirk 40,405 *
OTHER NAMED EXECUTIVE OFFICERS
Charles R. Eyman 18,121 *
David B. White 20,001 *
All directors and executive
officers as a group
(14 persons) 3,192,089(8) 53.7%
* 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: 10,149 shares for Mr. Eyman; 13,240 shares for
Messrs. Downey, Meyer and Salmon, Shapland, Stewart, Sullivan and
VanBuskirk; 18,004 shares for Mr. White; and 132,003 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 16,707 shares over which Mr. Downey has shared voting and
sole investment power. Mr. Downey's business address is 505
Devonshire Drive, Champaign, Illinois 61820.
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<PAGE>
<F3> Includes 2,100 shares over which Mr. Dukeman has shared voting and
sole investment power.
<F4> Includes 19,253 shares over which Mr. Lykins has shared voting and
sole investment power. Mr. Lykins' business address is 100 West
University Avenue, Champaign, Illinois 61820.
<F5> Includes 1,373,659 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 61,321 shares held by Mr.
Meyer's spouse over which Mr. Meyer has no voting or investment power.
Mr. Meyer disclaims beneficial ownership over all such shares. Mr.
Meyer's business address is 100 West University Avenue, 4th Floor,
Champaign, Illinois 61820.
<F6> Mr. Shapland's business address is 1203 South Mattis Avenue,
Champaign, Illinois 61821.
<F7> Includes 10,704 shares held jointly with Mr. Stewart's spouse, over
which shares Mr. Stewart has shared voting and investment power.
<F8> Includes 397,967 shares obtainable through the exercise of options
considered presently exercisable.
</FN>
</TABLE>
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.
Each Party to the Shareholders' Agreement other than August C. Meyer
Jr. has 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 1995
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. After the merger
of the Company and First Decatur with and into Main Street, it is anticipated
that the Shareholders' Agreement will remain in full force and effect, with
respect to the Parties' holdings of Main Street common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and officers of the Company and the Bank and their
associates were customers, of and had transactions with, the Company and the
Bank during 1999. 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.
During 1999, the Company incurred approximately $64,000 in
construction costs for services provided by Cross Construction, Inc. Mr.
Salmon, a director of the Company, serves as the President of Cross
Construction. In November 1999, the Bank entered into a lease agreement with
Midwest Television, Inc. for office space located in the Bank's main office
building located at 100 West University Avenue, Champaign. Mr. Meyer, a
director of the Company, serves as President of Midwest Television,
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<PAGE>
Inc. Lease payments will total approximately $82,000 annually. In addition,
the Company leases space from Mr. Meyer in a building which is used for the
Company's branch banking operations on the campus of the University of
Illinois at Urbana/Champaign, with lease payments totaling approximately
$54,000 annually. Management believes that the terms of these services were
no less favorable to the Company than would have been obtained from non-
affiliated parties.
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<PAGE> PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Index to Financial Statements
See page 30.
(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 1999.
(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 Schedules
Exhibit 27.1
Exhibit 27.2
Exhibit 27.3
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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 22, 2000.
By: /S/ Van A. Dukeman By: /S/ David B. White
President, CEO and Director Executive Vice President and
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 22, 2000.
/S/ Gregory B. Lykins Chairman and Director
/S/ Van A. Dukeman President, CEO and Director
/S/ David J. Downey Director
/S/ August C. Meyer, Jr. Director
/S/ Gene A. Salmon Director
/S/ George T. Shapland Director
/S/ Dean R. Stewart Director
/S/ James A. Sullivan Director
/S/ Roy V. VanBuskirk Director
/S/ David B. White Executive Vice President and Chief
Financial Officer
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<PAGE>
BANKILLINOIS FINANCIAL CORPORATION
EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K
INCORPORATED
EXHIBIT HEREIN BY FILED SEQUENTIAL
NO. DESCRIPTION REFERENCE TO HEREWITH PAGE NO.
3.1 Amended and Restated Exhibit 3.1 to the Form 10-K
Certificate of Incorporation filed with the Commission
April 1, 1996 (SEC File No.
33-90342)
3.2 Amendment to Amended Exhibit 3.2 to the Form 10-K
and Restated Certificate filed with the Commission
of Incorporation March 30, 1998 (SEC File No.
33-90342)
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 Registration
Shareholders' Statement on Form S-4 filed with
Agreement, dated as of the Commission March 15, 1995,
December 13, 1994 as amended (SEC File No. 33-90342)
10.1 Employment Agreement for Exhibit 10.3 to the Registration
Gregory B. Lykins Statement on Form S-4 filed
with the Commission March 15, 1995,
as amended (SEC File No. 33-90342)
10.2 Employment Agreement for Exhibit 10.4 to the Registration
Van A. Dukeman Statement on Form S-4 filed
with the Commission March 15, 1995,
as amended (SEC File No. 33-90342)
10.3 Employment Agreement for Exhibit 10.5 to the Registration
David B. White Statement on Form S-4 filed
with the Commission March 15, 1995,
as amended (SEC File No. 33-90342)
10.4 Employment Agreement for Exhibit 10.8 to the Form 10-K
Charles R. Eyman filed with the Commission on
April 1, 1996 (SEC File No. 33-90342)
21.1 Subsidiaries of the Registrant X
23.1 Consent of McGladrey & Pullen, LLP X
27.1 Financial Data Schedule X
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<PAGE>
27.2 Financial Data Schedule
Restated for 1998 X
27.3 Financial Data Schedule
Restated for 1997 X
SUBSIDIARIES OF THE REGISTRANT
1. BankIllinois, an Illinois chartered bank located in
Champaign, Illinois.
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 3, 2000 on the
consolidated balance sheets of BankIllinois Financial Corporation as of
December 31, 1999 and 1998 and the related statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ending December 31, 1999, appearing in the Annual Report on Form 10-K for the
year ended December 31, 1999.
Champaign, Illinois
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,389
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 34,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 77,950
<INVESTMENTS-CARRYING> 69,551
<INVESTMENTS-MARKET> 67,472
<LOANS> 350,549<F1>
<ALLOWANCE> 5,059
<TOTAL-ASSETS> 571,777
<DEPOSITS> 420,803
<SHORT-TERM> 66,249
<LIABILITIES-OTHER> 6,793
<LONG-TERM> 14,207
0
0
<COMMON> 57
<OTHER-SE> 63,668
<TOTAL-LIABILITIES-AND-EQUITY> 571,777
<INTEREST-LOAN> 27,853
<INTEREST-INVEST> 9,582
<INTEREST-OTHER> 581
<INTEREST-TOTAL> 38,016
<INTEREST-DEPOSIT> 14,922
<INTEREST-EXPENSE> 18,433
<INTEREST-INCOME-NET> 19,583
<LOAN-LOSSES> 360
<SECURITIES-GAINS> 132
<EXPENSE-OTHER> 13,447
<INCOME-PRETAX> 11,065
<INCOME-PRE-EXTRAORDINARY> 11,065
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,552
<EPS-BASIC> 1.36
<EPS-DILUTED> 1.31
<YIELD-ACTUAL> 7.60
<LOANS-NON> 8
<LOANS-PAST> 219
<LOANS-TROUBLED> 104
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,279
<CHARGE-OFFS> 971
<RECOVERIES> 391
<ALLOWANCE-CLOSE> 5,059
<ALLOWANCE-DOMESTIC> 5,059
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>New of allowance for loan losses of $5,059.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,080
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 125,627
<INVESTMENTS-CARRYING> 65,509
<INVESTMENTS-MARKET> 65,581
<LOANS> 298,257<F1>
<ALLOWANCE> 5,279
<TOTAL-ASSETS> 537,373
<DEPOSITS> 409,898
<SHORT-TERM> 49,963
<LIABILITIES-OTHER> 6,805
<LONG-TERM> 10,000
0
0
<COMMON> 57
<OTHER-SE> 60,650
<TOTAL-LIABILITIES-AND-EQUITY> 537,373
<INTEREST-LOAN> 27,495
<INTEREST-INVEST> 9,574
<INTEREST-OTHER> 945
<INTEREST-TOTAL> 38,014
<INTEREST-DEPOSIT> 15,988
<INTEREST-EXPENSE> 18,962
<INTEREST-INCOME-NET> 19,052
<LOAN-LOSSES> 535
<SECURITIES-GAINS> 60
<EXPENSE-OTHER> 14,457
<INCOME-PRETAX> 8,995
<INCOME-PRE-EXTRAORDINARY> 8,995
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,074
<EPS-BASIC> 1.07
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 7.84
<LOANS-NON> 1,126
<LOANS-PAST> 415
<LOANS-TROUBLED> 121
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,306
<CHARGE-OFFS> 811
<RECOVERIES> 249
<ALLOWANCE-CLOSE> 5,279
<ALLOWANCE-DOMESTIC> 5,279
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>New of allowance for loan losses of $5,279.
</FN>
</TABLE>
<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> 57
<OTHER-SE> 57,273
<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-BASIC> 0.95
<EPS-DILUTED> 0.93
<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>New of allowance for loan losses of $5,306.
</FN>
</TABLE>
