UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
Commission File Number: 0-30031
MAIN STREET TRUST, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Illinois 37-1338484
--------------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
100 West University, Champaign, Illinois 61820
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(Address of principal executive offices) (Zip Code)
(217) 351-6500
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by "X" whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES _X _ NO ____
Indicate the number of shares outstanding of the registrant's common stock, as
of November 13, 2001
Main Street Trust, Inc. Common Stock 11,868,211
1
Table of Contents
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities 29
Item 3. Defaults Upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAIN STREET TRUST, INC AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2001 and December 31, 2000
(Unaudited, in thousands, except share data)
September 30, December 31,
2001 2000
---------------------------
ASSETS
Cash and due from banks .............................................................. $ 50,223 $ 58,967
Federal funds sold and interest earning deposits ..................................... 8,009 25,172
Investments in debt and equity securities:
Available-for-sale, at fair value .................................................. 245,280 213,686
Held-to-maturity, at cost (fair value of $72,177 and $84,849
at September 30, 2001 and December 31, 2000, respectively) ....................... 70,894 84,972
Non-marketable equity securities ................................................... 5,082 4,529
Mortgage loans held for sale ......................................................... 8,431 2,090
Loans, net of allowance for loan losses of $8,864 and $8,879
at September 30, 2001 and December 31, 2000, respectively .......................... 675,898 659,849
Premises and equipment ............................................................... 20,035 20,874
Accrued interest receivable .......................................................... 9,266 10,629
Other assets ......................................................................... 11,557 10,313
--------------------------
Total assets ................................................................. $ 1,104,675 $ 1,091,081
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing ..................................................... $ 106,470 $ 108,981
Demand, interest bearing ......................................................... 259,021 233,838
Savings .......................................................................... 113,964 139,802
Time, $100 and over .............................................................. 99,010 100,030
Other time ....................................................................... 258,084 257,281
--------------------------
Total deposits ............................................................... 836,549 839,932
Federal funds purchased, repurchase agreements and notes payable ..................... 78,820 69,658
Federal Home Loan Bank advances and other borrowings ................................. 39,910 40,978
Accrued interest payable ............................................................. 3,762 4,584
Other liabilities .................................................................... 10,907 10,527
--------------------------
Total liabilities ............................................................ 969,948 965,679
--------------------------
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares authorized ........................ -- --
Common stock, $0.01 par value; 15,000,000 shares authorized
11,111,608 shares issued at September 30, 2001 and December 31, 2000, respectively 111 111
Paid in capital .................................................................... 54,143 54,222
Retained earnings .................................................................. 80,905 72,591
Accumulated other comprehensive income ............................................. 3,644 600
--------------------------
138,803 127,524
Less: treasury stock, at cost, 226,494 and 117,786 shares at September 30, 2001
and December 31, 2000, respectively .............................................. (4,076) (2,122)
--------------------------
Total shareholders' equity ................................................... 134,727 125,402
--------------------------
Total liabilities and shareholders' equity ................................... $ 1,104,675 $ 1,091,081
==========================
See accompanying notes to unaudited consolidated financial statements.
3
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited, in thousands, except share data)
2001 2000
-------------------------
Interest income:
Loans and fees on loans ........................................ $ 42,144 $ 40,436
Investments in debt and equity securities
Taxable ...................................................... 10,513 11,661
Tax-exempt ................................................... 1,733 1,498
Federal funds sold and interest earning deposits ............... 1,527 1,187
-------------------------
Total interest income .................................... 55,917 54,782
Interest expense:
Demand, savings, and other time deposits ....................... 18,832 18,383
Time deposits $100 and over .................................... 4,029 3,822
Federal funds purchased, repurchase agreements and notes payable 2,101 2,895
Federal Home Loan Bank advances and other borrowings ........... 1,768 1,554
-------------------------
Total interest expense ................................... 26,730 26,654
-------------------------
Net interest income ...................................... 29,187 28,128
Provision for loan losses ........................................ 845 458
-------------------------
Net interest income after provision for loan losses ...... 28,342 27,670
Non-interest income:
Remittance processing .......................................... 5,105 5,168
Trust and brokerage fees ....................................... 4,012 4,117
Service charges on deposit accounts ............................ 1,598 1,595
Securities transactions, net ................................... 302 17
Gain on sales of mortgage loans, net ........................... 490 122
Other .......................................................... 1,174 1,335
-------------------------
Total non-interest income ................................ 12,681 12,354
Non-interest expense:
Salaries and employee benefits ................................. 13,094 13,848
Merger related professional fees ............................... -- 2,454
Occupancy ...................................................... 1,674 1,681
Equipment ...................................................... 2,310 2,861
Data processing ................................................ 1,349 1,073
Office supplies ................................................ 1,179 897
Service charges from correspondent banks ....................... 660 793
Other .......................................................... 3,527 3,117
-------------------------
Total non-interest expense ............................... 23,793 26,724
Income before income taxes ............................... 17,230 13,300
Income taxes ..................................................... 5,454 4,845
-------------------------
Net income ............................................... $ 11,776 $ 8,455
=========================
Per share data:
Basic earnings per share ....................................... $ 1.08 $ 0.76
Weighted average shares of common stock outstanding ............ 10,953,118 11,091,631
Diluted earnings per share ....................................... $ 1.06 $ 0.75
Weighted average shares of common stock and dilutive potential . 11,160,826 11,324,583
common shares outstanding
See accompanying notes to unaudited consolidated financial statements.
4
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited, in thousands)
2001 2000
--------------------
Net income .............................................................. $ 11,776 $ 8,455
--------------------
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gains arising during period, net of tax of
$1,671 and $995, for September 30, 2001 and 2000, respectively .... 3,243 1,931
Less: reclassification adjustment for gains (losses) included in net
income, net of tax of $(103) and $(6), for September 30, 2001
and 2000, respectively ............................................ (199) (11)
--------------------
Other comprehensive income, net of tax .............................. 3,044 1,920
--------------------
Comprehensive income ................................................ $ 14,820 $ 10,375
====================
See accompanying notes to unaudited consolidated financial statements.
5
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Three Months Ended September 30, 2001 and 2000
(Unaudited, in thousands, except share data)
2001 2000
-------------------------
Interest income:
Loans and fees on loans ........................................ $ 13,795 $ 14,222
Investments in debt and equity securities
Taxable ...................................................... 3,349 3,809
Tax-exempt ................................................... 604 522
Federal funds sold and interest earning deposits ............... 292 325
-------------------------
Total interest income .................................... 18,040 18,878
Interest expense:
Demand, savings, and other time deposits ....................... 5,836 6,524
Time deposits $100 and over .................................... 1,253 1,451
Federal funds purchased, repurchase agreements and notes payable 619 915
Federal Home Loan Bank advances and other borrowings ........... 597 635
-------------------------
Total interest expense ................................... 8,305 9,525
-------------------------
Net interest income ...................................... 9,735 9,353
Provision for loan losses ........................................ 235 191
-------------------------
Net interest income after provision for loan losses ...... 9,500 9,162
Non-interest income:
Remittance processing .......................................... 1,785 1,633
Trust and brokerage fees ....................................... 1,365 1,335
Service charges on deposit accounts ............................ 561 555
Securities transactions, net ................................... 83 31
Gain on sales of mortgage loans, net ........................... 175 63
Other .......................................................... 363 360
-------------------------
Total non-interest income ................................ 4,332 3,977
Non-interest expense:
Salaries and employee benefits ................................. 4,281 4,079
Merger related professional fees ............................... -- 2
Occupancy ...................................................... 549 564
Equipment ...................................................... 739 1,384
Data processing ................................................ 488 298
Office supplies ................................................ 392 307
Service charges from correspondent banks ....................... 221 218
Other .......................................................... 1,134 1,137
-------------------------
Total non-interest expense ............................... 7,804 7,989
Income before income taxes ............................... 6,028 5,150
Income taxes ..................................................... 1,984 1,606
-------------------------
Net income ............................................... $ 4,044 $ 3,544
=========================
Per share data:
Basic earnings per share ....................................... $ 0.37 $ 0.32
Weighted average shares of common stock outstanding ............ 10,916,747 11,069,367
Diluted earnings per share ..................................... $ 0.36 $ 0.31
Weighted average shares of common stock and dilutive potential
common shares outstanding .................................... 11,120,508 11,275,413
See accompanying notes to unaudited consolidated financial statements.
6
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Three Months Ended September 30, 2001 and 2000
(Unaudited, in thousands)
2001 2000
------------------
Net income ............................................................ $ 4,044 $ 3,544
------------------
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gains arising during period, net of tax of
$612 and $879, for September 30, 2001 and 2000, respectively .... 1,186 1,706
Less: reclassification adjustment for gains (losses) included in
net income, net of tax of $(29) and $(11), for September 30, 2001
and 2000, respectively .......................................... (54) (20)
------------------
Other comprehensive income, net of tax ............................ 1,132 1,686
------------------
Comprehensive income .............................................. $ 5,176 $ 5,230
==================
See accompanying notes to unaudited consolidated financial statements.
7
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ending September 30, 2001 and 2000
(Unaudited, in thousands)
2001 2000
----------------------
Cash flows from operating activities:
Net income .................................................................... $ 11,776 $ 8,455
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................................... 2,009 2,119
(Accretion) amortization of bond discounts and premiums, net ................ (179) 187
Provision for loan losses ................................................... 845 458
Securities transactions, net ................................................ (302) (17)
Gain on sales of mortgage loans, net ........................................ (490) (122)
Federal Home Loan Bank stock dividend ....................................... (135) --
Proceeds from sales of mortgage loans originated for sale ................... 60,060 15,089
Mortgage loans originated for sale .......................................... (65,911) (15,640)
Loss on disposal of premises and equipment .................................. -- 587
Other, net .................................................................. (2,080) (874)
----------------------
Net cash provided by operating activities ............................... 5,593 10,242
----------------------
Cash flows from investing activities:
Net increase in loans ......................................................... (16,894) (36,971)
Proceeds from maturities and calls of investments in debt securities:
Held-to-maturity ............................................................ 28,559 2,592
Available-for-sale .......................................................... 58,332 24,123
Proceeds from sales of investments:
Available-for-sale .......................................................... 89,715 5,301
Purchases of investments in debt and equity securities:
Held-to-maturity ............................................................ (22,135) (3,633)
Available-for-sale .......................................................... (176,252) (30,943)
Other equity securities ..................................................... (500) (753)
Principal paydowns from mortgage-backed securities:
Held-to-maturity ............................................................ 6,932 3,291
Available-for-sale .......................................................... 2,515 2,080
Principal paydowns on other equity securities ................................. 31 --
Purchases of premises and equipment ........................................... (1,150) (1,332)
----------------------
Net cash used in investing activities ................................... (30,847) (36,245)
----------------------
Cash flows from financing activities:
Net (decrease) increase in deposits ........................................... (3,383) 8,292
Net increase (decrease) in federal funds purchased,
repurchase agreements, and notes payable .................................... 9,162 (15,354)
Net increase (decrease) in Federal Home Loan Bank advances and other borrowings (1,068) 8,935
Cash dividends paid ........................................................... (3,343) (2,372)
MSTI stock transactions, net .................................................. (2,021) (1,007)
----------------------
Net cash used in financing activities ................................... (653) (1,506)
----------------------
Net decrease in cash and cash equivalents ............................... (25,907) (27,509)
Cash and cash equivalents at beginning of year ................................ 84,139 87,350
----------------------
Cash and cash equivalents at end of period .................................... $ 58,232 $ 59,841
======================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .................................................................... $ 27,552 $ 26,413
Income taxes ................................................................ 5,486 4,892
Real estate acquired through or in lieu of foreclosure ........................ -- 7
Dividends declared not paid ................................................... 1,197 1,053
See accompanying notes to unaudited consolidated financial statements.
8
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements for Main Street
Trust, Inc. have been prepared in accordance with the instructions to Form 10-Q
and therefore do not include all information and footnotes necessary for fair
presentation of financial position, results of operations, and cash flows in
conformity with accounting principles generally accepted in the United States of
America. These financial statements should be read in conjunction with the
audited consolidated financial statements and related notes as of and for the
year ended December 31, 2000, and schedules included in Main Street Trust,
Inc.'s. Form 10-K filed on March 30, 2001.
In the opinion of management, the consolidated financial statements of Main
Street Trust, Inc. (the "Company") and its subsidiaries, as of September 30,
2001 and for the three-month and nine-month periods ended September 30, 2001 and
2000, include all adjustments necessary for a fair presentation of the results
of those periods. All such adjustments are of a normal recurring nature.
Results of operations for the three-month and nine-month period ended September
30, 2001 are not necessarily indicative of the results which may be expected for
the year ended December 31, 2001.
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold and interest
earning deposits. Generally, federal funds are sold for one-day periods.
Certain amounts in the 2000 consolidated financial statements have been
reclassified to conform with the 2001 presentation. Such reclassifications have
no effect on previously reported net income.
Note 2. Company Information/Business Combination
On March 23, 2000, BankIllinois Financial Corporation and First Decatur
Bancshares, Inc. completed a "merger of equals" between the two companies,
structured as a merger of the two companies into the Company. The merger has
been accounted for as a pooling of interests and, accordingly, all prior
financial statements have been restated to include both companies. As a result
of the merger, former shareholders of BankIllinois Financial Corporation and
First Decatur Bancshares, Inc. received 6,119,673 and 4,990,281 shares of
Company common stock, respectively.
The Company operates 19 banking centers and is the parent company of
BankIllinois, First National Bank of Decatur, First Trust Bank of Shelbyville
and FirsTech, Inc., a retail payment processing company.
On June 14, 2001, the Company was certified by the Board of Governors of the
Federal Reserve System as a financial holding company. This designation allows
the Company to engage in a wider range of nonbanking activities, including
greater authority to engage in securities and insurance activities. However, the
Company has no current plans to do so.
Note 3: Stock Dividend
At its regular board meeting on August 21, 2001, the Board of Directors of the
Company declared a one-for-twenty, or five percent, common stock dividend. The
record date of the stock dividend was September 4, 2001, and the distribution
date was September 21, 2001. The accompanying unaudited consolidated financial
statements have been restated to take the stock dividend into account.
Note 4. New Accounting Rules and Regulations
In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations" (SFAS No. 141). SFAS No. 141 addresses financial
accounting and reporting for business combinations and supersedes APB Opinion
No. 16, "Business Combinations" and SFAS No 38, Accounting for Preacquisition
Contingencies of Purchased Enterprises. SFAS No. 141 requires all business
combinations in the scope of this SFAS to be accounted for using the purchase
method. SFAS No. 141 is effective for business combinations initiated after June
30, 2001 and all business combinations accounted for using the purchase method
for which the acquisition date is July 1, 2001 or later. Management does not
believe the adoption of Statement No. 141 will have a significant impact on its
financial statements.
9
In June 2001, the Financial Accounting Standards Board issued Statement No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142). SFAS No. 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, "Intangible Assets". It addresses how
intangible assets should be accounted for at acquisition and in subsequent
periods. Most significantly, goodwill and intangible assets that have indefinite
useful lives will not be amortized but rather will be tested at least annually
for impairment. Intangible assets that have finite useful lives will continue to
be amortized over their useful lives. The standard also provides specific
guidance for testing goodwill for impairment and requires additional disclosures
about goodwill and intangible assets. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. SFAS No. 142 is required to be applied to the
beginning of an entity's fiscal year and to be applied to all goodwill and other
intangible assets recognized in its financial statements at that date.
Impairment losses for goodwill and indefinite-lived intangible assets that arise
due to the initial application of this Standard are to be reported as resulting
from a change in accounting principle. Management does not believe the adoption
of SFAS No. 142 will have a significant impact on its financial statements.
In June 2001, Statement on Financial Accounting Standards No. 143 "Accounting
for Asset Retirement Obligations" was issued to address financial reporting and
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities and to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development or normal operations of a
long-lived asset, except for certain obligations of lessees. Statement No. 143
is effective for financial statements issued for fiscal years beginning after
June 15, 2002. Management does not believe the adoption of Statement No. 143
will have a significant impact on its financial statements.
In August 2001, Statement on Financial Accounting Standards No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" was issued to supersede
Statement No. 121 "Accounting for the Impairment and for Long-Lived Assets to Be
Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". Statement No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years, with early application encouraged.
Management does not believe the adoption of Statement No. 144 will have a
significant impact on its financial statements.
Note 5. Income per Share
Net income per common share has been computed as follows:
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------------------------------------
2001 2000* 2001 2000*
--------------------------------------------------------
Net income ............................ $11,776,000 $ 8,455,000 $ 4,044,000 $ 3,544,000
Shares:
Weighted average common shares
outstanding ....................... 10,953,118 11,091,631 10,916,747 11,069,367
Dilutive effect of outstanding
options, as determined by the
application of the treasury stock
method ............................ 193,141 216,180 191,940 188,213
Dilutive effect of outstanding
SARs, as determined by the
application of the treasury stock
method ............................ 14,567 16,772 11,821 17,833
Weighted average common shares
outstanding, as adjusted .......... 11,160,826 11,324,583 11,120,508 11,275,413
Basic earnings per share .............. $ 1.08 $ 0.76 $ 0.37 $ 0.32
Diluted earnings per share ............ $ 1.06 $ 0.75 $ 0.36 $ 0.31
* As restated for 5% Sept. 2001 stock dividend
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Assets and Liabilities
Total assets increased $13.594 million, or 1.2%, to $1.105 billion at September
30, 2001 compared to $1.091 billion at December 31, 2000. Increases in
investments available-for-sale, loans, mortgage loans held for sale, other
assets and non-marketable equity securities were partially offset by decreases
in federal funds sold and interest earning deposits, investments
held-to-maturity, cash and due from banks, accrued interest receivable, and
premises and equipment.
Cash and due from banks decreased $8.744 million, or 14.8%, to $50.223 million
at September 30, 2001 compared to $58.967 million at December 31, 2000 primarily
due to a smaller dollar amount of deposit items in process of collection at
September 30, 2001 compared to December 31, 2000.
Federal funds sold and interest earning deposits decreased $17.163 million, or
68.2%, to $8.009 million at September 30, 2001 compared to $25.172 million at
December 31, 2000. This decrease was the result of excess federal funds sold
being used to fund the increase in loans and investments.
Total investments in debt and equity securities increased $18.069 million, or
6.0%, to $321.256 million at September 30, 2001 compared to $303.187 million at
December 31, 2000. Investments in securities available-for-sale increased
$31.594 million, or 14.8%, and non-marketable equity securities increased $0.553
million, or 12.2%, at September 30, 2001 compared to December 31, 2000. Somewhat
offsetting these increases was a decrease in investments in debt and equity
securities held-to-maturity of $14.078 million, or 16.6%. The net increase in
investments in debt and equity securities was the result of shifting funds from
federal funds sold and interest earning deposits into higher yielding investment
securities. As held-to-maturity securities have matured or been called,
management has shifted additional funds into available-for-sale securities to
allow the Company more flexibility to reposition its portfolio in response to
future changes in the interest rate environment, economy and balance sheet mix.
Mortgage loans held for sale increased $6.341 million, or 303.4%, to $8.431
million at September 30, 2001 compared to $2.090 million at December 31, 2000.
This increase was mainly due to lower interest rates driving up demand in the
mortgage loan area during the first three quarters of 2001.
Loans, net of allowance for loan losses, increased $16.049 million, or 2.4%, to
$675.898 million at September 30, 2001 from $659.849 million at December 31,
2000. Increases in commercial, financial and agricultural loans of $19.802
million, or 9.0%, and real estate loans of $6.033 million, or 1.9% were
partially offset by a decrease of $1.370 million, or 1.1% in consumer loans at
September 30, 2001 compared to December 31, 2000.
Premises and equipment decreased $0.839 million, or 4.0%, from $20.874 million
at December 31, 2000 to $20.035 million at September 30, 2001. The decrease was
caused by depreciation expense of $1.989 million offset by purchases of $1.150
million.
Other assets increased $1.244 million, or 12.1%, from $10.313 million at
December 31, 2000 to $11.557 million at September 30, 2001 primarily due to an
increase of $0.945 million in accrued trust income.
Total liabilities increased $4.269 million, or 0.4%, to $969.948 million at
September 30, 2001 from $965.679 million at December 31, 2000. Increases in
federal funds purchased, repurchase agreements and notes payable and other
liabilities were partially offset by decreases in total deposits, Federal Home
Loan Bank advances and other borrowings and accrued interest payable.
Total deposits decreased $3.383 million, or 0.4%, to $836.549 million at
September 30, 2001 from $839.932 at December 31, 2000. The decrease in deposits
included a decrease in savings deposits of $25.838 million, or 18.5%, a decrease
in non-interest bearing demand deposits of $2.511 million, or 2.3%, and a
decrease in time deposits $100,000 and over of $1.020 million, or 1.0%. Somewhat
offsetting these decreases were increases of $25.183 million, or 10.8%, in
interest bearing demand deposits and $0.803, or 0.3%, in other time. Despite the
decrease from year-end, total deposits were $33.182 million, or 4.1%, higher
than the September 30, 2000 balance of $803.367 million.
Federal funds purchased, repurchase agreements and notes payable increased
$9.162 million, or 13.2%, to $78.820 million at September 30, 2001 compared to
$69.658 million at December 31, 2000. Included in this change were increases of
$9.155 million in repurchase agreements and $0.325 million in federal funds
purchased. Somewhat offsetting these increases was a decrease in notes payable
of $0.318 million.
11
Accrued interest payable decreased $0.822 million, or 17.9%, to $3.762 million
at September 30, 2001 from $4.584 million at December 31, 2000. This was
reflective of the lower interest rate environment.
Investment Securities
The carrying value of investments in debt and equity securities was as follows
for September 30, 2001 and December 31, 2000:
Carrying Value of Securities
(in thousands)
September 30, December 31,
2001 2000
---------------------------
Available-for-sale:
U.S. Treasury .................................. $ 11,792 $ 23,812
Federal agencies ............................... 162,726 156,322
Mortgage-backed securities ..................... 32,346 11,513
State and municipal ............................ 14,072 15,349
Corporate and other obligations ................ 2,382 294
Marketable equity securities ................... 21,962 6,396
-----------------------
Total available-for-sale ................. $245,280 $213,686
=======================
Held-to-maturity:
Federal agencies ............................... $ 3,745 $ 29,428
Mortgage-backed securities ..................... 22,885 22,642
State and municipal ............................ 44,264 32,902
-----------------------
Total held-to-maturity ................... $ 70,894 $ 84,972
=======================
Non-marketable equity securities:
FHLB and FRB stock1 ............................ $ 3,661 $ 3,526
Other equity investments ....................... 1,421 1,003
-----------------------
Total .................................... $ 5,082 $ 4,529
=======================
Total investment securities .............. $321,256 $303,187
=======================
1 FHLB and FRB are commonly used acronyms for Federal Home Loan Bank and
Federal Reserve Bank, respectively.
12
The following table shows the maturities and weighted-average yields of
investment securities at September 30, 2001. All securities are shown at their
contractual maturity.1
Maturities and Weighted Average Yields of Debt Securities
(dollars in thousands)
September 30, 2001
1 year 1 to 5 5 to 10 Over 10
or less years years years Total
------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------------------------------------------------------------------------------------------------
Securities available-
for-sale
U.S. Treasury ................. $ 10,228 5.81% $ 1,564 5.78% $ -- --% $ -- --% $ 11,792 5.81%
Federal agencies .............. $ 32,862 4.86% $126,079 5.45% $ 3,785 6.17% $ -- -- $162,726 5.35%
Mortgage-backed ............... $ 5,324 6.39% $ 22,166 5.85% $ 3,901 7.14% $ 955 6.30% $ 32,346 6.11%
securities1
State and municipal ........... $ 116 5.53% $ 4,393 6.70% $ 6,547 7.41% $ 3,016 7.62% $ 14,072 7.22%
Other securities .............. $ 292 7.84% $2,090 5.84% $ -- -- $ -- -- $ 2,382 6.09%
Marketable equity
securities ................. $ -- -- $ -- -- $ -- -- $ -- -- $ 21,962 --
------------------------------------------------------------------------------------------------
Total .................. $ 48,822 $156,292 $ 14,233 $ 3,971 $245,280
------------------------------------------------------------------------------------------------
Average Yield ................... 5.24% 5.55% 7.01% 7.31% 5.61%
================================================================================================
Securities held-
to-maturity
Federal agencies .............. $ -- -- $ 3,745 5.71% $ -- -- $ -- -- $ 3,745 5.71%
Mortgage-backed
securities1 ................. $ 9,932 5.29% $ 11,388 6.25% $ -- -- $ 1,565 6.40% $ 22,885 5.84%
State and municipal ........... $ 2,959 7.33% $ 32,621 6.28% $ 8,684 7.03% $ -- -- $ 44,264 6.50%
------------------------------------------------------------------------------------------------
Total ................... $ 12,891 $ 47,754 $ 8,684 $ 1,565 $ 70,894
================================================================================================
Average Yield ................... 5.75% 6.23% 7.03% 6.40% 6.25%
================================================================================================
Non-marketable equity securities2
FHLB and FRB stock3 ........... $ -- -- $ -- -- $ -- -- $ -- -- $ 3,661 --
Other equity investments ...... $ -- -- $ -- -- $ -- -- $ -- -- $ 1,421 --
------------------------------------------------------------------------------------------------
Total ................... $ -- -- $ -- -- $ -- -- $ -- -- $ 5,082 --
================================================================================================
1 Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties and certain securities require principal
repayments prior to maturity.
2 Due to the nature of these securities, they do not have a stated maturity
date or rate.
3 FHLB and FRB are commonly used acronyms for Federal Home Loan Bank and
Federal Reserve Bank, respectively.
Loans
The following tables present the amounts and percentages of loans for September
30, 2001 and December 31, 2000 according to the categories of commercial,
financial and agricultural; real estate; and installment and consumer loans.
Amount of Loans Outstanding
(dollars in thousands)
September 30, 2001 December 31, 2000
----------------------------------------
Amount Percentage Amount Percentage
----------------------------------------
Commercial, financial and agricultural $239,343 34.95% $219,541 32.83%
Real estate .......................... 317,014 46.30% 319,412 47.76%
Installment and consumer1 ............ 128,405 18.75% 129,775 19.41%
----------------------------------------
Total loans .................. $684,762 100.00% $668,728 100.00%
========================================
1 Net of unearned discount
13
The balance of loans outstanding as of September 30, 2001 by maturity is shown
in the following table:
Maturity of Loans Outstanding
(dollars in thousands)
September 30, 2001
1 year 1 to 5 Over 5
or less years years Total
---------------------------------------
Commercial, financial and agricultural $111,080 $ 98,480 $ 29,783 $239,343
Real estate .......................... 45,045 113,910 158,059 317,014
Installment and consumer1 ............ 40,445 80,650 7,310 128,405
---------------------------------------
Total ........................ $196,570 $293,040 $195,152 $684,762
=======================================
Percentage of total loans outstanding 28.71% 42.79% 28.50% 100.00%
=======================================
1 Net of unearned discount
Capital
Total shareholders' equity increased $9,325,000 from December 31, 2000 to
September 30, 2001. The change is summarized as follows:
(in thousands)
--------------
Shareholders' equity, December 31, 2000 ..................... $ 125,402
Net income .................................................. 11,776
Treasury stock transactions, net ............................ (2,021)
Stock appreciation rights ................................... 19
Cash dividends declared ..................................... (3,493)
Other comprehensive income .................................. 3,044
---------
Shareholders' equity, September 30, 2001 .................... $ 134,727
=========
On September 18, 2001, the board of directors of the Company declared a
quarterly cash dividend of $0.11 per share of the Company's common stock. The
dividend of $1,197,000 was paid on October 19, 2001, to holders of record on
October 5, 2001.
The Company and its subsidiary banks 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 its subsidiary banks' financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, banks must meet specific guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's and its
subsidiary banks' 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 its subsidiary banks 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 September
30, 2001, that the Company and its subsidiary banks exceeded all capital
adequacy requirements to which they are subject.
As of September 30, 2001, the most recent notifications from primary regulatory
agencies categorized all the Company's subsidiary banks as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, banks 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 any of the Company's
subsidiary banks' categories.
14
The Company's and the Banks' actual capital amounts and ratios are presented in
the following table (in thousands):
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes: action provisions:
-------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------
As of September 30, 2001:
Total capital
(to risk-weighted assets)
Consolidated ........................... $139,815 17.9% $62,366 8.0% N/A
BankIllinois ........................... 66,873 15.7 34,172 8.0 $42,715 10.0%
First National Bank of Decatur ......... 48,437 16.6 23,308 8.0 29,134 10.0
First Trust Bank of Shelbyville ........ 11,882 23.5 4,053 8.0 5,066 10.0
Tier I capital
(to risk-weighted assets)
Consolidated ........................... $130,951 16.8% $31,183 4.0% N/A
BankIllinois ........................... 62,007 14.5 17,086 4.0 $25,629 6.0%
First National Bank of Decatur ......... 44,768 15.4 11,654 4.0 17,481 6.0
First Trust Bank of Shelbyville ........ 11,494 22.7 2,026 4.0 3,040 6.0
Tier I capital
(to average assets)
Consolidated ........................... $130,951 12.0% $43,843 4.0% N/A
BankIllinois ........................... 62,007 10.5 23,538 4.0 $29,422 5.0%
First National Bank of Decatur ......... 44,768 10.5 17,057 4.0 21,322 5.0
First Trust Bank of Shelbyville ........ 11,494 15.2 3,025 4.0 3,781 5.0
Interest Rate Sensitivity
The concept of interest rate sensitivity attempts to gauge exposure of the
Company's 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 the Company to meet the day-to-day demands
of deposit customers balanced by its investments of these deposits. The Company
must also be prepared to fulfill the needs of credit customers for loans with
various types of maturities and other financing arrangements. The Company
monitors its interest rate sensitivity and liquidity through the use of static
gap reports which measure the difference between assets and liabilities maturing
or repricing within specified time periods as well as financial
forecasting/budgeting/reporting software packages.
15
The following table presents the Company's interest rate sensitivity at various
intervals at September 30, 2001:
Rate Sensitivity of Earning Assets and Interest Bearing Liabilities
(dollars in thousands)
1-30 31-90 91-180 181-365 Over
Days Days Days Days 1 year Total
-----------------------------------------------------------------------------
Interest earning assets:
Federal funds sold and
interest earning deposits ............ $ 8,009 $ -- $ -- $ -- $ -- $ 8,009
Debt and equity securities 1 ........... 35,793 17,340 34,965 36,049 197,109 321,256
Loans 2 ................................ 149,658 26,354 43,872 69,257 404,052 693,193
-----------------------------------------------------------------------------
Total earning assets ............. $ 193,460 $ 43,694 $ 78,837 $ 105,306 $ 601,161 $1,022,458
-----------------------------------------------------------------------------
Interest bearing liabilities:
Savings and interest bearing
demand deposits 3 .................... $ 48,609 $ 1,282 $ 1,923 $ 3,854 $ 146,457 $ 202,125
Money market savings
deposits ............................. 143,745 -- -- -- -- 143,745
Time deposits .......................... 28,685 63,320 66,334 89,012 109,743 357,094
Federal funds purchased,
repurchase agreements,
and notes payable .................... 70,706 126 1,452 1,800 4,736 78,820
FHLB advances and
other borrowings ..................... 5,000 -- -- 5,023 29,887 39,910
-----------------------------------------------------------------------------
Total interest bearing liabilities $ 296,745 $ 64,728 $ 69,709 $ 99,689 $ 290,823 $ 821,694
-----------------------------------------------------------------------------
Net asset (liability) funding gap ........ (103,285) (21,034) 9,128 5,617 310,338 200,764
=============================================================================
Repricing gap ............................ 0.65 0.68 1.13 1.06 2.07 1.24
Cumulative repricing gap ................. 0.65 0.66 0.73 0.79 1.24 1.24
1 Debt and equity securities included securities available-for-sale,
securities held-to-maturity, and non-marketable equity securities.
2 Loans are gross and include mortgage loans held-for-sale.
3 The total of savings and interest-bearing demand deposits does not include
$27,115,000 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 are non-core deposits plus a percentage, based upon industry-accepted
assumptions and Company analysis, 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 and Company analysis, 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 ........... 0.45% 0.85% 1.25% 2.45% 95.00%
16
At September 30, 2001, the Company was liability-sensitive due to the levels of
savings and interest bearing demand deposits, short-term time deposits, and
short-term borrowings. As such, the effect of a decrease in the interest rate
for all interest earning assets and interest bearing liabilities of 100 basis
points would increase annualized net interest income by approximately $1,033,000
in the 1-30 days category and $1,243,000 in the 1-90 days category assuming no
management intervention. An increase in interest rates would have the opposite
effect for the same time periods.
In addition to managing interest rate 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 $29 million from the Federal Home Bank on a secured basis.
The Company uses financial forecasting/budgeting/reporting software packages to
perform interest rate sensitivity analysis for all product categories. The
Company's primary focus of its analysis is on the effect of interest rate
increases and decreases on net interest income. Management believes that this
analysis reflects the potential effects on current earnings of interest rate
changes. Call criteria and prepayment assumptions are taken into consideration
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 September 30, 2001 and December
31, 2000 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
-----------------------------
September 30, 2001 ........................... 3.6% 1.8% (1.8%) (3.6%)
December 31, 2000 ............................ 0.2% 0.1% (0.1%) (0.2%)
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 Company'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 Company 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.
Liquidity and Cash Flows
The Company was able to meet liquidity needs during the first nine months of
2001. A review of the consolidated statements of cash flows included in the
accompanying financial statements shows that the Company's cash and cash
equivalents decreased $25,907,000 from December 31, 2000 to September 30, 2001.
This decrease came from cash used in investing and financing activities offset
by cash provided by operating activities.
17
There were differences in the sources and uses of cash during the first nine
months of 2001 compared to the first nine months of 2000. Less cash was provided
by operating activities during the first nine months of 2001 compared to the
same period of 2000. This was primarily due to a larger difference between the
volume of loans originated for sale versus proceeds from sales during the first
nine months of 2001 compared to the same period in 2000. Less cash was used in
investing activities during the first nine months of 2001 compared to cash used
during the same period of 2000 due to a smaller amount of loan growth in 2001
compared to 2000 and due to changes in the Company's investment portfolio.
During the first nine months of 2001, net cash used by investing activities
involving the Company's investment portfolio was $12,803,000 compared to
$2,058,000 cash provided during the same period in 2000. Less cash was used in
financing activities during the first nine months of 2001 compared to the first
nine months of 2000. This was due to cash used because of decreases in deposits
and Federal Home Loan Bank advances during the first nine months of 2001
compared to cash provided from increases in these areas during the same period
of 2000 offset by cash provided by the increase in federal funds purchased,
repurchase agreements, and notes payable during the first nine months of 2001
compared to cash used during the same period of 2000.
Provision and Allowance for Loan Losses
The provision for loan losses is based on management's evaluation of the loan
portfolio in light of national and local economic conditions, changes in the
composition and volume of the loan portfolio, changes in the volume of past due
and nonaccrual loans, and other relevant factors. The allowance for loan losses,
which is reported as a deduction from loans, is available for loan charge-offs.
The allowance is increased by the provision charged to expense and is reduced by
loan charge-offs net of loan recoveries. The balance of the allowance for loan
losses was $8,864,000 at September 30, 2001 compared to $8,879,000 at December
31, 2000, as net charge-offs were $860,000 and provisions totaled $845,000
during the first nine months of 2001. The allowance for loan losses as a
percentage of gross loans, including loans held-for-sale, was 1.28% at September
30, 2001, or slightly less than the December 31, 2000 percentage of 1.32%. Gross
loans, including loans held-for-sale, increased 3.3% to $693,193,000 at
September 30, 2001 from $670,818,000 at December 31, 2000.
The allowance for loan losses as a percentage of non-performing loans was 228.3%
at September 30, 2001 compared to 613.2% at December 31, 2000. Non-performing
loans increased from $1,448,000 at December 31, 2000, to $3,883,000 at September
30, 2001. The $2,435,000 increase in non-performing loans during the first nine
months resulted from a $66,000 increase in loans over 90 days past due and a
$2,369,000 increase in non-accruals. The increase in non-accruals consisted
primarily of a $2,166,000 farm credit, which is secured by farm real estate and
business personal property, and other smaller commercial and consumer loans.
Although unforeseen market conditions could result in significant adjustments in
the future, management believes that problem assets have been effectively
identified and that the allowance for loan losses is adequate to absorb probable
losses in the portfolio which are reasonably anticipated. However, there can be
no assurance that the allowance for loan losses will be adequate to cover all
losses.
Along with other financial institutions, management shares a concern for the
continued softening of the economy in 2001. The tragic events of September 11,
2001 have further clouded the economic outlook, severely impacting several major
industries, as well as the economy as a whole. Additionally, consumer
confidence, a key factor in the economy, has been negatively impacted. A slowing
economy could adversely affect cash flows from both commercial and individual
borrowers, as a result of which, the Company could experience increases in
problem assets, delinquencies and losses on loans.
18
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.
Allowance for Loan Losses
(dollars in thousands)
September 30,
----------------------
2001 2000
----------------------
Allowance for loan losses at
beginning of year ................................ $ 8,879 $ 8,682
----------------------
Charge-offs during period:
Commercial, financial and agricultural ........... $ (302) $ (25)
Real estate ...................................... -- (33)
Installment and consumer ......................... (859) (573)
----------------------
Total ...................................... $(1,161) $ (631)
----------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural ........... $ 135 $ 424
Residential real estate .......................... 37 7
Installment and consumer ......................... 129 127
----------------------
Total ...................................... $ 301 $ 558
----------------------
Net (charge-offs) recoveries ............... $ (860) $ (73)
Provision for loan losses .......................... 845 458
----------------------
Allowance for loan losses at end of quarter ........ $ 8,864 $ 9,067
======================
Ratio of net (charge-offs) recoveries to
average net loans ................................ -0.13% -0.01%
The following table shows the allocation of the allowance for loan losses
allocated to each category.
Allocation of the Allowance for Loan Losses
September 30, December 31,
2001 2000
---------------------------
Allocated:
Commercial, financial and agricultural ......... $3,949 $3,426
Residential real estate ........................ 839 855
Installment and consumer ....................... 1,830 1,649
-------------------
Total allocated allowance ................ $6,618 $5,930
Unallocated allowances ........................... 2,246 2,949
-------------------
Total .................................... $8,864 $8,879
===================
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."
Nonperforming Loans (dollars in thousands)
September 30, December 31,
2001 2000
-----------------------------
Nonaccrual loans1 ............................ $2,971 $ 602
Loans past due 90 days or more ............... $ 912 $ 846
Renegotiated loans ........................... $ 70 $ 88
1 Includes $631,000 at September 30, 2001 and $505,000 at December 31, 2000
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).
19
Results of Operations
Results of Operations For the Nine Months Ended September 30, 2001
The merger of equals to create the Company, which occurred near the end of the
first quarter of 2000, resulted in significant merger related costs which were
expensed during the first nine months of 2000. These expenses had a significant
effect on the reported net income of the combined entity during the first nine
months of 2000. Net income for the first nine months of 2001 was $11,776,000, a
$3,321,000, or 39.3%, increase from $8,455,000 for the same period in 2000.
Basic earnings per share increased $0.32, or 42.1%, to $1.08 in the first nine
months of 2001 from $0.76 in the same period of 2000. Diluted earnings per share
increased $0.31, or 41.3%, to $1.06 in the first nine months of 2001 from $0.75
during the same period in 2000.
Operating earnings for the nine months ended September 30, 2001, were
$11,991,000 compared to $11,861,000 for the same period in 2000, an increase of
$130,000, or 1.1%. Basic operating earnings per share increased to $1.09, or
1.9%, in the first nine months of 2001 from $1.07 in the same period of 2000.
Diluted earnings per share on operating earnings for the first nine months of
2001 increased 1.9%, or $0.02, to $1.07, from $1.05 in the same period in 2000.
The difference between operating and net earnings was due to merger and
restructuring related expenses, net of tax, of $215,000 during the nine months
of 2001 compared to $3,406,000 during the same period in 2000. The 2001 merger
and restructuring related expenses consisted of $70,000 of data processing
expense and $256,000 of termination of employment contracts, offset by $111,000
of tax benefit. The 2000 merger and restructuring related expenses consisted of
$2,454,000 of professional fees, $941,000 of early retirement and termination of
employment contracts, and $587,000 of expenses related to write-downs of
computer equipment, offset by $576,000 of tax benefit.
20
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.
Consolidated Average Balance Sheet and Interest Rates
(dollars in thousands)
Nine Months Ended September 30,
----------------------------------------------------------------------
2001 2000
--------------------------------- ---------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
----------------------------------------------------------------------
Assets
Taxable investment securities1 ......... $ 245,250 $ 10,513 5.72% $ 261,845 $ 11,661 5.94%
Tax-exempt investment securities1 (TE) . 51,756 2,626 6.77% 43,858 2,270 6.90%
Federal funds sold and interest earning
deposits2 ............................ 42,728 1,527 4.77% 23,903 1,187 6.62%
Loans3,4 (TE) .......................... 665,531 42,198 8.45% 614,571 40,469 8.78%
----------------------------------------------------------------------
Total interest earning assets
and interest income (TE) ....... $1,005,265 $ 56,864 7.54% $ 944,177 $ 55,587 7.85%
----------------------------------------------------------------------
Cash and due from banks ................ $ 50,237 $ 49,155
Premises and equipment ................. 20,537 21,642
Other assets ........................... 20,179 21,574
---------- ----------
Total assets ................... $1,096,218 $1,036,548
========== ==========
Liabilities and Shareholders' Equity
Interest bearing demand deposits ....... $ 251,418 $ 5,985 3.17% $ 222,768 $ 6,435 3.85%
Savings ................................ 81,325 1,448 2.37% 92,386 1,510 2.18%
Time deposits .......................... 362,054 15,428 5.68% 341,964 14,260 5.56%
Federal funds purchased, repurchase
agreements, and notes payable ........ 73,757 2,101 3.80% 73,576 2,895 5.25%
FHLB advances and other borrowings ..... 40,292 1,768 5.85% 35,474 1,554 5.84%
----------------------------------------------------------------------
Total interest bearing
liabilities and interest expense $ 808,846 $ 26,730 4.41% $ 766,168 $ 26,654 4.64%
----------------------------------------------------------------------
Noninterest bearing demand deposits5 ... $ 102,326 $ 88,402
Noninterest bearing savings deposits5 .. 40,806 49,205
Other liabilities ...................... 14,436 13,730
---------- ----------
Total liabilities .............. $ 966,414 $ 917,505
Shareholders' equity ........... 129,804 119,043
---------- ----------
Total liabilities and
stockholders' equity ........... $1,096,218 $1,036,548
========== ==========
Interest spread (average rate earned
minus average rate paid) (TE) ........ 3.14% 3.21%
===== =====
Net interest income (TE) ............... $ 30,134 $ 28,933
========== ==========
Net yield on interest earnings
assets (TE) .......................... 4.00% 4.09%
===== =====
See next page for Notes 1-5.
21
Notes to Consolidated Average Balance Sheet and Interest Rate Tables:
1 Investments in debt securities are included at carrying value.
2 Federal funds sold and interest earning deposits include approximately
$93,000 and $119,000 in 2001 and 2000, respectively, of interest income
from third party processing of cashier checks.
3 Loans are net of allowance for loan losses and include mortgage loans held
for sale. Nonaccrual loans are included in the total.
4 Loan fees of approximately $722,000 and $699,000 in 2001 and 2000,
respectively, are included in total loan income.
5 Due to current regulatory issues, the Company is allowed to reclassify
certain demand deposits to savings deposits. 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.
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 following table
presents, on a tax equivalent (TE) 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.
Analysis of Volume and Rate Changes
(in thousands)
Nine Months Ended September 30, 2001
Increase
(Decrease)
from
Previous Due to Due to
Year Volume Rate
----------------------------
Interest Income
Taxable investment securities .................. $(1,148) $ (723) $ (425)
Tax-exempt investment securities (TE) .......... 356 428 (72)
Federal funds sold and interest earning deposits 340 904 (564)
Loans (TE) ..................................... 1,729 3,962 (2,233)
----------------------------
Total interest income (TE) ............... $ 1,277 $ 4,571 $(3,294)
----------------------------
Interest Expense
Interest bearing demand and savings deposits1 .. $ (512) $ 625 $(1,137)
Time deposits .................................. 1,168 854 314
Federal funds purchased,
repurchase agreements and notes payable ...... (794) 11 (805)
FHLB advances and other borrowings ............. 214 209 5
----------------------------
Total interest expense ................... $ 76 $ 1,699 $(1,623)
----------------------------
Net Interest Income (TE) ......................... $ 1,201 $ 2,872 $(1,671)
============================
1 Due to deposit reclassifications described above, interest bearing demand and
savings deposits are included in the same line for comparability.
22
Net interest income on a tax equivalent basis was $1,201,000, or 4.2% higher for
the first nine months of 2001 compared to 2000. Total tax-equivalent interest
income was $1,277,000 or 2.3% higher in 2001 compared to 2000, and interest
expense increased $76,000, or 0.3%. The increase in interest income was due to
an increase in average earning assets offset somewhat by a decrease in rate. The
slight increase in interest expense was due to an increase in average interest
bearing liabilities offset by a decrease in rate.
The increase in total interest income was mainly due to an increase in interest
income from loans as well as federal funds sold and interest earning deposits,
and tax-exempt investment securities, offset somewhat by a decrease in income
from taxable investment securities. The increases in interest income from loans,
federal funds sold and interest earning deposits, and tax-exempt investments
were primarily due to increases in average balances outstanding during the first
nine months of 2001 compared to the first nine months of 2000, offset somewhat
by decreases in rate. The decrease in taxable investment interest income was due
to a decrease in average balance as well as rate.
The increase in total interest expense was due to increases in interest on time
deposits and FHLB advances and other borrowings, offset somewhat by decreases in
interest expense on interest bearing demand and savings deposits and federal
funds purchased, repurchase agreements and notes payable. Interest expense on
time deposits increased during the first nine months of 2001 compared to the
first nine months of 2000 due to both higher average balances and higher rates.
Interest expense on FHLB advances and other borrowings increased during the
first nine months of 2001 compared to the first nine months of 2000 primarily
due to an increase in average balances. Somewhat offsetting these increases were
decreases in interest on interest bearing demand and savings deposits, which was
due to a decrease in rates somewhat offset by an increase in average balance,
and a decrease in interest expense on federal funds purchased, repurchase
agreements and notes payable, which was primarily due to lower rates.
The provision for loan losses recorded was $845,000 during the first nine months
of 2001. This was $387,000, or 84.5%, higher than the $458,000 recorded during
the first nine months of 2000. The provision during both periods was based on
management's analysis of the loan portfolio, as discussed in the provision and
allowance for loan losses section above.
Total non-interest income increased $327,000, or 2.6%, during the first nine
months of 2001 compared to the first nine months of 2000. Included in this
increase was an increase of $368,000, or 301.6%, from gains on sales of mortgage
loans held-for-sale. This increase reflected a $44,971,000, or 298.0%, increase
in funded mortgage loans held-for-sale during the first nine months of 2001
compared to the same period in 2000, and was reflective of lower interest rates
during the first nine months of 2001. Income from securities transactions
increased $285,000 to $302,000 during the first nine months of 2001, compared to
$17,000 during the same period in 2000. This was the result of the sale of some
securities to reposition the portfolio in the current changing rate environment.
Service charges on deposit accounts increased $3,000, or 0.2%, during the first
nine months of 2001. Somewhat offsetting these increases was a decrease in other
income of $161,000, or 12.1%, during the first nine months of 2001 compared to
the same period in 2000. Proceeds from a life insurance policy of approximately
$81,000 during the first three quarters of 2000, along with $22,000 in one-time
fee income from a third party during the same period, contributed to this
decrease. Income from trust and brokerage fees decreased $105,000, or 2.6%,
during the first nine months of 2001 compared to the same period in 2000. This
was due, in part, to the downturn in the stock market during the first nine
months of 2001. Market values have been depressed causing fee revenue to decline
in this area. Remittance processing income decreased $63,000, or 1.2%, during
the first nine months of 2001 compared to the same period in 2000. This decrease
reflects a shift in late 2000, and continuing into 2001, from lockbox payments
to mechanized payments, which have lower revenue streams as well as lower costs.
23
Total non-interest expense decreased $2,931,000, or 11.0%, during the first nine
months of 2001 compared to the same period in 2000. Of this decrease, $2,454,000
was due to merger related professional fees in 2000. Salaries and employee
benefits decreased $754,000, or 5.4%, during the first nine months of 2001
compared to the same period in 2000. Salaries and employee benefits in the first
nine months of 2001 included $256,000 of expenses related to the termination of
employment contracts compared to $941,000 in expenses during the same period in
2000 related to early retirement and termination of employment contracts as a
result of the merger. Equipment expense decreased $551,000, or 19.3%, during the
first nine months of 2001 compared to the same period in 2000. This was
primarily due to $587,000 in merger related write-downs of computer equipment
and software during the first nine months of 2000. Service charges from
correspondent banks decreased $133,000, or 16.8%, in the first nine months of
2001 compared to the same period in 2000. This was mainly due to a continuing
trend toward fewer lockbox transactions, resulting in decreased service charges
from correspondent banks. Occupancy expense decreased $7,000, or 0.4%, during
the first nine months of 2001 compared to the same period in 2000. Somewhat
offsetting these decreases was an increase in other non-interest expense of
$410,000, or 13.2%, during the first nine months of 2001 compared to the same
period in 2000. This was the result of proceeds of $461,000 in April of 2000
from the sale of a property previously written off. Office supplies increased
$282,000, or 31.4%, in the first nine months of 2001 compared to the same period
in 2000. Included in office supplies expense were additional printing and
mailing expense and additional supplies purchased to support and announce a
computer system conversion necessary to move the Company's subsidiaries toward
the same data processing system. Data processing expense increased $276,000, or
25.7%, in the first nine months of 2001 compared to the first nine months of
2000. Included in data processing expense in the first nine months of 2001 were
expenses associated with conversion to third party service bureau data
processing from in-house processing, and $70,000 in expenses related to computer
system conversion and early contract termination as a result of the computer
system conversion.
Income tax expense increased $609,000, or 12.6%, during the first nine months of
2001 compared to the first nine months of 2000. The effective tax rate decreased
to 31.7% during the first nine months of 2001 from 36.4% during the same period
in 2000. This difference was due to $2,454,000 of merger related professional
fees for which no tax benefit had been recognized in the first nine months of
2000.
Results of Operations For the Three Months Ended September 30, 2001
The merger of equals to create the Company, which occurred near the end of the
first quarter of 2000, resulted in additional merger related costs of $390,000,
net of tax, which were expensed during the third quarter of 2000. These expenses
had an effect on the reported net income of the combined Company. Net income for
the third quarter of 2001 was $4,044,000, a $500,000, or 14.1%, increase from
$3,544,000 during the third quarter of 2000. Basic earnings per share increased
$0.05, or 15.6%, to $0.37 in the third quarter of 2001 from $0.32 in the same
period of 2000. Diluted earnings per share increased $0.05, or 16.1%, to $0.36
in the third quarter of 2001 from $0.31 in the same period of 2000.
Operating earnings for the third quarter of 2001 were $4,044,000 compared to
$3,934,000 for the same period in 2000, an increase of $110,000, or 2.8%. Basic
operating earnings per share increased $0.01, or 2.8%, to $0.37 in the third
quarter of 2001 compared to $0.36 in the third quarter of 2000. Diluted
operating earnings per share increased $0.01, or 2.9%, to $0.36 in the third
quarter of 2001 compared to $0.35 in the third quarter of 2000.
24
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.
Consolidated Average Balance Sheet and Interest Rates
(dollars in thousands)
Three Months Ended September 30,
2001 2000
--------------------------------- ---------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------
Assets
Taxable investment securities1 ......... $ 251,297 $ 3,349 5.33% $ 256,043 $ 3,809 5.95%
Tax-exempt investment securities1 (TE) . 55,522 915 6.59% 45,684 791 6.93%
Federal funds sold and interest earning
deposits2 ............................ 9,970 292 11.72% 7,590 325 17.13%
Loans3,4 (TE) .......................... 678,110 13,817 8.15% 632,468 14,232 9.00%
---------------------------------------------------------------------
Total interest earning assets
and interest income (TE) ....... $ 994,899 $ 18,373 7.39% $ 941,785 $ 19,157 8.14%
---------------------------------------------------------------------
Cash and due from banks ................ $ 50,136 $ 49,488
Premises and equipment ................. 20,193 21,491
Other assets ........................... 21,347 22,427
---------- ----------
Total assets ................... $1,086,575 $1,035,191
========== ==========
Liabilities and Shareholders' Equity
Interest bearing demand deposits ....... $ 248,458 $ 1,755 2.83% $ 218,254 $ 2,339 4.29%
Savings ................................ 82,062 487 2.37% 92,465 531 2.30%
Time deposits .......................... 357,200 4,847 5.43% 344,773 5,105 5.92%
Federal funds purchased, repurchase
agreements, and notes payable ........ 78,462 619 3.16% 72,998 915 5.01%
FHLB advances and other borrowings ..... 40,417 597 5.91% 41,500 635 6.12%
--------------------------------------------------------------------
Total interest bearing
liabilities and interest expense $ 806,599 $ 8,305 4.12% $ 769,990 $ 9,525 4.95%
--------------------------------------------------------------------
Noninterest bearing demand deposits5 ... $ 108,353 $ 86,640
Noninterest bearing savings deposits5 .. 23,575 43,654
Other liabilities ...................... 14,780 14,788
---------- ----------
Total liabilities .............. $ 953,307 $ 915,072
Shareholders' equity ................... 133,268 120,119
---------- ----------
Total liabilities and
stockholders' equity ........... $1,086,575 $1,035,191
========== ==========
Interest spread (average rate earned
minus average rate paid) (TE) ........ 3.27% 3.19%
===== =====
Net interest income (TE) ............... $ 10,068 $ 9,632
========== ==========
Net yield on interest
earnings assets (TE) ................. 4.05% 4.09%
===== =====
See next page for Notes 1 - 5.
Notes to Consolidated Average Balance Sheet and Interest Rate Tables:
1 Investments in debt securities are included at carrying value.
2 Federal funds sold and interest earning deposits include approximately
$23,000 and $41,000 in 2001 and 2000, respectively, of interest income from
third party processing of cashier checks.
3 Loans are net of allowance for loan losses and include mortgage loans held
for sale. Nonaccrual loans are included in the total.
25
4 Loan fees of approximately $282,000 and $269,000 in 2001 and 2000,
respectively, are included in total loan income.
5 Due to current regulatory issues, the Company is allowed to reclassify
certain demand deposits to savings deposits. 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.
The following table presents, on a tax 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.
Analysis of Volume and Rate Changes
(in thousands)
Three Months Ended September 30, 2001
Increase
(Decrease)
from
Previous Due to Due to
Year Volume Rate
-----------------------------
Interest Income
Taxable investment securities .................. $ (460) $ (73) $ (387)
Tax-exempt investment securities (TE) .......... 124 348 (224)
Federal funds sold and interest earning deposits (33) 393 (426)
Loans (TE) ..................................... (415) 4,479 (4,894)
-----------------------------
Total interest income (TE) ............... $ (784) $ 5,147 $(5,931)
-----------------------------
Interest Expense
Interest bearing demand and savings deposits1 .. $ (628) $ 1,059 $(1,687)
Time deposits .................................. (258) 954 (1,212)
Federal funds purchased,
repurchase agreements and notes payable ...... (296) 406 (702)
FHLB advances and other borrowings ............. (38) (16) (22)
-----------------------------
Total interest expense ................... $(1,220) $ 2,403 $(3,623)
-----------------------------
Net Interest Income (TE) ......................... $ 436 $ 2,744 $(2,308)
=============================
1 Due to deposit reclassifications described above, interest bearing demand
and savings deposits are included in the same line for comparability.
Net interest income on a tax equivalent basis was $436,000, or 4.5%, higher for
the third quarter of 2001 compared to the third quarter of 2000. Total
tax-equivalent interest income was $784,000, or 4.1%, lower in 2001 compared to
2000, and interest expense decreased $1,220,000, or 12.8%. The decrease in
interest income was due to a decrease in rate, somewhat offset by an increase in
average balances. The decrease in interest expense was primarily due to a
decrease in interest rates offset somewhat by increased average balances.
26
The decrease in total interest income was due to a decrease in interest income
from taxable investment securities, loans, and federal funds sold and interest
earning deposits. These decreases were somewhat offset by an increase in
interest income from tax-exempt investment securities. The decrease in interest
income from taxable investment securities was primarily due to a decrease in
rates in the third quarter of 2001 compared to the third quarter of 2000. The
decrease in interest from loans was due to a decrease in rates, offset somewhat
by an increase in average balances. The decrease in interest from federal funds
sold and other interest earning deposits was due to a decrease in rates,
somewhat offset by an increase in average balances. The increase in tax-exempt
investment interest income was due to an increase in average tax-exempt
investments, offset somewhat by lower yields.
The decrease in total interest expense was due to decreases in interest expense
on all categories of interest bearing liabilities. Interest expense decreased on
interest bearing demand and savings deposits, time deposits, and federal funds
purchased, repurchase agreements and notes payable during the third quarter of
2001 compared to the same period in 2000 due to decreases in rates, offset
somewhat by increases in average balances. Interest expense on FHLB advances and
other borrowings decreased during the third quarter of 2001 compared to the
third quarter of 2000 due to decreases in both rate and average balance.
The provision for loan losses recorded was $235,000 for the third quarter of
2001. This represented a 23.0% increase over the $191,000 recorded in the third
quarter of 2000. The provision during both periods was based on management's
analysis of the loan portfolio, as discussed in the provision and allowance for
loan losses section above.
Total non-interest income increased $355,000, or 8.9%, during the third quarter
of 2001 compared to the third quarter of 2000. Included in this increase was an
increase of $152,000, or 9.3%, in remittance processing income. This increase
was due to increased volume coupled with restructured pricing to some customers.
Also contributing to the increase in total non-interest income was an increase
of $112,000, or 177.8% in gains on sales of mortgage loans held-for-sale. This
increase reflected a $13,605,000, or 192.9%, increase in funded mortgage loans
held-for-sale during the third quarter of 2001 compared to the third quarter of
2000 due to lower interest rates. Income from securities transactions increased
$52,000, or 167.7%, during the third quarter of 2001 compared to the third
quarter of 2000. Trust and brokerage fees increased $30,000, or 2.2%, during the
third quarter of 2001 compared to the same period in 2000. This was due to an
increase in assets under management from new account relationships. Service
charges on deposit accounts, and other non-interest income, increased $6,000 and
$3,000, respectively, during the third quarter of 2001 compared to the same
period in 2000.
Total non-interest expense decreased $185,000, or 2.3%, during the third quarter
of 2001 compared to the third quarter of 2000. Equipment expense decreased
$645,000, or 46.6%, during the third quarter of 2001 compared to the third
quarter of 2000. This was primarily due to $587,000 in merger related
write-downs of computer equipment and software during the third quarter of 2000.
Occupancy expense and other non-interest expense decreased $15,000 and $3,000,
respectively, during the third quarter of 2001. Somewhat offsetting these
decreases was an increase in salaries and employee benefits of $202,000, or
5.0%, during the third quarter of 2001 compared to the third quarter of 2000.
Data processing expense increased $190,000, or 63.8%, in the third quarter of
2001 compared to the same period in 2000. Contributing to this increase were
expenses associated with the conversion to third party service bureau data
processing from in house processing. Office supplies had an increase of $85,000,
or 27.7% during the third quarter of 2001 compared to the same period in 2000.
Included in office supplies were additional printing and mailing expense and
additional supplies purchased to support the aforementioned computer system
conversion. Service charges from correspondent banks rose $3,000 during the
third quarter of 2001 compared to the same period in 2000.
Income tax expense increased $378,000, or 23.5%, during the third quarter of
2001 compared to the third quarter of 2000. The effective tax rate increased to
32.9% in the third quarter of 2001 compared to 31.2% in the third quarter of
2000.
27
Business Segment Information
The Company currently operates in two industry segments. The primary business
involves providing banking services to central Illinois. BankIllinois, First
National Bank of Decatur and First Trust Bank of Shelbyville offer a full range
of financial services to business and individual customers. These services
include demand, savings, time and individual retirement accounts; commercial,
consumer (including automobile loans and personal lines of credit),
agricultural, and real estate lending; safe deposit and night depository
services; farm management; full service trust departments; discount brokerage
services and purchases of installment obligations from retailers, primarily
without recourse. The other industry segment involves retail payment processing.
FirsTech provides the following services to electric, water and gas utilities,
telecommunication companies, cable television firms and charitable
organizations: retail lockbox processing of payments delivered by mail to the
biller; processing of payments delivered by customers to pay agents such as
grocery stores, convenience stores and currency exchanges; and concentration of
payments delivered by the Automated Clearing House network, money management
software such as Quicken and through networks such as Visa e-Pay and Mastercard
RPS. The following is a summary of selected data for the various business
segments:
Banking Remittance
Services Services Company Eliminations Total
--------------------------------------------------------------------------------------------------
September 30, 2001
Total interest income ....... $ 55,932 $ 105 $ 89 $ (209) $ 55,917
Total interest expense ...... 26,939 -- -- (209) 26,730
Provision for loan losses ... 845 -- -- -- 845
Total non-interest income ... 7,762 5,398 151 (630) 12,681
Total non-interest expense .. 19,589 3,997 837 (630) 23,793
Income before income tax .... 16,321 1,506 (597) -- 17,230
Income tax expense .......... 5,120 547 (213) -- 5,454
Net income .................. 11,201 959 (384) -- 11,776
Total assets ................ 1,095,240 7,212 140,264 (138,041) 1,104,675
Depreciation and amortization 1,619 369 21 -- 2,009
September 30, 2000
Total interest income ....... $ 54,831 $ 100 $ 139 139 $ (288) $ 54,782
Total interest expense ...... 26,942 -- -- (288) 26,654
Provision for loan losses ... 458 -- -- -- 458
Total non-interest income ... 7,370 5,823 136 (975) 12,354
Total non-interest expense .. 18,738 4,587 4,374 (975) 26,724
Income before income tax .... 16,063 1,336 (4,099) -- 13,300
Income tax expense .......... 5,008 461 (624) -- 4,845
Net income .................. 11,055 875 (3,475) -- 8,455
Total assets ................ 1,034,334 6,382 126,422 (122,170) 1,044,968
Depreciation and amortization 1,709 392 18 -- 2,119
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
--------------------------------------------------------------------------------
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions.
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 3. Quantitative and Qualitative Disclosures about Market Risk
See the "Interest Rate Sensitivity" section above.
28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company or its
subsidiaries is a party other than ordinary routine litigation incidental to
their respective businesses.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports
None
29
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAIN STREET TRUST, INC.
Date: November 13, 2001
By: /s/ David B. White
-----------------------------------------
David B. White, Executive Vice President
and Chief Financial Officer
By: /s/ Van A. Dukeman
-----------------------------------------
Van A. Dukeman, President
and Chief Executive Officer
30