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 June 30, 2002
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
---------------------------------------------------
(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 August 7, 2002.
Main Street Trust, Inc. Common Stock 10,501,787
1
Table of Contents
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 28
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 30
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
(Unaudited, in thousands, except share data)
June 30, December 31,
2002 2001
---------------------------
ASSETS
Cash and due from banks ......................................................... $ 60,589 $ 87,895
Federal funds sold and interest earning deposits ................................ 3,603 7,484
Investments in debt and equity securities:
Available-for-sale, at fair value ............................................. 248,846 266,496
Held-to-maturity, at cost (fair value of $55,048 and $64,727
at June 30, 2002 and December 31, 2001, respectively) ....................... 53,391 63,818
Non-marketable equity securities .............................................. 6,079 5,108
Mortgage loans held for sale .................................................... 2,131 8,775
Loans, net of allowance for loan losses of $9,401 and $9,259
at June 30, 2002 and December 31, 2001, respectively .......................... 680,661 673,061
Premises and equipment .......................................................... 18,928 19,259
Accrued interest receivable ..................................................... 7,631 8,890
Other assets .................................................................... 13,447 10,725
--------------------------
Total assets ............................................................ $ 1,095,306 $ 1,151,511
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing ................................................ $ 111,491 $ 133,406
Demand, interest bearing .................................................... 98,144 111,241
Savings ..................................................................... 291,015 267,838
Time, $100 and over ......................................................... 129,718 140,042
Other time .................................................................. 231,074 231,582
--------------------------
Total deposits .......................................................... 861,442 884,109
Federal funds purchased, repurchase agreements and notes payable ................ 55,182 85,207
Federal Home Loan Bank advances and other borrowings ............................ 37,839 34,895
Accrued interest payable ........................................................ 2,785 3,390
Other liabilities ............................................................... 9,093 7,917
--------------------------
Total liabilities ....................................................... 966,341 1,015,518
--------------------------
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares authorized ................... -- --
Common stock, $0.01 par value; 15,000,000 shares authorized; 11,219,319 and
11,111,281 shares issued at June 30, 2002 and December 31, 2001, respectively 112 111
Paid in capital ............................................................... 55,347 54,147
Retained earnings ............................................................. 87,065 83,810
Accumulated other comprehensive income ........................................ 2,975 2,750
--------------------------
145,499 140,818
Less: treasury stock, at cost, 711,832 and 267,783 shares
at June 30, 2002 and December 31, 2001, respectively .......................... (16,534) (4,825)
--------------------------
Total shareholders' equity .............................................. 128,965 135,993
--------------------------
Total liabilities and shareholders' equity .............................. $ 1,095,306 $ 1,151,511
==========================
See accompanying notes to unaudited consolidated financial statements.
3
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Six Months Ended June 30, 2002 and 2001
(Unaudited, in thousands, except share data)
2002 2001
-------------------------
Interest income: .................................................
Loans and fees on loans ........................................ $ 24,382 $ 28,349
Investments in debt and equity securities
Taxable ...................................................... 6,455 7,186
Tax-exempt ................................................... 1,194 1,107
Federal funds sold and interest earning deposits ............... 196 1,235
-------------------------
Total interest income .................................... 32,227 37,877
Interest expense:
Demand, savings, and other time deposits ....................... 7,400 12,996
Time deposits $100 and over .................................... 2,325 2,776
Federal funds purchased, repurchase agreements and notes payable 649 1,482
Federal Home Loan Bank advances and other borrowings ........... 993 1,171
-------------------------
Total interest expense ................................... 11,367 18,425
-------------------------
Net interest income ...................................... 20,860 19,452
Provision for loan losses ........................................ 660 610
-------------------------
Net interest income after provision for loan losses ...... 20,200 18,842
Non-interest income:
Remittance processing .......................................... 3,786 3,320
Trust and brokerage fees ....................................... 2,882 2,647
Service charges on deposit accounts ............................ 1,150 1,037
Securities transactions, net ................................... 290 219
Gain on sales of mortgage loans, net ........................... 395 315
Other .......................................................... 955 811
-------------------------
Total non-interest income ................................ 9,458 8,349
Non-interest expense:
Salaries and employee benefits ................................. 9,851 8,813
Occupancy ...................................................... 1,161 1,125
Equipment ...................................................... 1,362 1,571
Data processing ................................................ 1,238 861
Office supplies ................................................ 634 787
Service charges from correspondent banks ....................... 483 439
Other .......................................................... 2,368 2,393
-------------------------
Total non-interest expense ............................... 17,097 15,989
Income before income taxes ............................... 12,561 11,202
Income taxes ..................................................... 4,108 3,470
-------------------------
Net income ............................................... $ 8,453 $ 7,732
=========================
Per share data:
Basic earnings per share ....................................... $ 0.77 $ 0.70
Weighted average shares of common stock outstanding ............ 11,045,188 10,972,701
Diluted earnings per share ..................................... $ 0.76 $ 0.69
Weighted average shares of common stock and dilutive potential
common shares outstanding .................................... 11,110,716 11,174,324
See accompanying notes to unaudited consolidated financial statements.
4
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Six Months Ended June 30, 2002 and 2001
(Unaudited, in thousands)
2002 2001
------------------
Net income ............................................................ $ 8,453 $ 7,732
------------------
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gains arising during period, net of tax1 of
$476 and $1,059 for June 30, 2002 and 2001, respectively ........ 399 2,057
Less: reclassification adjustment for (gains) losses included in net
income, net of tax1 of $(116) and $(74), for June 30, 2002
and 2001, respectively ............................................ (174) (145)
------------------
Other comprehensive income, net of tax .............................. 225 1,912
------------------
Comprehensive income ................................................ $ 8,678 $ 9,644
==================
See accompanying notes to unaudited consolidated financial statements.
1 During the second quarter of 2002, the Company's tax rate used to calculate
deferred taxes on investment securities was increased to reflect a change
in the tax position of the Company.
5
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Three Months Ended June 30, 2002 and 2001
(Unaudited, in thousands, except share data)
2002 2001
-------------------------
Interest income:
Loans and fees on loans ........................................ $ 12,195 $ 14,113
Investments in debt and equity securities
Taxable ...................................................... 3,130 3,504
Tax-exempt ................................................... 594 564
Federal funds sold and interest earning deposits ............... 101 575
-------------------------
Total interest income .................................... 16,020 18,756
-------------------------
Interest expense:
Demand, savings, and other time deposits ....................... 3,485 6,240
Time deposits $100 and over .................................... 1,233 1,346
Federal funds purchased, repurchase agreements and notes payable 323 703
Federal Home Loan Bank advances and other borrowings ........... 499 557
-------------------------
Total interest expense ................................... 5,540 8,846
-------------------------
Net interest income ...................................... 10,480 9,910
Provision for loan losses ........................................ 330 375
-------------------------
Net interest income after provision for loan losses ...... 10,150 9,535
Non-interest income:
Remittance processing .......................................... 1,837 1,660
Trust and brokerage fees ....................................... 1,429 1,370
Service charges on deposit accounts ............................ 596 553
Securities transactions, net ................................... 220 142
Gain on sales of mortgage loans, net ........................... 176 160
Other .......................................................... 476 377
-------------------------
Total non-interest income ................................ 4,734 4,262
Non-interest expense:
Salaries and employee benefits ................................. 5,096 4,297
Occupancy ...................................................... 609 511
Equipment ...................................................... 674 810
Data processing ................................................ 675 397
Office supplies ................................................ 293 398
Service charges from correspondent banks ....................... 247 237
Other .......................................................... 1,335 1,273
-------------------------
Total non-interest expense ............................... 8,929 7,923
Income before income taxes ............................... 5,955 5,874
Income taxes ..................................................... 1,912 1,810
-------------------------
Net income ............................................... $ 4,043 $ 4,064
=========================
Per share data:
Basic earnings per share ....................................... $ 0.37 $ 0.37
Weighted average shares of common stock outstanding ............ 11,028,764 10,956,848
Diluted earnings per share ..................................... $ 0.36 $ 0.36
Weighted average shares of common stock and dilutive potential
common shares outstanding .................................... 11,107,133 11,162,617
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 June 30, 2002 and 2001
(Unaudited, in thousands)
2002 2001
------------------
Net income ......................................................... $ 4,043 $ 4,064
------------------
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gains arising during period, net of tax1 of
$1,169 and $460 for June 30, 2002 and 2001, respectively ..... 1,708 895
Less: reclassification adjustment for (gains) losses included in
net income, net of tax1 of $(92) and $(48) for June 30, 2002
and 2001, respectively ........................................ (128) (94)
------------------
Other comprehensive income, net of tax .......................... 1,580 801
------------------
Comprehensive income ............................................ $ 5,623 $ 4,865
==================
See accompanying notes to unaudited consolidated financial statements.
1 During the second quarter of 2002, the Company's tax rate used to calculate
deferred taxes on investment securities was increased to reflect a change
in the tax position of the Company.
7
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ending June 30, 2002 and 2001
(Unaudited, in thousands)
2002 2001
----------------------
Cash flows from operating activities:
Net income .......................................................... $ 8,453 $ 7,732
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ..................................... 1,321 1,429
(Accretion) amortization of bond discounts and premiums, net ...... 548 (228)
Provision for loan losses ......................................... 660 610
Securities transactions, net ...................................... (290) (219)
Gain on sales of mortgage loans, net .............................. (395) (315)
Federal Home Loan Bank stock dividend ............................. (89) (105)
Proceeds from sales of mortgage loans originated for sale ......... 45,411 39,402
Mortgage loans originated for sale ................................ (38,372) (44,731)
Other, net ........................................................ (962) (2,244)
---------------------
Net cash provided by operating activities ..................... 16,285 1,331
---------------------
Cash flows from investing activities:
Net increase in loans ............................................... (8,499) (4,917)
Proceeds from maturities and calls of investments in debt securities:
Held-to-maturity .................................................. 1,791 26,956
Available-for-sale ................................................ 51,866 42,337
Proceeds from sales of investments:
Available-for-sale ................................................ 43,122 68,737
Purchases of investments in debt and equity securities:
Held-to-maturity .................................................. (575) (17,493)
Available-for-sale ................................................ (80,720) (111,351)
Other equity securities ........................................... (880) (500)
Principal paydowns from mortgage-backed securities:
Held-to-maturity .................................................. 9,157 4,179
Available-for-sale ................................................ 3,730 1,372
Principal paydowns on other equity securities ....................... 31 31
Purchases of premises and equipment ................................. (977) (892)
---------------------
Net cash provided by investing activities ..................... 18,046 8,459
---------------------
Cash flows from financing activities:
Net decrease in deposits ............................................ (22,667) (37,184)
Net (decrease) increase in federal funds purchased,
repurchase agreements, and notes payable .......................... (30,025) 8,445
Advances from Federal Home Loan Bank and other borrowings ........... 12,977 5,000
Payments on Federal Home Loan Bank and other borrowings ............. (10,033) (5,053)
Cash dividends paid ................................................. (2,906) (2,197)
Issuance of new shares of common stock, net ......................... 1,222 --
Treasury stock transactions, net .................................... (14,086) (961)
----------------------
Net cash used in financing activities ......................... (65,518) (31,950)
----------------------
Net decrease in cash and cash equivalents ..................... (31,187) (22,160)
Cash and cash equivalents at beginning of year ........................ 95,379 84,139
----------------------
Cash and cash equivalents at end of period ............................ $ 64,192 $ 61,979
======================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest .......................................................... $ 11,972 $ 18,879
Income taxes ...................................................... 4,741 5,338
Real estate acquired through or in lieu of foreclosure .............. 239 --
Dividends declared not paid ......................................... 1,366 1,146
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, 2001, and schedules included in Main Street Trust,
Inc.'s. Form 10-K filed on March 20, 2002.
In the opinion of management, the consolidated financial statements of Main
Street Trust, Inc. (the "Company") and its subsidiaries, as of June 30, 2002 and
for the three-month and six-month periods ended June 30, 2002 and 2001, 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 six-month periods ended June 30,
2002 are not necessarily indicative of the results which may be expected for the
year ended December 31, 2002.
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 2001 consolidated financial statements have been
reclassified to conform with the 2002 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 17 banking centers and is the parent company of
BankIllinois, First National Bank of Decatur, and FirsTech, Inc., a retail
payment processing company. The Company received approval from its bank
regulators to merge BankIllinois and the Company's former banking subsidiary,
First Trust Bank of Shelbyville. The merger was effective June 19, 2002 and the
resulting bank is BankIllinois. The merger is not expected to have a significant
impact on the consolidated financial statements.
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.
On April 23, 2002, the Company commenced a tender offer to acquire up to
1,200,000 of its shares of common stock at a price of $23.00 per share. The
tender offer was completed on June 7, 2002 with 711,832 shares, representing
approximately 6.3% of the total shares outstanding, repurchased at a cost,
including expenses, of $16.534 million.
Note 3. New Accounting Rules and Regulations
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.
9
Note 4. Income per Share
Net income per common share has been computed as follows:
Six Month Ended Three Months Ended
June 30, June 30,
-----------------------------------------------------
2002 2001* 2002 2001*
-----------------------------------------------------
Net Income .............................. $ 8,453,000 $ 7,732,000 $ 4,043,000 $ 4,064,000
=====================================================
Shares:
Weighted average common shares
outstanding ......................... 11,045,188 10,972,701 11,028,764 10,956,848
Dilutive effect of outstanding options,
as determined by the application of
the treasury stock method ........... 65,528 201,623 78,369 205,769
-----------------------------------------------------
Weighted average common shares
outstanding, as adjusted ............ 11,110,716 11,174,324 11,107,133 11,162,617
=====================================================
Basic earnings per share ................ $ 0.77 $ 0.70 $ 0.37 $ 0.37
=====================================================
Diluted earnings per share .............. $ 0.76 $ 0.69 $ 0.36 $ 0.36
=====================================================
* As restated for 5% Sept. 2001 stock dividend
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations Financial Condition
Assets and Liabilities
Total assets decreased $56.205 million, or 4.9%, to $1.095 billion at June 30,
2002 compared to $1.152 billion at December 31, 2001. Increases in loans, other
assets and non-marketable equity securities were offset by decreases in all
other asset categories.
Cash and due from banks decreased $27.306 million, or 31.1%, to $60.589 million
at June 30, 2002 compared to $87.895 million at December 31, 2001, due to a
smaller dollar amount of deposit items in process of collection at June 30, 2002
compared to December 31, 2001.
Federal funds sold and interest earning deposits decreased $3.881 million, or
51.9%, to $3.603 million at June 30, 2002 compared to $7.484 million at December
31, 2001. Federal funds sold and interest earning deposits fluctuate with loan
demand and deposit volume.
Total investments in debt and equity securities decreased $27.106 million, or
8.1%, to $308.316 million at June 30, 2002 compared to $335.422 million at
December 31, 2001. Investments in securities available-for-sale decreased
$17.650 million, or 6.6%, and investments in debt and equity securities
held-to-maturity decreased $10.427 million, or 16.3%, at June 30, 2002 compared
to December 31, 2001. Slightly offsetting these decreases was an increase in
non-marketable equity securities of $0.971 million, or 19.0%, for the same
period. Investments fluctuate with loan demand and deposit volume.
Mortgage loans held for sale decreased $6.644 million, or 75.7%, to $2.131
million at June 30, 2002 compared to $8.775 million at December 31, 2001.
Although interest rates continue to be low and demand good, the volume of
mortgage loans during the first half of 2002 decreased compared to the increased
volume during the fourth quarter of 2001.
Loans, net of allowance for loan losses, increased $7.600 million, or 1.1% to
$680.661 million at June 30, 2002 from $673.061 million at December 31, 2001. An
increase in real estate loans of $34.632 million, or 10.9%, was partially offset
by decreases in commercial, financial and agricultural loans of $15.566 million,
or 6.3%, and installment and consumer loans of $11.324 million, or 9.5%, at June
30, 2002 compared to December 31, 2001.
10
Premises and equipment decreased $0.331 million, or 1.7%, from $19.259 million
at December 31, 2001 to $18.928 million at June 30, 2002. The decrease was
caused by depreciation expense of $1.308 million offset by purchases of $0.977
million.
Other assets increased $2.722 million, or 25.4%, from $10.725 million at
December 31, 2001 to $13.447 million at June 30, 2002. Included in this increase
was a $1 million receivable for a US Treasury Note that had matured on June 30th
and was collected on July 1st, as well as other real estate owned of $0.239
million at June 30, 2002 compared to $0 at December 31, 2001.
Total liabilities decreased $49.177 million, or 4.8%, to $966.341 million at
June 30, 2002 from $1.016 billion at December 31, 2001. Decreases in federal
funds purchased, repurchase agreements and notes payable, total deposits, and
accrued interest payable were slightly offset by an increase in Federal Home
Loan Bank advances and other borrowings and other liabilities.
Total deposits decreased $22.667 million, or 2.6%, to $861.442 million at June
30, 2002 from $884.109 million at December 31, 2001. Decreases in deposits
included $21.915 million, or 16.4%, in non-interest bearing demand deposits,
$13.097 million, or 11.8%, in interest bearing demand deposits, $10.324 million,
or 7.4%, in time deposits $100,000 and over, and $0.508 million, or 0.2%, in
other time. Somewhat offsetting these decreases was an increase of $23.177
million, or 8.7%, in savings deposits. The decrease in time deposits $100,000
and over included the maturity of a short-term $25.6 million deposit at the
beginning of 2002. Despite the decrease from year-end, total deposits were
$58.694 million, or 7.3%, higher than the June 30, 2001 balance of $802.748
million. Much of the shift in deposit volume from both non-interest bearing
demand deposits and interest bearing demand deposits into savings deposits was
the result of reclassifying additional accounts identified as non-transactional
(exhibiting stable balance portions) into the savings category. Current
regulations allow this reclassification in order to reduce the balances required
to be held at the Federal Reserve Bank in a non-interest bearing reserve
account.
Federal funds purchased, repurchase agreements and notes payable decreased
$30.025 million, or 35.2%, to $55.182 million at June 30, 2002 compared to
$85.207 million at December 31, 2001. Included in this change were decreases of
$25.149 million in repurchase agreements, $3.675 million in federal funds
purchased and $1.201 million in notes payable.
Federal Home Loan Bank advances and other borrowings increased $2.944 million,
or 8.4%, to $37.839 million at June 30, 2002 compared to $34.895 million at
December 31, 2001. The Company temporarily borrowed $3 million from a
correspondent bank to fund the tender offer. This borrowing is expected to be
repaid during the third quarter from dividends received from subsidiary
companies.
Other liabilities increased $1.176 million, or 14.9%, to $9.093 million at June
30, 2002 from $7.917 million at December 31, 2001.
11
Investment Securities
The carrying value of investments in debt and equity securities was as follows
for June 30, 2002 and December 31, 2001:
Carrying Value of Securities
(in thousands)
June 30, December 30,
2002 2001
-----------------------
Available-for-sale:
U.S. Treasury .................................. $ 4,496 $ 8,577
Federal agencies ............................... 179,035 191,325
Mortgage-backed securities ..................... 43,160 28,279
State and municipal ............................ 16,462 15,642
Corporate and other obligations ................ 1,006 3,099
Marketable equity securities ................... 4,687 19,574
-----------------------
Total available-for-sale ................. $248,846 $266,496
=======================
Held-to-maturity:
Federal agencies ............................... $ 1,750 $ 1,750
Mortgage-backed securities ..................... 10,657 19,842
State and municipal ............................ 40,984 42,226
-----------------------
Total held-to-maturity ................... $ 53,391 $ 63,818
=======================
Non-marketable equity securities:
FHLB and FRB stock1 ............................ $ 3,855 $ 3,766
Other equity investments ....................... 2,224 1,342
-----------------------
Total .................................... $ 6,079 $ 5,108
=======================
Total investment securities .............. $308,316 $335,422
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 June 30, 2002. All securities are shown at their
contractual maturity.
Maturities and Weighted Average Yields of Debt Securities
(dollars in thousands)
---------------------------------------------------------------------------------------
June 30, 2002
---------------------------------------------------------------------------------------
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 ................. $ 2,446 5.71% $ 2,050 3.03% $ -- -- $ -- -- $ 4,496 4.49%
Federal agencies .............. $58,525 5.30% $117,869 4.73% $ 2,641 6.42% $ -- -- $179,035 4.94%
Mortgage-backed ............... $14,755 4.03% $ 14,059 5.48% $ 4,403 7.37% $ 9,943 6.29% $ 43,160 5.36%
securities 1
State and municipal ........... $ 764 6.63% $ 8,008 6.41% $ 5,475 7.55% $ 2,215 7.27% $ 16,462 6.91%
Other securities .............. $ 1,006 4.26% $ -- -- $ -- -- $ -- -- $ 1,006 4.26%
Marketable equity
securities .................. $ -- $ -- -- $ -- -- $ -- -- $ 4,687 --
----------------------------------------------------------------------------------------
Total ................... $77,496 $141,986 $12,519 $12,158 $248,846
========================================================================================
Average Yield ................... 5.07% 4.88% 7.25% 6.47% 5.14%
========================================================================================
Securities held-
to-maturity
Federal agencies .............. $ 1,750 6.03% $ -- -- $ -- -- $ -- -- $ 1,750 6.03%
Mortgage-backed
securities1 ................. $ 4,125 5.20% $ 4,825 6.15% $ 337 4.20% $ 1,370 6.42% $ 10,657 5.75%
State and municipal ........... $ 4,859 6.07% $ 29,218 6.27% $ 6,907 7.14% $ -- -- $ 40,984 6.39%
----------------------------------------------------------------------------------------
Total ................... $10,734 $ 34,043 $ 7,244 $ 1,370 $ 53,391
========================================================================================
Average Yield ................... 5.73% 6.25% 7.00% 6.42% 6.25%
========================================================================================
Non-marketable equity securities2
FHLB and FRB stock ............ $ -- -- $ -- -- $ -- -- $ -- -- $ 3,855 --
Other equity investments ...... -- -- -- -- -- -- -- -- 2,224 --
---------------------------------------------------------------------------------------
Total ................... $ -- -- $ -- -- $ -- -- $ -- -- $ 6,079 --
=======================================================================================
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.
Loans
The following tables present the amounts and percentages of loans for June 30,
2002 and December 31, 2001 according to the categories of commercial, financial
and agricultural; real estate; and installment and consumer loans.
Amount of Loans Outstanding
(dollars in thousands)
June 30, 2002 December 31, 2001
----------------------------------------
Amount Percentage Amount Percentage
----------------------------------------
Commercial, financial and agricultural $230,476 33.40% $246,042 36.06%
Real estate .......................... 351,325 50.91% 316,693 46.41%
Installment and consumer1 ............ 108,261 15.69% 119,585 17.53%
----------------------------------------
Total loans .................. $690,062 100.00% $682,320 100.00%
========================================
1 Net of unearned discount
13
The balance of loans outstanding as of June 30, 2002 by maturity is shown in the
following table:
Maturity of Loans Outstanding
(dollars in thousands)
June 30, 2002
1 year 1 to 5 Over 5
or less years years Total
---------------------------------------
Commercial, financial and agricultural $112,495 $ 96,773 $ 21,208 $230,476
Real estate .......................... 40,332 133,695 177,298 351,325
Installment and consumer1 ............ 33,593 61,428 13,240 108,261
---------------------------------------
Total ........................ $186,420 $291,896 $211,746 $690,062
=======================================
Percentage of total loans outstanding 27.01% 42.30% 30.69% 100.00%
=======================================
1 Net of unearned discount
Capital
Total shareholders' equity decreased $7.028 million from December 31, 2001 to
June 30, 2002. Treasury stock transactions were $14.086 million, primarily due
to the completion of the tender offer, offset partially by the exercise of
employee stock options. Stock options exercised prior to the completion of the
tender offering were fulfilled using existing treasury stock, if available, and
through the issuance of new shares. The change is summarized as follows:
(in thousands)
--------------
Shareholders' equity, December 31, 2001 ..................... $ 135,993
Net income .................................................. 8,453
Issuance of new shares of common stock, net ................. 1,222
Treasury stock transactions, net ............................ (14,086)
Stock appreciation rights ................................... (22)
Cash dividends declared ..................................... (2,820)
Other comprehensive income .................................. 225
---------
Shareholders' equity, June 30, 2002 ......................... $ 128,965
=========
On June 18, 2002, the Board of Directors of the Company declared a quarterly
cash dividend of $0.13 per share of the Company's common stock. The dividend of
$1.366 million was paid on July 19, 2002 to holders of record on July 8, 2002.
On April 23, 2002, the Company commenced a tender offer to acquire up to
1,200,000 of its shares of common stock at a price of $23.00 per share. The
tender offer was completed on June 7, 2002 with 711,832 shares, representing
approximately 6.3% of the total shares outstanding, repurchased at a cost,
including expenses, of $16.534 million.
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 June 30,
2002, that the Company and its subsidiary banks exceeded all capital adequacy
requirements to which they are subject.
14
As of June 30, 2002, 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.
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 June 30, 2002:
Total capital
(to risk-weighted assets)
Consolidated ................. $134,754 17.7% $ 60,797 8.0% N/A
BankIllinois ................. $ 75,159 16.0% $ 37,493 8.0% $ 46,867 10.0%
First National Bank of Decatur $ 49,169 16.6% $ 23,770 8.0% $ 29,713 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated ................. $125,262 16.5% $ 30,398 4.0% N/A
BankIllinois ................. $ 69,332 14.8% $ 18,747 4.0% $ 28,120 6.0%
First National Bank of Decatur $ 45,504 15.3% $ 11,885 4.0% $ 17,828 6.0%
Tier I capital
(to average assets)
Consolidated ................. $125,262 11.4% $ 44,034 4.0% N/A
BankIllinois ................. $ 69,332 10.5% $ 26,315 4.0% $ 32,894 5.0%
First National Bank of Decatur $ 45,504 10.5% $ 17,262 4.0% $ 21,578 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 June 30, 2002:
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 ............ $ 3,603 $ -- $ -- $ -- $ -- $ 3,603
Debt and equity securities 1 ........... 7,221 18,331 23,502 33,932 225,330 308,316
Loans 2 ................................ 168,053 28,217 32,180 51,137 412,606 692,193
---------------------------------------------------------------------
Total earning assets ............. $178,877 $ 46,548 $ 55,682 $ 85,069 $637,936 $1,004,112
---------------------------------------------------------------------
Interest bearing liabilities:
Savings and interest bearing
demand deposits 3 .................... $ 50,280 $ 1,330 $ 1,996 $ 3,991 $151,669 $ 209,266
Money market savings deposits .......... 142,922 -- -- -- -- 142,922
Time deposits .......................... 30,573 45,056 63,649 84,937 136,577 360,792
Federal funds purchased, repurchase
agreements, and notes payable ........ 54,181 -- 289 127 585 55,182
FHLB advances and other borrowings ..... 8,000 10,000 2,000 10,138 7,701 37,839
---------------------------------------------------------------------
Total interest bearing liabilities $285,956 $ 56,386 $ 67,934 $ 99,193 $296,532 $ 806,001
---------------------------------------------------------------------
Net asset (liability) funding gap (107,079) (9,838) (12,252) (14,124) 341,404 198,111
---------------------------------------------------------------------
Repricing gap ............................ 0.63 0.83 0.82 0.86 2.15 1.25
Cumulative repricing gap ................. 0.63 0.66 0.69 0.72 1.25 1.25
=====================================================================
1 Debt and equity securities include 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
$36.971 million of non-transactional accounts which are savings accounts
that are non-interest bearing.
16
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%
At June 30, 2002, 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 $1.071
million in the 1-30 days category and $1.169 million 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 is able to borrow funds on a temporary basis from
the Federal Reserve Bank and correspondent banks to meet short-term
requirements. Additionally, the Company can borrow approximately $38 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 June 30, 2002 and December 31,
2001 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
June 30, 2002 .................... 4.0% 2.0% (2.0%) (4.1%)
December 31, 2001 ................ 4.2% 2.1% (2.1%) (3.6%)
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.
17
Liquidity and Cash Flows
The Company was able to meet liquidity needs during the first six months of
2002. 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 $31.187 million from December 31, 2001 to June 30, 2002.
This decrease came from cash used in financing activities offset somewhat by
cash provided by operating and investing activities.
There were differences in the sources and uses of cash during the first six
months of 2002 compared to the first six months of 2001. More cash was provided
by operating activities during the first six months of 2002 compared to the same
period of 2001. Cash was provided during the first six months of 2002 from net
loans originated for sale because proceeds from sales were higher than
originated loans, whereas during the first six months of 2001, cash was used by
net loans originated for sale because originated loans were higher than proceeds
from sales. More cash was provided by investing activities during the first six
months of 2002 compared to the first six months of 2001 due to changes in the
Company's investment portfolio. During the first six months of 2002, net cash
provided by investing activities involving the Company's investment portfolio
was $27.522 million compared to $14.268 million during the same period in 2001.
More cash was used in financing activities during the first six months of 2002
compared to the first six months of 2001. This was mainly due to a decrease in
federal funds purchased, repurchase agreements and notes payable during the
first six months of 2002 compared to an increase during the same period in 2001,
and an increase in purchases of treasury stock during the first six months of
2002 compared to the same period in 2001, primarily due to the tender offer.
These uses of cash were slightly offset by a net source of funds from Federal
Home Loan Bank and other borrowings due to advances exceeding payments during
the first half of 2002 compared to the same period in 2001.
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 allowance is allocated between the
commercial, residential real estate and consumer loan portfolios according to
the historical losses experienced in each of these portfolios as well as the
current level of watch list loans and nonperforming loans for each portfolio.
The unallocated portion of the allowance is determined by economic conditions
and the other factors mentioned above. The balance of the allowance for loan
losses was $9.401 million at June 30, 2002 compared to $9.259 million at
December 31, 2001, as net charge-offs were $518,000 and provisions totaled
$660,000 during the first six months of 2002. The allowance for loan losses as a
percentage of gross loans, including loans held-for-sale, was 1.36% at June 30,
2002, compared to 1.34% at December 31, 2001 as gross loans, including loans
held-for-sale, remained fairly stable, increasing slightly to $692.193 million
at June 30, 2002 from $691.095 million at December 31, 2001.
The allowance for loan losses as a percentage of nonperforming loans was 274.0%
at June 30, 2002. Nonperforming loans decreased from $5.115 million at December
31, 2001 to $3.431 million at June 30, 2002. The $1.684 million decrease in
nonperforming loans during the first six months of 2002 was mainly due to a
$1.635 million decrease in nonaccrual loans. The decrease in nonaccrual loans
was due primarily to the successful resolution and payoff of a $1.727 million
agricultural credit. Management believes that nonperforming and potential
problem loans are appropriately identified and monitored based on the extensive
loan analysis performed by the credit administration department, the internal
loan committees and the board of directors. Historically, there has not been a
significant amount of loans charged off which had not been previously identified
as problem loans by the credit administration department or the loan committees.
Along with other financial institutions, management shares a concern for the
outlook of the economy during the remainder of 2002. A slowdown in economic
activity beginning in 2001 severely impacted several major industries as well as
the economy as a whole. Even though there are numerous indications of emerging
strength, it is not certain that this strength is sustainable. In addition,
consumer confidence may be negatively impacted by the recent substantial decline
in equity prices. These events could still adversely affect cash flows for 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)
June 30, June 30,
2002 2001
----------------------
Allowance for loan losses at
beginning of year ................................ $ 9,259 $ 8,879
---------------------
Charge-offs during period:
Commercial, financial and agricultural ........... $ (40) $ (243)
Real estate ...................................... (32) --
Installment and consumer ......................... (671) (501)
---------------------
Total ...................................... $ (743) $ (744)
---------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural ........... $ 124 $ 90
Residential real estate .......................... 26 36
Installment and consumer ......................... 75 104
---------------------
Total ...................................... $ 225 $ 230
---------------------
Net (charge-offs) recoveries ............... $ (518) $ (514)
Provision for loan losses .......................... 660 610
---------------------
Allowance for loan losses at end of quarter ........ $ 9,401 $ 8,975
=====================
Ratio of net (charge-offs) recoveries to
average net loans ................................ (0.08)% (0.08)%
---------------------
The following table shows the allocation of the allowance for loan losses
allocated to each category.
Allocation of the Allowance for Loan Losses
June 30, December 31,
2002 2001
----------------------
Allocated:
Commercial, financial and agricultural ............. $5,688 $5,487
Residential real estate ............................ 341 419
Installment and consumer ........................... 1,907 2,000
-------------------
Total allocated allowance .................... $7,936 $7,906
Unallocated allowances ............................... 1,465 1,353
-------------------
Total ................................................ $9,401 $9,259
===================
19
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."
Nonaccrual, Past Due and Restructured Loans (dollars in thousands)
June 30, December 31,
2002 2001
---------------------
Nonaccrual loans 1 ............................... $1,706 $3,341
=================
Loans past due 90 days or more ................... $1,725 $1,774
=================
Restructured loans 2 ............................. $ 58 $ 67
=================
1 Includes $780,000 at June 30, 2002 and $3.216 million at December 31, 2001
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).
2 Management does not consider restructured loans of $58,000 and $67,000 at
June 30, 2002 and December 31, 2001, respectively, to be nonperforming.
Other Nonperforming Assets (dollars in thousands)
June 30, 2002 December 31, 2001
----------------------------------
Other real estate owned ................ $239 $ --
======================
Nonperforming other assets ............. $140 $153
======================
Results of Operations
Results of Operations For the Six Months Ended June 30, 2002
Net income for the first six months of 2002 was $8.453 million, a $721,000, or
9.3%, increase from $7.732 million for the same period in 2001. Basic earnings
per share increased $0.07, or 10.0%, to $0.77 in the first six months of 2002
from $0.70 in the same period in 2001. Diluted earnings per share increased
$0.07, or 10.1%, to $0.76 in the first six months of 2002 from $0.69 during the
same period in 2001.
Operating earnings for the six months ended June 30, 2002 were $8.817 million
compared to $7.947 million for the same period in 2001, an increase of $870,000,
or 10.9%. Basic operating earnings per share increased 11.1% to $0.80 in the
first six months of 2002 from $0.72 during the same period in 2001. Diluted
operating earnings per share for the six months of 2002 increased 11.3% to $0.79
from $0.71 in the same period in 2001. The difference between operating and net
earnings was due to merger and restructuring related expenses, net of tax, of
$364,000 during the first half of 2002, compared to $215,000 during the same
period in 2001. The 2002 merger and restructuring related expenses consisted of
$529,000 of termination of employment contracts, $40,000 of professional fees
and $38,000 of data processing expense, offset by $243,000 of tax benefit. 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.
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)
Six Months Ended June 30,
2002 2001
-------------------------------------------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------
Assets
Taxable investment securities1 ......... $ 267,901 $ 6,455 4.86% $ 243,223 $ 7,186 5.96%
Tax-exempt investment securities1 (TE) . 55,179 1,837 6.71% 50,245 1,677 6.73%
Federal funds sold and interest earning
deposits2 ............................ 20,147 196 1.96% 48,037 1,235 5.18%
Loans3,4 (TE) .......................... 676,729 24,390 7.27% 662,057 28,381 8.64%
-------------------------------------------------------------------
Total interest earning assets
and interest income (TE) ....... $1,019,956 $ 32,878 6.50% $1,003,562 $38,479 7.73%
-------------------------------------------------------------------
Cash and due from banks ................ $ 47,655 $ 50,859
Premises and equipment ................. 19,068 20,724
Other assets ........................... 18,759 20,013
-------------------------------------------------------------------
Total assets ................... $1,105,438 $1,095,158
===================================================================
Liabilities and Shareholders' Equity
Interest bearing demand deposits ....... $ 101,178 $ 262 0.52% $ 93,903 $ 1,170 2.51%
Savings ................................ 250,925 2,196 1.76% 228,558 4,021 3.55%
Time deposits .......................... 342,511 7,267 4.28% 363,878 10,581 5.86%
Federal funds purchased, repurchase
agreements, and notes payable ........ 71,629 649 1.83% 71,683 1,482 4.17%
FHLB advances and other borrowings ..... 35,725 993 5.61% 40,009 1,171 5.90%
-------------------------------------------------------------------
Total interest bearing
liabilities and interest expense $ 801,968 $ 11,367 2.86% $ 798,031 18,425 4.66%
-------------------------------------------------------------------
Noninterest bearing demand deposits .... $ 103,983 $ 113,071
Noninterest bearing savings deposits ... 48,601 40,743
Other liabilities ...................... 10,717 14,909
-------------------------------------------------------------------
Total liabilities .............. $ 965,269 $ 966,754
Shareholders' equity ................... 140,169 128,404
-------------------------------------------------------------------
Total liabilities and
shareholders' equity ........... $1,105,438 $1,095,158
===================================================================
Interest spread (average rate earned
minus average rate paid) (TE) ........ 3.64% 3.08%
===================================================================
Net interest income (TE) ............... $ 21,511 $ 20,054
===================================================================
Net yield on interest
earnings assets (TE) ................. 4.25% 4.03%
===================================================================
See next page for Notes 1-4.
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
$33,000 and $70,000 in 2002 and 2001, 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 $492,000 and $440,000 in 2002 and 2001,
respectively, are included in total loan income.
21
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 35% at June 30, 2002, compared
to 34% at June 30, 2001. 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)
Six Months Ended June 30, 2002
Increase
(Decrease)
from
Previous Due to Due to
Year Volume Rate
-------------------------------
Interest Income
Taxable investment securities .................. $ (731) $ 1,637 $(2,368)
Tax-exempt investment securities (TE) .......... 160 173 (13)
Federal funds sold and interest earning deposits (1,039) (502) (537)
Loans (TE) ..................................... (3,991) 1,740 (5,731)
-----------------------------
Total interest income (TE) ............... $(5,601) $ 3,048 $(8,649)
-----------------------------
Interest Expense
Interest bearing demand and savings deposits1 .. $(2,733) $ 1,274 $(4,007)
Time deposits .................................. (3,314) (591) (2,723)
Federal funds purchased,
repurchase agreements and notes payable ...... (833) (1) (832)
FHLB advances and other borrowings ............. (178) (121) (57)
-----------------------------
Total interest expense ................... $(7,058) $ 561 $(7,619)
-----------------------------
Net Interest Income (TE) ......................... $ 1,457 $ 2,487 $(1,030)
=============================
1 Due to current regulatory issues, the Company is allowed to reclassify certain
non-transactional, or stable, demand deposits to savings deposits. Because of
these reclassifications, interest bearing demand and savings deposits are
included in the same line for comparability.
Net interest income on a tax equivalent basis was $1.457 million, or 7.3% higher
for the first six months of 2002 compared to 2001. Total tax-equivalent interest
income was $5.601 million or 14.6% lower in 2002 compared to 2001, and interest
expense decreased $7.058 million, or 38.3%. The decrease in interest income was
due to a decrease in rate offset somewhat by an increase in average earnings
assets. The decrease in interest expense was due to a decrease in rate offset
slightly by an increase in average interest bearing liabilities.
The decrease in total interest income was mainly due to a decrease in interest
income from loans as well as federal funds sold and interest earning deposits,
and taxable interest securities, offset slightly by an increase in income from
tax-exempt investment securities. The decreases in interest income from loans
and taxable investments were due to decreases in rates during the first six
months of 2002 compared to the first six months of 2001, offset somewhat by
increases in average balances. The decrease in interest income on federal funds
sold and interest earnings deposits was due to decreases in both rate and
average balance. The increase in tax-exempt investment interest income was due
to an increase in average balance.
22
The decrease in total interest expense was due to decreases in interest expense
from all categories of interest bearing liabilities. Interest expense on
interest bearing demand and savings deposits decreased during the first six
months of 2002 compared to the first six months of 2001 due to a decrease in
rates, offset somewhat by an increase in average balances. Interest expense on
time deposits, federal funds purchased, repurchase agreements and notes payable
and FHLB advances and other borrowings decreased during the first six months of
2002 compared to the first six months of 2001 due to both lower average balances
and lower rates.
The provision for loan losses recorded was $660,000 during the first six months
of 2002. This was $50,000, or 8.2%, higher than the $610,000 recorded during the
first six months of 2001. 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 $1.109 million, or 13.3%, during the first
six months of 2002 compared to the first six months of 2001. Included in this
increase was an increase of $466,000, or 14.0%, in income from remittance
processing. This increase was primarily due to renegotiated contracts, which
included restructured pricing for some customers. Income from trust and
brokerage fees increased $235,000, or 8.9%, during the first six months of 2002
compared to the same period in 2001. This increase was due, in part, to an
increase in assets under management with full investment discretion, which
generate higher fee income, and an increase in estate fee income. Other income
increased $144,000, or 17.8%, during the first six months of 2002 compared to
the same period in 2001. Of this increase, slightly more than one-half was
attributable to increases in MasterCard/Visa merchant income and Visa debit
interchange fees. Service charges on deposit accounts increased $113,000, or
10.9%, during the first six months of 2002 compared to the same period in 2001.
Gains on sales of mortgage loans held-for-sale increased $80,000, or 25.4%,
during the first six months of 2002 compared to the same period in 2001. This
increase reflected a $6.009 million, or 15.3%, increase in funded mortgage loans
held-for-sale during the first six months of 2002 compared to the same period in
2001. This increase was reflective of lower interest rates during the first six
months of 2002. Income from securities transactions increased $71,000, or 32.4%,
during the first six months of 2002 compared to the same period in 2001.
Total non-interest expense increased $1.108 million, or 6.9%, during the first
six months of 2002 compared to the same period in 2001. Of this increase,
salaries and employee benefits increased $1.038 million, or 11.8%, in the first
six months of 2002 compared to the same period in 2001. Contributing to the
increase in salaries and employee benefits was an increase of $273,000 in
salaries and benefits related to organizational restructuring that resulted in
termination of employment contracts, and an increase of $309,000 in group
insurance costs. Data processing expense increased $377,000, or 43.8%, in the
first six months of 2002 compared to the same period in 2001. Contributing to
this increase was a computer system conversion at the Company's Decatur bank
late in the first quarter of 2001 from in-house data processing to third party
service bureau data processing, conversion to a new system and a software
upgrade at the Company's remittance processing subsidiary FirstTech, costs to
merge First Trust Bank of Shelbyville and BankIllinois computer records, as well
as more extensive development of the Company's internet services during the
first six months of 2002 compared to the same period in 2001. Somewhat
offsetting these increases was a decrease of $209,000, or 13.3%, in equipment
expense during the first six months of 2002 compared to the same period in 2001.
This decrease was due, in part, to conversion to third party service bureau data
processing from in-house data processing at the Company's Decatur bank. Office
supplies decreased $153,000, or 19.4%, in the first six months of 2002 compared
to the first six months of 2001. Included in office supplies expense in 2001
were additional printing and mailing expense to announce a computer system
conversion, and additional supplies purchased as a result of the conversion.
Income tax expense increased $638,000, or 18.4%, during the first six months of
2002 compared to the first six months of 2001. The effective tax rate increased
to 32.7% during the first six months of 2002 from 31.0% during the same period
in 2001. The difference in the effective tax rate was that the 2001 expense was
offset by a state net operating loss carry forward that was fully utilized in
2001.
Results of Operations For the Three Months Ended June 30, 2002
Net income for the second quarter of 2002 was $4.043 million, a $21,000, or
0.5%, decrease from $4.064 million for the same period in 2001. Basic earnings
per share was $0.37 in both the second quarter of 2002 and the second quarter of
2001. Diluted earnings per share was $0.36 in both the second quarter of 2002
and the second quarter of 2001.
23
Operating earnings for the second quarter of 2002 were $4.407 million compared
to $4.064 million for the same period in 2001, an increase of $343,000, or 8.4%.
Basic operating earnings per share increased 8.1%, to $0.40, in the second
quarter of 2002 from $0.37 during the same period in 2001. Diluted operating
earnings per share for the second quarter of 2002 increased 11.1% to $0.40 from
$0.36 in the same period in 2001. The difference between operating and net
earnings in the second quarter of 2002 was due to merger and restructuring
related expenses, net of tax, of $364,000. The 2002 merger and restructuring
related expenses consisted of $529,000 of termination of employment contracts,
$40,000 of professional fees and $38,000 of data processing expense, offset by
$243,000 of tax benefit.
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 June 30,
2002 2001
---------------------------------------------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------
Assets
Taxable investment securities1 $ 261,893 $ 3,130 4.79% $ 233,279 $ 3,504 6.02%
Tax-exempt investment securities1 (TE) 54,871 928 6.78% 51,939 854 6.60%
Federal funds sold and interest earning
deposits2 19,755 101 2.05% 34,398 575 6.70%
Loans3,4 (TE) 679,983 12,200 7.20% 666,354 14,132 8.51%
--------------------------------------------------------------------
Total interest earning assets
and interest income (TE) $1,016,502 $16,359 6.46% $ 985,970 $19,065 7.76%
--------------------------------------------------------------------
Cash and due from banks $ 46,317 $ 54,907
Premises and equipment 19,000 20,514
Other assets 18,868 20,825
--------------------------------------------------------------------
Total assets $1,100,687 $1,082,216
====================================================================
Liabilities and Shareholders' Equity
Interest bearing demand deposits $ 96,272 $ 105 0.44% $ 99,941 $ 545 2.19%
Savings 250,668 1,082 1.73% 224,361 1,793 3.21%
Time deposits 346,634 3,531 4.09% 360,612 5,248 5.84%
Federal funds purchased, repurchase
agreements, and notes payable 70,954 323 1.83% 72,555 703 3.89%
FHLB advances and other borrowings 36,182 499 5.53% 40,932 557 5.46%
--------------------------------------------------------------------
Total interest bearing
liabilities and interest expense $ 800,710 $ 5,540 2.78% $ 798,401 $ 8,846 4.44%
--------------------------------------------------------------------
Noninterest bearing demand deposits $ 102,940 $ 118,066
Noninterest bearing savings deposits 45,241 20,623
Other liabilities 11,690 14,894
--------------------------------------------------------------------
Total liabilities $ 960,581 $ 951,984
Shareholders' equity 140,106 130,232
--------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 1,100,687 $1,082,216
====================================================================
Interest spread (average rate earned
minus average rate paid) (TE) 3.68% 3.31%
====================================================================
Net interest income (TE) $10,819 $10,219
====================================================================
Net yield on interest
earnings assets (TE) 4.27% 4.16%
====================================================================
See next page for Notes 1 - 4.
24
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
$14,000 and $35,000 in 2002 and 2001, respectively, of interest income from
third party processing of cashier checks.
3 Loans are net of allowance for loan losses. Nonaccrual loans are included
in the total.
4 Loan fees of approximately $242,000 and $265,000 in 2002 and 2001,
respectively, are included in total loan income.
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 June 30, 2002
Increase
(Decrease)
from
Previous Due to Due to
Year Volume Rate
------------------------------
Interest Income
Taxable investment securities .................. $ (374) $ 1,998 $(2,372)
Tax-exempt investment securities (TE) .......... 74 47 27
Federal funds sold and interest earning deposits (474) (180) (294)
Loans (TE) ..................................... (1,932) 1,809 (3,741)
-----------------------------
Total interest income (TE) ............... $(2,706) $ 3,674 $(6,380)
-----------------------------
Interest Expense
Interest bearing demand and savings deposits1 .. $(1,151) $ 1,017 $(2,168)
Time deposits .................................. (1,717) (198) (1,519)
Federal funds purchased,
repurchase agreements and notes payable ...... (380) (15) (365)
FHLB advances and other borrowings ............. (58) (114) 56
-----------------------------
Total interest expense ................... $(3,306) $ 690 $(3,996)
-----------------------------
Net Interest Income (TE) ......................... $ 600 $ 2,984 $(2,384)
=============================
1 Due to current regulatory issues, the Company is allowed to reclassify
certain non-transactional, or stable, demand deposits to savings deposits.
Because of these reclassifications, interest bearing demand and savings
deposits are included in the same line for comparability.
Net interest income on a tax equivalent basis was $0.600 million, or 5.9%,
higher for the second quarter of 2002 compared to the second quarter of 2001.
Total tax-equivalent interest income was $2.706 million, or 14.2%, lower in 2002
compared to 2001, and interest expense decreased $3.306 million, or 37.4%. The
decrease in interest income was due to a decrease in rates offset somewhat by an
increase in average balances. The decrease in interest expense was due to a
decrease in rates offset slightly by an increase in average balances.
The decrease in total interest income was due to decreases in interest income
from loans, federal funds sold and interest earning deposits, and taxable
investment securities. These decreases were offset slightly by an increase in
tax-exempt investment securities interest. The decreases in interest income from
loans and taxable investment securities were due to a decrease in rates during
the second quarter of 2002 compared to the second quarter of 2001, offset
somewhat by an increase in average balances. The decrease in federal funds sold
and interest earning deposits was due to a decrease in both average balance and
rate. The increase in interest from tax-exempt investments was caused by an
increase in both average balances and rate.
25
The decrease in total interest expense was due to decreases in interest expense
on all categories of interest bearing liabilities. Interest expense on time
deposits and federal funds purchased, repurchase agreements and notes payable
decreased during the second quarter of 2002 compared to the second quarter of
2001 due to both decreases in rates and average balances. Interest expense on
interest bearing demand and savings deposits decreased during the second quarter
of 2002 compared to the second quarter of 2001 due to a decrease in rates,
offset somewhat by an increase in average balances. Interest expense on FHLB
advances and other borrowings decreased due to a decrease in average balances,
offset somewhat by higher rates.
The provision for loan losses recorded was $330,000 during the second quarter of
2002. This was $45,000, or 12.0%, less than the $375,000 recorded during the
second quarter of 2001. 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 $472,000, or 11.1%, during the second
quarter of 2002 compared to the second quarter of 2001. Included in this
increase was an increase of $177,000, or 10.7%, in income from remittance
processing in the second quarter of 2002 compared to the same quarter in 2001.
This increase was primarily due to renegotiated contracts, which included
restructured pricing for some customers. Other income increased $99,000, or
26.3%, during the second quarter of 2002 compared to the same period in 2001.
This increase was due, in part, to increases in MasterCard/Visa merchant income
and Visa debit interchange fees. Income from securities transactions increased
$78,000, or 54.9%, during the second quarter of 2002 compared to the second
quarter of 2001. Income from trust and brokerage fees increased $59,000, or
4.3%, during the second quarter of 2002 compared to the same period in 2001.
This increase was due, in part, to an increase in assets under management with
full investment discretion, which generate higher fee income, and an increase in
estate fee income. Service charges on deposit accounts increased $43,000, or
7.8%, during the second quarter of 2002 compared to the same period in 2001.
Gains on sales of mortgage loans held-for-sale increased $16,000, or 10.0%,
during the second quarter of 2002 compared to the same period in 2001.
Total non-interest expense increased $1.006 million, or 12.7%, during the second
quarter of 2002 compared to the same period in 2001. Of this increase, salaries
and employee benefits increased $799,000, or 18.6%, in the second quarter of
2002 compared to the second quarter of 2001. Contributing to the increase in
salaries and employee benefits was an increase of $529,000 in salaries and
benefits related to organizational restructuring that resulted in termination of
employment contracts, and an increase of $181,000 in group insurance costs. Data
processing expense increased $278,000, or 70.0%, in the second quarter of 2002
compared to the same period in 2001. This was due, in part, to conversion to a
new system and a software upgrade at the Company's remittance processing
subsidiary FirstTech, a change at the Company's Decatur bank to a different
trust accounting system, costs to merge First Trust Bank of Shelbyville and
BankIllinois computer records and more extensive development of the Company's
internet services. Occupancy expense increased $98,000, or 19.2%, in the second
quarter of 2002 compared to the second quarter of 2001. Other noninterest
expense increased $62,000, or 4.9%, during the second quarter of 2002 compared
to the same period in 2001. Somewhat offsetting these increases was a decrease
of $136,000, or 16.8%, in equipment expense during the second quarter of 2002
compared to the same period in 2001. This decrease was due, in part, to
conversion to third party service bureau data processing from in-house data
processing at the Company's Decatur bank. Office supplies decreased $105,000, or
26.4%, in the second quarter of 2002 compared to the second quarter of 2001.
Included in office supplies expense in 2001 were additional printing and mailing
expense to announce a computer system conversion, and additional supplies
purchased as a result of the conversion.
Income tax expense increased $102,000, or 5.6%, during the second quarter of
2002 compared to the second quarter of 2001. The effective tax rate increased to
32.1% during the second quarter of 2002 from 30.8% during the same period in
2001. The difference in the effective tax rate was that the 2001 expense was
offset by a state net operating loss carry forward that was fully utilized in
2001.
26
Business Segment Information
The Company currently operates in two industry segments. The primary business
involves providing banking services to central Illinois. BankIllinois and First
National Bank of Decatur 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
-------------------------------------------------------------------------------------------------
June 30, 2002
Total interest income ....... $ 32,196 $ 50 $ 75 $ (94) $ 32,227
Total interest expense ...... 11,456 -- 5 (94) 11,367
Provision for loan losses ... 660 -- -- -- 660
Total non-interest income ... 5,876 3,847 58 (323) 9,458
Total non-interest expense .. 13,764 2,605 1,051 (323) 17,097
Income before income tax .... 12,192 1,292 (923) -- 12,561
Income tax expense .......... 3,957 516 (365) -- 4,108
Net income .................. 8,235 776 (558) -- 8,453
Total assets ................ 1,083,377 6,026 134,819 (128,916) 1,095,306
Depreciation and amortization 1,065 241 15 -- 1,321
June 30, 2001
Total interest income ....... $ 37,872 $ 72 $ 58 $ (125) $ 37,877
Total interest expense ...... 18,550 -- -- (125) 18,425
Provision for loan losses ... 610 -- -- -- 610
Total non-interest income ... 5,135 3,541 117 (444) 8,349
Total non-interest expense .. 13,100 2,646 687 (444) 15,989
Income before income tax .... 10,747 967 (512) -- 11,202
Income tax expense .......... 3,319 330 (179) -- 3,470
Net income .................. 7,428 637 (333) -- 7,732
Total assets ................ 1,065,623 6,876 136,740 (140,768) 1,068,471
Depreciation and amortization 1,170 246 13 -- 1,429
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This document (including information incorporated by reference) contains, and
future oral and written statements of the Company and its management may
contain, forward-looking statements, within the meaning of such term in the
Private Securities Litigation Reform Act of 1995, with respect to the financial
condition, results of operations, plans, objectives, future performance and
business of the Company. Forward-looking statements, which may be based upon
beliefs, expectations and assumptions of the Company's management and on
information currently available to management, are generally identifiable by the
use of words such as "believe", "expect", "anticipate", "plan", "intend",
"estimate", "may", "will", "would", "could", "should", or other similar
expressions. Additionally, all statements in this document, including
forward-looking statements, speak only as of the date they are made, and the
Company undertakes no obligation to update any statement in light of new
information or future events.
27
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
effect on the operations and future prospects of the Company and its
subsidiaries include, but are not limited to, the following:
o The strength of the United States economy in general and the strength of
the local economies in which the Company conducts its operations which may
be less favorable than expected and may result in, among other things, a
deterioration in the credit quality and value of the Company's assets.
o The economic impact of the terrorist attacks that occurred on September
11th, as well as any future threats and attacks, and the response of the
United States to any such threats and attacks.
o The effects of, and changes in, federal, state and local laws, regulations
and policies affecting banking, securities, insurance and monetary and
financial matters.
o The effects of changes in interest rates (including the effects of changes
in the rate of prepayments of the Company's assets) and the policies of the
Board of Governors of the Federal Reserve System.
o The ability of the Company to compete with other financial institutions as
effectively as the Company currently intends due to increase in competitive
pressures in the financial services sector.
o The inability of the Company to obtain new customers and to retain existing
customers.
o The timely development and acceptance of products and services, including
products and services offered through alternative delivery channels such as
the Internet.
o Technological changes implemented by the Company and by other parties,
including third party vendors, which may be more difficult or more
expensive than anticipated or which may have unforeseen consequences to the
Company and its customers.
o The ability of the Company to develop and maintain secure and reliable
electronic systems.
o The ability of the Company to retain key executives and employees and the
difficulty that the Company may experience in replacing key executives and
employees in an effective manner.
o Consumer spending and saving habits which may change in a manner that
affects the Company's business adversely. o Business combinations and the
integration of acquired businesses which may be more difficult or expensive
than expected.
o The costs, effects and outcomes of existing or future litigation.
o Changes in accounting policies and practices, as may be adopted by state
and federal regulatory agencies and the Financial Accounting Standards
Board.
o The ability of the Company to manage the risks associated with the
foregoing as well as anticipated.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
Additional information concerning the Company and its business, including other
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
On May 14, 2002, the Company's annual meeting of shareholders was held.
At the meeting, David J. Downey, Van A. Dukeman, Larry D. Haab, and
Gene A Salmon were elected to serve as Class III directors with terms
expiring in 2005. Continuing as Class I directors with terms expiring
in 2003 were Frederic L. Kenney, Gregory B. Lykins, August C. Meyer,
and Phillip C. Wise. Continuing as Class II directors with terms
expiring in 2004 were George T. Shapland, Thomas G. Sloan, Roy V.
VanBuskirk, and H. Gale Zacheis.
There were 11,182,601 issued and outstanding shares of common stock
entitled to vote at the annual meeting. The voting on each item
presented at the annual meeting was as follows:
Election of Directors: For Withheld
-----------------------------------------------------------------------
David J. Downey 9,845,368 29,606
Van A. Dukeman 9,845,547 29,427
Larry D. Haab 9,845,547 29,427
Gene A. Salmon 9,848,360 26,614
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
99.1. Certificate of Chief Executive Officer
99.2. Certificate of Chief Financial Officer
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: August 14, 2002
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