UNITED STATES
SECURITIES AND EXCHANGE COMMISION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
Commission File Number: 0-30031
MAIN STREET TRUST, INC
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Illinois 37-1338484
--------------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
100 West University, Champaign, Illinois 61820
---------------------------------------------------
(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 May 8, 2001
Main Street Trust, Inc. Common Stock 10,449,206
Table of Contents
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAIN STREET TRUST, INC AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2001 and December 31, 2000
(Unaudited, in thousands, except share data)
March 31, December 31,
2001 2000
--------------------------
ASSETS
Cash and due from banks ............................................... $ 59,765 $ 58,967
Federal funds sold and interest earning deposits ...................... 56,864 25,172
Investments in debt and equity securities:
Available-for-sale, at fair value ................................... 198,841 213,686
Held-to-maturity, at cost (fair value of $75,153 and
$84,849 at March 31, 2001 and December 31, 2000, respectively) 74,370 84,972
Non-marketable equity securities .................................... 4,845 4,529
Mortgage loans held for sale .......................................... 4,157 2,090
Loans, net of allowance for loan losses of $9,023 and
$8,879 at March 31, 2001 and December 31, 2000,
respectively ................................................. 656,660 659,849
Premises and equipment ................................................ 20,679 20,874
Accrued interest receivable ........................................... 9,432 10,629
Other assets .......................................................... 10,347 10,313
--------------------------
Total assets ................................................. $ 1,095,960 $ 1,091,081
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing ..................................... $ 125,896 $ 108,981
Demand, interest bearing ......................................... 255,547 233,838
Savings .......................................................... 99,096 139,802
Time, $100 and over .............................................. 102,426 100,030
Other time ....................................................... 261,493 257,281
--------------------------
Total deposits ............................................... 844,458 839,932
Federal funds purchased, repurchase agreements
and notes payable ....................................... 67,006 69,658
Federal Home Loan Bank advances and
other borrowings ........................................ 40,940 40,978
Accrued interest payable ............................................ 4,127 4,584
Other liabilities ................................................... 10,774 10,527
--------------------------
Total liabilities ............................................ 967,305 965,679
--------------------------
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares authorized ........ -- --
Common stock, $0.01 par value; 15,000,000 shares authorized;
10,582,484 shares issued at March 31, 2001 and
and December 31, 2000, respectively .............................. 106 106
Paid in capital .................................................... 44,324 44,306
Retained earnings .................................................. 85,031 82,512
Accumulated other comprehensive income ............................. 1,711 600
--------------------------
131,172 127,524
Less: treasury stock, at cost, 133,278 and 112,178 shares
at March 31, 2001 and December 31, 2000, respectively ............ (2,517) (2,122)
--------------------------
Total shareholders' equity ................................... 128,655 125,402
--------------------------
Total liabilities and shareholders' equity ................... $ 1,095,960 $ 1,091,081
==========================
See accompanying notes to unaudited consolidated financial statements.
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Three Months Ended March 31, 2001 and 2000
(Unaudited, in thousands, except share data)
2001 2000
-------------------------
Interest income:
Loans and fees on loans ........................................ $ 14,236 $ 12,891
Investments in debt and equity securities
Taxable ..................................................... 3,682 3,942
Tax-exempt .................................................. 543 474
Federal funds sold and interest earning deposits ............... 660 597
-------------------------
Total interest income .................................... 19,121 17,904
Interest expense:
Demand, savings, and other time deposits ....................... 6,756 5,861
Time deposits $100 and over .................................... 1,430 1,215
Federal funds purchased, repurchase agreements and notes payable 779 1,005
Federal Home Loan Bank advances and other borrowings ........... 614 459
-------------------------
Total interest expense ................................... 9,579 8,540
-------------------------
Net interest income ...................................... 9,542 9,364
Provision for loan losses ......................................... 235 136
-------------------------
Net interest income after provision for loan losses ...... 9,307 9,228
Non-interest income:
Remittance processing .......................................... 1,660 1,875
Trust and brokerage fees ....................................... 1,277 1,411
Service charges on deposit accounts ............................ 484 487
Gain on sales of mortgage loans, net ........................... 155 34
Securities transactions, net ................................... 77 2
Other .......................................................... 434 480
-------------------------
Total non-interest income ................................ 4,087 4,289
Non-interest expense:
Salaries and employee benefits ................................. 4,516 5,130
Merger related professional fees ............................... 0 2,452
Occupancy ...................................................... 614 561
Equipment ...................................................... 761 743
Data processing ................................................ 464 385
Office supplies ................................................ 389 292
Service charges from correspondent banks ....................... 123 299
Other .......................................................... 1,199 1,236
-------------------------
Total non-interest expense ............................... 8,066 11,098
Income before income taxes ............................... 5,328 2,419
Income taxes ...................................................... 1,660 1,425
-------------------------
Net income ............................................... $ 3,668 $ 994
=========================
Per share data:
Basic earnings per share ....................................... $ 0.35 $ 0.09
Weighted average shares of common stock outstanding ............ 10,465,031 10,580,506
Diluted earnings per share ..................................... $ 0.34 $ 0.09
Weighted average shares of common stock and dilutive potential
common shares outstanding ..................................... 10,654,506 10,804,204
See accompanying notes to unaudited consolidated financial statements.
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2001 and 2000
(Unaudited, in thousands)
2001 2000
-------------------
Net income ............................................... $ 3,668 $ 994
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period, net of tax of $599 and ($62), for March 31,
2001 and 2000, respectively ........................ 1,162 (119)
Less: reclassification adjustment for gains (losses)
included in net income, net of tax of ($26) and
($1), for March 31, 2001 and 2000, respectively .... (51) (1)
------------------
Other comprehensive income (loss), net of tax ........ 1,111 (120)
------------------
Comprehensive income ................................. $ 4,779 $ 874
==================
See accompanying notes to unaudited consolidated financial statements.
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ending March 31, 2001 and 2000
(Unaudited, in thousands)
2001 2000
----------------------
Cash flows from operating activities:
Net income .................................................................. $ 3,668 $ 994
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................................ 713 700
(Accretion) amortization of bond discounts and premiums, net ............. (344) 92
Provision for loan losses ................................................ 235 136
Securities transactions, net ............................................. (77) (2)
Gain on sales of mortgage loans, net ..................................... (155) (34)
Federal Home Loan Bank stock dividend .................................... (66) --
Other, net ............................................................... 295 1,206
Proceeds from sales of mortgage loans originated for sale ................ 15,818 3,902
Mortgage loans originated for sale ....................................... (17,730) (3,239)
----------------------
Net cash provided by operating activities .............................. 2,357 3,755
----------------------
Cash flows from investing activities:
Net decrease in loans .................................................... 2,954 2,410
Proceeds from maturities and calls of investments in debt securities:
Held-to-maturity ....................................................... 15,338 1,260
Available-for-sale ..................................................... 29,825 3,160
Proceeds from sales of investments:
Held-to-maturity ....................................................... 647 --
Available-for-sale ..................................................... 38,542 --
Purchases of investments in debt and equity securities:
Held-to-maturity ....................................................... (6,932) (524)
Available-for-sale ..................................................... (51,877) (17,196)
Non-marketable ......................................................... (250) --
Principal paydowns from mortgage-backed securities:
Held-to-maturity ....................................................... 1,536 834
Available-for-sale ..................................................... 467 746
Purchases of premises and equipment ...................................... (511) (105)
----------------------
Net cash provided by (used in) investing activities .................... 29,739 (9,415)
----------------------
Cash flows from financing activities:
Net increase in deposits ................................................. 4,526 916
Net decrease in federal funds purchased,
repurchase agreements and notes payable ................................ (2,652) (5,291)
Net decrease in Federal Home Loan Bank advances
and other borrowings ................................................... (38) (39)
Cash dividends paid ...................................................... (1,047) (359)
MSTI stock transactions, net ............................................. (395) 28
----------------------
Net cash provided by (used in) financing activities .................... 394 (4,745)
----------------------
Net increase (decrease) in cash and cash equivalents ................... 32,490 (10,405)
Cash and cash equivalents at beginning of year ................................. 84,139 87,350
----------------------
Cash and cash equivalents at end of period ..................................... $ 116,629 $ 76,945
======================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................................................... $ 10,035 $ 8,112
Income taxes ............................................................... 1,533 939
Real estate acquired through or in lieu of foreclosure ....................... -- 85
Dividends declared not paid .................................................. 1,149 --
See accompanying notes to unaudited consolidated financial statements.
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 generally accepted accounting principles. These financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes as of and for the year ended December 31, 2000, and
schedules included in Main Street Trust, Inc's. Form 10-K filed on March 30,
2001.
In the opinion of management, the consolidated financial statements of Main
Street Trust, Inc. (the "Company") and its subsidiaries, as of March 31, 2001
and for the three-month periods ended March 31, 2001 and 2000, include all
adjustments necessary for a fair presentation of the results of those periods.
All such adjustments are of a normal recurring nature.
Results of operations for the three-month period ended March 31, 2001 are not
necessarily indicative of the results which may be expected for the year ended
December 31, 2001.
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold and interest
earning deposits. Generally, federal funds are sold for one-day periods.
Certain amounts in the 2000 consolidated financial statements have been
reclassified to conform with the 2001 presentation. Such reclassifications have
no effect on previously reported net income.
Note 2. Business Combination
On August 12, 1999, BankIllinois Financial Corporation and First Decatur
Bancshares, Inc. entered into an Agreement and Plan of Merger which provided for
a "merger of equals" between the two companies, structured as a merger of the
two companies into the Company. The merger, which was completed on March 23,
2000, 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 5,828,260 and 4,752,649 shares of
Company common stock, respectively.
The Company operates 19 banking centers and is the parent company of
BankIllinois, First National Bank of Decatur, First Trust Bank of Shelbyville
and FirsTech, Inc., a retail payment processing company.
Note 3. New Accounting Rules and Regulations
In September 2000, Statement on Financial Accounting Standards No. 140
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" was issued to replace Statement on Financial Accounting
Standards No. 125, which was issued in June 1996. Statement No. 125 addressed
issues related to transfers of financial assets in which the transferor has some
continuing involvement with the transferred assets or with the transferee.
Statement No. 140 resolves implementation issues which arose as a result of
Statement No. 125, but carries forward most of Statement No. 125's provisions.
Statement No. 140 is effective for transfers occurring after March 31, 2001 and
for disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000. Management does not believe the
adoption of Statement No. 140 will have a significant impact on its financial
statements.
Note 4. Income per Share
Net income per common share has been computed as follows:
Three Months
Ended March 31,
------------------------
2001 2000
------------------------
Net Income ....................................... $3,668,000 $ 994,000
========================
Shares:
Weighted average common shares outstanding ..... 10,465,031 10,580,506
Dilutive effect of outstanding options, as
deteremined by the application of the
treasury stock method ........................ 172,990 207,452
Dilutive effect of outstanding SARs, as
determined by the application of the treasury
stock method ................................. 16,485 16,246
------------------------
Weighted average common shares outstanding,
as adjusted .................................. 10,654,506 10,804,204
Basic earnings per share ......................... $ 0.35 $ 0.09
========================
Diluted earnings per share ....................... $ 0.34 $ 0.09
========================
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
Assets and Liabilities
Total assets remained stable with assets of $1,095,960,000 at March 31, 2001
compared to $1,091,081,000 at December 31, 2000. Increases in cash, federal
funds sold and interest bearing deposits, non-marketable equity securities,
mortgage loans held for sale, and other assets were offset somewhat by decreases
in investments in debt and equity securities available-for-sale and
held-to-maturity, loans, premises and equipment and accrued interest receivable.
Federal funds sold and interest earning deposits increased $31,692,000, or
125.9%, to $56,864,000 at March 31, 2001 compared to $25,172,000 at December 31,
2000. The reason for this increase was due to several factors, including lower
than expected loan volume, a decrease in investment in debt and equity
securities, and higher deposit growth than anticipated during the first quarter
of 2001.
Mortgage loans held for sale increased $2,067,000, or 98.9%, to $4,157,000 at
March 31, 2001 compared to $2,090,000 at December 31, 2000. This increase was
mainly due to greater demand in the mortgage loan area at March 31, 2001 than at
December 31, 2000 caused by lower interest rates.
Total investments in debt and equity securities decreased $25,131,000, or 8.3%,
to $278,056,000 at March 31, 2001 compared to $303,187,000 at December 31, 2000,
in anticipation of loan funding needs. Investments in securities
available-for-sale decreased $14,845,000, or 6.9%, at March 31, 2001 compared to
December 31, 2000. Investments in debt and equity securities held-to-maturity
decreased $10,602,000, or 12.5%, at March 31, 2001 compared to December 31,
2000. Somewhat offsetting these decreases was an increase in non-marketable
equity securities of $316,000, or 7.0%, during this time period.
Loans, net of allowance for loan losses, decreased $3,189,000, or 0.5%, to
$656,660,000 at March 31, 2001 from $659,849,000 at December 31, 2000.
Commercial, financial and agricultural loans decreased $15,690,000, or 7.1%, at
March 31, 2001 compared to December 31, 2000. Somewhat offsetting this decrease
was an increase in real estate loans of $11,253,000, or 3.5%, at March 31,
compared to December 31, 2000. Also, installment and consumer loans increased
$1,392,000, or 1.1%, during the same period.
Accrued interest receivable decreased $1,197,000, or 11.3%, to $9,432,000 at
March 31, 2001 compared to $10,629,000 at December 31, 2000. This was primarily
due to the decreases in investments in debt and equity securities, and the
decrease in total net loans.
Total liabilities increased $1,626,000, or 0.2%, to $967,305,000 at March 31,
2001 from $965,679,000 at December 31, 2000. Increases in total deposits and
other liabilities were partially offset by decreases in federal funds purchased,
repurchase agreements and notes payable, accrued interest payable and Federal
Home Loan Bank advances and other borrowings.
Total deposits increased $4,526,000, or 0.5%, to $844,458,000 at March 31, 2001
from $839,932,000 at December 31, 2000. The increase in deposits included an
increase in interest bearing demand deposits of $21,709,000, or 9.3%, an
increase in non-interest bearing demand deposits of $16,915,000, or 15.5%, and
an increase of $6,608,000, or 1.8%, in total time deposits. Somewhat offsetting
these increases was a decrease of $40,706,000, or 29.1%, in savings deposits.
Federal funds purchased, repurchase agreements and notes payable decreased
$2,652,000, or 3.8%, to $67,006,000 at March 31, 2001 compared to $69,658,000 at
December 31, 2000. Included in this change were decreases of $3,996,000 in
repurchase agreements and $631,000 in notes payable. Somewhat offsetting these
decreases was an increase in federal funds purchased of $1,975,000.
Accrued interest payable decreased $457,000, or 10.0%, to $4,127,000 at March
31, 2001 from $4,584,000 at December 31, 2000. This was reflective of the lower
interest rate environment.
Investment Securities
The carrying value of investments in debt and equity securities was as follows
for March 31, 2001 and December 31, 2000:
Carrying Value of Securities
(in thousands)
March 31, December 31,
2001 2000
------------------------
Available-for-sale:
U.S. Treasury ............................... $ 19,029 $ 23,812
Federal agencies ............................ 137,291 156,322
Mortgage-backed securities .................. 21,693 11,513
State and municipal ......................... 14,139 15,349
Corporate and other obligations ............. 788 294
Marketable equity securities ................ 5,901 6,396
-----------------------
Total available-for-sale ............. $198,841 $213,686
=======================
Held-to-maturity:
Federal agencies ............................ $ 14,249 $ 29,428
Mortgage-backed securities .................. 24,092 22,642
State and municipal ......................... 36,029 32,902
-----------------------
Total held-to-maturity ............... $ 74,370 $ 84,972
=======================
Non-marketable equity securities ................. $ 4,845 $ 4,529
-----------------------
Total securities ..................... $278,056 $303,187
=======================
The following table shows the maturities and weighted-average yields of
investment securities at March 31, 2001. Mortgage-backed securities are placed
in maturity categories based on expected payments. All other securities are
shown at their contractual maturity.
Maturities and Weighted Average Yields of Debt Securities
(dollars in thousands)
March 31, 2001
---------------------------------------------------------------------------------
1 year 1 to 5 5 to 10 Over 10
or less years years years Total
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
----------------------------------------------------------------------------------
Securities available-for-sale
U.S. Treasury ..................... $14,517 5.94% $ 4,512 5.99% $ -- -- $ -- -- $ 19,029 5.95%
Federal agencies .................. 24,612 5.83% 93,404 6.01% 16,790 6.17% 2,485 5.90% 137,291 5.99%
Mortgage-backed securities ........ 2,367 6.09% 15,907 6.63% 1,705 6.59% 1,714 6.68% 21,693 6.57%
State and municipal ............... 232 4.36% 2,675 4.93% 8,958 4.90% 2,274 5.07% 14,139 4.93%
Other securities .................. 295 7.85% 493 5.90% -- -- -- -- 788 6.63%
Marketable equity securities1 ..... -- -- -- -- -- -- -- -- 5,901 --
---------------------------------------------------------------------------------
Total ...................... $42,023 $116,991 $27,453 $ 6,473 $198,841
---------------------------------------------------------------------------------
Average Yield ............................. 5.89% 6.07% 5.78% 5.82% 5.98%
=================================================================================
Securities held-to-maturity
Federal agencies .................. $ -- -- $12,249 5.77% $ 2,000 6.40% $ -- -- $ 14,249 5.86%
Mortgage-backed securities ........ 6,632 5.78% 11,323 5.78% 864 6.39% 5,273 6.39% 24,092 5.94%
State and municipal ............... 2,676 4.81% 22,064 4.31% 11,128 4.56% 161 4.89% 36,029 4.43%
---------------------------------------------------------------------------------
Total ...................... $ 9,308 $45,636 $13,992 $ 5,434 $ 74,370
=================================================================================
Average Yield ............................. 5.50% 5.07% 4.94% 6.34% 5.19%
=================================================================================
Non-marketable equity securities1 ......... -- -- -- -- $ 4,845 --
==================================================================================
1 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 March 31,
2001 and December 31, 2000 according to the categories of commercial, financial
and agricultural; real estate; and installment and consumer loans.
Amount of Loans Outstanding
(dollars in thousands)
March 31, 2001 December 31, 2000
------------------- ------------------
Amount Percentage Amount Percentage
---------------------------------------
Commercial, financial and agricultural $203,851 30.62% $219,541 32.83%
Real estate .......................... 330,665 49.67% 319,412 47.76%
Installment and consumer1 ............ 131,167 19.71% 129,775 19.41%
-------------------------------------
Total loans ..................... $665,683 100.00% $668,728 100.00%
=====================================
1 Net of unearned discount
The balance of loans outstanding as of March 31, 2001 by maturity is shown in
the following table:
Maturity of Loans Outstanding
(dollars in thousands)
March 31, 2001
1 year 1 to 5 Over 5
or less years years Total
---------------------------------------
Commercial, financial and agricultural $ 97,042 $ 79,738 $ 27,071 $203,851
Real estate .......................... 47,956 129,994 152,715 330,665
Installment and consumer1 ............ 40,259 84,603 6,305 131,167
---------------------------------------
Total ................................ $185,257 $294,335 $186,091 $665,683
=======================================
Percentage of total loans outstanding 27.83% 44.22% 27.95% 100.00%
=======================================
1 Net of unearned discount
Capital
Total shareholders' equity increased $3,253,000 from December 31, 2000 to March
31, 2001. The change is summarized as follows:
(in thousands)
--------------
Shareholders' equity, December 31, 2000 .................... $ 125,402
Net income ................................................. 3,668
Treasury stock transactions, net ........................... (395)
Stock appreciation rights .................................. 18
Cash dividends declared .................................... (1,149)
Other comprehensive income ................................. 1,111
---------
Shareholders' equity, March 31, 2001 ....................... $ 128,655
=========
On March 20, 2001, the board of directors of the Company declared a quarterly
cash dividend of $0.11 per share of the Company's common stock. The dividend of
$1,149,000 was paid on April 20, 2001 to holders of record on April 9, 2001.
The Company and its subsidiary banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and its subsidiary banks' financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, banks must meet specific guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's and its
subsidiary banks' capital amounts and classification are also subject to
qualitative judgements 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 March 31,
2001, that the Company and its subsidiary banks exceeded all capital adequacy
requirements to which they are subject.
As of March 31, 2001, the most recent notifications from primary regulatory
agencies categorized all the Company's subsidiary banks as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, banks must maintain minimum total capital to risk-weighted
assets, Tier I capital to risk-weighted assets, and Tier I capital to average
assets ratios as set forth in the table. There are no conditions or events since
that notification that management believes have changed any of the Company's
subsidiary banks' categories.
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 March 31, 2001:
Total capital
(to risk-weighted assets)
Consolidated .................. $136,719 18.5% $59,014 8.0% N/A
BankIllinois .................. $ 64,779 16.0% $32,431 8.0% $40,539 10.0%
First National Bank of Decatur $ 46,409 17.1% $21,700 8.0% $27,125 10.0%
First Trust Bank of Shelbyville $ 12,462 25.5% $ 3,905 8.0% $ 4,881 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated .................. $127,670 17.3% $29,507 4.0% N/A
BankIllinois .................. $ 59,644 14.7% $16,215 4.0% $24,323 6.0%
First National Bank of Decatur $ 42,844 15.8% $10,850 4.0% $16,275 6.0%
First Trust Bank of Shelbyville $ 12,110 24.8% $ 1,952 4.0% $ 2,929 6.0%
Tier I capital
(to average assets)
Consolidated .................. $127,670 11.7% $43,813 4.0% N/A
BankIllinois .................. $ 59,644 10.4% $22,925 4.0% $28,656 5.0%
First National Bank of Decatur $ 42,844 9.8% $17,560 4.0% $21,950 5.0%
First Trust Bank of Shelbyville $ 12,110 16.4% $ 2,954 4.0% $ 3,692 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.
The following table presents the Company's interest rate sensitivity at various
intervals at March 31, 2001:
(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 ................... $ 56,864 $ -- $ -- $ -- $ -- $ 56,864
Debt and equity securities * ......... 5,522 12,112 12,996 32,518 214,908 278,056
Loans ** ............................. 167,276 24,486 40,246 77,434 360,398 669,840
-------------------------------------------------------------------------
Total earning assets ............. $ 229,662 $ 36,598 $ 53,242 $ 109,952 $ 575,306 $1,004,760
-------------------------------------------------------------------------
Interest bearing liabilities:
Savings and interest bearing
demand deposits*** ................. $ 24,003 $ 1,374 $ 2,062 $ 4,127 $ 156,846 $ 188,412
Money market savings deposits ........ 145,021 -- -- -- -- 145,021
Time deposits ........................ 30,759 59,029 67,132 107,069 99,930 363,919
Federal funds purchased,
repurchase agreements,
and notes payable .................. 62,321 114 4,350 121 100 67,006
FHLB advances and
other borrowings ................... -- 15 1,000 5,192 34,733 40,940
-------------------------------------------------------------------------
Total interest bearing liabilities $ 262,104 $ 60,532 $ 74,544 $ 116,509 $ 291,609 $ 805,298
-------------------------------------------------------------------------
Net asset (liability) funding gap .... $ (32,442) (23,934) (21,302) (6,557) 283,697 199,462
-------------------------------------------------------------------------
Repricing gap ........................ 0.88 0.60 0.71 0.94 1.97 1.25
Cumulative repricing gap ............. 0.88 0.83 0.80 0.84 1.25 1.25
=========================================================================
* Debt and equity securities include securities available-for-sale,
securities held to maturity, and non-marketable equity securities
** Loans are gross and include mortgage loans held-for-sale.
*** The total of savings and interest-bearing demand deposits does not include
$21,210,000 of non-transactional accounts which are savings accounts that
are non-interest bearing.
Included in the 1-30 day category of savings and interest-bearing demand
deposits are non-core deposits plus a percentage, based upon industry-accepted
assumptions and Company analysis, of the core deposits. "Core deposits" are the
lowest average balance of the prior twelve months for each product type included
in this category. "Non-core deposits" are the difference between the current
balance and core deposits. The time frames include a percentage, based upon
industry-accepted assumptions and Company analysis, of the core deposits, as
follows:
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
----------------------------------------------------------------
Savings and interest-bearing
demand deposits .............. 0.45% 0.85% 1.25% 2.45% 95.00%
At March 31, 2001, the Company was liability-sensitive due to the levels of
savings and interest bearing demand deposits, short-term time deposits, and
short-term borrowings. As such, the effect of a decrease in the interest rate
for all interest earning assets and interest bearing liabilities of 100 basis
points would increase annualized net interest income by approximately $324,000
in the 1-30 days category and $564,000 in the 1-90 days category assuming no
management intervention. An increase in interest rates would have the opposite
effect for the same time periods.
In addition to managing interest rate sensitivity and liquidity through the use
of gap reports, the Company has provided for emergency liquidity situations with
informal agreements with correspondent banks which permit the Company to borrow
federal funds on an unsecured basis. Additionally, the Company can borrow
approximately $26,444,000 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 basis point increments.
The following table shows projected results at March 31, 2001 and December 31,
2000 of the impact on net interest income from an immediate change in interest
rates. The results are shown as a percentage change in net interest income over
the next twelve months.
+200 +100 -100 -200
-----------------------------------------
March 31, 2001 .................. 3.7% 1.8% (1.8%) (3.7%)
December 31, 2000 ............... 0.2% 0.1% (0.1%) (0.2%)
The Company continues to remain liability sensitive, causing a projected
decrease in net interest income from a decrease in interest rates, and having an
opposite affect from an increase in interest rates.
The foregoing computations are based on numerous assumptions, including relative
levels of market interest rates, prepayments and deposit mix. The computed
estimates should not be relied upon as a projection of actual results. Despite
the limitations on preciseness inherent in these computations, management
believes that the information provided is reasonably indicative of the effect of
changes in interest rate levels on the net earning capacity of the Company's
current mix of interest earning assets and interest bearing liabilities.
Management continues to use the results of these computations, along with the
results of its computer model projections, in order to maximize current earnings
while positioning the Company to minimize the effect of a prolonged shift in
interest rates that would adversely affect future results of operations.
At the present time, the most significant market risk affecting the Company is
interest rate risk. Other market risks such as foreign currency exchange risk
and commodity price risk do not occur in the normal business of the Company. The
Company also is not currently using trading activities or derivative instruments
to control interest rate risk.
Liquidity and Cash Flows
The Company was able to meet liquidity needs during the first three months of
2001. A review of the consolidated statements of cash flows included in the
accompanying financial statements shows that the Company's cash and cash
equivalents increased $32,490,000 from December 31, 2000 to March 31, 2001. This
increase came from increases in net cash provided by operating activities,
investing activities and financing activities.
There were differences in sources and uses of cash during the first three months
of 2001 compared to the first three months of 2000. Less cash was provided by
operating activities due to less net proceeds from transactions involving
mortgage loans originated for sale in the first three months of 2001 compared to
the same period of 2000 and less cash provided by other operating activities.
Somewhat offsetting this was an increase in net income. Cash was provided by
investing activities during the first three months of 2001 compared to cash used
during the same period of 2000 primarily due to changes in the Company's
investment portfolio. During the first three months of 2001, the investment
portfolio decreased $25,131,000 compared to an increase of $11,448,000 during
the same period of 2000. Cash was provided by financing activities during the
first three months of 2001 compared to cash used during the same period of 2000
primarily due to a larger growth in deposits providing more cash, somewhat
offset by a smaller decrease in federal funds purchased, repurchase agreements
and notes payable using less cash during the first three months of 2001 compared
to the first three months of 2000.
Provision and Allowance for Loan Losses
The provision for loan losses is based on management's evaluation of the loan
portfolio in light of national and local economic conditions, changes in the
composition and volume of the loan portfolio, changes in the volume of past due
and nonaccrual loans, and other relevant factors. The allowance for loan losses,
which is reported as a deduction from loans, is available for loan charge-offs.
The allowance is increased by the provision charged to expense and is reduced by
loan charge-offs net of loan recoveries. The balance of the allowance for loan
losses was $9,023,000 at March 31, 2001 compared to $8,879,000 at December 31,
2000, as net charge-offs were $91,000 and provisions totaled $235,000 during the
first three months of 2001. The allowance for loan losses as a percentage of
gross loans, including loans held-for-sale, was 1.35% at March 31, 2001,
compared to 1.32% at December 31, 2000 as gross loans, including loans
held-for-sale, remained fairly stable, decreasing slightly to $669,840,000 at
March 31, 2001 from $670,818,000 at December 31, 2000.
The allowance for loan losses as a percentage of non-performing loans was 539%
at March 31, 2001. Non-performing loans, while increasing from $1,448,000 at
December 31, 2000, remained at an acceptable level of $1,674,000. The $226,000
increase in non-performing loans during the first three months resulted from a
$441,000 increase in loans over 90 days past due, which was partially offset by
a $215,000 decrease in non-accruals. The allowance for loan losses increased
from $8,879,000 at December 31, 2000, to $9,023,000 at March 31, 2001 as
provisions of $235,000 for the quarter exceeded net loans charged off of
$91,000. Although unforeseen market conditions could result in significant
adjustments in the future, management believes that problem assets have been
effectively identified and that the allowance for loan losses is adequate to
absorb possible losses in the portfolio which are reasonably anticipated.
However, there can be no assurance that the allowance for loan losses will be
adequate to cover all losses.
Along with other financial institutions, management shares a concern for the
continued softening of the economy in 2001. Should the economic climate continue
to deteriorate, borrowers may experience difficulty, and the level of
non-performing loans, charge-offs, and delinquencies could rise and require
further increases in the provision.
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)
March 31,
---------------------
2001 2000
---------------------
Allowance for loan losses at
beginning of year ............................. $ 8,879 $ 8,682
---------------------
Charge-offs during period:
Commercial, financial and agricultural ........ $ (15) $ (9)
Real estate ................................... -- (14)
Installment and consumer ...................... (213) (139)
---------------------
Total .................................... $ (228) $ (162)
---------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural ........ $ 44 $ 335
Real estate ................................... 63 1
Installment and consumer ...................... 30 57
---------------------
Total .................................... $ 137 $ 393
---------------------
Net (charge-offs) recoveries ........ $ (91) $ 231
Provision for loan losses .......................... 235 136
---------------------
Allowance for loan losses at end of period ......... $ 9,023 $ 9,049
=====================
Ratio of net (charge-offs) recoveries to
average net loans ............................. (0.01%) 0.04%
=====================
The following table shows the allocation of the allowance for loan losses
allocated to each category.
March 31, December 31,
2001 2000
-----------------------
Allocated:
Commercial, financial and agricultural .......... $3,389 $3,426
Residential real estate ......................... 883 855
Installment and consumer ........................ 1,823 1,649
-------------------
Total allocated allowance .................. $6,095 $5,930
Unallocated allowances ............................... 2,928 2,949
-------------------
Total ................................................ $9,023 $8,879
===================
The following table presents the aggregate amount of loans considered to be
nonperforming for the periods indicated. Nonperforming loans include loans
accounted for on a nonaccrual basis, accruing loans contractually past due 90
days or more as to interest or principal payments and loans which are troubled
debt restructurings as defined in Statement of Financial Accounting Standards
No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings."
Nonperforming Loans (dollars in thousands)
March 31, December 31,
2001 2000
-----------------------
Nonaccrual loans 1 ................................. $ 387 $ 602
==================
Loans past due 90 days or more ..................... $1,287 $ 846
==================
Renegotiated loans ................................. $ 84 $ 88
==================
1 Includes $182,000 at March 31, 2001 and $505,000 at December 31, 2000 of
real estate and consumer loans which management does not consider impaired
as defined by the Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (SFAS 114).
Results of Operations
Results of Operations For the Three Months Ended March 31, 2001
The merger of equals to create the Company, which occurred near the end of the
first quarter of 2000, resulted in significant merger related costs which were
expensed during the first three months of 2000. These expenses had a significant
effect on the reported net income of the combined entity during the first
quarter of 2000. Net income for the first three months of 2001 was $3,668,000, a
$2,674,000, or 269.0%, increase from $994,000 for the same period in 2000. Basic
earnings per share increased $0.26, or 288.9%, to $0.35 in the first quarter of
2001 from $0.09 in the first quarter of 2000. Diluted earnings per share
increased $0.25, or 277.8%, to $0.34 in the first three months of 2001 from
$0.09 during the same period in 2000.
Operating earnings for the three months ended March 31, 2001, were $3,883,000
compared to $3,859,000 for the same period in 2000, an increase of $24,000, or
0.6%. Basic operating earnings per share increased to $0.37, or 2.8%, in the
first quarter of 2001 from $0.36 in the first quarter of 2000. Diluted earnings
per share on operating earnings remained unchanged at $0.36 in the first three
months of 2001 compared to the same period in 2000. The difference between
operating and net earnings was due to merger and restructuring related expenses,
net of tax, of $215,000 during the first quarter of 2001 compared to $2,865,000
during the first quarter of 2000. The 2001 merger and restructuring related
expenses consisted of $50,000 of data processing expense and $276,000 of
termination of employment contracts, offset by $111,000 of tax benefit. The 2000
merger and restructuring related expenses consisted of $2,452,000 of
professional fees, $713,000 of early retirement and termination of employment
contracts, offset by $300,000 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 March 31,
-------------------------------------------------------------------
2001 2000
------------------------------ ----------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------
Assets
Taxable investment securities1 ........... $ 247,313 $ 3,682 5.96% $ 265,364 $ 3,942 5.94%
Tax-exempt investment securities1 (TE) ... 48,111 823 6.84% 42,285 718 6.79%
Federal funds sold and interest earning
deposits2 .......................... 46,174 660 5.72% 35,385 597 6.75%
Loans3,4 (TE) ............................ 657,788 14,247 8.66% 598,691 12,902 8.62%
-------------------------------------------------------------------
Total interest earning assets
and interest income (TE) ....... $ 999,386 $ 19,412 7.77% $ 941,725 $ 18,159 7.71%
-------------------------------------------------------------------
Cash and due from banks .................. $ 55,702 $ 55,906
Premises and equipment ................... 20,842 22,184
Other assets ............................. 19,388 21,931
--------------------------------------------------------------------
Total assets ....................... $1,095,318 $1,041,746
====================================================================
Liabilities and Shareholders' Equity
Interest bearing demand deposits ......... $ 263,364 $ 2,359 3.58% $ 229,789 $ 2,053 3.57%
Savings .................................. 76,851 493 2.57% 91,264 478 2.10%
Time deposits ............................ 361,949 5,334 5.89% 339,155 4,545 5.36%
Federal funds purchased, repurchase
agreements and notes payable ....... 70,621 779 4.41% 79,085 1,005 5.08%
FHLB advances and other borrowings ....... 39,073 614 6.29% 32,043 459 5.73%
-------------------------------------------------------------------
Total interest bearing
liabilities and interest expense $ 811,858 $ 9,579 4.72% $ 771,336 $ 8,540 4.43%
-------------------------------------------------------------------
Noninterest bearing demand deposits5 ..... $ 102,601 $ 83,784
Noninterest bearing savings deposits5 .... 37,819 56,961
Other liabilities ........................ 15,959 12,873
-------------------------------------------------------------------
Total liabilities .................. $ 968,237 $ 924,954
Shareholders' equity ..................... 127,081 116,792
-------------------------------------------------------------------
Total liabilities and
shareholders' equity ........... $1,095,318 $1,041,746
===================================================================
Interest spread (average rate earned
minus average rate paid) (TE) ...... 3.05% 3.28%
===================================================================
Net interest income (TE) ................. $ 9,833 $ 9,619
====================================================================
Net yield on interest
earning assets (TE) ................ 3.94% 4.09%
====================================================================
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
$35,000 and $44,000 in 2001 and 2000, respectively, of interest income from
third party processing of cashier checks.
3 Loans are net of allowance for loan losses and include mortgage loans held
for sale. Nonaccrual loans are included in the total.
4 Loan fees of approximately $175,000 and $235,000 in 2001 and 2000,
respectively, are included in total loan income.
5 Due to current regulatory issues, the Company is allowed to reclassify
certain demand deposits to savings deposits. Accounts identified as
transactional remained in the demand categories, while accounts identified
as non-transactional were reclassified into the savings categories. The
classification was based upon whether the account balance was fluctuating
or whether it exhibited stable balance portions, which were called
non-transactional. Banks are required to hold balances at the Federal
Reserve Bank based upon transactional account balances. By identifying
these accounts as non-transactional, the Company was able to reduce the
balances required to be held at the Federal Reserve Bank in a non-interest
bearing reserve account.
Net interest income, the most significant component of the Company's earnings,
is the difference between interest received or accrued on the Company's earning
assets - primarily loans and investments - and interest paid or accrued on
deposits and borrowings. In order to compare the interest generated from
different types of earning assets, the interest income on certain tax-exempt
investment securities and loans is increased for analysis purposes to reflect
the income tax savings provided by these tax-exempt assets. The adjustment to
interest income for tax-exempt investment securities and loans was calculated
based on the federal income tax statutory rate of 34%. The following table
presents, on a tax equivalent (TE) basis, an analysis of changes in net interest
income resulting from changes in average volumes of earning assets and interest
bearing liabilities and average rates earned and paid. The change in interest
due to the combined rate/volume variance has been allocated to rate and volume
changes in proportion to the absolute dollar amounts of change in each.
Analysis of Volume and Rate Changes
(in thousands)
Three Months Ended March 31, 2001
Increase
(Decrease)
From
Previous Due to Due to
Year Volume Rate
-------------------------------
Interest Income
Taxable investment securities .................. $ (260) $ (320) $ 60
Tax-exempt investment securities (TE) .......... 105 100 5
Federal funds sold and interest earning deposits 63 528 (465)
Loans (TE) ..................................... 1,345 1,280 65
------------------------------
Total interest income (TE) ............... $ 1,253 $ 1,588 ($ 335)
-----------------------------
Interest Expense
Interest bearing demand and savings deposits1 .. $ 321 $ 156 $ 165
Time deposits .................................. 789 318 471
Federal funds purchased,
repurchase agreements and notes payable .. (226) (101) (125)
FHLB advances and other borrowings ............. 155 107 48
-----------------------------
Total interest expense ......................... $ 1,039 $ 480 $ 559
-----------------------------
Net Interest Income (TE) .............................. $ 214 $ 1,108 ($ 894)
=============================
Notes:
1 Due to deposit reclassifications described below, interest bearing demand
and savings deposits are included in the same line for comparability.
Net interest income on a tax equivalent basis was $214,000, or 2.2% higher for
the first three months of 2001 compared to 2000. Total tax-equivalent interest
income was $1,253,000, or 6.9% higher in 2001 compared to 2000, and interest
expense increased $1,039,000, or 12.2%. The increase in interest income was
mainly due to an increase in average earning assets. The increase in interest
expense was due to a combination of higher average balances and higher rates.
The increase in total interest income was mainly due to an increase in interest
income from loans as well as federal funds sold and interest bearing deposits
and tax-exempt investment securities, offset somewhat by a decrease in income
from taxable investment securities. The increase in interest income from loans
was primarily due to an increase in average loans outstanding during the first
three months of 2001 compared to the first three months of 2000. The increase in
interest from federal funds sold and interest earning deposits was mainly due to
an increase in average balances during the first quarter of 2001 compared to the
first quarter of 2000, offset somewhat by a decrease in rates. The increase in
interest from tax-exempt investments was primarily caused by an increase in the
average balance during the first three months of 2001 compared to the same
period in 2000. The decrease in taxable investment interest income was mainly
due to a decrease in average balances in the first quarter of 2001 compared to
the first quarter of 2000. The decrease in the total average investment
portfolio was primarily caused by shifting assets to fund loan growth.
The increase in total interest expense was due to increases in interest on time
deposits, interest bearing demand and savings deposits, and FHLB advances and
other borrowings, offset somewhat by a decrease in interest expense on federal
funds purchased, repurchase agreements and notes payable. Interest expense on
time deposits increased during the first quarter of 2001 compared to the first
quarter of 2000 due to both higher rates and higher average balances. Interest
expense on interest bearing demand and savings deposits increased in the first
quarter of 2001 compared to the first quarter of 2000 due to both higher rates
and higher average balances. Also contributing to the increase in total interest
expense was an increase in interest on FHLB advances and other borrowings which
was due to both an increase in the average balance and rates on these accounts.
Somewhat offsetting the increase in total interest expense was a decrease in
interest on federal funds purchased, securities sold under repurchase agreements
and notes payable, which was due to both lower rates and lower average balances.
The provision for loan losses recorded was $235,000 during the first three
months of 2001. This was $99,000, or 72.8%, higher than the $136,000 recorded
during the first three months of 2000. The provision during both periods was
based on management's analysis of the loan portfolio, as discussed in the
provision and allowance for loan losses section above.
Total non-interest income decreased $202,000, or 4.7%, during the first three
months of 2001 compared to the first three months of 2000. Included in this
decrease was a decrease of $215,000, or 11.5%, in income from remittance
processing. This decrease was primarily due to a shift from lockbox payments to
mechanized payments which have lower revenue streams as well as lower costs.
Income from trust and brokerage fees decreased $134,000, or 9.5%, during the
first quarter of 2001 compared to the first quarter of 2000. This was due, in
part, to a decrease in total assets under management, and associated income, as
a result of stock market fluctuations during the first quarter of 2001. Other
income decreased $46,000, or 9.6%, during the first three months of 2001
compared to the same period in 2000. Somewhat offsetting these decreases was a
$75,000, or 3,750.0%, increase in income from securities transactions during the
first three months of 2001 compared to the same period in 2000. Gains on sales
of mortgage loans held-for-sale increased $121,000, or 355.9%, during the first
three months of 2001 compared to the same period in 2000. This increase
reflected a $11,916,000, or 305.4%, increase in funded mortgage loans
held-for-sale during the first quarter of 2001 compared to the first quarter of
2000. This increase was reflective of lower interest rates during the first
three months of 2001.
Total non-interest expense decreased $3,032,000, or 27.3%, during the first
three months of 2001 compared to the same period in 2000. Of this decrease,
$2,452,000 was due to merger related professional fees. Salaries and employee
benefits decreased $614,000, or 12.0%, during the first quarter of 2001 compared
to the first quarter of 2000. Salaries and employee benefits in the first
quarter of 2001 included $276,000 of expenses related to the termination of
employment contracts compared to $713,000 in expenses in the first quarter of
2000 related to early retirement and termination of employment contracts as a
result of the merger. Service charges from correspondent banks decreased
$176,000, or 58.9%, in the first three months of 2001 compared to the same
period in 2000. This was mainly due to a trend toward fewer lockbox
transactions, resulting in decreased service charges from correspondent banks.
Also contributing to the overall decrease in non-interest expense was a decrease
of $37,000, or 3.0%, in other expense during the first quarter of 2001 compared
to the first quarter of 2000. Somewhat offsetting these decreases was an
increase of $18,000, or 2.4%, in equipment expense during the first three months
of 2001 compared to the same period in 2000. Data processing expense increased
$79,000, or 20.5%, in the first quarter of 2001 compared to the first quarter of
2000. Included in data processing expense in the first quarter of 2001 were
expenses related to computer system conversion and early contract termination as
the Company's subsidiaries continued to move toward the same data processing
system. Occupancy expense increased $53,000, or 9.4%, during the first three
months of 2001 compared to the same period in 2000. Office supplies increased
$97,000, or 33.2%, in the first quarter of 2001 compared to the first quarter of
2000. Included in office supplies expense were additional printing and mailing
expense to announce the aforementioned computer system conversion, and
additional supplies purchased as a result of the conversion.
Income tax expense increased $235,000, or 16.5%, during the first three months
of 2001 compared to the first three months of 2000. The effective tax rate
decreased to 31.2% during the first quarter of 2001 from 58.9% during the first
quarter of 2000. This difference was due to $2,292,000 of merger related
professional fees for which no tax benefit had been recognized in the first
quarter of 2000.
Business Segment Information
The Company currently operates in two industry segments. The primary business
involves providing banking services to central Illinois. BankIllinois, First
National Bank of Decatur and First Trust Bank of Shelbyville offer a full range
of financial services to business and individual customers. These services
include demand, savings, time and individual retirement accounts; commercial,
consumer (including automobile loans and personal lines of credit),
agricultural, and real estate lending; safe deposit and night depository
services; farm management; full service trust departments; discount brokerage
services and purchases of installment obligations from retailers, primarily
without recourse. The other industry segment involves retail payment processing.
FirsTech provides the following services to electric, water and gas utilities,
telecommunication companies, cable television firms and charitable
organizations: retail lockbox processing of payments delivered by mail to the
biller; processing of payments delivered by customer 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
-------------------------------------------------------------------------------------------------
March 31, 2001
Total interest income ....... $ 19,123 $ 37 $ 27 $ (66) $ 19,121
Total interest expense ...... 9,645 -- -- (66) 9,579
Provision for loan losses ... 235 -- -- -- 235
Total non-interest income ... 2,446 1,777 4,011 (4,147) 4,087
Total non-interest expense .. 6,427 1,332 513 (206) 8,066
Income before income tax .... 5,262 482 3,525 (3,941) 5,328
Income tax expense .......... 1,638 165 (143) -- 1,660
Net Income .................. 3,624 317 3,668 (3,941) 3,668
Total assets ................ 1,085,406 6,454 133,917 (129,817) 1,095,960
Depreciation and amortization 584 123 6 -- 713
March 31, 2000
Total interest income ....... $ 17,897 $ 30 $ 67 $ (90) $ 17,904
Total interest expense ...... 8,630 -- -- (90) 8,540
Provision for loan losses ... 136 -- -- -- 136
Total non-interest income ... 2,455 2,094 35 (295) 4,289
Total non-interest expense .. 6,418 1,689 3,286 (295) 11,098
Income before income tax .... 5,168 435 (3,184) -- 2,419
Income tax expense .......... 1,587 149 (311) -- 1,425
Net Income .................. 3,581 286 (2,873) -- 994
Total assets ................ 1,021,046 6,299 120,747 (115,960) 1,032,132
Depreciation and amortization 563 131 6 -- 700
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse affect on the operations
and future prospects of the Company and its subsidiaries include, but are not
limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area, our implementation of new technologies, our ability
to develop and maintain secure and reliable electronic systems, and accounting
principles, policies and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business; including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See the "Interest Rate Sensitivity" section above.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company or its
subsidiaries is a party other than ordinary routine litigation incidental to
their respective businesses.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports
None
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: May 14, 2001
By: /s/ David B. White
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David B. White, Executive Vice President
and Chief Financial Officer
By: /s/ Van A. Dukeman
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Van A. Dukeman, President
and Chief Executive Officer