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, 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 August 10, 2001
Main Street Trust, Inc. Common Stock 10,402,855
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
June 30, 2001 and December 31, 2000
(Unaudited, in thousands, except share data)
June 30, December 31,
2001 2000
---------------------------
ASSETS
Cash and due from banks ..................................................... $ 50,048 $ 58,967
Federal funds sold and interest earning deposits ............................ 11,931 25,172
Investments in debt and equity securities:
Available-for-sale, at fair value ......................................... 216,685 213,686
Held-to-maturity, at cost (fair value of $71,647 and
at June 30, 2001 and December 31, 2000, respectively) ................... 70,644 84,972
Non-marketable equity securities .......................................... 5,052 4,529
Mortgage loans held for sale ................................................ 7,734 2,090
Loans, net of allowance for loan losses of $8,975 and $8,879
at June 30, 2001 and December 31, 2000, respectively ...................... 664,156 659,849
Premises and equipment ...................................................... 20,350 20,874
Accrued interest receivable ................................................. 9,333 10,629
Other assets ................................................................ 12,538 10,313
--------------------------
Total assets ........................................................ $ 1,068,471 $ 1,091,081
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing ............................................ $ 110,236 $ 108,981
Demand, interest bearing ................................................ 239,694 233,838
Savings ................................................................. 95,513 139,802
Time, $100 and over ..................................................... 111,734 100,030
Other time .............................................................. 245,571 257,281
--------------------------
Total deposits ...................................................... 802,748 839,932
Federal funds purchased, repurchase agreements and notes payable ............ 78,103 69,658
Federal Home Loan Bank advances and other borrowings ........................ 40,925 40,978
Accrued interest payable .................................................... 4,130 4,584
Other liabilities ........................................................... 10,757 10,527
--------------------------
Total liabilities ................................................... 936,663 965,679
--------------------------
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 June 30, 2001 and December 31, 2000,
respectively ............................................................ 106 106
Paid in capital ........................................................... 44,233 44,306
Retained earnings ......................................................... 87,991 82,512
Accumulated other comprehensive income .................................... 2,512 600
--------------------------
134,842 127,524
Less: treasury stock, at cost, 161,398 and 112,178 shares at June 30, 2001
and December 31, 2000, respectively ..................................... (3,034) (2,122)
--------------------------
Total shareholders' equity .......................................... 131,808 125,402
--------------------------
Total liabilities and shareholders' equity .......................... $ 1,068,471 $ 1,091,081
==========================
See accompanying notes to unaudited consolidated financial statements.
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Six Months Ended June 30, 2001 and 2000
(Unaudited, in thousands, except share data)
2001 2002
---------------------------
Interest income: .....................................................
Loans and fees on loans ............................................ $ 28,349 $ 26,214
Investments in debt and equity securities
Taxable .......................................................... 7,186 7,852
Tax-exempt ....................................................... 1,107 976
Federal funds sold and interest earning deposits ................... 1,235 862
---------------------------
Total interest income ........................................ 37,877 35,904
---------------------------
Interest expense:
Demand, savings, and other time deposits ........................... 12,996 11,859
Time deposits $100 and over ........................................ 2,776 2,371
Federal funds purchased, repurchase agreements and notes payable ... 1,482 1,980
Federal Home Loan Bank advances and other borrowings ............... 1,171 919
---------------------------
Total interest expense ....................................... 18,425 17,129
---------------------------
Net interest income .......................................... 19,452 18,775
Provision for loan losses ............................................ 610 267
---------------------------
Net interest income after provision for loan losses .......... 18,842 18,508
Non-interest income:
Remittance processing .............................................. 3,320 3,535
Trust and brokerage fees ........................................... 2,647 2,782
Service charges on deposit accounts ................................ 1,037 1,040
Securities transactions, net ....................................... 219 (14)
Gain on sales of mortgage loans, net ............................... 315 59
Other .............................................................. 811 975
---------------------------
Total non-interest income .................................... 8,349 8,377
---------------------------
Non-interest expense:
Salaries and employee benefits ..................................... 8,813 9,769
Merger related professional fees ................................... -- 2,452
Occupancy .......................................................... 1,125 1,117
Equipment .......................................................... 1,571 1,477
Data processing .................................................... 861 775
Office supplies .................................................... 787 590
Service charges from correspondent banks ........................... 439 575
Other .............................................................. 2,393 1,980
---------------------------
Total non-interest expense ................................... 15,989 18,735
Income before income taxes ........................................... 11,202 8,150
Income taxes ......................................................... 3,470 3,239
---------------------------
Net income ................................................... $ 7,732 $ 4,911
===========================
Per share data:
Basic earnings per share ........................................... $ 0.74 $ 0.46
Weighted average shares of common stock outstanding ................ 10,450,192 10,574,262
Diluted earnings per share ......................................... $ 0.73 $ 0.45
Weighted average shares of common stock and dilutive potential
common shares outstanding ........................................ 10,642,214 10,797,037
See accompanying notes to unaudited consolidated financial statements
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Six Months Ended June 30, 2001 and 2000
(Unaudited, in thousands)
2001 2000
------------------
Net income .......................................................... $ 7,732 $ 4,911
------------------
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gains arising during period, net of tax of
$1,059 and $116, for June 30, 2001 and 2000, respectively ..... 2,057 225
Less: reclassification adjustment for gains (losses) included
in net income, net of tax of $(74) and $5, for June 30, 2001
and 2000, respectively ....................................... (145) 9
------------------
Other comprehensive income, net of tax ......................... 1,912 234
------------------
Comprehensive income ........................................... $ 9,644 $ 5,145
==================
See accompanying notes to unaudited consolidated financial statements.
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
For the Three Months Ended June 30, 2001 and 2000
(Unaudited, in thousands, except share data)
2001 2000
---------------------------
Interest income:
Loans and fees on loans ........................................ $ 14,113 $ 13,323
Investments in debt and equity securities
Taxable ...................................................... 3,504 3,910
Tax-exempt ................................................... 564 502
Federal funds sold and interest earning deposits ............... 575 265
---------------------------
Total interest income .................................... 18,756 18,000
Interest expense:
Demand, savings, and other time deposits ....................... 6,240 5,998
Time deposits $100 and over .................................... 1,346 1,156
Federal funds purchased, repurchase agreements and notes payable 703 975
Federal Home Loan Bank advances and other borrowings ........... 557 460
---------------------------
Total interest expense ................................... 8,846 8,589
---------------------------
Net interest income ...................................... 9,910 9,411
Provision for loan losses ........................................ 375 131
---------------------------
Net interest income after provision for loan losses ...... 9,535 9,280
Non-interest income:
Remittance processing .......................................... 1,660 1,660
Trust and brokerage fees ....................................... 1,370 1,371
Service charges on deposit accounts ............................ 553 553
Securities transactions, net ................................... 142 (16)
Gain on sales of mortgage loans, net ........................... 160 25
Other .......................................................... 377 495
---------------------------
Total non-interest income ................................ 4,262 4,088
Non-interest expense:
Salaries and employee benefits ................................. 4,297 4,639
Occupancy ...................................................... 511 556
Equipment ...................................................... 810 734
Data processing ................................................ 397 390
Office supplies ................................................ 398 298
Service charges from correspondent banks ....................... 316 276
Other .......................................................... 1,194 744
---------------------------
Total non-interest expense ............................... 7,923 7,637
Income before income taxes ............................... 5,874 5,731
Income taxes ..................................................... 1,810 1,814
---------------------------
Net income ............................................... $ 4,064 $ 3,917
===========================
Per share data:
Basic earnings per share ....................................... $ 0.39 $ 0.37
Weighted average shares of common stock outstanding ............ 10,435,094 10,570,353
Diluted earnings per share ..................................... $ 0.38 $ 0.36
Weighted average shares of common stock and dilutive potential
common shares outstanding .................................... 10,631,064 10,790,043
See accompanying notes to unaudited consolidated financial statements.
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Three Months Ended June 30, 2001 and 2000
(Unaudited, in thousands)
2001 2000
------------------
Net income ........................................................... $ 4,064 $ 3,917
------------------
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gains arising during period, net of tax of
$460 and $178, for June 30, 2001 and 2000, respectively ........ 895 344
Less: reclassification adjustment for gains (losses) included in
net income, net of tax of $(48) and $6, for June 30, 2001
and 2000, respectively ......................................... (94) 10
------------------
Other comprehensive income, net of tax ........................... 801 354
------------------
Comprehensive income ............................................. $ 4,865 $ 4,271
==================
See accompanying notes to unaudited consolidated financial statements
MAIN STREET TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ending June 30, 2001 and 2000
(Unaudited, in thousands)
2001 2000
----------------------
Cash flows from operating activities:
Net income ..................................................................... $ 7,732 $ 4,911
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................................ 1,429 1,409
(Accretion) amortization of bond discounts and premiums, net ................. (228) 156
Provision for loan losses .................................................... 610 267
Securities transactions, net ................................................. (219) 14
Gain on sales of mortgage loans, net ......................................... (315) (59)
Federal Home Loan Bank stock dividend ........................................ (105) --
Proceeds from sales of mortgage loans originated for sale .................... 39,402 8,036
Mortgage loans originated for sale ........................................... (44,731) (7,417)
Other, net ................................................................... (2,244) 554
----------------------
Net cash provided by operating activities ................................ 1,331 7,871
----------------------
Cash flows from investing activities:
Net increase in loans .......................................................... (4,917) (22,108)
Proceeds from maturities and calls of investments in debt securities:
Held-to-maturity ............................................................. 26,956 2,162
Available-for-sale ........................................................... 42,337 16,184
Proceeds from sales of investments:
Available-for-sale ........................................................... 68,737 3,001
Purchases of investments in debt and equity securities:
Held-to-maturity ............................................................. (17,493) (1,964)
Available-for-sale ........................................................... (111,351) (24,774)
Other equity securities ...................................................... (500) (555)
Principal paydowns from mortgage-backed securities:
Held-to-maturity ............................................................. 4,179 1,985
Available-for-sale ........................................................... 1,372 1,650
Principal paydowns on other equity securities: ................................. 31 --
Purchases of premises and equipment ............................................ (892) (723)
----------------------
Net cash provided by (used in) investing activities ...................... 8,459 (25,142)
----------------------
Cash flows from financing activities:
Net (decrease) in deposits ..................................................... (37,184) (26,869)
Net increase in federal funds purchased, repurchase agreements and notes payable 8,445 3,070
Net increase (decrease) in Federal Home Loan Bank advances and other borrowings (53) 9,949
Cash dividends paid ............................................................ (2,197) (1,367)
MSTI stock transactions, net ................................................... (961) (548)
----------------------
Net cash used in financing activities .................................... (31,950) (15,765)
----------------------
Net decrease in cash and cash equivalents ................................ (22,160) (33,036)
Cash and cash equivalents at beginning of year ................................... 84,139 87,350
----------------------
Cash and cash equivalents at end of period ....................................... $ 61,979 $ 54,314
======================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ..................................................................... $ 18,879 $ 17,231
Income taxes ................................................................. 5,338 3,245
Real estate acquired through or in lieu of foreclosure ......................... -- 85
Dividends declared not paid .................................................... 1,146 1,005
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 accounting principles generally accepted in the United States of
America. These financial statements should be read in conjunction with the
audited consolidated financial statements and related notes as of and for the
year ended December 31, 2000, and schedules included in Main Street Trust,
Inc.'s. Form 10-K filed on March 30, 2001.
In the opinion of management, the consolidated financial statements of Main
Street Trust, Inc. (the "Company") and its subsidiaries, as of June 30, 2001 and
for the three-month and six-month periods ended June 30, 2001 and 2000, include
all adjustments necessary for a fair presentation of the results of those
periods. All such adjustments are of a normal recurring nature.
Results of operations for the three-month and six-month period ended June 30,
2001 are not necessarily indicative of the results which may be expected for the
year ended December 31, 2001.
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold and interest
earning deposits. Generally, federal funds are sold for one-day periods.
Certain amounts in the 2000 consolidated financial statements have been
reclassified to conform with the 2001 presentation. Such reclassifications have
no effect on previously reported net income.
Note 2. Company Information/Business Combination
On March 23, 2000, BankIllinois Financial Corporation and First Decatur
Bancshares, Inc. completed a "merger of equals" between the two companies,
structured as a merger of the two companies into the Company. The merger has
been accounted for as a pooling of interests and, accordingly, all prior
financial statements have been restated to include both companies. As a result
of the merger, former shareholders of BankIllinois Financial Corporation and
First Decatur Bancshares, Inc. received 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.
On June 14, 2001, the Company was certified by the Board of Governors of the
Federal Reserve System as a financial holding company. This designation allows
the Company to engage in a wider range of nonbanking activities, including
greater authority to engage in securities and insurance activities. However, the
Company has no current plans to do so.
Note 3. New Accounting Rules and Regulations
In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations" (SFAS No. 141). SFAS No. 141 addresses financial
accounting and reporting for business combinations and supersedes APB Opinion
No. 16, "Business Combinations" and SFAS No 38, Accounting for Preacquisition
Contingencies of Purchased Enterprises. SFAS No. 141 requires all business
combinations in the scope of this SFAS to be accounted for using the purchase
method. SFAS No. 141 is effective for business combinations initiated after June
30, 2001 and all business combinations accounted for using the purchase method
for which the acquisition date is July 1, 2001 or later. Management does not
believe the adoption of Statement No. 141 will have a significant impact on its
financial statements.
In June 2001, the Financial Accounting Standards Board issued Statement No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142). SFAS No. 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, "Intangible Assets". It addresses how
intangible assets should be accounted for at acquisition and in subsequent
periods. Most significantly, goodwill and intangible assets that have indefinite
useful lives will not be amortized but rather will be tested at least annually
for impairment. Intangible assets that have finite useful lives will continue to
be amortized over their useful lives. The standard also provides specific
guidance for testing goodwill for impairment and requires additional disclosures
about goodwill and intangible assets. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. SFAS No. 142 is required to be applied to the
beginning of an entity's fiscal year and to be applied to all goodwill and other
intangible assets recognized in its financial statements at that date.
Impairment losses for goodwill and indefinite-lived intangible assets that arise
due to the initial application of this Standard are to be reported as resulting
from a change in accounting principle. Management does not believe the adoption
of SFAS No. 142 will have a significant impact on its financial statements.
Note 4. Income per Share
Net income per common share has been computed as follows:
Six Months Ended Three Months Ended
------------------------- -------------------------
June 30, June 30,
------------------------- -------------------------
2001 2000 2001 2000
------------------------- -------------------------
Net Income ............................. $ 7,732,000 $ 4,911,000 $ 4,064,000 $ 3,917,000
=====================================================
Shares:
Weighted average common shares
outstanding ........................ 10,450,192 10,574,262 10,435,094 10,570,353
Dilutive effect of outstanding options,
as determined by the application of
the treasury stock method .......... 176,007 206,392 180,475 203,266
Dilutive effect of outstanding SARs,
as determined by the application of
the treasury stock method .......... 16,015 16,383 15,495 16,424
-----------------------------------------------------
Weighted average common shares
outstanding, as adjusted .......... 10,642,214 10,797,037 10,631,064 10,790,043
=====================================================
Basic earnings per share .............. $ 0.74 $ 0.46 $ 0.39 $ 0.37
=====================================================
Diluted earnings per share ............ $ 0.73 $ 0.45 $ 0.38 $ 0.36
=====================================================
* As restated for 5% Sept. 2000 stock dividend
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Assets and Liabilities
Total assets decreased $22.610 million, or 2.1%, to $1.068 billion at June 30,
2001 compared to $1.091 billion at December 31, 2000. Decreases in investments
held-to-maturity, federal funds sold and interest bearing deposits, cash and due
from banks, accrued interest receivable and premises and equipment were
partially offset by increases in mortgage loans held for sale, loans,
investments available-for-sale, other assets and non-marketable equity
securities.
Cash and due from banks decreased $8.919 million, or 15.1%, to $50.048 million
at June 30, 2001 compared to $58.967 million at December 31, 2000 primarily due
to a smaller dollar amount of deposit items in process of collection at June 30,
2001 compared to December 31, 2000.
Federal funds sold and interest earning deposits decreased $13.241 million, or
52.6%, to $11.931 million at June 30, 2001 compared to $25.172 million at
December 31, 2000. The reason for this decrease was due to several factors,
including decreases in deposits and increased loan volume, offset somewhat by a
decrease in investment in debt and equity securities, and increases in borrowed
funds.
Total investments in debt and equity securities decreased $10.806 million, or
3.6%, to $292.381 million at June 30, 2001 compared to $303.187 million at
December 31, 2000, due to funding the increase in loans. Investments in
securities held-to-maturity decreased $14.328 million, or 16.9%, at June 30,
2001 compared to December 31, 2000. Somewhat offsetting this decrease was an
increase in investments in debt and equity securities available-for-sale of
$2.999 million, or 1.4%, and an increase in non-marketable equity securities of
$0.523 million, or 11.5%, during this time period.
Mortgage loans held for sale increased $5.644 million, or 270.0%, to $7.734
million at June 30, 2001 compared to $2.090 million at December 31, 2000. This
increase was mainly due to lower interest rates driving up demand in the
mortgage loan area during the first half of 2001.
Loans, net of allowance for loan losses, increased $4.307 million, or 0.7%, to
$664.156 million at June 30, 2001 from $659.849 million at December 31, 2000.
Increases in commercial, financial and agricultural loans of $2.421 million, or
1.1%, and real estate loans of $2.249 million, or 0.7% were partially offset by
a decrease of $0.267 million, or 0.2% in consumer loans at June 30, 2001
compared to December 31, 2000.
Premises and equipment decreased $0.524 million, or 2.5%, from $20.874 million
at December 31, 2000 to $20.350 million at June 30, 2001. The decrease was
caused by depreciation expense of $1.416 million offset by purchases of $0.892
million.
Other assets increased $2.225 million, or 21.6%, from $10.313 million at
December 31, 2000 to $12.538 million at June 30, 2001. Included in this change
were increases in taxes receivable of $0.864 million and $0.420 million in
accrued trust income.
Total liabilities decreased $29.016 million, or 3.0%, to $936.663 million at
June 30, 2001 from $965.679 million at December 31, 2000. Decreases in total
deposits, accrued interest payable and Federal Home Loan Bank advances and other
borrowings were partially offset by increases in federal funds purchased,
repurchase agreements and notes payable and other liabilities.
The market for deposits was extremely competitive in the first half of 2001.
Total deposits decreased $37.184 million, or 4.4%, to $802.748 million at June
30, 2001 from $839.932 at December 31, 2000. The decrease in deposits included a
decrease in savings deposits of $44.289 million, or 31.7%, and a decrease in
other time deposits of $11.710 million, or 4.6%. Somewhat offsetting these
decreases were increases of $11.704 million, or 11.7%, in time deposits $100,000
and over, $5.856 million, or 2.5%, in interest bearing demand deposits and
$1.255 million, or 1.2%, in non-interest bearing demand deposits. Despite the
decrease from year-end, total deposits were $34.542 million, or 4.5%, higher
than the June 30, 2000 balance of $768.206 million.
Federal funds purchased, repurchase agreements and notes payable increased
$8.445 million, or 12.1%, to $78.103 million at June 30, 2001 compared to
$69.658 million at December 31, 2000. Included in this change were increases of
$8.236 million in repurchase agreements and $0.575 million in federal funds
purchased. Somewhat offsetting these increases was a decrease in notes payable
of $0.366 million.
Accrued interest payable decreased $0.454 million, or 9.9%, to $4.130 million at
June 30, 2001 from $4.584 million at December 31, 2000. This was reflective of
the lower interest paying liability balances and the lower interest rate
environment.
Investment Securities
The carrying value of investments in debt and equity securities was as follows
for June 30, 2001 and December 31, 2000:
Carrying Value of Securities
(in thousands)
June 30, December 31,
2001 2000
Available-for-sale:
U.S. Treasury .................................. $ 15,005 $ 23,812
Federal agencies ............................... 154,216 156,322
Mortgage-backed securities ..................... 25,069 11,513
State and municipal ............................ 14,049 15,349
Corporate and other obligations ................ 2,343 294
Marketable equity securities ................... 6,003 6,396
-----------------------
Total available-for-sale ................. $216,685 $213,686
=======================
Held-to-maturity:
Federal agencies ............................... $ 4,745 $ 29,428
Mortgage-backed securities ..................... 25,237 22,642
State and municipal ............................ 40,662 32,902
-----------------------
Total held-to-maturity ................... $ 70,644 $ 84,972
=======================
Non-marketable equity securities:
FHLB and FRB stock1 ............................ $ 3,631 $ 3,526
Other equity investments ....................... 1,421 1,003
-----------------------
Total .................................... $ 5,052 $ 4,529
=======================
Total investment securities .............. $292,381 $303,187
=======================
1 FHLB and FRB are commonly used acronyms for Federal Home Loan Bank and
Federal Reserve Bank, respectively.
The following table shows the maturities and weighted-average yields of
investment securities at June 30, 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)
June 30, 2001
------------------------------------------------------------------------------------------------
1 year 1 to 5 5 to 10 Over 10 Total
or less years years years ----------------
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------------------------------------------------------------------------------------------------
Securities available-
for-sale
U.S. Treasury ................. $ 12,535 5.75% $ 2,470 5.75% $ -- -- $ -- -- $ 15,005 5.75%
Federal agencies .............. $ 11,673 5.85% $124,690 5.79% $ 17,853 6.04% $ -- -- $154,216 5.82%
Mortgage-backed
securities .................. $ 1,674 6.12% $ 4,400 6.15% $ 8,806 6.69% $ 10,189 6.59% $ 25,069 6.52%
State and municipal ........... $ 116 5.53% $ 3,964 6.03% $ 4,459 6.77% $ 5,510 5.35% $ 14,049 5.99%
Other securities .............. $ 295 7.85% $ 2,048 5.90% $ -- -- $ -- -- $ 2,343 6.14%
Marketable equity
securities1 ................. $ -- -- $ -- -- $ -- -- $ -- -- $ 6,003 --
------------------------------------------------------------------------------------------------
Total ................... $ 26,293 $137,572 $ 31,118 $ 15,699 -- $216,685 --
------------------------------------------------------------------------------------------------
Average Yield .................. 5.84% 5.81% 6.33% 6.16% 5.91%
================================================================================================
Securities held-
to-maturity
Federal agencies .............. $ -- -- $ 4,745 5.67% $ -- -- $ -- -- $ 4,745 5.67%
Mortgage-backed
securities .................. $ 7,128 5.86% $ 11,392 5.94% $ 1,697 6.68% $ 5,020 6.34% $ 25,237 6.05%
State and municipal ........... $ 3,009 5.83% $ 22,188 4.51% $ 15,304 4.60% $ 161 4.89% $ 40,662 4.64%
------------------------------------------------------------------------------------------------
Total ................... $ 10,137 $ 38,325 $ 17,001 $ 5,181 $ 70,644
================================================================================================
Average Yield .................. 5.85% 5.08% 4.81% 6.30% 5.21%
================================================================================================
Non-marketable equity securities1
FHLB and FRB stock2 ........... $ -- -- $ -- -- $ -- -- $ -- -- $ 3,631 --
Other equity investments ...... $ -- -- $ -- -- $ -- -- $ -- -- $ 1,421 --
------------------------------------------------------------------------------------------------
Total ................... $ -- -- $ -- -- $ -- -- $ -- -- $ 5,052 --
================================================================================================
1 Due to the nature of these securities, they do not have a stated maturity
date or rate.
2 FHLB and FRB are commonly used acronyms for Federal Home Loan Bank and
Federal Reserve Bank, respectively.
Loans
The following tables present the amounts and percentages of loans for June 30,
2001 and December 31, 2000 according to the categories of commercial, financial
and agricultural; real estate; and installment and consumer loans.
Amount of Loans Outstanding
(dollars in thousands)
June 30, 2001 December 31, 2000
---------------------------------------
Amount Percentage Amount Percentage
---------------------------------------
Commercial, financial and agricultural $221,962 32.97% $219,541 32.83%
Real estate .......................... 321,660 47.79% 319,412 47.76%
Installment and consumer1 ............ 129,509 19.24% 129,775 19.41%
---------------------------------------
Total loans .................. $673,131 100.00% $668,728 100.00%
=======================================
1 Net of unearned discount
The balance of loans outstanding as of June 30, 2001 by maturity is shown in the
following table:
Maturity of Loans Outstanding
(dollars in thousands)
June 30, 2001
1 year 1 to 5 Over 5
or less years years Total
---------------------------------------
Commercial, financial and agricultural $111,448 $ 84,321 $ 26,193 $ 221,962
Real estate .......................... 55,215 121,617 144,828 321,660
Installment and consumer1 ............ 37,940 84,868 6,701 129,509
---------------------------------------
Total ................................ $204,603 $290,806 $177,722 $673,131
=======================================
Percentage of total loans outstanding 30.40% 43.20% 26.40% 100.00%
=======================================
1 Net of unearned discount
Capital
Total shareholders' equity increased $6,406,000 from December 31, 2000 to June
30, 2001. The change is summarized as follows:
(in thousands)
--------------
Shareholders' equity, December 31, 2000 .................... $ 125,402
Net income ................................................. 7,732
Treasury stock transactions, net ........................... (961)
Stock appreciation rights .................................. 19
Cash dividends declared .................................... (2,296)
Other comprehensive income ................................. 1,912
---------
Shareholders' equity, June 30, 2001 ........................ $ 131,808
=========
On June 19, 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
$1,146,000 was paid on July 20, 2001 to holders of record on July 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 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,
2001, that the Company and its subsidiary banks exceeded all capital adequacy
requirements to which they are subject.
As of June 30, 2001, the most recent notifications from primary regulatory
agencies categorized all the Company's subsidiary banks as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, banks must maintain minimum total capital to risk-weighted
assets, Tier I capital to risk-weighted assets, and Tier I capital to average
assets ratios as set forth in the table. There are no conditions or events since
that notification that management believes have changed any of the Company's
subsidiary banks' categories.
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, 2001:
Total capital
(to risk-weighted assets)
Consolidated $138,210 18.5% $ 59,708 8.0% N/A
BankIllinois $ 64,881 16.0% $ 32,417 8.0% $ 40,521 10.0%
First National Bank of Decatur $ 47,086 15.9% $ 23,699 8.0% $ 29,624 10.0%
First Trust Bank of Shelbyville $ 11,632 23.4% $ 3,974 8.0% $ 4,968 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated $129,157 17.3% $ 29,854 4.0% N/A
BankIllinois $ 59,844 14.8% $ 16,208 4.0% $ 24,313 6.0%
First National Bank of Decatur $ 43,438 14.7% $ 11,850 4.0% $ 17,775 6.0%
First Trust Bank of Shelbyville $ 11,264 22.7% $ 1,987 4.0% $ 2,981 6.0%
Tier I capital
(to average assets)
Consolidated $129,157 12.0% $ 43,289 4.0% N/A
BankIllinois $ 59,844 10.2% $ 23,429 4.0% $ 29,287 5.0%
First National Bank of Decatur $ 43,438 10.2% $ 17,110 4.0% $ 21,387 5.0%
First Trust Bank of Shelbyville $ 11,264 15.6% $ 2,287 4.0% $ 3,608 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 June 30, 2001:
Rate Sensitivity of Earning Assets and Interest Bearing Liabilities
(dollars in thousands)
1-30 31-90 91-180 181-365 Over
Days Days Days Days 1 year Total
------------------------------------------------------------------------
Interest earning assets:
Federal funds sold and
interest earning deposits $ 11,931 $ -- $ -- $ -- $ -- $ 11,931
Debt and equity securities 1 9,916 16,772 7,860 46,425 211,408 292,381
Loans 2 186,359 29,103 40,386 63,988 361,029 680,865
------------------------------------------------------------------------
Total earning assets $ 208,206 $ 45,875 $ 48,246 $ 110,413 $ 572,437 $ 985,177
------------------------------------------------------------------------
Interest bearing liabilities:
Savings and interest bearing
demand deposits 3 $ 29,413 $ 1,086 $ 1,628 $ 3,263 $ 144,012 $ 179,402
Money market savings
deposits 135,768 -- -- -- -- 135,768
Time deposits 36,855 45,575 76,661 98,630 99,584 357,305
Federal funds purchased,
repurchase agreements,
and notes payable 73,258 103 98 440 4,204 78,103
FHLB advances and
other borrowings -- 1,000 5,031 161 34,733 40,925
------------------------------------------------------------------------
Total interest bearing
liabilities $ 275,294 $ 47,764 $ 83,418 $ 102,494 $ 282,533 $ 791,503
------------------------------------------------------------------------
Net asset (liability) funding gap (67,088) (1,889) (35,172) 7,919 289,904 193,674
------------------------------------------------------------------------
Repricing gap 0.76 0.96 0.58 1.08 2.03 1.24
Cumulative repricing gap 0.76 0.79 0.74 0.81 1.24 1.24
========================================================================
1 Debt and equity securities included securities available-for-sale,
securities held-to-maturity, and non-marketable equity securities.
2 Loans are gross and include mortgage loans held-for-sale.
3 The total of savings and interest-bearing demand deposits does not include
$20,036,000 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 June 30, 2001, the Company was liability-sensitive due to the levels of
savings and interest bearing demand deposits, short-term time deposits, and
short-term borrowings. As such, the effect of a decrease in the interest rate
for all interest earning assets and interest bearing liabilities of 100 basis
points would increase annualized net interest income by approximately $671,000
in the 1-30 days category and $690,000 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 $27,237,000 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 100 basis point increments.
The following table shows projected results at June 30, 2001 and December 31,
2000 of the impact on net interest income from an immediate change in interest
rates. The results are shown as a percentage change in net interest income over
the next twelve months.
Basis Point Change
+200 +100 -100 -200
---------------------------------------
June 30, 2001 2.8% 1.4% (1.4%) (2.8%)
December 31, 2000 0.2% 0.1% (0.1%) (0.2%)
The foregoing computations are based on numerous assumptions, including relative
levels of market interest rates, prepayments and deposit mix. The computed
estimates should not be relied upon as a projection of actual results. Despite
the limitations on preciseness inherent in these computations, management
believes that the information provided is reasonably indicative of the effect of
changes in interest rate levels on the net earning capacity of the Company's
current mix of interest earning assets and interest bearing liabilities.
Management continues to use the results of these computations, along with the
results of its computer model projections, in order to maximize current earnings
while positioning the Company to minimize the effect of a prolonged shift in
interest rates that would adversely affect future results of operations.
At the present time, the most significant market risk affecting the Company is
interest rate risk. Other market risks such as foreign currency exchange risk
and commodity price risk do not occur in the normal business of the Company. The
Company also is not currently using trading activities or derivative instruments
to control interest rate risk.
Liquidity and Cash Flows
The Company was able to meet liquidity needs during the first six months of
2001. A review of the consolidated statements of cash flows included in the
accompanying financial statements shows that the Company's cash and cash
equivalents decreased $22,160,000 from December 31, 2000 to June 30, 2001. This
decrease came from cash used in financing activities offset by cash provided by
operating and investing activities.
There were differences in the sources and uses of cash during the first six
months of 2001 compared to the first six months of 2000. Less cash was provided
by operating activities during the first six months of 2001 compared to the same
period of 2000. More cash was used during the first six months of 2001 for net
loans originated for sale because originated loans were higher than proceeds
from sales whereas during the first six months of 2000, proceeds from sales were
slightly higher than loans originated. Cash was used by other operating
activities during the first six months of 2001 compared to cash provided during
the same period of 2000. Cash was provided by investing activities during the
first six months of 2001 compared to cash used during the same period of 2000
due to a smaller amount of loan growth in 2001 compared to 2000 and due to
changes in the Company's investment portfolio. During the first six months of
2001, net cash provided by investing activities involving the Company's
investment portfolio increased $12,698,000 compared to a decrease of $3,034,000
during the same period of 2000. More cash was used in financing activities
during the first six months of 2001 compared to the same period of 2000
primarily due to a decrease in deposits during the first six months of 2001
compared to an increase during the same period of 2000. More cash was provided
by federal funds purchased, repurchase agreements and notes payable during the
first six months of 2001 compared to the same period in 2000. Cash was used
during the first six months of 2001 due to a decrease in Federal Home Loan Bank
advances compared to cash provided during the same period of 2000.
Provision and Allowance for Loan Losses
The provision for loan losses is based on management's evaluation of the loan
portfolio in light of national and local economic conditions, changes in the
composition and volume of the loan portfolio, changes in the volume of past due
and nonaccrual loans, and other relevant factors. The allowance for loan losses,
which is reported as a deduction from loans, is available for loan charge-offs.
The allowance is increased by the provision charged to expense and is reduced by
loan charge-offs net of loan recoveries. The balance of the allowance for loan
losses was $8,975,000 at June 30, 2001 compared to $8,879,000 at December 31,
2000, as net charge-offs were $514,000 and provisions totaled $610,000 during
the first six months of 2001. The allowance for loan losses as a percentage of
gross loans, including loans held-for-sale, was 1.32% at June 30, 2001, and
equal to the December 31, 2000 percentage. Gross loans, including loans
held-for-sale, remained fairly stable, increasing slightly to $680,865,000 at
June 30, 2001 from $670,818,000 at December 31, 2000.
The allowance for loan losses as a percentage of non-performing loans was 301.0%
at June 30, 2001 compared to 613.2% at December 31, 2000. Non-performing loans
increased from $1,448,000 at December 31, 2000, to $2,982,000 at June 30, 2001.
The $1,534,000 increase in non-performing loans during the first six months
resulted from a $1,303,000 increase in loans over 90 days past due and a
$231,000 increase in non-accruals. The increase in non-accruals consisted of a
mix of commercial and real estate loans. The rise in loans over 90-days past due
and still accruing was due primarily to a $600,000 farm credit, which is being
refinanced by another financial institution, and other smaller commercial and
consumer loans. Although unforeseen market conditions could result in
significant adjustments in the future, management believes that problem assets
have been effectively identified and that the allowance for loan losses is
adequate to absorb probable losses in the portfolio which are reasonably
anticipated. However, there can be no assurance that the allowance for loan
losses will be adequate to cover all losses.
Along with other financial institutions, management shares a concern for the
continued softening of the economy in 2001. 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)
June 30,
----------------------
2001 2000
----------------------
Allowance for loan losses at
beginning of year $ 8,879 $ 8,682
----------------------
Charge-offs during period:
Commercial, financial and agricultural $ (243) $ (10)
Real estate -- (18)
Installment and consumer (501) (361)
----------------------
Total $ (744) $ (389)
----------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural $ 90 $ 383
Residential real estate 36 1
Installment and consumer 104 87
----------------------
Total $ 230 $ 471
----------------------
Net (charge-offs) recoveries $ (514) $ 82
Provision for loan losses 610 267
----------------------
Allowance for loan losses at end of quarter $ 8,975 $ 9,031
======================
Ratio of net (charge-offs) recoveries to
average net loans (0.08)% 0.01%
The following table shows the allocation of the allowance for loan losses
allocated to each category.
Allocation of the Allowance for Loan Losses
June 30, December 31,
2001 2000
----------------------
Allocated:
Commercial, financial and agricultural ......... $5,013 $3,426
Residential real estate ........................ 348 855
Installment and consumer ....................... 1,799 1,649
-------------------
Total allocated allowance ................ $7,160 $5,930
Unallocated allowances ........................... 1,815 2,949
-------------------
Total ............................................ $8,975 $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)
June 30, 2001 December 31, 2000
---------------------------------
Nonaccrual loans1 ........................ $ 833 $ 602
=======================
Loans past due 90 days or more ........... $2,149 $ 846
=======================
Renegotiated loans ....................... $ 73 $ 88
=======================
1 Includes $495,000 at June 30, 2001 and $505,000 at December 31, 2000 of
real estate and consumer loans which management does not consider impaired
as defined by the Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (SFAS 114).
Results of Operations
Results of Operations For the Six Months Ended June 30, 2001
The merger of equals to create the Company, which occurred near the end of the
first quarter of 2000, resulted in significant merger related costs which were
expensed during the first six months of 2000. These expenses had a significant
effect on the reported net income of the combined entity during the first half
of 2000. Net income for the first six months of 2001 was $7,732,000, a
$2,821,000, or 57.4%, increase from $4,911,000 for the same period in 2000.
Basic earnings per share increased $0.28, or 60.9%, to $0.74 in the first six
months of 2001 from $0.46 in the same period of 2000. Diluted earnings per share
increased $0.28, or 62.2%, to $0.73 in the first six months of 2001 from $0.45
during the same period in 2000.
Operating earnings for the six months ended June 30, 2001, were $7,947,000
compared to $7,927,000 for the same period in 2000, an increase of $20,000, or
0.3%. Basic operating earnings per share increased to $0.76, or 1.3%, in the
first six months of 2001 from $0.75 in the same period of 2000. Diluted earnings
per share on operating earnings for the first six months of 2001 increased 2.7%,
or $0.02, to $0.75, from $0.73 in the same period in 2000. The difference
between operating and net earnings was due to merger and restructuring related
expenses, net of tax, of $215,000 during the first half of 2001 compared to
$3,016,000 during the same period in 2000. The 2001 merger and restructuring
related expenses consisted of $70,000 of data processing expense and $256,000 of
termination of employment contracts, offset by $111,000 of tax benefit. The 2000
merger and restructuring related expenses consisted of $2,452,000 of
professional fees, $941,000 of early retirement and termination of employment
contracts, offset by $377,000 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)
Six Months Ended June 30,
----------------------------------------------------------------------
2001 2000
---------------------------------- ---------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
----------------------------------------------------------------------
Assets
Taxable investment securities1 ......... $ 243,223 $ 7,186 5.91% $ 265,242 $ 7,852 5.92%
Tax-exempt investment securities1 (TE) . 50,245 1,677 6.68% 43,001 1,479 6.88%
Federal funds sold and interest earning
deposits2 ............................ 48,037 1,235 5.14% 26,098 862 6.61%
Loans3,4 (TE) .......................... 662,057 28,381 8.57% 604,677 26,237 8.68%
----------------------------------------------------------------------
Total interest earning assets
and interest income (TE) ....... $1,003,562 $ 38,479 7.67% $ 939,018 $ 36,430 7.76%
----------------------------------------------------------------------
Cash and due from banks ................ $ 50,859 $ 51,010
Premises and equipment ................. 20,724 22,046
Other assets ........................... 20,013 21,904
----------------------------------------------------------------------
Total assets ................... $1,095,158 $1,033,978
======================================================================
Liabilities and Shareholders' Equity
Interest bearing demand deposits ....... $ 243,809 $ 4,229 3.47%$ 225,351 $ 4,115 3.65%
Savings ................................ 78,652 962 2.45% 90,837 959 2.11%
Time deposits .......................... 363,878 10,581 5.82% 337,420 9,156 5.43%
Federal funds purchased, repurchase
agreements, and notes payable ........ 71,683 1,482 4.13% 76,696 1,980 5.16%
FHLB advances and other borrowings ..... 40,009 1,171 5.85% 32,192 919 5.71%
-----------------------------------------------------------------------
Total interest bearing
liabilities and interest expense $ 798,031 $ 18,425 4.62% $ 762,496 $ 17,129 4.49%
-----------------------------------------------------------------------
Noninterest bearing demand deposits5 ... $ 113,071 $ 84,979
Noninterest bearing savings deposits5 .. 40,743 55,161
Other liabilities ...................... 14,909 14,143
-----------------------------------------------------------------------
Total liabilities .............. $ 966,754 $ 916,779
Shareholders' equity ................... 128,404 117,199
-----------------------------------------------------------------------
Total liabilities and
stockholders' equity ........... $1,095,158 $1,033,978
=======================================================================
Interest spread (average rate earned
minus average rate paid) (TE) ........ 3.05% 3.27%
=======================================================================
Net interest income (TE) ............... $ 20,054 $ 19,301
=======================================================================
Net yield on interest
earnings assets (TE) ................. 4.00% 4.11%
=======================================================================
See next page for Notes 1-5.
Notes to Consolidated Average Balance Sheet and Interest Rate Tables:
1 Investments in debt securities are included at carrying value.
2 Federal funds sold and interest earning deposits include approximately
$70,000 and $82,000 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 $440,000 and $431,000 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)
Six Months Ended June 30, 2001
Increase
(Decrease)
from
Previous Due to Due to
Year Volume Rate
--------------------------------
Interest Income
Taxable investment securities ................ $ (666) $ (651) $ (15)
Tax-exempt investment securities (TE) ........ 198 243 (45)
Federal funds sold and interest earning
deposits ................................... 373 598 (225)
Loans (TE) ................................... 2,144 2,463 (319)
------------------------------
Total interest income (TE) ............. $ 2,049 $ 2,653 $ (604)
------------------------------
Interest Expense
Interest bearing demand and savings deposits1 $ 117 $ 100 $ 17
Time deposits ................................ 1,425 745 680
Federal funds purchased,
repurchase agreements and notes payable .... (498) (123) (375)
FHLB advances and other borrowings ........... 252 228 24
------------------------------
Total interest expense ................. $ 1,296 $ 950 $ 346
------------------------------
Net Interest Income (TE) ....................... $ 753 $ 1,703 $ (950)
==============================
1 Due to deposit reclassifications described above, interest bearing demand and
savings deposits are included in the same line for comparability.
Net interest income on a tax equivalent basis was $753,000, or 3.9% higher for
the first six months of 2001 compared to 2000. Total tax-equivalent interest
income was $2,049,000 or 5.6% higher in 2001 compared to 2000, and interest
expense increased $1,296,000, or 7.6%. The increase in interest income was due
to an increase in average earning assets offset slightly by a decrease in rate.
The increase in interest expense was mainly due to an increase in average
interest bearing liabilities.
The increase in total interest income was mainly due to an increase in interest
income from loans as well as federal funds sold and interest earning deposits,
and tax-exempt investment securities, offset somewhat by a decrease in income
from taxable investment securities. The increases in interest income from loans,
federal funds sold and interest earning deposits, and tax-exempt investments
were primarily due to increases in average balances outstanding during the first
six months of 2001 compared to the first six months of 2000, offset slightly by
decreases in rate. The decrease in taxable investment interest income was mainly
due to a decrease in average balance. Shifting assets to fund loan growth caused
the decrease in balance in the investment portfolio.
The increase in total interest expense was due to increases in interest on time
deposits, FHLB advances and other borrowings, and interest bearing demand and
savings deposits, 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 six months of 2001 compared to the
first six months of 2000 due to both higher average balances and higher rates.
Interest expense on FHLB advances and other borrowings as well as interest
bearing demand and savings deposits increased during the first six months of
2001 compared to the first six months of 2000 primarily due to an increase in
average balances. Somewhat offsetting the increase in total interest expense was
a decrease in interest on federal funds purchased, repurchase agreements and
notes payable, which was primarily due to lower rates.
The provision for loan losses recorded was $610,000 during the first six months
of 2001. This was $343,000, or 128.5%, higher than the $267,000 recorded during
the first six 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 $28,000, or 0.3%, during the first six
months of 2001 compared to the first six months of 2000. Included in this
decrease was a decrease of $215,000, or 6.1%, in income from remittance
processing. This decrease continues to reflect a shift in late 2000 from lockbox
payments to mechanized payments, which have lower revenue streams as well as
lower costs. Other income decreased $164,000, or 16.8%, during the first six
months of 2001 compared to the same period in 2000. Proceeds from a life
insurance policy of approximately $81,000 in the first half of 2000, along with
$22,000 in one-time fee income from a third party during the same period, caused
results in the first six months of 2001 to be less than those in the same period
of 2000. Income from trust and brokerage fees decreased $135,000, or 4.9%,
during the first half of 2001 compared to the same period in 2000. This was due,
in part, to a decrease in total assets under management, and associated income,
during most of the first half of 2001 as a result of stock market fluctuations.
Service charges on deposit accounts decreased $3,000, or 0.3%, in the first half
of 2001. Somewhat offsetting these decreases was an increase of $256,000, or
433.9%, from gains on sales of mortgage loans held-for-sale. This increase
reflected a $31,366,000, or 390.3%, increase in funded mortgage loans
held-for-sale during the first six months of 2001 compared to the same period in
2000, and was reflective of lower interest rates during the first six months of
2001. Income from securities transactions increased $233,000, or 1,664.3%,
during the first six months of 2001 compared to the same period in 2000. This
was the result of the sale of some securities to reposition the portfolio in the
current changing rate environment.
Total non-interest expense decreased $2,746,000, or 14.7%, during the first six
months of 2001 compared to the same period in 2000. Of this decrease, $2,452,000
was due to merger related professional fees in 2000. Salaries and employee
benefits decreased $956,000, or 9.8%, during the first half of 2001 compared to
the same period in 2000. Salaries and employee benefits in the first half of
2001 included $256,000 of expenses related to the termination of employment
contracts compared to $941,000 in expenses during the same period in 2000
related to early retirement and termination of employment contracts as a result
of the merger. Service charges from correspondent banks decreased $136,000, or
23.7%, in the first six months of 2001 compared to the same period in 2000. This
was mainly due to a continuing trend toward fewer lockbox transactions,
resulting in decreased service charges from correspondent banks. Somewhat
offsetting these decreases was an increase in other non-interest expense of
$413,000, or 20.9%, during the first half of 2001 compared to the same period in
2000. This was the result of proceeds of $461,000 in April of 2000 from the sale
of a property previously written off. Office supplies increased $197,000, or
33.4%, in the first half of 2001 compared to the same period in 2000. Included
in office supplies expense were additional printing and mailing expense and
additional supplies purchased to support and announce a computer system
conversion necessary to move the Company's subsidiaries toward the same data
processing system. Equipment expense increased $94,000, or 6.4%, during the
first six months of 2001 compared to the same period in 2000. Data processing
expense increased $86,000, or 11.1%, in the first six months of 2001 compared to
the first six months of 2000. Included in data processing expense in the first
half of 2001 were $70,000 in expenses related to computer system conversion and
early contract termination as a result of the aforementioned computer system
conversion. Occupancy expense increased $8,000, or 0.7%, during the first six
months of 2001 compared to the same period in 2000.
Income tax expense increased $231,000, or 7.1%, during the first six months of
2001 compared to the first six months of 2000. The effective tax rate decreased
to 31.0% during the first half of 2001 from 39.7% during the first half of 2000.
This difference was due to $2,452,000 of merger related professional fees for
which no tax benefit had been recognized in the first half of 2000.
Results of Operations For the Three Months Ended June 30, 2001
The merger of equals to create the Company, which occurred near the end of the
first quarter of 2000, resulted in additional merger related costs of $151,000,
net of tax, which were expensed during the second quarter of 2000. These
expenses had an effect on the reported net income of the combined Company. Net
income for the second quarter of 2001 was $4,064,000, a $147,000, or 3.8%,
increase from $3,917,000 during the second quarter of 2000. Basic earnings per
share increased $0.02, or 5.4%, to $0.39 in the second quarter of 2001 from
$0.37 in the same period of 2000. Diluted earnings per share increased $0.02, or
5.6%, to $0.38 in the second quarter of 2001 from $0.36 in the same period of
2000.
Operating earnings for the second quarter of 2001, were $4,064,000 compared to
$4,068,000 for the same period in 2000, a decrease of $4,000, or 0.1%. Basic
operating earnings per share increased $0.01, or 2.6%, to $0.39 in the second
quarter of 2001 compared to $0.38 in the second quarter of 2000. Diluted
operating earnings per share were unchanged at $0.38 in the second quarter of
2001 compared to the second quarter of 2000.
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,
----------------------------------------------------------------------
2001 2000
---------------------------------- ----------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
----------------------------------------------------------------------
Assets
Taxable investment securities1 ......... $ 233,279 $ 3,504 6.01% $ 263,132 $ 3,910 5.94%
Tax-exempt investment securities1 (TE) . 51,939 854 6.58% 43,880 761 6.94%
Federal funds sold and interest earning
deposits2 ............................ 34,398 575 6.69% 15,794 265 6.71%
Loans3,4 (TE) .......................... 666,354 14,132 8.48% 612,250 13,335 8.71%
----------------------------------------------------------------------
Total interest earning assets
and interest income (TE) ....... $ 985,970 $ 19,065 7.73% $ 935,056 $ 18,271 7.82%
----------------------------------------------------------------------
Cash and due from banks ................ $ 54,907 $ 49,836
Premises and equipment ................. 20,514 21,875
Other assets ........................... 20,825 22,006
----------------------------------------------------------------------
Total assets ................... $1,082,216 $1,028,773
======================================================================
Liabilities and Shareholders' Equity
Interest bearing demand deposits ....... $ 247,620 $ 1,889 3.05% $ 216,561 $ 2,046 3.78%
Savings ................................ 76,682 449 2.34% 90,765 497 2.19%
Time deposits .......................... 360,612 5,248 5.82% 340,512 4,611 5.42%
Federal funds purchased, repurchase
agreements, and notes payable ........ 72,555 703 3.88% 82,698 975 4.72%
FHLB advances and other borrowings ..... 40,932 557 5.44% 32,345 460 5.69%
----------------------------------------------------------------------
Total interest bearing
liabilities and interest expense $ 798,401 $ 8,846 4.43% $ 762,881 $ 8,589 4.50%
----------------------------------------------------------------------
Noninterest bearing demand deposits5 ... $ 118,066 $ 85,212
Noninterest bearing savings deposits5 .. 20,623 49,049
Other liabilities ...................... 14,894 14,186
----------------------------------------------------------------------
Total liabilities .............. $ 951,984 $ 911,328
Shareholders' equity ................... 130,232 117,445
----------------------------------------------------------------------
Total liabilities and
stockholders' equity ........... $1,082,216 $1,028,773
======================================================================
Interest spread (average rate earned
minus average rate paid) (TE) ........ 3.30% 3.32%
======================================================================
Net interest income (TE) ............... $ 10,219 $ 9,682
======================================================================
Net yield on interest
earnings assets (TE) .................. 4.15% 4.14%
======================================================================
See next page for Notes 1 - 5.
Notes to Consolidated Average Balance Sheet and Interest Rate Tables:
1 Investments in debt securities are included at carrying value.
2 Federal funds sold and interest earning deposits include approximately
$35,000 and $39,000 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 $265,000 and $196,000 in 2001 and 2000,
respectively, are included in total loan income.
5 Due to current regulatory issues, the Company is allowed to reclassify
certain demand deposits to savings deposits. Accounts identified as
transactional remained in the demand categories, while accounts identified
as non-transactional were reclassified into the savings categories. The
classification was based upon whether the account balance was fluctuating
or whether it exhibited stable balance portions, which were called
non-transactional. Banks are required to hold balances at the Federal
Reserve Bank based upon transactional account balances. By identifying
these accounts as non-transactional, the Company was able to reduce the
balances required to be held at the Federal Reserve Bank in a non-interest
bearing reserve account.
The following table presents, on a tax equivalent basis, an analysis of changes
in net interest income resulting from changes in average volumes of earning
assets and interest bearing liabilities and average rates earned and paid. The
change in interest due to the combined rate/volume variance has been allocated
to rate and volume changes in proportion to the absolute dollar amounts of
change in each.
Analysis of Volume and Rate Changes
(in thousands)
Three Months Ended June 30, 2001
Increase
(Decrease)
from
Previous Due to Due to
Year Volume Rate
-------------------------------
Interest Income
Taxable investment securities .................. $ (406) $ (447) $ 41
Tax-exempt investment securities (TE) .......... 93 134 (41)
Federal funds sold and interest earning deposits 310 311 (1)
Loans (TE) ..................................... 797 1,155 (358)
-----------------------------
Total interest income (TE) ............... $ 794 $ 1,153 $ (359)
-----------------------------
Interest Expense
Interest bearing demand and savings deposits1 .. $ (205) $ 135 $ (340)
Time deposits .................................. 637 281 356
Federal funds purchased,
repurchase agreements and notes payable ...... (272) (111) (161)
FHLB advances and other borrowings ............. 97 117 (20)
-----------------------------
Total interest expense ................... $ 257 $ 422 $ (165)
-----------------------------
Net Interest Income (TE) ......................... $ 537 $ 731 $ (194)
=============================
1 Due to deposit reclassifications described above, interest bearing demand
and savings deposits are included in the same line for comparability.
Net interest income on a tax equivalent basis was $507,000, or 5.2%, higher for
the second quarter of 2001 compared to the second quarter of 2000. Total
tax-equivalent interest income was $764,000, or 4.2%, higher in 2001 compared to
2000, and interest expense increased $257,000, or 3.0%. The increase in both
interest income and interest expense was primarily due to an increase in average
balances offset slightly by decreased interest rates.
The increase in total interest income was due to an increase in interest income
from loans; federal funds sold and interest earning deposits; and tax-exempt
investment securities interest. These increases were somewhat offset by a
decrease in taxable investment securities interest. The increase in interest
income from loans was primarily due to an increase in average loans outstanding
during the second quarter of 2001 compared to the second quarter of 2000, offset
somewhat by a decrease in rates. The increase in interest from federal funds
sold and interest earning deposits was due to an increase in average balances.
The increase in tax-exempt investment interest income was due to an increase in
average tax-exempt investments, offset somewhat by lower yields. The decrease in
interest from taxable investments was caused by a decrease in average taxable
investments, somewhat offset by higher yields. 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 expense
on time deposits and FHLB advances and other borrowings offset somewhat by
decreases in federal funds purchased, repurchase agreements and notes payable
and interest bearing demand and savings deposits. Interest expense on time
deposits increased during the second quarter of 2001 compared to the second
quarter of 2000 due to both increases in rate and average balances. Interest
expense on FHLB advances and other borrowings increased during the second
quarter of 2001 compared to the second quarter of 2000 due to an increase in
volume offset slightly by a decrease in rate. Somewhat offsetting these
increases was a decrease in federal funds purchased, repurchase agreements and
notes payable during the second quarter of 2001 compared to the second quarter
of 2000 due to decreases in both rate and average balances. Interest on interest
bearing demand and savings deposits also decreased during the second quarter of
2001 compared to the second quarter of 2000 due to decreases in rate offset
somewhat by an increase in volume.
The provision for loan losses recorded was $375,000 for the second quarter of
2001. This represented a 186.3% increase over the $131,000 recorded in the
second quarter of 2000. The provision during both periods was based on
management's analysis of the loan portfolio, as discussed in the provision and
allowance for loan losses section above.
Total non-interest income increased $174,000, or 4.3%, during the second quarter
of 2001 compared to the second quarter of 2000. Included in this increase was an
increase of $158,000, or 987.5%, in income from securities transactions in the
second quarter of 2001. This was the result of the sale of some securities to
reposition the portfolio in the current changing rate environment. Also
contributing to the increase in total non-interest income was an increase of
$135,000, or 540.0% in gains on sales of mortgage loans held-for-sale. This
increase reflected a $19,450,000, or 470.5%, increase in funded mortgage loans
held-for-sale during the second quarter of 2001 compared to the second quarter
of 2000 when interest rates were higher. Somewhat offsetting the increase in
non-interest income was a decrease in other non-interest income of $118,000, or
23.8%, in the second quarter of 2001 compared to the same period in 2000.
Remittance processing, trust and brokerage fees, and service charges on deposit
accounts remained stable in the second quarter of 2001 compared to the same
period in 2000.
Total non-interest expense increased $286,000, or 3.7%, during the second
quarter of 2001 compared to the second quarter of 2000. Other non-interest
expense contributed $450,000, or 60.5%, to this increase. This was the result of
proceeds of $461,000 in April of 2000 from the sale of a property previously
written off. An increase also occurred in office supplies of $100,000, or 33.6%.
Equipment expense increased $76,000, or 10.4%, compared to 2000. Service charges
from correspondent banks increased $40,000, or 14.5%. Data processing expense
increased $7,000, or 1.8%. Somewhat offsetting these increases was a decrease of
$342,000, or 7.4%, in salaries and employee benefits during the second quarter
of 2001. This decrease was due, in part, to $228,000 of expense related to early
retirement and termination of employment contracts as a result of the merger in
the second quarter of 2000. Occupancy expense decreased $45,000, or 8.1%, in the
second quarter of 2001 compared to the same period in 2000.
Income tax expense decreased $4,000, or 0.2%, during the second quarter of 2001
compared to the second quarter of 2000. The effective tax rate remained stable
at 30.8% during the second quarter of 2001 and 31.7% during the second 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
--------------------------------------------------------------------------------------------------
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
June 30, 2000
Total interest income ....... $ 35,909 $ 63 $ 111 63 $ (179) $ 35,904
Total interest expense ...... 17,308 -- -- (179) 17,129
Provision for loan losses ... 267 -- -- -- 267
Total non-interest income ... 4,942 3,984 68 (617) 8,377
Total non-interest expense .. 12,521 3,179 3,652 (617) 18,735
Income before income tax .... 10,755 868 (3,473) -- 8,150
Income tax expense .......... 3,347 302 (410) -- 3,239
Net income .................. 7,408 566 (3,063) -- 4,911
Total assets ................ 1,015,876 6,463 123,013 (119,938) 1,025,414
Depreciation and amortization 1,135 262 12 -- 1,409
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
On May 14, 2001, the Company's annual meeting of stockholders was held. At the
meeting, George T. Shapland, Thomas G. Sloan, Roy V. VanBuskirk, and H. Gale
Zacheis were elected to serve as Class II directors with terms expiring in 2004.
Continuing as Class III directors with terms expiring in 2002 were David J.
Downey, Van A. Dukeman, Larry D. Haab, John W. Luttrell and Gene A. Salmon.
Continuing as Class I directors with terms expiring in 2003 were Frederic L.
Kenney, Gregory B. Lykins, August C. Meyer and Phillip C. Wise.
There were 10,582,484 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:
Elections of Directors:
For Withheld
-------------------------
George T. Shapland ................ 8,508,364 48,729
Thomas G. Sloan ................... 8,495,335 61,758
Roy V. VanBuskirk ................. 8,508,364 48,729
H. Gale Zacheis ................... 8,497,256 59,837
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: August 14, 2001
By: /s/ David B. White
-----------------------------------------
David B. White, Executive Vice President
and Chief Financial Officer
By: /s/ Van A. Dukeman
-----------------------------------------
Van A. Dukeman, President
and Chief Executive Officer