UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission File Number: 33-90342
MAIN STREET TRUST, INC.
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(Exact name of Registrant as specified in its charter)
Illinois 37-1338484
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(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
100 West University, Champaign, Illinois 61824-4028
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(Address of principal executive offices) (Zip Code)
(217) 351-6500
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Exchange Class On Which Registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The index to exhibits is located on page 58 of 58 total sequentially numbered
pages.
As of March 16, 2001, the Registrant had issued and outstanding 10,456,306
shares of the Registrant's Common Stock. The aggregate market value of the
voting stock held by non-affiliates of the Registrant as of March 16, 2001 was
approximately $139.4 million.*
* Based on the last reported price ($18.75) of an actual transaction in
Registrant's Common Stock on March 16, 2001, and reports of beneficial
ownership filed by directors and executive officers of Registrant and by
beneficial owners of more than 5% of the outstanding shares of Common
Stock of Registrant; however, such determination of shares owned by
affiliates does not constitute an admission of affiliate status or
beneficial interest in shares of Registrant's Common Stock.
Documents Incorporated By Reference
Part III of Form 10-K - Portions of Proxy Statement for annual meeting of
shareholders to be held May 14, 2001.
MAIN STREET TRUST, INC.
Form 10-K Annual Report
Table of Contents
Part I
Item 1. Description of Business...................................
A. General
B. Business of the Company and Subsidiary
C. Competition
D. Monetary Policy and Economic Conditions
E. Regulation and Supervision
F. Employees
Item 2. Properties................................................
Item 3. Legal Proceedings.........................................
Item 4. Submission of Matters to a Vote of Security Holders.......
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.............................
Item 6. Selected Consolidated Financial Data......................
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data...............
Item 9. Changes in and Disagreements on Accounting and Financial
Disclosure .............................................
Part III
Item 10. Directors and Executive Officers of the Registrant........
Item 11. Executive Compensation....................................
Item 12. Security Ownership of Certain Beneficial Owners and
Management..............................................
Item 13. Certain Relationships and Related Transactions............
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.............................................
PART I
Item 1. Description of Business
A. General
MAIN STREET TRUST, INC. (the "Company"), an Illinois corporation, is a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the "BHCA"). The Company was incorporated on August 12, 1999, and on
March 23, 2000, the Company acquired all of the outstanding stock of
BankIllinois, First National Bank of Decatur, First Trust Bank of Shelbyville
and FirsTech, Inc. following the merger of BankIllinois Financial Corporation
and First Decatur Bancshares, Inc.
On August 12, 1999, BankIllinois Financial Corporation and First Decatur
Bancshares, Inc. entered into an agreement and plan of merger which provided for
the merger of the two companies into the Company. The merger, which was
accounted for as a pooling of interests, was completed on March 23, 2000.
Accordingly, prior period consolidated financial statements have been restated
as though the prior entities had been consolidated for all periods presented.
B. Business of the Company and Subsidiaries
General
The Company conducts the business of banking and offers trust services through
BankIllinois, First National Bank of Decatur and First Trust Bank of Shelbyville
(the "Banks"), and retail payment processing through FirsTech, Inc., its wholly
owned subsidiaries. As of December 31, 2000, the Company had consolidated total
assets of $1.091 billion, stockholders' equity of $125.4 million and trust
assets under administration of approximately $1.148 billion. Substantially all
of the income of the Company is currently derived from dividends received from
the Banks. The amount of these dividends is directly related to the earnings of
the Banks and is subject to various regulatory restrictions. See "Regulation and
Supervision."
Banking Segment
The Banks conduct a general banking business embracing most of the services,
both consumer and commercial, which banks may lawfully provide, including the
following principal services: the acceptance of deposits to demand, savings and
time accounts and the servicing of such accounts; commercial, consumer and real
estate lending, including installment loans and personal lines of credit; safe
deposit operations; and additional services tailored to the needs of individual
customers, such as the sale of traveler's checks, cashier's checks and other
specialized services. The Company offers personalized financial planning
services through the PrimeVest Investment Center at BankIllinois and through
Raymond James at First National Bank of Decatur and First Trust Bank of
Shelbyville, which services include a broad spectrum of investment products,
including stocks, bonds, mutual funds and tax advantaged investments. In
addition, the trust & investments division offers a wide range of services such
as investment management, acting as trustee, serving as guardian, executor or
agent and miscellaneous consulting.
Commercial lending at the Banks covers such categories as agriculture,
manufacturing, capital, inventory, construction, real estate development and
commercial mortgages. Commercial lending, particularly loans to small and medium
sized businesses, accounts for a major portion of the Banks' loan portfolios.
The Banks' retail banking divisions make loans to consumers for various
purposes, including home equity and automobile loans. The consumer mortgage loan
departments, which are part of the retail banking divisions, specialize in real
estate loans to individuals. The Banks also purchase installment obligations
from retailers, primarily without recourse.
The Banks' principal sources of income are interest and fees on loans and
investments and service fees. Their principal expenses are interest paid on
deposits and general operating expenses. The Banks' primary service area is
Central Illinois.
Lending Activities
General. The Company's primary source of revenue is interest revenue from
lending activities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Results of Operations--Net Interest
Income."
Loan Portfolio Composition. The Company's loan portfolio totaled approximately
$668.7 million at December 31, 2000, representing 61% of total assets at that
date. At that date, the loan portfolio included approximately $219.5 million of
commercial, financial and agricultural loans, $319.4 million of real estate
loans and $129.8 million of installment and consumer loans. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Results of Operations--Financial Condition--Loans."
For a discussion of risks with respect to the loan portfolio, strategies for
addressing and managing such risks, non-performing loans and allowance for loan
losses, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Results of Operations--Allowance for Loan Losses and Loan
Quality" and "--Financial Condition--Loans."
Interest Rates and Fees. Interest rates and fees charged on loans are affected
primarily by the market demand for loans and the supply of money available for
lending purposes. These factors are affected by, among other things, general
economic conditions and the policies of the Federal government, including the
Board of Governors of the Federal Reserve System (the "Federal Reserve"),
legislative tax policies and governmental budgetary matters. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Results of Operations--Net Interest Income."
Investment Securities
The carrying value of investment securities at December 31, 2000 was
approximately $303.2 million, representing 28% of the Company's total assets.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Financial Condition--Investment Securities."
Interest Rate Sensitivity
For a discussion of the Banks' approach to managing its mix of interest rate
sensitive assets and liabilities, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Financial Condition--Interest
Rate Sensitivity."
Remittance Services Segment
FirsTech, Inc. 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;
processing of payments delivered by customers to pay agents such as grocery
stores, convenience stores and currency exchanges; and concentration of payments
delivered by the Automated Clearing House network, money management software
such as Quicken and through networks such as Visa e-Pay and Mastercard RPS. For
the years ended December 31, 2000, 1999 and 1998, FirsTech, Inc. accounted for
$7,571,000 (8%), $8,824,000 (10%), and $5,880,000 (7%), respectively, of the
consolidated total revenues of the Company and accounted for $1,722,000 (9%),
$1,256,000 (7%), and $562,000 (3%), respectively, of the consolidated income
before income tax of the Company. See Note 1 to the Consolidated Financial
Statements for an analysis of segment operations.
FirsTech, Inc. provides retail lockbox processing for organizations. In 2000,
remittance processing for these companies accounted for approximately 52% of the
total revenue of FirsTech, Inc.
FirsTech, Inc. processes payments delivered by customers to pay agents. Many
businesses and merchants such as grocery stores and convenience stores located
throughout the United States serve as agents of utilities in collecting customer
payments. In 2000, the remittance collection business for these companies
accounted for approximately 41% of the total revenue of FirsTech, Inc.
FirsTech, Inc. competes in the retail payment processing business with companies
that range from large national companies to small, local businesses. In
addition, many companies do their own remittance processing rather than
out-source the work to an independent processor such as FirsTech, Inc. The
principal methods of competition in the remittance processing industry are
pricing of services, use of technology and quality of service.
C. Competition
The Company faces strong competition both in originating loans and in attracting
deposits. Competition in originating real estate loans comes primarily from
other commercial banks, savings institutions and mortgage bankers making loans
secured by real estate located in the Company's market area. Commercial banks
and finance companies, including finance company affiliates of automobile
manufacturers, provide vigorous competition in consumer lending. The Company
competes for real estate and other loans principally on the basis of the
interest rates and loan fees it charges, the types of loans it originates and
the quality of services it provides to borrowers.
The Company faces substantial competition in attracting deposits from other
commercial banks, savings institutions, money market and mutual funds, credit
unions and other investment vehicles. The ability of the Company to attract and
retain deposits depends on its ability to provide investment opportunities that
satisfy the requirements of investors as to rate of return, liquidity, risk and
other factors. The Company attracts a significant amount of deposits through its
branch offices, primarily from the communities in which those branch offices are
located; therefore, competition for those deposits is principally from other
commercial banks and savings institutions located in the same communities. The
Company competes for these deposits by offering a variety of deposit accounts at
competitive rates, convenient business hours and convenient branch locations
with interbranch deposit and withdrawal privileges at each.
Under the Gramm-Leach-Bliley Act of 2000, effective March 11, 2000, securities
firms and insurance companies that elect to become financial holding companies
may acquire banks and other financial institutions. The Gramm-Leach-Bliley Act
may significantly change the competitive environment in which the Company and
the Banks conduct business. The financial services industry is also likely to
become more competitive as further technological advances enable more companies
to provide financial services. These technological advances may diminish the
importance of depository institutions and other financial intermediaries in the
transfer of funds between parties.
D. Monetary Policy and Economic Conditions
The earnings of commercial banks and bank holding companies are affected not
only by general economic conditions, but also by the policies of various
governmental regulatory agencies. In particular, the Federal Reserve regulates
money and credit conditions and interest rates in order to influence general
economic conditions and interest rates, primarily through open market operations
in U. S. government securities, varying the discount rate on member banks and
nonmember bank borrowings and setting reserve requirements against bank
deposits. Such Federal Reserve policies and acts have a significant influence on
overall growth and distribution of bank loans, investments, deposits and related
interest rates. The Company cannot accurately predict the effect, if any, such
policies and acts may have in the future on its business or earnings.
E. Regulation and Supervision
General
Financial institutions and their holding companies are extensively regulated
under federal and state law. As a result, the growth and earnings performance of
the Company can be affected not only by management decisions and general
economic conditions, but also by the requirements of applicable state and
federal statutes and regulations and the policies of various governmental
regulatory authorities, including the Illinois Commissioner of Banks and Real
Estate (the "Commissioner"), the Office of the Comptroller of the Currency (the
"OCC"), the Board of Governors of the Federal Reserve System (the "Federal
Reserve"), the Federal Deposit Insurance Corporation (the "FDIC"), the Internal
Revenue Service and state taxing authorities and the Securities and Exchange
Commission (the "SEC"). The effect of applicable statutes, regulations and
regulatory policies can be significant, and cannot be predicted with a high
degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiaries, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers, consolidations and dividends. The system
of supervision and regulation applicable to the Company and its subsidiaries
establishes a comprehensive framework for their respective operations and is
intended primarily for the protection of the FDIC's deposit insurance funds and
the depositors, rather than the shareholders, of financial institutions.
The following is a summary of the material elements of the regulatory framework
that applies to the Company and its subsidiaries. It does not describe all of
the statutes, regulations and regulatory policies that apply to the Company and
its subsidiaries, nor does it restate all of the requirements of the statutes,
regulations and regulatory policies that are described. As such, the following
is qualified in its entirety by reference to the applicable statutes,
regulations and regulatory policies. Any change in applicable law, regulations
or regulatory policies may have a material effect on the business of the Company
and its subsidiaries.
The Company
General. The Company, as the sole shareholder of the Banks, is a bank holding
company. As a bank holding company, the Company is registered with, and is
subject to regulation by, the Federal Reserve under the Bank Holding Company
Act, as amended (the "BHCA"). In accordance with Federal Reserve policy, the
Company is expected to act as a source of financial strength to the Banks and to
commit resources to support the Banks in circumstances where the Company might
not otherwise do so. Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve. The Company is also required to file with
the Federal Reserve periodic reports of the Company's operations and such
additional information regarding the Company and its subsidiaries as the Federal
Reserve may require. The Company is also subject to regulation by the
Commissioner under the Illinois Bank Holding Company Act, as amended.
Investments and Activities. Under the BHCA, a bank holding company must obtain
Federal Reserve approval before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after the acquisition, it would own or control more than 5% of the
shares of the other bank or bank holding company (unless it already owns or
controls the majority of such shares); (ii) acquiring all or substantially all
of the assets of another bank; or (iii) merging or consolidating with another
bank holding company. Subject to certain conditions (including certain deposit
concentration limits established by the BHCA), the Federal Reserve may allow a
bank holding company to acquire banks located in any state of the United States
without regard to whether the acquisition is prohibited by the law of the state
in which the target bank is located. In approving interstate acquisitions,
however, the Federal Reserve is required to give effect to applicable state law
limitations on the aggregate amount of deposits that may be held by the
acquiring bank holding company and its insured depository institution affiliates
in the state in which the target bank is located (provided that those limits do
not discriminate against out-of-state depository institutions or their holding
companies) and state laws which require that the target bank have been in
existence for a minimum period of time (not to exceed five years) before being
acquired by an out-of-state bank holding company.
The BHCA also generally prohibits the Company from acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any company which
is not a bank and from engaging in any business other than that of banking,
managing and controlling banks or furnishing services to banks and their
subsidiaries. This general prohibition is subject to a number of exceptions. The
principal exception allows bank holding companies that have not received
approval to operate as financial holding companies to engage in, and to own
shares of companies engaged in, certain businesses found by the Federal Reserve
to be "so closely related to banking ... as to be a proper incident thereto."
Under current regulations of the Federal Reserve, this authority would permit
the Company to engage in a variety of banking-related businesses, including the
operation of a thrift, sales and consumer finance, equipment leasing, the
operation of a computer service bureau (including software development), and
mortgage banking and brokerage. Eligible bank holding companies that elect to
operate as financial holding companies may engage in, or own shares in companies
engaged in, a wider range of nonbanking activities, including securities and
insurance activities and any other activity that the Federal Reserve, in
consultation with the Secretary of the Treasury, determines by regulation or
order is financial in nature, incidental to any such financial activity or
complementary to any such financial activity and does not pose a substantial
risk to the safety or soundness of depository institutions or the financial
system generally. The BHCA generally does not place territorial restrictions on
the domestic activities of non-bank subsidiaries of bank or financial holding
companies. As of the date of this filing, the Company has not applied for nor
received approval to operate as a financial holding company.
Federal law also prohibits any person or company from acquiring "control" of a
bank or bank holding company without prior notice to the appropriate federal
bank regulator. "Control" is defined in certain cases as the acquisition of 10%
or more of the outstanding shares of a bank or bank holding company.
Capital Requirements. Bank holding companies are required to maintain minimum
levels of capital in accordance with Federal Reserve capital adequacy
guidelines. If capital falls below minimum guideline levels, a bank holding
company, among other things, may be denied approval to acquire or establish
additional banks or non-bank businesses.
The Federal Reserve's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies: (i) a risk-based
requirement expressed as a percentage of total risk-weighted assets; and (ii) a
leverage requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, at least one-half of which must be Tier 1 capital. The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with a minimum requirement of 4% for all
others. For purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible assets (other than
certain mortgage servicing rights and purchased credit card relationships).
Total capital consists primarily of Tier 1 capital plus certain other debt and
equity instruments which do not qualify as Tier 1 capital and a portion of the
company's allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum requirements.
Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual banking organizations. For example,
the Federal Reserve's capital guidelines contemplate that additional capital may
be required to take adequate account of, among other things, interest rate risk,
or the risks posed by concentrations of credit, nontraditional activities or
securities trading activities. Further, any banking organization experiencing or
anticipating significant growth would be expected to maintain capital ratios,
including tangible capital positions (i.e., Tier 1 capital less all intangible
assets), well above the minimum levels.
As of December 31, 2000, the Company had regulatory capital in excess of the
Federal Reserve's minimum requirements, with a risk-based capital ratio of 18.6%
and a leverage ratio of 11.6%.
Dividends. The Illinois Business Corporation Act, as amended, prohibits the
Company from paying a dividend if, after giving effect to the dividend: (i) the
Company would be insolvent; or (ii) the net assets of the Company would be less
than zero; or (iii) the net assets of the Company would be less than the maximum
amount then payable to shareholders of the Company who would have preferential
distribution rights if the Company were liquidated. Additionally, the Federal
Reserve has issued a policy statement with regard to the payment of cash
dividends by bank holding companies. The policy statement provides that a bank
holding company should not pay cash dividends which exceed its net income or
which can only be funded in ways that weaken the bank holding company's
financial health, such as by borrowing. The Federal Reserve also possesses
enforcement powers over bank holding companies and their non-bank subsidiaries
to prevent or remedy actions that represent unsafe or unsound practices or
violations of applicable statutes and regulations. Among these powers is the
ability to proscribe the payment of dividends by banks and bank holding
companies.
Federal Securities Regulation. The Company's common stock is registered with the
SEC under the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Consequently, the Company is
subject to the information, proxy solicitation, insider trading and other
restrictions and requirements of the SEC under the Exchange Act.
The Banks
General. BankIllinois and First Trust Bank of Shelbyville ("Shelbyville") are
Illinois-chartered banks, the deposit accounts of which are insured by the
FDIC's Bank Insurance Fund ("BIF"). As BIF-insured, Illinois-chartered banks,
BankIllinois and Shelbyville are subject to the examination, supervision,
reporting and enforcement requirements of the Commissioner, as the chartering
authority for Illinois banks, and the FDIC, as administrator of the BIF. Both
banks are also members of the Federal Home Loan Bank System, which provides a
central credit facility primarily for member institutions.
First National Bank of Decatur ("Decatur") is a national bank, chartered by the
OCC under the National Bank Act. The deposit accounts of Decatur are insured by
the FDIC's Bank Insurance Fund, and Decatur is a member of the Federal Reserve
System. As a BIF-insured national bank, Decatur is subject to the examination,
supervision, reporting and enforcement requirements of the OCC, as the
chartering authority for national banks, and the FDIC, as administrator of the
BIF. Decatur is also a member of the Federal Home Loan Bank System.
Deposit Insurance. As FDIC-insured institutions, the Banks are required to pay
deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums based upon
their respective levels of capital and results of supervisory evaluations.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
During the year ended December 31, 2000, BIF assessments ranged from 0% of
deposits to 0.27% of deposits. For the semi-annual assessment period beginning
January 1, 2001, BIF assessment rates will continue to range from 0% of deposits
to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution (i)
has engaged or is engaging in unsafe or unsound practices; (ii) is in an unsafe
or unsound condition to continue operations; or (iii) has violated any
applicable law, regulation, order, or any condition imposed in writing by, or
written agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of insurance
if the institution has no tangible capital. Management of the Company is not
aware of any activity or condition that could result in termination of the
deposit insurance of the Banks.
FICO Assessments. Since 1987, a portion of the deposit insurance assessments
paid by members of the FDIC's Savings Association Insurance Fund ("SAIF") has
been used to cover interest payments due on the outstanding obligations of the
Financing Corporation ("FICO"). FICO was created in 1987 to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation, the
SAIF's predecessor insurance fund. As a result of federal legislation enacted in
1996, beginning as of January 1, 1997, both SAIF members and BIF members became
subject to assessments to cover the interest payments on outstanding FICO
obligations. These FICO assessments are in addition to amounts assessed by the
FDIC for deposit insurance. Between January 1, 2000, and the final maturity of
the outstanding FICO obligations in 2019, BIF members and SAIF members will
share the cost of the interest on the FICO bonds on a pro rata basis. During the
year ended December 31, 2000, the FICO assessment rate for BIF and SAIF members
was approximately 0.02% of deposits.
Supervisory Assessments. All Illinois banks and national banks are required to
pay supervisory assessments to the Illinois Commissioner and the OCC,
respectively, to fund the operations of such agencies. In general, the amount of
such supervisory assessments is based upon each institution's total assets.
During the year ended December 31, 2000, the Banks paid supervisory assessments
totaling $208,000.
Capital Requirements. The FDIC and the OCC have established the following
minimum capital standards for state-chartered insured non-member banks and
national banks, such as the Banks: (i) a leverage requirement consisting of a
minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated
banks with a minimum requirement of at least 4% for all others; and (ii) a
risk-based capital requirement consisting of a minimum ratio of total capital to
total risk-weighted assets of 8%, at least one-half of which must be Tier 1
capital. For purposes of these capital standards, Tier 1 capital and total
capital consist of substantially the same components as Tier 1 capital and total
capital under the Federal Reserve's capital guidelines for bank holding
companies (see "--The Company--Capital Requirements").
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
FDIC and the OCC provide that additional capital may be required to take
adequate account of, among other things, interest rate risk or the risks posed
by concentrations of credit, nontraditional activities or securities trading
activities.
During the year ended December 31, 2000, none of the Banks were required by the
FDIC or the OCC to increase its capital to an amount in excess of the minimum
regulatory requirement. As of December 31, 2000, each of the Banks exceeded
their minimum regulatory capital requirements, as follows:
Total Risk-Based Leverage
Capital Ratio Capital Ratio
-----------------------------------
BankIllinois ............................. 16.1% 10.7%
Decatur .................................. 16.0% 9.5%
Shelbyville .............................. 29.2% 16.3%
Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," in each case as defined by regulation. Depending upon the
capital category to which an institution is assigned, the regulators' corrective
powers include: (i) requiring the institution to submit a capital restoration
plan; (ii) limiting the institution's asset growth and restricting its
activities; (iii) requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; (iv) restricting
transactions between the institution and its affiliates; (v) restricting the
interest rate the institution may pay on deposits; (vi) ordering a new election
of directors of the institution; (vii) requiring that senior executive officers
or directors be dismissed; (viii) prohibiting the institution from accepting
deposits from correspondent banks; (ix) requiring the institution to divest
certain subsidiaries; (x) prohibiting the payment of principal or interest on
subordinated debt; and (xi) ultimately, appointing a receiver for the
institution. As of December 31, 2000, each of the Banks were well capitalized,
as defined by applicable regulations.
Additionally, institutions insured by the FDIC may be liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of commonly controlled FDIC insured depository institutions or
any assistance provided by the FDIC to commonly controlled FDIC insured
depository institutions in danger of default. Because the Company owns more than
25% of the outstanding stock of each of the Banks, the Banks are deemed to be
commonly controlled.
Dividends. Under the Illinois Banking Act, BankIllinois and Shelbyville may not
pay, without prior regulatory approval, dividends in excess of their net
profits.
The National Bank Act imposes limitations on the amount of dividends that may be
paid by a national bank, such as Decatur. Generally, a national bank may pay
dividends out of its undivided profits, in such amounts and at such times as the
bank's board of directors deems prudent. Without prior OCC approval, however, a
national bank may not pay dividends in any calendar year which, in the
aggregate, exceed the bank's year-to-date net income plus the bank's retained
net income for the two preceding years.
The payment of dividends by any financial institution or its holding company is
affected by the requirement to maintain adequate capital pursuant to applicable
capital adequacy guidelines and regulations, and a financial institution
generally is prohibited from paying any dividends if, following payment thereof,
the institution would be undercapitalized. As described above, each of the Banks
exceeded its minimum capital requirements under applicable guidelines as of
December 31, 2000. As of December 31, 2000, approximately $54,577,000 was
available to be paid as dividends to the Company by the Banks. Notwithstanding
the availability of funds for dividends, however, the banking regulators may
prohibit the payment of any dividends by the Banks if such payment is deemed to
constitute an unsafe or unsound practice.
Insider Transactions. The Banks are subject to certain restrictions imposed by
federal law on extensions of credit to the Company and its subsidiaries, on
investments in the stock or other securities of the Company and its subsidiaries
and the acceptance of the stock or other securities of the Company or its
subsidiaries as collateral for loans. Certain limitations and reporting
requirements are also placed on extensions of credit by the Banks to their
directors and officers, to directors and officers of the Company and its
subsidiaries, to principal stockholders of the Company, and to "related
interests" of such directors, officers and principal stockholders. In addition,
federal law and regulations may affect the terms upon which any person becoming
a director or officer of the Company or one of its subsidiaries or a principal
stockholder of the Company may obtain credit from banks with which the Banks
maintain a correspondent relationship.
Safety and Soundness Standards. The federal banking agencies have adopted
guidelines which establish operational and managerial standards to promote the
safety and soundness of federally insured depository institutions. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings.
In general, the safety and soundness guidelines prescribe the goals to be
achieved in each area, and each institution is responsible for establishing its
own procedures to achieve those goals. If an institution fails to comply with
any of the standards set forth in the guidelines, the institution's primary
federal regulator may require the institution to submit a plan for achieving and
maintaining compliance. If an institution fails to submit an acceptable
compliance plan, or fails in any material respect to implement a compliance plan
that has been accepted by its primary federal regulator, the regulator is
required to issue an order directing the institution to cure the deficiency.
Until the deficiency cited in the regulator's order is cured, the regulator may
restrict the institution's rate of growth, require the institution to increase
its capital, restrict the rates the institution pays on deposits or require the
institution to take any action the regulator deems appropriate under the
circumstances. Noncompliance with the standards established by the safety and
soundness guidelines may also constitute grounds for other enforcement action by
the federal banking regulators, including cease and desist orders and civil
money penalty assessments.
Branching Authority. Illinois banks, such as BankIllinois and Shelbyville, have
the authority under Illinois law to establish branches anywhere in the State of
Illinois, subject to receipt of all required regulatory approvals. National
banks headquartered in Illinois, such as Decatur, have the same branching rights
in Illinois as banks chartered under state law.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act"), both state and national banks are allowed to establish
interstate branch networks through acquisitions of other banks, subject to
certain conditions, including certain limitations on the aggregate amount of
deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of new interstate branches
or the acquisition of individual branches of a bank in another state (rather
than the acquisition of an out-of-state bank in its entirety) is allowed by the
Riegle-Neal Act only if specifically authorized by state law. The legislation
allowed individual states to "opt-out" of certain provisions of the Riegle-Neal
Act by enacting appropriate legislation prior to June 1, 1997. Illinois permits
interstate mergers, subject to certain conditions, including a prohibition
against interstate mergers involving an Illinois bank that has been in existence
and continuous operation for fewer than five years.
State Bank Activities. Under federal law and FDIC regulations, FDIC insured
state banks are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law and FDIC regulations also prohibit
FDIC insured state banks and their subsidiaries, subject to certain exceptions,
from engaging as principal in any activity that is not permitted for a national
bank or its subsidiary, respectively, unless the bank meets, and continues to
meet, its minimum regulatory capital requirements and the FDIC determines the
activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member. These restrictions have not had, and are not
currently expected to have, a material impact on the operations of BankIllinois
or Shelbyville.
Financial Subsidiaries. Eligible state and national banks are also authorized to
engage, through "financial subsidiaries," in certain activities that are
permissible for financial holding companies (as described above) and certain
activities that the Secretary of the Treasury, in consultation with the Federal
Reserve, determines is financial in nature or incidental to any such financial
activity. As of the date of this filing, the Banks have not applied for nor
received approval to establish any financial subsidiaries.
Federal Reserve System. Federal Reserve regulations, as presently in effect,
require depository institutions to maintain non-interest earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts), as follows: for transaction accounts aggregating $42.8 million or
less, the reserve requirement is 3% of total transaction accounts; and for
transaction accounts aggregating in excess of $42.8 million, the reserve
requirement is $1.284 million plus 10% of the aggregate amount of total
transaction accounts in excess of $42.8 million. The first $5.5 million of
otherwise reservable balances are exempted from the reserve requirements. These
reserve requirements are subject to annual adjustment by the Federal Reserve.
The Banks are in compliance with the foregoing requirements.
F. Employees
The Company had a total of 447 employees at December 31, 2000, consisting of 350
full-time employees and 97 part-time. The Company places a high priority on
staff development, which involves extensive training, including customer service
training. New employees are selected on the basis of both technical skills and
customer service capabilities. None of the Company's employees are covered by a
collective bargaining agreement with the Company or its subsidiaries. The
Company offers a variety of employee benefits, and management considers its
employee relations to be excellent.
Item 2. Properties
The Company and its subsidiaries conduct business in seventeen locations. The
Company and BankIllinois' headquarters are located at 100 W. University Ave. in
Champaign, Illinois. The Company and/or its subsidiaries own the land and
buildings for eleven locations and lease six locations, three of which are
located in supermarkets.
All of the Banks own their main banking facilities. The Company believes that
its facilities are adequate to serve its present needs.
Item 3. Legal Proceedings
In the course of business, the Company and its subsidiaries become involved in
various legal proceedings, claims and litigation arising out of the ordinary
course of business. As of the date of filing this report, there were no causes
of action which would have a material adverse effect on the consolidated
financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no items submitted to a vote of security holders in the fourth
quarter of 2000.
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters
The Company's Common Stock was held by approximately 750 shareholders of record
as of March 16, 2001, and is traded in the over-the-counter market.
The following table shows, for the periods indicated, the range of prices per
share of the Company's Common Stock in the over-the-counter market, as reported
to the Company by the brokers known to the Company to regularly follow the
market for the Common Stock. Certain other private transactions may have
occurred during the periods indicated of which the Company has no knowledge. The
following prices represent inter-dealer prices without retail markups, markdowns
or commissions, and have not been adjusted to reflect the 5% stock dividend paid
by the Company in 2000.
Quarter ending: Price/Share
------------------ -------------
March 31, 2000 $20.95-$20.95
June 30, 2000 $19.04-$20.95
September 30, 2000 $16.87-$19.28
December 31, 2000 $16.50-$17.62
The Company paid a 5% stock dividend in the third quarter of 2000. In 2000,
BankIllinois Financial Corporation paid a cash dividend of $0.08 per share in
January, and the Company paid a cash dividend of $0.10 per share in April, July
and October. During the fourth quarter of 2000, the Company declared a $0.10 per
share cash dividend, which was paid on January 8, 2001.
The ability of the Company to pay dividends in the future will be primarily
dependent upon its receipt of dividends from the Bank. In determining cash
dividends, the Board of Directors considers the earnings, capital requirements,
debt and dividend servicing requirements, financial ratio guidelines it has
established, the financial condition of the Company and other relevant factors.
The Bank's ability to pay dividends to the Company and the Company's ability to
pay dividends to its stockholders are also subject to certain regulatory
restrictions.
Item 6. Selected Consolidated Financial Data
The following table presents selected consolidated financial information for the
Company for each of the five years ended December 31, 2000. The selected
consolidated financial data should be read in conjunction with the Consolidated
Financial Statements of the Company, including the related notes, presented
elsewhere herein. All references to numbers of shares and per share amounts have
been retroactively restated to reflect the 5% stock dividend in 2000.
Year Ended December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
(dollars in thousands, except per share data)
-------------------------------------------------------------------
Interest income ................................... $ 74,271 $ 67,070 $ 65,710 $ 63,705 $ 60,566
Interest expense .................................. 36,599 31,713 31,862 31,127 29,444
-------------------------------------------------------------------
Net interest income ............................... 37,672 35,357 33,848 32,578 31,122
Provision for loan losses ......................... 804 573 809 897 685
-------------------------------------------------------------------
Net interest income after provision for loan losses 36,868 34,784 33,039 31,681 30,437
Noninterest income ................................ 16,236 17,858 14,554 12,799 13,962
Noninterest expense ............................... 34,689 35,789 30,591 29,011 30,942
Income tax expense ................................ 6,426 5,165 5,318 4,977 4,436
-------------------------------------------------------------------
Net income ................................... $ 11,989 $ 11,688 $ 11,684 $ 10,492 $ 9,021
-------------------------------------------------------------------
Basic earnings per share .......................... $ 1.14 $ 1.10 $ 1.07 $ 0.96 $ 0.82
-------------------------------------------------------------------
Diluted earnings per share ........................ $ 1.11 $ 1.08 $ 1.05 $ 0.95 $ 0.81
Return on average total assets .................... 1.15% 1.16% 1.23% 1.17% 1.03%
Return on average stockholders' equity ............ 10.03% 10.10% 10.29% 10.04% 9.33%
Cash dividends declared per common share1 ......... $ 0.42 $ 0.30 $ 0.29 $ 0.16 $ 0.12
-------------------------------------------------------------------
Total assets ...................................... $1,091,081 $1,035,746 $ 959,714 $ 931,539 $ 909,531
Investment in debt and equity securities .......... 303,187 300,040 354,346 293,711 285,798
Loans held for investment, net .................... 659,849 601,594 502,118 506,251 476,795
Deposits .......................................... 839,932 795,075 765,666 729,853 724,292
Borrowings ........................................ 110,636 111,198 88,145 72,410 74,743
Total stockholders' equity ........................ 125,402 116,081 112,586 103,059 100,590
Total stockholders' equity to total assets ........ 11.49% 11.21% 11.73% 11.06% 11.06%
Average stockholders' equity to average assets .... 11.45% 11.46% 11.95% 11.64% 11.08%
===================================================================
1 Prior to the merger of BankIllinois Financial Corporation and First Decatur
BancShares, both Companies paid cash dividends each year, except for 1996
when BankIllinois Financial Corporation did not pay dividends.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis is designed to provide the reader with a
comprehensive review of the consolidated results of operations for 2000, 1999
and 1998 for the Company, including all subsidiaries, and an analysis of the
Company's financial condition at December 31, 2000 compared to December 31, 1999
and at December 31, 1999 compared to December 31, 1998. This discussion and
analysis should be read in conjunction with the consolidated financial
statements and related notes, which begin at page 28 of this report.
Overview
The years ended December 31, 2000 and 1999 were years of transition for Main
Street Trust, Inc. involving fundamental reorganization of the consolidated
organization.
Costs incurred in 2000 associated with the merger and related non-recurring
restructuring were approximately $3,528,000, net of tax. Merger related costs
included $2,544,000 of professional fees, $1,036,000 of early retirement and
termination of employment contracts, and $587,000 of expense related to computer
equipment write-down, offset by $639,000 of tax benefit. The resulting effect of
these costs on both basic and diluted earnings per share has been a decrease of
approximately $0.33 for the year ended December 31, 2000. Nonrecurring costs
incurred in 1999 included a $2,500,000 reconciliation liability expense and an
$815,000 pension plan termination expense as well as other employee related
matters, net of tax of $1,127,000. The resulting effect of these costs on basic
and diluted earnings per share for 1999, was a decrease of approximately $0.21
and $0.20 respectively.
Segment Operations
FirsTech, Inc. operates as a separate segment of the Company. Results of
FirsTech, Inc.'s operations are included in the Noninterest Income and
Noninterest Expense sections of Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of Operations
The Company had record earnings of $11,989,000 in 2000 compared to $11,688,000
in 1999 and $11,684,000 in 1998. The Company had return on average assets of
1.15%, 1.16% and 1.23% in 2000, 1999 and 1998, respectively. The lower rates of
return in 2000 and 1999 were affected by non-recurring events discussed above.
Basic earnings per share was $1.14, $1.10 and $1.07 in 2000, 1999 and 1998,
respectively. Diluted earnings per share was $1.11, $1.08 and $1.05 in 2000,
1999 and 1998, respectively. Management believes that a strong balance sheet and
excellent profitability are critical to success, particularly when a business
cycle downturn appears likely.
Net Interest Income
Net interest income, the most significant component of the Company's earnings,
is the difference between interest received or accrued on the Company's earning
assets--primarily loans and investments--and interest paid or accrued on
deposits and borrowings. In order to compare the interest generated from
different types of earning assets, the interest income on certain tax-exempt
investment securities and loans is increased for analysis purposes to reflect
the income tax savings provided by these tax-exempt assets. The adjustment to
interest income for tax-exempt investment securities and loans was calculated
based on the federal income tax statutory rate of 34%. The adjustment to net
interest income for the tax effect of tax-exempt assets is shown in the
following schedule. Net tax equivalent (TE) interest income of $38,770,000 in
2000 reflected an increase from the $36,417,000 recorded in 1999, which was an
increase from the $34,692,000 recorded in 1998.
Net Interest Income on a Tax Equivalent Basis
(in thousands)
2000 1999 1998
---------------------------------
Total interest income ................... $74,271 $67,070 $65,710
Total interest expense .................. 36,599 31,713 31,862
---------------------------------
Net interest income ................ 37,672 35,357 33,848
Tax equivalent adjustment:
Tax-exempt investments ............. 1,046 1,004 781
Tax-exempt loans ................... 52 56 63
---------------------------------
Total adjustment .............. 1,098 1,060 844
---------------------------------
Net interest income (TE) ................ $38,770 $36,417 $34,692
=================================
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)
2000 1999 1998
---------------------------- ------------------------- ---------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------------------------
Assets
Taxable investment
securities (1).................. $ 259,980 $ 15,533 5.97% $ 289,879 $16,855 5.81% $284,520 $17,032 5.99%
Tax-exempt investment
securities (1) (TE) ............ 44,630 3,077 6.89% 42,564 2,952 6.94% 32,135 2,298 7.15%
Federal funds sold and interest
bearing deposits2 .............. 22,688 1,553 6.85% 23,994 1,226 5.11% 35,962 2,097 5.83%
Loans (3), (4) (TE) .............. 623,652 55,206 8.85% 549,098 47,097 8.58% 509,349 45,127 8.86%
-----------------------------------------------------------------------------------
Total interest earning assets
and interest income (TE) .... $ 950,950 $ 75,369 7.93% $ 905,535 $68,130 7.52% $861,966 $66,554 7.72%
Cash and due from banks .......... $ 48,809 $ 62,236 $ 49,180
Premises and equipment ........... 21,641 21,318 18,858
Other assets ..................... 22,034 21,423 20,309
---------- ---------- --------
Total assets ................ $1,043,434 $1,010,512 $950,313
========== ========== ========
Liabilities and Stockholders' Equity
Interest bearing demand
deposits .................... $ 224,233 $ 8,938 3.99% $ 241,986 8,109 3.35% $254,961 $ 8,014 3.14%
Savings .......................... 93,118 2,195 2.36% 82,197 1,724 2.10% 40,858 1,281 3.14%
Time deposits .................... 344,305 19,531 5.67% 324,059 17,084 5.27% 328,366 18,366 5.59%
Federal funds purchased,
repurchase agreements and notes
payable ........................ 75,376 3,764 4.99% 74,663 3,110 4.17% 63,917 2,822 4.42%
FHLB advances and other borrowings 36,718 2,171 5.91% 29,376 1,686 5.74% 23,287 1,379 5.92%
------------------------------------------------------------------------------------
Total interest bearing
liabilities and interest
expense ..................... $ 773,750 $ 36,599 4.73% $ 752,281 $31,713 4.22% $711,389 $31,862 4.48%
------------------------------------------------------------------------------------
Noninterest bearing demand
deposits (5) ................... $ 88,059 $ 97,856 $113,524
Noninterest bearing savings
deposits (5) ................... 47,906 33,896 --
Other liabilities ................ 14,210 10,714 11,822
---------- ---------- --------
Total liabilities ........... $ 923,925 $ 894,747 $836,735
Stockholders' equity ............. 119,509 115,765 113,578
---------- ---------- --------
Total liabilities and
stockholders' equity ........ $1,043,434 $1,010,512 $950,313
========== ========== ========
Interest spread (average
rate earned minus
average rate paid) (TE) ........ 3.20% 3.30% 3.24%
===== ===== =====
Net interest income (TE) ......... $ 38,770 $36,417 $34,692
========== ======= =======
Net yield on interest
earning assets (TE) ............ 4.08% 4.02% 4.02%
===== ===== =====
1 Investments in debt securities are included at carrying value.
2 Federal funds sold and interest earning deposits include approximately
$154,000, $138,000 and $90,000 in 2000, 1999 and 1998, 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 $1,061,000 and $1,212,000, $1,170,000 in 2000,
1999 and 1998, 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 fully taxable equivalent basis, an analysis
of changes in net interest income resulting from changes in average volumes of
earning assets and interest bearing liabilities and average rates earned and
paid. The change in interest due to the combined rate/volume variance has been
allocated to rate and volume changes in proportion to the absolute dollar
amounts of change in each.
Analysis of Volume and Rate Changes
(in thousands)
2000 1999
----------------------------- ------------------------------
Increase Increase
(Decrease) (Decrease)
From From
Previous Due to Due to Previous Due to Due to
Year Volume Rate Year Volume Rate
----------------------------- -------------------------------
Interest Income
Taxable investment securities ..... ($1,322) ($1,777) $ 455 ($ 177) $ 317 ($ 494)
Tax-exempt investment securities .. 125 142 (17) 654 726 (72)
Federal funds sold and interest
bearing deposits ................ 327 (71) 398 (871) (634) (237)
Loans ............................. 8,109 6,560 1,549 1,970 3,442 (1,472)
---------------------------------------------------------------
Total interest income ........ $ 7,239 $ 4,854 $ 2,385 $ 1,576 $ 3,851 ($2,275)
---------------------------------------------------------------
Interest Expense
Interest bearing demand
and savings deposits ............ $ 1,300 ($ 212) $ 1,512 $ 538 $ 868 ($ 330)
Time deposits ..................... 2,447 1,105 1,342 (1,282) (238) ($1,044)
Federal funds purchased, repurchase
agreements and notes payable .... 654 30 624 288 455 (167)
Federal Home Loan Bank advances
and other borrowings ............ 485 433 52 307 350 (43)
---------------------------------------------------------------
Total interest expense ....... $ 4,886 $ 1,356 $ 3,530 ($ 149) $ 1,435 ($1,584)
---------------------------------------------------------------
Net Interest Income (TE) ............... $ 2,353 $ 3,498 ($1,145) $ 1,725 $ 2,416 ($ 691)
===============================================================
Total average earning assets increased from $905,535,000 in 1999 to $950,950,000
in 2000, generating higher levels of interest income in 2000, and interest
expense increased due to a trend towards higher rates during 2000. Average loans
increased $74,554,000, resulting in an increase of $8,109,000 in interest
income, of which $6,560,000 was due to an increase in volume and $1,549,000 was
attributable to higher rates. Average tax-exempt investment securities increased
$2,066,000, resulting in an increase of $125,000 in interest income, of which
$142,000 was due to an increase in volume, offset slightly by $17,000 due to
lower rates. These increases in average balances were somewhat offset by a
decrease in average taxable investment securities of $29,899,000, resulting in a
decrease of $1,322,000 in interest income in this category, of which $1,777,000
was due to lower volume, somewhat offset by $455,000 due to an increase in
rates. Also, average federal funds sold and interest bearing deposits decreased
$1,306,000 in 2000. However, interest income in this category increased
$327,000. Of this increase, $398,000 was due to an increase in rates, offset
somewhat by $71,000 due to lower volume.
Total average earning assets increased from $861,966,000 in 1998 to $905,535,000
in 1999, generating higher levels of interest income in 1999, while interest
expense decreased despite higher average interest bearing liabilities. Average
loans increased $39,749,000, resulting in an increase of $1,970,000 in interest
income, of which $3,442,000 was attributable to an increase in the volume of
loans, offset somewhat by $1,472,000 due to lower rates. Average tax-exempt
investment securities increased $10,429,000, resulting in an increase of
$654,000 in interest income of which $726,000 was attributable to an increase in
volume, offset slightly by $72,000 due to lower rates. Average taxable
investment securities increased $5,359,000, but produced a $177,000 decrease in
interest income, of which $494,000 was attributable to rate decreases, offset
somewhat by a $317,000 increase due to increased volume. These increases were
offset somewhat by a $11,968,000 decrease in federal funds sold and interest
bearing deposits, which led to a decrease in interest income of $871,000 of
which $634,000 was attributable to decreased volume, and $237,000 was due to
lower rates.
The Company establishes interest rates on loans and deposits based on market
rates--such as the 91-day Treasury Bill rate and the prime rate--and interest
rates offered by other financial institutions in the local community. The level
of risk and the value of collateral also are evaluated when determining loan
rates. Rates were generally higher in 2000 compared to 1999. The average rate
earned on loans increased 27 basis points from 8.58% in 1999 to 8.85% in 2000.
The yield on taxable investment securities increased 16 basis points from 5.81%
for the year ended December 31, 1999 to 5.97% for the year ended December 31,
2000. The yield on federal funds sold and interest bearing deposits increased
174 basis points from 5.11% in 1999 to 6.85% in 2000.
The actual balances of loans at December 31, 2000 were higher than at December
31, 1999. Commercial, financial and agricultural loans, real estate loans, and
installment and consumer loans increased $31,111,000, $25,651,000, and
$1,690,000, respectively. Strong demand was responsible for the overall increase
in loans from 1999 to 2000.
Interest expense increased $4,886,000 in 2000 compared to 1999. This was mainly
caused by an increase of $2,447,000 of interest on time deposits. Of this
increase, $1,342,000 was due to an increase in rate, as the average rate paid
increased from 5.27% in 1999 to 5.67% in 2000, and $1,105,000 was due to an
increase in volume. Interest expense on interest bearing demand and savings
deposits increased $1,300,000 in 2000, of which $1,512,000 was due to an
increase in rates, as average rates paid increased from 3.03% in 1999 to 3.51%
in 2000. This increase was slightly offset by a $212,000 decrease due to lower
volume. The average balance of federal funds purchased, repurchase agreements
and notes payable increased from $74,663,000 in 1999 to $75,376,000 in 2000.
This resulted in an increase in interest expense of $654,000, of which $624,000
was due to rate increases and $30,000 was due to higher volume. Interest expense
on Federal Home Loan Bank advances and other borrowings increased $485,000, with
$433,000 attributable to volume increases and $52,000 due to higher rates.
Interest expense decreased $149,000 in 1999 compared to 1998. This was primarily
caused by the decrease of $1,282,000 of interest on time deposits. Of this
decrease, $1,044,000 was attributable to lower rates, as the average rate paid
decreased from 5.59% in 1998 to 5.27% in 1999, and $238,000 was attributable to
a decrease in volume. Somewhat offsetting this decrease was a $538,000 increase
in interest expense on interest bearing demand and savings deposits from 1998 to
1999. Of this $538,000 increase, $868,000 was due to an increase in volume,
offset by $330,000 due to lower rates. Interest expense for Federal Home Loan
Bank advances and other borrowings increased $307,000 in 1999, of which $350,000
was due to volume increases, offset somewhat by $43,000 due to lower rates. The
average balance in federal funds purchased, repurchase agreements and notes
payable increased from $63,917,000 in 1998 to $74,663,000 in 1999. Interest
expense in this category increased $288,000, of which $455,000 was due to higher
volume, offset somewhat by $167,000 due to lower rates.
Provision for Loan Losses
The quality of the Company's loan portfolio is of prime importance to the
Company's management and its board of directors, as loans are the largest
component of the Company's assets. The Company maintains an independent credit
administration function which performs reviews of all large loans and all loans
which present indications of additional credit risk. Approval of the senior loan
committee, which meets weekly, is required prior to funding of all secured
credit relationships over $500,000 and all unsecured relationships over
$100,000. This committee also reviews nonaccrual loans and other problem loans.
The board of directors meets monthly to review problem loans, the Company's
lending policies and practices, and the results of credit administration
analyses.
Continued emphasis on loan quality was reflected in the ratio of net charge-offs
to average net loans, which was 0.10% for 2000 and 0.14% for 1999. Net
charge-offs decreased from $743,000 in 1999 to $607,000 in 2000. Net charge-offs
for 2000 included a $300,000 recovery associated with a commercial credit. The
provision for loan losses increased $231,000, from $573,000 in 1999 to $804,000
in 2000. (See the section on Allowance for Loan Losses and Loan Quality
elsewhere in this report for further discussion relating to the adequacy of the
allowance for loan losses.) The Company charged off $1,252,000 in loans during
2000 compared to $1,256,000 in 1999. A decrease in charge-offs of commercial,
financial and agricultural loans of $407,000 was almost completely offset by a
$34,000 increase in charge-offs of residential real estate loans, and an
increase of $369,000 in charge-offs of installment and consumer loans.
Recoveries of previously charged off loans increased to $645,000 in 2000 from
$513,000 in 1999, with the largest increase in the area of commercial, financial
and agricultural loans which increased $195,000 from 1999 to 2000. The Company
continues to emphasize credit analysis and early detection of problem loans.
Noninterest Income
Noninterest income decreased $1,622,000, or 9.1%, from 1999 to 2000. This
decrease was primarily due to a decrease at FirsTech, Inc. in remittance
processing income of $1,546,000, or 19.0%. Although the number of items
processed was comparable between 2000 and 1999, there was a shift from lockbox
payments to mechanized payments which have both lower revenue streams as well as
lower costs. Gain on sales of mortgage loans held-for-sale decreased $315,000,
or 59.8%. This decrease reflected a $34,349,000, or 57.4%, decrease in funded
mortgage loans held-for-sale during 2000 compared to 1999 due to the changing
interest rate environment. Also contributing to the decrease in noninterest
income was a $298,000, or 14.0%, decrease in other income from $2,135,000 in
1999 to $1,837,000 in 2000. This decrease was due, in part, to $159,000 in
consulting revenue in 1999, which did not occur in 2000, as well as a decrease
of $96,000 in mortgage servicing income. Further contributing to the decrease in
noninterest income was a decrease in income from securities transactions of
$120,000, or 85.1%. This was mainly the result of selling an equity investment
in 1999 for a gain of $100,000 with no comparable sales in 2000. Somewhat
offsetting these decreases was an increase of $576,000, or 11.8%, in trust and
brokerage fees. The majority of this increase was due to the addition of new
business. Higher market values during the first three quarters of 2000 also
added to the increase in assets under management on which fees are based.
Service charges on deposit accounts increased $81,000, or 4.0%.
Noninterest income increased $3,304,000, or 22.7%, from 1998 to 1999. Included
in this increase was a $2,986,000, or 57.8%, increase in remittance processing
income, from $5,165,000 in 1998 to $8,151,000 in 1999. This increase was the
result of increased volume from existing FirsTech, Inc. customers as well as
price adjustments on current contracts. Trust and brokerage fees increased
$676,000, or 16.0%, from $4,222,000 in 1998 to $4,898,000 in 1999. The increase
was a result of an increase in assets due to new accounts, as well as increased
market values, which generated larger fees. Other income increased $49,000, or
2.3% and income from securities transactions increased $15,000, or 11.9%.
Somewhat offsetting these increases was a decrease in gains on sales of mortgage
loans held-for-sale of $319,000, or 37.7%. This reflected a $32,893,000, or
35.5%, decrease in funded mortgage loans held-for-sale during 1999 compared to
1998, when significant growth occurred due to lower interest rates. Service
charges on deposit accounts of decreased $103,000, or 4.9%.
Noninterest Expense
Total noninterest expense decreased $1,100,000, or 3.1%, to $34,689,000 in 2000
from $35,789,000 in 1999. The 1999 expense was an increase of $5,198,000, or
17.0%, over 1998 noninterest expense of $30,591,000. During 2000, reconciliation
liability expense decreased $2,500,000 from 1999. During 1999, the Company
established a liability of $2,500,000 related to reconciliation differences
involving its subsidiary, FirsTech, Inc. During the same period, salaries and
employee benefits expense decreased $501,000, or 2.7%, other expense decreased
$476,000, or 10.0%, service charges from correspondent banks decreased $430,000,
or 30.1%, occupancy expense decreased $187,000, or 7.8% and office supplies
expense decreased $19,000, or 1.5%. Somewhat offsetting these decreases were
increases in merger related professional fees of $2,544,000, equipment expense
of $279,000, or 8.3%, and data processing expense of $190,000, or 14.8%. During
1999, reconciliation liability expense increased $2,500,000 as discussed above,
salaries and employee benefits increased $2,026,000, or 12.1%, service charges
from correspondent banks increased $1,300,000, or 1,015.6%, equipment expense
increased $424,000, or 14.4%, data processing expense increased $302,000, or
30.9%, and office supplies increased $193,000, or 18.2%. Somewhat offsetting
these increases were decreases in other expense of $1,454,000, or 23.4% and
occupancy expense of $93,000, or 3.7%.
Salaries and employee benefits decreased $501,000, or 2.7%, from $18,775,000 in
1999 to $18,274,000 in 2000. This decrease was mainly due to closure of
FirsTech, Inc.'s Hammond processing center in 1999. Also included in 2000 salary
expenses was approximately $1,034,000 due to early retirement and termination of
employment contracts as a result of the merger, as well as staff reductions due
to improvements in efficiency. Salaries and employee benefits in 1999 increased
$2,026,000, or 12.1%, from $16,749,000 in 1998. This increase was mainly due to
an increase in the volume of checks processed by FirsTech, Inc. in the retail
lockbox business resulting in the hiring of additional staff, as well as an
increased use of temporary services.
Other noninterest expense decreased $476,000, or 10.0%, from $4,771,000 in 1999
to $4,295,000 in 2000. Included in this decrease was $461,000 in other real
estate income, due to the sale of a property in 2000, which had previously been
written down. In 1999, other noninterest expense decreased $1,454,000, or 23.4%,
from $6,225,000 in 1998.
Service charges from correspondent banks decreased $430,000, or 30.1%, from
$1,428,000 in 1999 to $998,000 in 2000, mainly due to lower volume of lockbox
processing for FirsTech, Inc. In 1999, service charges from correspondent banks
increased $1,300,000, or 1,015.6%, from $128,000 in 1998. This increase was
primarily the result of an increase in the number of checks processed by
FirsTech, Inc. in the retail lockbox business.
Occupancy expense decreased $187,000, or 7.8%, from $2,407,000 in 1999 to
$2,220,000 in 2000. This decrease was primarily related to the closure of
FirsTech, Inc.'s Hammond processing center. Occupancy expense in 1999 decreased
$93,000, or 3.7%, from $2,500,000 in 1998.
Supplies expense decreased $19,000, or 1.5%, from $1,255,000 in 1999 to
$1,236,000 in 2000. In 1999, supplies expense increased $193,000, or 18.2%, from
$1,062,000 in 1998. The increase in 1999 included the purchase of office
supplies needed to implement check imaging, binders given to customers for check
image statement storage, and increased supply usage by FirsTech, Inc. due to
increased check processing business.
Merger related professional fees were $2,544,000 compared to none in 1999 and
1998. Most of these expenses were incurred during the first quarter of 2000 due
to the merger between BankIllinois Financial Corporation and First Decatur
Bancshares, Inc.
Equipment expense increased $279,000, or 8.3%, from $3,373,000 in 1999 to
$3,652,000 in 2000. Included in this increase was a $587,000 write-down of
computer equipment and software related to the aforementioned merger. Equipment
expense increased in 1999 by $424,000, or 14.4%, from $2,949,000 in 1998 to
$3,373,000 in 1999. This change consisted primarily of an increase in
depreciation expense, as well as an increase in computer maintenance expense at
FirsTech, Inc.
Data processing expense increased $190,000, or 14.8%, from $1,280,000 in 1999 to
$1,470,000 in 2000. In 1999, data processing expense increased $302,000, or
30.9%, from $978,000 in 1998 to $1,280,000 in 1999. The increase in data
processing expense was due to the Company's continuing commitment to investment
in technology as it positions itself for the future.
Income Tax Expense
Income tax expense increased $1,261,000, or 24.4%, in 2000 compared to 1999, due
to an increase in net income as well as merger related expenses for which the
Company has not recognized a tax benefit. Income tax expense decreased $153,000,
or 2.9%, in 1999 compared to 1998, due to slightly lower taxable income. The
Company's effective tax rate was 34.9%, 30.6% and 31.3% for the years ended
December 31, 2000, 1999 and 1998, respectively. The effective tax rate increased
in 2000 compared to 1999 and 1998 due to merger related expenses for which the
Company has not recognized a tax benefit.
The tax effects of temporary differences, which gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
2000 and 1999, are shown in note 11 in the Notes to Consolidated Financial
Statements.
Financial Condition
Total assets increased $55,335,000, or 5%, from $1,035,746,000 at December 31,
1999 to $1,091,081,000 at December 31, 2000. This increase in total assets
resulted from an increase of $58,255,000, or 10%, in loans, net of allowance for
loan losses, an increase of $10,639,000, or 22%, in cash and due from banks, an
increase of $6,842,000, or 3%, in securities available-for-sale, an increase of
$1,447,000, or 16%, in accrued interest receivable, an increase of $1,268,000,
or 39%, in non-marketable equity securities, and a $403,000, or 24%, increase in
mortgage loans held-for-sale. These increases were somewhat offset by a decrease
of $13,850,000, or 35%, in federal funds sold and interest bearing deposits, a
decrease of $4,963,000, or 6%, in investment securities held-to-maturity, a
decrease of $3,075,000, or 23%, in other assets, and a decrease of $1,631,000,
or 7%, in premises and equipment. The increase in year-end assets was partially
a result of deposits being $44,857,000, or 6%, higher at December 31, 2000 than
at December 31, 1999. Federal Home Loan Bank advances and other borrowings were
$8,920,000, or 28%, higher, while federal funds purchased, repurchase agreements
and other notes were $9,482,000, or 12%, lower at December 31, 2000 than at
December 31, 1999. Average assets were $32,922,000, or 3%, higher in 2000 than
in 1999. Included in the increase in average assets was an increase of
$74,554,000, or 14%, in average net loans including mortgage loans held for sale
and an increase in average tax-exempt investment securities of $2,066,000, or
5%. These increases were somewhat offset by a decrease in average taxable
investment securities of $29,899,000, or 10%, and a decrease in average cash and
due from banks of $13,427,000, or 22%. The increase in average assets was a
result of higher average deposits, Federal Home Loan Bank advances and other
borrowings, and federal funds purchased, repurchase agreements and other notes
in 2000. There was an increase in total average deposits of $17,627,000, or 2%,
in 2000 from 1999. Included in this increase were some shifts in the average
deposit mix in 2000 versus 1999. Average time deposits increased $20,246,000, or
6%, average non-interest bearing savings increased $14,010,000, or 41%, and
average interest-bearing savings increased $10,921,000, or 13%. Somewhat
offsetting these increases were a decrease in average interest-bearing demand
deposits of $17,753,000, or 7%, and a decrease of $9,797,000, or 10%, in
non-interest bearing demand deposits.
Investment Securities
The carrying value of investments in debt and equity securities was as follows:
Carrying Value of Securities
(in thousands)
December 31, 2000 1999 1998
--------------------------------
Securities available-for-sale:
U.S. Treasury ......................... $ 23,812 $ 37,601 $ 65,095
Federal agencies ...................... 156,322 139,812 168,912
Mortgage-backed securities ............ 11,513 14,870 17,745
State and municipal ................... 15,349 10,220 6,419
Corporate and other obligations ....... 294 320 320
Marketable equity securities .......... 6,396 4,021 3,207
--------------------------------
Total ....................... $213,686 $206,844 $261,698
================================
Securities held-to-maturity:
U.S. Treasury ......................... $ -- $ -- $ 1,649
Federal agencies ...................... 29,428 28,994 32,328
Mortgage-backed securities ............ 22,642 27,193 20,964
State and municipal ................... 32,902 33,748 36,135
--------------------------------
Total ....................... $ 84,972 $ 89,935 $ 91,076
================================
Non-marketable equity securities ........... $ 4,529 $ 3,261 $ 3,230
================================
Total securities ............ $303,187 $300,040 $356,004
================================
The unrealized gain on securities available-for-sale, net of tax effect,
increased $3,962,000, to a gain of $600,000 at December 31, 2000 from a loss of
$3,362,000 at December 31, 1999.
The following table shows the maturities and weighted-average yields of
investment securities at December 31, 2000:
Maturities and Weighted Average Yields of Debt Securities
(dollars in thousands)
December 31, 2000
------------------------------------------------------------------------------------------
1 year 1 to 5 5 to 10 Over
or less years years 10 Years Total
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------------------------------------------------------------------------------------------
Securities available-for-sale:
U.S. Treasury ............... $17,344 5.98% $ 6,468 6.26% $ -- -- $ -- -- $ 23,812 6.05%
Federal agencies ............ 25,420 5.80% 97,949 6.08% 28,793 6.46% 4,160 6.96% 156,322 6.12%
Mortgage-backed securities .. 2,248 6.72% 6,299 6.78% 1,022 6.94% 1,944 6.64% 11,513 6.76%
State and municipal ......... 281 3.55% 2,827 5.57% 5,933 4.45% 6,308 5.03% 15,349 4.88%
Other securities ............ 294 7.85% -- -- -- -- -- -- 294 7.85%
Marketable equity securities1 -- -- -- -- -- -- -- -- 6,396 --
------- -------- --------- -------- --------
Total .................. $45,587 $113,543 $ 35,748 $ 12,412 $213,686
======= ======== ========= ======== ========
Average Yield .................... 5.91% 6.11% 6.14% 5.93% 6.06%
===== ===== ===== ===== =====
Securities held-to-maturity:
Federal agencies ............ $ 8,500 5.52% $ 18,498 5.82% $ 2,430 6.59% $ -- -- $ 29,428 5.80%
Mortgage-backed securities .. 6,988 5.66% 14,724 5.69% 623 6.14% 307 6.09% 22,642 5.70%
State and municipal ......... 2,826 4.57% 17,314 4.35% 12,351 4.99% 411 4.99% 32,902 4.62%
-------- -------- -------- ------- --------
Total .................. $ 18,314 $ 50,536 $ 15,404 $ 718 $ 84,972
======== ======== ======== ======= ========
Average Yield .................... 5.43% 5.28% 5.29% 5.46% 5.31%
===== ===== ===== ===== =====
Non-marketable equity securities (1) -- -- -- -- -- -- -- -- $ 4,529 --
===========================================================================================
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 at December 31
for the years indicated according to the categories of commercial, financial and
agricultural; real estate; and installment and consumer loans
Amount of Loans Outstanding
(dollars in thousands)
2000 1999 1998 1997 1996
-----------------------------------------------------------------------
Commercial, financial and agricultural ................. $ 219,541 $ 188,430 $ 168,862 $ 167,752 $ 157,330
Real estate ............................................ 319,412 293,761 240,529 234,976 211,944
Installment and consumer ............................... 129,775 128,085 101,580 112,360 116,489
-----------------------------------------------------------------------
Total loans ....................................... $ 668,728 $ 610,276 $ 510,971 $ 515,088 $ 485,763
=======================================================================
Percentage of Loans Outstanding
2000 1999 1998 1997 1996
-------------------------------------------------------------------
Commercial, financial and agricultural ................. 32.83% 30.88% 33.05% 32.57% 32.39%
Real estate ............................................ 47.76% 48.13% 47.07% 45.62% 43.63%
Installment and consumer ............................... 19.41% 20.99% 19.88% 21.81% 23.98%
-------------------------------------------------------------------
Total ............................................. 100.00% 100.00% 100.00% 100.00% 100.00%
===================================================================
Total loans increased $58,452,000, or 9.6%, from December 31, 1999 to December
31, 2000, with increases in commercial, financial and agricultural loans, real
estate loans, and installment and consumer loans of $31,111,000, $25,651,000 and
$1,690,000 respectively. Strong loan demand was responsible for the overall
increase in loans from 1999 to 2000. A business cycle downturn could have an
adverse effect on loan demand.
Total loans increased by $99,305,000, or 19.4%, from December 31, 1998 to
December 31, 1999, with increases in commercial, financial and agricultural
loans, real estate loans, and installment and consumer loans, of $19,568,000,
$53,232,000, and $26,505,000, respectively. The increase in installment and
consumer loans was mainly attributable to an increase in indirect loans. Loan
demand was also strong in the commercial and real estate areas during 1999.
The balance of loans outstanding as of December 31, 2000 by maturities is shown
in the following table:
Maturity of Loans Outstanding
(dollars in thousands)
December 31, 2000
--------------------------------------------
1 year 1-5 over 5
or less years years Total
--------------------------------------------
Commercial, financial and agricultural $123,342 $ 74,538 $ 21,661 $219,541
Real estate .......................... 58,730 134,801 125,881 319,412
Installment and consumer ............. 30,560 95,054 4,161 129,775
Total ........................... $212,632 $304,393 $151,703 $668,728
============================================
Percentage of total loans outstanding 31.80% 45.52% 22.69% 100.00%
============================================
As of December 31, 2000, commercial, financial and agricultural loans with
maturities of greater than one year were comprised of $50,862,000 in fixed-rate
loans and $45,337,000 in floating-rate loans. Real estate loans with maturities
greater than one year at December 31, 2000 included $123,875,000 in fixed-rate
loans and $136,807,000 in floating-rate loans.
Allowance for Loan Losses and Loan Quality
The following table summarizes changes in the allowance for loan losses by loan
categories for each period and additions to the allowance for loan losses, which
have been charged to operations.
Allowance for Loan Losses
(dollars in thousands)
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
Allowance for loan losses at
beginning of year .................... $ 8,682 $ 8,852 $ 8,837 $ 8,969 $ 9,238
-------------------------------------------------------
Charge-offs during period:
Commercial, financial and agricultural $ (99) $ (506) $ (200) $ (198) $ (610)
Residential real estate .............. (34) -- (15) (25) (203)
Installment and consumer ............. (1,119) (750) (933) (1,383) (1,188)
-------------------------------------------------------
Total ........................... $(1,252) $(1,256) $(1,148) $(1,606) $(2,001)
-------------------------------------------------------
Recoveries of loans previously charged off:
Commercial, financial and agricultural $ 463 $ 268 $ 52 $ 154 $ 661
Residential real estate .............. 9 53 14 146 88
Installment and consumer ............. 173 192 288 277 298
-------------------------------------------------------
Total ........................... $ 645 $ 513 $ 354 $ 577 $ 1,047
-------------------------------------------------------
Net charge-offs ............ $ (607) $ (743) $ (794) $(1,029) $ (954)
Provision for loan losses ................. 804 573 809 897 685
-------------------------------------------------------
Allowance for loan losses at end of year .. $ 8,879 $ 8,682 $ 8,852 $ 8,837 $ 8,969
=======================================================
Ratio of net charge-offs to
average net loans .................... 0.10% 0.14% 0.16% 0.21% 0.20%
=======================================================
Management reviews criteria such as the customer's historic loan payment
performance, financial statements, financial ratios, cash flow, net worth,
collateral and guaranties, as well as local and national economic factors, in
determining whether loans should be written off as uncollectible. The Company
records a loss if it is probable that a loss will occur and the amount can be
reasonably estimated.
The Company's risk of loan loss is dependent on many factors: economic
conditions, the extent and values of underlying collateral, significant
concentrations of loans within the portfolio, the ability and willingness of
borrowers to perform according to loan terms and management's competence and
judgement in overseeing lending, collecting and loan-monitoring activities. The
risk of loss from commercial, financial and agricultural loans is significantly
impacted by economic factors and how these factors affect the particular
industries involved. The local economy has remained stable for the past several
years. A business cycle downturn could have an adverse effect on loan quality.
An analysis of the allowance for loan loss adequacy is performed on a quarterly
basis by the Company's credit administration department. This analysis is
reported to executive management and discussed at a quarterly meeting where
specific allocations for problem credits, charge-offs and monthly provisions for
loan losses are reviewed and revised, as necessary. The results are reported to
the board of directors. The analysis includes assessment of the allowance for
loan loss adequacy based on historic loan losses and current quality grades of
specific credits reviewed, credit concentrations, current delinquent and
nonperforming loans, current economic conditions, peer group information and
results of recent audits or regulatory examinations. A significant portion of
the net charge-offs during 1996 and 1997 were a result of the emphasis placed on
the early detection of problem credits. The level of charge-offs of installment
and consumer loans in 1999 and 2000 was reflective of the significant growth of
the indirect loan portfolio during this period.
The following table shows the allocation of the allowance for loan losses to
each loan category.
Allocation of the Allowance for Loan Losses
(in thousands)
2000 1999 1998 1997 1996
------------------------------------------
Allocated:
Commercial, financial and agricultural $3,426 $3,476 $4,038 $4,340 $4,392
Residential real estate .............. 855 799 1,040 1,446 1,510
Installment and consumer ............. 1,649 1,289 1,332 1,343 1,419
------------------------------------------
Total allocated allowance ....... $5,930 $5,564 $6,410 $7,129 $7,321
Unallocated allowances .................... 2,949 3,118 2,442 1,708 1,648
------------------------------------------
Total ..................................... $8,879 $8,682 $8,852 $8,837 $8,969
==========================================
The portion of the allowance for loan losses which was unallocated decreased by
$169,000 to $2,949,000 at December 31, 2000 from $3,118,000 a year earlier. The
$360,000 increase in the amount of the allowance for loan losses allocated to
installment and consumer loans from December 31, 1999 to December 31, 2000 was
due primarily to the reclassification of a $350,000 specific allocation for
retail loans from the unallocated allowance total to installment and consumer
loans. The $50,000 decrease in the dollars allocated to commercial, financial
and agricultural, from December 31, 1999 to December 31, 2000 was offset by a
$56,000 increase in the allocation for residential real estate.
The unallocated portion of the allowance for loan losses remained relatively
unchanged from 1999 to 2000 as there were no significant changes in the factors
used to calculate the allowance for loan losses or the risk in the loan
portfolio. This unallocated amount is determined based on management's
judgement, which considers, in addition to the other factors previously
discussed, the risk of error in the specific allocations.
Management believes that nonperforming and potential problem loans are
appropriately identified and monitored based on the extensive loan analyses
performed by the credit administration department, the internal loan committees
and the board of directors. Historically, there has not been a significant
amount of loans charged off which had not been previously identified as problem
loans by the credit administration department or the loan committees.
The following table presents the aggregate amount of loans considered to be
nonperforming for the periods indicated. Nonperforming loans include loans
accounted for on a nonaccrual basis, accruing loans contractually past due 90
days or more as to interest or principal payments and loans which are troubled
debt restructurings as defined in Statement of Financial Accounting Standards
No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings."
Nonperforming Loans
(in thousands)
2000 1999 1998 1997 1996
----------------------------------------------------
Nonaccrual loans ................ (1) $602 (1) $112 (1) $1,507 (1) $2,530 (1) $2,308
================================================
Loans past due 90 days or more .. $846 $440 $1,084 $1,170 $1,034
================================================
Renegotiated loans .............. $ 88 $104 $ 121 $ 140 $ 162
================================================
1 Includes $505,000 at December 31, 2000, $112,000 at December 31, 1999,
$787,000 at December 31, 1998, $700,000 at December 31, 1997, and $448,000
at December 31, 1996 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).
There were no other interest earning assets which would be required to be
disclosed as being nonperforming if such other assets were loans.
At December 31, 2000, the Company had approximately $8,240,000 in potential
problem loans, excluding nonperforming loans. Potential problem loans are those
loans identified by management as being worthy of special attention, and
although currently performing, may have some underlying weaknesses. None of
these potential problem loans were considered impaired as defined in SFAS 114.
The $8,240,000 of potential problem loans have either had timely payments or are
adequately secured and loss of principal or interest is determined to be
unlikely.
Loans over 90 days past due, which are not well secured and in the process of
collection are placed on nonaccrual status. There were $602,000 of nonaccrual
loans at December 31, 2000 compared to $112,000 at December 31, 1999. Loans past
due 90 days or more but still accruing increased by $406,000 in 2000 to a
balance of $846,000 at December 31, 2000, from $440,000 at December 31, 1999.
These loans are well secured and in the process of collection.
The following table categorizes nonaccrual loans as of December 31, 2000 based
on levels of performance and also details the allocation of interest collected
during the period in 2000 in which the loans were on nonaccrual. Substantial
performance, yet contractually past due, includes borrowers making sizable
periodic payments relative to the required periodic payments due. A borrower
that is not making substantial payments but is making some periodic payments
would be included in the limited performance category.
Nonaccrual and Related Interest Payments
(in thousands)
Cash Interest Payments Applied As:
-----------------------------------
At December 31, 2000 Recovery of Reduction
Book Contractual Interest Prior Partial of
Balance Balance Income Charge-offs Principal
----------------------------------------------------------
Contractually past due with:
Substantial performance .. $ 7 $ 9 $ - $ - $ 1
Limited performance ...... -- -- - - --
No performance ........... 595 743 - - 3
---------------------------------------------------------
Total ......................... $602 $752 $ - $ - $ 4
=========================================================
The difference between the book balance and the contractual balance represents
charge-offs made since the loans were funded.
Management believes that the allowance for loan losses at December 31, 2000 was
adequate to absorb credit losses in the total loan portfolio and that the
policies and procedures in place to identify potential problem loans are being
effectively implemented. However, there can be no assurance that the allowance
for loan losses will be adequate to cover all losses.
Premises and Equipment
Total premises and equipment decreased $1,631,000 in 2000 from 1999. This
decrease was primarily due to depreciation expense of $2,813,000 and loss on
disposal of computer equipment of $587,000 as the Company moved more of its data
processing to a service bureau environment. These decreases were somewhat offset
by $1,769,000 of purchases.
Other Assets
Other assets decreased $3,075,000 in 2000 from 1999. Contributing to the change
was a decrease of $2,041,000 in deferred taxes caused by the change from an
unrealized loss on securities available-for-sale at December 31, 1999, to an
unrealized gain at December 31, 2000. Also contributing to the change was a
decrease in capitalized merger costs of $698,000 at December 31, 1999, which
were expensed in March 2000 and a decrease of $474,000 in FirsTech, Inc.'s
accounts receivable.
Deposits
The following table shows the average balance and weighted average rate of
deposits at December 31 for the years indicated:
Average Balance and Weighted Average Rate of Deposits
(dollars in thousands)
2000 1999 1998
-------------------- -------------------- ---------------------
Weighted Weighted Weighted
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------------------------------------------------------------------
Demand
Noninterest bearing $ 88,059 -- $ 97,856 -- $113,524 --
Interest bearing .. 224,233 3.99% 241,986 3.35% 254,961 3.14%
Savings
Noninterest bearing 47,906 -- 33,896 -- -- --
Interest bearing .. 93,118 2.36% 82,197 2.10% 40,858 3.14%
Time
$100,000 and over . 93,761 5.81% 86,418 5.19% 80,614 5.61%
Under $100,000 .... 250,544 5.62% 237,641 5.30% 247,752 5.59%
-------- -------- --------
Totals ............ $797,621 $779,994 $737,709
======== ======== ========
In analyzing its deposit activity, management has noted that average total
deposits increased $17,627,000 during 2000. Included in this increase were
shifts in the average deposit mix in 2000 versus 1999. There were increases in
average noninterest bearing savings deposits of $14,010,000, or 41%, average
time deposits under $100,000 of $12,903,000, or 5%, average interest bearing
savings deposits of $10,921,000, or 13%, and average time deposits $100,000 and
over of $7,343,000, or 8%. Somewhat offsetting these increases were decreases in
average interest bearing demand deposits of $17,753,000, or 7% and average
non-interest bearing demand deposits of $9,797,000, or 10%.
The table below sets forth the maturity of deposits greater than $100,000 at
December 31, 2000:
Maturity of Time Deposits of $100,000 or More
(in thousands)
Total Time
State of Deposits of
Maturity at December 31, Illinois Brokered $100,000
2000 Time Deposit CDs CDs IRAs or More
--------------------------------------------------------------------------------
3 months or less ........ $ 5,200 $ -- $ 30,073 $ 828 $ 36,101
3 to 6 months ........... 3,000 -- 13,378 605 16,983
6 to 12 months .......... -- -- 24,630 901 25,531
Over 12 months .......... -- 5,000 14,167 2,248 21,415
--------------------------------------------------
Total .............. $ 8,200 $5,000 $ 82,248 $ 4,582 $100,030
====================================================
Federal Funds Purchased, Repurchase Agreements and Notes Payable
This category includes federal funds purchased, which are generally overnight
transactions, securities sold under repurchase agreements, which mature from one
day to three years from the date of sale and U.S. Treasury demand notes. The
table in note 8 in the Notes to Consolidated Financial Statements shows the
balances of federal funds purchased, repurchase agreements and notes payable at
December 31, 2000 and 1999, the average balance for the years ended December 31,
2000, 1999 and 1998, and the maximum month-end value during each year.
Fair Values of Financial Instruments
The estimated fair values of financial instruments for which no listed market
exists and the fair values of investment securities, which are based on listed
market quotes at December 31, 2000 and 1999, are disclosed in note 17 in the
Notes to Consolidated Financial Statements.
Capital
Total stockholders' equity rose $9,321,000 from $116,081,000 at December 31,
1999 to $125,402,000 at December 31, 2000. The increase represents net income of
$11,989,000 and a $3,962,000 increase in accumulated other comprehensive income
(loss). Decreases included cash dividends declared of $4,472,000, net treasury
stock transactions of $2,083,000, $64,000 from stock appreciation rights and the
purchase of $11,000 in fractional shares of common stock following the stock
dividend and merger.
Financial institutions are required by regulatory agencies to maintain minimum
levels of capital based on asset size and risk characteristics. Currently, the
Company and the Banks are required by their primary regulators to maintain
adequate capital based on two measurements: the total assets leverage ratio and
the risk-weighted assets ratio.
Based on Federal Reserve guidelines, a bank holding company generally is
required to maintain a leverage ratio of 3% plus an additional cushion of at
least 100 to 200 basis points. The Company's total assets leverage ratio at
December 31, 2000 and 1999 was 11.6% and 11.4%, respectively. The leverage
ratios for the individual banks are disclosed in note 19 in the Notes to
consolidated Financial Statements. All are well above the regulatory minimum.
The minimum risk-weighted assets ratio for bank holding companies is 8%. The
Company's total risk-weighted assets ratio at December 31, 2000 and 1999 was
18.6% and 19.1%--significantly higher than the regulatory minimum. The
individual bank's total risk-weighted assets ratio is disclosed in note 19 in
the Notes to consolidated Financial Statements. All are significantly higher
than the regulatory minimum.
Inflation and Changing Prices
Changes in interest rates and a bank's ability to react to interest rate
fluctuations have a much greater impact on a bank's balance sheet and net income
than inflation. A review of net interest income (loss), liquidity and rate
sensitivity should assist in the understanding of how well the Company is
positioned to react to changes in interest rates.
Liquidity and Cash Flows
The Company requires cash to fund loan growth and deposit withdrawals. Cash
flows fluctuate with changes in economic conditions, current interest rate
trends and as a result of management strategies and programs. The Company
monitors the demand for cash and initiates programs and policies as considered
necessary to meet funding gaps.
The Company was able to adequately fund loan demand and meet liquidity needs in
2000. A review of the consolidated statement of cash flows in the accompanying
financial statements shows that the Company's cash and cash equivalents
decreased $3,211,000 from December 31, 1999 to December 31, 2000. In 1999,
planning related to potential Year 2000 issues resulted in additional cash on
hand at the end of 1999. This was partially responsible for the $18,401,000
increase in cash and cash equivalents in 1999 compared to 1998. The decrease in
2000 resulted from investing activities, somewhat offset by financing activities
and operating activities. There were differences in sources and uses of cash
during 2000 compared to 1999. Less cash was provided in the area of financing
activities during 2000 compared to 1999. This was primarily due to a decrease in
federal funds purchased, repurchase agreements and notes payable compared to an
increase in 1999 which was used to fund loan growth. This was somewhat offset by
an increase in deposits. Less cash was also provided by operating activities in
2000 compared to 1999. This was mainly due to lower proceeds from sales of loans
originated for sale, offset somewhat by less cash used to fund loans originated
for sale as less loans were originated in 2000 than 1999 due to increased
interest rates. In the area of investing activities, slightly more cash was used
in 2000 compared to 1999. This was primarily due to lower proceeds from
maturities, calls and sales of investments in debt and equity securities, offset
partially by a reduction in purchases of investments of the same. Funding of new
loans decreased in 2000 compared to 1999, as the growth of the loan portfolio in
2000 was not as great as in 1999.
The Company's future short-term requirements for cash are not expected to
significantly change and will continue to be provided by investment maturities,
sales of loans and deposits. Cash required to meet longer-term liquidity
requirements will mostly depend on future goals and strategies of management,
the competitive environment, economic factors and changes in the needs of
customers. No outside borrowing is anticipated. The Company expects to maintain
FHLB advances near the current level. If current sources of liquidity cannot
provide needed cash in the future, the Company can obtain funds from several
sources. The Company is able to borrow funds on a temporary basis from the
Federal Reserve Bank, the FHLB and correspondent banks to meet short-term
requirements. With no parent company debt and sound capital levels, the Company
has several options for longer-term cash needs, such as for future expansion and
acquisitions.
Management is not aware of any current recommendations by the Company's primary
regulators which if implemented would have a material effect on the Company's
liquidity, capital resources or operations.
Interest Rate Sensitivity
The concept of interest sensitivity attempts to gauge exposure of 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. One way the
Company monitors its interest rate sensitivity and liquidity is through the use
of static gap reports, which measure the difference between assets and
liabilities maturing or repricing within specified time periods.
The following table shows the Company's interest rate sensitivity position at
various intervals at December 31, 2000:
Rate Sensitivity of Earning Assets and Interest Bearing Liabilities
(in thousands)
1-30 31-90 91-180 181-365 Over
Days Days Days Days 1 Year Total
-----------------------------------------------------------------
Interest earning assets:
Federal funds sold and interst-bearing deposits$ $ 25,172 $ -- $ -- $ -- $ -- $ 25,172
Debt and equity securities1 .................... 14,061 16,906 11,562 32,843 227,815 303,187
Loans (2)....................................... 100,825 72,374 30,451 70,709 396,459 670,818
-----------------------------------------------------------------
Total interest earning assets ............. $140,058 $ 89,280 $ 42,013 $103,552 $624,274 $999,177
-----------------------------------------------------------------
Interest bearing liabilities:
Savings and interest bearing demand deposits3 .. $ 22,140 $ 1,394 $ 2,064 $ 4,077 $157,011 $186,686
Money market savings deposits .................. 146,320 -- -- -- -- 146,320
Time deposits .................................. 31,936 48,725 74,294 106,617 95,739 357,311
Federal funds purchased, repurchase agreements
and notes payable ......................... 62,714 225 602 6,017 100 69,658
FHLB Advances and other borrowings ............. 5,005 34 15 6,031 29,893 40,978
-----------------------------------------------------------------
Total interest bearing liabilities ........ $268,115 $ 50,378 $ 76,975 $122,742 $282,743 $800,953
=================================================================
Net asset (liability) funding gap ................... ($128,057) $ 38,902 ($34,962) ($19,190) $ 34,531 $198,224
=================================================================
Repricing gap ....................................... 0.52 1.77 0.55 0.84 2.21 1.25
Cumulative repricing gap ............................ 0.52 0.72 0.69 0.72 1.25 1.25
=================================================================
1 Debt and equity securities include securities available-for-sale.
2 Loans include mortgage loans held-for-sale.
3 The total of savings and interest-bearing demand deposits does not include
$40,634,000 of non-transactional accounts which are savings accounts that
are non-interest bearing.
Included in the 1-30 day category of savings and interest-bearing demand
deposits is non-core deposits plus a percentage, based upon industry-accepted
assumptions, of the core deposits. "Core deposits" are the lowest average
balance of the prior twelve months for each product type included in this
category. "Non-core deposits" are the difference between the current balance and
core deposits. The time frames include a percentage, based upon
industry-accepted assumptions, of the core deposits, as follows:
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
--------- ---------- ----------- ------------ -----------
Savings and interest-bearing
demand deposits ........... 11.9% 0.7% 1.1% 2.2% 84.1%
At December 31, 2000, the Company tended to be liability sensitive due to the
levels of savings and interest bearing demand deposits, time deposits, federal
funds purchased, repurchase agreements and notes payable. As such, the effect of
a decrease in the prime rate of 100 basis points would increase net interest
income by approximately $1,281,000 in 30 days and $892,000 in 90 days assuming
no management intervention. A rise in interest rates would have the opposite
effect for the same periods.
In addition to managing interest sensitivity and liquidity through the use of
gap reports, the Company has provided for emergency liquidity situations with
informal agreements with correspondent banks, which permit the Company to borrow
federal funds on an unsecured basis. Additionally, the Company can borrow
approximately $25,104,000 from the Federal Home Loan Bank on a secured basis.
The Company uses financial forecasting/budgeting/reporting software packages to
perform interest rate sensitivity analysis for all product categories. 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 December 31, 2000 and December
31, 1999 of the impact on net interest income from an immediate change in
interest rates. The results are shown as a percentage change in net interest
income over the next twelve months.
Basis Point Change
+200 +100 -100 -200
----------------------------------------
December 31, 2000 0.2% 0.1% (0.1%) (0.2%)
December 31, 1999 (0.7%) (0.4%) 0.4% 0.7%
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.
New Accounting Rules and Regulations
In June 1998, the Statement on Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued,
which originally required the Statement to adopted in years beginning after June
15, 1999. The Statement permits early adoption as of the beginning of any fiscal
quarter after its issuance. The Statement will require the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. In July 1999 the Statement on Financial Accounting
Standards No. 137 was issued. This Statement delayed the implementation of
Statement No. 133 until fiscal years beginning after June 15, 2000. In June
2000, the Statement on Financial Accounting Standards No. 138 was issued to
modify and clarify various provisions of Statement No. 133. The Company expects
to adopt Statement No. 133, as amended by Statements No. 137 and 138, effective
January 1, 2001. Management does not anticipate that the adoption of the new
Statement will have a significant effect on the Company's earnings of financial
position.
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.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1996
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Company and its subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area, our implementation of new technologies, our ability
to develop and maintain secure and reliable electronic systems and accounting
principles, policies and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
See pages 25 through 26.
Item 8. Financial Statements and Supplementary Data
The financial statements begin on page __.
MAIN STREET TRUST, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2000, 1999 and 1998
MAIN STREET TRUST, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor's Report
The Board of Directors
Main Street Trust, Inc.
Champaign, Illinois
We have audited the accompanying consolidated balance sheet of Main Street
Trust, Inc. and subsidiaries as of December 31, 2000, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Main
Street Trust, Inc. and subsidiaries as of December 31, 2000, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
We previously audited and reported on the consolidated financial statements of
BankIllinois Financial Corporation and subsidiary for the year ended December
31, 1999 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years ended December 31, 1999 and
1998, prior to their restatement for the 2000 pooling of interests. The
contribution of BankIllinois Financial Corporation and subsidiary to assets,
total stockholders' equity, net interest income, and net income represented
55.2%, 54.9%, 55.4% and 64.6% of the respective restated totals for the year
ended December 31, 1999. The contribution of BankIllinois Financial Corporation
and subsidiary to assets, total stockholders' equity, net interest income, and
net income represented 54.9%, 53.9%, 56.4% and 52.0% of the respective restated
totals for the year ended December 31, 1998. Separate financial statements of
the other companies included in the December 31, 1999 restated consolidated
balance sheet and consolidated statements of income, changes in stockholders'
equity and cash flows for the years ended December 31, 1999 and 1998 were
audited and reported on separately by other auditors; and their report dated
January 28, 2000 expressed an unqualified opinion on those financial statements.
We also audited the combination of the accompanying consolidated financial
statements as of December 31, 1999, and consolidated statements of income,
changes in stockholders' equity and cash flows for the years ended December 31,
1999 and 1998, after restatement for the 2000 pooling of interests; in our
opinion, such consolidated financial statements have been properly combined on
the basis described in Note 2 to the consolidated financial statements.
/s/ McGladrey & Pullen, LLP
Champaign, Illinois
February 20, 2001
MAIN STREET TRUST, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
(in thousands, except share data)
2000 1999
--------------------------
Assets
Cash and due from banks ............................................... $ 58,967 $ 48,328
Federal funds sold and interest bearing deposits ...................... 25,172 39,022
--------------------------
Cash and cash equivalents ...................................... 84,139 87,350
--------------------------
Investments in debt and equity securities:
Available-for-sale, at fair value .................................. 213,686 206,844
Held-to-maturity, at cost (fair value of $84,849) and
$87,780 at December 31, 2000 and 1999, respectively) .............. 84,972 89,935
Non-marketable equity securities, at cost ........................... 4,529 3,261
--------------------------
Total investments in debt and equity securities ................. 303,187 300,040
--------------------------
Loans, net of allowance for loan losses of $8,879 and
$8,682 at December 31, 2000 and 1999, respectively .................. 659,849 601,594
Mortgage loans held for sale .......................................... 2,090 1,687
Premises and equipment ................................................ 20,874 22,505
Accrued interest receivable ........................................... 10,629 9,182
Other assets .......................................................... 10,313 13,388
--------------------------
Total assets .................................................... $1,091,081 $1,035,746
==========================
Liabilities and Stockholders' Equity
Deposits:
Demand, non-interest bearing .......................................... $ 108,981 $ 82,955
Demand, interest bearing .............................................. 233,838 230,394
Savings ............................................................... 139,802 143,133
Time, $100 and over ................................................... 100,030 92,382
Other time ............................................................ 257,281 246,211
--------------------------
Total deposits ........................................... 839,932 795,075
Federal funds purchased, repurchase agreements, and notes payable ....... 69,658 79,140
Federal Home Loan Bank advances and other borrowings ............... 40,978 32,058
Accrued interest payable ................................................ 4,584 4,090
Other liabilities ....................................................... 10,527 9,302
--------------------------
Total liabilities ............................................... 965,679 919,665
--------------------------
Stockholders' 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 and 10,578,772 shares issued at December 31, 2000
and 1999, respectively .............................................. 106 106
Paid in capital ....................................................... 44,306 44,310
Retained earnings ..................................................... 82,512 75,027
Accumulated other comprehensive income (loss) ......................... 600 (3,362)
--------------------------
127,524 116,081
Less: treasury stock, at cost, 112,178 shares at December 31, 2000 ... (2,122) --
--------------------------
Total stockholders' equity ...................................... 125,402 116,081
--------------------------
Total liabilities and stockholders' equity ...................... $1,091,081 $1,035,746
==========================
See accompanying notes to consolidated financial statements.
MAIN STREET TRUST, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 2000, 1999 and 1998
(in thousands, except share data)
2000 1999 1998
---------------------------------------
Interest income:
Loans and fees on loans ....................................... $ 55,154 $ 47,041 $ 45,064
Investments in debt and equity securities:
Taxable ............................................... 15,533 16,855 17,032
Tax-exempt ............................................ 2,031 1,948 1,517
Federal funds sold and interest-bearing deposits .............. 1,553 1,226 2,097
---------------------------------------
Total interest income ............................. 74,271 67,070 65,710
---------------------------------------
Interest expense:
Demand, savings, and other time deposits ...................... 25,213 22,427 23,136
Time deposits $100 and over ................................... 5,451 4,490 4,525
Federal funds purchased, repurchase agreements,
and notes payable ................................. 3,764 3,110 2,822
Federal Home Loan Bank advances and other borrowings .......... 2,171 1,686 1,379
---------------------------------------
Total interest expense ............................ 36,599 31,713 31,862
---------------------------------------
Net interest income ............................... 37,672 35,357 33,848
Provision for loan losses ........................................... 804 573 809
---------------------------------------
Net interest income after provision for loan losses 36,868 34,784 33,039
---------------------------------------
Non-interest income:
Remittance processing ......................................... 6,605 8,151 5,165
Trust and brokerage fees ...................................... 5,474 4,898 4,222
Service charges on deposit accounts ........................... 2,087 2,006 2,109
Securities transactions, net .................................. 21 141 126
Gain on sales of loans, net ................................... 212 527 846
Other ......................................................... 1,837 2,135 2,086
---------------------------------------
Total non-interest income ......................... 16,236 17,858 14,554
---------------------------------------
Non-interest expense:
Salaries and employee benefits ................................ 18,274 18,775 16,749
Merger related professional fees .............................. 2,544 -- --
Reconciliation liability ...................................... -- 2,500 --
Occupancy ..................................................... 2,220 2,407 2,500
Equipment ..................................................... 3,652 3,373 2,949
Data processing fees .......................................... 1,470 1,280 978
Office supplies ............................................... 1,236 1,255 1,062
Service charges from correspondent banks ...................... 998 1,428 128
Other ......................................................... 4,295 4,771 6,225
---------------------------------------
Total non-interest expense ........................ 34,689 35,789 30,591
---------------------------------------
Income before income taxes ........................ 18,415 16,853 17,002
Income taxes ........................................................ 6,426 5,165 5,318
---------------------------------------
Net income ........................................ $ 11,989 $ 11,688 $ 11,684
=======================================
Per share data:
Basic earnings per share ...................................... $ 1.14 $ 1.10 $ 1.07
Weighted average shares of common stock outstanding ........... 10,550,437 10,592,903 10,888,086
Diluted earnings per share .................................... $ 1.11 $ 1.08 $ 1.05
Weighted average shares of common stock and dilutive
potential common shares outstanding ......................... 10,762,547 10,819,894 11,093,044
See accompanying notes to consolidated financial statements.
MAIN STREET TRUST, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 2000, 1999 and 1998
(in thousands, except share data)
Accumulated
Other
Comprehensive
Common Stock Paid-in Retained Income Treasury Stock
Shares Amount Capital Earnings (Loss) Shares Amount Total
-----------------------------------------------------------------------------------------
Balance, January 1, 1998, as previously
reported ............................. 10,503,241 $ 105 $ 43,278 $ 66,994 $ 677 428,013 ($7,995) $103,059
Retirement of treasury stock in merger . (428,013) (4) (7,991) -- -- (428,013) 7,995 --
Restated for 5% stock dividend-2000 .... 503,945 5 8,940 (8,945) -- -- -- --
-----------------------------------------------------------------------------------------
Balance January 1, 1998, as restated ... 10,579,173 106 44,227 58,049 677 -- -- 103,059
---------
Comprehensive Income:
Net income ........................... -- -- -- 11,684 -- -- -- 11,684
Net change in unrealized gain (loss)
on securities available-for-sale,
net of taxes of $542 ............... -- -- -- -- 1,052 -- -- 1,052
Reclassification adjustment,
net of tax of ($43) .............. -- -- -- -- (83) -- -- (83)
---------
Comprehensive income ............... 12,653
---------
Fractional shares of common stock
purchased following stock dividend ... (200) -- (4) -- -- -- -- (4)
Stock appreciation rights .............. -- -- 77 -- -- -- -- 77
Cash dividends ($0.29 per share) ....... -- -- -- (3,199) -- -- -- (3,199)
------------------------------------------------------------------------------------------
Balance, December 31, 1998 ............. 10,578,973 106 44,300 66,534 1,646 -- -- 112,586
---------
Comprehensive Income:
Net income ........................ -- -- -- 11,688 -- -- -- 11,688
Net change in unrealized gain
(loss) on securities available-
for-sale, net of taxes of
($2,532) ........................ -- -- -- -- (4,915) -- -- (4,915)
Reclassification adjustment,
net of tax of ($48) ............. -- -- -- -- (93) -- -- (93)
---------
Comprehensive income .............. 6,680
---------
Fractional shares of common
Stock purchased following stock
dividend ........................... (201) -- (5) -- -- -- -- (5)
Stock appreciation rights .............. -- -- 15 -- -- -- -- 15
Cash dividends ($0.30 per share) ....... -- -- -- (3,195) -- -- -- (3,195)
------------------------------------------------------------------------------------------
Balance, December 31, 1999 ............. 10,578,772 106 44,310 75,027 (3,362) -- -- 116,081
---------
Comprehensive Income:
Net income ........................... -- -- -- 11,989 -- -- -- 11,989
Net change in unrealized gain (loss)
on securities available-for-sale,
net of tax of $2,051 ............... -- -- -- -- 3,976 -- -- 3,976
Reclassification adjustment, net
of tax of ($7) ..................... -- -- -- -- (14) -- -- (14)
---------
Comprehensive income .............. 15,951
---------
Fractional shares of common stock
purchased following stock dividend
and merger ........................... (328) -- (11) -- -- -- -- (11)
Stock appreciation rights .............. -- -- (64) -- -- -- -- (64)
Cash dividends ($0.42 per share) ....... -- -- -- (4,472) -- -- -- (4,472)
Treasury stock transactions, net ....... 4,040 -- 71 (32) -- 112,178 (2,122) (2,083)
------------------------------------------------------------------------------------------
Balance, December 31, 2000 ........... 10,582,484 $ 106 $ 44,306 $ 82,512 $ 600 $112,178 $ (2,122) $125,402
==========================================================================================
See accompanying notes to consolidated financial statements.
MAIN STREET TRUST, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2000, 1999 and 1998
(in thousands)
2000 1999 1998
-----------------------------------
Cash flows from operating activities:
Net income ............................................................. $ 11,989 $ 11,688 $ 11,684
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................................... 2,839 2,699 2,387
Amortization of bond premiums, net ..................................... 202 783 93
Provision for loan losses .............................................. 804 573 809
Deferred income taxes .................................................. (26) (975) (24)
Securities transactions, net ........................................... (21) (141) (126)
Federal Home Loan Bank stock dividend .................................. (169) -- --
Gain on sales of mortgage loans, net ................................... (212) (527) (846)
Loss on disposal of premises and equipment ............................. 587 27 --
Stock appreciation rights .............................................. (64) 15 77
Proceeds from sales of mortgage loans originated for sale .............. 25,537 59,886 92,779
Mortgage loans originated for sale ..................................... (25,728) (49,179) (101,476)
Other, net ............................................................. 711 1,836 (8,501)
-----------------------------------
Net cash provided by operating activities ................ 16,449 26,685 (3,144)
-----------------------------------
Cash flows from investing activities:
Net (increase) decrease in loans ....................................... (59,066) (101,375) 3,298
Proceeds from maturities and calls of investments in debt securities:
Held-to-maturity .................................................... 3,456 19,164 15,308
Available-for-sale .................................................. 38,727 85,529 126,634
Proceeds from sales of investments in debt and equity securities:
Available-for-sale .................................................. 9,619 34,573 7,570
Other equity securities ............................................. -- -- 48
Purchases of investments in debt and equity securities:
Held-to-maturity .................................................... (3,054) (21,608) (57,916)
Available-for-sale .................................................. (51,581) (77,623) (165,647)
Other equity securities ............................................. (1,099) (41) (70)
Principal paydowns from mortgage-backed securities:
Held-to-maturity .................................................... 4,503 3,486 1,757
Available-for-sale .................................................. 2,272 4,253 13,182
Purchases of premises and equipment .................................... (1,769) (3,928) (1,968)
Proceeds from sale of premises and equipment ........................... -- -- 1,380
-----------------------------------
Net cash used in investing activities .................. (57,992) (57,570) (56,424)
-----------------------------------
Cash flows from financing activities:
Net increase in deposits ............................................... 44,857 29,409 27,385
Net (decrease) increase in federal funds purchased, repurchase
agreements, and notes payable ........................................ (9,482) 18,899 (1,215)
Net increase in Federal Home Loan Bank advances and other borrowings ... 8,920 4,154 16,950
Cash dividends paid .................................................... (3,869) (3,176) (3,186)
MSTI post merger stock transactions, net ............................... (2,094) -- --
-----------------------------------
Net cash provided by financing activities ................ 38,332 49,286 39,934
-----------------------------------
Net (decrease) increase in cash and cash equivalents .... (3,211) 18,401 (19,634)
Cash and cash equivalents at beginning of year ............................. 87,350 68,949 88,583
-----------------------------------
Cash and cash equivalents at end of year ................................... $ 84,139 $ 87,350 $ 68,949
===================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................................................... $ 36,105 $ 31,624 $ 32,105
Income taxes ........................................................... 6,684 6,819 5,273
Real estate acquired through or in lieu of foreclosure ................. 92 410 26
Dividends declared not paid ............................................ 1,047 444 425
See accompanying notes to consolidated financial statements.
MAIN STREET TRUST, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Organization
MainStreet Trust, Inc. is a holding company whose subsidiaries BankIllinois,
First National Bank of Decatur, First Trust Bank of Shelbyville and FirsTech,
Inc., (the "Company") provide a full range of banking services to individual and
corporate customers located within Champaign, Decatur, and Shelbyville,
Illinois, and the surrounding communities. The subsidiaries are subject to
competition from other financial institutions and nonfinancial institutions
providing financial products. Additionally, the Company and its subsidiaries are
subject to the regulations of certain regulatory agencies and undergo periodic
examinations by those regulatory agencies.
2. Summary of Significant Accounting Policies
The consolidated financial statements of the Company have been prepared in
conformity with generally accepted accounting principles and conform to
predominant practices within the banking industry. The preparation of the
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions,
including the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosure or in satisfaction of
loans, that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The significant accounting policies used by the Company in the preparation of
the consolidated financial statements are summarized below:
(a) Principles of Consolidation and Financial Statement Presentation
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
stockholders of BankIllinois Financial Corporation and First Decatur
Bancshares, Inc. received 5,828,260 and 4,752,649 shares of Company common
stock, respectively.
The consolidated financial statements include the accounts of Main Street
Trust, Inc. and its wholly owned subsidiaries, BankIllinois, First National
Bank of Decatur, First Trust Bank of Shelbyville, (the "Banks") and
FirsTech, Inc., a retail payment processing company. Significant
intercompany accounts and transactions have been eliminated in
consolidation.
Property held by the Trust & Investments Division in fiduciary or agency
capacities for its customers is not included in the accompanying
consolidated balance sheets, since such items are not assets of the
Company.
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 that offers a wide range of services such as investment
management, acting as trustee, serving as guardian, executor or agent and
miscellaneous consulting; discount brokerage services and purchases of
installment obligations from retailers, primarily without recourse. The
other industry segment involves retail payment processing. FirsTech
provides the following services to electric, water and gas utilities,
telecommunication companies, cable television firms and charitable
organizations: retail lockbox processing of payments delivered by mail to
the biller; processing of payments delivered by customers to pay agents
such as grocery stores, convenience stores and currency exchanges; and
concentration of payments delivered by the Automated Clearing House
network, money management software such as Quicken and through networks
such as Visa e-Pay and MasterCard RPS. The Company operates primarily to
manage its investment in the subsidiaries. Company information is provided
for informational purposes only, since it is not considered a separate
segment for reporting purposes.
The following is a summary of selected data for the various business
segments as of and for the year ending December 31:
Banking Remittance
Services Services Company Eliminations Total
-------------------------------------------------------------------------
2000
---------------------------------------
Total interest income ................. $ 74,346 $ 137 $ 172 $ (384) $ 74,271
Total interest expense ................ 36,983 -- -- (384) 36,599
Provision for loan losses ............. 804 -- -- -- 804
Total non-interest income ............. 9,933 7,434 174 (1,305) 16,236
Total non-interest expense ............ 25,317 5,849 4,828 (1,305) 34,689
Income before income tax .............. 21,175 1,722 (4,482) -- 18,415
Income tax expense .................... 6,587 593 (754) -- 6,426
Net income ............................ 14,588 1,129 (3,728) -- 11,989
Total assets .......................... 1,081,001 6,606 129,942 (126,468) 1,091,081
Depreciation and amortization ......... 2,292 523 24 -- 2,839
1999
---------------------------------------
Total interest income ................. $ 67,105 $ 106 $ 180 $ (321) $ 67,070
Total interest expense ................ 32,034 -- -- (321) 31,713
Provision for loan losses ............. 573 -- -- -- 573
Total non-interest income ............. 9,944 8,718 127 (931) 17,858
Total non-interest expense ............ 25,293 7,568 3,859 (931) 35,789
Income before income tax .............. 19,149 1,256 (3,552) -- 16,853
Income tax expense .................... 5,946 426 (1,207) -- 5,165
Net income ............................ 13,203 830 (2,345) -- 11,688
Total assets .......................... 1,025,562 6,565 118,667 (115,048) 1,035,746
Depreciation and amortization ......... 2,238 437 24 -- 2,699
1998
---------------------------------------
Total interest income ................. $ 65,709 $ 127 $ 126 $ (252) $ 65,710
Total interest expense ................ 32,114 -- -- (252) 31,862
Provision for loan losses ............. 809 -- -- -- 809
Total non-interest income ............. 9,591 5,753 155 (945) 14,554
Total non-interest expense ............ 25,589 5,318 629 (945) 30,591
Income before income tax .............. 16,788 562 (348) -- 17,002
Income tax expense .................... 5,240 195 (117) -- 5,318
Net income ............................ 11,548 367 (231) -- 11,684
Total assets .......................... 973,286 5,332 114,683 (114,236) 979,065
Depreciation and amortization ......... 2,021 332 34 -- 2,387
(b) Investments in Debt and Equity Securities
Debt securities classified as held-to-maturity are those securities which
the Company has the ability and intent to hold until maturity. These
securities are carried at amortized cost, in which the amortization of
premiums and accretion of discounts, which are recognized as adjustments to
interest income, are recorded using methods which approximate the interest
method. These methods consider the timing and amount of prepayments of
underlying mortgages in estimating future cash flows on individual
mortgage-related securities. Unrealized holding gains and losses for
held-to-maturity securities are excluded from earnings and stockholders'
equity.
Debt and equity securities classified as available-for-sale are those
securities that the Company intends to hold for an indefinite period of
time but not necessarily to maturity. Any decision to sell a security
classified as available-for-sale would be based on various factors,
including significant movements in interest rates, changes in the maturity
mix of the Company's assets and liabilities, liquidity needs, regulatory
capital considerations, and other similar factors. Securities
available-for-sale are carried at fair value. The difference between fair
value and cost, adjusted for amortization of premium and accretion of
discounts, results in an unrealized gain or loss. Unrealized gains or
losses are reported as accumulated other comprehensive income (loss), net
of the related deferred tax effect. Gains or losses from the sale of
securities are determined using the specific identification method.
Premiums and discounts are recognized in interest income using methods,
which approximate the interest method over their contractual lives.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to
earnings and results in the establishment of a new cost basis for the
security.
Non-marketable equity securities, including the Banks' required investment
in the capital stock of the Federal Home Loan Bank, are carried at cost, as
fair values are not readily determinable.
(c) Loans
Loans are stated at the principal amount outstanding, net of the allowance
for loan losses. Interest is credited to income as earned, based upon the
principal amount outstanding.
The accrual of interest on loans is discontinued when, in the opinion of
management, the borrower may be unable to meet payments as they become due.
Interest accrued in the current year is reversed against interest income,
and prior years' interest is charged to the allowance for loan losses.
Interest income on impaired loans is recognized to the extent interest
payments are received and the principal is considered fully collectible.
Mortgage loans held for sale are carried at the lower of aggregate cost or
estimated market value. Net unrealized losses are recognized in a valuation
allowance by charges to income. Gains or losses on sales of loans held for
sale are computed using the specific-identification method and are
reflected in income at the time of sale.
(d) Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to
operations and is reduced by loan charge-offs less recoveries. Management
utilizes an approach, which provides for general and specific valuation
allowances, is based on current economic conditions, past losses,
collection experience, risk characteristics of the portfolio, assessment of
collateral values by obtaining independent appraisals for significant
properties, and such other factors which, in management's judgment, deserve
current recognition in estimating loan losses, to determine the appropriate
level of the allowance for loan losses.
The allowance for loan losses related to impaired loans that are identified
for evaluation is based on discounted cash flow using the loans initial
effective interest rate or the fair value, less selling costs, of the
collateral for collateral dependent loans.
Loans are categorized as "impaired" when, based on current information or
events, it is probable that the Company will be unable to collect all
amounts due, including principal and interest, in accordance with the
contractual terms of the loan agreement. The Company reviews all
non-accrual and substantially delinquent loans, as well as problem loans
identified by management, for impairment as defined above. A specific
reserve amount will be established for impaired loans in which the present
value of the expected cash flows to be generated is less than the amount of
the loan recorded on the Company's books. As an alternative to discounting,
the Company may use the "fair value" of any collateral supporting a
collateral-dependent loan in reviewing the necessity for establishing a
specific loan loss reserve amount. Specific reserves will be established
for accounts having a collateral deficiency estimated to be $50,000 or
more. The Company's general reserve is maintained at an adequate level to
cover accounts having a collateral deficiency of less than $50,000. Loans
evaluated as groups or homogeneous pools of loans will be excluded from
this analysis.
Management believes the allowance for loan losses is adequate to absorb
probable credit losses inherent in the loan portfolio. While management
uses available information to recognize loan losses, future additions to
the allowance for loan losses may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the adequacy of the
allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance for loan losses based on their
judgments of information available to them at the time of their
examination.
(e) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization applicable to furniture and
equipment and buildings and leasehold improvements is charged to occupancy
expense using straight-line and accelerated methods over the estimated
useful lives of the assets. Maintenance and repairs are charged to
operations as incurred.
(f) Other Real Estate
Other real estate, included in other assets in the accompanying
consolidated balance sheets, is initially recorded at fair value, if it
will be held and used, or at its fair value less costs to sell if it will
be disposed of. If, subsequent to foreclosure, the fair value is less than
the carrying amount, the difference is recorded as a valuation allowance
through a charge to income. Subsequent increases in fair value are recorded
through a reversal of the valuation allowance, but not below zero. Expenses
incurred in maintaining the properties are charged to operations.
(g) Mortgage Servicing Rights
The cost of mortgage servicing rights is amortized in proportion to, and
over the period of, estimated net servicing revenues. Impairment of
mortgage servicing rights is assessed based on the fair value of those
rights. Fair values are estimated using discounted cash flows based on a
current market interest rate. For purposes of measuring impairment, the
rights are stratified primarily based on the contractual maturities of the
underlying mortgages. The amount of impairment recognized is the amount by
which the capitalized mortgage servicing rights for a stratum exceed their
fair value.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(i) Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted
average number of common stock shares outstanding. Diluted earnings per
share is computed by dividing net income by the weighted average number of
common stock and dilutive potential common shares outstanding. Options to
purchase shares of the Company's common stock and stock appreciation
rights, as discussed in Note 13 to the consolidated financial statements,
are the only dilutive potential common shares. The weighted average number
of dilutive potential common shares is calculated using the treasury stock
method.
Net income per share has been computed as follows:
2000 1999 1998
---------------------------------------
Net income ............................................... $11,989,000 $11,688,000 $11,684,000
Shares:
Weighted average common shares outstanding .......... 10,550,437 10,592,903 10,888,086
Dilutive effect of outstanding options, as determined
by the application of the treasury stock method . 196,003 211,145 189,168
Dilutive effect of outstanding SARs, as determined
by the application of the treasury stock method . 16,107 15,846 15,790
----------- ----------- -----------
Weighted average common shares outstanding,
as adjusted ..................................... 10,762,547 10,819,894 11,093,044
=========== =========== ===========
Basic earnings per share ................................. $ 1.14 $ 1.10 $ 1.07
=========== =========== ===========
Diluted earnings per share ............................... $ 1.11 $ 1.08 $ 1.05
=========== =========== ===========
(j) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold and
interest-bearing deposits. Generally, federal funds are sold for one-day
periods.
(k) Stock Dividend
During September 2000, the Company effected a 5% stock dividend. All
references in the accompanying financial statements to number of shares and
per share amounts have been retroactively restated to reflect the stock
dividends.
(l) Reclassification
Certain amounts in the 1998 and 1999 consolidated financial statements have
been reclassified to conform with the 2000 presentation. Such
reclassifications have no effect on previously reported net income.
(m) Emerging Accounting Standards
In June 1998, Statement on Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued,
which originally required the Statement to be adopted in years beginning
after June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Statement will
require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of
a derivative's change in fair value will be immediately recognized in
earnings. In July 1999, the Statement on Financial Accounting Standards No.
137 was issued. This Statement delayed the implementation of Statement No.
133 until fiscal years beginning after June 15, 2000. In June 2000, the
Statement on Financial Accounting Standards No. 138 was issued to modify
and clarify various provisions of Statement No. 133. The Company expects to
adopt Statement No. 133, as amended by Statements No. 137 and 138,
effective January 1, 2001. Management does not anticipate that the adoption
of the new Statement will have a significant effect on the Company's
earnings or financial position.
In 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.
3. Cash and Due from Banks
The compensating balances held at correspondent banks were $22,251,000 and
$17,508,000 at December 31, 2000 and 1999, respectively. The Banks maintain such
compensating balances with correspondent banks to offset charges for services
rendered by those banks. In addition, the Banks were required by the Federal
Reserve Bank to maintain reserves in the form of cash on hand or balances at the
Federal Reserve Bank. The balance of reserves held was $8,025,000 and $5,555,000
at December 31, 2000 and 1999, respectively.
4. Investments in Debt and Equity Securities
The amortized cost and fair values of investments in debt and equity securities
(in thousands) were as follows:
Available-for-Sale
-----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------
December 31, 2000
U.S. Treasury and other
government agencies .............................................. $180,170 $ 661 $ 697 $180,134
Mortgage-backed securities ......................................... 11,528 69 84 11,513
Obligations of states and political subdivisions ................... 15,087 289 27 15,349
Other .............................................................. 5,990 1,480 780 6,690
-------------------------------------------
$212,775 $ 2,499 $ 1,588 $213,686
===========================================
December 31, 1999
U.S. Treasury and other
government agencies .............................................. $181,833 $ 47 $ 4,467 $177,413
Mortgage-backed securities ......................................... 15,072 8 210 14,870
Obligations of states and political subdivisions ................... 10,623 -- 403 10,220
Other .............................................................. 4,411 388 458 4,341
-------------------------------------------
$211,939 $ 443 $ 5,538 $206,844
===========================================
Held-to-Maturity
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------
December 31, 2000
U.S. Treasury and other
government agencies .............................................. $ 29,428 $ 16 $ 175 $ 29,269
Obligations of states and political subdivisions ................... 32,902 320 129 33,093
Mortgage-backed securities ......................................... 22,642 10 165 22,487
-------------------------------------------
$ 84,972 $ 346 $ 469 $ 84,849
===========================================
December 31, 1999
U.S. Treasury and other
government agencies .............................................. $ 28,994 $ -- $ 1,002 $ 27,992
Obligations of states and political subdivisions ................... 33,748 80 582 33,246
Mortgage-backed securities ......................................... 27,193 5 656 26,542
-------------------------------------------
$ 89,935 $ 85 $ 2,240 $ 87,780
===========================================
A summary of non-marketable equity securities, at cost (in thousands) at
December 31, 2000 and 1999 is as follows:
2000 1999
--------------------
Federal Home Loan Bank Stock ................... $3,295 $3,030
Federal Reserve Bank Stock ..................... 231 231
Other investments .............................. 1,003 --
--------------------
$4,529 $3,261
====================
Realized gains and losses (in thousands) on sales and maturities for the years
ended December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
-----------------------
Gross gains ................................. $ 320 $ 223 $ 127
Gross losses ................................ (299) (82) (1)
-----------------------
Net gains ................................... $ 21 $ 141 $ 126
=======================
Investments in debt and equity securities with a carrying value of $192,580,000
and $189,043,000 were pledged at December 31, 2000 and 1999, respectively, to
secure public deposits, repurchase agreements, and for other purposes as
required or permitted by law.
The amortized cost and fair value of investments in debt and equity securities
(in thousands) at December 31, 2000, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties and certain securities require principal repayments prior to maturity.
Therefore, these securities and equity securities with no stated maturities are
not included in the following maturity summary.
Available-for-sale Held-to-maturity
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------------------------------
Due in one year or less .............. $ 43,324 $ 43,439 $ 11,325 $ 11,319
Due after one year through five years 107,034 107,243 35,812 35,648
Due after five years through ten years 34,763 34,726 14,781 14,972
Due after ten years .................. 10,440 10,512 412 423
-----------------------------------------
$195,561 $195,920 $ 62,330 $ 62,362
Mortgage-backed securities ........... 11,528 11,513 22,642 22,487
Equity securities .................... 5,686 6,253 -- --
-----------------------------------------
Total debt securities .. $212,775 $213,686 $ 84,972 $ 84,849
=========================================
5. Loans
A summary of loans (in thousands), by classification, at December 31, 2000 and
1999 is as follows:
2000 1999
-----------------------
Commercial, financial, and agricultural .......... $219,541 $188,430
Real estate ...................................... 319,412 293,761
Installment and consumer ......................... 129,775 128,085
-------- --------
$668,728 $610,276
Less:
Allowance for loan losses ..................... 8,879 8,682
-------- --------
$659,849 $601,594
======== ========
The Company makes commercial, financial, and agricultural; real estate; and
installment and consumer loans to customers located in central Illinois and the
surrounding communities. As such, the Company is susceptible to changes in the
economic environment in central Illinois.
During 2000, 1999 and 1998, the Company sold approximately $25,537,000,
$59,886,000 and $92,779,000, respectively, of residential mortgage loans in the
secondary market, primarily to Bank of America. Gross gains of approximately
$228,000, $562,000 and $894,000, and gross losses of approximately $16,000,
$35,000 and $48,000, were realized on the sales during 2000, 1999 and 1998,
respectively.
Mortgage loans serviced for others are not included in the accompanying
consolidated financial statements. The unpaid balances of these loans consisted
of the following (in thousands) at December 31, 2000, 1999 and 1998:
2000 1999 1998
-------------------------------
Fannie Mae ................................. $111,060 $122,887 $137,491
Freddie Mac ................................ 1,051 1,432 1,944
Illinois Housing Development Authority ..... 2,759 2,605 3,146
In the normal course of business, loans are made to directors, executive
officers, and principal stockholders of the Company and to parties which the
Company or its directors, executive officers, and stockholders have the ability
to significantly influence its management or operating policies (related
parties). The terms of these loans, including interest rates and collateral, are
similar to those prevailing for comparable transactions with other customers and
do not involve more than a normal risk of collectibility. Activity associated
with loans (in thousands) made to related parties during 2000 was as follows:
2000
---------
Balance, January 1 ..................................... $ 15,701
New loans .............................................. 18,096
Repayments ............................................. (9,106)
--------
Balance, December 31 ................................... $ 24,691
========
At December 31, 2000, one to four family real estate mortgage loans of
approximately $126,712,000 were pledged to secure advances from the Federal Home
Loan Bank.
Activity in the allowance for loan losses (in thousands) for 2000, 1999 and 1998
was as follows:
2000 1999 1998
-------------------------
Balance, beginning of year ....................... $8,682 $8,852 $8,837
Provision charged to expense ..................... 804 573 809
Loans charged off ................................ (1,252) (1,256) (1,148)
Recoveries on loans previously charged off ....... 645 513 354
-------------------------
Balance, end of year ............................. $8,879 $8,682 $8,852
=========================
The following table presents summary data on nonaccrual and other impaired loans
(in thousands) at December 31, 2000, 1999 and 1998:
2000 1999 1998
--------------------------
Impaired loans on nonaccrual ...................... $ 97 $ -- $ 720
Impaired loans continuing to accrue interest ...... -- -- --
--------------------------
Total impaired loans .............................. $ 97 $ -- $ 720
==========================
Other non-accrual loans not classified
as impaired ................................... $ 505 $ 112 $ 787
==========================
Allowance for loan losses on impaired loans ....... $ 15 $ -- $ 377
==========================
Impaired loans for which there is no related
allowance for loan losses ..................... $ -- $ -- $ --
==========================
Average recorded investment in impaired
loans ......................................... $ 19 $ 217 $2,240
==========================
Interest income recognized from impaired
loans ......................................... $ -- $ -- $ 5
==========================
Cash basis interest income recognized from
impaired loans ................................ $ -- $ 97 $ 18
==========================
6. Premises and Equipment
A summary of premises and equipment (in thousands) at December 31, 2000 and 1999
is as follows:
2000 1999
-------------------
Land ................................................... $ 4,835 $ 4,786
Furniture and equipment ................................ 15,024 15,711
Buildings and leasehold improvements ................... 22,679 22,214
-------------------
42,538 42,711
Less accumulated depreciation and amortization ......... 21,664 20,206
-------------------
$20,874 $22,505
===================
Depreciation and amortization expense was $2,813,000, $2,672,000 and $2,335,000
for 2000, 1999 and 1998, respectively.
The Company leases various operating facilities and equipment under
noncancellable operating lease arrangements. These leases expire at various
dates through November 2007 and have renewal options to extend the lease terms
for various dates through November 2017. The rental expense for these operating
leases was $202,000, $209,000 and $222,000 in 2000, 1999 and 1998, respectively.
Minimum annual rental payments required under the operating leases (in
thousands), which have initial or remaining terms in excess of one year at
December 31, 2000 are as follows:
2001 $ 202
2002 202
2003 96
2004 83
2005 29
Thereafter 55
--------------
$ 667
==============
7. Deposits
As of December 31, 2000, the scheduled maturities of time deposits (in
thousands) were as follows:
2001 $261,567
2002 70,205
2003 21,554
2004 1,576
2005 2,409
--------
$357,311
========
8. Federal Funds Purchased, Repurchase Agreements, and Notes Payable
A summary of short-term borrowings (in thousands) at December 31, 2000 and 1999
is as follows:
2000 1999
-----------------
Federal funds purchased .................................... $ 2,375 $ 2,675
U.S. Treasury demand notes ................................. 4,569 5,300
Securities sold under agreements to repurchase:
U.S. Treasury and other government agency securities
with carrying values of $88,513,000 and $94,870,000
and market values of $88,210,000 and $93,598,000
at December 31, 2000 and 1999, respectively .......... 62,714 71,165
------- -------
$69,658 $79,140
======= =======
Information relating to short-term borrowings (dollars in thousands) is as
follows:
2000 1999 1998
--------------------------------------
Federal funds purchased:
Average daily balance ..................... $ 3,549 $ 9,417 $ 5,748
Maximum balance at month-end .............. $ 11,860 $ 30,300 $ 8,000
Weighted average interest rate at year-end 5.13% 3.91% 3.44%
Weighted average interest rate for the year 4.95% 4.79% 5.12%
Securities sold under agreements to
repurchase:
Average daily balance ..................... $ 64,173 $ 62,844 $ 56,342
Maximum balance at month-end .............. $ 80,787 $ 79,065 $ 67,514
Weighted average interest rate at year-end 5.32% 5.90% 4.06%
Weighted average interest rate for the year 5.28% 4.24% 4.31%
U.S. Treasury demand notes
Average daily balance ..................... $ 2,588 $ 2,401 $ 1,791
Maximum balance at month-end .............. $ 5,330 $ 5,490 $ 3,156
Weighted average interest rate at year-end 6.28% 4.49% 4.87%
Weighted average interest rate for the year 6.29% 4.46% 5.32%
The securities underlying the agreements to repurchase are under the control of
the Banks.
9. Federal Home Loan Bank Advances and Other Borrowings
A summary of Federal Home Loan Bank (FHLB) advances and other borrowings
(dollars in thousands) at December 31, 2000 is as follows:
Weighted
FHLB Other Average
Advances Borrowings Total Rate
--------------------------------------------------------
Maturing in year ending:
2001 $ 11,000 $ 23 $ 11,023 6.79%
2002 7,000 23 7,023 6.09%
2003 - 23 23 8.75%
2004 - 23 23 8.75%
2005 - 23 23 8.75%
2006 - 23 23 8.75%
2007 2,794 23 2,817 6.86%
2008 20,000 23 20,023 5.27%
-------------------------------------------------------
$ 40,794 $ 184 $ 40,978 5.94%
=======================================================
The terms of a security agreement with the FHLB require the Banks to pledge as
collateral for advances both qualifying first mortgage loans in an amount equal
to at least 167% of these advances and all stock of the FHLB. Advances are
subject to restrictions or penalties in the event of prepayment. The Banks had a
total remaining borrowing capacity with the FHLB of approximately $25,104,000 at
December 31, 2000 at a rate equal to the FHLB current advance rates.
The other borrowings were for the purchase of land at a cost of $266,000.
Principal of $23,000 and annual interest is due March 8th of each year until the
balance has been paid in full. Interest is based on the prime rate at March 8th
of the previous year. The rate at December 31, 2000 was 8.75%.
10. Line of Credit
The Company has an unsecured line of credit of $5,000,000 from a third party
lender. As of December 31, 2000, the entire line was available.
11. Income Taxes
Federal income tax expense (in thousands) for 2000, 1999 and 1998 is summarized
as follows:
2000 1999 1998
--------------------------
Current ..................................... $6,452 $6,140 $5,342
Deferred .................................... (26) (975) (24)
--------------------------
Total ....................................... $6,426 $5,165 $5,318
==========================
Actual income tax expense (in thousands) for 2000, 1999 and 1998 differ from the
"expected" income taxes (computed by applying the maximum U.S. federal corporate
income tax rate of 35% to earnings before income taxes) as follows:
2000 1999 1998
----------------------------
Computed "expected" income taxes ................ $6,445 $5,899 $5,951
Tax-exempt interest income, net of
disallowed interest expense .................. (646) (624) (492)
Nondeductible merger expenses ................... 509 -- --
Income taxed at lower rates ..................... (184) (169) (170)
Other, net ...................................... 302 59 29
----------------------------
$6,426 $5,165 $5,318
============================
The tax effects of temporary differences (in thousands) that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 2000 and 1999 are as follows:
2000 1999
------------------
Deferred tax assets:
Allowance for loan losses .............................. $ 2,723 $ 1,907
Deferred compensation .................................. 1,407 1,230
Unrealized holding loss on available-for-sale securities -- 1,732
Other real estate ...................................... -- 155
Stock appreciation rights .............................. 110 120
Other employee benefits ................................ 54 80
Severance payable ...................................... 48 79
Other .................................................. 100 --
------------------
Total deferred tax assets ........................ $ 4,442 $ 5,303
------------------
Deferred tax liabilities:
Unrealized holding gain on available-for-sale securities $ (309) $ --
Premises and equipment ................................. (1,520) (1,454)
Mortgage servicing rights .............................. (171) (148)
Deferred loan fees ..................................... (112) (86)
Discount accretion ..................................... (107) (66)
Other .................................................. (869) (189)
------------------
Total deferred tax liabilities ................... $(3,088) $(1,943)
------------------
Valuation allowance ....................................... (287) (278)
------------------
Net deferred tax assets .......................... $ 1,067 $ 3,082
==================
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized.
12. Retirement Plans
The Company has established a profit sharing plan and a 401(k) plan for
substantially all employees who meet the eligibility requirements. The 401(k)
plan allows for participants' contributions of up to 15% of gross salary, the
first 6% of which is available for the Company's 50% match. The profit sharing
plan is non-contributory. All contributions to the profit sharing plan are at
the discretion of the Company. Total contributions by the Company totaled
$928,000, $717,000 and $648,000 for 2000, 1999 and 1998, respectively.
Effective December 31, 1999, the Company terminated the defined benefit plan
that covered substantially all of the employees of First National Bank of
Decatur, FirsTech, Inc. and First Trust Bank of Shelbyville. As a result of the
termination of the Plan, the Company recorded an estimated settlement loss of
$2,139,000, recorded a gain on curtailment of $1,587,000 and reduced the related
prepaid pension asset in accordance with Statement of Financial Accounting
Standards No. 88, Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination of Benefits.
Certain key officers and directors participate in various deferred compensation
or supplemental retirement agreements with the Company. The Company accrues the
liability for these agreements based on the present value of the amount the
employee or director is currently eligible to receive. The Company recorded
expenses of $280,000, $260,000 and $243,000 in 2000, 1999 and 1998,
respectively, related to these agreements.
The Company has a deferred compensation plan for nonemployee directors of the
Company in which a participating director may defer directors' fees in a fixed
income fund or, alternatively, in the form of "phantom stock units." For
directors electing to receive phantom stock, a deferred compensation account,
included in other liabilities on the consolidated balance sheet, is credited
with phantom stock units. Phantom stock units shall also be increased by any
stock dividends or stock splits declared by the Company. At December 31, 2000
and 1999, $276,579 and $265,511 had been deferred from this plan, which
represented 21,148 and 20,149 phantom stock units.
13. Stock Options and Related Plans
The Company has established a stock incentive plan, which provides for the
granting of both qualified and non-qualified options of the Company's common
stock to certain key managerial employees, and a stock option plan which
provides for the granting of non-qualified stock options and stock appreciation
rights (SARs) to certain key managerial employees. The option price must be at
least 100% of the fair market value of the common stock on the date the option
is granted and the maximum option term cannot exceed 10 years. The plan allows
for the granting of options in tandem with SARs. Exercise of an SAR cancels the
related option and entitles the holder to receive a payment in return, equal to
the excess of the fair market value of the shares subject to the option
surrendered over the exercise price. Payment by the Company will be made in
shares of the Company's common stock with cash paid in lieu of fractional
shares. The exercise of an SAR is subject to all of the terms and conditions of
the related option. All of these options are fully vested.
In 1996, the Company established a stock incentive plan, which provides for the
granting of options of the Company's common stock to certain directors, officers
and employees. This plan provides for the granting of both qualified and
non-qualified options, which vest and thus become exercisable ratably over a
three-year period from the date granted. All options granted subsequent to
January 1, 1996 were issued from the 1996 plan.
As a result of the merger, all options granted under the previous plans vested.
In 2000, the Company established a stock incentive plan, which provides for the
granting of options of the Company's common stock to certain directors, officers
and employees. This plan provides for the granting of both qualified and
non-qualified options, which vest and thus become exercisable ratably over a
three-year period from the date granted.
The Company has an employee stock option plan (Plan) which is accounted for in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and accordingly, no compensation expense for the stock
option grants has been recognized. Under this Plan, the Company grants selected
key officers stock option awards, which vest and become fully exercisable after
the fifth anniversary of the date of the grant. Stock options granted under this
Plan shall expire ten years from the date of grant. At December 31, 2000, there
were options outstanding (not intended to be incentive stock options) for 29,666
shares. These options were granted on December 31, 1993, with an exercise price
of $9.70 per share and have a remaining contractual life of three years as of
December 31, 2000. During 1999, all 29,666 shares became vested and exercisable.
No shares have been exercised pursuant to the Plan.
The following is a summary of the changes in options outstanding under the stock
incentive and stock option plans:
2000 1999 1998
----------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------
Options outstanding, beginning
of year ....................... 576,071 $10.79 507,088 $ 9.28 443,750 $ 7.61
Granted ($17.70-$20.75 per share) 127,050 19.29 83,776 20.75 90,269 17.70
Exercised ....................... (6,505) 10.18 (11,525) 14.55 (22,963) 9.30
Options forfeited ............... (4,852) 19.41 (3,268) 18.88 (3,968) 13.81
----------------------------------------------------------
Options outstanding, end of year 691,764 $12.51 576,071 $10.79 507,088 $ 9.28
==========================================================
Options exercisable, end of year 654,868 $12.12 515,813 $ 9.79 418,975 $ 8.30
==========================================================
Weighted average fair value of
options granted .............. $ 2.31 $ 3.98 $ 4.69
====== ====== ======
Options Outstanding Options Exercisable
---------------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
price Outstanding Life Price Outstanding Price
-----------------------------------------------------------------------------
$ 5.63 268,052 3.00 $ 5.63 268,052 $ 5.63
7.27 17,981 3.96 7.27 17,981 7.27
9.70 29,666 3.00 9.70 29,666 9.70
12.65 41,288 1.17 12.65 41,288 12.65
12.96 34,027 1.25 12.96 34,027 12.96
16.42 4,956 3.96 16.42 4,956 16.42
17.00 2,311 3.96 17.00 2,311 17.00
17.28 3,302 3.96 17.28 3,302 17.28
17.70 81,012 2.21 17.70 81,012 17.70
18.14 3,302 3.96 18.14 3,302 18.14
19.29 126,000 8.80 19.29 89,104 19.29
20.75 79,367 3.21 20.75 79,367 20.75
21.55 500 3.96 21.55 500 21.55
---------------------------------------------------------------
691,764 3.84 $ 12.51 654,868 $ 12.12
===============================================================
The fair value of the stock options granted has been estimated using the
Black-Scholes option-pricing model with the following weighted average
assumptions. The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions.
In addition, such models require the use of subjective assumptions, including
expected stock price volatility. In management's opinion, such valuation models
may not necessarily provide the best single measure of option value.
2000 1999 1998
-----------------------------
Number of options granted ..................... 127,050 83,776 90,269
Risk-free interest rate ....................... 5.14% 6.06% 4.59%
Expected life, in years ....................... 8.80 3.46 3.47
Expected volatility ........................... 11.06% 7.79% 7.57%
Expected dividend yield ....................... 2.39% 1.41% 1.41%
Grants under the stock incentive and stock option plans are accounted for
following APB Opinion No. 25 and related interpretations. Accordingly, no
compensation cost has been recognized for incentive stock option grants under
the plans. Had compensation cost for all of the stock-based compensation plans
been determined based on the fair values of awards (the method described by
Statement No. 123), on the grant date, reported income and earnings per common
share would have been reduced to the pro forma amounts shown below:
2000 1999 1998
---------------------------------
Net income on common stock:
As reported .................... $ 11,989 $ 11,688 $ 11,684
Pro forma ...................... 11,743 11,453 11,471
Basic earnings per share:
As reported .................... $ 1.14 $ 1.10 $ 1.07
Pro forma ...................... 1.11 1.08 1.05
Diluted earnings per share:
As reported .................... $ 1.11 $ 1.08 $ 1.05
Pro forma ...................... 1.09 1.06 1.03
14. Dividend Restrictions
Without prior approval of the Comptroller of the Currency, First National Bank
of Decatur is restricted by national banking laws as to the maximum amount of
dividends it can pay in any calendar year to First National Bank of Decatur's
retained net profits (as defined) for that year and the two preceding years. At
December 31, 2000, First National Bank of Decatur had available retained
earnings of approximately $8,130,000 for the payment of dividends without
obtaining prior regulatory approval.
Without prior approval, BankIllinois and First Trust Bank of Shelbyville are
restricted by Illinois law and regulations of the Office of Banks and Real
Estate, State of Illinois, and the FDIC as to the maximum amount of dividends it
can pay to its parent to the balance of the retained earnings account, as
adjusted (as defined). At December 31, 2000, BankIllinois and First Trust Bank
of Shelbyville had available retained earnings of approximately $35,704,000 and
$10,743,000 respectively, for the payment of dividends.
15. Condensed Financial Information of Parent Company
Following are the condensed balance sheets as of December 31, 2000 and 1999 and
the related condensed statements of income and cash flows for 2000, 1999 and
1998 for Main Street Trust, Inc.:
Condensed Balance Sheets
------------------------
(in thousands)
2000 1999
-----------------------
Assets:
Cash .......................................... $ 1,587 $ 7,350
Investments in banks .......................... 112,482 99,113
Investments in FirsTech ....................... 6,242 6,112
Investment in other securities ................ 7,255 3,932
Other assets .................................. 2,752 2,155
-----------------------
$130,318 $118,622
=======================
Liabilities and stockholders' equity:
Dividends payable ............................. $ 1,047 $ 444
Other liabilities ............................. 3,869 2,137
Stockholders' equity .......................... 125,402 116,081
-----------------------
$130,318 $118,662
=======================
Condensed Statements of Income
(in thousands)
2000 1999 1998
---------------------------
Revenue:
Dividends received from subsidiaries .......... $ 5,359 $ 8,438 $11,499
Interest income on deposits ................... 87 100 126
Income on securities .......................... 85 80 13
Securities gains/losses ....................... 42 (9) --
Other ......................................... 132 135 141
--------------------------
Total revenue .............................. 5,705 8,744 11,779
--------------------------
Expenses:
Reconciliation liability ...................... -- 2,500 --
Merger related professional fees .............. 2,544 -- --
Termination of pension plan and benefit costs . -- 743 --
Amortization of organization costs ............ -- -- 11
Other ......................................... 2,285 615 618
--------------------------
Total expense .............................. 4,829 3,858 629
--------------------------
Income before applicable income tax benefit
and equity in undistributed income of
subsidiaries ............................... 876 4,886 11,150
Applicable income tax benefit ..................... 754 1,207 118
Equity in undistributed income of subsidiaries .... 10,359 5,595 416
---------------------------
Net income ................................. $11,989 $11,688 $11,684
===========================
Condensed Statements of Cash Flows
----------------------------------
(in thousands)
2000 1999 1998
--------------------------------
Cash flows from operating activities:
Net income ............................... $ 11,989 $ 11,688 $ 11,684
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed income of
subsidiaries ......................... (10,359) (5,595) (416)
Depreciation ........................... 24 24 24
Amortization of organization costs ..... -- -- 11
Other, net ............................. 1,567 288 (5,172)
--------------------------------
Net cash provided by operating
activities ................ 3,221 6,405 6,131
--------------------------------
Cash flows from investing activities:
Equity securities transactions, net ...... (2,508) (1,031) (2,496)
Other, net ............................. 27 -- --
--------------------------------
Net cash used in investing
activities ................ (2,481) (1,031) (2,496)
--------------------------------
Cash flows from financing activities:
Treasury stock transactions, net ......... (2,057) -- --
Fractional shares purchased following
stock dividend and merger .............. (11) (5) (4)
Cash dividends paid ...................... (4,472) (3,176) (3,186)
Other, net ............................. 37 -- --
--------------------------------
Net cash used in financing
activities ................ (6,503) (3,181) (3,190)
Cash at beginning of year ................... 7,350 5,157 4,712
--------------------------------
Cash at end of year ......................... $ 1,587 $ 7,350 $ 5,157
================================
16. Quarterly Results of Operations (Unaudited) (in thousands, except per share
data)
Year Ended December 31, 2000
Three Months Ended
-----------------------------------------------
December 31 September 30 June 30 March 31
-----------------------------------------------
Interest income ............................................. $19,489 $18,878 $18,030 $17,874
Interest expense ............................................ 9,945 9,525 8,589 8,540
---------------------------------------------
Net interest income ............................... 9,544 9,353 9,441 9,334
Provision for losses on loans ............................... 346 191 131 136
---------------------------------------------
Net interest income after
provision for losses
on loans ..................................... 9,198 9,162 9,310 9,198
Other income ................................................ 3,876 3,977 4,064 4,319
Other expense ............................................... 7,959 7,989 7,643 11,098
---------------------------------------------
Income before income taxes ........................ 5,115 5,150 5,731 2,419
Income taxes ................................................ 1,581 1,606 1,814 1,425
---------------------------------------------
Net income ......................................... $ 3,534 $ 3,544 $ 3,917 $ 994
=============================================
Basic earnings per share .................................... $ 0.34 $ 0.34 $ 0.37 $ 0.09
=============================================
Diluted earnings per share .................................. $ 0.33 $ 0.33 $ 0.36 $ 0.09
=============================================
17. Disclosures About Commitments and Financial Instruments
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of amounts recognized in the
consolidated balance sheets. The contractual amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. Management
does not anticipate any significant losses as a result of these transactions.
The following table summarizes these financial instruments and commitments (in
thousands) at December 31, 2000 and 1999:
2000 1999
-------------------
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend credit ......................... $132,163 $146,171
Standby letters of credit ............................ 4,093 3,529
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments,
principally variable interest rates, generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. For
commitments to extend credit, the Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation. Collateral held varies, but may include accounts
receivable; inventory; property, plant and equipment; and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers. The standby letters of credit are unsecured.
The Company does not engage in the use of interest rate swaps, futures, forwards
or options contracts.
There are reconciliation differences which involve the Company's subsidiary,
FirsTech, Inc. in connection with its commercial remittance processing services.
Following the completion of the Company's investigation of these differences,
and after consultation with its professional advisors, the Company's Board of
Directors directed that a liability in the amount of $2.5 million be recorded in
the fourth quarter of 1999. At this time, no claim has been made, nor is
management aware of any threatened claim by any of the Company's current or
former remittance processing customers.
Following is a summary of the carrying amounts and fair values of the Company's
financial instruments at December 31, 2000 and 1999:
2000 1999
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------------
Assets:
Cash and cash equivalents ............... $ 84,139 $ 84,139 $ 87,350 $ 87,350
Investments in debt and equity securities 303,187 303,064 300,040 297,885
Mortgage loans held-for-sale ............ 2,090 2,090 1,687 1,687
Loans ................................... 659,849 678,678 601,594 590,586
Accrued interest receivable ............. 10,629 10,629 9,182 9,182
Liabilities:
Deposits ................................ $839,932 $842,984 $795,075 $792,089
Federal funds, repurchase agreements,
and notes payable .................. 69,658 70,338 79,140 79,119
FHLB advances and other borrowings ...... 40,978 40,924 32,058 31,703
Accrued interest payable ................ 4,584 4,584 4,090 4,090
Management's fair value estimates, methods, and assumptions are set forth below
for the Company's financial instruments.
Cash and Cash Equivalents
The carrying value of cash and cash equivalents approximates fair value due to
the relatively short period of time between the origination of the instrument
and its expected realization.
Investments in Debt and Equity Securities
The fair value of investments in debt and equity securities is estimated based
on bid prices received from securities dealers.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms and by performing and
nonperforming categories. The fair value of performing loans is calculated by
discounting scheduled cash flows through the estimated maturity using estimated
market discount rates equal to rates at which loans, similar in type, would be
originated at December 31, 2000 and 1999. Estimated maturities are based upon
the average remaining contractual lives for each loan classification. Fair value
for nonperforming loans is based on the use of discounted cash flow techniques.
Accrued Interest Receivable
The carrying value of accrued interest receivable approximates fair value due to
the relatively short period of time between the origination of the instrument
and its expected realization.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as non-interest-bearing
and interest-bearing demand deposits and savings deposits is the amount payable
on demand. The fair value of time deposits is based on the discounted value of
contractual cash flows. The discount rate is estimated using rates currently
offered for deposits of similar remaining maturities. The fair value estimates
do not include the benefit that results from the low-cost funding provided by
the deposit liabilities compared to the cost of borrowing funds in the market
nor the benefit derived from the customer relationship inherent in existing
deposits.
Federal Funds Purchased, Repurchase Agreements, and Notes Payable
The fair value of federal funds purchased, repurchase agreements, and notes
payable is based on the discounted value of contractual cash flows. The discount
rate is estimated using current rates on federal funds purchased, repurchase
agreements, and notes payable with similar remaining maturities.
Federal Home Loan Bank (FHLB) Advances and Other Borrowings
The fair value of FHLB advances is based on the discounted value of contractual
cash flows. The discount rate is estimated using rates on current FHLB advances
with similar remaining maturities.
Accrued Interest Payable
The carrying value of accrued interest payable approximates fair value due to
the relatively short period of time between the origination of the instrument
and its expected realization.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit is generally estimated using the
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties. The estimated fair value of commitments to
extend credit and standby letters of credit approximates the balances of such
commitments.
18. Litigation
The Company and its subsidiaries are involved in various legal proceedings,
claims and litigation arising out of the ordinary course of business.
It is the opinion of management that the disposition or ultimate resolution of
any other claims and lawsuits arising out of the ordinary course of business
will not have a material adverse effect on the consolidated financial position
of the Company.
19. Regulatory Capital
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 capital guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Company's and 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 December 31,
2000, that the Company and its subsidiary banks exceeded all capital adequacy
requirements to which they are subject.
As of December 31, 2000, 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 as of December
31, 2000 and 1999 are presented in the following tables:
To Be Well
Capitalized Under
For capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
---------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- ----------------- ------------------
As of December 31, 2000:
Total capital
(to risk-weighted assets)
Consolidated ........................ $133,352 18.6% $ 57,224 8.0% N/A 10.0%
BankIllinois ........................ $ 64,777 16.1% $ 32,125 8.0% $ 40,156 10.0%
First National Bank of Decatur ...... $ 43,886 16.0% $ 21,996 8.0% $ 27,495 10.0%
First Trust Bank of Shelbyville ..... $ 12,194 29.2% $ 3,339 8.0% $ 4,174 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated ........................ $124,474 17.4% $ 28,612 4.0% N/A 6.0%
BankIllinois ........................ $ 59,698 14.9% $ 16,062 4.0% $ 24,093 6.0%
First National Bank of Decatur ...... $ 40,449 14.7% $ 10,998 4.0% $ 16,497 6.0%
First Trust Bank of Shelbyville ..... $ 11,869 28.4% $ 1,669 4.0% $ 2,504 6.0%
Tier I capital
(to average assets)
Consolidated ........................ $124,474 11.6% $ 42,982 4.0% N/A 5.0%
BankIllinois ........................ $ 59,698 10.7% $ 22,403 4.0% $ 28,004 5.0%
First National Bank of Decatur ...... $ 40,449 9.5% $ 16,952 4.0% $ 21,190 5.0%
First Trust Bank of Shelbyville ..... $ 11,869 16.3% $ 2,907 4.0% $ 3,634 5.0%
To Be Well
Capitalized Under
For capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
---------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- ----------------- ------------------
As of December 31, 1999:
Total capital
(to risk-weighted assets)
Consolidated ......................... $127,468 19.1% $ 53,396 8.0% N/A
BankIllinois ......................... $ 58,366 14.7% $ 31,669 8.0% $ 39,586 10.0%
First National Bank of Decatur ....... $ 39,249 16.8% $ 18,677 8.0% $ 23,346 10.0%
First Trust Bank of Shelbyville ...... $ 12,223 34.7% $ 2,816 8.0% $ 3,520 10.0%
Tier I capital
(to risk-weighted assets)
Consolidated ......................... $119,086 17.8% $ 26,698 4.0% N/A
BankIllinois ......................... $ 53,383 13.5% $ 15,834 4.0% $ 23,752 6.0%
First National Bank of Decatur ....... $ 36,325 15.6% $ 9,338 4.0% $ 14,007 6.0%
First Trust Bank of Shelbyville ...... $ 12,019 34.1% $ 1,408 4.0% $ 2,112 6.0%
Tier I capital
(to average assets)
Consolidated ......................... $119,086 11.4% $ 41,623 4.0% N/A
BankIllinois ......................... $ 53,383 9.7% $ 21,916 4.0% $ 27,395 5.0%
First National Bank of Decatur ....... $ 36,325 8.9% $ 16,371 4.0% $ 20,464 5.0%
First Trust Bank of Shelbyville ...... $ 12,019 17.3% $ 2,786 4.0% $ 3,482 5.0%
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information in the Company's 2001 Proxy Statement under the caption
"Election of Directors" and under the caption "Security Ownership of Certain
Beneficial Owners and Management" is incorporated by reference. The information
regarding executive officers not provided in the 2001 Proxy Statement is noted
below.
Executive Officers
The term of office for the executive officers of the Company is from the date of
election until the next annual organizational meeting of the Board of Directors.
In addition to the information provided in the 2001 Proxy Statement, the names
and ages of the executive officers of the Company as of December 31, 2000, as
well as the offices of the Company and the Subsidiaries held by these officers
on that date, and principal occupations for the past five years are set forth
below.
Name Position with Main Street, its subsidiaries
(Age) and occupation for the last five years
-------------- ------------------------------------------------------
David B. White Executive Vice President and Chief Financial
(Age 49) Officer of Main Street and BankIllinois; Executive
Vice President and Chief Financial Officer
of BankIllinois Financial and BankIllinois (1993-2000)
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that the
directors, executive officers and persons who own more than 10% of the Company's
common stock file reports of ownership and changes in ownership with the
Securities and Exchange Commission and with the exchange on which the shares of
common stock are traded. These persons are also required to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on the Company's
review of the copies of such forms furnished to the Company and, if appropriate,
representations made by any reporting person concerning whether a Form 5 was
required to be filed for 2000, the Company is not aware of any failures to
comply with the filing requirements of Section 16(a) during 2000.
Item 11. Executive Compensation
The information in the 2001 Proxy Statement under the caption "Executive
Compensation" is incorporated by reference.
Item 12. Security Ownership Of Certain Beneficial Owners And Management
The information in the 2001 Proxy Statement under the caption "Security
Ownership of Certain Beneficial Owners and Management" is incorporated by
reference.
Item 13. Certain Relationships And Related Transactions
The information in the 2001 Proxy Statement under the caption "Transactions with
Management" is incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Index to Financial Statements
See page 29.
(a)(2) Financial Statement Schedules
N/A
(a)(3) Schedule of Exhibits
The Exhibit Index which immediately follows the signature page to this Form 10-K
is incorporated by reference.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the fourth
quarter of 2000.
(c) Exhibits
The exhibits required to be filed with this Form 10-K are included with this
Form 10-K and are located immediately following the Exhibit Index to this Form
10-K.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on March 30, 2001.
By: /s/ Van A. Dukeman By: /s/ David B. White
--------------------------------- ----------------------------------
Van A. Dukeman David B. White
President, CEO and Director Executive Vice President and
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 30, 2001.
/s/ John W. Luttrell
------------------------------
John W. Luttrell Chairman and Director
/s/ Van A. Dukeman
------------------------------
Van A. Dukeman President, CEO and Director
/s/ Gregory B. Lykins
-----------------------------
Gregory B. Lykins Vice Chairman and Director
/s/ Phillips C. Wise
------------------------------
Phillip C. Wise Executive Vice President and Director
/s/ David J. Downey
------------------------------
David J. Downey Director
/s/ Larry D. Haab
------------------------------
Larry D. Haab Director
/s/ Frederic L. Kenney
------------------------------
Frederic L. Kenney Director
/a/ August C. Meyer, Jr.
------------------------------
August C. Meyer, Jr. Director
/s/ Genea A. Salmon
------------------------------
Gene A. Salmon Director
/s/ George T. Shapland
------------------------------
George T. Shapland Director
/s/ Thomas G. Sloan
------------------------------
Thomas G. Sloan Director
/s/ Roy V. VanBuskirk
------------------------------
Roy V. VanBuskirk Director
H. Gale Zacheis
------------------------------
H. Gale Zacheis Director
MAIN STREET TRUST, INC.
EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K
Incorporated
Herein by Filed
Exhibit No. Description Reference To Herewith
-------------- ---------------------------- ------------------------------------- -----------------
3.1 Amended and Restated Exhibit 3.1 to the Form S-4 filed
Articles of Incorporation with the Commission November 30,
1999 (SEC File No. 33-91759)
3.2 Bylaws Exhibit 3.2 to the Form S-4 filed
with the Commission November 30,
1999 (SEC File No. 33-91759)
4.1 Specimen common stock X
certificate
4.2 Second Amended and
Restated Shareholders'
Agreement, dated as of
November 1, 2000 X
10.1 Employment Agreement Exhibit 10.3 to the Registration
for Gregory B. Lykins Statement on Form S-4 filed with
the Commission March 15, 1996, as
amended (SEC File No. 33-90342)
10.2 Employment Agreement Exhibit 10.4 to the Registration
for Van A. Dukeman Statement on Form S-4 filed with
the Commission March 15, 1996,
as amended (SEC File No. 33-90342)
10.3 Employment Agreement Exhibit 10.5 to the Registration
for David B. White Statement on Form S-4 filed with
the Commission March 15, 1996,
as amended (SEC File No. 33-90342)
21.1 Subsidiaries of the X
Registrant
23.1 Consent of McGladrey & X
Pullen, LLP
23.2 Consent of Olive LLP X